Buy and Sell Gold Bullion Bars in Singapore: 2008-12-21

Saturday, December 27, 2008

Investors boost gold exports

TOKYO: Japan's gold exports have doubled this year, largely due to individual investors seeking to lock in profits after gold prices soared earlier in the year.

In the 11 months to this month, Japan's exports of unwrought solid gold, gold bars and sheet totalled 393.9 tonnes, Ministry of Finance data showed yesterday.

Spot gold prices hit a record high of $1,030.80 an ounce in March, prompting investors to sell.

Japan exported 174.9 tonnes last year, which were up eight per cent from a year earlier.

Imports totalled 28 tonnes last year, compared with 32.6 tonnes in 2006.

The data also showed Japan exported 47 tonnes of gold last month, rising more than five-fold from October, while imports more than halved to 4.1 tonnes from the previous month.

In October, Japan turned a net importer of gold for the first time this year. A Tokyo-based trader said the rise in exports last month may have been related to spot gold prices rebounding above $800 an ounce after falling to near $680 in late October.

"There were still many people who hadn't sold," the trader said, adding that such selling pressure may offset emerging retail investor appetite for gold for the time being.

Demand for gold by Japanese individual investors has risen markedly in the past few months, with a wider array of people attracted to the metal, seeking safer investments amid global financial market turmoil, industry sources said.

Tanaka Kikinzoku Kogyo, Japan's biggest bullion retailer, said a record number of new customers signed up for its online gold savings plan last month, which allows customers to purchase a minimum of 1,000 yen worth of gold each month.

Tanaka does not report actual volumes or value, but it said its sales of gold exceeded its purchases for the fourth month in a row last month.

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Friday, December 26, 2008

Bernanke's Great Lie: The Gold Standard and the Great Depression

(See Part I, The 'Great Slump' of 2008.)

The purpose of the following is to argue that the "gold standard," as understood by most of the public, did not cause or worsen the Great Depression as current Fed Chairman Ben Bernanke has based many of his papers, speeches, and, to a large extent, his entire career on. In our contemporary times, I do believe this blame must be firmly rejected and monetary policy should, at the very least, be debated in a national forum. Indeed many other economists, such as the Friedman family, Anna Schwartz, Alan Greenspan, and Jeffrey "Shock Doctor" Sachs, have all propagated this lie.

My premise is simple. I charge that these renowned Keynesian and Friedmanite-Monetarist-Chicago-Shock-School economists have consistently used the term "gold standard" to mislead their audiences and readers. For the sake of brevity, I will focus on Mr. Bernanke as he is the current standard-bearer of the Fed's fiat monetary system. Frequently, these economists do concede there are differences, but instead of clarifying they muddy the waters. For instance, in his 1990 NBER paper Bernanke frequently refers to an "interwar gold standard" and in his 2002 salute to Milton Friedman he acknowledged that "the gold standard was not adhered to uniformly as the Depression proceeded."

While there may be a paper from the Austrian School of economics that firmly rebukes the claim in my direct fashion, based on the mislabeling of the term, I have not come across it (yet). However, both Murray Rothbard and Walter Block have understood this truth as well, and dropped the clues.

Furthermore, there should be very little surprise that the statist forces have used this trick. Yesterday's communist "nationalization" is today's "conservatorship." "Hoarders" are really savers. "Insurgents" are really guerrilla fighters; only a minority are "terrorists" as our political leaders consistently tell us. An unbiased observer would call a "war" whether on terror, poverty, drugs, WWII, etc. - as state-sanctioned murder, destruction, and theft of property. Even the political terms "liberal" and "conservative" are terms meant to confuse and divide, as I discovered in one of my first articles "An Hypocrisy of Terms: Liberal and Conservative".

Without more ado, let's dive into "gold standard" terminology, although if you do not understand the differences between commodity, receipt, fractional, and fiat money to please read this first "The Money Matrix - What is Honest Money? (PART 4/15)".

The pure 100% reserve gold and silver standard is commodity money issued in the form of hard gold and silver coins, or receipt (whether paper or electronic) money issued in lieu of metal held in a money warehouse. The amount of coinage in circulation plus the receipt money always equals the total mass of metal in the monetary system. Rothbard refers to this as a "parallel standard," but be careful to not confuse this with bimetallism1. I have found that this is what people commonly mistake as the "gold standard." I will refer to the above as the Austrian standard for simplicity.2

The "international" or "classical" gold standard is actually a form of fractional money. In simple terms, one can redeem paper or electronic currency for a fixed amount of gold coinage; America was officially under this standard from the Gold Standard Act of 19003 until FDR outlawed and confiscated the gold of the people in 1933. The critical concept to understand here is that the monetary supply can be inflated or pyramided upon the total base amount of metal, which of course is conveniently possessed by the government. So, under the "classical" gold standard, if everyone decided to exchange their paper receipts at the same time, the country would be bankrupted; not enough gold would exist for everyone to redeem their receipts. When the United States executed the Gold Standard Act of 1900, the first step was for the government to procure a massive reserve amount of gold, so that everyone can be fooled or lulled into thinking that their gold can always be redeemed in full.4

The "gold bullion" standard is one of the systems Bernanke lumps together as the "interwar gold standard." Under this monetary system, gold coins are never minted. Redemption in gold is only permitted in the case of large international transactions; the country's populace is prohibited from ever possessing the actual money [Rothbard, America's Great Depression, p(190-1/409)]. The country can proceed to inflate for as long as it can fool the populace that the disparity between gold and its banknotes is acceptable. In many ways, America existed under this unstable yoke from the FDR Gold Theft of 1933 until the Nixon closure of the international gold window in 1971.5 The American citizenry was not permitted to own gold coins and bars until 1975.

Under a "gold exchange" standard a country keeps no physical gold that can be redeemed. For reserves, only other "hard" receipt money from another nation that could ultimately be redeemed in gold is kept. The prime example of this is many European countries adopting the US dollar immediately following WWI. Again, the country can proceed to inflate for as long as it can fool the populace that the disparity between the pegged "hard" currency and its banknotes is acceptable.

A fiat monetary system consists of money that is declared "legal tender" by a government with no commodity backing. Fiat is Latin for "so be it" meaning money ordered into existence by a sovereign power. As Rothbard notes, if one examines both the "gold exchange" standard and the "gold bullion" standard closely, both are de facto fiat currencies as the people are in effect banned from possessing the backing commodity, gold.

Now what really happened in the early twentieth century? This must be understood before we examine Bernanke's interpretation. Up until 1914, America and most European nations were on the "classical" gold standard. China operated on a "classical" silver standard. Then America brought the central bank known as the Fed into existence in 1914 via the Federal Reserve Act of 1913. Next, to finance WWI, France, Holland, Germany, Britain, Belgium, and Italy broke off of the "classical" gold standard and issued paper money to finance their military spending deficits. Indeed, the four year long war would have only lasted months if the countries had remained on the gold standard, or had their paper debt been refused by countries like America [Lips, 2001]!

Amidst the ruined fields and cities, the inequities of Versailles led to Germany's infamous Weimar hyperinflation of 1923, which was only one of many national currencies ravaged by hyperinflation. Germany, Russia, Poland, Austria, and other countries suffered greatly due to the lack of sound money; Weimar was ended by the introduction of the Rentenmark, which was tied to gold [Evans, 2003]. However, on the side of the WWI victors (Britain, France, and Italy) was America with its gigantic horde of gold. American Fed chairman Benjamin Strong massively inflated the dollar to prop up the Bank of England's "gold bullion" standard, with no benefit to the American people whatsoever.

