GOLD!

Gold Bugs Ready to Rock
By Simon Constable
TheStreet.com Staff Reporter
12/28/2006 12:50 PM EST
Gold prices look set to rocket in 2007 with a sickly greenback and geopolitical tensions topping the list of driving factors, according to a broad cross-section of bullion market watchers polled by TheStreet.com.
http://www.thestreet.com/_tsctten/markets/metals/10329939.html

0. Hindsight is always 20-20, Chris.

1. Gold is for savings. It is a store of wealth. You can "make money" buying and selling it, i.e., acquiring more net assets by trading it back and forth for cows or wheat or dollars or architects, but that is true of anything.

2. Goldbugs like Harry Browne recommend having about 10% of your net assets in gold. Most Objectivists go a little higher than that.

3. Personally, I buy when it is convenient for me. Sometimes I buy more; sometimes I buy less. It all averages out.

Post 61

Tuesday, January 2, 2007 - 10:21am

I would say that NOW is a great time to buy gold. It appears that the Euro is giving the dollar a run for its money.

Post 62

Wednesday, January 2, 2008 - 6:53pm

Gold Breaks All-Time High of $850!
By Jon A. Nones
02 Jan 2008 at 04:18 PM GMT-05:00

St. LOUIS (ResourceInvestor.com) -- After closing out 2007 with an impressive 31.5% gain, spot gold started the new year with a new record high of $861.80 an ounce, surpassing the previous high of $850 recorded on January 21, 1980. Gold bugs celebrated the immediate returns, and remain confident the returns will continue throughout 2008 - but some near-term volatility may be in the books.
Jon Nadler, analyst at Kitco Bullion Dealers suggests investors �tread with utmost care,� in the near-term as price moves may now become �highly unpredictable� in either direction.

Well, we here all know that gold has not moved any more than the Celsius Degree can move. Something else went down. Gold did not go up.

That said, the point remains. In another thread the subject of buying gold came up. I prefer to buy from ANA member dealers because the American Numismatic Association has a Code of Ethics. On the ANA website www.money.org at the left is a dropdown for Membership. From that you will find a link to Dealer Directory that will let you find the businesses closest to you.

Of course, the current peak will be a temporary high.... heads and shoulders... but just as certainly, this level will be surpassed as more and more dollars (yen, euros, etc.) are created. It is just that right now, the USA government in Washington is creating a lot of dollars really fast. That, too, will change... Gold is always a longterm buy and sold savings medium. If you like buying and selling, short term, then, yes, you can find profits in this, as well, with gold as with anything else.

Post 63

Thursday, January 3, 2008 - 4:09pm

Michael:

In my opinion, with investing in gold, timing is everything. If one invested at the peak of 1980 at $850 per oz. one would have broken even in dollars but if one had invested in the DJIA it would have gone up approximately 14 times, without compounding the dividends, which may have caused that to double (although I don't have a source for that � just my guess.)

Thirty-five year gold chart.

DJIA 35 year chart

Sam

Sorry, I was having problems with the link

(Edited by Sam Erica on 1/03, 4:11pm)

(Edited by Sam Erica on 1/03, 4:13pm)

(Edited by Sam Erica on 1/03, 4:16pm)

Post 64

Friday, January 4, 2008 - 6:15am

I agree 100%, Sam. In fact, we stopped buying about March of 1980 and then unloaded in September to pay for our daughter. The situation with gold -- driven by silver, actually, as you know: the Hunt Brothers Fiasco -- was obviously irrational at some level. Gasoline prices were rising, for instance, and inflation was real, but where over $500 the "real" price of gold was -- where over $5 for silver -- is still a guess.

If you have a long term commitment to savings via hard assets, then spikes and drops all even out. Price averaging hides a lot of problems, you might say.

The equities markets (plural) had their own famous peaks and troughs in the 1980s and 1990s. You could have suffered greatly buying into the run-up and selling into your misery after the drop-off. Many people took big hits when day trading collapsed in 1999-2001. One of the many great lines from the movie Wall Street was spoken by Lou Mannheim (Hal Holbrook), something like, "A bull market makes everyone look like a genius." We all know about Tulip Crazes.

Post 65

Friday, January 4, 2008 - 6:09pm

Michael (and Sam),

Since you mentioned the Hunt brothers...

