Gold: Now Demonstrating Trust in Obama

Gold is Starting to Believe the Obama Administration

Despite making loud headlines about stimulating the economy, the US government has been unable to raise the level of optimism among the general public, while the stock market seemed to drop into a deep state of apathy.

Last week we received the long-awaited economic stimulus packet as well as the so-called plan for the rescue of the US financial system. We have already voiced our skepticism regarding the structure of the stimulus and its potential effect on the economy in a prior article.

As far as the size of the $787 billion package, it is clear that it is too small and too spread out into 2010 and beyond to be called a stimulus. $787 billion is just 5.6% of the GDP and when spread over two years will account for just 2.8% at a time when many industrial economies around the world are contracting by 5-10% per year. It can only be called a life support package, not a stimulus.

Japan, which got into a deflationary spiral as a result of a real estate bust, spent much more than 100% of its GDP since 1991 just to see its economy stagnate. Construction related investment alone ate up $6.3 trillion of public funds over the 17 years since 1991. Infrastructure spending accounted for $350 billion to $400 billion per year for the first half of the 1990s for an economy half the size of the United States.

The results of the Japanese fiscal stimulus were unimpressive, although it could be argued that without this stimulus, it could have been much worse.

With the United States facing similar post bubble dynamics as Japan did twenty years ago, how can we expect greater effectiveness of the Obama stimulus plan when it is insufficient and much of is clearly misdirected?

In reality, this economic stimulus package has to be viewed as only the first one of many yet to come. By having the US dollar as a world reserve currency, the US government can be much more effective than its Japanese counterpart in printing its own currency.

We will soon be quantifying the size of the government stimulus plans in trillions rather than in billions. Within the next 3 to 4 years, government spending can easily reach $10 trillion, doubling the size of the US government debt.

One of the main problems with this crisis is that the majority of the debt bubble is related to residential real estate, which does not produce cash flow, but only seems to eat it up. As home prices decline and unemployment rises, debt serviceability is worsening dramatically.

In order to avoid social unrest and to maintain popularity, the Democratic majority will face two realistic options which could begin to address the economic disaster:

1. Forgive portions of mortgage debt which cannot be serviced. But who will pay for the losses – clearly not the weak banks. Uncle Sam would pick up the tab by printing more currency.
2. Print new dollars to increase the nominal income of the indebted population through tax cuts, job creation, jobless benefits and various social spending.

There is no other politically possible way out of this mess other than to run the printing press. The way of the free market via bankruptcies is not popular so there is no sense to even discuss it.

Within hours President Obama will sign the stimulus into law, but we are sure that this is just the beginning of the government spending campaign.

As far as the US banks, the new US Treasury Secretary seems to be mimicking his predecessor, Hank Paulson. The essence of the announced “plan” is as follows: “We are absolutely sure that we will save our banking system, but are yet unsure of how we will do so. We will find out very soon, however. Stay tuned”.

While not knowing what to do with the banking system, the government is trying to temporarily act as one. The only specific point in Geithner’s announcement is the plan to increase the Term Asset-Backed Securities Loan Facility (TALF) facility from $200 billion to $1 trillion. This joint initiative with the Federal Reserve expands the resources of the previously announced, but not yet implemented TALF.

In essence, TALF will support the purchase of loans by providing the financing to private investors. In theory, this should help unfreeze and lower interest rates for auto, small business, credit card and other consumer and business credit. Treasury will use $100 billion to leverage $1 trillion of lending from the Federal Reserve. The TALF, which will potentially have greater effect than the stimulus plan, passed in a blink of an eye without any debate.

The markets around the world have deteriorated in deep state of indifference to the first round of actions of the new US government. Only gold is starting to demonstrate its trust in the Democratic majority. Since the inauguration, investors poured $6 billion into gold purchases through GLD alone. This is an increase of 210 tonnes in gold holdings or 24% in less than a month.

click to enlarge

Huge investment demand around the world has put an end to a steep gold correction of the second half of 2008. Most intermediate and long term technical indicators for gold have turned decisively bullish. A test of new highs by gold is very probable this spring.

In sum, gold investors are starting to believe that the Obama Administration sees one way out of economic problems which will for sure resurrect inflation.

Comments

[phdinsuntan...:]

Japan succeeded in increasing competitiveness depreciating their own currency and domestic labour market and kept their industry exporting and making money overseas until 2008. I dont see this will happen in the US
easily. Gold is going up because non US investors are looking for options to the yen and US dollar as safe havens. Show me a srong dollar with gold prices going down and I will agress with your view.

Feb 16 07:26 AM

[Roger Knights:]

phd in suntanning:
The author's title was facetious (i.e., he was just kidding). He meant that gold buyers "trust" Obama to create inflation.