This Great Inflation took place between 1921-1929 and the American monetary supply was inflated by 62%, or 7.7% annualized, as can be seen in the below table. As the table shows, this gushing spigot of credit was abruptly slammed shut by the Fed at the end of 1928, and directly preceded the stock market's infamous crash of 1929, as well as collapses in farm prices and commerce. In 1930, massive job losses gave way to many economists' soothsayer prophesies of the future, including Lord Keynes' "The Great Slump of 1930." [Note that several intervals in the table are just 6 months. Rothbard, America's Great Depression, p128-209/409.]

In 1931 all hell finally broke loose. A cast starring JP Morgan, the Rothschilds, the Bank of England, the BIS, and the Federal Reserve Bank of New York attempted to avert the collapse of Kredit-Anstalt, Austria's mega-bank. The attempt failed when France called in its loans issued to Germany and Austria, which had formed a customs and trade union on March 21. The effects of the trade collapse in Europe quickly crossed the Atlantic, and the Fed and many American banks had bought up German debt, which had plummeted in value. Germany and Austria fought like wolves to cling to their "gold exchange" standard.

The final descent came on September 21 when the Bank of England abruptly left its "gold bullion" standard and depreciated madly, causing massive losses to French banks. Markets hemorrhaged and froze up, and bank runs and panics took place everywhere. [Rothbard, Depression, p295-322/409.]

To make a long story fairly brief, President Hoover began the ill-fated government-assisted economy called the 'New Deal,' which FDR fanatically continued. FDR ended the "classical" gold standard with his theft by force of America's remaining coin bullion. On March 5, 1933, he cajoled the American public to return its gold coinage to the banks. On April 5, 1933, he made the private ownership of gold illegal and demanded that all remaining gold be surrendered to the government.

The next step was obvious, as Milton Friedman and Anna Schwartz wrote in A Monetary History of the United States, 1867-1960, FDR devalued the dollar from $20.67 to $35.00 per troy ounce of gold to PARTIALLY account for all of the inflation that had occurred since 1914. Those who were forced into giving their gold to the banks in March and April now realized a whopping 70% loss of their purchasing power, which had been stolen by the Fed. Those who retained their gold were now conveniently branded outlaws, and unable to legally use their gold as currency. [Note: After the FDR confiscation order was passed, only ~20% of the outstanding gold coinage was returned, the rest disappeared.] The statists' rule by decree, or fiat rule, began to fully consolidate its grip upon the world.

America's poor and middle class would languish in the throes of this 'New Stupidity' until WWII. A few Misesian boom-bust cycles later bring us to the present-day, as President Obama readies his 'New Stupidity Again' stimulus plan. As the Great Depression was to a large extent exemplified by high involuntary unemployment, one has only to look at the below chart to realize that FDR and Hoover were economic failures. Only until the war boom of 1942 would unemployment drop to pre-Depression levels. [Of course, this "boom" assisted America, but destroyed much more of the industrialized world. I've found that Henry Hazlitt explains the fallacies of the New Deal best in his Economics in One Lesson, chapters 4 and 8.]

Now at long last we can refocus on Bernanke's lies. In fact, he is fully cognizant of the Fed's role in causing the Great Depression. On November 8, 2002, he stated:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.

However, in the same speech, a cascade of lies flows:

The next episode studied by Friedman and Schwartz, another tightening, occurred in September 1931, following the sterling crisis. In that month, a wave of speculative attacks on the pound forced Great Britain to leave the gold standard.

As previously claimed, Great Britain had never returned to the "classical" gold standard, and instead had been propped up by the FED! The "speculative attacks" were not speculative at all; they were committed by those who recognized that this Madoff-Ponzi scheme had failed!

[In the 1920's] countries that adhered to the international gold standard were essentially required to maintain a fixed exchange rate with other gold-standard countries. Moreover, because the United States was the dominant economy on the gold standard during this period (with some competition from France), countries adhering to the gold standard were forced to match the contractionary monetary policies and price deflation being experienced in the United States.

Again, a blatant misuse of "gold standard"! The countries Bernanke is referring to were on the "gold bullion" or "gold exchange" standards, which are de facto FIAT!

Friedman and Schwartz's insight was that, if monetary contraction was in fact the source of economic depression, then countries tightly constrained by the gold standard to follow the United States into deflation should have suffered relatively more severe economic downturns. Although not conducting a formal statistical analysis, Friedman and Schwartz gave a number of salient examples to show that the more tightly constrained a country was by the gold standard (and, by default, the more closely bound to follow U.S. monetary policies), the more severe were both its monetary contraction and its declines in prices and output.

Friedman and Schwartz had no "insight" here! In fact they were blinded! Countries on the "gold exchange" standard were constantly devaluing their currencies by repegging to the dollar or the British pound, although they were correct in that Fed dollar inflation secretly contributed to further debasement.

Bernanke in his 2004 speech "Money, Gold, and the Great Depression":

After 1918, when the war ended, nations around the world made extensive efforts to reconstitute the gold standard, believing that it would be a key element in the return to normal functioning of the international economic system. Great Britain was among the first of the major countries to return to the gold standard, in 1925, and by 1929 the great majority of the world's nations had done so. Unlike the gold standard before World War I, however, the gold standard as reconstituted in the 1920s proved to be both unstable and destabilizing.

He's lying through his teeth! Great Britain never returned to the "classical" gold standard after 1914! In 1929, NONE of the countries that had left the "classical" gold standard returned to it! NONE ever would! Sure, he admits that the post-WWI "gold standard" did not work well, but he does not state the true reason why! The British pound, the German mark, the Italian lira, et cetera were all just fiat in disguise!

Here's classic Bernanke:

The existence of the gold standard helps to explain why the world economic decline was both deep and broadly international.

Hogwash! First, WWI would have been greatly shortened and the economic decline would never have occurred if the world had not left the "classical" gold standard. Second, we have already seen how the FED, Hoover, FDR, and especially the British lack of fiscal discipline widened the depth and breadth of the Depression, not the "gold standard"!

If declines in the money supply induced by adherence to the gold standard were a principal reason for economic depression, then countries leaving gold earlier should have been able to avoid the worst of the Depression and begin an earlier process of recovery. The evidence strongly supports this implication. For example, Great Britain and Scandinavia, which left the gold standard in 1931, recovered much earlier than France and Belgium, which stubbornly remained on gold. As Friedman and Schwartz noted in their book, countries such as China - which used a silver standard rather than a gold standard - avoided the Depression almost entirely. The finding that the time at which a country left the gold standard is the key determinant of the severity of its depression and the timing of its recovery has been shown to hold for literally dozens of countries, including developing countries. This intriguing result not only provides additional evidence for the importance of monetary factors in the Depression, it also explains why the timing of recovery from the Depression differed across countries.

Sorry for sounding like a broken record, but let's continue. First, all the countries Bernanke mentions were not on the "classical" gold standard, just a weak fiat facade. For one of his key supporting pieces of evidence, Bernanke fails to complete a thorough eco-political study of China, including the theft of the populace's silver by their government, and the MINOR detail that China was under massive upheaval and wracked by civil war in the mid-1920s, so they just MIGHT have been fudging some of their economic numbers. Comparing the Chinese economy with the likes of Britain and France in 1925 is as silly as comparing the Somalian economy with Japan's in 2008.