After the Liberty Dollar arrest story came out, I was having a discussion with a coworker re fiat currency vs. competing currencies.

My friend argued that the Hunt brothers incident and the fluctuations that it caused, were examples of why currency could not be left to the market. Since I was born in 1982, I had never heard of this event, but was able to find a synopsis onWikipedia.

I argued that cornering the market was rare, due to the fact that it didn't work (the Hunt Brothers, Nick Leeson, and Yasuo Hamanaka lost billions of dollars in their attempts.) At worst such attempts would result in temporary price spikes, which couldn't possible be any worse that Fed induced bubbles.

Would either of you care to comment on this incident?

Post 66

Friday, January 4, 2008 - 7:40pm

Jonathan:

I was certainly aware of what transpired with the Hunt brothers but I've forgotten a lot of the details. The way the market reacted, however, was that of increasing the supply of silver dramatically. Used x-ray exposures were a hot item as the silver was reclaimed from them. Pre-1965 dimes were melted down because the value of the silver in them far exceeded their face value. Bags of the dimes were freely sold and little kids sorted through their dad's pocket change looking for them.

What were your friend's arguments as to why that phenomenon demonstrated that alternative currencies could not be left to the market? Silver is a commodity used in industry and can't be easily replaced. A renegade currency can be replaced by competing currencies. Can he give concrete examples?

Sam

Post 67

Saturday, January 5, 2008 - 8:19am

I am with Sam on this. It is impossible to address unstated questions. However, I created a new Topic under Objectivism Q & A, as a free market in money is an element of Objectivists economics, arguably the basis for the denial of the validity of "political economy" as a realm of human action.

As for the Hunt Brothers, suppose they had been successful. Whether the common unit is gold or the US Dollar is irrelevant. They sought to use their wealth (from oil, is that right?) to corner the supply of silver. If they hold on to their inventory, the price of silver stays very very high until more can be mined (or extracted as a by-product, in fact). Over time, the price will come down. In the mean time an ounce of silver, which once bought a tank of gasoline now buys six or ten of them. A loaf of bread, a trip to the movies or a ball game, all get cheaper for those who hold silver. Where is the problem?

Furthermore, these kinds of fluctuations were known with government money. Historically, the crown struck coins to meet its needs, not the needs of commerce. So, there were times when there was not enough small change. Merchants created tokens to make up for it. People cut coins in halves and quarters (farthing <= fourthing: the cutting of a silver penny along its cross.)

Consider that it costs just as much in tools and labor to create a 6-gram (US 25-cent or quarter dollar-sized) coin of gold, silver or copper. So, copper is clear loss for the Mint. This is why there have often been shortages of small change in history and those shortages were made up by the free market via tokens.

Similarly, in the British Colonies there was no mint, but people needed coins and so they dealt with smugglers and pirates who could pay with coin. Thus, the colonies saw a wide range of foreign silver and gold coins. In fact, until 1854 (!) foreign coins were legal tender. We know of banknotes from Tennessee, Ohio, etc., that were backed in Mexican and Spanish coin, not US Govt coin because most people knew the foreign coins better, the US Mint being largely ineffective and focussed on the Eastern Seaboard.

During the Civil War, Salmon P. Chase got money for the Federal Government by creating the National Bank system. Private banks had to deposit GOLD coins with the Treasury. In return, they got treasury bonds for their assets. Against these bonds, they issued their own National Bank notes. We still had bank runs and bank failures. The Great Depression happened 20 years after the Federal Reserve was created. The savings and loan debacle played out in the late 1980s when there were in fact no unregulated banks. What has the government got to do with it except to make any problem worse?

(Edited by Michael E. Marotta on 1/05, 8:41am)

Post 68

Sunday, January 6, 2008 - 8:18am

Sam and Michael,

In hindsight, my question (or lack therof) was vague, and I apologize for that. Nonetheless, I thank you both for at least attempting to address it.

My purpose was not so much to refute my friend's statements, but simply to gain some insight on the incident from two people who were around when it unfolded (as opposed to myself who can only read summaries of the incident). It is hard to respond to a claim when you know nothing of the underlying event.

Sam, since you asked what my friends specific arguments were, I've copied them from our email correspondence and reprinted them below. The original response was prompted by an news article I emailed about the Liberty Dollar incident.