Feb 16 07:57 AM

[atlasman:]

I am a little out of my league here, but if people are buying or investing in gold, does this not show the market does not believe the government's actions (treasury plus stimulus) will work?

I ask because I have been considering moving to gold the last few months but cannot make up my mind.

Feb 16 07:59 AM

[Maximus:]

Atlasman,

Don't worry, we are all out of our league and no one knows where this is all going.

People who are buying gold are doing so because they think the Obama administration in conjunction with the Bernake-led Fed will "do what it takes" to keep the economy from collapsing (deflation with high unemployment and waves of bankruptcies).

The only way out of this collapse, as the author alludes, is to reinflate the economy through the printing of money. With more money in circulation and fewer goods, inflation will go up. This is the theory that current gold buyers believe in.

There is another theory that says that the government is not currently "doing what it takes." Paul Krugman just published an Op-Ed in the NY Times saying as much. He claims that we need fiscal stimuli in the trillions and not just billions.

If the government doesn't in fact "do enough" (i.e. print money), then deflation will take hold and the economy will continue to grind to a halt. Gold would likely go down in that scenario and the cash would remain king.

One other thing you should be aware of, there are also those who talk about manipulation in the gold market: that governments will begin shorting gold soon (March) in the hopes of causing a fall and later being able to repurchase at a cheaper price.

This later scenario is also possible. Tread into the market carefully. If you buy now, make sure you have stop loss orders in place.

If gold falls significantly in the next few months, I would then ramp up my purchases. I think the author is right, Obama and Bernake have no politically palatable choice other than to create inflation.

Feb 16 08:26 AM

[Spartacuss:]

It is amazing that there are so many bear comments on gold when it is so obvious that we are just beginning the huge surge of liquidity vis-a-vis Obamanomics.

The stage is set, the actors have taken their places, The curtain has risen and Dante's Inferno has begun.

Few out there comprehend the implications of our situation. Everyone is worried about recovery when they should be worried about survival...this whole thing is going to last a long time and it is going to get a lot uglier than it is now. I say this because there is no way to breath new life in Humpty Dumpty, he's dead. Why? Because there is no savings and everyone and every corporation is in debt. The whole of debt of all kinds simply is not serviceable by any standard and all new efforts by the governement and the FED only increase debt when by all standards we should be decreasing debt. However, we cannot decrease debt as the crash resulting would put the US in the position of a being a new bananna republic, hell, we might do that anyway.

Feb 16 08:44 AM

[SW Richmond:]

The Fed has successfully triggered deflation-hysteria and is prepping the public for the printing presses. From a Keynsian perspective, the stimulus bill is too little, too late, and more will be found "needed". The masses are (apparently) not yet sufficiently panicked to tolerate bigger and more destructive measures, but they'll be there soon. In the meantime, look for dollar and gold strength in tandem as non-US investors flee their local currencies, leading to this great observation: "Huge investment demand around the world has put an end to a steep gold correction of the second half of 2008."

We already have covert capital controls in the form of cooperative currency debasement, leaving capital nowhere to hide except in precious metals. If the run to gold continues, watch for overt protectionism and capital controls. These can take many forms:
1. High cap gain tax rates but only for precious metals
2. Political talk about drug cartels, organized crime and terrorists using gold to move wealth (too bad this time they can't blame it on the militias and home-schoolers)
3. More cross-border tax raids like US vs. Swiss banks

My principle contention has always been to acknowledge deflationary pressure as the driving force for the inflationary response. The more the deflationists wail about how bad the deflationary forces are, the more convinced I become about the radical severity of the governments' inflationary response.

One of my take-aways from Jim Sinclair is his prediction of a "Battle Royale" at $1000.00 gold. He was certainly right about that, we've been living it for the past year. Haven't we?

Feb 16 08:44 AM

[CaptainJJack:]

What boggles my mind is the logic used to support gold prices. Either we are facing massive inflation, and then gold goes up, or we are facing deflation, and gold goes --- up?

What is missing in all of this is a key variable: velocity of money. Clearly, the FED stands to monetize the debt, but IF you believe that the velocity of money will stay as low as it is now, it may not need to.

You may not have noticed, but consumption is falling off a cliff. People are paying down their debts and building up their bank accounts. In other words, people are saving.

In normal times, this saving would be invested in building more productive capacity, and if the government borrowed an extra 2-3 trillion, you would see interest rates skyrocket --- not next year, but TODAY.

Clearly, we've seen this much extra borrowing already. Bush spent 2 trillion dollars on tax cuts and another trillion on Iraq, and inflation and interest rates went ---down.

We have too much productive capacity, and we have too much fear, so business are not investing, and savers are getting meager returns -- or negative returns. If the government spends what hasn't been invested, you may see some increase in interest rates and inflation, but nothing like the gold bugs perceive.