In his 1990 NBER paper "The Gold Standard, Deflation, and Financial Crisis in the Great Depression," Bernanke does reveal he is aware of the Genoa Conference of 1922 that promoted the "gold exchange standard." It is also interesting that in 1990 Bernanke fairly consistently uses the term "interwar gold standard," while in his recent speeches and writings he just uses "gold standard." At no point does he clearly define the "interwar gold standard." In fact, he even lists the League of Nations claim that by 1925, 28 of 48 major currencies were once again "pegged to gold."

Maybe when this depression finally ends in the hyperinflationary death of a bunch more fiat currencies, I will write a paper to correct all the Keynesian and Friedmanite gaffes Bernanke and others continue to make. Hopefully, I can call it "How the Austrian Standard Cured Inflation and Stopped the Financial Crisis of the Greater Depression." I will be sure to correctly define the Austrian Standard first.

1 Bimetallism refers to a policy when countries fix a ratio of silver to gold, say equating 16 grams of silver to the same purchasing power as 1 gram of gold. America used this type of monetary system during much of its early history. The key problem with bimetallism is that differing international fixed ratios or even large supply-side changes will result in large outflows of metal, or attempted arbitrage, to make profits based on the ratio difference. Roughly speaking, a kind of modern fiat equivalent would be the yen carry trade, which is based on foreign exchange rates and interest rate differences.

2 The Austrian School of economics follow the Misesian regression theorem, which succinctly states that for anything to become money, it must first have intrinsic value of its own and have been chosen by the free market to serve as money. When this occurs, the gold or silver typically gains a monetary premium over other commodities [Block, 1999]. From a sound money purist's point of view, the most obvious example of this is the monetary premium that the petrodollar receives as the world's reserve currency. Gold and silver have unparalleled records as successful money across most of continents, culture, and time. One has only to research the Alexander's Greeks, the Mayans, medieval Europe, imperial China, the Egyptians, British Empire, the Romans, and ancient Mesopotamia.

3 The Gold Standard Act of 1900 equated $1 USD ≈ 0.048 troy ounce gold. At today's price of ~$850 per ounce, the dollar in December 2008 is worth a scant 2.4% of its' 1900 value.

4 The pro-FED forces were actually anxious to pass this law; it was a key step towards the Federal Reserve Act of 1913. By making gold the sole metal backing the currency, the pesky, harder-to-control threat of silver was formally vanquished [Rothbard, The Case Against the Fed].

5 Federal outlays to pay for President Lyndon B. Johnson's "Great Society" and the Vietnam War caused a massive debasement (or inflation) of the dollar, which resulted in other nations, most famously France, to redeem their dollar reserves for gold.

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Thursday, December 25, 2008

Silver and Gold: More Than Just A Christmas Carol

Silver and gold, silver and gold
Ev’ryone wishes for silver and gold
How do you measure its worth?

Just by the pleasure it gives here on earth

... or so goes the well-known Christmas carol you've probably heard several times already during this holiday season. But aside from the decorations in your home and office, how much gold do you actually own right now in your portfolio?

After all, gold is considerably more valuable than merely "the pleasure it gives here on earth", as you can see from the following 5 x 3 point and figure chart which shows the price since its 1982 low:

(click to enlarge)

This chart (courtesy of http://www.the-privateer.com) will remain the same until the spot future gold price closes between $US 864.90 and $US 835.10. That's because a point and figure (P&F) chart represents filtered price movements over time. P&F charts tend to eliminate insignificant price movements that often clutter bar or candlestick charts, highlight key support/resistance levels and focus upon major trend lines.

(If you're not familiar with P&F charts, they're composed of alternating rising columns of X's and falling columns of O's, with each X or O "box" representing a fixed price range ($5 in this case). A new column is begun each time the price moves a set amount in the opposite direction (3 x $5 in this case).)

From this chart we can see that there is good support at the $700 level and that a close over $980 would indicate that the next leg of the bull market is truly underway. For now, the gold price is butting heads with the downward trend line highlighted in red.

A Closer Look At The Gold Price Action

By way of comparison, here’s how the action looks with a more conventional candlestick chart:

Here we can see that the resistance at the 50 week moving average is proving to be quite difficult resistance indeed. Gold has failed to penetrate it on five separate occasions dating back to September.

But does this mean that gold’s luster has faded?

Not if you ask Peter Schiff and other astute observers who don't take a conventional, mainstream view of the economy and financial policy (and who have been proven to be right far, far more often than the idiots you'll see assuring you that "everything will be OK any day now" on the television programs).

According to Mr. Schiff:

Gold has actually held up very well compared to other asset classes. If you look at the price of gold relative to its peak, it's only off about 25%, whereas if you look at stock markets around the world, most are off 50% or more, certainly if you price them in US dollars.

What's more, he added:

If you look at gold in terms of other currencies, recently you've seen all-time record highs in the price of gold in South African rand, in Australian dollars, in Canadian dollars. So gold has actually had a very strong, stealth move when viewed from the prism of something other than the US dollar.

That's primarily because the US dollar has been exceptionally strong lately even though US economy has been the epicenter of this year's economic shockwave. “Strong” is relative though, as the dollar has dipped rather noticeably in recent weeks and is unlikely to show any significant gains in the near future:

After all, consumer spending -- a mainstay of the U.S. economy which accounts for more than two-thirds of the nation's gross domestic product -- isn't exactly skyrocketing at the moment.

Dark Days Are Ahead When Even Christmas Shopping Is Unfashionable

Consumers are not opening up their wallets, according to new government reports indicating that consumer spending and orders for durable goods fell even further in November. Individual spending fell an additional 0.6% last month after falling 1% in October. This marks the fifth consecutive monthly decrease.

And even though consumer prices themselves are falling (particularly in the energy sector due to falling oil prices), people are still reluctant to charge once more unto the shopping breach. Who can blame them, really.

After all, everyone's cutting back. Orders for durable manufactured goods declined a seasonally adjusted 1% to $1.9 billion in November too. Meanwhile inventories of manufactured durable goods increased $1.6 billion or 0.5% which marks the sixteenth increase in the last 17 months and now features the highest level since the Commerce Department began tracking that measure in 1992.

There's some good news, though. A 1% rise in real income helped generate a 2.8% savings rate compared with 2.4% in October.

Loosely translated: no one's buying and goods are slowly piling up on the shelves as consumers hoard their cash in the face of economic uncertainty.

Could the fact that initial filings for state jobless benefits rose to 586,000 for the week ended December 20 have anything to do with this? That's a 26-year high and up from a recent high of 575,000 claims reported earlier this month.

Also, the median U.S. home price plunged 13% in November from a year earlier. This is the largest drop on record and almost certainly the biggest decline since the 1930s according to the National Association of Realtors. What’s more, foreclosure-related sales accounted for 45 % of the month’s transactions.

Russian Down A Steep Slope: The Slavic Bear Hibernates

But take heart, things could be worse. If you were Russian, you'd be "enjoying" the benefits of your central bank officially devaluing your ruble currency for the third time in a week. The ruble is down 18% and now sits near an all-time low as the central bank spent spending 27% of reserves (more than $162 billion) "defending" the currency since August.

That's primarily because the Russian government based a significant part of its revenue on oil prices and the current price per barrel of $37.43 is a tad lower than the $70 needed to balance the 2009 budget. Whoops!

And as if that's not enough, BNP Paribas SA estimates investors withdrew $211 billion from Russia since August due to confidence concerns. A budget deficit for the first time in a decade is in the offing and the government will be forced to use its reserve fund to cover the financing gap. At least they have one, which is more than you can say for the U.S. government.

