Showing posts with label gold. Show all posts
Showing posts with label gold. Show all posts

Investors Panic Selling of Gold GLD ETF

Gold has faced stiff headwinds lately as investors abandon alternative investments to chase record-high stock markets.  Probably the most significant has been the major selling hammering the flagship GLD gold ETF.  It has suffered such intense differential selling pressure that its custodians have been forced to dump enormous quantities of physical gold.  What are the implications of this flood of new supply?
The amount of gold bullion GLD has hemorrhaged recently is amazing.  To put it into perspective, earlier this week the rumor that embattled Cyprus may be forced to sell its official gold reserves made news.  The Cypriot government owns 13.9 metric tons of gold.  But on a single trading day alone in February’s gold capitulation, GLD had to sell 20.8 tonnes!  The supply recently added by GLD dwarfs everything else.


Why is GLD dumping gold so aggressively?  While silly conspiracy theories abound as always in the gold world, the reality is far less provocative.  GLD’s mission is simply to track the price of gold.  The World Gold Council (which is funded by leading gold miners) created this gold investment vehicle in November 2004 to offer stock investors an easy, cheap, and efficient way to obtain gold exposure in their portfolios.
The gold miners created a direct conduit for the vast pools of stock-market capital to chase gold.  The only way for GLD to fulfill its mission of tracking gold is for this ETF to shunt excess GLD-share demand and supply into underlying physical gold bullion itself.  This capital sloshing into and out of gold via GLD has naturally had a massive impact on global gold prices.  And lately gold has suffered a major GLD exodus.

During times like 2009 when gold grows popular among investors, GLD shares are bought up far faster than gold itself is rallying.  This excess, or differential, GLD demand would quickly force this ETF to decouple from the metal to the upside if not equalized into physical gold.  So GLD’s custodians sop it up by issuing new GLD shares to meet demand.  They then use the proceeds to buy more gold bullion.
But when gold is falling out of favor like now, capital flows reverse.  GLD shares are dumped at a quicker pace than gold’s own selloff.  This differential selling pressure creates an excess supply of GLD shares.  This ETF would decouple from gold to the downside if this wasn’t equalized into the metal.  So GLD is forced to buy up this excess supply.  It raises the cash to do this by selling some of its gold bullion.

And this is what we’ve experienced lately, heavy differential selling pressure.  As the levitating stock markets rise ever higher, investors have sold gold to buy general stocks.  Because of its incredible liquidity, GLD has been the epicenter of this anti-alternative-investment rotation.  It’s rather illogical when you think about it, selling gold low to buy stocks high.  Investors are supposed to buy low and sell high!

But sadly greed and fear always overwhelm reason at market extremes.  Foolish investors rush to sell low after long corrections, just before new uplegs are born.  And later they eagerly flood into markets after long uplegs, buying high just before major corrections.  Selling low and buying high leads to financial ruin, which is why such a small fraction of investors ever achieve significant success in the financial markets.

Gold is universally despised right now because it is low, the ideal time to buy.  General stocks are adored if not worshipped because they are high, the prudent time to sell.  Every day on CNBC, a long parade of analysts effectively proclaim gold is doomed to sink to zero while stocks will joyously rally forever more.  The intense selling pressure GLD has faced in recent months simply reflects these emotional extremes.
As a contrarian I’ve grown rich fighting the crowd, being brave when others are afraid and afraid when others are brave as Warren Buffett once eloquently put it.  That’s the only way to buy low and sell high.  So I’ve watched GLD’s holdings lately with great interest.  Thankfully this flagship gold ETF is very transparent, publishing its holdings daily.  How does GLD’s holdings plunge stack up relative to precedent?

This first chart over the past year or so highlights the extreme differential selling pressure GLD has faced in recent months.  Its holdings are shown in blue and tied to the right axis, superimposed over the gold price in red.  There has been no bigger headwind facing gold lately than the deluge of physical-gold-bullion supply GLD has been forced to dump into the global gold markets.  It has proven overwhelming.





Remember Cyprus’s 13.9t of official gold reserves?  The recent “correction” in GLD’s holdings has forced it to dump a staggering 169.8t of gold bullion simply to keep GLD shares’ price tracking gold!  We are talking about 5.5m ounces of gold here, from this single American ETF!  There are only two gold-mining companies in the entire world (Barrick and Newmont) that produce that much gold in a whole year!

Yet the mass exodus from GLD by stock investors forced it to add 169.8t of gold supply in just over 4 months.  It’s hard to believe given how despised gold is today, but back on December 7th GLD’s holdings hit an all-time record high of 1353.4t.  They remained stable and held near this record for several weeks, until two simultaneous events hit in early January that started cracking gold’s bullish sentiment.

First the flagship S&P 500 stock index soared 2.5% on January’s opening trading day on news of the fiscal-cliff tax deal.  The biggest tax hike in US history had been narrowly averted at the very last minute.  And then the very next day, the minutes from the recent FOMC meeting were misinterpreted to imply the Fed was already preparing to shut off its brand-new QE3 debt-monetization campaign.  So gold sold off.
Ever since 2013’s fateful initial trading days, those psychological cracks plaguing gold have spread.  Every day that the stock markets’ levitation continued, gold fell farther out of favor among investors.  And then every few weeks there was either an FOMC meeting or the minutes from one to spook traders into somehow assuming the Fed’s unprecedented open-ended inflation campaign would end prematurely.

The resulting heavy differential selling pressure on GLD shares is readily apparent above.  This peaked in late February just after gold selling cascaded into a full-blown capitulation.  In just 7 trading days late that month, GLD’s custodians were forced to sell 5.0% of its holdings (65.5t) to buy back enough excess share supply to keep this ETF from decoupling from gold.  Like many market extremes, this became self-feeding.
As GLD dumped bullion to raise enough cash to buy back the flood of excess shares being sold, those very gold sales weighed on global gold prices.  This caused more gold stops to be triggered, and kindled more fear, scaring still more traders into exiting.  The lower gold went, the more people sold, and the more this selling forced GLD to add big supplies to a very weak gold market.  It was a relentless vicious circle.

As of this past Wednesday, GLD’s holdings had fallen a mind-boggling 12.5% in just over 4 months!  It has had to liquidate 1/8th of its total gold bullion to keep up with stock traders rushing for the gold exits.  Over this same span, the gold price is down 8.6%.  Since rising and falling GLD holdings reveal whether stock traders are buying or selling gold on balance, I’ve closely followed them daily since GLD’s birth.

GLD holdings trends are one of the best gold sentiment indicators available.  And provocatively they’ve long proven rather “sticky”.  While stock traders eagerly buy up GLD shares when gold is rallying and in favor, they have generally not sold too aggressively when gold was correcting.  So the sheer degree of the recent GLD holdings plunge sure felt exceptional.  I’ve been wondering if it was the biggest ever.

So this week I decided to look at all the GLD holdings “corrections” over this ETF’s entire history.  And I was pleasantly surprised to find out that we’ve weathered worse.  Coming off record highs, the recent 169.8t GLD dump is certainly the biggest absolute decline in its holdings.  But in percentage terms, GLD’s holdings suffered even bigger retreats as gold fell deeply out of favor during 2008’s crazy stock panic.



My suspicion that the recent GLD holdings plunge was exceptional was generally correct.  Outside of that once-in-a-century stock panic, GLD’s average holdings correction has merely been 5.9% over 3.9 months.  So while the recent holdings correction’s 4.0-month duration is on par, its 12.5% slide more than doubled what has been typically witnessed for the vast majority of GLD’s lifespan.  It was indeed very big.
The only comparable declines were leading into and during 2008’s stock panic, when GLD’s holdings plunged 12.6% over 1.4 months and later another 13.0% over 2.0 months.  It is interesting that these were the worst GLD selloffs ever seen, and they happened in far-worse gold conditions.
While gold is merely down 8.6% during the recent GLD holdings correction, it plunged by 13.3% and 22.0% during 2008’s!

The latter is particularly interesting and relevant today.  If there was ever a time for gold to shine as a safe haven, it was during that epic stock panic.  In a single month in October 2008, the flagship S&P 500 stock index plummeted 30.0%!  Fear was off the charts, with the definitive VXO fear gauge challenging 90 when only around 50 is normally the worst-case extreme.  The financial world was crumbling right before our eyes.
Yet gold couldn’t catch a bid!  Its price plunged 16.7% over that month-long span where the stock markets lost nearly a third of their value.  Stock investors deployed in GLD rushed to sell their shares, both disgusted by gold’s failure to surge on a financial Apocalypse and trying to raise cash wherever they could.  Between July and November 2008, gold fell an astounding 27.2%.  It was truly a total disaster.

