Gold: Sell, Hold, or Double Down?

I'll be brief.  Recent market moves, headlines, and commentary have been unsettling to (say the very least)

for investors in precious metals.  But if we can get beyond "What's happening?" and consider "Why is it happening?" the situation can be viewed much differently.  In a recent post, Gordon Gekko dissected the "Why" issue with incredible detail, and basically threw in the "Who" as a bonus.

Spoiler alert!  The title of his post is "Buy PHYSICAL Gold. NOW: The Discount of a Lifetime: Or Why You Must Abandon the Fake Paper Gold Market

"If someone is selling anything, the rational thing to do would be to get the best price possible, right? Would you get the best price if you sell your lot in one go flooding the market? Would you want to overwhelm all the bids and crush the price? Yes, but only if exactly that was your objective – to crush the price. Nobody sells 400 tons (!) of gold in one go if they are trying to get the best possible price. So this wasn’t a case of varied market participants selling their gold holdings having considered the fundamentals for Gold and arrived at the conclusion their long position didn’t make sense anymore. This was a case of concerted selling by one single entity whose sole intention was to drive down the price. Not only that, nobody sells $20 BILLION worth of Gold in ONE GO without some sort of state/CB backing."

So how is the situation different?  Gold is on sale!  Get some now, or right after you finish Gordon's post.

What Happened to the Gold in Fort Knox?

Is there gold in Fort Knox?  You decide.




This video is a bit long, but raises some very interesting points.

1. No civilian has seen the gold in Fort Knox since 1974.
2. The US has a huge advantage gained through the worldwide acceptance of our currency as the reserve currency.
3. If the price of gold can be/is manipulated down, the dollar benefits.

There is a lot more to see. Enjoy!

Do you need gold? What if . . . ?

Paul Nathan had a great commentary published on the Kitco web site recently.  In it, he discusses the possiblity that gold will be the "New" money.  I strongly recommend the entire article, but even for those in a hurry, it's worth reading the following:

Those that argue that the price of gold is approximating a bubble, miss the point.  What if governments around the world lose the confidence of those that hold their paper money?  What if individuals through the private market desire a non-governmental money, as they are starting to today?  What if the billions of individuals who do not own gold start to demand it?  What price of gold then, knowing that all the gold ever produced would fit into a large swimming pool?

I think for many of us accumulating precious metals now, it's all about the question "what if. . . ?"  What if I need a tank of gas, a medicine for my child, some food, or even a weapon, and the only sellers around say no to dollar bills?
 
To those who think the above scenarios sound far-fetched, I'd recommend The Black Swan, by Nassim Taleb.  His turkey story tells us (much more elegantly than I relate here) that the turkey's whole life is ideal--until the day before Thanksgiving.  On that day, the turkey might have been well advised to have a krugerrand or two on hand.

The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility"

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How much gold is enough for you?

Frank Talk recently had some interesting comments on the gold as an investment.  He started out by noting that the New York Times recently discussed gold as an investment, and discussing the possibility that this is a worthwhile contrary indicator.

The New York Times dedicated a chunk of last Sunday’s paper to gold as a mainstream investment. In other words, gold is now legit -- no longer can it be dismissed as the asset of choice for fringe types with a cellar full of canned goods and a stash of bullion buried in the backyard.

He's not so sure that's the case now though--at least not yet. 

From a recent research note by UBS: “The sense that some investors only trust a gold holding if they can see it and touch it is a clear indication that some investors are buying gold as a hedge against a full-scale financial crisis and currency debasement.”

In a sense, it's the same argument I hear from my brother.  Real estate is "real," but who knows what stocks (or bonds, dollars, etc.) are really worth.

All in all, I agree with much of what he has to say, but perhaps not with the following:

Some extreme gold bulls are urging investors to move half or even more of their portfolio into gold – we are not in that camp. We consistently suggest that investors consider a maximum 10 percent allocation to gold-related assets – half in bullion or bullion ETFs and the other half in gold stocks or a good gold fund – and that they rebalance each year to capture the swings.

Personally, I am weighted closer to 50% in gold, silver, and related equities.  On the other hand, my income is 100% in dollars, and that is what I'm trying to hedge against.

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Gold falling to $800 by 2012?

In some of the best news I've seen lately, Barclays Wealth is predicting that gold is heading down in price soon.

Barclays Wealth in London predicts gold will fall to a fair value of $800 an ounce by 2012, as investors eventually dump it for riskier trades

If  "best" news seems a little odd coming from me, (Hey, I'll admit it. I'm a little preoccupied with precious metals.), let me explain.  My largest long position is in U.S. dollars.  Not because I hold so many, but because my income is 100% U.S. dollars.  Sure, that seems OK vs. the euro lately, but long-term I can't envision a happy ending.

A little further on in this Fortune article we read that high prices are leading miners to produce more and "scrappers" to sell more cash for gold. Hey, that makes sense to me.

Gold bullion dealer Kitco says places like China and Russia will help boost the amount of gold from mining by 4% to 6% a year through 2014.  Because it costs miners about $480 on average to extract an ounce of gold, they plow ahead when prices are high, eventually leading to an oversupply situation.

Gold as $1,200 also brings out the sellers and resellers.

Still, I think all the money that governments worldwide have (and will!) create amounts to an inflationary pig in a python of biblical proportions.  If I have to balance the risk of a drop to $800 vs. a move to an inflation adjusted high, I'll take my chances on gold--even at $1,200!

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Dollar destruction on the horizon?

This video from the NIA is long, but also compelling.  Highlights for me were the illustrations of just how bad off we are in terms of national income and expenses and our incredibly excessive military commitments around the globe.



Suddenly I'm not worried about paying $1,200 for gold or $18 for silver.

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Euro vs. Dollar?

This post on OilPrice.com explores what I consider a grossly overlooked question.  Sure, Greece (and the rest of the PIIGS) make the euro a scary prospect these days, but are we in the U.S. so much better off?  I appreciate the value of having the world's reserve currency, but how long can that last, and does it merely make our leaders more reckless in the meantime?

Am I glad I earn in dollars vs. euros?  Yes.  Do I want to store wealth in dollars in this environment?  Not so much.

How then can the USD be seen as a safe haven from the Euro? The two currencies have similar sized economies and there is no trenchant difference in their health when viewing GDP and inflation data. Yet the debt situation in the US is worse than in Europe and the USD is the most over-owned currency on the planet.

Selling Euros to buy dollars is sort of like exchanging your ticket on the Titanic for a ride on the Hindenburg. The answer is not to sell one sinking currency and jump on another one that is drowning as well.  The only truly safe currencies are those that can act as a store of wealth, that cannot be diluted by fiat and whose purchasing power cannot be corrupted by a government. Investors the world over should seek the safer harbor that is derived from owning commodities and precious metals rather than to believe the USD can offer any real protection.

This is not to say that the dollar can't or won't do well short-term.  Who could predict that to a certainty?

I am confident that the dollar wil suffer long-term.  Can anyone name a fiat currency that hasn't?

PS  Don't you love the Titanic/Hindengerg quote?



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Peter Schiff predicts gold will surge

In March of 2009 Peter Schiff predicts gold will surge as the dollar tanks.  Granted, this video is a bit dated now.  Still though, do you see any of the factors hurting the dollar changing any time soon?




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