And while you might feel like cheering over the woes of America's former Cold War enemy, we could be looking at a future snapshot of the U.S. economy playing out today.

After all, no one is being spared the bite of the recession bear, not even the mighty Russian bear itself.

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Wednesday, December 24, 2008

Enlightening the Gold Bugs

Every once in while, I try to enlighten the gold bugs. It's a process I relish with as much joy as trying to explain to my daughter there is no Santa Claus, after she learns from her classmates she has been duped. The markets by there nature are full of people with less than perfect or imperfect information. And the beauty of this conundrum, we all assume that it's the other party being duped.

This by no means is scientific or deeply analytical, but the most prevalent opinion about the direction of a market is often wrong. But momentum riding is a very profitable trade, as long as you find a greater fool. It has become the single most popular belief that the dollar will decline in value significantly in 2009. It's absolutely main stream like peak oil, the new technology paradigm, the great BRIC society, and a host of other super trends. The problem with dollar argument is the dollar is rising despite the assumed quantitative easing of the federal reserve. The dollar is gaining strength day by day, and gold bugs continue to trumpet the collapse of the fiat.

The gold bugs continue to forecast runaway inflation, but refuse to notice that EVERYTHING we purchase is falling in dollar terms. Where's the $4 a gallon gas? Where's $4 a pound copper? Or what about $2000+ an ounce platinum? What's the price of your home? Do you think the gold bugs can clean there rose colored glasses long enough to see the FACTS? Gold bugs are the clandestine clan of legend, betting the end of the world's financial systems, while ignoring the falling prices of other hard assets. Relative to other hard assets, gold is 30-50% overvalued.

Gold bugs always say look at history, so let's take a look. From 1833-1931 gold sold for 20 bucks an ounce. In 1932 gold fell to $17 an ounce, this was the middle of the Great Depression. Finally, FDR devalued the currency by fixing gold at $35 an ounce. If FDR had not FIXED the price of gold, who knows if the downtrend started in 1932 would have finished. For thirty plus years gold was fixed at roughly $35 an ounce until Bretton Woods. Since then, gold has exploded, at the pace of 30X your money. So price stability in gold has been the norm until the last 35 years. The gold market is indeed manipulate, but contrary to what the bugs assume the manipulation is causing a bubble in the price of gold. (See the Hunt Brothers.)

The dollar is beginning a multi-decade run in my opinion, and I promise I'm the only one that will say that publicly. But the truth is the price of the dollar and most commodities (ex gold) is telling the smart money has exited the building. Deflation is on a tear, and I mean an absolute tear. And gold bugs have so much faith in the Fed to create inflation, the same Fed that many believe are incapable of finding the opening of a paper bag. Bernanke (aka Helicopter Ben) has stated he is surprised by the fact deflation exists in a fiat system. Did he say surprised? Yes, and I think a lot of people are going to be surprised.

I'll ask a question, what was the inflation rate during the implementation of the New Deal? What was the inflation rate during WW II? Many pundits believe that the Obama administration will be unleashing hyperinflation, but at least wait until prices increase before you trumpet your hyperinflation paranoia. Cash is king...there's a reason why that phrase exists. Deflation is more the norm than inflation, it's just we ALL are experts on inflation, so we talk our book.

I'll ask a simple question, is it widely believed we have exited the bubble generation? Is it possible that gold is the last bubble to pop? You can believe central bankers won't allow deflation, but do so at your own peril. Or what if deflation is inevitable despite the actions of the Fed? Treasuries are screaming cash is king, and gold is screaming inflation, one of these two markets is wrong. If you look at commodities, gold is the outlier. Anyone want to buy UUP?

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Gold Holds Tight as Christmas Shutdown Begins; Dollar Due for "Technical Bounce"

London Gold Market Report
By: Adrian Ash, BullionVault

SPOT GOLD slipped into London's long Christmas break on Wednesday but held inside a tight range, dropping $5 an ounce at the AM Gold Fix of $836.75 as world stock markets also fell in thin holiday trade.

The London Bullion market – center of the world's wholesale dealing – is now closed until Monday 29th Dec. European stock markets, like New York, close at lunchtime.

Twenty-four hour gold dealing at BullionVault continues as normal.

"Trade's extremely thin in the physical market because of the Christmas and New Year holidays," noted one analyst in Tokyo to Bloomberg earlier.

"Continued fund selling amid thin trading volumes should exacerbate price volatility throughout the day," agrees Manqoba Madinane at Standard Bank.

"No major economic data releases are expected today [so] technical momentum signals could land in the driving seat," he adds, pointing to a possible bounce in the Dollar after last week's sharp retreat in its five-month bounce.

Christmas Day brings a flood of Japanese data, including Consumer Price inflation, Retail Sales and Industrial Production for Nov.

Today the Nikkei stock index slumped 2.4%. Tokyo Gold Futures ticked ¥14 lower to ¥2,440 per gram.

The Yen turned higher from a one-week low vs. the Dollar of ¥91, while the Euro held just shy of $1.40 in the morning London session.

Sterling dipped below $1.47. Crude oil was little changed at $38.50 per barrel.

"Amid the banking collapses and investment fund losses of 2008, holding a high-value asset free from the risk of default only became more attractive," writes BullionVault for The Daily Telegraph. "Not least because wholesale-size Good Delivery gold bars also trade in a deep, liquid and international market based here in London."

Turning to the outlook for Gold in 2009, "Real interest rates have now been slashed well below zero both [in the UK] and in the US," the report goes on, "and it's here you'll find the one common factor between this decade's bull market in gold and the 20-fold rise of the Seventies. Because low returns paid to cash remove the one big disincentive to using gold to store wealth – the fact that it doesn't pay you an income.

"Nor do US dollars today. Can the UK's bank base-rate be far behind?"

You can read BullionVault's exclusive analysis for The Telegraph here.

Adrian Ash
BullionVault

Gold price chart, no delay | Gold investment – simple, safe & efficient

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

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To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Tuesday, December 23, 2008

As Good as Gold?

Whenever equity asset classes experience bear markets, investors seek out safe havens for their investments. This is especially true in times of financial or political crises. One whose popularity runs in cycles, with short bursts of enthusiasm or “frenzy” as the price soars, followed by long periods of it being ignored, is gold. And while the price of gold has fallen from its peak of over $1,000 in March 2008, we can still say that it is in the “frenzy” stage.

The main argument made by advocates of gold is that they believe that it is a good hedge against inflation. For the period from 1935 (when the price of gold was fixed at $35 an ounce by the Federal Reserve) through October 2008, gold did provide a positive real return of 0.6 percent. Unfortunately, not all individuals have horizons of 73 years. We need to consider more realistic investment horizons. This is especially true for retirees (for whom 73 years would be far greater than their horizon), or those nearing retirement, as they face the greatest risk of inflation negatively impacting their lifestyle. We address that issue by considering the period since 1981—the last time there was a “frenzy” for buying gold.

In 1979, inflation peaked at a rate of 13.3 percent. That was followed by an increase of 12.4 percent in 1980. The price of gold rose as the fear of inflation increased. While we admit to a bit of data mining, the following example demonstrates that gold is not a good inflation hedge, unless perhaps your horizon is “infinite.”

