Forbes: Gold Ain’t No Longer A Bubble

May 31, 2011

Street Talk

Robert Lenzner

May. 30 2011 – 10:22 am

“Don’t sell your gold,” Chris Woods of CLSA Securities emailed me this morning. “And buy more if gold drops below $1450.”

Well, maybe, but I’ve been pretty spooked by Soros’ liquidation of his GLD position without any clear cut explanation back in April. Any student of Soros knows that he tries to anticipate when an investment has gotten too high or too low because investors lose touch with the real value of their holding. And by the way Soros liquidated his position in Novagold(NG)–one of the most highly promoted gold stocks of recent memory. Can’t wait to see if Paulson bought the Soros holding.  Not promising for Tom Kaplan, the billionaire gold mining magnate who is the driving force of Novagold.

OK, PIMCO let it be known that gold was its lar gest position in nits global equitiesd portfolio–and John Paulson–who enjoys a celebrity cult of  followers still seems to be long  a position larger than Soros held.

Then, there’s Tyler Durden of Zero Hedge, a stimulating investment website, who wrote compellingly; “The demand is coming from a very low base and is sustainable. It is prudent diversification, store of value,  safe haven buying and not the rampant speculation involving over allocation and leverage one would associate with a bubble.”

Hmmm. Here I’ve been on tenterhooks for  a sickening fall in the dollar and an ecstatic ascent of gold. It’s hard living with such a feasr over your head. Maybe, it’s just time to duck and wait to see how the debt-budget-deficit negotiations get resolved. For the amount of money available to the U.S. economy will depend on a most difficult and painful political process.

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Inflation Kills Wage Increases

May 27, 2011

In the last four years inflation has moved in lock step with wage increases earned by workers. With so many unemployed and under-employed, inflation is like a tightening noose strangling the economy. The numbers are very mind numbing but also just as compelling showing the effects of inflation on the economy.

Eric Fry an editor for the Daily Reckoningwrote this:  Based on official US data, the Consumer Price Index (CPI) is up 3.2% over the last 12 months, while the Producer Price Index (PPI) is up 6.8%. Both numbers are higher than in recent history, but neither one seems particularly terrifying…on the surface. When you dig down into the numbers, however, you discover that these inflation rates are accelerating rapidly. During the first four months of this year, the CPI has jumped 9.7% annualized, while the PPI has soared at a 12.8% annualized pace.

According to Fry it is only getting worse, US average per capita weekly earnings have increased about 12% since the beginning of 2006. But since the CPI has increased the same amount, that means inflation has wiped out allthe growth of weekly earnings. This takes us back to where we started wages & inflation are dead-locked and it looks like inflation is about to ramp up to the next level.

So for the shrewd investor what is the next move? It should be what we have recommended time and again like a broken record, increase or add to your Tangible Asset Portfolio with rare coins and precious metals. Continue to contribute to your future and stave off the inevitable inflation that is crippling the current economy. Take control of your financial future today.

Read more: Daily Reckoning Preparing Your Investments for an Inflationary Future


China’s Voracious Appetite For Gold

May 26, 2011

Early Chinese gold coins estimated around 2500 years old.

China’s emergence as an economic power house is still in it’s infancy. They are still in the cute baby stage where everyone  ooohs & aahhhhs over them.  What China displays today is just shadow of things to come in 2020 and forward as they overtake the US with the worlds largest economy.

Where gold is concerned China is number one in production as well as consumption.  These rankings shouldn’t normally raise eyebrows except their demand for gold far out-strips the production. China mines nearly 351 metric tons while consuming almost double that amount at 700 metric tons.  These are the hard numbers of Chinese demand and one of the pressures keeping the price of gold over $1500.

China should continue to absorb bullion imports and increase their demand as the economy continues to expand. It’s sort of like sending oil to Saudi Arabia, James R. Steel, a New York-based metals analyst for HSBC Holdings Plc was quoted in the WSJ.  To further China’s demand for the yellow metal an official in Shanghai told a conference of their intention to launch an ETF tracking gold. This would result in increased retail demand in China placing thousands of metric tons in vaults to cover these ETFs. Mr Steel was further quoted, There’s a saying, gold goes where the money is. Now gold is coming to China.

