The Vet

Winmill: Don't Be Surprised By $2,400/oz Gold

This comment "gold does not have a good record of making people money" is repeated endlessly but when queried you will always find that whoever makes it always bases their assertion on a starting date of 21st Jan 1980 at a price of $850 USD an ounce. That was 9 years after Richard Nixon completely cut the link of the world's monetary system to gold something that had never happened in prior recorded history.

Sure that was a bull market spike that lasted but a few days and gold then went into retreat, but to take a single data point and use that to make the assertion that "gold does not have a good record of making people money" is simply distorting history. Almost every asset class available can be shown to have experienced "blow off tops" and then retreated later if you cherry pick the time frame.

When the world's money was closely linked to gold, as it always was for all but a few brief periods prior to 1971 there was no way that the "price" of gold measured in the currency it directly supported could appreciate significantly. It is mathematically impossible! Now that link has gone, it is truly "different this time".

Countdown of Manipulated Gold Price Running Out

Short selling of anything requires buyers to take the other side of the trade. Gold is still one place that there are buyers prepared to step up and there are no government restrictions on their activity so the short sellers have a market to ply their trade and they don't need any gold to sell in order to participate.

COMEX works in cash and generally settles in cash. You can be sure that if too many longs start standing for delivery of real metal the exchange will quickly change the rules to force cash settlements only at the manipulated paper price, not the real market price, and the short sellers know that protects them regardless of what happens to real gold.

Rick Rule: Market Malaise Signals Opportunity in Miners

This article and many like it seem to ignore the basic business strategy used by all responsible gold producers. When metal prices are low, the strategy is to high grade the depost, mining the high profit ore and ignoring the low grades in order to maintain margins and stay in business.

However when metal prices are high, the best long term approach is to "low grade" that is to mine and process the ore that wouldn't be profitable at times of low prices. This extends the life of the mine and maximises the recovery of metal from the ore body but of course profit margins suffer due to the utilization of this low grade material.

Sure other input costs have gone up, but lower profit margins of the miners are not solely due to this. Maximising mine life and recovery of all the PM in the ore body due to "salvaging" the low grade material left during the periods of low prices creates a significant drain on margins. However if high metal prices are maintained, the average ore grade will tend to rise and profits will return to more normal levels later in the bull market.

Four-Digit Gold Sets a New World Order

"Charlie the counterfeiter adds an extra demand for goods and services without making any contribution to the production of goods and services."

We don't need Charlie, to create that extra money, the banks do that quite easily and legally on their own through the mechanism of fractional reserve lending.

The theory is that that excess credit which is created by fractional reserve lending and circulated into the community is ultimately removed when the loan is repayed to the lending institution.

However where the asset backing that loan loses value and the borrower walks away, the loan isn't repaid and the "excess" credit previously created is still out there and it cannot be removed.

When the borrower walks away, he is in effect like Charlie the counterfeiter, he passed on the benefit of the "created cash" to the builder of the house but ultimately produces nothing of lasting value to add to the pool of goods. True the house he once owned may still exist but it is worth only a fraction of the outstanding loan until such times as housing prices recover. Until that loss is either repaid or written off then the effect is to increase the money supply by the diference between the current value and the original purchase price.