Bundee

Gold as a Hedge, Not an Investment

Gold is like any other mineral: it can be discovered and mined at a given cost. As gold continues higher (for now), mining companies will step up their exploration and mine development projects. It is just the same as for oil, copper or phosphates.

...The most productive mines in the world, South African Gold Mines, have been declining in production, they went from 1,000 tonnes a year in 1970 to 238 tonnes this year, I doubt new supply will pick up the slack either short term or long term. China has ended exports of gold from its mines, The cost of gold exploration, the reluctance of banks and lenders to loan to miners to explore for gold, the 20 years of the gold bear market reducing the demand and number of trained geologists who can find gold deposits, environmental laws, Environmental NIMBY movements around the world all work to prevent new mines from opening at a rate to replace the mines that shut down.
......................
Once supply is cranked back up (from 30 years of increasing neglect), supply will exceed demand and the price for gold will decline. I did not write about this in the body of my article, but I appreciate your prompt for this.

….New mines will be opened, no doubt, but not as fast as can be expected. You don’t just blast a hole in the ground and viola, new mine. Miners must be hired, trucks must be rented or bought, tracks and mining cars must be obtained, the mineral itself must be found in core drilling which is not an easy or cheap undertaking, all these things and financial backing must be obtained before the first nugget of gold is extracted from the earth.

If pulling mineral wealth out of the ground were so easy then why isn’t crude oil going down in price with the ease of extracting the plentiful supply?
.......................
Any currency is based on the assets that underwrite the currency. This is what is meant by "backed by the full faith and credit of the United States". This is a phrase that means the aggregate assets.


A US Dollar Bill is backed by US Bonds, US T-bills and US Treasuries. The US Treasury also holds US Reserve Assets consisting of Euros, Yen, Special Drawing Rights and gold, but these assets have a value of less than 140 billion US Dollars.
Most of what backs the US Dollar is US Securities (US Bonds, US T-bills and US Treasuries)

So basically all of the currency issued by the US is backed by 140 billion in assets, not including the US bonds, T-Bills and Treasuries, and of course, the government’s word.

Search the US Treasury website and see what they state backs up the US Dollar besides “the full faith and credit of the US Government.”

Here is the US Treasury's own website, please look for yourself and please, please prove me wrong.
I would really like to be proved wrong that the US Government has assets other than debt and 140 Billion in currencies and gold to its name.

www.ustreas.gov/

Gold as a Hedge, Not an Investment

It is the fringe element that comes out of the woodwork in any speculative bubble and defends their position emotionally that causes the bubble to continue to inflate.

...Gold Bubble?
Gold has gone from roughly $250 in 2000 to $1,100 in 2009, an increase of roughly $85 dollars a year. That really doesn’t point to gold turning into a bubble. Furthermore, the man on the street is not treating gold the way he treated dot com stock in 1999 or housing in 2005, more likely he is selling his gold to the "we buy gold" hucksters on TV and print ad.
When the “we buy gold ” dealers advertise “we sell gold” and Joe Sixpack is talking about how great an investment his Krugerrands and Maple leafs are, then we will be in bubble territory.

.........................

....Gold is now trading on speculative fear of inflation, not the reality of inflation itself. So far, the dollar has not even been expanded (reflated) sufficiently to move asset values back to mid-2007 (check local house prices). Monetary expansion is definitely not inflationary, in America, at this point in time. For gold to be worth $1100, let alone $1500, then global central banks must be unable to stop the expansion that has started in an effort to stabilize asset values.

...Inflation is a monetary event, too much money chasing after too few goods. While it can be claimed that we have no inflation since ‘prices’ are not rising, it depends on what prices we are talking about. The gas pump and my food bill both state there is inflation in spite of the best arguments made by economists and their hedonic CPI. Perhaps we are enduring a new form of stagflation, wages are stagnating while prices of some items go up.
As for the argument
“ the dollar has not even been expanded (reflated) sufficiently to move asset values back to mid-2007 (check local house prices)”
It should be remembered that house prices were in a mega bubble and when it burst everything else was taken down with it, reminiscent of the Florida housing bubble of the 1920’s that was the precursor of the stock market crash of 1929.

