Gold: Russia and Mexico are Buying

On the one hand, we've got hedge funds and some nervous investors afraid that gold and silver have had their time in the sun--and selling.  On the other hand, central banks continue to buy.  GoldCore.com reports that Russia and Mexico are buying in a big way.

"While gold demand from the western investors and store of wealth buyers has fallen in recent months, central bank demand continues to be very robust and this is providing strong support to gold above the $1,600/oz level.  IMF data released overnight shows that Mexico added 16.8 metric tons of gold valued at about $906.4 million to its reserves in March."  Russia continued to diversify its foreign exchange reserves and increased its gold reserves by about 16.5 tons according to a statement by its central bank on April 20."

Who's right?  Who knows?  Maybe both are.  If so, my guess is that the sellers are right in the short term.  If Europe implodes, who knows what kind of rush to liquidity that might cause?  In the long term though, that almost certainly means vastly more QE (give it a different name if you care to), and we know what THAT does to prices of everything.

Finally, if this next QE is the one where our monetary masters lose control, it's hard to imagine a price too high for gold--or too low for fiat currency.

Richard Maybury: The Easiest Investment Call in the World

Richard Maybury just did another great interview with The Gold Report.  I am sure you want to read the whole thing, but I couldn't pass on this one quote.

"TGR: If war and hyperinflation are the inevitable future, how can investors survive or maybe even thrive during a time like this . . .
RM: Well, I wouldn't put $100 under the mattress, at least not for very long, because it will soon become worthless. But commodities, stocks of raw materials firms, gold and silver and platinum coins have value. Generally, I try to see the world in terms of two kinds of investments: dollars and non-dollars. You definitely want non-dollars, things that do not have their value tied to the value of the dollar. An example of a dollar asset is something like a bond or bank CD. Their values are tied directly to the value of the dollar. If the dollar falls, then their values fall.
Gold is a non-dollar asset. When the dollar falls, usually gold rises. The same is true with silver and oil. All of these things have values that are not tied to the dollar. My advice is to invest in non-dollar assets. Gold would be at the top of the list, silver and platinum and then oil."

I spent a fair amount of time thinking about gold silver. When push comes to shove though I'm not really a goldbug. Honestly, I think it's much easier to save and transact in dollars.

But Richard hit the nail on the head here. Now is not the time (if there ever was one) to store value in dollars. So many actions that our government (and governments around the world) are taking seem to indicate with crystal clarity:

• They can never repay their debts.
• They don't intend to pay their debts (at least not in good money).
• They will bail out their bankers at any cost.
• They will continue to fund the unfundable at the cost of destroying our currency.

So to me it seems clear. Have some dollars to buy your groceries (might want some extra groceries on hand as well), pay your mortgage, and even next year's college tuition for the kids. But for the value you're saving for years from now, you'll probably want some protection from the tender mercies of our Federal Reserve.

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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Nassim Taleb: Look for a Currency Without a Government

I listen to anything Nassim Taleb has to say. Aside from his fascinating book, (The Black Swan), he is one of the few people commenting on our situation whose ideas seem to make some sense.

The theme of this video might be simply that no government can borrow and spend its way out of debt. Of course he's unpopular! He's telling us that we can't have it all and send the bill to our children forever.

At 8:45 into the video, Taleb is asked about investment choices to help us survive the current/coming crisis, and tells us that he can't share those. He is willing to say that "You have to look for a currency without a government."

That seems pretty clear to me. What do you think?





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James Turk: Gold headed to $8,000?

At a wonderful barbeque this past weekend a close (and very successful) friend of mine expressed his puzzlement at investors' fascination with gold recently.  As he pointed out, it has very little intrinsic value.  Well, maybe.

The thing is, as I tried to point out, is that it is very hard to watch your dollars drop in  value for a decade with no end to government spending in sight.  On top of that, we can never know when the Chinese will pull the plug on their treasury holdings, when the euro will implode overnight, or even what events like these would mean for the dollar.

In the words of James Turk at the 2010 World Mining Investment Conference:

". . . but even as the prediction may seem extreme, to some, the sting in the tail is that he does not see these levels in the gold price, or Dow, as suggesting real increases in wealth. Rather, such an increase would serve only as wealth preservation as the purchasing power of most currencies is devalued in a hyper-inflationary environment due to the huge volumes of fiat money being pumped into the market by governments in an attempt to stave off global recession."

And I guess that's really where I'm coming from now.  I don't expect gold or silver to make me rich, but I'd like to preserve some of what I've worked so long and hard to accumulate.