Let’s assume that to provide a hedge against future inflation an investor decides to purchase gold at the end of 1980 with the price at $641 an ounce. Over the next 27 years (1981–07) inflation rose at an annualized rate of 3.4 percent. If gold was an effective hedge against inflation its value at the end of 2007 should have been at least $1,528. Yet, it was worth just $833 (an annualized return of just under 1 percent). In other words, an investor in gold experienced a reduction in purchasing power of 2.4 percent per annum, or a cumulative loss of purchasing power of about 55 percent. For an investor who was unlucky enough to purchase gold at its peak of $850 an ounce on January 21, 1980 (as some undoubtedly did), the inflation-adjusted price would have had to been in excess of $2,300 by the end of 2008. If gold can provide negative real returns of that size over almost a thirty-year period, it cannot be considered an effective hedge against inflation.

Even worse is that our example does not consider the costs of investing in gold. Strategies have no costs, but implementing them does. The most direct way to invest in gold is to purchase actual gold coins or bars, which may require additional transportation, storage, and insurance costs. Another common option is to use the futures market. The problem there is that like all easily storable commodities gold trades in contango—the futures price is higher than the spot price by an amount equal to the cost of carry (financing, storage and insurance costs). Therefore, over time the investor will have the incremental trading costs involved in rolling over the futures contracts as they mature, but also the cost of the contango.

A third way to invest in gold is by purchasing shares of an ETF such as the SPDR Gold Trust ETF (GLD). The fund has an expense ration of 0.4 percent (plus the costs of storage, etc.). Thus, no matter the method used to gain access to gold as an investment, the already poor real returns would have been negatively impacted.

While commodities as a broad asset class (as opposed to gold specifically) are too volatile to act as a hedge against inflation, we believe they are a superior hedge against inflation than gold. The price of gold itself has very little impact on the economy or the rate of inflation. On the other hand, while a commodity index such as the GSCI does include gold, it also includes a wide range of commodities that can have a significant impact on the rate of inflation (i.e., energy, industrial metals, livestock and agricultural commodities). Note that for the period 1981 through November 2008 the GSCI returned 6.7 percent per annum, outpacing inflation by over 3 percent per annum, and far outpacing the return on gold.

Summary

While gold has provided a slightly positive real return over the very long term, the price movement is far too volatile for gold to act as an effective hedge against inflation. For those investors who desire to hedge the risk of inflation, the preferred instrument is TIPS, which directly hedge the risks of inflation.

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WSJ on the Old 'Gold as Inflation Hedge' Saw

This morning's Ahead of the Tape column($) in the Wall Street Journal neatly summarizes conventional wisdom regarding gold, beginning with the 'ol "inflation hedge" saw.

As the quintessential hard asset, one that traditionally hedges against rising consumer prices, gold's trajectory these days should be downward. After all, prices for just about every other commodity, fr

om oil to nickel to cotton, have plunged as inflation risks have seemingly abated and as investors increasingly fear deflation.

Yet, gold has largely traded between $750 and $850 an ounce for the last few months, and is up about 8% since the Fed cut interest rates to between 0% and 0.25% last week.

It hasn't been an entirely smooth ride. Gold sank amid panic this fall as investors crowded into the U.S. dollar. And it remains well under its $1,002 close back in March. But the metal hasn't stumbled nearly to the degree many other commodities have. Clearly, deflation worries aren't tugging at gold.

It's probably fair to say that, with what the central banks around the world have been doing over the last year or so, gold owners who are now worried about the recent downward trend in the consumer price index are few and far between.

It continues...

And while inflation isn't apparent today, stimulus packages and bailouts mean much more money in the system. That is classically inflationary. Moreover, despite efforts to sop up this liquidity later, the effects of unintended consequences might mean some portion of the trillions added to the Fed's balance sheet are likely to "stick around" to fuel inflation, says Axel Merk, who recently increased gold exposure in his Merk Hard Asset Fund and personal portfolio.

Says Malcolm Southwood, commodities analyst at Goldman Sachs JBWere in Australia, "I'm telling clients that the environment over the next five years is extremely constructive because of the inflationary risks further out."

Near-term gold could still demonstrate some weakness as the last of the panic trade peters out. And if the European Union cuts interest rates, as some expect, that could boost the dollar's value, which could undermine gold. And U.S. and European Central banks could sell gold to raise cash to pay for bailouts, which would be bearish for gold prices. But Mr. Southwood suspects Asian central bankers looking to diversify reserves would grab that supply, seeing the sales as "an alarm signal about the dollar."

And what if deflation does hit? Even that doesn't necessarily spell doom for gold, as some think. During the deflationary Great Depression, "gold preserved its value," says Matt McLennan, a lead manager at First Eagle funds, which runs a gold fund. "It preserved its purchasing power."

Yes, some of this new money is likely to "stick around" as Axel Merk says - maybe a lot of it.

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Gold Holds Tight as Financial Crisis Claims Belgium Government; "Could Flourish" in 2009 on Negative Real Rates & Money Printing

London Gold Market Report
By: Adrian Ash, BullionVault

THE SPOT PRICE of gold held in a tight $5 range early in London on Tuesday, recording an AM Fix of $844 an ounce as European stock markets bounced from yesterday's sharp losses and crude oil ticked back below $39 per barrel.

Chinese equities sank 4.5% despite a cut to interest rates by the People's Bank of China.

The US Dollar was little changed on the currency markets, with most of London's forex traders starting their Christmas holidays early.

Across the Channel in Belgium, however, the financial crisis starting in Aug. '07 gathered speed, claiming its first government scalp after King Albert II accepted the resignation of the coalition cabinet.

Officials acting for prime minister Yves Letermet stand accused of interfering in the legal process to allow the break-up of ailing financial services giant Fortis Bank.

"Financial market systemic risk, as proxied by five-year investment grade credit spreads, has remained steady," notes Manqoba Madinane for Standard Bank in Johannesburg. "We believe this should keep the US Dollar in charge of precious metal investment sentiment."

Weighing the outlook for Gold as 2009 Begins, "Continued currency volatility could further compromise precious metals as most investors may opt to watch developments from the sidelines," he concludes.

Yet latest data from the US derivatives market, however, showed a strong return to leveraged positions in Gold Investment.

In the week-to-last Tuesday, hedge funds and other "large speculators" took their largest bullish position (when compared with the number of bearish bets) since early August. On the other side of the trade, so-called commercial traders – meaning refineries, mints, wholesalers and bullion banks – took their smallest bull position in 19 weeks, as they sold the "long" contracts bought by speculative players.

Overall, this returned the balance of bull/bear positions to something like the situation prevailing over the last four years, with well over 85% of speculative position betting on a rise in gold, up from the three-and-a-half-year low of 67% hit in November.

But the switch came with much-reduced "open interest", however. Last week saw the outstanding number of open contracts in Gold Futures and options rise more than 9%, but it remained one-third below the record set in Jan. 2008.

"If gold can close the year above its January 2008 open, it will be one of the few positive asset stories of the year," notes new analysis from Mitsui, the precious metals dealer in London, "from a wealth preservation perspective at least.

Looking ahead to Gold in 2009, "With the Bernanke printing press set to move into overdrive next year, along with the not so pretty reality of negative real interest rates, it is difficult to put together a positive thesis for the US Dollar," Mitsui says.

"In such a climate, gold could flourish."

May 7th, 2009 will mark the tenth anniversary of Gordon Brown's decision to sell half the UK's national gold reserves at rock-bottom prices, as The Daily Telegraph reports.

Since then, the Gold Price in Sterling has more than tripled, recording its third AM Gold Fix above £570 an ounce on Tuesday morning.

For Eurozone investors wanting to Buy Gold today, the price held above €603 per ounce, more than 146% higher from 10 years ago, when the single currency was first launched.