.........................

There is not enough, nor enough interest in gold as a representative of the global asset base for it to serve as currency (and really no need). It is a speculative play only, and therefore is as likely to go down as up, especially once supplies begin to increase.

....If gold is a speculative play then why did the Central Bank of India buy 200 tons of gold? Why did China increase its gold reserves by 600 tons? Why is China preventing its gold from being exported to earn fiat currencies?
Maybe China has learned the lesson of fiat (paper) money since it was the first one to try to use fiat and end up with steep inflation.
.........................
It has been said that an ounce of gold would have bought a man a new suit back when George Washington was president and will buy a new suit today, yet the buying power of the money in our pockets has declined for decades. Even if you can find a company that pays excellent dividends, the buying power of those dollars earned as dividends are eroded over time, and lets not forget about taxes on dividends taking an additional bite out of dividends earned.

I will agree that the job of gold is not to make you rich, the job of gold is to keep you from growing poor as the paper money in your wallet loses its value over time.

Gartman on the 'Mind Boggling' Gold Bubble

Gold in a bubble? Not likely.

How to really tell if there is a gold bubble-

www.commodityonline.co...

.... I showed folks how to perform the ultimate test of whether an asset is "too popular" or "in a bubble."
Here it is:

Ask 100 people on the street if they own gold.
See what they say.

Don't ask folks who read newsletter writers like Doug Casey or Porter Stansberry. Don't ask folks who you regularly talk investments with. Ask randomly chosen members of the public if they know why gold is "real money". Why gold has climbed from $650 to $1,100 in the last three years.

I guarantee you the average person on the street is going to look at you like you asked him which airline offers nonstop flights to Venus.

....When a bull market gets too popular, it looks like tech stocks did back in 1999. This was when everybody and his brother bragged at the office Christmas party about making a fortune in Cisco or Microsoft. It was when schoolteachers, personal trainers, and cab drivers suddenly became tech stock experts. Folks knew what "bandwidth," "routers," and "e-commerce" meant. Only when an asset enjoys that sort of widespread attention can you say it's too popular.

I can't say that about gold right now.

*******************

Also, take into consideration the price of gold and inflation over the past 30 years. How many things produced today are cheaper than they were in 1979? Energy? Food? Clothes? Beer?
Gold has a long way to go before it reaches a new bubble peak, in spite of the gold bears claims.

IMF Gold Sales Vacuumed Up by Governments

To clarify your question dmintman-

When the IMF was formed it recieved gold from many countries to back up the value of its Special Drawing Rights (SDRs). Most of the IMF gold came from the U.S. The gold transfer was approved of by congress many years ago.
The gold was provided to the IMF from the U.S. with the provision that the gold could only be sold with approval of the majority of the IMF members (The US has a vote on IMF decisions, I think the US has 37% of the vote though it could be higher.)
Think of it as gold the USA does not list as its own gold but has control over.
Its sort of like if you have two lawnmowers and you loan a friend one, the mower your friend has is still legally yours but you don't have use of it, and your friend needs permission to sell it if it is all right with you.

The arguement is as I understand it-
The IMF needs to sell the gold
The sales generate cash (fiat cash)
The fiat cash is loaned to poor countries so they can improve their economies

The IMF claimed that it ran out of money to loan to poor countries so it needs to sell gold to raise cash.

..........
On Sep 21 09:29 PM dmintman wrote:

> You are saying that the 403 tonnes auctioned by the IMF is coming
> from the US reserve of gold? where did you get this info

Spiegel Interview Exposes Irrational Disdain for Sound Money

"What's the metal worth? You hardly can use it for industry,"
Hardly use it in industry?

geology.com/minerals/g...
-Uses of Gold in electronics
A small amount of gold is used in almost every sophisticated electronic device. This includes: cell phones, calculators, personal digital assistants, global positioning system units and other small electronic devices. Most large electronic appliances such as television sets also contain gold
-Medical Uses of Gold
Gold is used as a drug to treat a small number of medical conditions. Injections of weak solutions of sodium aurothiomalate or aurothioglucose are sometimes used to treat rheumatoid arthritis.
...Small amounts of gold are used to remedy a condition known as Lagophthalmos, which is an inability of a person to close their eyes completely. This condition is treated by implanting small amounts of gold in the upper eyelid. The implanted gold "weights" the eyelid and the force of gravity helps the eyelid close fully.