The main reason gold plummeted during that panic is because safe-haven buying flooded into the US dollar instead, driving its biggest and fastest rally (22.6% higher in 4 months) ever witnessed.  But the key takeaway today is that the financial world was totally convinced gold was dead.  If it couldn’t rally in that panic, then it was no longer a safe haven.  There was no reason to own gold anymore, its bull was over.
Sound familiar?  That’s the exact kind of thing we’ve been hearing in recent weeks.  Because gold hasn’t rallied despite the Cyprus bank failures and record Fed debt monetizations, there must be something fundamentally wrong with this metal.  Traders are abandoning it in droves, just like they did in late 2008.

But obviously they were dead wrong to sell low then when gold was hated.  It was on the cusp of soaring.
Right as investors totally capitulated and gave up on gold in November 2008, it was carving a major bottom.  It would ultimately power from around $700 then to $1900 by August 2011.  And ever since it has consolidated high, it is simply at the low end of its multi-year trading range today.  A major gold correction driving or being driven by a massive 1/8th GLD holdings selloff was the best buy signal of gold’s bull!
I suspect the recent 1/8th GLD holdings correction will prove similarly bullish.  In order for stock traders to dump GLD shares rapidly enough to force it to sell so much bullion so fast, their sentiment has to be hyper-bearish.  They have to be utterly convinced gold’s bull is dead to sell so aggressively.

But whenever sentiment swings to such unsustainable extremes, major bottoms are carved leading into major uplegs.Extreme GLD selling on a daily basis is also a fantastic contrarian indicator itself.  I generally consider GLD differential selling pressure on any given day material if it is big enough to force GLD’s holdings down by more than 0.5% that day alone.  And big GLD holdings liquidation days are over 1.0%.  Clusters of these near gold lows are major bottoming indicators, they reveal sentiment in gold has grown too bearish to persist.
Since the February gold capitulation, we’ve seen 3 separate trading days where GLD’s holdings fell more than 1.0%.  They are pretty rare over GLD’s 8.4-year history, only occurring 51 times or about once every 40 trading days.  The last time a similar cluster was seen was actually in October 2008 during the stock panic, just before gold started more than doubling in its next mighty upleg that was being born in despair.

So historically big GLD liquidations, both in individual-trading-day and multi-month-trend terms, have actually been very bullish contrarian indicators.  This precedent completely contradicts many of the gold bears dominating the financial media, who claim excessive GLD selling is bearish rather than bullish.  In reality, stock traders panicking out of GLD shares is an indicator of fear reaching irrational extremes.
So smart contrarians fight the crowd and aggressively buy GLD holdings plunges.  The only way to buy low is to be brave when others are afraid, and they are certainly afraid of gold today.  Bearishness in this yellow metal has recently hit extremes not seen since the stock panic, the best gold buying opportunity of its secular bull.  The recent GLD holdings liquidation was also panic-magnitude, utterly unsustainable.

Stock investors have been fleeing GLD, selling low, so they can plow their capital into general stocks near nominal record highs.  The red-hot stock markets have fueled the dismal sentiment in alternative investments like gold.  But as soon as they decisively turn, which ought to be imminent given how overbought and euphoric the stock markets are today, the precious metals will start returning to favor.
The same unsustainable hyper-bearish sentiment forcing the massive GLD liquidation in recent months is crushing the gold miners’ stocks.  They are hyper-oversold, trading at their lowest valuations of their entire secular bull.  The main gold-stock index is scraping fundamentally-absurd 45-month lows, trading as if gold and silver were 41% and 53% lower than today’s levels!  The gold-stock sector is loathed today.

Which makes it an extraordinary contrarian buying opportunity!  At Zeal we’ve been concentrating our buying around this major gold bottom in smaller dirt-cheap gold and silver miners with dazzling fundamentals.  As sentiment inevitably turns in gold, the entire precious-metals realm is going to soar but the best of the miners ought to skyrocket.  We are talking about stock prices tripling or quadrupling!
So if you have cultivated the mental toughness to buy low when few others dare, gold stocks are the place to be today.  We are constantly researching that entire universe to uncover the most fundamentally-promising miners.  Last month we published a popular new 31-page fundamental report profiling our dozen favorite junior gold producers in depth.  Buy it today, buy some great gold stocks cheap, and thank us later!

We also publish acclaimed weekly and monthly subscription newsletters long loved by speculators and investors worldwide.  In them I draw on our vast experience, wisdom, knowledge, and ongoing research to explain what is going on in the markets, why, where they are likely headed, and how to trade them.  Our contrarian approach works, the 637 stock trades recommended in our newsletters since 2001 have averaged stellar annualized realized gains of +33.9%!  Subscribe today!

The bottom line is stock investors have indeed been panicking out of GLD in recent months.  This extreme bearishness has created a panic-grade drawdown in GLD’s holdings.  All this excess gold supply from GLD’s forced selling has been a major headwind for gold, exacerbating its latest correction.  But historically extreme GLD selling by stock traders is a major bottoming indicator for the yellow metal.

Like everything else in the markets, gold bottoms and embarks on major new uplegs when everyone is convinced it is dead.  Widespread fear soon leads to selling exhaustion, leaving only buyers.  So gold soon starts rallying again, gaining momentum.  This coming upleg has the potential to be very large as the euphoric, overbought, levitating stock markets inevitably reverse.  Alternatives will quickly regain favor.
Adam Hamilton, CPA

Source

Full Story
Posted by Mr Thx Saturday, April 13, 2013 0 comments

Richard Russell - The 60-Year Shocker, Silver Shorts & Gold

With 2013 now under way, the Godfather of newsletter writers, Richard Russell, told his subscribers that after being in the business for 60 years, he has never seen anything like this (described below).  Russell also discussed the massive silver short position and gold’s eternal value.  Here is what Russell had to say: “Bull market or bear market?  Below we see a listing of the year-end cost of gold denominated in Federal Reserve Notes (these notes are now commonly called “dollars”).  From a market standpoint, we're looking at one of the greatest bull markets in history.  But ironically, referring to “dollars alone,” this is one of the worst bear markets I've ever seen.”
 
Richard Russell continues:

“Bear market?  Sure, back in the year 2000, for only 273 dollars you could buy one ounce of gold.  But by 2012, you needed over 1600 dollars to buy the same one ounce of gold.  The eternal value of gold doesn't change.  It's the purchasing power of the Federal reserve note that has changed.


The price of gold in terms of “dollars” has now risen thirteen years in succession.  But what is even more remarkable is the fact that most Americans have totally ignored (even despised) this remarkable bull market.  Let a stock rise seven or eight years in a row, and it will be the talk of Wall Street and the talk of every social gathering in the nation.


Yet this amazing bull market in gold stands alone, sneered at and almost hated.  I've been in this business for over 60 years, and I've never seen anything quite like it.  However, I do think I know something about human nature.  What I've learned about human nature is that it doesn't change.  For instance, if a stock creeps up year after year, sooner or later the crowd will discover it -- and then they'll pounce on it, ultimately sending that undiscovered stock far above its reasonable price.


My belief is that somewhere ahead, the crowd will latch on to gold.  Then, as disinterested in gold as they are now, the crowd will pile into gold with the same frenzy that overtook the storied “49ers” when they packed their bags, kissed their wives and kids good bye, and headed West in search of gold.


Gold is the only item that elicits both greed and fear.  The greed factor is so well known that I don't have to explain it here.  But the fear factor only arises when men (and women) see the “value” of their money disappearing.  Nothing concentrates the mind as dramatically as seeing the purchasing power of one's hard-earned income and savings being ruthlessly destroyed.


As I write, Ben Bernanke's Federal Reserve is systematically shaving off the purchasing power of the dollar in the same way that you can peel the layers off an onion.  The US has been in the process of constructing the greatest credit bubble in history.  The world has never seen anything like it.


This enormous bubble is now being attacked by the worldwide forces of deflation.  Fed Chairman Bernanke is terrified by the mere thought of deflation.  Bernanke will not stand for deflation.  He has said as much.  And he will attack deflation and crumbling asset prices with all the inflationary power at his command.


As the ocean of new dollars pours out of the computers of the Federal Reserve, the purchasing power of the dollar erodes.  It erodes slowly at first, but as the river of dollars turn into an ocean, slowly-rising inflation segues into a monster.  Finally, the crowd recognizes what is happening to their money.