Gold will continue to have pressures of demand not just from China but through out the globe. We recommend continued acquisition of metals in your Tangible Asset Portfolio continuing to diversify your total net worth. The WSJ asked Mr. Steel where he thought the price of gold would go? I’m not authorized to say, but the price outlook isn’t the only consideration. To me, the real value of gold is as a diversifier.

Read the full story: WSJ – China’s Gold Intake: Like Sending Oil to Saudis


Forbes: Keeping Up With Chinese Gold Demand

May 25, 2011
May. 24 2011 – 10:34 am
Posted by Addison Wiggin

Monday’s trading was “risk off” as a new week began with markets jittery about the Euro zone again…

  • S&P downgraded its outlook for Italian government debt from “stable” to “negative”
  • Spain’s ruling Socialists got clobbered in regional elections over the weekend , casting doubt on the future of Spanish austerity measures
  • Greece is scrambling to sell off unspecified assets (the Parthenon?) to stave off a “restructuring” (read: stretching out the payments) of its debt.

Ten-year Greek bonds yield 16.98% Monday. In the credit default swap market, traders now give Greece a 68.7% probability of defaulting in the next five years.

The market impact looked like this…

  • The Dow and the S&P both tumbled a little over 1%
  • Oil was off more than 3%, to $96.90
  • Yields on 10-year U.S. Treasuries were down to 3.1%… their lowest all year
  • The euro clung to $1.40… while the dollar index moved decisively above 76 for the first time in a month.

Gold, however, held its own. The spot price was $1,513 – virtually unchanged from Friday’s run-up. Silver was likewise steady at $35.15.

In euro terms, gold reached a record of EUR 1,080 an ounce.

This will be interesting to watch. We could be entering a period much like the first half of 2010 – in which the dollar index ran up 19%… but gold did not fall accordingly. Indeed, it rose 11%… before powering up another 13% by year-end.

The Shanghai Gold Exchange plans to launch exchange-traded funds to help meet demand for precious metals. No timetable yet, but no doubt the exchange’s managers have noted overwhelming demand for overseas gold ETFs – which Chinese first got access to in January.

As we noted last week, China is now the No. 1 source of investment demand for gold – surpassing the longtime leader, India. And the Chinese central bank has a long-term aim of growing its gold reserves eightfold.

Maybe the new “gold as money” law in Utah will have a little more impact than we first thought.

Earlier this year, the legislature passed and the governor signed legislation affirming gold and silver’s status as currency. The only practical effect we saw at the time was precious metals became exempt from state capital gains taxes.

Now along comes an entrepreneur named Craig Franco, who plans to open the Utah Gold and Silver Depository next week. He has no website yet, so we’re left to rely on an Associated Press account that says, “The idea is simple: Store your gold and silver coins in a vault, and Franco issues a debit-like card to make purchases backed by your holdings.”

“I expect a wait-and-see attitude,” Franco says. “Once the depository is executed and transactions can occur, then I think people will move into the marketplace.”

Based on this, we’re not sure how the “debit-like card” is supposed to work… or how it differs from other efforts like those of our friends at GoldMoney.com. But we’ll keep an eye on it.


Gold Taking a Run at Previous Highs

May 24, 2011

Gold & silver retracted after Osama Bin Laden’s death in a combination of giddy celebration & profit taking. We believe both metals have settled into the bottom of the dip and are gaining ground back the previous levels reached at the end of April. The recovery of silver will be a process taking longer than gold to move back near the high mark.

Gold is making gains based on the fundamental issues surrounding US Debt & the Euro Debt Crisis. There is concern making the Euro lose ground against the Dollar. Even though the Dollar is stronger, as a fiat currency, gold is still moving up in price.  What the Euro & Dollar do against gold is more significant than there position relative to each other since they are backed by nothing more than a promise.