The real issue is entitlement spending, and the biggest part of that is Medicare. If you REALLY want to deal with the deficit, fix Medicare. The rest of this is peanuts in comparison, and if we do not fix Medicare, gold may well be a good investment.

Feb 16 08:44 AM

[pacman1947:]

I cannot predict the future, nor can anyone. My crystal ball says that gold and the other PMs will see their values rise and fall like white noise in the midst of a total collapse of the market system. We may all be trading in credits in a few years, as all world currencies become worthless after the fall. What is a credit, well that is the currency of the debtor economy.

We can jockey for position in the new order. Ten dollars a credit? Six euros? Who knows?

We should invest in what produces results, not gambling with what little capital remains!

Feb 16 08:57 AM

[taojones:]

As a manufacturing jeweler i have seen these gold prices in the 70's an i saw what happens when everybody decides to dump. the fact is that you can't pay your grocery bill with a dwt of your gold stash. it is a fools paradise to hold a handful of shiny metal and think your any richer than the fools who thought their 200 thousand dollar house was worth a million.
The high prices of gold are ruining my industry and i caution you with the one axiom that has based my trade for 5000 years "gold ( or diamonds) are only worth what the next guy will pay for it !"
guys like this author are basically saying "we can play musical chairs forever the music will never stop" and the banks said "the price of real estate will never go down because they are not making any more land" Get serious! the reason i think the gold price went up in the first place was the arabs who were raping us on the oil price ( (a bid of 10 cents on a contract ups the delivery price 500% )needed a place to park the cash because they knew they would crash the economy . but that damage is done.the new deal starts now . they will be selling gold soon because there are real estate bargains to be had. watch out when the liquidation begins, does the name Bunker Hunt ring a bell?

Feb 16 09:13 AM

[taojones:]

exactly which governments are still on the gold standard?


On Feb 16 08:26 AM Maximus wrote:

> Atlasman,
>
> Don't worry, we are all out of our league and no one knows where
> this is all going.
>
> People who are buying gold are doing so because they think the Obama
> administration in conjunction with the Bernake-led Fed will "do what
> it takes" to keep the economy from collapsing (deflation with high
> unemployment and waves of bankruptcies).
>
> The only way out of this collapse, as the author alludes, is to reinflate
> the economy through the printing of money. With more money in circulation
> and fewer goods, inflation will go up. This is the theory that current
> gold buyers believe in.
>
> There is another theory that says that the government is not currently
> "doing what it takes." Paul Krugman just published an Op-Ed in the
> NY Times saying as much. He claims that we need fiscal stimuli in
> the trillions and not just billions.
>
> If the government doesn't in fact "do enough" (i.e. print money),
> then deflation will take hold and the economy will continue to grind
> to a halt. Gold would likely go down in that scenario and the cash
> would remain king.
>
> One other thing you should be aware of, there are also those who
> talk about manipulation in the gold market: that governments will
> begin shorting gold soon (March) in the hopes of causing a fall and
> later being able to repurchase at a cheaper price.
>
> This later scenario is also possible. Tread into the market carefully.
> If you buy now, make sure you have stop loss orders in place. <br/>
>
> If gold falls significantly in the next few months, I would then
> ramp up my purchases. I think the author is right, Obama and Bernake
> have no politically palatable choice other than to create inflation.

Feb 16 09:19 AM

[kelm:]

The US cannot just print money indefinitely to fund its problems even if we are the largest reserve currency in the world - at least at the moment. At some point the world loses confidence in your currency and it falls and is replaced by something else. At the moment there are a lot of governments printing with wild abandon. Gold is rising on TWO concerns, not one. First is, as the author states, a concern about inflation due to the increase in the money supply. True, velocity of money has to rise as well but it will. If anyone thinks you can increase the money supply to ridiculous levels and it just sits there benignly you will be badly mistaken. Second is the growing lack of trust in fiat currencies. A board member of the ECB talked about this last Thursday specifically stating that the rampant printing of currency by some nations would risked causing a lack of trust in state debt and therefore in the state itself. That is a polite way of saying that printing money willy nilly will debase the currency and cause investors to flee into other assets.

Finally, to those who say "but when gold collapses at the end of this bull run it will drop like a rock" - yes, just like every market or stock does when people pile in and then start to pile out. The same thing has happened in stocks, bonds, currencies, commodities for all time. Prices are set on the margins. If you understand this then you should be massively short US Treasury bonds.

Feb 16 09:40 AM

[Did U Think...:]

You are picking nits here. The dollar was bankrupted when Nixon defaulted on its convertibililty for gold back in 1971. All that has occurred since then is the exponential slowing of the momentum which our currency had back then given that it was the reserve currency of the world.

The dollar is doomed in the long run and it was always doomed ever since we made it worthless by removing its link to gold. Only a patsy doesn't understand what a con job the dollar is. Fortunately for obama there are still a lot of patsies out there left to fleece.