The loaf of bread that cost a dollar last year suddenly costs four dollars.  The cup of coffee that cost a dollar last week goes on special today for two fifty.  The college tuition that cost four thousand dollars now costs sixteen thousand and there's the extra for a dorm. You're suddenly paralyzed.  A light bulb in your head starts to glow.  And just as suddenly, the mad, frantic rush for gold is on.


Old timers shake their heads knowingly and repeat the old saw, “There's no fever like gold fever!”  And the rush for the yellow metal turns into a full frenzy.  Even as I write, the subtle but tell-tale signs of “gold-fever” are seen and heard.  New gold funds and new gold ETFs are started.


Full-page advertisements appear in the newspapers, drawing attention to the loss of purchasing power in the dollar, and lauding the advantages of owning gold and silver.  Gold vending machines appear at airports and in European and Asian department stores.  Pressure is rising to force lawmakers to elect gold as legal tender.


On March 29, 2011, the state of Utah passed a law stating that gold and silver will be legal tender in the state of Utah.  Imagine, just imagine -- gold being treated as real money!  That alone shows us how far and how completely insane the nation's attitude towards gold and silver has become.  Gold has been treated as money for 3,000 years.  “As good as gold” is a well-known expression.  Yet, today in the US, gold is not considered to be legal tender.


No fiat money has lasted for as long as a century.  The US has had prior experience with fiat money -- the Civil War Greenbacks, the “Bills of Credit” of the original American colonies, the ill-fated Continentals during the Civil War.  None of these have survived, and neither will the Federal Reserve notes that we now refer to as “dollars.”


I dislike falling back on the morality argument, but consider this.  I may work a lifetime for five million dollars.  Yet some academic working for the Federal Reserve can press some keys on a computer and create ten billion dollars instantly without working up a sweat.  Is the ten billion dollars he creates moral money?  Did anyone work for the money?  Did anyone take a risk for the money?  Did anyone drop a bead of sweat for it?  No, then I claim it is immoral and actually evil money, and as such it is doomed.


The only power evil has is the power to destroy itself.  I affirm that the Federal Reserve note is doomed.  When the Federal Reserve note goes down the drain, all fiat money in the world will go down with it.  Today information travels around the world with the speed of NOW.  People around the planet will see that fiat money is a fantasy and a counterfeit fraud foisted upon them by unconscionable and unscrupulous bankers.  It is then that the crowd will turn to gold, in much the way that people turned to gold back in 1978 to 1980.


Now this may be “far out.”  I'm reading a lot about silver and its huge short position.  I hear that the silver shorts are bigger than the amount of physical silver that is readily available.  The silver mining stocks have already surged.  And I wonder if silver starts to boom, whether that action wouldn't rub off on gold?  Hmmm, it's a thought.”

source here

Full Story
Posted by Mr Thx Tuesday, January 8, 2013 0 comments

Greece Makes Pact With the Devil Over Gold


The one and only thing that might possibly spare Greece the agony of a completely worthless currency is Greece's small hoard of 111 tons of gold.


Pact With the Devil

Yet, in the fine print in the latest deal, Greece’s lenders will have the right to seize its gold reserves according to the New York Times article Growing Air of Concern in Greece Over New Bailout.
In the fine print of the 400-plus-page document — which Parliament members had a weekend to read and sign — Greece relinquished fundamental parts of its sovereignty to its foreign lenders, the European Commission, the European Central Bank and the International Monetary Fund.

“This is the first time ever that a European and probably an O.E.C.D. state abdicates its rights of immunity over all its assets to its lenders,” said Louka Katseli, an independent member of Parliament who previously represented the Socialist Party, using the abbreviation for the Organization for Economic Cooperation and Development. She was one of several independents who joined 43 lawmakers from the two largest parties in voting against the loan agreement.

Ms. Katseli, an economist who was labor minister in the government of George Papandreou until she left in a cabinet reshuffle last June, was also upset that Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal, and that future bonds issued will be governed by English law and in Luxembourg courts, conditions more favorable to creditors.
Causing a Nightmare Scenario

On Tuesday, Finance Minister Evangelos Venizelos defended the new debt agreement, calling it “the most significant deal in Greece’s postwar history” and asserting that it had “averted a nightmare scenario.”

Today this same puppet of the Troika installed government claims, as he has been for weeks, No Loan Deal Means Absolute Catastrophe
Greece Finance Minister Evangelos Venizelos said Thursday Greece would face an absolute catastrophe if it didn't approve the terms demanded by international creditors in exchange for a second bailout, which includes a EUR107 billion debt write-down plan.
Greece is already in a state of absolute catastrophe. The one thing 100% guaranteed to make matters worse for Greece is if Greece lost its hoard of gold to the thieves and plunderers at the IMF and Troika.

Rather than "averting a nightmare scenario" that pact is going to "cause" a nightmare hyperinflation scenario.

Value of 111 Tons of Gold

One tonne = 1000 kilograms = 32150.746 troy ounces.
At $1780 per troy ounce, the value of that gold is roughly $6.35 billion.

Given an estimated size of the Greek economy at $290 billion or so, that is not a huge hoard.

However, something is better than nothing as Zimbabwe proves. Something is enough to prevent a currency from going completely worthless, although obviously not enough to prevent a massive devaluation.

Still Time

There is still time for Greece to come to its senses and reject the deal. Also recall the conditions of the deal  require a constitutional change and that is impossible before 2013.

For details, please see Greece Needs New Constitutional Provision Imposed by the Troika; Slight Problem, Constitutionally It Can't Do it

Biggest Hope for Greece is Germany

In an enormous irony, Germany may be the biggest hope for Greece. Although France and other countries do want this pact to go through, Germany's words and actions prove that Germany does not.

Germany has put up roadblock after roadblock attempting to get Greece to scuttle the deal, only to have fools like Finance Minister Evangelos Venizelos agree to them.

It may be up to Germany to come up with still more ludicrous demands in hope that the Greek finance minister and Greek politicians finally get the message "it's not wise to make a pact with the Troika devil", especially one that requires Greece to relinquish its gold.

By Mike "Mish" Shedlock

source

Full Story
Posted by Mr Thx Friday, February 24, 2012 0 comments

A beginner's guide to investing in gold

Gold has been sought after for its unique blend of near indestructibility, beauty, rarity and because of its status as a means of exchange and universal currency par excellence for centuries.
Empires and nations have sought to possess gold as a medium of international exchange, as a store of wealth and in order to increase and preserve power. Individuals have used gold as a store of wealth and as insurance against the fluctuations and depreciation of paper money and to protect against other macroeconomic and geopolitical risks.

Throughout history, perhaps no other asset in the world has had the universal appeal of gold and this appeal has increased in recent times due to the very significant macroeconomic, geopolitical, monetary and systemic risk facing our modern global financial system and economy.
Successful investing is about the diversification and management of risk. In layman's terms this means not having all your eggs in one basket. We know from history that markets can and do crash and if you are not properly diversified your nest egg can be severely affected.

So a healthy portfolio will include a wide range of assets including a variety of equities with exposures to different market sectors and regions; a variety of different countries' bonds of different durations; a diversified property portfolio; a cash component and a 5-15% allocation to gold related investments and gold bullion. In these uncertain times, caution and risk consciousness is crucially important and counterparty and systemic risk should be considered.
The key is to determine what amount of each asset class to have and to own assets that will whether the onslaught of inflation, deflation, stagflation and even hyperinflation.
Some exposure to gold should be included in all diversified portfolios. A good rule of thumb would be a minimum allocation of around 10% to gold and related gold-investments.
One's motivation for buying gold is fundamental to deciding in which form you should buy it. Are you a speculator, investor or saver? Do you wish to take a short term speculative position in gold? Are you investing for the short, medium or long term? Or are you diversifying, saving or using gold as a form of financial insurance?

Investing in physical gold

Physical gold should form a part of a properly diversified portfolio. Gold remains a universal finite currency, held by every central bank of note in the world. And central banks are set to become net buyers of gold in 2009 for the first time since 1988. The Indian Central Bank's purchase of 200 tonnes of gold from the IMF in October 2009 ( and a further 200 tonnes is being acquired) is the biggest single central bank purchase in such a short period of time (at least known to the markets) for at least 30 years.
In the same way that the family home should not be regarded as an investment, gold bullion is not an investment per se, rather a form of 'saving for a rainy day' or of financial insurance. It is to be taken possession of or stored with a secure third party and should not be traded. One does not trade an insurance policy and thus as a form of financial insurance, physical gold should not be traded.
Gold is money and is the ultimate safe haven asset and a great way, if not the best way, of ensuring wealth preservation and for passing wealth from one generation to the next. Once the solid base or core holding of gold bullion is achieved in a portfolio then other investments in gold such as mining stocks and mutual funds and other more speculative gold investments can be considered.