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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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Shadowstats John Williams--Buy Gold

If you've never visited Shadowstats.com, don't wait another minute.  John Williams does a great job of showing us "what's behind the curtain."  For just a taste of his thinking, though, check out the following.  In the first paragraph he makes it crystal clear that inflation is the only way out for our government.

"Now to put that into perspective, if the government wanted to balance its deficit on a GAAP basis for a year, and it seized all personal income and corporate profits, taxing everything 100%, it would still be in deficit. It can't raise taxes enough to contain this. On the other side, if it cut all government spending except for Social Security and Medicare, it still would be in deficit. With no political will to contain the spending, eventually the government meets its obligations by revving up the currency printing press."

If that paragraph doesn't make you a little queasy, please read it again.  Of course he did leave out the option of default, but which will Washington prefer, an outright admission of failure, or a thinly veiled swindle?  Later in the article he points out how tranparent and politically inspired are everything we hear out of D.C.  Remember when we had to have the bailout or unemployment could top 8%?  Now that we sprung for that, all we hear is nonsense along the lines of "green shoots."

"You are getting happy news from governments, central banks, financial markets, Wall Street analysts and the popular media, which does tend to cater to Wall Street."

Finally, he gives his thoughts on wealth preservation (that's preservation, not getting rich!)

"In terms of preserving the purchasing power of your assets, the best thing I can think of is physical gold."

Please check out the entire article on Mineweb.com if you have time, and again, be sure to check out Shadowstats.com.


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What is a good purchase price for silver or gold?

As always, the people at the National Inflation Association are right on the money when it comes to silver and gold prices.  If you're thinking of paying much more than they suggest below--think again.

1) How much over spot is a good price for silver and gold?

A good price for a 1 oz silver coin like an American Eagle or Canadian Maple Leaf is 12% over spot, and a good price for a 1 oz silver bar is 6% over spot.
For gold, a good price for a 1 oz gold coin like an American Eagle or Canadian Maple Leaf is 4% over spot, and a good price for a 1 oz gold bar is 2% over spot.  The larger premium for silver compared to gold indicates a shortage in the physical silver market.

It's worth noting that you can actually buy silver at spot price in the form of 40% silver Kennedy half dollars (and BELOW spot price if you buy the old 35% silver nickels).  I prefer the Kennedy halves as they are so easily recognizable, but below spot has a lot of appeal.

The rest of their opinions on this page are interesting too, but they remind me of one of my favorite quotes:

"It's hard to make predictions, especially about the future"

I'll leave it to you to determine who actually said it, but it sounds like Yogi Berra to me!



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Gold is real wealth - Bill Bonner

One common complaint of those who don't like gold is that it offers no return.  Fair enough--but what kind of return has the S&P 500 offered over the last 10 years?  Worse yet, what kind of inflation adjusted return has the S&P 500 offered?  Maybe gold has some value after all.  Just ask Bill Bonner.

Gold is real money. At least, it’s as real as money ever gets. Gold represents wealth. It can be exchanged for wealth. And since the above-ground supply of gold grows about as fast as the economy itself, gold tends to hold its value over centuries. Today, gold is worth about the same as it was worth 2000 years ago.

FYI, Bonner is no Johnny-come-lately to the gold trade.  He touted the idea of "buying gold on dips" as half of his trade of the decade for, well, the last decade.



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National Inflation Association says Fed rate hike is meaningless

The Federal Reserve announced yesterday that it raised the "discount rate" by 25 basis points to 0.75%. This move was meaningless because very few institutions use the Fed's discount window, in comparison to more widely used overnight lending. The current balance of discount window borrowing is only $14 billion, compared to the $1.1 trillion in excess reserves currently being hoarded by banks.

By the Fed raising the discount rate but not the overnight federal funds rate, they are clearly trying to talk up the U.S. dollar and push down gold and silver prices, without reducing the supply of cheap credit. Considering that gold and silver prices rose slightly yesterday following the Fed's announcement and held strong today, it is our belief that the market is calling the Fed's bluff and beginning to realize that artificially low interest rates are here to stay.

Many people forget that gold's bull run from $35 to $850 per ounce during the 1970s came during a time of rising interest rates.

Sure, they're talking their book.  Who doesn't?  Before you discount what they say, though, you might want to read the full article here.  Then, before you dismiss them, try to find the flaw in their data or their reasoning.  If it's there I'd love to hear about it!

PS  Why not sign up for their newsletter why you're there?



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