Radioactive gold is used in diagnosis. It is injected in a colloidal solution that can be tracked as a beta emitter as it passes through the body. Many surgical instruments, electronic equipment and life-support devices are made using small amounts of gold. Gold is nonreactive in the instruments and is highly reliable in the electronic equipment and life-support devices.
-Uses of Gold in Aerospace

If you are going to spend billions of dollars on a vehicle that when launched will travel on a voyage where the possibility of lubrication, maintenance and repair is absolutely zero, then building it with extremely dependable materials is essential. This is exactly why gold is used in hundreds of ways in every space vehicle that NASA launches.

Gold is used in circuitry because it is a dependable conductor and connector. In addition, many parts of every space vehicle are fitted with gold-coated polyester film. This film reflects infrared radiation and helps stabilize the temperature of the spacecraft. Without this coating, dark colored parts of the spacecraft would absorb significant amounts of heat

Gold is also used as a lubricant between mechanical parts. In the vacuum of space, organic lubricants would volatilize and they would be broken down by the intense radiation beyond Earth's atmosphere. Gold has a very low shear strength and thin films of gold between critical moving parts serves as a lubricant - the gold molecules slip past one another under the forces of friction and that provides a lubricant action.

-Uses of Gold in Glassmaking
Gold has many uses in the production of glass. The most basic use in glassmaking is that of a pigment. A small amount of gold suspended in the glass when it is annealed produces a rich ruby color.

Gold is also used when making specialty glass for climate controlled buildings and cases. A small amount of gold dispersed within the glass or coated onto the glass surface will reflect solar radiation outward, helping the buildings stay cool in the summer, and reflect internal heat inward, helping them stay warm in winter.

The visor on the helmet of an astronaut's space suit is coated with a very thin film of gold. This thin film reflects much of the very intense solar radiation of space, protecting the astronaut's eyes and skin.
Hardly any use in industry, yeah right.
……………..
Someone mentioned that there is about one and a half ounces of gold for each person in the world (for sake af arguement lets say that is accurate) considering gold is so scarce why shouldn't gold be considered valuable? Platinum is valuable and sells for more than gold yet I hear few if anyone complaining about the price of platinum.


On Sep 17 07:46 AM Vitautas wrote:

> The 2nd biggest fraud after fiat money.....is GOLD
>
> What's the metal worth? You hardly can use it for industry, you can
> only use it for jewellery, because it is shining in a nice color.
> But also here it can be replaced by plated metal or other "fake"
> gold.
>
> It is only worth 1000$/ounce because people say it is worth a lot.
>
> Like paper money, why is a 100$ bill worth a lot? Because people
> say it is worth so much and accept it when buying goods.
> Why was gold at 300$ in the 70ies and now 1000$? Because of increased
> demand. What will happen, when demand will decrease?
>
> The only difference to fiat money is, that it can't be produced as
> fast as paper money (that's good). But production increased a lot
> in recent times and will increase more.

Spiegel Interview Exposes Irrational Disdain for Sound Money

Ferguson: …think how impractical it would have been if you'd had to pay for your flight to Boston using gold. How much was it?

SPIEGEL: Just under 400 euros.

Ferguson: At current prices, that's the equivalent of almost half an ounce of gold, that is, about 15 grams. Now just imagine you had to pay for a single apple.

…..(People didn‘t JUST use gold back then, they used silver and copper. A single apple could be bought for a few copper coins with gold reserved for the big ticket items. 15 grams of gold would be roughly a ½ ounce of gold, or the equivalent of a US Ten Dollar gold coin or two British Sovereign gold coins. These and other gold coins did circulate, that was the reason they were minted, to be used as money.)

