Gold Poised to Move Higher

Gold belongs in every investor’s portfolio. It is totally unique among financial assets, a physical metal commanding timeless and universal intrinsic value. It is a rock of stability in a chaotic world, a stark contrast to the complex web of mere promises to pay that is our modern faith-based financial system. Without gold, true diversification and protection from systemic risk is impossible.

Gold’s fundamentals are dazzlingly bullish. Like everything else on the planet that is freely bought and sold, gold’s price today and in the future is a direct function of its supply and demand. As long as its global demand exceeds its global supply on balance, gold’s price will continue powering higher in its secular bull. While it has already come far from its humble beginnings in the $250s in April 2001, it has a long way to run yet.

When I first started recommending physical gold coins to our subscribers in May 2001 in the $260s, gold was widely derided as an anachronistic relic. Not surprisingly after nearly quadrupling in the years since, it has earned vastly more respect today. Still, most mainstream investors have yet to understand gold’s bullish fundamentals so unfortunately they are missing out on the vast opportunities to come.

It is for these gold neophytes I am penning this essay. I will explore gold’s key fundamental drivers, both from the supply and demand sides. After you digest this high-level overview of gold’s fundamentals, you’ll have a much better idea of whether you should add some gold to your own investment portfolio. In order to streamline the enormous body of research underlying this effort, I’ve divided this essay into sections.

Supply - Mined Supply. Ultimately all gold is painstakingly chiseled from the bowels of the earth. But even with the best modern mining technology, this rare metal is still exceedingly hard to produce. Today’s gold miners face nearly insurmountable challenges on a myriad of fronts. It is really a wonder that any gold is produced at all when you consider just how difficult it is to bring new supplies to market.

First explorers have to find gold deposits. This isn’t easy. Not only is gold very scarce in the natural world, but prospectors have been scouring the planet for millennia looking for it. Most of the low-hanging-fruit gold deposits have probably already been found. It costs millions to explore, with very high odds of failure. And if a promising ore target is found, tens of millions more must be spent to drill and sample it to determine if it is economically viable. This risky exploration and proofing process takes years.

And once a deposit looks economically viable, the real fun begins. Miners must spend years more developing a mining plan and having it approved by various government authorities. At any stage in this long arduous journey, the government can torpedo the whole project resulting in a total loss. Unlike most businesses, mines cannot be moved when problems arise. So gold miners are totally at the mercy of corrupt bureaucrats. Extortion is common and even outright nationalization is a very real threat in many parts of the world. Radical fringe environmentalists constantly try to derail mining projects too.

After the government permits are obtained, construction must begin. This costs hundreds of millions, sometimes well over a billion, in today’s environment. Since gold mining is so risky the banks are often unwilling to loan money to miners, and if they do they demand onerous terms. So the companies have to issue shares in the equity markets to finance these projects. While financing was already difficult to obtain before the credit crisis and stock panic, many miners today are finding it impossible to come by now. Without financing, mines cannot be built.

Even if a miner somehow overcomes the long odds and brings its mine into production, often a decade after the deposit was first found, more challenges await. Even with extensive drilling before mining, the geology of the ore can vary dramatically from plan. This results in lower production, higher costs, and lower profits. Since gold is often only found in hostile climates today, bad weather can interfere with production in a variety of ways. Friendly governments can be usurped by unfriendly ones, raising the risks of crushing taxes or even confiscation.

For these reasons and many more, global gold production is actually falling despite the relatively high gold prices. Annual gold mined today, which is 70% of the world’s supply, is running over 4% lower than when this bull began in 2001! Global reserves are also shrinking, despite vast sums being spent on exploration. My business partner Scott Wright recently wrote an excellent essay, with charts, on worldwide gold production and reserves if you want to dig deeper. Despite this powerful gold bull, miners are falling further behind.

With mined gold supply heavily constrained despite the best efforts of the world’s elite miners and the strong gold-price incentives to produce, any demand growth cannot be satiated with mined gold. And even if gold mining somehow becomes easier (geopolitics are less hostile, for example), it will still take the better part of a decade before new supplies can be brought online. This is incredibly bullish for gold!

Supply - Central Bank Sales. Over centuries, central banks have accumulated vast hoards of gold bullion. Some of this was purchased righteously, but much was obtained via plunder and confiscation. Central banks as a group are the largest participants in the gold market. Thus they have become something of a bogeyman in the gold world. Many investors live in constant fear of future central-bank gold sales.

Seven years ago when gold was under $300, central banks made me anxious too. But they don’t any longer. Despite the mystical aura of dread surrounding them, they are merely gold investors like me. While their collective scale is very large, these behemoths are run by mere mortals who cannot see the future either. Whether buying or selling gold, central banks operate within the same market constraints as the rest of us.

In the entire history of the world, analysts estimate that about 162,500 metric tons of gold have been mined. Incidentally gold is so dense that a metric ton of it will fit in a solid cube less than 15 inches square. Thus all the gold ever mined anywhere would fit in a cube less than 67 feet per side! Of this global above-ground gold supply, as of Q3 2008 the world’s central banks held 29,784t. Thus the CBs control just 18% of the world’s total above-ground gold. Investors control a far-greater 82%.

Since this gold bull began in 2001, mined production has averaged about 2,500t per year. So if the world’s central banks decided to sell all their gold today, it would be like 12 years of production hitting the markets all at once. The gold price would utterly crash in such a scenario, it would be apocalyptic. Thankfully it will never happen for a wide array of reasons. First, 107 sovereign countries own this gold and they are never all going to agree on anything, let alone a coordinated gold dump.

Of this 29,784t of official gold holdings, 8,134t (27%) belongs to the United States. Many gold conspiracy theorists believe a big fraction of this gold has already been stealthily sold into the marketplace. This is very bullish if true since it reduces the threat of future sales. Even if the US still holds this gold though, the US dollar would probably collapse if an announcement was made that the US was dumping its gold reserves. It is extremely unlikely. 10,911t (37%) of this CB gold is held in the Eurozone, and this gold is a very high percentage of these countries’ total foreign-exchange reserves (58% in aggregate).

So European CBs have been selling gold aggressively to diversify since at least 1999. That year they met and formed what was later called the Central Bank Gold Agreement. They agreed to limit their collective gold sales to 400t annually over 5 years. In March 2004 in CBGA 2, this agreement was extended and expanded to a 500t-per-year maximum for another 5 years. While these targets haven’t always been hit in a given CBGA year (ending September), they are a good proxy for European CB sales as a whole.

Since 2000, European CBs alone have sold between 400t to 500t of gold annually. These are indeed big numbers, adding 16% to 20% to the global mined supply. Without these sales, gold’s price would have gone much higher. But even with them, gold has still nearly quadrupled since early 2001! This means even heavy sustained CB selling is not big enough to offset the growing investment demand for gold. So far in this secular gold bull, despite the CBs’ giant selling campaigns, gold has still powered higher.

Central banks are not an apocalyptic threat for gold. Every year European CBs sell gold, which makes their “market share” of total above-ground gold dwindle. And every year more gold is mined, further reducing CBs’ relative footprint in the gold world. Thus with each passing year, with every tonne of CB gold sold, central-bank impact and relevance in the gold market gradually fades. They are nowhere near as big of a threat today as they were in 2001 and with each passing year their positions continue to weaken.

And not all central banks are sellers. 10,739t (36%) of CB gold is held outside of the US and Europe. These Asian central banks will probably increasingly buy physical gold bullion. While Western CBs’ gold holdings generally represent 50% to 75% of each country’s total forex reserves, in Asia gold is just a few percent. Japan’s 765t of gold are just 2.1% of its forex reserves. China’s 600t are merely 0.9%. Russia’s 473t are only 2.1%. And India’s 358t account for a paltry 3.1%. These growing Asian giants need to diversify into gold, not out of it like the Western CBs. They will add to overall global investment demand.

The International Monetary Fund holds 3,217t (11% of official gold). Potential IMF gold sales are a perennial threat trotted out every few years to scare gold investors. Even back in 2001 IMF sales were discussed often, yet big IMF selling has still not come to pass in the 7 years since. Even if the IMF can get permission from its 185 member countries to sell gold, which is very unlikely for political reasons, the IMF gold cannot stop this secular gold bull. Bring it on, the Asian CBs would love to own the IMF gold.