Modern bullion coins and bars

Modern bullion coins allow investors to own investment grade gold (between 0.90 and 0.9999 fineness) legal tender coins at a small premium to the spot price of gold as quoted on the markets. The value of bullion coins and bars is determined almost solely by the price of gold and thus follows the bullion price. Larger bars are not generally taken delivery of due to the cost of insured delivery and the security implications of having very large amounts of bullion outside the chain of integrity (say in a private residence). A London Good Delivery Bar weighs 400 troy ounces and costs over $400,000, £270,000 and €300,000 (prices as of 20/11/09) and is prohibitive in terms of cost and thus big bars are normally the preserve of large companies, institutions and central banks.
Gold, silver, and platinum are all available in the form of bullion coins, minted in the UK, the US, in Canada, South Africa, Austria, Australia, China and other countries. Most bullion coins are minted in 1/10oz, 1/4oz, 1/2oz & 1oz form (and some can be bought in 2oz, 10oz & 1 kilo). However, one ounce gold bullion coins such as Krugerrands or Britannias are by far the most popular for both small investors and high net worth individuals who see the advantages of owning legal tender bullion coins, either in their possession or in depositories, and recognise the advantages of the divisibility afforded by them.
Buying investment grade gold bullion for investment is stamp duty free and tax free (VAT exempt) in the UK and EU due to the EU Gold Directive of 2000.
Providers: Goldcore, Gold Investments Ltd, Baird, Chard, ATS Bullion

Semi-numismatic and numismatic gold coins

Numismatic or older and rare coins are bought not solely for their precious metal content but also for their rarity and their historical, aesthetic appeal. They are leveraged to the gold price which means that the price of these coins will generally surpass and increase faster than the gold price in a bull market (due to their historical and aesthetic value and to their rarity) and will decrease by more when gold is in a bear market.
The British Gold Sovereign (originally the one pound coin) is the most widely traded and owned semi-numismatic gold coin in the world. Important is the fact that, unlike the other forms of gold investment, British gold sovereigns are not subject to capital gains tax (CGT). Thus all post-1837 British gold sovereigns – because they are legal tender and have a legal tender face value - are capital gains tax free, which is obviously a significant benefit to investors vis-à-vis other gold investments.
Also highly owned are high-quality pre-1933 gold coins graded MS-65 or better by either the Professional Coin Grading Service or the Numismatic Guaranty Corporation. They are bought by both collectors and investors and most opt to take possession of these older coins unless they have invested in significant quantities.
Insured delivery of bullion and numismatics is usually some 1%-2% of the total value. Insured storage of bullion and numismatic coins in an allocated account will cost some 1% per annum. Investors should choose their storage provider carefully, making sure of a high credit rating and high net worth. This leads some to prefer an offshore bank or specialist depository.
Providers: Goldcore, Gold Investments Ltd, Baird, Chard, ATS Bullion

Gold certificates

The Perth Mint Certificate Programme is the only government backed precious metal certificate programme in the world. It allows investors to own bullion in unallocated or allocated accounts. The Perth Mint retains its AAA credit rating from Standard and Poor's and Moody's and is one of the safest and securest ways to own investment grade gold bullion. There are no initial or ongoing shipping, insurance, holding or custodial fees and thus it is one of the most cost effective ways for investors to own bullion over the long term.
Gold certificates are liquid and can be sold easily (soon investors will be able to buy and sell in real time online). Most investors opt to own their bullion in unallocated accounts as there are no insurance or holding fees on them and there is the flexibility of being able to transfer to an allocated account simply by paying small fabrication fees should the investor deem it necessary. Every gold bar is audited and accounted for and it is thus considered a safe way to own bullion. Bullion in a format of your choosing (coins or bars) can be shipped internationally from an allocated account or from an unallocated account once it has been converted to allocated.
Providers: GoldCore

Allocated accounts

Allocated gold accounts allow an investor to buy gold coins and bars from a bullion brokerage which will transfer or ship the bullion to an individual's account in a depository or bank. Allocated accounts involve ownership of specific gold and the owner has title to the individual coins or bars. Due diligence should be done on allocated gold account providers and the history, security, credit rating and net worth of the provider is of vital importance.
Providers: GoldCore, specialist depositories

Digital gold currency or e-gold

Digital Gold Currency, goldgrammes or e-gold are also increasingly popular. There are no specific financial regulations governing DGC providers, so they operate under self-regulation. DGC providers are not banks and therefore do not need to comply with bank regulations and there are concerns that there are unscrupulous operators operating in this emerging sector.
However, two of the more respected providers who have rightly garnered trust are Bullion Vault and Gold Money. They offer allocated accounts where gold can be instantly bought or sold just like any foreign currency. Every gold bar is audited and accounted for and it is thus considered a safe way to own bullion. Digital gold is primarily used by clients to buy gold for saving or as an investment and/ or as electronic money amongst users.
Providers: Gold Money, Bullion Vault

Gold bullion in SIPPs

UK citizens can as of April 2006 invest in gold bullion through their Self-Invested Personal Pensions (Sipps). US citizens could already do so in their Individual Retirement Accounts (IRA's). Sipps are new types of personal pension scheme that hold investments until you retire and start to draw a pension income. They are designed for people who want to manage their own fund by investing in asset classes of their choice. Investments made in gold bullion are topped up in the form of tax relief, meaning individuals can claim up to 40% back depending on the income tax band they fall in to.
Gold bullion is allowed in a Sipp providing it is investment grade gold which is gold of a purity not less than 995 thousandths or 99.5% pure and which is in the form of a bar, or of a wafer, of a weight accepted by the bullion markets. The bullion must be immoveable and stored with a secure third party. It cannot be taken possession of and used as a "pride in possession" article. Thus ETFs, some digital gold providers, allocated gold accounts and gold certificates are all allowed in the new SIPP.
Providers: GoldCore, Bullion Vault

Investing in paper gold

Mineral exploration, mining and the processes used to mine and produce metals are highly technical. Investors in gold production and exploration company stocks need to equip themselves with a basic understanding of the industry, in order to identify possible pitfalls and the risk-reward relationships of entering this investment sector. Investors should generally not buy just one or two stocks, but rather a basket of unhedged stocks or a mutual fund.
Derivatives, such as ETFs, forwards, futures, options and spread betting are normally short term speculations on the future price of gold and other markets such as commodities, shares or bonds, interest rates, exchange rates, or indices. They are financial instruments which derive their value from or whose price is dependent on the underlying asset. One does not directly own the underlying asset and one does not have a right to take possession of the underlying asset. Leverage or borrowing substantially may increase investment gains but also increases risk as if the price goes against the purchaser they may be subject to a margin call. There is significant leverage involved with derivatives and they are thus considered risky for non professionals as the potential positive or negative outcome is greatly magnified.
pyramid

Gold exchange traded funds (ETFs)

The recently launched ETFs are derivatives that track the price of gold and silver. Two of the more popular are the Streettracks Gold Shares (NYSE:GLD) and in London the Lyxor Gold Bullion Securities (LSE:GBS). They can be bought through stockbrokers.
There is an annual administration fee of between 0.4% and 0.5% per annum. Thus every year the amount of gold or silver backing an ETF share shrinks by that amount. This makes them unattractive as a medium or long term way to invest in gold. They are akin to derivative contracts that track the gold price and one does not own or have title to the underlying asset. Thus they are primarily used by day traders, hedge funds and institutional players going long and short and speculating on short term movements in the gold price.
Providers: Stock Brokers, Online Brokers

Gold stocks

Gold stocks are not gold - rather they are shares in gold mining companies. If the gold price rises, profits of a gold mining company should rise and as a result the share price should rise. There are many factors to take into account and it is not always the case that a share price will rise when the gold price increases. It is important to consider the performance and abilities of the management, auditors and geologists; the conduct of trade unions; a company's gold hedging position; whether it is producing or exploring; its cost basis; how much reserves it has in the ground and whether it is subject to political, economic, nationalisation or environmental risk.
Individual gold shares would be regarded as very volatile and high risk. Gold shares are regarded as more speculative as there is a higher risk-reward scenario. However, the added risk can be compensated for by the leverage which can result in higher returns. Such higher returns would be expected from mid and large-capitalisation un-hedged senior gold mining companies with proven reserves and strong earnings which have strong balance sheets and growth in resources and production and effective company management.
Providers: Stock Brokers, Online Brokers

