The Gold Debate Rages On

Includes: AU, GDX, GLD, KGC, SLV
by: Thomas Noon

Some say, “Yes! Physical gold!”; others are crying, “gold ETFs”. And still others: “Forget gold – SILVER!!!” And some disagree completely and proclaim, “Neither. It’s a bubble.”

Since my previous article on the topic, I have read dozens more articles that span the globe in approach and opinion on gold, like: Congress holding hearings on gold sellers (to uncover the conspiracy among speculators?) and "Gold Bubble? Think Again”, and “Are Gold and Silver Breaking Out?”, and Cullen Roche's article in which he says,“The highly irrational conclusion that gold prices are moving higher due to the public’s opposition to fiat currency, fiscal stimulus and what is generally viewed as continued money printing….leading to a high potential for gold to turn into a bubble is looking increasingly high.” And, then, this one: “Silver is going to $250 per ounce.”

And this quote from Saj Karsan (Determining the Intrinsic Value of Gold):

In effect, the only reason one would purchase it [gold] as an investment is because one believes someone else will be willing to pay even more for it in the future. Therefore, the price has been pushed up by speculators.

This counter-argument appears to draw a conclusion from its own premise. "I buy, therefore, I speculate?"

One commentator to the first article infused the debate with another factor – that those in the business of selling physical gold have a conflict of interest when they claim that the GLD ETF and other ETFs are a big fraud… not truly backed by gold bullion. We cannot totally discount that factor or the one where the employees of ETF sellers are claiming otherwise. Bernie Madoff left a legacy of cynicism in all of us.

But, the 10-Qs from GLD seem to represent a near-one-to-one ratio between the outstanding “units” and the value of their bullion holdings and they show that over time the value of these holdings are rising markedly – buying is happening in support of the rise in gold’s market prices.....or should we say, in response to a realization of the falling values of paper currencies.

The market value of Investment in Gold in GLD: at June 30, 2010 was $52,641,595 and the shares at redemption value of GLD to investors: at June 30,2010 was $52,792,020.

The market value of Investment in Gold in GLD: at September 30, 2009 was $35,027,132 and shares at redemption value of GLD to investors: at September 30, 2009 was $35,054,043.

I will decline to advance an opinion on the future of gold. I will expect continued volatility since gold has all the necessary ingredients for such and pressures from powerful people interested in the rise or fall of the price of exchange. But, I know one thing: the governments around the world have an insatiable addiction to debt and spending and too little concern about growing their supply of paper money in circulation. Nothing has changed in this respect for centuries -- since before there was paper money in widespread. And, governments get to pay those debts off with cheaper paper money in the future if they allow inflation to run amok like a herd of bulls in a China shop. Governments don't want to hold their own currencies or that of any other country. They want to hold gold... at least those with holdings.

Disclosure: Long GLD, SLV, Physical gold