At any rate, the key thing to remember about central-bank gold sales is they have been large and constant since gold was in the $250s. Yet even with this supply headwind, gold still nearly quadrupled to just over $1000 by early 2008! Even the worst that central banks could throw at gold wasn’t enough to seriously retard its secular bull. And with each tonne they sell, their relative share of above-ground gold (along with their relevance) dwindles. CB gold is finite. It is central banks that are the anachronism, not gold.

Demand - Investment Demand. With mined supply shrinking and central bank hoards dwindling, gold supplies are very constrained. And no matter how high the gold price goes, mining is not going to get much easier and in fact will probably continue to get more difficult. And central banks are not going to be able to conjure up more gold out of thin air like they do with their fiat paper currencies. With flat-to-shrinking supplies, demand is the wildcard that will drive gold prices in the coming decade.

Unlike all other commodities which are primarily used for industrial purposes, almost all gold demand is investment-driven. Gold’s intrinsic value has persisted for millennia, outliving every government, currency, and nation the world has ever seen. Gold is not a faith-based promise to pay like every other financial asset. Its innate value makes it easily negotiable, for anything anywhere, no matter what happens. Physical gold bullion should be the foundation of every investor’s portfolio.

All the demand categories below are subcategories of investment demand. For a broad array of reasons today, all kinds of investors all over the world are increasingly interested in gold investing. And in the financial world, the higher the price of anything goes the more people become interested in it. Performance and returns attract in capital, which creates a virtuous circle driving even higher prices. So a secular gold bull gradually becomes a self-fulfilling prophecy until supply once again eclipses demand.

Demand - Monetary Inflation. Inflation is always and exclusively purely monetary in nature. When central banks create fiat money out of thin air, it eventually filters into the real economy to compete for finite goods and services. Relatively more money bidding on relatively less goods and services means higher general prices. Inflation is devastating for investors, an immoral stealth tax levied by corrupt governments. Gold is the only financial asset that thrives in inflationary times.

And boy are we seeing inflation today! The socialistic financial-market bailouts, which now exceed $8 trillion in the US alone according to Bloomberg, are the biggest single inflationary event the world has ever witnessed. During the Great Stock Panic of 2008, within a matter of months Washington and the Fed inflated, spent, or guaranteed the equivalent of 55% of the entire GDP (all goods and services produced annually) in the whole United States of America!

This near-hyper inflation alone is exceedingly bullish for gold. But unfortunately central banks relentlessly inflating their money supplies is not an isolated event reserved for crises. They are always doing it! Since January 1980, the US Federal Reserve has grown MZM money by an astounding 10.4x! There are an order of magnitude more dollars floating around the world today than 3 decades ago. This equates to an 8.7% compound annual growth rate over 28 years.

This wouldn’t be a big deal if the underlying economy grew by 8.7% a year as well. If the pool of goods and services on which to spend money grows as fast as the money supply, there is no inflation. But obviously this is not the case. Since January 1980 US nominal GDP has only grown by 5.3x, only about half as much as the money supply. And the Fed is not alone here, all over the world broad money supplies in first-world nations generally average growth rates of around 7% annually.

At 7% annual growth rates globally, there is 6.6x more paper money in circulation today than there was in early 1980 at the top of the last secular gold bull. Yet over centuries, new mining has only added 1% to 2% to the aboveground gold supply annually. At 1.5% gold growth through mining each year, today’s gold supply is only 1.5x as big as 3 decades ago compared to 6.6x for money. Divide this out and there are 4.4x as many fiat-currency units (dollars, euros, everything) potentially chasing each ounce of gold today than at the end of the last gold bull!

If you multiply the famous $850 nominal high of January 1980 by this 4.4x outpacing of gold growth by monetary inflation, it yields a conservative end-of-bull target approaching $4000 per ounce. If you adjust by the lowballed Consumer Price Index instead, the real gold high in January 1980 in today’s dollars ran up around $2400. Either way, today’s gold bull has a long way to run before it reflects today’s inflation, let alone future inflation. Central banks’ only real ability is to inflate, inflate, inflate into infinity.

So monetary inflation is not going away. If anything it will only accelerate. In a fragile debt-based highly-leveraged global financial system, inflate or die is a literal truth. If central banks don’t keep inflating at ever-expanding rates, the whole worldwide system will implode. This perpetual accelerating fiat-paper inflation is unbelievably bullish for gold. As investors worldwide become more aware of the incredible monetary inflation around them, their appetite for gold investment will only grow.

Demand - Negative Real Interest Rates. When central banks are running their printing presses overtime and inflating like mad, nominal interest rates (yields on bonds) can slide below the rate of inflation. When this happens real inflation-adjusted interest rates go negative. In other words, merely by owning the best elite bonds like US Treasuries bond investors actually lose real purchasing power year after year! Naturally bond investors aren’t in the game to lose money, so negative real rates infuriate them.

Unfortunately just like the old Soviet Politburo, today’s central banks actively manipulate short-term interest rates. As we’ve seen in recent months, central banks can drive nominal interest rates down to zero if they desire. This abominable power is unbelievably destructive to free markets. It destroys the necessary natural balance between savers (investors) and debtors. And when capital transactions are no longer mutually beneficial to both parties, investors gradually start to walk away.

Thus negative real rates slowly strangle the life out of the bond markets. Bond investors, tired of being punished by the central banks for their act of saving and forced to subsidize debtors, gradually withdraw their capital. It is foolish to invest in a realm where you are guaranteed to lose real purchasing power for investing your scarce capital. Some fraction of this bond flight capital seeks refuge in gold. While gold doesn’t pay a yield, over millennia it has never failed to at very least keep pace with monetary inflation and preserve purchasing power.

And in today’s crazy environment of near-zero nominal yields on even US Treasury debt, mainstream bond investors’ traditional argument against gold is rendered moot. In normal times of positive real rates, the way the markets would always work without central-bank interference, bond investors object to gold because it pays no yield. Well, today bonds pay virtually no nominal yields either! And after inflation their real yields are terribly negative. This makes gold very attractive to mainstream debt investors.

Thus negative real rates, inflation exceeding nominal bond yields, is the most bullish possible monetary environment for gold. A couple weeks ago I wrote an essay on real rates and gold that includes long-term charts if you want to dig deeper into this crucial truth. Until the goofy Fed raises interest rates radically, say to 6%+, real rates will remain too low or negative and very bullish for gold. And as you know, there isn’t a snowball’s chance in hell that the cowardly Fed will push rates to 6%+ for many years to come, if ever.

Demand - Secular Dollar Bear. The central banks’ artificially-low interest-rate policies to subsidize debtors and punish savers wreak terrible collateral damage on currencies. The global currency markets are often driven by yield. If one first-world country’s bonds are yielding 2% while another’s are yielding 4%, currency investors and speculators will naturally gravitate to the higher yields. So today’s ludicrously-low US interest rates are ravaging the already-weak US dollar.

Once the world’s reserve currency, the mighty US dollar has been in a secular bear since mid-2001. As measured by the flagship US Dollar Index (a basket of major currencies), the dollar carved a series of new all-time lows in spring 2008. The long-term dollar charts show just how weak this currency has been, down 41.0% at worst in its secular bear to date. And this was all well before Ben Bernanke panicked and forced US interest rates to all-time lows near zero!

Today’s deeply negative real-rate environment will only strengthen and prolong the secular dollar bear. As the long-term USDX charts clearly reveal, the US dollar is always weak in a secular sense when real rates are too low or negative. A weaker dollar drives all kinds of investment interest in gold, from two major constituencies. Since gold is ultimately another currency, the only hard one on the planet, futures traders buy gold aggressively when the dollar sells off. A continuing dollar bear will drive major futures buying in gold.

Even more importantly, large foreign investors including central banks have far-too-much dollar exposure relative to their overall portfolios. This great overallocation was fine when the US dollar was in a secular bull in the 1990s. But these investors have already lost a fortune in the 2000s dollar bear and they will lose a lot more if this bear continues and they don’t diversify out of their overweight dollar holdings. While they will buy a lot of euros with their dollar sales, some major fraction will flow into gold.