Gold stock options

Stock options are a contract between two parties that expires at an agreed-upon time in the future. The contract purchaser is buying the right, but not the obligation, to buy a gold mining stock (a 'call' option) or sell (a 'put' option) a gold mining stock (the 'underlying') at a specific price, on or before the agreed-upon date, the date of expiration.
Stock options allow for a lot of leverage as a trader can control a large stock position with only a small outlay. However due to the very short term of the option contracts, they can expire worthless with the entire outlay being lost. Stock options allow speculators to make bets on market movement without having to pick an up or down direction. Because of this, stock options traders are often said to be trading volatility rather than price.
Providers: Online option brokers such as Options Express and E-Trade and certain stockbrokers

Precious metal unit trusts or mutual funds

Instead of personally selecting individual shares, some investors spread their risk by investing in collective investment vehicles specialising in investing in the shares of gold mining companies. These include mutual funds, open-ended investment companies (OEICs), closed-end funds, unit trusts. Two of these funds are the UK-based Blackrock Gold & General Fund and the Canadian Sprott Gold & Precious Minerals Fund by Sprott Asset Management. There are many precious metal funds in the US but investors assume US dollar currency risk when buying them.
Collective investment vehicles are a good way to invest in the precious metal mining sector as an investor's risk is reduced; mutual funds are not dependent on the performance and profits of one or two individual gold mining company and specialists in the field choose a portfolio of gold mining companies.
Providers: Blackrock Gold and General Fund, Sprott Gold & Precious Minerals Fund

Gold futures

Gold futures are traded on exchanges in London, Tokyo, Sydney, Singapore, at the New York Mercantile Comex Exchange (COMEX), the New York Mercantile Exchange (NYMEX) and at the precious metals department of the Chicago Board of Trade (CBOT).
Gold futures contracts are firm commitments to make or take delivery of a specified quantity and quality of gold on a prescribed date at an agreed price. Investors may take or make delivery of the gold underlying the contract on its maturity although, in practice, that is unusual. A benefit for some is that such contracts are traded on margin, so that only a fraction of the value of the contract has to be paid up front. As a result an investment in a futures contract, whether from the long or the short side, tends to be highly geared to the price of bullion and consequently more volatile.
They are normally the preserve of some mining companies, speculators, hedge funds and institutions. The leverage makes them a high risk/high reward investment. Participants are either hedging the gold price or attempting to predict whether the value of gold will rise or fall in the short term. Gold futures contracts are valuable trading tools for commercial producers and users of the metal to hedge their price risk.
Success depends on the price movement of gold during the contract term. Traders in these markets without protective stop-losses can quickly find themselves on the wrong side of a fast moving trade, losing large sums of money. Part of the risk is due to the leverage involved which can result in a speculator losing more than their initial capital outlay. Therefore, futures markets are not for amateurs or novice investors.
Providers: Commodity Brokerages, Online Brokerages such as Internaxx

Gold futures options

All the bullion banks trade in gold options and a list of bullion banks is available from the London Bullion Market Association (LBMA). Another way of trading options is through the COMEX Division of the New York Mercantile Exchange. The third route would be to contact a futures broker. They are often used to contain risk in the trading of futures.
Providers: Commodity Brokerages, Online Brokerages

Spread-betting

An alternative is to use spread betting to gain leveraged exposure to precious metals. Firms such as Cantor Index, CMC Markets and IG Index offer the ability to take a bet on the price of gold through what is known as a spread bet.
No commissions or taxes are levied in the UK on spread betting. The advantages are that any gains are CGT free and one can also take a view on movements in either direction. The downside is that in a spread bet the spread can be high, your exposure is geared up and short term bets are risky as it is extremely difficult to forecast any markets short term movement. One can lose more than the initial capital thus they are for speculators with very short term horizons rather than investors.
The World Gold Council is a good resource for investors looking for established and reputable providers of gold related investments in the UK and internationally.

Assessing your options

One's motivation for investing in gold is fundamental to deciding how to invest. Are you a speculator, investor or saver? Do you wish to take a short term speculative position in gold? Are you investing for the short, medium or long term? Or are you diversifying; saving or using gold as a form of financial insurance (gold's primary role)?
When assessing one's gold investment options one must decide what one's motivation is. Once this is done, the primary considerations which should be looked at are the costs (both upfront and possibly recurring annual fees), proximity to your asset and perhaps most importantly today counter party risk.
In the table below we have looked at the various vehicles for accessing the gold market and graded them with regard to cost, ability to take delivery and, most importantly, proximity to your gold and counter party risk.

TypeCostsRisksDeliveryConsiderations
InitialRecurringCounter party risksProximityInvestor suitabilityPhysical delivery?
Gold certificates Med V good(none) Low Good Diversifier Yes Consider solvency & credit rating. A sovereign AAA credit rating and govt. guarantee is best.
Bullion bars/coins delivered Med V good (none) Low V good Diversifier Yes Use safety deposit boxes, home or office safes, and insurance.
Bullion bars/coins stored Med Med Low Good Diversifier Yes Consider the solvency and credit rating of the depository. Safety and security are key.
Gold bullion in SIPPS Low Low Low Good Diversifier No Make sure you get impartial fee-based asset allocation advice.
Semi numis matics High Low Low Good Diversifier/
Speculator		 Yes Premiums can vary. Get reputable and professional advice before purchasing.
Digital gold Low Low Med Med Diversifier/
Speculator		 Some do Concerns over dependence on technology (internet, website, servers, etc) which is attendant risks.
Exchange traded funds Low High Med Poor Speculator Large minimum Suitable for speculators, own shares in a trust and not gold. Annual costs quite high at 0.5% per year.
Precious metal unit trusts Med High Med Poor Diversifier/
Speculator		 No High annual charges (funds can have hidden charges). Analyse the prospectus fully.
Gold stocks Low Low High Poor Speculator No Very volatile. Management, geologist, auditor, trade union, environmental and nationalisation risk. Seek advice.
Gold futures Low Med High Poor Speculator Yes Only suitable for speculators. High risk, involving leverage. Seek advice.
Spread betting Med Med High Poor Speculator No Only suitable for speculators. High risk, involving leverage. Need to monitor trading constantly. Seek advice.

In an age of significant systemic risk, proximity to the underlying asset is increasingly important. Investors are increasingly wary of having too many counter parties (brokerages, banks, trustees, custodians, sub-custodians, delegates of sub-custodians etc.) between them and their asset. If storing gold with a third party, it is important that you have a direct relationship with that counterparty and there is not significant intermediation and thus increased risk. Another consideration is the ability to take delivery of gold in the event of a systemic crisis.

Investing in gold: conclusion

As we have seen, there are major differences in the various motivations for buying gold and ways to buy gold – from trading and speculating to investing and saving.
Holding precious metals in a portfolio can provide distinct benefits in the form of speculative gains, investment gains, hedging against macroeconomic and geopolitical risk and / or wealth preservation. Traditional asset allocation theory, as represented by the investment pyramid, advocates higher risk speculations at the top, with lower risk assets at the bottom. Commodity futures contracts, options and exploration junior mining companies should be placed at the top of the pyramid, while cash equivalents and fully allocated or taken delivery of physical bullion should form the foundation or base.
Experienced and knowledgeable investors have long known that gold and gold related investments can be solid investment choices. Gold is stable in times of global geopolitical instability and when there is economic uncertainty, recessions and depressions. It is important that investors look at their portfolios holistically. Used correctly, gold and gold related investments can be highly effective components of a properly diversified investment portfolio.
• This article was written by Mark O'Byrne, executive director of international bullion dealer GoldCore. GoldCore has an international media profile (CNBC, Bloomberg, CNN, BBC, FT, Wall Street Journal, Bloomberg, Dow Jones, Associated Press, Reuters etc.) and takes part in the Reuters Precious Metals Poll and the Bloomberg Gold Survey.
source

Full Story
Posted by Mr Thx Tuesday, October 11, 2011 0 comments

Silver Has Its Worst Day Since 1987. Gold Has Worst Week Since 1983.

FactSet
Silver. Rock climbers call this “extreme verticality.” Click for jumbo chart.

This has been an historically awful day for precious metals.

Here’s just how grim the selloff in silver was today:

The $6.49, 18% decline to $30.05 an ounce (that’s the September contract) was the worst dollar loss since January 22, 1980 and the worst percentage loss since April 27, 1987.

It was the second-biggest dollar loss in history and the fifth-largest percentage loss in history.

Silver has tumbled 26% this week.

Gold had its own very bad, no-good day, too, and its week was actually much worse than silver’s.