Feb 16 09:47 AM

[yellowhoard:]

I hear this comment all the time. "you can't buy your groceries with gold".

You're right. You'd probably have to drive one of your silver or gold coins to the coinshop and convert it to cash. Then you would have a small amount of cash from that particular point in time to go about your life.

Nobody is saying that physical metal will replace some type of paper currency. It will just hold it's value until you need paper currency.


On Feb 16 09:13 AM taojones wrote:

> As a manufacturing jeweler i have seen these gold prices in the 70's
> an i saw what happens when everybody decides to dump. the fact is
> that you can't pay your grocery bill with a dwt of your gold stash.
> it is a fools paradise to hold a handful of shiny metal and think
> your any richer than the fools who thought their 200 thousand dollar
> house was worth a million.
> The high prices of gold are ruining my industry and i caution you
> with the one axiom that has based my trade for 5000 years "gold (
> or diamonds) are only worth what the next guy will pay for it !"
>
> guys like this author are basically saying "we can play musical chairs
> forever the music will never stop" and the banks said "the price
> of real estate will never go down because they are not making any
> more land" Get serious! the reason i think the gold price went up
> in the first place was the arabs who were raping us on the oil price
> ( (a bid of 10 cents on a contract ups the delivery price 500% )needed
> a place to park the cash because they knew they would crash the economy
> . but that damage is done.the new deal starts now . they will be
> selling gold soon because there are real estate bargains to be had.
> watch out when the liquidation begins, does the name Bunker Hunt
> ring a bell?

Feb 16 09:48 AM

[JMac:]

$70 Trillion and climbing. Are we going to to see a new calendar? Instead of BC/AD (Before Christ / Anno Domini), will we go to OD/ND (Old Dollar / No Dollar)

Feb 16 09:48 AM

[Bill Jencks:]

The US is certainly trying to inflate away its massive debt. Unfortunately China has now spotted this ploy and is reducing it's Treasury buying rate to pre-Bailout Levels. Well done Bernanke !!

Meanwhile Pres. Obama seems to be throwing more truck loads of dollars at the financial problems, the same as Bush, except more. Wow, what a solid, original strategy.....And everyone wonders why 'market confidence' hasn't returned yet?

And then there is this teensy problem of the $65 trillion US Fiscal Debt which is still rocketing skywards towards Mars - I guess this is what's called laissez-faire economics, right?

And I'm thinking, perhaps this is why 'market confidence' is still shaking it's head vigorously and laughing its socks off....

Feb 16 10:04 AM

[Mayer Amsch...:]

Taojones,
Gold seems only to be worth a lot when there is a crisis of confidence in both currency and equity. Volcker ended the inflationary crisis of the 70s by jacking up interest rates, and when price deflation and stability returned to the system, owning gold suddenly was not worthwhile, so its price crashed (from $2000 of today's dollars). It seems that this crisis only really began three months ago and could play out for a while yet, and should inflation ever really take hold, Geithner doesn't have many resources available to end it.
I'd like to remind anyone who is strongly opinionated on any side of the inflation/deflation debate that this is not the Depression, this is not stagflation, this is not Japan in the '90s. We can learn from all of them, but we can't use any of them to model exactly what will happen. We may witness something entirely new, like monetary inflation and destruction of farm credit causing price inflation in basic necessities, but destruction of demand causing price deflation in finished goods. For that reason I also think it's a good idea to invest in some fuel and food ETFs; if the price of essential goods falls, so does your investment, but at least your basic living expenses also become cheaper.

Feb 16 10:13 AM

[Steve in Gr...:]

The author concludes “…In sum, gold investors are starting to believe that the Obama Administration sees one way out of economic problems which will for sure resurrect inflation.”

We are midway through a bull-run in gold, but for the opposite reason.

I am a gold investor. I am running to gold because Obama and his crew are going to make the economy much worse.

The Obama administration has no clue what government should do to help. In fact, they do not want recovery, because the further down they can push the private sector, the more power the government gains.

I hold gold and am increasing my holdings primarily because of the destructive intentions of the leftists (union-card check, tax increases, carbon dioxide tax, nationalized banks, nationalized healthcare, etc.). Gold is an all-weather store of value when the idiots are in charge. There is no place else to hide.

If I thought the economy was going to recover rapidly, I’d be in oil, silver and other commodities. But it is not, not while Pelosi, Frank, Dodd, Reid, Geithner, Bernanke and Obama are running the government.

Feb 16 10:30 AM

[HATEFEEBAY:]

I an long GDX (an ETF) for silver and gold mining stocks, but for the life of me I think silver is a LOT better value!

Feb 16 10:31 AM

[CoinMiner:]

Just because something is unpopular (allowing bad debt written off through corporate bankruptcy) doesn't mean it won't work. Even though the political will does not favor mass corporate bankruptcy, no government can prevent certain cases. General Motors is a prime example. They are to present a 'negotiated re-structuring' plan to congress tomorrow. That is just an euphemism for bankruptcy.

