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".

Next Up for Paulson: A Gold-Focused Hedge Fund

The top will be in when all the pundits who are predicting that the top IS in, give up and become buyers again..

Precious Metals: Breakout, Fakeout or Shakeout?

A nicely balanced technical summary, but if the comment "Sentiment on the precious metals is almost uniformly bullish" holds up, then why is it that the majority of the comments made here in response to the article are actually bearish?

Hong Kong Recalls Gold Reserves: Why No News Coverage?

Someone in Hong Kong knows their history and want to avoid a repeat. When Britian went off the gold standard in the 1930's most gold reserves for many countries (especially the Commonwealth countries) were stored in London and denominated in British Pounds.

The pound was supposed to be as good as gold and directly convertible to metal but with a single swipe of the pen, that link was broken and every country which though it had real gold stored in London was left with paper pounds and England kept the actual metal for themselves and the pound was promptly devalued by repricing the gold. Of course the US saw what a good idea that was and soon followed suit, but they even added their own touch but confiscating the public's holdings of metal first!

Sell the Franc, Buy Gold

At least the Swiss told the world it was devaluing its currency. Others have been doing the same but keeping quiet about it. Just look at a chart of the Yen/USD for last month and you see that the Yen weakened steadily from around 88 to the dollar to over 98 to the dollar.

That's over 11% depreciation in just over 30 days; the Swiss haven't topped that - yet....

Gold ETF Inventory Increasing at Record Pace

On Feb 09 09:35 AM know nothing wrote:

>
> Serial numbers should be required, to verify existance of inventory
> in each ETF.

Serial numbers and accurate weight of every bar held by GLD are listed for all to see on the GLD website.

A lot of people who seem intent in knocking GLD's holdings haven't bothered to do even the most rudimentary DD.....

GLD's gold comes from the LBMA in London where, on average, they clear around 20 million ounces (over 600 tonnes) every trading day. The few tonnes added to GLD's stash every few days doesn't even register as a blip on those sorts or quantities.

(link to the LBMA stats page. Also read the FAQs available on this page to show that the numbers are actually given as millions of ounces DAILY averages for each month listed.)
www.lbma.org.uk/stats/...

Has Gold Appreciated Too Much to Be Inflation Protection?

Smarty has it right... By continually measuring gold in US dollars (or any other fiat currency) we are comparing one variable against another variable. We shouldn't be saying "gold is up today" we should be saying that the "US dollar is down today".

If the values of all currencies were reported in the press and on the web as the number of currency units, be they dollars, yen, pounds or euros that could be bought with one once of fine gold then we would have a fixed measure to make real comparisons. My using the same measure for all commodities as well we could determine real prices against a real standard. No fiat currency is a real measuring standard today as they are all being manipulated by traders, banks and governments to meet their agendas.


On Jan 27 11:40 AM Smarty_Pants wrote:

> I would suggest recasting the question somewhat. Your frame of reference
> is limited.
>
> Instead of citing the "price of gold" utilize the "value of dollars".
>
>
> Anyone who buys an ounce of gold will always have an ounce of gold.
> The question is, how many dollars can you trade it for? What is the
> value of the dollar going to be in the future?
>
> Given that the supply of tradable gold is increasing very slowly
> and the supply of dollars (or digital equivalents) is increasing
> very quickly, I don't see how the number of dollars per ounce of
> gold will decrease over the long run.
>
> I recall reading somewhere that the only real power a central bank
> possesses is the power to devalue the currency.
>
> Gold has been a much better store of value than the dollar ever will
> be for the long term.
>
> I posted this information some time ago for another similar article
> on SA, the 2008 data may be a bit dated now, but the point holds.
> Note that 1971 is when Nixon closed the gold convertability window
> and any pretense of monetary restraint was abandoned:
>
>
> Median house price in 1970: $17,000 (US Census)
> Price of gold in 1970: $38/oz
> One median 1970 house: 447+ oz of gold
>
> Median house price in 2000: $119,600 (US Census)
> Price of gold in 2000: $279/oz
> One median 2000 house: 428+ oz of gold
>
> Median house price in 2008: $210,000 (Natl Assoc of Realtors) <br/>Price
> of gold in 2008: $800/oz
> One median 2008 house: 262+ oz of gold
>
>
> Over the course of 38 years, an ounce of gold held value much better
> than a dollar did. You could easily buy a median house for around
> 450 oz of gold at nearly any point in that continuum, yet the number
> of dollars required for the same purchase increased by over a factor
> of 12.
>
> So recast your question: 30 years from now would you rather have
> 10 oz of gold or $9,000?

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.

Banning Shorts Works in Fancy Restaurants, Not the Marketplace

If short selling allows an investor to be "bearish on stocks they don't own" the obvious opposite position is an activity that allows longs to be "bullish on stocks they buy but don't pay for".

Of course that is possible through buying call options or sell puts, just as the bearish crowd can either sell calls or buy puts. If bears want to speculate on drops in the stock price then they should use the options market, the same way as the bulls have to.

So until the system allows bullish investors to buy stocks without paying for them, why should shorts be allowed to sell something they don't own?

The Disconnect Between Supply and Demand in Gold and Silver Markets, Part II

The major risk to the metal ETFs like GLD and SLV is not their structure or management but the fact that as stocks they can be sold short.
Naked short selling is the worse, but even "legal" short selling where stock is borrowed and then sold creates more long holders of stock than there is metal in the vault to cover that stock.

