From Richard Russell:
There are a number of items favoring higher gold now.
(1) Interest rates are at zero, which means the “opportunity cost” of owning gold now is highly favorable. You sacrifice no yield in owning gold vs. Treasury bills. T-bills pay you nothing, so you might as well have your money in gold.
(2) The Bernanke Fed will evidently stop at nothing in its all-out attempt to “jump start” the wobbly US economy. This means spending and building debt at a never-seen-before rate. This will result in inflation. The Fed can create fiat money — any quantity at will, but it cannot direct where that money will go. So far, the money is not going into the economy, banks remain reluctant to lend and consumers are reluctant to spend. The newly-created money has been going into bank reserves and into the stock market. Stocks have been rising on an ocean of liquidity. The sinking dollar has been a huge help to the big Dow-type stocks which benefit from their ability to export. This is resulting in world-wide central bank inflation as the banks seek to devalue their money in an effort to keep the dollar strong.
(3) The world’s central banks are now seeking to protect themselves from a falling dollar by buying gold. After years of selling gold, ironically, the central banks are now buying gold. In today’s WSJ we see the headline, “Central Banks Join A New Gold Rush.” Russell Comment — This is indeed ironic. In swapping their own paper for gold, many central banks are admitting that gold is superior to the very paper they are creating out of thin air.
(4) Many nations are now seeking to boost the ratio of gold to paper in their reserves. The US has the largest ratio of gold to junk fiat paper, 77.4%. But the US stupidly only places the value of our gold at $42.22 an ounce. If the US marked our gold to market, it would be a tremendous help to our government’s balance sheet. But the US prefers to live in a fantasy world where gold is worth less than $50 an ounce!
Germany has 69.2% of its reserves in gold. Italy has 66.6%. France has 70.6%. UK has 17.6% (after idiotically selling most of its gold near the low below $300 an ounce).
Japan has 2.3% of its reserves in gold. India has 4.0%. Russia has 4.3%. China has 1.9%.
It’s easy to see that Russia, India and China are low on gold. All three would like to at least double the percentage of gold in their reserves. The race is on for these central banks to accumulate gold without running the price of gold sky-high.
(5) In the US, literally no one owns gold. Rather US citizens are selling their gold (jewelry) to companies who are advertising that they’ll buy “your overpriced” gold for cash.
(6) A few nations are actively promoting the ownership of gold. China, the world’s biggest miner of gold, has been encouraging its people to buy gold. In London, Harrod’s department store is now selling gold coins and bars to anyone who has the paper to buy gold. Within a year or so, I expect public buying of gold to reach a crescendo. Interestingly, most Americans have never seen a gold coin.
I’m one of these people who doesnt own gold ….. I’ve seen lots of discussion about how to own it via an equity i.e. a GDX or a GLD or a new GDXJ, but I havent seen too much about the pros and cons of owning the real thing and which version of the real thing to own. Can anyone offer some thoughts?
Meanwhile, I had barely a 2 day opportunity to own it because it makes a new high everyday. Buy it today or wait? Same old story lately.
[Reply]
Good post by the way.
[Reply]
It might be a help if the gold was actually there:
http://lewrockwell.com/north/north436.html
[Reply]
Tyler,
I’m no expert, but I’ve been trying to read up on these issues, and here’s what I’ve found.
The gold ETFs are probably fine for trading, but if/when TSHTF, you only have a piece of paper, not even a legal claim on an asset.
If you want gold as a disaster hedge, taking physical possession of the metal makes more sense. In that case, the choice is between bullion (such as U.S. Eagle coins), and bars. The “spread” between buy and sell is about 4%, if you use a reputable dealer.
I’ve read that GoldMoney is a way to hold physical metal offshore (in London and Swiss vaults). The spread is even tighter – about 2%. And you can take physical possession on demand + shipping.
I’d love to own some (more) gold, too, but I am very reluctant to *buy* it just now, at record high prices. Maybe it is due for a correction.
[Reply]
Bazooby,
Thanks for that. I guess that is about what I was thinking and have read. Its a little hard to see myself filling up a safe deposit box … to be honest, I never thought I’d be here contemplating buying literal gold. A coupe of “out there” guys at work sold all equities and bought coins a while back because they didnt trust anything and thought gold was going to $1500. I thought they were pseudo crazy.
I continue to sit here in a quandry trying not to do something stupidly impatient.
[Reply]
The Philospher King Reply:November 16th, 2009 at 11:52 PM
Tyler;
Keep in mind that with an ETF like GLD for which option trade, you have the option to sell Puts, thereby commiting to buy at a lower price if the price fall in return for the put premium. That to me is the primary advantage of any ETF and especially this one. If have a decent command of options you can in fact make Gold generate a degree of income. Now that said, the continuing lack of clarity (as far as I know) from GLD regard the extent to which they actually hold physical gold and the lack of an option for worst case physical delivery give GLD some downside risk that doesn’t seem to me to be priced into the options, but it gives you some choices nonetheless.
Good luck.
[Reply]
If you want a disaster hedge, buy gun manufacturers and farms. What the F&*k will you do with some crap metal? People will just steal it from you anyway.
[Reply]
TPC Reply:November 16th, 2009 at 3:54 PM
Gold is a pure fiat currency hedge.
[Reply]
Add your comment below, or trackback from your own site. You can also subscribe to these comments via RSS.
Be nice. Keep it clean. Stay on topic. No spam.
Name
Mail (will not be published)
Website (optional)
You can use these tags:<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>
This is a Gravatar-enabled weblog. To get your own globally-recognized-avatar, please register at Gravatar.
Notify me of follow-up comments via e-mail
Read Full Article »