Adrian Ash
BullionVault

Gold price chart, no delay | Gold investment – simple, safe & efficient

Monday, December 22, 2008

Great Looking Precious Metals Charts

I’ve had mixed results trading gold stocks in the past but those stocks have some of the best looking charts in the market pointing to higher prices very soon. I’m not going to speculate on why they're rising when you consider how much money has been printed by the US and the inflation/deflation debate, but the fact is, they are rising and have the right price/volume action you want to see for near term price appreciation.

While I am near term cautious on the overall markets, I do have a buy signal on the gold/silver stocks as they have the capability to rise even when the general markets are falling.

aipc

While SLV didn’t rebound like the individual stocks in the silver sector did on Friday, it does look poised to move higher after a retest of the higher trendline of the triangle formation below.

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To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Gold and Precious Metals Likely to Improve in 2009

In this short update we focus on the long term technical picture for gold and precious metals stocks since the fundamentals have not changed and remain bullish. The technical picture, however, is getting very interesting.

Gold price action in the past half a year can best be characterized (especially after the recent rally) as consolidation. Such a consolidation is reasonable after a huge spike last year into early 2008, where gold exploded from $650 to over $1000 per ounce.

The long term monthly chart is encouraging. There is the clearly evident higher lows pattern, the RSI has bottomed and the MACD histogram is starting to curve higher.

Most importantly the 20-month Exponential Moving Average (EMA) is turning up, reversing a first-time-in-eight-years bearish turn downward. It is very important to see gold close above the 20-month EMA two months in a row; this would give further evidence of a bullish reversal.

The bull market in gold will resume in full force after gold penetrates its downtrend line which is currently at around $930.

Another bullish factor for gold is the renewed investment demand by the StreetTRACKS Gold Shares (GLD). Gold holdings have now reached an all-time-high of 775 tonnes.

On the monthly charts of a Gold Bugs Index ($HUI), highly significant buy signals have been generated. There have been successively higher lows for three months in a row, the RSI has bottomed and started moving higher, the stochastic indicator reversed from a very low level (a rare signal) and the MACD histogram is starting to curve.

Chart15

These long term reversals in indicators are highly reliable and rarely fail. There is a good probability that 2009 will turn out to be a complete opposite of the brutal 2008 for the precious metal stocks.

As stated several times before, we are starting to accumulate precious metals stocks having low exposure to base metals, with high gold and silver grade deposits, healthy balance sheets and prospects for internal growth.

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Peter Schiff: Outlook for the Gold Market

The Wall Street Transcript recently interviewed Peter Schiff, President and Chief Global Strategist of Euro Pacific Capital, Inc., on his outlook for the gold market. Key excerpts follow:

TWST: These are somewhat trying times. What has this meant so far for the gold market and where do we go from here?

Mr. Schiff: Gold has actually held up very well compared to other asset classes. If you look at the price of gold relative to its peak, it's only off about 25%, whereas if you look at stock markets around the world, most are off 50% or more, certainly if you price them in US dollars. If you look at how gold has held up relative to industrial metals, relative to energy, relative to agriculture, gold has done extremely well. I think the fact that it has gone down in dollars has caused a lot of people to assume that gold is not performing in this correction whereas, in fact, it has. Also if you look at gold in terms of other currencies, recently you've seen all-time record highs in the price of gold in South African rand, in Australian dollars, in Canadian dollars. So gold has actually had a very strong, stealth move when viewed from the prism of something other than the US dollar.

TWST: Why does everybody key in on the US dollar side of the equation?

Mr. Schiff: Because gold was priced in dollars, it's traded in dollars and so we all look at it as the dollar price, and the fact that gold has not made a new high in dollars during this economic crisis has led some to believe that maybe it's lost its luster, it's not a safe haven. But this rise of the dollar is very suspicious to me, I don't think it's justified. But it's been the unlikely beneficiary of all the problems. You've got the problem centered in the US economy; the epicenter of the financial crisis is in America. The reason that the world is in trouble is mainly because of bad loans made to Americans and it's our economy that I think is a complete facade, a house of cards that has now collapsed, so this dollar rally actually makes no sense.

And especially in light of the monetary policies that we pursued over the course of the last six months, the bailouts, the stimulus, all of the things that are likely to happen with Barack Obama saying that the sky is the limit on budget deficits, we're going to print money until we run out of trees. Everything that we are doing is so negative for the dollar, yet the dollar has managed to rally. So I think temporarily the fundamentals are on hold, but I think once the dollar really resumes its decline, you're going to see gold really shine again not only in terms of the dollar. It will continue to do well against other currencies, but it will do particularly well against the dollar.

TWST: Isn't gold normally the "safe haven" that investors seek?

Mr. Schiff: I think it's a safe haven. A lot of people are seeking safety right now in the US dollar, but that makes no sense to me. That's like jumping out of the frying pan into the fire. I think the dollar is a fundamentally flawed currency that is doomed to collapse, and temporarily it's benefiting from the fact that it's seen as the alternative to everything else. People are worried about all asset classes, nobody wants to own anything and somehow by default, the dollar is the opposite of owning other things. People are keeping score in terms of dollars and I'd certainly think that some of the most impaired financial institutions are in the United States. I think some of the losses are very heavy here and that has made a lot of American institutions — investment banks, hedge funds, mutual funds —liquidate assets all around the world, many assets in other countries; those institutions require the liquidation of those currencies to repatriate the dollars necessary to meet their margin calls, to fund their redemptions, and so that might also be temporarily propping up the dollar.

TWST: Has the supply/demand situation in gold changed at this point because of the problems with the hedge funds?

Mr. Schiff: Yes, I think that the credit crunch has certainly put the screws on a lot of gold exploration. A lot of the junior miners are basically on the verge of going bankrupt right now. I'm sure a lot of projects are on hold; a lot of exploration is simply not going to get funded. This is simply improving the supply and demand imbalances that have favored gold for some time and other commodities too. Certainly in industrial metals, in the energy complex, a lot of exploration, a lot of development projects have been cancelled or are never going to see the light of day for many, many years because of the credit crunch and because of the fear of falling prices, which I think is unwarranted. But even when prices start to recover, I think there will be a lot of suspicion of the rally. So people are going to be reluctant to commit capital to a market they have no confidence in.

So I think the supply and demand imbalances for commodities are going to continue, and that commodities themselves are still one of the best asset classes around the world to own. As for the commodity producers, it all depends on their balance sheets. Some of them are going to be spectacular buys. Looking at the gold complex, I think one positive development I've seen has been the strength of the South African miners, which seem to have bottomed first. They started to decline before the overall sector; when many of the Canadian miners were making new highs, the South African stocks were falling. But it seems like the South Africans have bottomed here. They've made significant rallies, some of them have even doubled from their lows and they seem to be stronger. So they topped out first; maybe the fact that they have bottomed first is a positive sign. Maybe they are going to lead on the way up just like they led on the way down.

TWST: How about on the political side of the equation? What's going to be the position of central banks now relative to gold?

Mr. Schiff: The Bank of Canada just slashed rates down to 1.5%. Central banks all around the world are reducing interest rates. It's the most inflationary monetary policy globally that we have ever experienced and ever will experience in our lifetime. That's a very favorable market for gold. When central banks are just putting the pedal to the metal on the printing presses and driving interest rates down to nothing, how can you not own gold? Gold is money, the supply of gold is going to grow very slowly over time, and the supply of all fiat currencies is going to grow rapidly. You're looking at maybe 10%, 20% per year or more annual increases in money supply in every country in the world, and then they pay you next to nothing for holding it. If you want to take currency that is rapidly being debased and you want to deposit it someplace, you are barely getting interest, so why not own gold instead? Even though gold doesn't pay interest, at least it's not being debased.