The biggest buyers of gold to protect themselves from the ongoing dollar bear will be the Asian central banks. As mentioned above, they now have trivial fractions of their total forex reserves deployed in gold. Yet they have trillions of dollars worth of exposure in US dollars and US Treasuries, from 50% to 80% of their total reserves in falling US dollars! Asian CB diversification out of dollars into gold is mind-blowingly bullish for this metal.

At $800 per ounce, the 2500t of new gold mined each year is only worth $64b. If Asian central banks gradually move $1t (not even half of their US dollar reserves today) into gold in the coming decade, it would represent buying equivalent to almost 16 years of total world gold production! So the secular dollar bear, exacerbated by the Fed’s asinine 1970s-style negative-real-rate policy, is highly likely to spawn big CB gold buying out of Asia for diversification reasons. The ongoing dollar bear is very bullish for gold investment demand growth.

Demand - Secular Stock Bear. Bond investors, futures traders, and Asian central banks are not the only giant pools of capital that have huge incentives to invest heavily in gold today. So do stock investors. As I started warning about back in 2001, after the giant secular bull that peaked in early 2000 the US stock markets were due for a 17-year secular bear. This means 17 years of grinding sideways on balance, never heading too far above the 2000 highs over this entire multi-decade span.

These secular bears that occur after secular bulls are part of a great valuation-driven cycle in the stock markets that I call the Long Valuation Waves. The LVWs are the single most important force for long-term stock investors to understand, so please read my essay on them if you are not familiar. Since 2001 this analysis has proved dead right, even though most investors and analysts scoffed at it. I even used LVWs to warn about the S&P 500 getting cut in half back in January 2008 well before the recent stock panic.

Because we are indisputably in the secular-bear stage of our current LVW, the stock markets are likely to grind sideways for another 8 years or so. The last time a 17-year secular-bear hit the US stock markets, between 1966 and 1982, stock investors were flat on paper but they absorbed tremendous real losses after inflation. Realize that big 100% cyclical stock bulls are still possible and probable within these secular bears, but when all is said and done stocks will have merely ground sideways for nearly two decades.

As stock investors come to grips with this ugly reality, they will get more and more discouraged about general stocks. Kind of like negative real rates’ impact on bond-investor psychology, stock investors are going to increasingly realize how silly it is to stay heavily deployed in flat-trending stocks and suffer heavy real losses. Some fraction of these beleaguered stock investors will turn to gold for deliverance.

Between March 2000 and November 2008, the flagship S&P 500 US stock index lost a sickening 50.7%. Yet over this same span to the very day, gold soared 161.0% higher! Wouldn’t you have much rather been in gold since then, like we contrarians have? And if you instead optimize this span for the secular gold bull rather than the secular stock bear, it looks even better. From April 2001 to March 2008, gold soared 291.7% higher. Over this identical 7-year span the SPX was merely up 11.4%.

As mainstream stock investors start to better understand gold’s fundamentals, more and more of their massive pool of capital is going to flood into gold. Indeed this is already happening through the new gold ETFs. These exchange-traded funds act as a conduit between stock-market capital and the physical gold market. In fact, the GLD gold ETF in the US (the world’s largest by far) has grown its holdings from nothing to 775t held in trust on behalf of US stock investors in just 4 years! This single ETF now holds more gold than all but 6 of the world’s biggest central banks!

Demand - Secular Commodities Bull. During the secular stock bull from 1982 to 2000, capital was increasingly seduced into the stock markets to chase the phenomenal returns. This led other sectors to be starved for investment, particularly commodities. Thus global commodities-producing infrastructure was largely left rusting for the better part of two decades even while worldwide economic activity ramped up dramatically. This chronic underinvestment in supply and delivery infrastructure led to this decade’s great commodities bull.

Despite the brutally fast and large correction in commodities since July that was greatly exacerbated by the stock panic, these secular commodities bulls aren’t over. They tend to run 17 years on balance in history, with inverse phases to the stock LVWs. When stock markets are in secular bulls, commodities are in secular bears. And when stocks are in secular bears like today, commodities are in secular bulls.

Secular bull markets can’t end until global supply growth exceeds global demand growth. This has yet to happen in nearly all major commodities. No matter how high prices go, as gold mined production illustrates, commodities producers just can’t adjust fast enough to meet demand trends. It takes years to over a decade to find new supplies of raw materials and bring them to market. This inherent inelasticity of commodities supplies is what makes commodities bull markets so exciting and exceedingly profitable.

On top of today’s demand, half the world (primarily Asia and Africa) is now industrializing. Billions of people are working incredibly hard to increase the standards of living for their families. And as standards of living rise, absolute commodities consumption will skyrocket. Sure, the average Chinese or Indian is never likely to consume as much per-capita as we Americans are blessed to do today. But since they are starting from such low levels, and since there are billions of Asians, even if they ultimately get to 1/5th the per-capita levels of US consumption of major commodities then aggregate global demand will explode.

As this commodities bull powers higher worldwide, gold will get increasing attention from investors. While gold is not the king of commodities like oil, gold is the easiest and most logical way to invest in commodities. It is easily bought and sold, extremely valuable for its volume and weight, completely portable, and very easy to store. So as the global commodities bull reemerges from this severe correction and powers higher, untold hundreds of millions of investors worldwide will start adding gold to their portfolios.

Demand - Rise of the Asian Consumer. We’ve already discussed Asian central banks needing to diversify their dollar-dominated forex reserves into gold. But another huge source of future investment demand is going to be from average Asian consumers. Unlike Americans and increasingly Europeans, Asians have a deep cultural affinity for gold. They have always respected it and want to own it even when it is not performing well. They understand from painful historical experience how physical gold protects them from corrupt governments, paper currencies, and unforeseen financial disruptions.

As the industrialization of Asia (and Africa) makes consumers more affluent, they will demand much more gold investment. Asians tend to be big savers (investors) even in lean times, and as their incomes grow they will have larger surpluses available to invest after living expenses. There is no doubt a big fraction of these surpluses will buy gold. While each Asian won’t be able to afford much by Western investors’ standards, with billions of them the aggregate increase in gold demand will still be stunning.

And Asian stock markets weren’t immune to the recent stock panic. In fact, they fell more violently than the US markets in many cases. Gold denominated in other currencies did far better in the global stock panic than it did denominated in US dollars, approaching all-time highs in some cases. So the new Asian investing class, terribly shaken by the stock-market carnage, is now more likely than ever to diversify some of its capital into gold.

Over the coming decade, the rise of the Asian consumer/investor could be more bullish for gold investment demand than all the other demand factors combined. Asian investment demand barely existed during the 1970s gold bull, yet that bull was still huge. Imagine how big today’s will ultimately prove with Asia finally on board.

Suppy and Demand - Technical Proof. There are many other secondary factors likely to increase global gold investment demand. The Information Age is an example. During the 1970s gold bull, Wall Street hated gold just like it does today. So back then many investors couldn’t learn about gold because the mainstream media monopolized information flow. Lack of widely-available good analysis on gold retarded that famous gold bull, which was still very large (+2,332%!).

But thanks to the Internet, the mainstream media’s stranglehold on information has been shattered. Today anyone anywhere can easily learn about gold fundamentals. This is very bullish for gold. Thanks to the Internet, today any investor can order physical gold coins in a matter of minutes that will be delivered to his doorstep a few days later. Thanks to computers, today stock investors who wouldn’t bother with gold coins in a million years can buy a gold ETF in seconds to add gold exposure to their portfolios. We live in a wondrous era!

Ultimately though, the proof of this gold bull is in its secular chart. The path gold has carved here is the aggregate result of every ounce of gold bought or sold on this planet since 2001. Every central bank sale is reflected here. Every gold investment made by individuals and institutions is reflected here. Every sale of gold, whether to fund a kid’s college education, buy a house, or whatever, is reflected here. This chart is the distillation of all global supply and demand for gold. And its message is crystal clear.