Tom Aspray, professional trader, analyst & senior editor of MoneyShow.com commented in his blog on Forbes, Even though the dollar seems ready to rally further behind euro zone debt concerns, that does not rule out renewed strength in the metals, especially gold. He believes the fundamentals of gold could continue to rally above the previous highs of late April stating, Clearly, the recent carnage in the metals sharply reduced the bullish sentiment. A rally in gold back to—and possibly above—the recent highs would catch many by surprise.

While gold is moving up silver is recovering at a much slower pace and looks to be volatile in the near term. That is not to say silver won’t return to the $50 mark and surpass it but, it will be a wild ride of ups and downs. Many investors just won’t be able to take the roller-coaster ride that silver is going to take. If you are among the squeamish our advise is to either buy now while silver is low and forget about it or stay out all together.

We still hold to the belief of a continued acquisition bolstering your Tangible Asset Portfolio. The benefits of this are cost averaging the price of your investment along with not trying to time markets. As we know timing markets can leave many left holding the bag, but a bag full of gold & silver is still better than a bag of worthless paper.


US Debt Tripled Since 2000

May 23, 2011

It was a new Millennium, it was also the last year the Federal Budget showed a surplus, excluding social security spending. These were good but crazy economic times. The Dollar was strong, the Dot.com bubble was bursting, we were at peace, and the US debt was a third of its current amount. Gold & silver languished in a prolonged slump at $249 & 5.00 respectively.

Over a decade later the US Debt has tripled its levels in 2000 & we have hit the Debt ceiling level of $14.3 Trillion as set by Congress.  The Debt/housing bubbles have burst and the US is mired in 2 theaters in the War on Terror. Gold & silver are $1510 & $35.00 respectively. The US Debt is at a level that many consider a tipping point. The US bailed out many banks that were too big to fail, propping up the financial sectors with two rounds of Quantitative Easing. There is mixed indications of a 3rd round starting in July.

All of this has the global financial communities looking to Gold & silver as safe-havens against US Treasury Bonds. They collectively wait to see if there will be any fiscal house cleaning done by this current Congress & the Fed. Many experts are not optimistic thinking nothing will be done so close to the 2012 election. Ousmène Jacques Mandeng from Ashmore Investment Management was reported on CNBC, With more no change in borrowing expected until after next years election, we believes foreign central banks are likely to decide to keep buying US debt while attempting to recalibrate their exposure.

This should continue to pressure the metals markets over the next short to medium term.  Many will do as China did earlier this year, match their positions in US Debt with strong positions in gold. The financial markets are watching and taking into careful consideration their continued investment in the US. With all the turmoil surrounding the US Debt & economic policies the US may find themselves ,no matter how big we are, failing.

Read further: CNBC – US Debt Cannot Defy Fundamentals for Ever


Gold Forcasted to Rise Above $2,000 by 2012

May 20, 2011

Curtis Hesler, editor of Professional Timing Service told Forbes yesterday, Gold has finally decided to back off, and there should be a bit more selling before this correction is over. Gold posted three highs at the $1,430 level during November and December last year, which were finally exceeded this spring. Normally, when triple highs are broken, prices will surge short term and then correct briefly before resuming the rally. This is the correction that is unfolding now. Once it is completed, I look for gold to advance to $1,800 later this year and to above $2,000 in 2012.

Marc Faber in the latest issue of the Gloom, Boom, and Doom Report indicated, (He) Still likes gold as a long-term investment and recommends dollar cost averaging every month regardless of the price. However, when it comes to silver, He is more cautious, noting the recent run-up in the price. He expects a 20%+ correction in the metals complex because the inflation trade has become too crowded.

Nathaniel Crawford wrote in his article Don’t Sweat Gold’s Seasonal Weakness–Just Wait Until September – If gold continues to follow its usual pattern, it would lead to gold entering a slightly downward consolidation pattern between $1350-1550 for the next few months, depending on the action of the general market. Then in September we should start to see gold creep higher to new all-time highs above $1570. 

Bottom line for metals – cost average your purchases in the short term then watch it grow as gold begins to surge forward starting in September.