Gold lost nearly 10% this week, or $175 an ounce, to $1637.50 (again, that’s the September contract). That was the biggest weekly dollar decline since January 25, 1980, and its biggest weekly percentage loss since February 25, 1983. This was only silver’s worst week since May 2011 — silver’s been pretty volatile this year.

Today’s loss in gold, $101.70, or 6%, was its worst percentage loss since June 2006. It was the third-worst dollar loss for gold in history.

Somebody out there is clearly dumping silver to cover losses, but there are more fundamental reasons for the pounding, too, writes Tatyana Shumsky:

silver is also facing pressure from the darkening economic outlook because it is widely used in manufacturing and industrial applications. Alarms were raised this week when China, long considered the world’s economic engine, showed its manufacturing sector has contracted for the third consecutive month.

“With China’s economy slowing, with our economy going into a recession, with Europe going out the window, the industrial metals are being sold off viciously and silver is caught up in that,” said Frank McGhee, head precious metals dealer at Integrated Brokerage Services in Chicago.

Silver is used as a catalyst in making polyester, a common fiber used in clothes; the precious metal also coats CDs and DVDs and is used in glass for flat-panel TV screens. A sharp decline in economic activity would reduce demand for these products and undercut physical demand for the metal.

Meanwhile, gold has utterly failed as a safe haven this week, as investors have had to sell it to cover losses. The world has also rushed to the dollar for safety, and a stronger dollar is bad news for gold. And a weaker economy is bad for inflation, also bad for gold.

source

Full Story
Posted by Mr Thx Sunday, September 25, 2011 0 comments

Federal Reserve Admits: We Have No Gold

The following exchange between Congressman Ron Paul (R-TX) and the Fed’s attorney Scot Alvarez proves, without a shadow of a doubt, that The Federal Reserve has no gold backing the US dollar.

Most in the alternative news sphere suspected it – now it’s fact.

The Federal Reserve does not own any gold at all. We have not owned gold since 1934, so we have not engaged in any gold swap.

…

What appears on our balance sheet is gold certificates…Before 1934 the Federal Reserve did, we did own gold. We turned that over by law to the Treasury and received in return for that gold certificates.

The exact relationship between the Federal Reserve, the US Treasury and these non-tradeable gold certificates is not exactly clear, but an attempt to explain what’s actually going on has been put forth by goldnews.com:

In any case, we can analyze the implications of the basic facts and come to a couple of conclusions:

1) The widespread notion that the Fed owns gold is false. The corollary to this is the mistaken belief that the Fed understates its gold holdings on its balance sheet by only reporting certificates based on the $42.22 statutory gold value. The Fed does not in fact own the US gold stock multiplied by the market price of gold, unless the Treasury defaults and even then its not clear. The Fed does, however, own a claim to currency totaling $11.1 billion and this value has a remote chance of going up significantly if the Treasury revalues its gold and maintains the practice initiated in the Par Value Modification Act.

2) The fact that the Fed owns no gold, nor claims to any gold, means the fundamental value of the dollar lacks any backing besides dollars themselves, not including Fed building and equipment. Dollars are in essence worth a lot less than many people thought, and the Fed is much more impotent in using the prowess of their assets, and conducting monetary policy in general, than many believed. In all, Alvarez’s clarification strengthens the case for gold’s high dollar value immensely.

An interesting perspective, and one, if true, suggests that the value of your dollar in terms of gold is actually much less than believed – like close to zero. Our currency is not only not backed by gold, but in the event of a dollar meltdown the only assets backing the world’s reserve currency are worthless toxic mortgages purchased by The Fed in recent years from insolvent banking institutions.

The only thing holding this thing together at this point is market confidence. When that goes, everything else goes with it.

Author: Mac Slavo
Date: June 6th, 2011
Website: www.SHTFplan.com

Full Story
Posted by Mr Thx Wednesday, June 8, 2011 2 comments

Gold Now and beyond

Hi,
I just want to share my current gold Daily chart that show something interesting.



The price has already touch the moving average 200 on 28 Jan 2011 and since then never looking back. Based on the price action, the price may go up to 1750 before any major retracement.

Next, another chart from here



Expected the major retracement would be on jun or july this year but nobody really knows.
The most important thing is never short bullish trend especially precious metal like gold.

Full Story
Posted by Mr Thx Monday, February 21, 2011 0 comments

Gold and silver default scenarios

Buyers, who have legally contracted to take physical delivery of metals, are said to be accepting large, paper bribes to accept a cash settlement instead.

The reasons are obvious why there has been a great deal of discussion about actual, formal “defaults” in the precious metals markets. Among those “obvious reasons” is that informal defaults are apparently already taking place in both gold and silver markets.

Beginning in the London gold market over a year ago, and now rumored to be occurring in New York’s “Comex” silver futures market, buyers who have legally contracted to take “physical delivery” of the metals they have purchased are said to be accepting large, paper bribes to accept a “cash settlement” instead.

There are many reasons for investors to take such “rumors” seriously. Empirically, we see the premiums being charged for physical bullion (even from large, established dealers) rising to levels never before seen (around the world). This strongly suggests a very tight market for bullion. This is confirmed through the anecdotal reports of both industrial users and large institutional investors (such as Sprott Asset Management) that they are having a great deal of difficulty locating any large quantities of bullion available for sale.

In theoretical terms, we are merely seeing the culmination of arrogant bankers attempting to defy the elementary laws of supply and demand for over a quarter of a century. Even those with no training in economics know the basic rule (since it is merely an expression of common sense): when prices rise, demand falls; when prices fall, demand rises.

There are many derivative principles which flow from this one basic law. Among the most salient (and the one apparently beyond the comprehension of bankers) is that if you under-price any good it will be over-consumed. I have demonstrated the unequivocal truth of this principle previously, and so will not do so again. Suffice it to say that in deliberately under-pricing gold and silver for well over a quarter of a century (through their relentless manipulation of these markets), the bankers have caused more than 25 years of excessive demand – where previous surpluses in these markets have been transformed into huge supply-deficits.

In the gold market, where virtually all of the bullion ever produced has been conserved, this distortion of markets has merely resulted in a massive transfer of bullion: out of the vaults of the West and into the vaults of the East. The situation in the silver market is entirely different.

Being both much cheaper than gold, and possessing even more superior chemical and metallurgical properties, silver was written off by those with no understanding of precious metals as merely an “industrial” commodity. As a matter of common sense, the rapid increase in industrial demand for silver must make it more “precious” rather than less so.

Illustrating this elementary logic, the combination of gross under-pricing and surging industrial demand has served to decimate global silver stockpiles and inventories. Noted silver researcher Ted Butler has estimated that global stockpiles of silver plummeted from over 6 billion ounces (fifty years ago) to approximately 1 billion ounces today. Silver is literally six times “more precious” today than it was a half-century earlier. In terms of “inventories” (the amount of silver actually available for sale today), the destruction caused by the bankers is even more apparent.

Between 1990 and 2005, global silver inventories plummeted by roughly 90%: from over 2 billion ounces to little more than 200 million ounces. Since 2005, there has been a massive inventory-sham perpetrated by the bankers and the quasi-official “keeper of records” for the gold and silver sector: GFMS and the CPM Group.

Through the farcical practice of adding the paper-bullion of silver “bullion-ETF’s” to inventories and pretending this represents “new silver”, inventories have magically “risen” by roughly 400% since then – despite the seemingly incongruous facts that silver demand has increased dramatically, while supply has remained flat.

In fact, any bullion actually held in a bullion-ETF cannot be an “inventory”, since it fails to satisfy the basic definition: it is not for sale, but rather is privately held by the unit-holders of these funds. How can the holders of such funds sleep at night, knowing that the legal “custodian” of their bullion is telling the world that their silver is “for sale”?

Secondly, these holdings of bullion-ETF’s are not “new silver” in any possible sense of those words. The bullion-ETF’s didn’t mine their own silver. They didn’t discover “secret stockpiles”, all they have done is to buy 100’s of millions of ounces of silver out of existing inventories. For the record-keepers of the silver sector to pretend that these funds are “new silver inventories” is nothing but a shell-game of the clumsiest nature.

It is because of the enormous differences between gold and silver inventories that a “default event” is likely to be much different between gold and silver. With gold bullion being principally a financial asset in global markets, it is much easier to forestall a true “failure to deliver” from occurring at the official bullion exchanges (i.e. London or New York) through the unofficial default-mechanism of “cash settlements”.

Indeed, the bankers consider this mechanism to be a “perfect solution” for the parameters of having very finite amounts of (extremely leveraged) bullion, while having access to infinite amounts of banker-paper from central bank printing presses.