There�s a reason that nation-states have some pesky start-up and on-going dues requirements. Also�..global monetary systems, an admittedly �untidy� element of macro-economics, really do like the legal and security aspects of large-scale currency fluidity and consistency. Other than that though, how could we not all get behind some spirited fella in the Midwest �selling� his notes backed up with pallets of metal in an Idaho Stor-n-Lok?!? Maybe with a little luck we�ll see the �Freedom Dollar� manufactured by another group in Arkansas and then the �Declaration of Independence Dollar� cranked out by some folks in Florida. I�m certain it�ll all work out��who knows, maybe the Chinese and Saudi�s would want to hold their side of the balance of payments deficit (just south of two-thousand billion and counting) in Liberty Dollars.

I then asked for some clarifications, and he responded:

Nation-states are established and mutually recognized as entities entitled to act on behalf of their people. Part of that derived power is the establishment of currency, which is agreed as transfer methods of value between differing political economies. When individuals within a society (nation-state) determine their own currency value, they are unable to (a) ultimately guarantee that their currency will have fiduciary viability (e.g. The Hunt Brothers silver market manipulation) for the society as a whole and (b) they are unable to conduct commerce with other economic players internationally. Thus�..printing currency backed by a tangible asset with an understood valuation is the easy part. Backing that currency and permitting that instrument to serve as a bona fide method of conducting large-scale market functions is the tricky part. This is where the start-up cost requirements (a Treasury, National Bank, Banking System, Commodities and Stock Markets) are a bit pricey even for big-spenders like the fella in the article.

Which takes us to comment number two��.international monetary systems (as well as stock and commodities (to include currency) exchanges) function upon established currency values. Those values fluctuate for myriad reasons, but the underlayment for the system is that all players must be assured of the viability of the value exchanged. Without legal protections, good faith and standing amongst all players, there can be neither consistency nor security of assets/value. Without those assurances on a massive scale there is a level of risk, which would make transactions both incalculably expensive and protracted. Time is money�..but then again, if your money is provided by Bob�s Liberty Dollar Store in Illinois, maybe time isn�t your principal issue?!?

And finally:

Individuals cannot use their own currency within a country that has its� own established �legal tender�. How do you know if the currency is �backed� by silver or otter pelts? How do other nations know what backs an individual currency? Why would they risk exchanging goods for payment in a currency backed by otter pelts?

I was hesitant to post these comments, because I don't want to give the impression that I am asking anyone else to make the arguments that I am unable to make myself, but if you have comments, I will use them to further my own understanding on the subject.

Post 69

Sunday, January 6, 2008 - 11:39am

Jonathan:

Your friend obviously knows quite a bit about the financial markets but I think he has difficulty in adapting to a new paradigm and his views on the liberty dollar are irrelevant to establishing a true alternative currency. The liberty dollars are just that � they are denominated in dollars and are really warehouse receipts, whether they are created in precious metals, or paper, for the larger denominations.
Wikipedia on Liberty Dollars
Currently the Base Value of Liberty Dollar is $20 Liberty Dollars to one ounce of silver. One ounce Liberty Dollar gold pieces are now denominated $1,000 ...
An alternative currency should be independent on any nation's currency.

We have to rid ourselves of the idea that government(s) should control the money supply when supply and demand can do the job without political pressures. The argument is made that the government can guarantee the value of its currency, but, as we know, this certainly isn't the case. Pity the American who last year entered into a contract with a Canadian company for payment in $US. With an international currency based on a 100% rare commodity those concerns evaporate.

As far as trust is an issue, it doesn't boil down to an "Idaho Stor-n-Lok", as your friend suggests, because the everyday currency is the actual stuff. The role of banks would be for bookkeeping and safekeeping for larger amounts. To buy a house or a car one would write a check. Also, there would be nothing to prohibit something similar to credit cards that would guarantee payment.

Anyway, that's my view.

Sam

Post 70

Sunday, January 6, 2008 - 11:57am

I will ignore the collectivist fallacies of "America" buying from "the Saudis" and so on.

I point out, also, that no national currency is backed by anything. Basically, any national currency is supported only by the demand to use it to buy things with. Some currencies such as the Zimbabwe Dollar have been on a downward slide because there is nothing to be bought. Others, like the India Rupee and now the US Dollar, lose value because the government spends more than it takes in in taxes, running a deficit and then a hidden tax.