We can either swallow the bitter medicine now (bankruptcies) or live on ‘quality of life medicine’ (massive monetary inflation) for the foreseeable – and unforeseeable – future. Or, collapse when the medical regimen (‘stimulus’/inflation fails.)

Fact is the government will try to prevent brand name corporate marquee bankruptcies under the header of ‘saving jobs’, but they will let the common fools restructure mortgages (principal forgiveness= YOU pick up the tab) for political expediency.

Feb 16 10:55 AM

[tdillian:]

great article...

I have a question to more of experts on this board...... how can one buy gold? I mean physical gold?

b/c I have heard its better to buy physical gold than just on paper thru GLD... any opinions on this?

and if I wanted to buy physical gold, where I can do so, and how can I get a gurantee that its real??

any advise would be greatly appreciated. thanks.

Feb 16 10:58 AM

[SW Richmond:]

Coinminer,

"General Motors is a prime example. They are to present a 'negotiated re-structuring' plan to congress tomorrow. That is just an euphemism for bankruptcy."

They are IMO trying to avoid triggering a "credit event" for CDS purposes. Call in the lawyers!

Feb 16 11:42 AM

[yellowhoard:]

Google coin dealers and the name of your town. Some will post daily prices online. Contact the oldest dealers first. If they have been passing bogus coins, they would not get away with it for long. Government issued coins are your safest bet. Good luck!


On Feb 16 10:58 AM tdillian wrote:

> great article...
>
> I have a question to more of experts on this board...... how can
> one buy gold? I mean physical gold?
>
> b/c I have heard its better to buy physical gold than just on paper
> thru GLD... any opinions on this?
>
> and if I wanted to buy physical gold, where I can do so, and how
> can I get a gurantee that its real??
>
> any advise would be greatly appreciated. thanks.

Feb 16 11:48 AM

[HA65MPH:]

You can buy real' gold , pay cash , 4-5% perimium, i do not recommend etf`s...buzz about them really having the gold !!...if you have a mid-eastern jeweler in your area like i do , ..he goes to dubai and buys... it is real !...buy 1 oz..or 1/4 or 1/2 oz.....that is how i buy....silver is a good thing to hold as well ...i think the dark days have not set upon us yet , but it is coming..glta

Feb 16 12:00 PM

[5142152-337:]

atlasman: Jump in, buy PHYSICAL gold and silver. Forget the paper promises. They will only dissapoint you down the road.

tdillian: Depending where you live, you should be able to find a coin dealer or precious metals dealer. Ebay is another source. Read up on gold. Get a "Redbook" which is "A Guide Book of United States Coins" which is an annual coin reference book which I fiind immensely informative on US coinage including bullion.

To each is own, but I REFUSE to buy ANY paper gold and silver. I have 2 safes, and guns, and a dog. I live in an upscale neighborhood, not a trailer in the woods. Buy it, protect it.

In the words of a BILLIONAIRE who made his $$$ in commodities: Buy gold (and silver) and wait. Don't wait to buy gold (and silver)! Good luck!

Feb 16 12:03 PM

[Ian R. Camp...:]

I find the title of this article 'Gold: Now Demonstrating Trust in Obama' confusing. At first I thought Mr. Sobolev was suggesting that the recent gold price rise somehow was related to 'gold purchasers' 'trusting' President Obama and that was why the price had gone up. That made no sense to me. In the end, as I read this article it is just another 'inflation is going to come and gold is a good place to be' article. Personally, I am far from certain rampant U.S. inflation is a 'for sure thing'.

Feb 16 12:12 PM

[T.Stamps:]

Great article. Buy GLD. Buy more(as a percentage)physical for
insurance. There's not much obama can do but what he is
doing is the easier road.(I believe the wrong road)

Feb 16 12:14 PM

[HA65MPH:]

One more comment , with etf`s you have a paper trail...buy with cash , sell for cash ...do not sell ..lol...very serioues about not buying etf`s...i can sell if i want to for spot ..for cash....taxes on sale of gold 28%...if you report..but we all report'' right...

Feb 16 12:20 PM

[gold33vain:]

Question, where is all the gold coming from?

ETF's are touted ah having 100% of the gold shares outstanding backed by physical holdings.

Do the REALLY have the physical GOLD?

From Feb. 4, 2009 thru Feb.11, 2009...just six trading days, SPDR Gold Trust listed 75.5 METRIC TONNES of gold

Feb 16 12:34 PM

[RobertsJim:]

One way to create an instant stimulus, stop collapsing home values and to shore up many hurting banks is for the government to pay down every existing home mortgage by 80%.