Ultimately in the worse case 100% of the metal could be redeemed leaving zero "real" shares but the same number of borrowed shares would remain in long shareholders accounts backed by nothing except the creditworthyness of the short sellers.

Of course once the backing of gold dropped, few new buyers are likely to step up and the price would fall leaving the shorts sellers of the stocks with a tidy profit and the long shareholders with nothing. Current SEC rules can't even force the shorts to cover or deliver stocks they have sold, so don't expect any protection from the regulators.

The Strange Case of Dr. GLD & Mr. Bullion

While the ETF's GLD and SLV (for silver) should always trade close to the spot price due to arbitrage of the authorised participants, there is another factor to consider. That is that the metal backing each share is less than the "official" stated figure due to short selling. Short selling (regardless of whether the shares are borrowed or sold naked) increases the effective float without a corresponding increase in the backing metal.

SLV has already appeared on the Reg SHO list on a couple of occasions indicating without a doubt that there were sellers of the stock who were unable (or unwilling) to borrow stock and this resulted in a failure to deliver stock. There is no way that a share sold short to a long shareholder or bought by an authorised participant for redemption can be distinguished from a share backed by real metal. Even if there was no naked short sales and no duplicate borrowing of stock, a situation where each real backed share was sold to two long shareholders could exist and the entire float could be redeemed for metal leaving the equal number of shares in the market no longer backed by a single ounce of metal and supported only by the credit of the short seller.

Thoughts About the Current Bear Market Among Junior Miners

Great insight, but of course this failure for the banks and the markets to commit to any risk is the same reason that commodities, metals, food and oil are in such demand right now. In the dot com days and before, paper projects and paper investments were short term, quick return and had a degree of certainty... until they failed!

Now commodities are high, costs are high and the time, expenditure and risk involved in getting a new mine off the ground is even higher than before, right at the time that the traditional risk taker, the small investor is feeling the pinch.

The need to get starter projects going so that the world will have adequate supply of commodities has never been greater, but investors time horizons have never been shorter, so where will it end.

IMO the solution lies with the few majors who are doing well with their high cash flows and diminishing reserves. They have to step up and start aquiring and investing in the junior sector. Only then will we get the investor interest returning. The majors are not doing themselves an favours with their current "just in time" mentality, as they well know that new projects always take longer and cost more the longer they delay commencement...

Once they start to lose production as mines become depleted, they will lose their income and the currency of their high stock price regardless of the current spot price of their production. Gold at $5000 an ounce is of no help if production has dropped to a pittance.

Get Out of Commodities - Barron's

What a lot of wooly logic... Hydrogen to solve all of our problems? And just how do you get free hydrogen?

Answer.. There are lots of ways but they all require energy in some form or another and as no process is 100% efficient. The energy required to make extract the hydrogen is always going to be greater than the energy utilized when it is burnt for fuel. Innovation may give us better processes to generate and store hydrogen but there is no perpetual motion machine and no free lunch.

Wind power as the saviour? Give us a break! Sure up to 20% of the total electric power consumed could come from wind power, but to depend on any more puts the whole grid at risk. The wind doesn't blow all the time anywhere. So you need another back up for those windless days, and nights... Days, maybe some solar would cover some of the deficit but on those cold windless nights when you are sitting freezing in the dark you will get to realise that depending on too much "alternative" energy which by definition is erratic in supply might not be such a great idea. You might find yourself wishing for a nice big nuclear plant churning out hundreds of megaWatts of baseload power which would keep the wheels of industry and the home "fires" toasty warm.

Besides, all of the alternatives are very "dilute" sources of power. Wind farms have to cover thousands of acres in order to capture a reasonable amount of energy as does solar. Speading these around helps to cover for local weather variations in wind, cload cover etc. but just how do you think this dispersed energy gets to where it is needed.. The electricity gid has be be much larger, cover longer distances and have a large amount of redundency built in in order to use this alternative power effectively. Funny thing, but that needs metals; lots of metal especially copper (form windings, wires and transformers), steel (for transmission towers), silver (for switch gear) etc.

This rosy future where all our energy comes from everlasting 24 hour sunshine and the perennially cloudless sky, with steady breezes that never vary and which blow everywhere power is consumed at a rate to cover the load regardless of time of day or the curent weather, and where no metals, oil, gas, uranium or any other "commodity" is ever needed or used, is a fairy tale straight from the pollyannas of the "green revolution". THINK!

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.

Gold Is Just a Brick ('Active Value Investing' Book Excerpt)

What the author completely ignores is the very real and ever present counterparty risk of all paper instruments. He touches on it in respect to gold shares and ETF type instruments in gold, but ignores it for his favourite paper instruments, bonds, TIPs etc.

It is true that strong governments will try to support their "official" paper in a numerical sense when it suits them, but they also actively devalue the base fiat unit of account when times get tough. You might be able to redeem the face number of fiat units but you never get back the real value invested regardless of interest payments.

For recent examples look at Argentina and Russia, historically, check out Germany in the first half of the 20th century, and Rome a couple of thousand years ago. The US government may look to be reliable now, but so did Rome and hundreds of other governments at various times in history. The only constant historical fact is that all of them have eventually failed and their fiat currency failed with them. Gold on the other hand has always retained value.

Closer to home, Americans who bought and held Continentals and paper denominated that way certainly would have wished they had bought gold instead at the end of the war...