These national currencies are all only a matter of scale. The large banks -- CitiGroup, UBS, Sumitomo -- could just as easily manage economies of this scale. So could other corporations such as GM or ABB that buy and sell huge inventories and have large payrolls.

On the other hand, small places like Aruba do just fine with a homebased currency that is miniscule and yet popular with visitors. (It was purposely designed to be taken off island by tourists.) Does Aruba or Seychelles have more "credibility" than JP Morgan Chase? In Scotland and Northern Ireland, private banks issue their own currency and in fact the Bank of England has tried to force them to accept more BoE Pounds than they want, because these banks are more profitable than the BoE.

A company in Korea sells a million electrical harnesses to GM. The dollar is nice and all, but they need to pay their own workers, etc., so they need Korean Won. GM will sell cars anywhere, but the local dealerships in South Africa sell those cars for rands. Banks buy and sell currencies based on the needs of their clients for those currencies, ultimately, rands for wons. If an Objectivist Utopia were able to export philosophy books all over the world and demanded gold, then, gold it would be ... for them -- and still there would be dinars and ringgitts... The need for Singapore or American Dollars has little to do with the ability of the Singaporan (or American) government to make good on its "interenational commitments" and more to do with the need for people (corporations) outside Singapore (USA) to come up with Dollars with which to buy things from the places where the are wanted.

Again, there are about 100 private entities larger than most nations. About 50 nations would not make the Fortune 1000 list. The State of California would be like Number 11 if it were on its own. So, this idea that only nations are big enough to honor big commitments is an example public school myopia.

Post 71

Monday, January 7, 2008 - 4:57am

I would like to add this.
WORLDWIDE INFLATION
Time for Monday, Oct. 28, 1957
TO THE businessmen of the world, meeting in San Francisco, the world's prime economic problem is inflation. The economic disease may be relatively mild, as in the U.S., where prices have risen 3.6% in a year after staying level for four years. Or it may be virulent, as in Brazil, where living costs have risen at a rate of 20% a year for the past six years ...

Fifty years later ...

"Inflation in India: Something to cry about"
Feb 15th 2007 DELHI
From The Economist print edition

and ...

According to figures from 2006, from the IMF, these nations have present problems with inflation:
Argentina, Brazil, Chile, Colombia, Dominican Republic, Ecuador, Mexico, Peru, and
Venezuela.Czech Republic, Egypt, Hungary, Poland, Romania, Russia, South Africa, and Turkey.
http://www.imf.org/external/pubs/ft/weo/2006/01/index.htm

That means that those nations are in the process of defaulting on the "international promise" to redeem their currencies at a fixed rate. Also, since 2006, as Sam pointed out, we would have to add the USA, and apparently, India...

Post 72

Monday, January 7, 2008 - 6:55am

Some of you may have missed the "must see" video, Money as Debt that Mr. Jeremy M. LeRay posted on a former thread. Despite it coming from a blatantly anti-capitalist web site it is worth seeing.

We can't continue forever with the vapor we now call money.

Sam

Post 73

Thursday, May 15, 2008 - 6:05am

The London Bullion Market Association
http://www.lbma.org.uk/

ALCHEMIST
The Alchemist is a quarterly journal covering issues dealing with every sector of the international precious metals market. Selected articles from the current and past editions are available in pdf format - click on the title to view the article.

Links to lists of dealers whose bars are accepted at LBMA as being of good delivery.
(Must process so many million ounces, must have certified assets, and an open board, etc.)
http://www.lbma.org.uk/good_delivery_cover.html

Speaking against metrication, they write:
The LBMA considers that it is essential that the derogation, under which the use of the troy
ounce is permitted for the weighing of gold silver and other precious metals, should either be
continued for the foreseeable future or, preferably, replaced by a permanent legislative
dispensation to allow the use of the troy ounce by the London Bullion Market in perpetuity.
It is no exaggeration to say that the market would be severely disrupted if it were forced to
convert to metric units.
(Entire document, click here.)