Now just imagine that somehow, someway, a monetary system could be developed where computers would keep track of gold-based money and you could just swipe a card to pay for goods and services just like you swipe a debit card.
No, apparently, that's too much to imagine.

……(No that is not too much to imagine, Google digital gold money and see for yourself.)

And, you guessed it. Here comes the standard knock on any sort of a gold-backed money - it impedes economic growth, it's too inflexible, and it fosters deflation.

SPIEGEL: And yet there was a close relationship between money and precious metals for centuries -- millenia even. Why was the link broken?

Ferguson: Because it proved to be an extremely inflexible system. If the overall volume of money depends on the availability of precious metals, it can't simply be increased.
…….(meaning it can‘t cause inflation or hyper-inflation.)

So a shortage of gold or silver can limit economic growth.
…...(Not if you read up on monetary history where paper money was issued by private banks, of course there tended to be more banknotes than gold or silver to back them, but the increase in the money supply via banknotes led to economic growth.)

The link to gold brings with it a danger of deflation, in other words a constant drop in prices which would hobble the economy. The gold standard was one of the causes of the deflation Germany suffered in the early 1930s, for example.
…..(It was excessive speculation that led to world wide deflation and world wide depression, and what of the Wiemar hyperinflation? Given a choice of paper money losing value by the hour and hard money gaining in buying power by the month, which would you choose?)

What Mr. Ferguson fails to point out is that "simply increasing" the supply of money is not necessarily a good thing - especially when it happens all the time.

This used to be called "temporarily abandoning the gold standard" back in the 19th century and it would occur during times of war and during other crises.

Now, nations routinely expand the money supply at at 10 or 20 percent a year while the population grows at a fraction of that rate and credit creation is virtually limitless.

Or, at least it was.

So what about the current crisis then...

SPIEGEL: What aspects of the current financial crisis are similar to earlier ones?

Ferguson: The source of the crisis is typical: It began with a glut of cheap money, loans were easy to get, and a bubble developed -- in this case in the US housing market -- that eventually burst.
…..(Be honest, Ferguson, the housing bubble was worldwide and the whole world is paying the price of excessive speculation.)

…..Ferguson may be a historian, but a monetary or economic historian he aint.

Four Major Developments Gold Investors Should Watch

-Almost nobody thought tech stocks could go down-
-Except for those of us who refused to invest in tech unless these stocks paid dividends, sold real products and had cash reserves.

-Almost nobody thought houses could depreciate wildly-
-Except for those on the various housing bubble blogs who said 'this is nuts' and refused to drink the real estate kool aid.

-Almost nobody thought Oil would fall like a stone-
-The oil price declining was a bit of a surprise, but perhaps it was due to hedge funds getting out of the oil market when Congress starting asking questions. (Oil has gone up from its lows.)

Yes, gold could go down, but what would cause gold to go down? The US Dollar going up in value? A sudden dumping of gold by all the central banks? A new mega-goldmine delivering huge amounts of the yellow metal to the market? These scenarios seem unlikely at best right now.
The only thing that would cause a decline in gold's price would be if gold reached bubble proportions. The gold bubble won't happen until all of the financial news outlets sing gold's praises and advise everyone to buy gold, when everyone isn’t just talking about buying gold but are actually going out and buying and taking physical possession, when the ‘we buy gold’ advertisements are replaced with ‘we sell gold’ advertisements, and when gold bubble blogs start springing up, then it will be time to head for the exits, but not a moment before.






On Sep 15 03:53 PM DVW wrote:

> Almost NOBODY thinks it's possible that gold can go down in value.
>
>
> Hmmmmmm.
>
> Almost nobody thought tech stocks could go down.
> Almost nobody thought Oil would fall like a stone.
> Almost nobody thought houses could depreciate wildly.
> and
> Who would have thought that tulip bulbs were worthless?
>
> I'm just saying... good luck if you own it and be careful.
> I'll be waiting to short it... eventually.

Could China Propel Gold to $2,000?