Result: Affordable mortgages for all. Foreclosures are virtually eliminated. Falling housing values are abated if not stopped in their tracks. Banks are made more solvent, and our consumption based economy is invigorated by millions and millions of home owners who--having had their mortgages refinanced to 20% of its market value--have billions and billions of bucks with which to spend and save (which is merely deferred consumption, after all).

Cost: T'won't be cheap. For sure it will be in the same realm as all the other trillion dollar solutions to stoke America's engine so her train she can start a-movin again.

To recoup this massive investment by Uncle Sam in lots of real estate (75% of all homes have a mortgage), he'll need to place a lien on these houses so, when they sell, our generous Uncle can be made whole.

Feb 16 12:35 PM

[gold33vain:]

Continuation of previous comment:

75.5 METRIC TONNES were added to the "vaults". That's over 2 million ounces of physical gold supposedly added to the storage vaults IN 8 CALENDAR DAYS.

WHERE DID IT COME FROM??????????????

Feb 16 12:39 PM

[HA65MPH:]

DO NOT BELIEVE THE ETF`S ARE TELLING THE TRUTH !!!...IF BOUGHT AT COMEX IT WOULD SHOW UP , DONT YA THINK !....PONZI TYPE STUFF IF YOU ASK ME !!!...WHERE DID IT COME FROM ???...NO WHERE!

Feb 16 12:46 PM

[HA65MPH:]

GLD REPORTED , HUGE BUYS OF GOLD ...HUMMM WHERE DID IT COME FROM ???

Feb 16 12:47 PM

[auto44:]

this is also not the 1970's


On Feb 16 10:13 AM Just some dude wrote:

> Taojones,
> Gold seems only to be worth a lot when there is a crisis of confidence
> in both currency and equity. Volcker ended the inflationary crisis
> of the 70s by jacking up interest rates, and when price deflation
> and stability returned to the system, owning gold suddenly was not
> worthwhile, so its price crashed (from $2000 of today's dollars).
> It seems that this crisis only really began three months ago and
> could play out for a while yet, and should inflation ever really
> take hold, Geithner doesn't have many resources available to end
> it.
> I'd like to remind anyone who is strongly opinionated on any side
> of the inflation/deflation debate that this is not the Depression,
> this is not stagflation, this is not Japan in the '90s. We can learn
> from all of them, but we can't use any of them to model exactly what
> will happen. We may witness something entirely new, like monetary
> inflation and destruction of farm credit causing price inflation
> in basic necessities, but destruction of demand causing price deflation
> in finished goods. For that reason I also think it's a good idea
> to invest in some fuel and food ETFs; if the price of essential goods
> falls, so does your investment, but at least your basic living expenses
> also become cheaper.

Feb 16 12:47 PM

[gold33vain:]

Where did the gold come from added to "GLD" ETF.
IS THERE ANY REGULATION OF ETF'S????????

If 2 million ounces were traded/acquired/bought... over 6 business days in the open market, gold prices would have spiked $100-200./oz

Has any agency investigated the "physical gold" holdings of SPDR Gold Trust (GLD)?

Feb 16 01:00 PM

[auto44:]

(GLD) holds it's gold in London, it is my belief that the gold came from another owner in the same vault. Where do stocks come from when you buy them? Usually from a person or entity of some kind that owns them. It is my understanding that the gold bars have serial numbers and that it is just an accounting function to change ownership. Buying stock is basicly in most case an accounting functiion also. Are their risks? Of course there are always risks no matter what course you take. Good luck!

Feb 16 01:02 PM

[auto44:]

(GLD) holds it's gold in London, it is my belief that the gold came from another owner in the same vault. Where do stocks come from when you buy them? Usually from a person or entity of some kind that owns them. It is my understanding that the gold bars have serial numbers and that it is just an accounting function to change ownership. Buying stock is basicly in most case an accounting functiion also. Are their risks? Of course there are always risks no matter what course you take. Good luck!

Feb 16 01:02 PM

[gold33vain:]

Stocks are TRADED and do not have to be physicals. SPDR's Gold is not traded, it is stored for buyers who have made purchases.

If the "gold" came from another owner in the "same" vault, there would have been NO PHYSICAL CHANGE, just a transfer. X bought, minus X sold = O. The fund stated ADDITIONAL shares totaling 75.5 metric tonnes were added, not transferred. If the fund actually has physical gold reserves, where did it acquire 2+ million ounces in 8 calendar days to cover the newly purchased shares????

Is one of Madoff's relatives running the SPDR Gold Fund?

Feb 16 01:17 PM

[auto44:]

Added to their account and stocks are physical, trading billions of shares daily they are not added as new stocks they are going from one owner to another owner. Gold goes from one owner to another owner weather you move it physically or by transaction in either case.