My favorite point (my bolding):

In the London Bullion Market, gold has always been weighed on beam balances. The smallest weights used to balance the bar are of 0.025 troy ounces and the registered weight of each bar will be expressed as a multiple of this weight. The balance also has a scale with divisions which represent 0.001 of a troy ounce. In order to ensure that the customer always gets �full measure� the practice in London is that the bar must weigh at least 0.002 of a troy ounce more than the weights on the balance pan. In other words, when a close balance has been achieved, the needle must settle on a point at least 2 divisions in favour of the bar. The recorded weight is then taken as the sum of the balance weights (i.e., a multiple of 0.025 a troy ounce). This means that (ignoring any errors in the balance weights or the set-up of the balance) the true weight of a bar can be anything from 0.002 to 0.027 of a troy ounce greater than the recorded weight.

... the baker's dozen and the free fluids top-off at the Instant Oil Change...
Capitalism, you gotta love it.

Post 74

Saturday, November 22, 2008 - 11:43am

The Gold Anti-Trust Action Committee
www.gata.org

The Gold Anti-Trust Action Committee was organized in January 1999 to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities.

Post 75

Sunday, April 26, 2009 - 7:37am

This weekend was the semi-annual Michigan State Numismatic Society convention at the Hyatt Regency Dearborn. The show was a little slow -- only 130+ dealers -- because the Chicago International was running, also.

Although Liberty recently reported being out of stock on ducats, a dealer in the next row -- Dan Sheffer ("Daniel's Coins and Currency") had several. Also, I was surprised to see Canadian 1/20 oz Maple Leafs ("Four 9s Fine") at Cleveland, Ohio "Kamm's Corners" neighborhood dealer "The Coin Shop" table at this show. They were going for $50 each, about 10% over spot, a great price for small gold. At the same price range over spot were 1/10 Krugerrands and 1/10 Pandas.

Of course, there was no shortage of large gold near spot, but that was not my market this time around.

The point is that despite reported shortages of retail gold for delivery, if you don't mind shopping, there is more than enough out there.

I like large numismatic conventions. Even a local show with 30-50 dealers puts the advantage clearly with the buyer.

Gold is Element 79; atomic weight 196.9665, a tag that will let me find this thread again easier.

(Edited by Michael E. Marotta on 4/26, 8:37am)

Post 76

Friday, June 11, 2010 - 4:09pm

Bernanke puzzled by gold rally ... Extree! Extree! Read all about it!

June 9, 2010, 12:03 PM ET
Bernanke Puzzled by Gold Rally

Mr. Bernanke notes that the inflation signal isn�t confirmed by movements in other asset classes. Yields on Treasury bonds tend to rise when investors worry about inflation, but those yields have been falling recently. Inflation expectations as measured in Treasury Inflation Protected Securities (TIPS) markets remain low. And other commodity prices are falling. Gold is breaking records, but copper prices are down 17% so far this year.

http://blogs.wsj.com/economics/2010/06/09/bernanke-puzzled-by-gold-rally/

"Yields on Treasury bonds tend to rise when investors worry about inflation, but those yields have been falling recently." -- The yield on a fixed rate bond rises when those who hold it sell it for less than the nominal (principle) price paid, thus raising the yield. The other route, of course, is to raise the interest rate on the current offering, which would be a primary indicator of inflation. Interest rates have fallen because banks got their money from the FRB at 0%, allowing a book profit at least on any interest at all.

Perhaps the bartender is his own best customer. Maybe he really believes what he is saying, like if Penn & Teller claimed to control demons.

Post 77

Friday, June 11, 2010 - 5:15pm

I don't believe Bernanke is�wholly puzzled about gold and Treasuries. Here is�part of the article you did not quote:

�I don�t fully understand movements in the gold price,� Mr. Bernanke admitted. But he suggested it might be another example of investors fleeing risky assets and flocking to assets that are perceived as less risky, not only Treasury bonds, but also ones like gold.

�His suggestion is sound. Of course, now gold is getting a boost in demand due to the weakness of the Euro.

(Edited by Merlin Jetton on 6/11, 5:30pm)

Post 78

Friday, June 11, 2010 - 9:01pm

Of course, now gold is getting a boost in demand due to the weakness of the Euro.

Also from the Chinese who are flocking to gold as somewhere to put their money. The Chinese real estate market is getting very hot and the authorities are worried that it may bust. They are also are buying Vancouver real estate.

China�s citizens have been told not to spend their rapidly increasing savings in the national real estate market to prevent speculators from skewing values, but those who can get their money out of the country are finding a haven on Canada�s West Coast.

Sam

Post 79

Wednesday, June 23, 2010 - 6:51am