TWST: What about the central banks selling gold? Are they going to back off now due to the financial crisis?

Mr. Schiff: At some point, the central bank selling is going to turn into buying. Who are these guys kidding? They need to have real reserves behind their currencies. They can't simply hold the US dollars and say our currency has real value because it's backed by the dollar. When the dollar is backed by nothing and being rapidly debased and paying no interest — our rates are down to 1% and likely to head lower. What's the justification for foreign central banks holding dollar deposits rather than gold, when the dollar yields next to nothing? It doesn't make any sense. So I think central banks are going to become buyers and the central banks that own the most gold are going to have the most influence, the strongest currencies, etc. I think people are going to see that and right now, if you look at the percentage of gold owned by central banks, it's at the lowest it's ever been.

TWST: Silver and platinum have come down much more than gold. Is that because of supply/demand or just because of what's going on in the market?

Mr. Schiff: I think there are more industrial uses for those metals and so more of this whole idea that the global economy is going to collapse and no one is going to buy anything is hurting those metals relative to gold. I think gold is more of a pure monetary metal. Sure there's some jewelry demand for gold, but it's not used as much in industry, and I think it's more of a monetary metal, a safe haven metal and so, because of that function, it is holding on to its value. I think there are a number of individuals around the world who understand the difference between gold and fiat money, and I think a lot of people are worried and want to protect their wealth. There is a minority of investors who see through the smokescreen and are not buying US Treasuries, they are buying gold. At some point, the people who are doing that are going to be the ones who are going to be vindicated as gold prices ultimately make new highs, and I still think that we could hit $2,000 an ounce next year in the price of gold.

Mac vs. PC vs. Gold

Dell (DELL), Hewlett-Packard (HPQ), IMB (IBM), Microsoft (MSFT) and the runt Apple (AAPL) will all be fighting over customers this holiday season while Google (GOOG) will be directing the purchases. The indentured and strapped American consumer has been reigning in their purchases. All the malls I have visited have been extremely sparse while those present were unencumbered by any bags. As the deflationary credit contraction intensifies, holders of capital continue seeking safer and more liquid assets in which to allocate capital while prices nose-dive and economic activity grinds to a halt.

FOR THE CONSUMER

CIO reported on a case brought by the New York attorney general where Dell was recently found guilty of fraud, false advertising, deceptive business practices and abusive debt collection practices. Stay away from rattlesnakes. There is extreme discontent with Microsoft’s Vista and 92% of developers are simply ignoring it.

It seems no small wonder that the runt, Apple, has grown U.S. consumer market share to 21%. Apple’s products are expensive. The ACSI has found an industry wide decline in consumer satisfaction but Apple and Google have defied this trend and recorded a new all-time high for consumer satisfaction. I am not sure if the cause is whether Apple’s products are getting significantly better or whether Windows-based machines keep getting more and more painful to use. For those who do make the switch, the Genius Bar at Apple stores provides service on moving one’s data and information and for the truly sadistic Windows can be run on Apple’s computers. These fundamentals bode well for Apple but it still appears overpriced at a 16.8 P/E. If the P/E gets down to around 7 and if it maintains these strong fundamentals, then Apple may appear as a buy.

Likewise, Google providing free and superior tools like Google Docs which integrate into Apple’s iPhone may pose a threat to Office which is one of Microsoft’s cash cows.

CASH RICH

Dell has repurchased $12.8B of shares over the past three years and has still seen their share price fall from $33 to around $10. IBM is perched atop $53B in current assets and only $44B of current liabilities while having repurchased about $28B of stock. Microsoft, the free cash flow king, over the past three years has repurchased about $47B of stock, paid over $11B in dividends, hoards about $43B in current assets and has helplessly observed their share price fall from about $27 to $19. Hewlett-Packard’s accounts receivables appear bloated and their change in cash equivalents was ($5.6B) in 2007 but nevertheless appear very healthy with $47B of current assets and $50B of total liabilities. All of these international companies appear cash rich in the current environment.

GOLD IS A CHEAP INTERNATIONAL CURRENCY

At all times and in all circumstances gold remains money and therefore is the most important currency in the world. As required under the International Accounting Standards gold is a monetary commodity. For example, footnote 14 of the 2007 Annual Report for the Bank for International Settlements states, ‘Gold is considered by the Bank to be a financial instrument.’ Gold is carried in the cash section of the balance sheet.

On May 20, 1999, Alan Greenspan testified before Congress, “Gold is always accepted and is the ultimate means of payment and is perceived to be an element of stability in the currency and in the ultimate value of the currency and that historically has always been the reason why governments hold gold.”

During the 1990’s Mr. Rubin had devised the gold leasing scheme with the intent being elucidated by Dr. Greenspan’s testimony in 1998, “Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.”

GATA’s alleged central bank gold price suppression scheme may include the COMEX’s participation. Mr. Robert Landis, a graduate of Princeton University, Harvard Law School and member of the New York Bar, has asserted that “Any rational person who continues to dispute the existence of the rig after exposure to the evidence is either in denial or is complicit.” GATA alleges that the central banks have less than half the gold claimed.

The sophistries weaved by the derivative illusion has greatly affected gold’s price. Gold is not a portfolio asset; everything else is. For example, the $700B bailout represented approximately 20% of the all the gold ever mined in the world. When there is a real liquidity crisis there are no TARPs, TAFs, TALFs and other CRAPs which are intended to confound, confuse, deflect and misdirect. Former Federal Reserve Govenor Lyle Gramley has suggested a revaluation of the Federal Reserve’s gold. A revaluation from the current $42 per ounce to Gerald Celente’s suggested $6,000-10,000 is not unreasonable given the condition of the Federal Reserve’s current tumescent balance sheet. This would also bring the Dow towards its twice historic lows of about one ounce of gold.

HOARD THE CASH

The computer majors, or anyone else for that matter, can purchase gold and put options. Then they can protect themselves from the ultimate liquidity crisis by sending their armored trucks to the COMEX, having them loaded up with the supposed gold and hauling it away. Taking physical delivery is extremely important because there are approximately 140 ounces of ‘paper gold’ for every ounce of physical gold. This is a key reason why the oil majors should truck away their gold instead of using problematic ETFs such as GLD or SLV (GLD) (SLV). Someone will be left holding the bag of worthless paper gold.

The COMEX currently has about 1.3M ounces of gold or about $1.1B. The entire eligible COMEX stockpile represents an immaterial 0.61% of the current assets or about 1% of share repurchases over the past three years of DELL, HPQ, IBM and MSFT. Why buy back stock when gold is available to be trucked away? Owning the gold would function as a hedge against the increased counter-party risk and insulate against potential bank failures such as Wachovia (WB), Washington Mutual (WAMUQ.PK) and IndyMac while shielding them against adverse credit market conditions resulting from Bear Stearns, Lehman Brothers (LEHMQ.PK), etc. As these large international corporations already own multiple currencies, owning and possessing physical gold, the ultimate international currency, would provide an anchor to their balance sheets during this time of economic turmoil.

CONCLUSION

Because (1) the entire banking system is unstable, (2) their own shares are plentiful, (3) gold is extremely cheap money and in short supply relative to the size of their balance sheets, and (4) to reduce counter-party risk therefore the major computer companies should just buy and take delivery of physical gold instead of buying back their own shares.