In reality, as the “cash settlements” continue to get larger and more frequent, at some point one or more large holders in this banker Ponzi-scheme are going to lose their nerve, and insist on real bullion rather than paper bribes. Such an event does not need to result in an official default. It merely needs to “spook the herd”.

As word gets out of some prominent investor refusing any quantity of banker-paper in favor of physical bullion (i.e. real “money”), this will cause the holders of $100’s of billions of dollars of “paper bullion” products to ask themselves a very pointed question: “am I holding ‘bullion’ or am I holding ‘paper’?”

More importantly will be their response to such a question. The two obvious responses are either to demand delivery or to sell their paper bullion. At that point, it won’t matter which path is taken, since both roads will lead to the obliteration of the bankers’ 100:1-leveraged, paper gold Ponzi-scheme.

If large numbers of bullion-holders demand delivery, there will either be a formal default in London or New York, or a formal default of the bullion-ETF’s – since their “custodians” (the world’s largest bullion “shorts”) will simply walk-away from their commitment to unit-holders in order to cover their own, massive short positions.

If large numbers of paper bullion-holders choose to sell their paper-bullion, this will create a massive decoupling between real “physical” bullion, and the vast quantities of paper-bullion products, where vendors are unable to conclusively prove these funds/accounts are fully-backed.

While the default scenario in the gold market is necessarily complicated, the silver market offers a much clearer picture. The billions of ounces of silver which have been “consumed” industrially are now buried (in tiny quantities) in land-fills all over the Western world. Meanwhile, a large and obvious supply-deficit remains (for any observer not duped by the clumsy inventory-fraud).

This can only end one way. Irrespective of whether the bankers can continue to mollify silver investors with their cash-bribes – and delay a formal default through investor demand alone, obviously this same mechanism cannot possibly work with the vast number of industrial users for silver – who need silver, or many/most of their businesses will cease to operate.

You can’t use banker-paper to make solar cells, lap-top computers, hybrid cars, anti-bacterial textiles, high-precision bearings, or satisfy any of the other myriad industrial applications for silver. Note that the bankers caused all of this incremental industrial demand through their decades of under-pricing silver – and now they have no possible means of meeting that demand.

The only question which cannot be answered for investors (the question which they would like answered the most) is “when will default occur?”

My own answer to this question is simple: the one aspect of “control” which the bankers still exert over the gold and silver markets is the timing of their own funerals. Allow these manipulated, grossly over-leveraged markets to implode today, and prices will soar higher (to multiples of current prices). Attempt to prolong their inevitable demise for several more months (years?), and all that happens is the implosion of these markets is even more catastrophic, with an even greater exponential effect on prices.

Investors should not be troubled by this relatively minor level of uncertainty, as their strategy should be obvious: continue to accumulate precious metals until the bankers self-destruct. The longer we are forced to wait for our final pay-off/validation, the greater the reward for our patience.

Meanwhile, the big-buyers who now rule this market can be expected to march precious metals prices higher – subject to occasional banker-orchestrated pull-backs, since these big-buyers will joyfully accept any “sales” on bullion provided to them by the bankers. The “obituaries” can already be written with respect to the era of banker-manipulation of precious metals markets.

source HERE

Full Story
Posted by Mr Thx Thursday, January 20, 2011 1 comments

The Theft of Nations – Returning to Gold

The Story of the Sukus and the Tukus

gold coins

There were once two neighbouring islands far away in the oceans. One was called Aya and the other Baya. A certain people called the Sukus lived on the island of Aya . It was a fertile island with lush vegetation and tropical fruits. There were numerous waterfalls and rivers that provided the people with clean water and places for family retreats and recreation. The surrounding seas were unpolluted, with abundant fish and other seafood. The island also had gold and the Sukus, particularly the womenfolk, loved gold, They used pieces of gold as money since everyone treasured gold. Their tribal leadership led by a man named Saka, minted the gold coins. They lived a simple cooperative life and there were no interest charges for lending and borrowings among themselves. Occasionally, some tidal waves and strong winds destroy some property, particularly homes, but the community would immediately help themselves to rebuild or repair the damaged property. Other than that, it was a peaceful community of people who went about their life gracefully.

The island of Baya , on the other hand, was inhabited by a people called the Tukus. Their leader was an elderly man named Taka. The island of Baya was fertile too and the Tukus were mostly farmers who worked rice fields or kept cows, sheep and poultry. Some of them were good at handiwork and produced a variety of household items. They too lived a very peaceful and cooperative life, mutually helping each other for survival. The Tukus were, however, not so sophisticated as the Sukus, in that they merely did barter trade. The Tukus realized that the Sukus were much wealthier, healthier and had towns that were much more sophisticated than their own. They had always thought that the Sukus were more gifted and superior beings than themselves. Even though they barter traded their goods occasionally with the Sukus they never got the idea of money. However, their women-folk too loved gold, particularly the gold jewellery that the Sukus made.

One day, two smartly dressed men arrived in a ship on the shores of the island of Aya . Their names were Gago and Sago. The Sukus being a very hospitable people welcomed their new guests. Gago and Sago impressed the Sukus with the stories of their extensive traveling. They showed them some gold coins from other parts of the world and also some printed papers that were apparently used by some far-away people as money.

The Sukus had never seen paper before. The paper money even had pictures of bananas on it – their favourite fruit. The two strangers also showed them a machine that prints such money. Wow! That got the Sukus’ attention. There were awed because they had never seen anything like that before. The islanders loved Gago and Sago and invited both to live with them on the island.

Gago and Sago convinced the people that an institution called a bank would benefit the people immensely. They explained that a bank would provide a place for keeping their gold money safe while uplifting their economic conditions by making the savings available to others for productive use, which otherwise would remain idle. The Sukus, being a people who loved to help others, thought that was a great idea. Gago and Sago then built a small building structure with a vault in it and started operating the first bank on the island of Aya .

They celebrated the occasion by giving the islanders a great feast along with a colourful festival of events. The people thronged to deposit their gold coins with the bank. Depositors were given a piece of printed paper for every gold coin they deposited, with the assurance that they could redeem a gold coin for every paper they turned in. The people were excited with the paper “money” they got because it even had a picture of their leader Saka beside a banana tree. No doubt Saka was very pleased too!

The people deposited all their gold coins, a total of 100,000 pieces and hence an equivalent number of pieces of paper were given out. Now the people used the paper as money and found that it was much more convenient than the heavier gold coins that they used before. The paper money printed by Gago and Sago, therefore, became the dominant currency of the island. Nobody used the fold coins anymore. The people were pleased with the ease with which they were able go about doing their businesses. They trusted Gago and Sago very much because each time they brought in a piece of paper for redemption their request was indeed honoured. Gago and Sago became very respected and honoured in their society.

The Tukus who heard about the whole thing became excited and pleaded with Gago and Sago to help them out too. Gago and Sago smile to each other and told the Tukus that they would indeed be very pleased to do so. They then set up a similar building in Baya, and Sago was placed there as the manager. The difference between Aya and Baya was that in Baya the Tukus had no gold coins to deposit. Sago told them that was alright. He would however, give 1,000 paper notes to each family to use as money. Since they were a hundred families in Baya, so 100,000 paper notes were given out. However, Sago reminded them that at the end of the year each family must return 1,100 paper notes, the 10 per cent extra being a charge for the services he was providing. The Tukus found the paper money truly to be like magic. It made their business dealings so much easier compared to their previous barter trade. People spent much less time looking for counter parties to trade with. Now they were able to specialize in jobs they were good at. Their economy began to grow rapidly. Now Gago and Sago decided that the time was ripe for them to do their “trick”.

Gago noticed that in Aya, on average only 10 per cent of the fold deposits were redeemed by the Sukus at any particular time. The other 90 per cent remained in the vaults. Noticing that their printed papers were circulating as money, Gago printed an extra 900,000 certificates to be circulated as money too! Gago had calculated that with the extra papers, a total of 1,000,000 pieces of paper would be outstanding and if the people came to redeem their normal 10 per cent, then the 100,000 original deposit of gold coins would be readily available for redemption.3 Gago loaned out this extra 900,000 paper money to some “needy” Sukus at an interest charge of 15 per cent.