On Feb 16 01:17 PM gold33vain wrote:

> Stocks are TRADED and do not have to be physicals. SPDR's Gold is
> not traded, it is stored for buyers who have made purchases.
>
> If the "gold" came from another owner in the "same" vault, there
> would have been NO PHYSICAL CHANGE, just a transfer. X bought, minus
> X sold = O. The fund stated ADDITIONAL shares totaling 75.5 metric
> tonnes were added, not transferred. If the fund actually has physical
> gold reserves, where did it acquire 2+ million ounces in 8 calendar
> days to cover the newly purchased shares????
>
> Is one of Madoff's relatives running the SPDR Gold Fund?

Feb 16 01:38 PM

[auto44:]

Gold33vain, It has been a long time since I first bought (gld) The perspectus does a much better job of explaining it than I do and it outlines potential risks, some of which concern you and others commenting here. If you want to get a better picture than I can provide you with I humbly suggest that you bring up the prospectus and read it. i would do it but I live in a rural area and being on dial up yet it would be to time consuming.
Respsctfully Yours

Feb 16 01:46 PM

[User 357992:]

You can buy physical gold at many places, but I suggest Monex.com. I have purchased from them numerous times. They are reliable and competitive on prices.


On Feb 16 10:58 AM tdillian wrote:

> great article...
>
> I have a question to more of experts on this board...... how can
> one buy gold? I mean physical gold?
>
> b/c I have heard its better to buy physical gold than just on paper
> thru GLD... any opinions on this?
>
> and if I wanted to buy physical gold, where I can do so, and how
> can I get a gurantee that its real??
>
> any advise would be greatly appreciated. thanks.

Feb 16 01:49 PM

[doubleguns:]

I also use monex to buy gold and silver. They can take a couple of weeeks to get your stuff to you if you use a personal check. NO CREDIT CARDS accepted. I have bought from other places but the prices and service were not as good.

1-800-949-4653 or go to monex.com short cut it so you can track live prices too!

Feb 16 03:06 PM

[Urbane Gori...:]

My interpretation of the title is that Gold is reacting to the stimulus package. In other words, a reduction in the flight to safety, or an expectation of lower gold prices. Personally I think gold is overblown, but in this market, who knows from day to day?

jegan


On Feb 16 07:57 AM Roger Knights wrote:

> phd in suntanning:
> The author's title was facetious (i.e., he was just kidding). He
> meant that gold buyers "trust" Obama to create inflation.

Feb 16 04:28 PM

[Sakata:]

On Feb 16 09:13 AM taojones wrote:

> As a manufacturing jeweler i have seen these gold prices in the 70's
> an i saw what happens when everybody decides to dump. the fact is
> that you can't pay your grocery bill with a dwt of your gold stash.
> it is a fools paradise to hold a handful of shiny metal and think
> your any richer than the fools who thought their 200 thousand dollar
> house was worth a million.

Maybe you cannot pay for your groceries with gold, but it may not be too long before you can pay for them with silver. Back during the oil crisis in 1973 some gas stations were offering gas for a dime a gallon, as long as it was a silver dime. If this happens again then gold will be reserved for the bigger items. So you should to buy a variety of gold, silver bullion and 90% silver. That way, when the time comes you will have the flexibility to pay for whatever you need with real money instead of one of these shares in the US economy which go by the name of dollars.

And don't forget. An ounce of gold will always buy about the same amount of anything as it did a thousand years ago. When priced in real money costs don't change a whole lot. It is only when priced in fiat currencies that you have to worry about inflation.

Feb 16 08:01 PM

[Robert D:]

The dollar going up or down is relative to other currencies. Gold going up or down is against just the dollar. The two are not necessarily connected at any point in time, and will not be connected over time unless one of the currencies pegs against gold.

Gold will skyrocket once the world abandons the dollar as the global reserve currency, not when you see any specific action between the "value of the dollar" and the price of gold.


On Feb 16 07:26 AM phdinsuntanning wrote:

> Japan succeeded in increasing competitiveness depreciating their
> own currency and domestic labour market and kept their industry exporting
> and making money overseas until 2008. I dont see this will happen
> in the US
> easily. Gold is going up because non US investors are looking for
> options to the yen and US dollar as safe havens. Show me a srong
> dollar with gold prices going down and I will agress with your view.

Feb 16 09:19 PM

[Bobco23:]

Go to Books a Million and get a copy of the newspaper "Coin World."

In that publication you will find dealers with references. You can purchase either collectible or bullion coins. Coins are my favorite way to own gold or silver. They are extrememly difficult to conterfiet and if you ever need to use them for transactions, they are individually small enough in value to be useable.

One dealer I have used with satisfaction is The Coin Depot. There are many others.


On Feb 16 10:58 AM tdillian wrote:

> great article...
>
> I have a question to more of experts on this board...... how can
> one buy gold? I mean physical gold?
>
> b/c I have heard its better to buy physical gold than just on paper
> thru GLD... any opinions on this?
>
> and if I wanted to buy physical gold, where I can do so, and how
> can I get a gurantee that its real??
>
> any advise would be greatly appreciated. thanks.