Mad Hedge Fund Trader, I for one have not neglected silver in my physical portfolio.

The reason I root for a rise in gold's price is due to the fact when gold goes up silver goes up with it, sort of like a golden balloon rising into the air with silver balloonists in the gondola enjoying the ride.

Could China Propel Gold to $2,000?

I do not know if gold will go up to $2,000 per troy ounce,
but I do know the following-

-That a year or two ago the gold bashers were sneering at gold's rise in price and were practically boasting the yellow metal would sink to $400 per ounce.

-Asian central banks are buying, not selling, gold.

www.commodityonline.co...

-South African gold mines, once the most productive in the world, are declining in gold production.

mining-technology.com/...

And we get this-
www.miningweekly.com/a...

"Gold production is “in crisis” and a gold price of $900/oz to $1 000/oz is needed to arrest the downward trend, says AngloGold Ashanti CEO Mark Cutifani on page 13 of this edition of Mining Weekly.

Cutifani says that the world has seen a decline in the production of gold across the globe in the last seven years, and is facing another period of decline in the next five years.

There has been a 20% to 30% production decline in South Africa in the last five years and grades are continuing to diminish in opencast mines around the world."


All these things do not indicate a fall in the price of gold.

Speaking of Gold...

Maybe the conclusion should be: "Exchange dollars, buy gold, exchange gold for dollars later on."

Yes, our daily expenses are calculated in dollars, but you do not fault the investor who exchanges their US Dollars today for stocks, bonds or another nation's currency and then sells said stocks/bonds/currency for more next month or next year, why fault those who do the same who buy gold?
I can't pay my daily living expenses in stocks or bonds or non US Currencies, but I can exchange my stocks/bonds/currency for US Dollars and use my newly aquired US Dollars to pay for expenses and hopefully make more US Dollars in the rise in resale value of my stocks/bonds/currency in the process. Gold works the same way.

While no one can predict that gold will return 2000 dollars in the future, it is unwise to predict, as so many anti-gold bugs have predicted, that gold will go back down to four hundred dollars in the future. (The anti-gold bugs predicted gold would go down to $400 in 2008, 2007, and 2006. Much like the gold bugs predict a rise in gold prices the anti-gold bugs will be right someday, but today doesn't look like the day it will happen, nor tomorrow, nor next year.)

On Jul 30 02:19 PM Living4Dividends wrote:

>.... Since the dollar is in danger of falling, this would lead to the
> natural conclusion: "Sell dollars, buy gold." The problem with this
> conclusion is that you don't know if the 1000 dollars you spend on
> gold today will return 500 or 2000 dollars in the future. The world
> now runs on fiat.

A US citizen's financial commitments (rent, insurance,
> mortgage, car payment) are denominated in dollars, not in gold. In
> essence, there is an inherent dollar trap.
>
> Fiat currencies are like dog poop - they stink, but they stick to
> the bottom of your shoe and are hard to get rid of.

History of Silver, Part I: Metal of the Moon

This is a real great article on silver and its relation in history, though it tells only part of the historical record.

What was the history of silver in Asia, specifically China, India and Japan?

What was the history concerning silver in Africa? In pre-European South America?

Don't get me wrong, I am not speaking ill of Mr. Nielson's work, I am just genuinely curious as to what role silver played worldwide in history and antiquity.

Perhaps if we uncover more of silver's historical record we can gain a better insight as to what to expect pricewise concerning the metal of the moon.

Bond Market to Obama: Oh No, You Can't...

I realize this must have been posted by another poster, but here goes-

www.reuters.com/articl...

Top China banker calls for U.S. sales of yuan bonds
NEW YORK -- A top Chinese banker on Sunday called on the U.S. government and the World Bank to sell yuan-denominated bonds in Hong Kong and Shanghai to encourage the development of debt markets in those centers and to promote the yuan as a major international currency.

"I think the U.S. government and the World Bank can consider the possibility of issuing renminbi bonds in the Hong Kong market and the Shanghai market," said Guo Shuqing, the chairman of state-controlled China Construction Bank (CCB), the world's second-biggest bank by market value.