Since early 2001, gold has nearly quadrupled at best. It has relentlessly carved higher highs and higher lows on a secular basis. Its dollar price has increased every single year (the green numbers on the bottom show the amounts). The only way such results are possible is if global demand growth has indeed exceeded supply growth since 2001. I challenge you to find another investment that can even approach such performance in the incredibly chaotic markets we’ve witnessed over the last 7 years. Gold is already in an elite class of its own.

At Zeal we’ve been long physical gold since it traded in the $260s in May 2001. Our subscribers have already made fortunes in the 7 years since heeding our analysis and recommendations. So we are certainly not new to this gold party, we were buying gold and gold stocks back in the early 2000s when it was considered lunacy to do so. We are true contrarians who have been battle-tested, and prevailed, in this challenging financial decade.

We are going to work hard to continue excelling in the next decade, capitalizing on the ongoing gold and general-commodities secular bulls. We publish acclaimed weekly and monthly newsletters that detail our market analysis on an ongoing basis and the real-world trades we are making based on it.

We also just finished a deep new 36-page fundamental report on our 12 favorite gold stocks, the result of hundreds of hours of research looking at all the world’s publicly-traded primary gold producers. As gold powers higher, gold stocks should continue to leverage its gains.

The bottom line is gold’s fundamentals are more bullish today than ever. Despite relatively high prices, mined supply is shrinking. Central banks’ relative power in this market is waning dramatically. And thanks to both natural market forces and artificial manipulation contrivances, global investment demand for gold is likely to grow tremendously from today’s levels. This secular gold bull is far from over friends!

Comments

[bosun.j:]

Don't anyone tell Brochstien about this!!

2008 Dec 28 09:18 AM

[bluesmoke:]

Very good article. I wouldn't take silver out of the equation either.

2008 Dec 28 10:06 AM

[otbricki:]

Let us get this straight. Gold is not an investment. It does not return any income after purchase. It has no intrinsic value since it has no utilitarian value. It costs money to store. One can talk about fundamentals in that it is costing more to produce over time, but since owning it produces no income it truly has the same fundamental value as any other non-productive asset, i.e. zero.

Gold is a hedge against currency value fluctuations. The only reason people buy and sell it because of its historical use as money. There is no other reason that it has any value.

There is a reason that the value of gold drops in a famine. You can't eat it and you can't use it to produce food.

Sooner or later people are going to realize that value of gold is psychological only, and our past obsession with this metal will be regarded as a historical curiosity.

2008 Dec 28 10:09 AM

[Chizza:]

Yes, the fundamentals could not look better for Gold at this point in terms of money suppply. My question is how much of the current price has factored this all in? I like gold long term but to me it looks attractive at much lower levels. The smart money bought Gold in October and November. GDX is up over 100% in the last couple months. It is all over the headlines now, it is its seasonal time, retail demand is off the charts, and Gold is only at $870? When are these guys going to take profits? I agree the outlook for Gold looks better than anything else for the forseeable future but I am afraid that getting long now will end in tears.

2008 Dec 28 10:26 AM

[silverwood:]

Gold's value is derived from it use as money. Gold's use as money was discovered by trial and error over a long history. Why it is valuable is because when used as money it provides the discipline to corrupt politicians and greedy bankers. That is gold's utility! Silver has similiar properties.

2008 Dec 28 10:36 AM

[PeteK:]

Gold mining companies are moving up nicely.
In fact all mining companies are good deals right now.
No matter what happens, this world will always need
to dig up something from this earth.

2008 Dec 28 11:28 AM

[Curiousgold:]

So what to you advise . . .since I agree that we cannot eat gold or use it to produce something to eat? There has to be a golden mean where do you find it?


On Dec 28 10:09 AM otbricki wrote:

> Let us get this straight. Gold is not an investment. It does not
> return any income after purchase. It has no intrinsic value since
> it has no utilitarian value. It costs money to store. One can talk
> about fundamentals in that it is costing more to produce over time,
> but since owning it produces no income it truly has the same fundamental
> value as any other non-productive asset, i.e. zero.
>
> Gold is a hedge against currency value fluctuations. The only reason
> people buy and sell it because of its historical use as money. There
> is no other reason that it has any value.
>
> There is a reason that the value of gold drops in a famine. You can't
> eat it and you can't use it to produce food.
>
> Sooner or later people are going to realize that value of gold is
> psychological only, and our past obsession with this metal will be
> regarded as a historical curiosity.

2008 Dec 28 12:25 PM

[secmaven:]

Sellers other than the Central banks officially acknowledged sales have been selling gold big time in 2008 or its price would have blown out of the park with the creation of so many additional trillions in fiat money. The flatlining looks very suspicious in view of the economic landscape.

Some gold bugs point the finger at the Fed's stooge bank JP Morgan Chase and its one man short selling band on the Comex. It JPM's shenanigans are indeed the reason, when and if the Comex physical stocks are called to meet demand that caper will be over and the market rules.

On the other hand if the flatlining in the 2008 gold price was caused by profit taking and de-leveraging sales by commodity and hedge funds, a more likely scenario, more of the same in 2009 again disappoint gold investors while a bear market Obama rally in stocks will attract the big money.

Hope that the dollar will collapse due to monetization of debt should be dashed simply on the fact that the yen is the strongest currency in the world despite the monetization of trillions of Japanese Government yen bonds over the last ten years. And Japan's gold reserves are miniscule. The Fed has announced that it will provide the liquidity demanded by the world to replace all of the debt that has gone to money heaven. Gold has become only a side show to the circus of world wide financial machinations.

2008 Dec 28 01:19 PM

[LongonGold:]

Gold went flat because the unquestioning masses actually believed the campaign promises of an untested presidential candidate. Now what is he saying? "OOppps. Maybe I can't do that just yet." Please, don't buy gold! There is only so much and obviously some of you can't see its value even though your government is printing paper money like greeting cards. The TARP is already corrupted and once that fails where will you go for a safe haven? You can't eat worthless dollar bills either but I'll bet you want more.
Adam Hamilton has obviously spent a lot of time researching and providing information for those of us who can understand and appreciate.
Thank you Mr. Hamilton. Alexander knew his stuff and so do you!

2008 Dec 28 01:31 PM

[Mark123:]

Alexander Hamilton rocks...... Adam Hamilton rules!!!!

2008 Dec 28 01:41 PM

[Mark McHugh:]

While I generally agree with the author's views (especially long-term), I must dispute a few points:

The Central Banks are more powerful than ever, our government is borrowing unprecedented amounts of money to rescue private, for-profit banks from the federal reserve. The federal reserve is nothing more than a collection of private, for-profit banks.

Gold is not the contrarian investment it was in 2001. The trade-du-jour is long stocks - long gold (as evidenced by the lack of short interest in stocks). My spider-sense tells me that many of these players are employing leverage, which means that the gold price and stock indexes fates are tied together for now. I fully expect to see a margin squeeze in the very near future, that will take down both gold and stocks.

In the long run, I think Adam will be proven correct. But, I am not inclined to add new gold positions right now. If you are really afraid that you are going to miss the gold explosion, consider buying a call option on the GLD. Just keep some dry powder around in case the price drops.

2008 Dec 28 01:45 PM

[redou:]

Although well written - with plenty of useful information - this article cannot be considered authoratative. Reason? It fails to address the current deflation. Austrians tend to define deflation as a shrinking money supply. Others cite a shrinking credit supply. Most people simply see falling asset values, falling prices.

However you define deflation, it means investor / owners on many levels are taking losses.

As long as chaos reigns, fear will drive some investors into gold.
As long as gold is trending upward, greed will drive other investors into gold.

For the last 7 or 8 years now gold rose, mostly in response to a declining dollar, gold was a measure of inflation.

But now, depending on the length and depth of deflationary forces, the dollar is
rising. Cash is king in a deflation. Prices of many items are falling, the dollar buys more. The government is creating money at a rapid rate but asset valuations are dropping faster. Money is scarce. At some point, prices of goods and houses will drop low enough. People will be able to afford to buy. How long will this process last? 6 months? 6 years? This is not good for gold.