Feb 16 10:50 PM

[gold33vain:]

Just read a Reuters story that Russia has added a billion dollars worth of gold to their financial reserves in February. ETF SPDR "GLD" has added 200+ metric tonnes of gold to their "VAULT" over the past 6 weeks.

1. SPDR GLD could not PHYSICALLY add nearly 3 million ounces of gold to their vaults.

2. Russia could not have added a billion dollars worth of PHYSICAL gold to their holdings.

3. If these are actually PHYSICALS, gold would have gone up $200./oz OR MORE over the past week.

4. The European central banks stopped selling gold over 4 months ago.

5. These must be PAPER transactions.

6. If they indeed are PAPER TRANSACTIONS, we as gold investors have been manipulated...again!

7. If Russia actually DEMANDS a million dollars worth of gold PHYSICALS, (and from the Reuters story, will continue to purchase more) it probably will happen within the next 15-45 days and gold will go up dramatically...after it has been manipulated lower of accommodate the transaction.

8. SPDR shows a picture of their "Gold Storage Vault", however, I knew a guy who took a picture of a neighboring 3 story building with a nice store front, pasted his business name over the facade, and put the photo in his mailing and internet advertisements. He worked from his DINING ROOM!!!

9. Does London based SPDR really have this enormous "VAULT" filled with pallets of gold bars, or is this just another PAPER PONZI???

10. Better find a reliable coin or bullion dealer and get yourself some PHYSICAL GOLD while it is still available!

11. If you can't afford Gold, SILVER is the next best thing.

Feb 17 12:45 AM

[Did U Think...:]

On Feb 16 10:58 AM tdillian wrote:
> I have a question to more of experts on this board...... how can
> one buy gold? I mean physical gold?
>
> b/c I have heard its better to buy physical gold than just on paper
> thru GLD... any opinions on this?
>
> and if I wanted to buy physical gold, where I can do so, and how
> can I get a gurantee that its real??

Generally I don't take the time to respond to such basic questions because these are things that anyone can and should be using google to figure out by themselves. America needs to get into the habit of doing its own research and not relying so much on the kindess of strangers.

However since I think Americans need to get out of the 401k trap (yes, you heard me, TRAP, with bait in the form of tax deferrment and 401k match) and into honest money instead, I will take time to respond to this.

Investing in "paper" gold is no different than any other paper asset. You can make money like this but you run the risk that these are just another ponzi scheme as is being suggested at many places including GATA. But in our increasingly obvious Ponzi scheme of an economy, having physical posession removes all risk and that is where at least some of your long term savings should be, in risk free assets.

You can buy physical gold from ebay, craigs list and coin shops.

With ebay you don't get to see before you pay so when you buy, buy smaller quantities at a time to reduce your exposure of getting scammed.

With Craigs list, you get to see first and you also get to associate a physical person with the deal. He must know that if he screws you that you will be back with your good pal Mr. Molotov to settle the score. There is nothing that promotes honest trade more than face to face transactions IMO.

Unfortunately, with either of the above you will be paying more than you need to and you will also take a nonzero risk that the gold will be tampered with somehow. Bullion gold is generally sold in 3 forms: poured bars, stamped bars, and coins. Poured bars are generally several ounces at a whack and not everyone has that much money to spend at once. Also, they are pretty coarsely finished so it would not take very much for someone to drill out the center, fill it with lead, and then pour molten gold caps back on and finishing with sandpaper, etc. Since most people have never seen or held a gold bar they could get scammed easily and I can almost guarantee that as we enter gold mania this sort of thing will occur many times.

Stamped bars come in many sizes and the smaller ones are pretty difficult to drill into without it being easy to detect. Still, these can be edge shaved fairly easily and unless you have very accurate weight equipment you may not detect that Ceasar is clipping the coins.

Gold coins are by far the most intricately featured type of gold bullion. Most coins have ribbed edges making coin shaving impossible. They are too small to drill out and then rework to hide the theft. They also generally have the backing of a government mint guaranteeing their purity and weight. So if someone came up to me with a 10 oz gold bar or 10 1 oz gold coins I would much rather have the coins and thus they cost a bit more.

If you can afford to buy 10 oz or more at once, buy from Monex.com where your per coin price will be a lot lower than ebay, craigslist and especially the local coin shop. I have used Monex on multiple occasions for gold and silver bullion purchases. You can look them up on the web. You can just ask for any broker but I like the guy I have been dealing with: Allen Morse. 800 949-4653 x2246 He is the kind of guy you can just call and talk to and ask questions of even if you do not intend to buy yet. Highly recommended.

Feb 21 11:17 AM