bowman711

Precious Metals Stocks to Consider as the Dollar Falls, Banks Fail

CEF holds roughly half gold and half silver, so it is a good way to play both precious metals. TODAY is a great time to get into CEF - it is down about $1.60 to fall in line with the following: TORONTO, ONTARIO, Sep 23, 2008 (Marketwire via COMTEX News Network) --
Central Fund of Canada Limited (TSX:CEF.A)(TSX:CEF.U)... ("Central Fund") of Calgary, Alberta announced today that it has entered into an underwriting agreement with CIBC World Markets Inc. under which the underwriter has agreed to buy and sell to the public, in Canada and in the United States under the multijurisdictional disclosure system, 11,900,000 Class A Shares of Central Fund. The offering will be made under a second prospectus supplement to Central Fund's US$750,000,000 base shelf prospectus dated March 31, 2008.

The purchase price of U.S.$10.80 per Class A Share is expected to result in gross proceeds of approximately U.S.$129 million. Substantially all the net proceeds of the offering have been committed to purchase gold and silver bullion, in keeping with the investment policies established by the board of directors of Central Fund, for settlement at closing of the issue. The additional capital is expected to reduce the annual expense ratio in favour of the shareholders of Central Fund.

Closing is expected to occur on or about September 26, 2008.

[I doubt today's drop in price will stay that way very long.]

The Case for Gold Today

I am wondering . . . it seems to be fairly well accepted that the 'big eight' bullion banks are naked short selling gold (I would bet all the gold I have that it is done specifically at the direction of the government to disguise the decline of the dollar.). The last I heard the open interest was something like 80% short. This, certainly, is a big part in the decline of gold when almost all the monetary news we hear is inflationary. In the last week, some $300B was created to help hurting homeowners, an undetermined amount (hundreds of billions, even a trillion dollars) was created to bail out FRE and FNM and the national debt limit was increased to 10.6 trillion dollars. Isn't all this inflationary? Then why is gold going down this week?

With the advent of GLD, CEF and other gold mutual funds, I would submit that if it hasn't started yet (& I think it has) I it is likely that governments will find ways to debase gold. Every naked short sale is a sale of gold that does not exist, just as they are debasing the dollar. Who would buy this naked short gold? I submit that it would be the gold ETFs and mutual funds. They could show it on their balance sheet as gold they own . . . just like the mortgage industry showed their near-worthless paper as assets.

If the bullion banks got called on their naked short gold, all they would have to do is 'go broke' and the government would print even more money to bail them out. If the gold ETFs are also working in concert with the government, and there was a run on gold they could not meet because a certain percent of their gold is in worthless naked short gold paper, the government could print money to bail them out. How likely is it that the government would pass a 'gold crisis' bill to help investors who can't collect on their gold ETF like they have passed a bill to help out foolish homeowners?

With gold recently behaving so consistantly contrary to economics, it is worth considering that it is purposely being debased like the dollar. At least, I would think such a process is being tested.