This article fails to address deflation.

PS - your gold may rise, as it has been doing for many years. But be ready to
sell quickly. The charts show that the fall after the peak is rapid.

2008 Dec 28 02:02 PM

[ejhickey:]

You could say the same thing about paper money. well maybe our paper money does have some other uses- wallpaper, insulation and toilet paper substitute


On Dec 28 10:09 AM otbricki wrote:

> Let us get this straight. Gold is not an investment. It does not
> return any income after purchase. It has no intrinsic value since
> it has no utilitarian value. It costs money to store. One can talk
> about fundamentals in that it is costing more to produce over time,
> but since owning it produces no income it truly has the same fundamental
> value as any other non-productive asset, i.e. zero.
>
> Gold is a hedge against currency value fluctuations. The only reason
> people buy and sell it because of its historical use as money. There
> is no other reason that it has any value.
>
> There is a reason that the value of gold drops in a famine. You can't
> eat it and you can't use it to produce food.
>
> Sooner or later people are going to realize that value of gold is
> psychological only, and our past obsession with this metal will be
> regarded as a historical curiosity.

2008 Dec 28 02:09 PM

[dondon:]

Hugh Hendry recently commented that he is waiting to get back into gold. He feels he will have a chance in the near future to get in under $500. Can anyone comment on why he feels gold will have a sharp downward move before starting back up again?

2008 Dec 28 02:10 PM

[Gold Barron:]

Gold is a long term investment. If you want to make money from gold I suggest buying ETF like GLD only. You can buy and sell it more easily.

You cant sell physical gold very easily. I own alot of physical gold/silver, but I know it would be difficult to sell it if I was in a rush to do so.

Ebay? They take 10% of your sell price. No thanks!

I dont think there will ever be hyper inflation in the US as some describe in their comments. I think the gold price could possibly hit 1300/oz in the next 3-5 years.

2008 Dec 28 02:52 PM

[Roger Knights:]

"Sooner or later people are going to realize that value of gold is psychological only"

A Keynsean could have written that 50+ years ago, when gold was $35, and it would have been as true then as it is now. (I.e., only trivially true; i.e., irrelevant.) If a substantial abandonment of gold were in the cards, it would have happened in the interim. Only the crew of the Titanic thinks its ship’s-money is as good as gold.

Let's parse that "only psychological." As opposed to what? Something with “real” value, like “real estate”? (“Safe as houses”—RIGHT!)

“Only psychological” is meant to suggest that gold's high price is a whim or a fad. But there's never been a time when people have disposed of it like an old Pet Rock. It’s the value of paper currency that is "only psychological." It’s based on the faith people have in the script-money of the national "ship" they're aboard. Historically, these ships have all foundered or gotten waterlogged (diluted), and their vouchers have accordingly lost value. Not so gold, because people perceive it as “honest money” that, if worst comes to worst, will retain value as a trading medium outside the reference-frame of the Titanic.

Gold of course is a poor investment as long as the ship’s safe. But it’s a prudent buy when it’s listing, or when there’s an iceberg on the horizon.

2008 Dec 28 04:04 PM

[Bruce Pile:]

The chart in the article, as Elliot Wave devotees would point out, traces out a text book example of the five waves of a bull move. We've had the first four - up, down, up, down. What's left is the third big multi-year up move. They project it to run to about 2015. That would make the entire gold bull market about 15 years in length - about par.

2008 Dec 28 05:03 PM

[otbricki:]

Paper money can also be composted and used to grow food or burned to provide energy.

On Dec 28 02:09 PM ejhickey wrote:

> You could say the same thing about paper money. well maybe our paper
> money does have some other uses- wallpaper, insulation and toilet
> paper substitute

2008 Dec 28 05:46 PM

[otbricki:]

Sorry to disappoint you but my mortgage is paid off. My youngest son just finished college too. Without any student loans.

Regardless of who I voted for, if we have hyperinflation it will be due to the massive debt accumulated due to the Republican concept of 'supply side economics' i.e. cut taxes but spend all you want on foreign military adventures that do nothing to shore up the US economy.

As far as central banks selling gold didn't we just see a lot of that last year? I thought so. Central banks buy and sell gold for political reasons. They don't have investment goals.

On Dec 28 02:12 PM Dollar Bull Sh** wrote:

> gold is a horrible investment....thats why central banks arent selling
> it....its idiots like otbricki that i guarantee a. bought his house
> at the peak and is now in foreclosure b. will be in line receiving
> soup from the government and c. probably voted for mr. hyperinflation
> obama ...good luck guy

2008 Dec 28 06:11 PM

[otbricki:]

I don't know when the concept of gold as money will totally die out. But it WILL happen. It is totally archaic and not based on anything but habit and tradition.

On Dec 28 04:04 PM Roger Knights wrote:

> "Sooner or later people are going to realize that value of gold is psychological only"...

2008 Dec 28 06:20 PM

[Mark123:]

Gold will no longer be money in 4.5 billion years when the sun burns out

2008 Dec 28 07:26 PM

[Greg Pinelli:]

Alpha is most fortunate to have Adam Hamilton write a column..he's one of the VERY few metals analysts I pay close attention to. My take on gold (and certainly silver is included) is that we are on the cusp of a defining moment for all paper currencies. Throughout my lifetime..which spans the original Bretton Woods agreement...the US $, like it or not, has been a universally accepted and highly dependable medium of exchange. Despit decades of depreciation it was only a fringe element that ever thought the dollar was dead as a currency. That may all be part of the past. The credit/liquidity ammunition is stocked and ready to fire..
I strongly recommend that everyone take at least a rudimentary position in gold...if you have the funds then silver also. By May 2009 the world's central banks are going to be between a rock a hard place..The credit expansion they want so badly will e monumental in scope and building at breakneck rates. What will they do then? Raise rates? Kill the recovering economies of the world? Very ugly stuff.......

2008 Dec 28 07:35 PM

[SW Richmond:]

In order to be completely rational, one must learn to apply the same reasoning to all reputed stores of value. How did paper become money? Originally, by being both redeemable (from the issuer) in gold AND easier to carry. Is it any more rational to accept bits of paper with "ink sprinkled on them" as valuable, when these bits of paper are no longer redeemable from the issuer in gold but now require the threat of force to be redeemable in anything?

On Dec 28 06:20 PM otbricki wrote:

> I don't know when the concept of gold as money will totally die out.
> But it WILL happen. It is totally archaic and not based on anything
> but habit and tradition.
>

2008 Dec 28 07:42 PM

[SW Richmond:]

Greg points out another important fact: after a nasty recession, IF the reinflation is successful, will there be any political will to raise rates and slow the economy?

2008 Dec 28 07:44 PM

[dollar bull...:]

Congrats on your son...too bad he didnt take out student loans, could be paying them back with trillion dollar notes here shortly....

in regards to your hyperinflation comment...republicans / democrats...who cares, this has been an ongoing problem for years...ie: since we got off of the gold standard / bren. woods....usa has put off a few recessions due to cheap money policy...no doubt...

Your comment on central banks is completely out of line..along with your comment about military...wait until we cut back our military spending...the usa will be a sitting duck...mark my words....

good luck to you this new year....currency crisis is coming this year! :)

On Dec 28 06:11 PM otbricki wrote:

> Sorry to disappoint you but my mortgage is paid off. My youngest
> son just finished college too. Without any student loans.
>
> Regardless of who I voted for, if we have hyperinflation it will
> be due to the massive debt accumulated due to the Republican concept
> of 'supply side economics' i.e. cut taxes but spend all you want
> on foreign military adventures that do nothing to shore up the US
> economy.
>
> As far as central banks selling gold didn't we just see a lot of
> that last year? I thought so. Central banks buy and sell gold for
> political reasons. They don't have investment goals.
>
> On Dec 28 02:12 PM Dollar Bull Sh** wrote:

2008 Dec 28 08:17 PM

[andy b:]

Your article states there have been 162,500t of gold mined in the entire world history, as of Q3, 2008. Of that, you state that central banks own 18% (29,784t) and investors own 82%. 18% of 162,500t is 29,250t, not 29,784t. That's a 534t discrepancy that needs to be clarified. Overall, I thought it was a great article.