....Guo said he is confident that the yuan will become a global currency in the medium-to-long term. He said that China is likely to continue to progressively ease controls on the convertibility of the yuan, with cross-border direct investments one of the next targets.

My take on this-
If China starts selling its own bonds,
and bond buyers worldwide percieve Chinese bonds as a safer bet than US Bonds
(What with China being a creditor nation and its people saving so much of their pay and all)
what do you suppose this will do to demand and interest rates for US Bonds?
Thoughts? Comments?

Gold Has Not Begun to Shine

Sorry for the late post to this article, another gold nugget to consider...

From mineweb.com
tinyurl.com/d2kwbt

The significance of Chinese gold holding clarification - CPM

Excerpts-
“…it is pointed out that the purchases over the past six years had been made by the Chinese State Administration of Foreign Exchange (SAFE) rather than by the Peoples Bank of China (PBOC), which is why the amount of gold had not appeared in China's official reserve figures. Now though, the holding has been transferred to the PBOC and hence the announcement.”

So the 454 tonnes of gold wasn’t “officially ” part of China’s gold reserves, it was just viewed as part of China’s Assets like its US Dollar reserve.
Officially part of China’s gold holdings or not it was still an asset to the government of China.


“CPM stresses that this is not surprising given that the total amount represents a relatively cautious buying programme spaced over six years, and that the gold was all bought from Chinese domestic refiners and thus will have had little direct impact on the international gold market.”

Relatively cautious? Buying 454 tonnes of gold over 6 years (Roughly 75.6 Tonnes a year) isn’t exactly cautious buying.

Question, does China produce 75.6 tonnes of gold a year? If it does, then total gold production would have gone to the Chinese State Administration of Foreign Exchange and none to other markets. If this were the case there would have been some mention of China’s gold being held off the market by gold producers, gold buyers or gold bugs worldwide. Yet there was no mention by anyone concerning this Could it be that CPM is only guessing that the 75.6 Tonnes of gold a year came from China itself?

Analysts have been blindsided before due to insufficient or faulty data.


This is the kicker-
“….the Chinese move to place the gold in its official reserve…”

I wonder how much gold is held in China’s Unofficial reserves. If banks can keep their toxic assets off their official books why can’t China keep some or all of its gold holdings off their official reserves?

The Chinese Government seems interested in adding to its gold reserves, not reducing them. They seem to be adding to their reserves quietly so as not to spook the gold market and cause a price hike.

I wonder what the gold bears are saying to downplay The Chinese Government's desitre to buy gold?

Is China the Next Great Bubble?

With peak oil a concern maybe this is the reason China built large oil storage facilities, to keep the supply of oil in China somewhat stable as oil supplies dry up.

Also, maybe the concern of peak oil has led China to try to develop its own Coal-To-Oil projects.

Never heard of SASOL? They have been doing this coal to oil conversion thing for Decades now.
Don't tell me China wouldn't/couldn't convert their own coal into oil if they needed to.


On Apr 24 12:17 PM ThatGuyInTheBack wrote:

> >Chinese population's rising standard of living can go on for the
> next thirty years.
>
> You forget that pesky physical limitation called "peak oil." Even
> poor countries run on relatively cheap petrol. Make that expensive
> enough (and over 30 years, it will become *much* more expensive),
> and you will see everyone's living standards fall like a rock, including
> China's.
>

Top 25 U.S. Housing Markets

It seems that the top 10 markets have only had a 1% to 2.1% increase, not exactly the heady gains when the mantra was "real estate always goes up".
Ooops, that quote 'real estate oly goes up' doesn't reflect the 11th to 25th market.

Real estate is in a down cycle and will remain so until confidence comes back, as in buyers have confidence they won't be laid off, they will still have a job next year and the year after that, etc. If a person is worried about a layoff, buying a house is the Last thing on their mind.

This is going to be one of those rare times when housing is not going to spark a recovery but housing will be sparked by a jobs recovery.
(Just my opinion of course, but the mood on main street supports my theory.)