The Sukus suddenly found that the prices of things were rising. This baffled them and no one could figure out why.4 Some of them who had borrowed money form Gago were not able to pay back their debt even though they worked very hard trying to earn that extra money.5 Business became increasingly competitive and the society became less compassionate and less caring towards others than previously.6

The Tukus too found similar things happening to them. Initially, they did not notice any price increase but they noticed some behavioural change in their people. They became very competitive in their attitude and less caring towards their fellows. Even with hard work and such competitive behaviour, some of the Tukus still defaulted on their loans. They were not able to acquire enough money to pay back their total debt.7 Now Sago began to confiscate real wealth from the loan defaulters –like land, cows, sheep, etc. Their elderly leader Taka was among those who defaulted. But Sago gave him and some other Tukus additional paper notes as a rescheduling of their loans. This increased further their indebtedness. Later Taka defaulted again and had his loan rescheduled again. Now Taka began to avoid meetings with Sago. He felt ashamed and found his former power, pride, courage and dignity falling.8

On the contrary, he found that Sago was slowly becoming very wealthy by acquiring the people’s assets. In fact, he found that the power, pride, courage and dignity that he lost were now enthroned on Sago.

After a number of years, Gago and Sago who once arrived on the shores of the island of Aya with only a printing machine, were now the owners of most of the land and property in both Aya and Baya. The people were reduced to mere workers, some of them now living in poverty. Many worked long hours just to make ends meet. They now had less time for family, friends or for religious activities. Social problems were widespread.

People cared less for other. It goes without saying that with poverty, other social ills like crime, prostitution, etc. began to thrive. Their cultures were gradually replaced because Gago and Sago introduce a new “superior” culture of a “superior” people to which they belonged. This was the end of the caring and loving people of the two islands Aya and Baya, who had earlier lived a peaceful yet graceful life before Gago and Sago arrived with a printing machine.

Gago and Sago did not stop there. They continued to spread their wings to other peoples and societies. Their ultimate dream is to become the Global Supreme Rulers by establishing a single global bank with single global money.

We postulate here that in the current global monetary system, developing nations would go through somewhat similar events as pictured above.

___________________________________

3 This is how money is created in the current banking system in aggregate. If the reserve requirements is 10 per cent, then for a deposit of 100,000 a total loan that can be created is given by 100,000/0.10 = 1,000,000

4 This is easy to see with the help of the equation of exchange, MV = PY. In this example, with the sudden increase in the money supply M, without a corresponding increase in real output of goods and services Y, the prices levels, i.e. P thus tend to increase ( the velocity of circulation, V, is assumed unchanged and constant).

5 The loan (principle plus interest) is not repayable in aggregate because the interest portion does not exist in the form of money. Notice that the interest of 15% on the 900,000 principal equals 135,000. Therefore the total amount repayable is 1,035,000 but nonetheless, only 1,000,000 exist in total as money in the whole system. Accordingly, some defaults on the loans are sure to take place.

6 Since interest charge do not exist in the form of money, competition for money therefore ensues, reflected in increase business competition.

7 Again, this is because there is not enough money in the system as a whole such that debt is not repayable in aggregate.

8 Imagine that you borrowed RM10,000 from a friend. Do you think your behaviour toward the friend would change, say when you meet the friend in the street? Particularly when the stipulated time for the return of the loan had expired?

Credit To Prof Ahamed Kameel Mydin Meera for his book The Theft of Nations – Returning to Gold

Full Story
Posted by Mr Thx Tuesday, December 14, 2010 0 comments

When to Sell Gold

By Terry Coxon, Senior Editor, Casey Research


By now you have plenty of reason to congratulate yourself for having boarded the gold bandwagon. The early tickets are the cheap ones, and you’ve already had quite a ride. The best of the ride, I believe, is yet to come, and it should be very good indeed. It should be so much fun that your wallet may start to feel a bit giddy – which can be dangerous. So it would be wise to consider, now, how things will be and how they will feel when the current bull market in gold reaches its “end of days.” Because it will end.


Buying at the right time is the key to building profits. Selling at the right time is the key to collecting them.


The 1980 Peak


In 1980, gold briefly touched the then record price of $850 per ounce. In terms of purchasing power, that would be $2,400 in today’s dollars. And for the value of the world’s entire gold stockpile to attain the same share of the world’s total wealth that it represented at the 1980 peak, the price would need to reach $5,800 per ounce.


But so what? Before you can look to those numbers for guidance about what the peak in gold’s bull market will look like, you need to consider how the process that drove the earlier bull market compares with what is happening today.


The earlier bull market was driven by price inflation in the world’s reserve currency, the dollar, that reached an annual rate of 14%. The more expensive it became to use dollars as a store of value (i.e., the more rapidly the dollar’s purchasing power was declining), the more attractive gold became as an alternative way to store value.


The dollar is still the world’s reserve currency. (And not just for central banks. Among individuals and private businesses that want to diversify out of their home currency, the dollar is still Number One.) And the force driving the bull market in gold is once again price inflation. But this time it isn’t actual price inflation that is on the mind of gold buyers around the world. It is the potential for price inflation that is building up. That build-up is coming from:

  • Rapid expansion in the U.S. monetary base through the Federal Reserve’s asset purchases. Most of that expansion has yet to be reflected in a growth in the U.S. money supply. It is still sitting, like a charge in a capacitor, waiting for something to set it off. There was no similar liquidity bomb stored in the U.S. economy's closet during the years leading up to 1980.
  • Unprecedented growth in federal government debt, which adds to the political attractiveness of price inflation. There were federal deficits during the 1970s, but nothing like today's – just enough to give the party out of power at any time something to talk about.
  • The accumulation of U.S. Treasury debt and privately issued dollar debt in the hands of foreign investors. U.S. debt to foreigners wasn't a factor in the years leading up to gold's 1980 peak. This time around, it could be a powerful force for accelerating inflation. Even moderate inflation could spook foreign investors. Their sales of Treasuries and other dollar-denominated IOUs would push down the foreign exchange value of the dollar, which would raise the cost of imports coming into the U.S., which would further stimulate price inflation. A nasty feedback.

    And foreign holdings of U.S. debt operate as a second vector feeding the political attractiveness of dollar price inflation. Depreciation of the dollar can be framed as a clever way to shortchange foreign creditors. "It hurts THEM, not US" would be the slogan.


All those factors are working to make price inflation distinctly more severe than it was in the 1970s, which argues for a higher peak price for gold. When the metal does surpass its 1980 peak in purchasing power, the event is likely to be widely reported in the press. I suggest that you not attach any significance to the event. It won't be time to sell.


Sell Signals


But the time to sell will come. Here are the signs I'll be looking for.


Gold and gold-related financial products will be commonplace.


Even today, most financial institutions still hold the "barbarous relic" attitude toward gold. Yes, you can get GLD through any stockbroker, but with a few exceptions, the brokerage firm's heart isn't in it. They offer GLD for the same reason even the best seafood restaurants have a steak on the menu – they know someone will ask for one, even though that's not what they are in business to serve.


Before the bull market is over, that attitude will change. Mainline brokerage firms won't just have gold-related products available, they will advertise them. They will boast about them. They'll claim to specialize in them. And it won't be just the brokers. Your local bank will offer gold-related CDs. Your insurance company may be offering life insurance denominated in ounces.


Gold going mainstream won't mean that the bull market is over, but it will be a sign that it's getting long in the tooth. An early warning signal.


You'll be hearing gold chatter wherever people talk about investing.


The inhabitants of Financial News TV Land will be talking about gold approvingly, and each of them will be trying to suggest he was early in recognizing the gold bull market. You won't be able to get through a golf game or a cocktail party without someone talking about gold. Even your brother-in-law will want to explain it to you.


The gold standard will become respectable.


Today advocates of the gold standard are seen as standing to the good side of whacko, but not by a big margin. But as gold attracts more converts in the investment world, the politicians will want to associate themselves with it by proposing some brand or other of gold convertibility for the dollar. Respectability for the gold standard will be a sign that a majority of the people who are going to buy gold already have.


Other things will look cheap to you.


When gold nears its peak, even if you suspect that that's what's happening, you won't feel certain about it. But when you start seeing investments – probably conventional stocks – that look like strong bargains, treat those sightings as a sign it's time to start selling gold. You know the reasons that led you to buy gold. If you are tempted to sell part of your holdings to buy something whose low price seems to give it better prospects, then you probably will be selling at the right time. You could be selling to the last new buyer.

----
source HERE

Full Story
Posted by Mr Thx Tuesday, November 16, 2010 0 comments
Related Posts Plugin for WordPress, Blogger...

Sekapur Sirih Seulas Pinang

My photo
Alor Gajah, Melaka, Malaysia
Sharing is caring. This blog is about sharing information that available in web space. The information is related to Finance, Business & Trading.

Enter your email address:

Delivered by FeedBurner

Malaysia