Also, of interest, according to the World Gold Council website, the World Total Official Gold Holdings, as of December 10, 2008, are 29,697.1t. That would mean 87t have left the WTOGH's between Q3 (September), 2008 and December 10, 2008.

Let's see, 32,000 oz. in a ton x 87t = 2,784,000 oz. x current price of $885.00. 2,784,000 oz. x $885.00 = $2,463,840,000. That's apprx. $2.5 billion in gold sold off in the last 3 months by various central banks worldwide.

2008 Dec 28 09:07 PM

[Hugh_G_Rection:]

I own a coin shop and have been swamped by people selling their gold jewelry and coins. Check any newspaper and you will see buyers of gold and silver moving from town to town from hotel rooms buying metals. When this stuff gets through the refiners, you will see one of the biggest drops ever. Be forwarned!

2008 Dec 28 09:18 PM

[sheople:]

Otbricki,

I would just comment that eating paper money is not my idea of nutrition, either. I would also reiterate out what the author has already pointed out. Paper money becomes worhless as printing presses get warmed up. Gold and Silver will hold their value. It is very easy to get caught up in the excesses that we have enjoyed. Too bad they are coming to an end and it appears, the dollar too. It's time to think outside the box (somewhat overused, but makes the point.


On Dec 28 10:09 AM otbricki wrote:

> Let us get this straight. Gold is not an investment. It does not
> return any income after purchase. It has no intrinsic value since
> it has no utilitarian value. It costs money to store. One can talk
> about fundamentals in that it is costing more to produce over time,
> but since owning it produces no income it truly has the same fundamental
> value as any other non-productive asset, i.e. zero.
>
> Gold is a hedge against currency value fluctuations. The only reason
> people buy and sell it because of its historical use as money. There
> is no other reason that it has any value.
>
> There is a reason that the value of gold drops in a famine. You can't
> eat it and you can't use it to produce food.
>
> Sooner or later people are going to realize that value of gold is
> psychological only, and our past obsession with this metal will be
> regarded as a historical curiosity.

2008 Dec 28 09:39 PM

[jfoster99:]

I agree, It has already been 5,000 years the people have valued this useless gold junk. In just another 5,000 years people will use it for paper weights. But, until then I will store my wealth in Gold.


On Dec 28 10:09 AM otbricki wrote:

>.
>
> Sooner or later people are going to realize that value of gold is
> psychological only, and our past obsession with this metal will be
> regarded as a historical curiosity.

2008 Dec 28 10:36 PM

[Anthony Alfidi:]

The good news is that IAU is now optionable, like its competitor GLD. Gold bugs now have more ways to play the market.

2008 Dec 28 10:44 PM

[NOWHEREMAN:]

Another example of Charting by a Gold Bull. Everything said is correct when using this timeframe. There is no commentary on the Lower High and Lows seen since Gold Peaked, lotsa bullish, no Bearish Commentary.

Don't get me wrong here, I'm totally in the Bull camp. I just don't like one sided views which do not take in worst case scenarios.

One comment, being Bullish on Gold at this point is an even greater Contrarian Buy than it was in 2001. The Prospect of deflation for an extended period of time makes it so.

2008 Dec 28 11:05 PM

[Mark123:]

When is the ETF-SLV going to get options???? anybody??

2008 Dec 28 11:42 PM

[InvestBaboo:]

Don't think of Gold as a non-utilatarian metal with no intrinsic value -- think of Gold as yet another currency but one that is "hard" and one that carries no counter party risk. The current economic environment has made every country want to reduce the value of its currency so that it can stimulate exports. When they do that they basically are devaluing their currency against Gold which means Gold is destined to go to to new heights -- perhaps stratospheric heights!

2008 Dec 29 01:57 AM

[Econ Base:]

Since money is being printed and since nobody knows the future, it is reasonable to put a ceratin portion of your portfolio, perhaps 20%, in Gold and Platinum, latter being a better value since it is scarcer and almost same price of gold these days. However without inflation, upside of gold is limited. To summarize both cash and gold have a place in the portfolio.

2008 Dec 29 02:09 AM

[pkpdjh:]

Otbricki-I agree with everything you said here, except I would replace "gold" with "US dollars"

- US Dollars are not an investment.
- They have no intrinsic value.
- In a famine, you can't use it to produce food.

The only difference is that you can create US dollars with the push of a button. And that is why I think you can also say:

- People are going to realize that the value of US Dollars is strictly psychological

AND

- Our obsession with US Dollars will become a historical curiousity.

2008 Dec 29 03:04 AM

[Cosmic Ray:]

no idea


On Dec 28 11:42 PM Mark123 wrote:

> When is the ETF-SLV going to get options???? anybody??

2008 Dec 29 04:47 AM

[CLH:]

Gold going up? Wheres the inflation? Gold is over priced in a deflation. After the last deflation (1930s), it took 40 years for inflation to appear. I hope you are young.

Also dont forget gold never goes up. It bought a suit of clothes in 1500 and it still does.

2008 Dec 29 08:19 AM

[DenisL:]

On Dec 28 10:09 AM otbricki wrote:
> Sooner or later people are going to realize that value of gold is
> psychological only, and our past obsession with this metal will be
> regarded as a historical curiosity.

Yep.
And believing in paper money is also psychological. Our fellow humans CAN print as much as they want AND DO.

Physical gold can not be inflated.
EVERY country in the world is inflating its paper money right now.
Does that make you feel safe?
They are in a race to the bottom to see who can inflate the most and help their trade balance the most.

Does THIS help your psychology?

Look the choice of what to believe in for money is arbitrary. No system is perfect.

I trust the free market. I do not trust my fellow men, when they are politicians needing to print more money for war and for government programs to "help" our fellow man and to "help" get them re-elected!

Monetary policy, particularly inflation, has likely destroyed more countries and killed more people than war has, especially when you consider that monetary policies have led to many wars.

Let the market choose.

2008 Dec 29 09:11 AM

[goldis4ever:]

You could say the same thing with a Mona Lisa or Rembrandt. An apt comparison.


On Dec 28 10:09 AM otbricki wrote:

> Let us get this straight...

2008 Dec 29 09:56 AM

[AtTheMurph:]

I'd look at it a little differently.
All that scrap gold is meeting the demand currently. When that dries up the price of gold will rise faster.


On Dec 28 09:18 PM Hugh_G_Rection wrote:

> I own a coin shop and have been swamped by people selling their gold
> jewelry and coins. Check any newspaper and you will see buyers of
> gold and silver moving from town to town from hotel rooms buying
> metals. When this stuff gets through the refiners, you will see one
> of the biggest drops ever. Be forwarned!

2008 Dec 29 10:39 AM

[Hugh_G_Rection:]

I thought the same thing back in 1980 when people were standing in line to sell their stuff and I saw gold and silver plummet for almost 30 years. History repeats. Don't bet the farm or you may be waiting another few decades.


On Dec 29 10:39 AM AtTheMurph wrote:

> I'd look at it a little differently.
> All that scrap gold is meeting the demand currently. When that dries
> up the price of gold will rise faster.

2008 Dec 29 11:13 AM

[frank90291:]

facts ma'm, just give me the facts........... AND SET YOUR DAMNED STOPS!!

History is bunk........... what happens to the SP500 @ 6:30 (LA time) has little relation to what the the SP500 reads @ 10am......... 1980 has little to do with 2000 or 2008

finance.yahoo.com/etf/...

2008 Dec 29 12:09 PM

[Robert Perrego:]

uh yeah - gold was the worlds first currency and has been embedded in human psychology for thousands of years. In supply demand equations its supply increases very slowly while demand increases exponentially with population growth and wealth creation. Low supply - high demand = higher prices. Look at it this way - if rap music and gold teeth and chains become socially desirable in China gold goes to $4000 an ounce in a few months. Stop being in denial and whining about its return or value. Every product on the planet for all of history has had its value determined by desires and human psychology. Gold is too embedded as a status symbol and the desire for something shiny and pretty for way too long for your simple explanation to have any effect at all. Look at the big picture and then maybe you will see the answer. Its about supply, demand, psychology and - oh yeah - gold does not oxidize at all, once found, mined and refined it maintains its properties for good which si why it was given the status of currency in the first place. Get over the semantics and see the human condition and desires for what they are - foolish or not.


On Dec 28 10:09 AM otbricki wrote:

> Let us get this straight. Gold is not an investment...

2008 Dec 29 01:15 PM

[Dave Wrixon:]

I would put money on it, but the real value of gold won't have gone anywhere.

The dollar is bound to depreciate that much against any basket of currencies you car to mention.

Yes, it is a hedge against dollar collapse but other Fiat currencies will provide a more effective hedge. Hell you can even invest selectively in the domestic markets of those currencies and win both ways. Or you can sit and behold a gleaming rock.


On Dec 28 02:52 PM Gold Barron wrote:

> Gold is a long term investment. If you want to make money from gold
> I suggest buying ETF like GLD only. You can buy and sell it more
> easily.
>
> You cant sell physical gold very easily. I own alot of physical gold/silver,
> but I know it would be difficult to sell it if I was in a rush to
> do so.
>
> Ebay? They take 10% of your sell price. No thanks!
>
> I dont think there will ever be hyper inflation in the US as some
> describe in their comments. I think the gold price could possibly
> hit 1300/oz in the next 3-5 years.
>
>
>

2008 Dec 29 01:43 PM

[john the ba...:]

how about deflation for the usa and inflation for the rest of the world. In that situation gold would be a great investment on anything but dollar terms

2008 Dec 29 03:24 PM

[bricki:]

Crikey! Gold was not the first currency.

The Sumerians had the first monetary system in which they used a unit of exchange based on a certain weight of barley (the Shekel) what was then in turn backed by a basket of other commodities. They and the Babylonians had a legal structure on system of contracts that provided a true economic system.

It was not until 2500 years later that the first widely accepted metal based coinage was developed by the Greeks. Gold and silver coins became popular because of portability and the ability to determine their purity using a touchstone.

NONE of these properties of gold is required in a modern society.

Even as far back as the late 19th century the US dollar was effectively a fiat currency as there was no more than 15% or so of the gold needed to back the currency.

As far back as 1785 the US did not maintain enough silver in storage to back the silver certificate dollars it had in circulation.

2008 Dec 29 03:45 PM

[eBoof:]

Please, please tell which specific currency you are talking about. I want to beat the rush.
What will replace the US dollar as the World currency? Will it be the Euro, Yuan or Rupee?
Whatever it is, I hope it's backed by a more competent administration than has managed the dollar.
While we sort it out I'm happy to turn to gold, if I can get some!


On Dec 29 01:43 PM Dave Wrixon wrote:

> I would put money on it, but the real value of gold won't have gone
> anywhere.
>
> The dollar is bound to depreciate that much against any basket of
> currencies you car to mention.
>
> Yes, it is a hedge against dollar collapse but other Fiat currencies
> will provide a more effective hedge. Hell you can even invest selectively
> in the domestic markets of those currencies and win both ways. Or
> you can sit and behold a gleaming rock.

2008 Dec 29 06:14 PM

[brando:]

Alexander Hamilton is responsible for creating the privately owned Federal Reserve. He certainly rocked for the shareholders of the Fed.


On Dec 28 01:41 PM Mark123 wrote:

> Alexander Hamilton rocks...... Adam Hamilton rules!!!!

2008 Dec 29 08:54 PM

[LongonGold:]

Methinks you have been paying too much attention to your Hugh G Rection and not enough to your business. Those who are in debt are selling. Those who are free of debt - are buying. Where is your shop? My dealer cannot keep enough gold to meet demand. Maybe he could take some off your hands at 1o above spot.


On Dec 28 09:18 PM Hugh_G_Rection wrote:

> I own a coin shop and have been swamped by people selling their gold
> jewelry and coins. Check any newspaper and you will see buyers of
> gold and silver moving from town to town from hotel rooms buying
> metals. When this stuff gets through the refiners, you will see one
> of the biggest drops ever. Be forwarned!

2008 Dec 29 09:01 PM

[SW Richmond:]

What's the first rule of managing money?

NEVER FALL IN LOVE WITH A POSITION.

Fiat defenders tell gold bugs that they're irrational. They don't see that it is themselves who are clinging to the familiarity of their beloved fiat system. Paradigms are hard to break.

The world's love affair with fiat currency is about to end in a bitter split. The scorned lovers of the fiat system will follow their lover right off the cliff.

Good riddance.

2008 Dec 29 11:16 PM

[auto44:]

All assets have their time in the sun and their time in the shade in varing degrees. Money and stocks and bonds are just paper. Gold, silver, lead, copper, and mercury are just metals. Their rellative values change depending on what a large number of people believe at any given time. Folks basically bid for these items, it's an auction. To invest in anything you have to believe it is going to draw higher prices at the auction in the future than at the auction where you bought it. As a long time auctioneer and antique dealer I can tell you I have seen a lot of antiques come into style and a lot of them go out of style and people make the same mistakes there buying on last years prices only to find out things have changed. Investing is not a whole lot different. As for gold I currently hold about 10% of my investing wealth in it. It seems to me that all the money being printed by the worlds central banks will cause a large number of folks to bid up the price of gold in the future.

2008 Dec 30 01:02 AM

[no longer care:]

Is this an article or an advertisement? I feel like he is trying to sell me a seminar on how to buy property for no money down...



" But thanks to the Internet, the mainstream media’s stranglehold on information has been shattered. Today anyone anywhere can easily learn
about gold fundamentals. This is very bullish for gold. Thanks to the Internet,
today any investor can order physical gold coins in a matter of minutes that
will be delivered to his doorstep a few days later. Thanks to computers, today stock investors who wouldn’t bother with gold coins in a million years can buy a gold ETF in seconds to add gold exposure to their portfolios. We live in a wondrous era.

Ultimately though, the proof of this gold bull is in its secular chart. The path gold has carved here is the aggregate result of every ounce of gold bought or sold on this planet since 2001. Every central bank sale is reflected here. Every gold investment made by individuals and institutions is reflected here. Every sale of gold, whether to fund a kid’s college education, buy a house, or whatever, is reflected here. This chart is the distillation of all global supply and demand for gold. And its message is crystal clear. "


Indeed, it sounds like "Hurry! Buy now, supplies are limited!"

Good luck on that and lemme know how it works out for ya!

2008 Dec 30 02:33 AM

[SW Richmond:]

Let me also take a moment to point out (yet again, as it has been pointed out many times already) a delicious irony: B schoolers are taught to evaluate financial assets based on their yield, and this is the basis for many posts that demean owners of gold.

So with real dollar yields negative, and likely to remain so for years to come, tell me again why we should hold dollars?

Do you guys remember the definition of "wasting asset"? I'm sure they taught you that one, too.

2008 Dec 30 08:07 AM

[Peter Cooper:]

Yes this is fine but how to best lever gold for investment gain is another thing. Have a look at the articles on my website for more ideas. You can structure a precious metals portfolio with some risky high performing assets and some bullion.

2008 Dec 30 08:10 AM

[bricki:]

A lot of the comments regarding paper currency are correct. It doesn't have any intrinsic value, and it has the flaw that a poor government can destroy its value. And I did say in my first comment that gold is a hedge against hyperinflation.

However that does not change my opinion of gold. It has no intrinsic value (I am tired of articles on Seeking Alpha that refer to gold as a store of value - what an semantically empty phrase that is). Its acceptance as valuable is merely one of tradition. It has very limited utility. It is not an investment. It is a shiny yellow metal that is a poor electrical conductor with an absurdly low strength to weight ratio and good oxidation resistance. That is all it is. Do not get tied up in the symbology.

2008 Dec 30 10:29 AM

[auto44:]

Gold is one of the greatest conductors of electricity. That is why it is used in outer space and in most electronic devises. The cheapest way to mine gold is by recycling these devises. The most profitable gold mining activity at the presrent time. Gold is really a status symbol, and what is more valuable to folks than status? It is hard to beat the beauty of something fine manufactured out of gold. The rariity and beauty of gold will I believe keep it relatively pricy. As with all things sometimes it's up and sometimes it's down, but it will always have value, unlike a lot of thngs,maybe paper money included.


On Dec 30 10:29 AM bricki wrote:

> A lot of the comments regarding paper currency are correct. It doesn't
> have any intrinsic value, and it has the flaw that a poor government
> can destroy its value. And I did say in my first comment that gold
> is a hedge against hyperinflation.
>
> However that does not change my opinion of gold. It has no intrinsic
> value (I am tired of articles on Seeking Alpha that refer to gold
> as a store of value - what an semantically empty phrase that is).
> Its acceptance as valuable is merely one of tradition. It has very
> limited utility. It is not an investment. It is a shiny yellow metal
> that is a poor electrical conductor with an absurdly low strength
> to weight ratio and good oxidation resistance. That is all it is.
> Do not get tied up in the symbology.
>
>
>
>
>
>

2008 Dec 30 11:29 AM

[Carl Martin:]

This author is not just some guy writing something. I've been following him for years, and he really does seem to know what he is talking about. He does tremendous amounts of research before writing anything,and provides really good home made charts to back everything up. Try going to his home page at zealllc.com

2008 Dec 30 11:45 AM

[William Feader:]

gold’s price today and in the future is a direct function of its supply and demand.

Uh, I think you better speak to the CIA and JP Morgan because they don't think the price of gold is based on supply and demand, nor do I.

2008 Dec 30 01:28 PM

[William Feader:]

Yeah, but speculation on the things we can eat and use is counter productive, which is why people invest in gold - BECAUSE YOU CAN"T EAT IT AND CAN"T BURN IT DUMMY.


On Dec 28 10:09 AM otbricki wrote:

> Let us get this straight...

2008 Dec 30 01:38 PM

[Commodity B...:]

The secular commodity bull is over. Oil down 70%, Copper down 70%, corn down 65%, silver down 50%, steel down 70%, etc.

Gold's turn is coming. In past historical commodity downturns, gold is usually the last commodity to crack. For instance, in the 1980s commodity price runup, gold peaked after all of the other commodities did. Same thing happened in the 1970s.

I expect another run up of 30-40% in the next 6-9 months, followed by a horrific collapse once investors cannot borrow money to buy gold.

Commodities are cyclical and will not be the first to come back once the market economy improves. The next significant rally will be late 2010s when no one is looking.

Enjoy the ride boys

2008 Dec 30 04:50 PM

[Bruce Pile:]

I don't know if you should say that the commodity bull market is over or if you should say it has been superseded by a global debt/monetary thing that we've never had in any past cycles. I don't think you can expect gold and silver to behave relative to the other non-monetary commodities the way they have in the past. You have a totally new debt and currency implosion now that makes the past economic cycles of limited use in modeling what any commodity will do. Gold and silver will probably be controlled by what this debt thing is doing to the world's paper wealth while the practical use commodities will be controlled by the economy.

2008 Dec 30 08:12 PM

[asleeper:]

Otbricki and others, CLH for example, are not just confused about gold; they are confused about money and “investing” in general. Otbricki wrote, “There is a reason that the value of gold drops in a famine…”. CLH criticized gold, “… gold never goes up. It bought a suit of clothes in 1500 and it still does”, and “Gold is overpriced in a deflation”.

All money drops in value in a famine: gold, silver, paper; it doesn’t matter. The ratio of money to food increases dramatically in a famine, so each unit of money buys less food, and prices rise. But, printing more money doesn’t produce more food; it just increases food prices even more.

Likewise, in times of plenty, all money increases in value, and prices would drop, except for interference with the money supply by the banking sector. The bankers expand credit at such times and instead of the average person reaping the advantages of the plentiful harvest, the increased credit jacks up prices. The average Joe not only pays more for goods than he should but goes deeper into debt.

The strength of gold as money is that it cannot be easily inflated like paper. That is why an ounce of gold could buy a top notch suit before the Depression, during the Depression, and can still buy one today, but the $21 it took to buy a suit in 1929 will only buy a mediocre tie or belt in 2009.

Gold does not necessarily go down in value in a deflation either. In an actual money supply deflation, money becomes dear, and precious metals are money too, so they also become dear. [Keep in mind that a paper dollar inflation is highly unlikely. What we are seeing now is a deflation of prices in select areas: real estate, gas, publicly traded commodities, etc, due to the credit freeze, but the actual money supply is not dropping. The Government and Fed are pulling out the stops to prevent that. In the short term, anything can happen, but in the long term, we are likely to see a lower or flat stock market and higher precious metals and commodities prices.]

Anything can be an investment whether it provides a return on investment or not. In fact, even a money loser can be an investment, if the alternatives result in even greater losses. How else is it possible to explain the huge amounts of money flowing into Treasuries that provide a negative real rate of return? Simply preserving wealth by buying gold and silver was an effective investment strategy, as many Germans learned during their experience with hyperinflation.

Hamilton and many others lost a big chunk of money on gold and gold stocks in the recent market market crash, but he has been in gold for quite a while, so I’m sure he is still doing quite well. He is a great researcher, but like many investors and speculators, he has not put the same amount of research into the structure and politics of the U.S. monetary system as he did into his target markets. It is an indicator of risk for all paper assets, that stocks dropped the most, paper gold such as GLD and others dropped less, and physical gold and silver in private hands dropped the least in the market crash.

2008 Dec 30 11:04 PM

[asleeper:]

Correction: [Keep in mind that a paper dollar DEFLATION is highly unlikely. ...

2008 Dec 30 11:11 PM

[E Thomas St.:]

Irony defined in this comment


On Dec 29 11:16 PM SW Richmond wrote:

> What's the first rule of managing money?
>
> NEVER FALL IN LOVE WITH A POSITION.
>
> Fiat defenders tell gold bugs that they're irrational. They don't
> see that it is themselves who are clinging to the familiarity of
> their beloved fiat system. Paradigms are hard to break.
>
> The world's love affair with fiat currency is about to end in a bitter
> split. The scorned lovers of the fiat system will follow their lover
> right off the cliff.
>
> Good riddance.

2008 Dec 31 06:56 PM

[MattressStu...:]

Bricki: You just proved gold's value with your own comment. As you point out its value is not in conductance but that it does not oxidize. And it does actually have pretty good mho characteristics (look up its valence in a periodic table - wikipedia can help). Cu and Al oxidize. Sometimes that can be a good thing say in terms of a boundary layer you want to establish, but in general oxidization is not preferred when connecting between devices or components. So it has increased in value from an industrial/consumer products standpoint much in the same manner as diamonds. That people want to use those materials for jewelry and works of art just adds to it's total contribution to society which gives it. Can it lose its value - sure. Does have any value as a currency - naw. A rock can work just as well.


On Dec 30 10:29 AM bricki wrote:

> A lot of the comments regarding paper currency are correct. It doesn't
> have any intrinsic value, and it has the flaw that a poor government
> can destroy its value. And I did say in my first comment that gold
> is a hedge against hyperinflation.
>
> However that does not change my opinion of gold. It has no intrinsic
> value (I am tired of articles on Seeking Alpha that refer to gold
> as a store of value - what an semantically empty phrase that is).
> Its acceptance as valuable is merely one of tradition. It has very
> limited utility. It is not an investment. It is a shiny yellow metal
> that is a poor electrical conductor with an absurdly low strength
> to weight ratio and good oxidation resistance. That is all it is.
> Do not get tied up in the symbology.
>
>
>
>
>
>

Jan 01 09:45 PM

[Gold Barron:]

Yes! Gold is definately poised to move higher. At the time this article was written I suggested GLD. But I think the physical gold market is where every investor should be.

I stand corrected.

Jan 10 09:09 PM

[Gold Barron:]

Gold to $1500 sometime in 2009.

Jan 10 09:09 PM

[Gold Barron:]

I agree wit that. Gold is going to at least 1500 and silver should see 50 by 2012!!!!

Jan 10 09:11 PM

[Gold Barron:]

Silver to $50? Woohoo, that would be sweet!!!

Jan 10 09:12 PM