There is extreme instability in the worldwide monetary and financial system accompanied with the counter-party risk of the banks. The large computer companies, or you for that matter, can easily eliminate counter-party, Herstatt and settlement risks with gold clause contractions under 31 U.S.C. 5,101-5,118. The evolution of currency in the Information Age has provided and individuals are using credible transparent and reliable digital gold currencies. These eliminate the economically inefficient fractional reserve banking and its attendant risks. Bullion hoards are turned into convenient functional currency for ordinary daily transactions either with international parties or domestic employees.

As the economic pain from the current system intensifies, more rational market participants will seek out alternatives and eventually substitutes, as they are with Apple and Google, to the current monetary system which will only increase the velocity of gold and its perceived value. Those companies which embrace the new monetary systems first will be best positioned with solid balance sheets based on real and solid assets. Who better than the technology companies?

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Will COMEX Default on Gold and Silver?

With investment advisors like the former NASDAQ Chairman Bernard Madoff being prosecuted for fraud, it is natural for people to begin to seek stores of wealth that are not subject to counterparty risk. The precious metals have been relatively safe stores of wealth for the past 10,000 years. Many people are going back to basics, turning back to the precious metals, as places to put their money, in these uncertain times.

Gold and silver were once the most stable of all goods. Extreme volatility, however, is now a part of their nature. It comes from being made a part of the commodities casino, known as the American futures market, where speculators are allowed to use margin to control 14 times as much metal as they actually have money to buy. When the price drops a little, the “stop loss” orders of these leveraged players are triggered, and that amplifies the price move such that the price collapses on the futures market. Similarly, when gold fever begins, the prices can shoot into the sky, as the leveraged longs begin buying again. That is why the price for futures based gold and silver is still very low compared to March, 2008, even though the real world investment demand for both metals is higher than it was, back then (higher than ever before in history, actually), mining supply for gold is down by 5%, and the mine based supply of silver has utterly collapsed.

It should be noted that precious metal volatility is a short and sometimes medium term phenomenon. Since 1913, when the Federal Reserve was created, the dollar has depreciated by 97% against gold. The dollar has depreciated by about 90% against silver in that same 95 year time period. Gold has also appreciated tremendously in price as compared to 8 years ago, 2.5 times against the Euro and 3 times against the dollar. Rational people, therefore, cannot deny that, using a multi-year or, even more, a century long point of view, gold and silver are the best stores of wealth. When looking at long term family legacies, therefore, a large position in gold and silver should be a part of every estate plan. That is especially true now, given that demand currently substantially exceeds supply, the imbalance has every likelihood of becoming more severe in the near future, and the “futures” exchange prices are now very low compared to the real market.

In the last decade, central banks selling and leasing made up the long time shortfall between supply and demand. But, given the financial crisis, and the fear that the U.S. dollar will eventually collapse, central banks no longer want to hold all their exchange reserves in U.S. dollar cash, U.S. dollar denominated bonds and other investments. They are also unwilling to hold everything in other paper currencies, like the Euro. Some governments, including those in Europe and the USA, still have large gold hoards. But, China wants to buy 3,600 tons of additional gold for its reserves. The only way that this demand can be fulfilling without exploding the price is through a “privately negotiated” off-market sale of IMF gold. European banks don’t want to continue selling what gold hoards they still have left, after 20 to 30 years of participation of selling and leasing gold.

In the case of silver, almost all government stockpiles are now gone. The only ones left are in Russia and China, and China restricted the export of silver last year. The U.S.A., for example, has already expended every last ounce of its strategic silver reserves years ago. The U.K. and all other western nations exhausted their supplies even before the U.S.A. Newly mined supplies have never been sufficient, and demand continues to increase. The imbalance between supply and demand is becoming especially severe, and, in the case of silver, is going to increasingly be a difficult industrial use issue in the next few years.

Because of the severe shortages, retail dealers are charging hefty premiums for both gold and silver. This is dissuading many people from buying, but it shouldn’t, because there are ways to buy the metals without paying any premium at all. Gold and silver are selling cheaply, without premiums, on the American futures markets. Most futures contracts allow buyers to demand delivery of the metal, so the futures market is an excellent way to obtain comparatively cheap precious metals. This has already been noticed by astute investors. In the past, most traders used futures markets solely for purposes of speculation. Normally, delivery demands average less than 1% each month. Now, however, because of the premiums available in the real market, buying a futures contract and demanding physical delivery upon maturity has become a cheap method of obtaining substantial quantities of physical gold and silver. With respect to the December contract, for example, exchange records show that more than 5% of people holding open standard sized (100 ounce) gold futures contracts, and about 10% holding open silver futures contracts (5,000 ounce) demanded delivery. The delivery demands are happening even more often among deliverable mini-contracts (33.2 ounce gold/1,000 ounce silver) purchased on the NYSE-Liffe exchange.

Some speculate that clearing members of the exchanges, who have sold gold and silver short on the futures market, will eventually be bankrupted by these delivery demands. According to these skeptics, the gold and silver consists mostly of fake claims to vaulted supplies that do not exist. They say that futures contracts are nothing more than “fake paper gold” and most refuse to buy on the futures markets, opting, instead, to pay huge premiums at retail gold and silver dealers. The skeptics may be right about the failure to keep adequate supplies of vaulted metal, but it doesn’t really matter. If you buy gold and silver on the futures exchanges, you will get your metal, whether or not the short sellers are trying to defraud you, and I’ll now explain why.

The Commodities Futures Trading Commission is charged with the responsibility to monitor and regulate American futures markets. In spite of this, the futures markets have morphed from a legitimate place to hedge the risk of commodities, into a worldwide casino, which has a gaming commission that claims all of games of chance are really “investing”. This is nonsense. The exchanges are mostly used as gambling halls, with banks as casino operators, and speculators serving in the role of casino guests. All types of bets, from taking odds on interest rates to taking odds on the volatility of the stock markets (with no underlying security except the VIX!) are allowed, and are available to anyone who enjoys games of chance. If the CFTC ever bothered to enforce its own enabling act, and associated regulations, most of these games of chance would be quickly closed. For example, CFTC regulations require 90% of all deliverable commodity contracts (including gold and silver) to be covered by stockpiles of the real commodity, and/or real forward contracts from real producers (like miners). In practice, however, CFTC has never done a spot audit of even one vault. We really have no idea whether or not short sellers really have the gold or silver that they claim to have. We can assume that they probably don’t, given that the number of futures contracts issued has often exceeded the entire known supply of silver, for example, in the entire world.

Indeed, in spite of rampant speculation as to their identity, in truth, we don’t even know who the short sellers are. Other countries, like Japan, have full disclosure of identities and positioning, in open and transparent futures markets, but this is not true of the much larger futures markets based in America. American futures markets are mostly opaque, because the CFTC keeps the information secret. Lack of transparency always is a recipe for fraud and corruption. The likelihood of widespread violations, occurring at exchanges regulated by CFTC, is very high. Logical people, therefore, can make some reasonable assumptions. It is quite likely that the sellers on COMEX do not have 90% of their silver contracts, for example, backed by stockpiles of the metal.

Yet, adherence to Federal regulation is an implicit provision in the terms and conditions of every futures contract. If COMEX and/or NYSE-Liffe short sellers are entering into naked short contracts, they are violating market rules, falsely presenting their contracts to the public, and doing all this with a premeditated intent to defraud buyers. Knowingly making false assertions and promises is fraud in the inducement. Violation of the market rules is also “fraud upon the market”, and a federal and state felony level crime that can result in a long jail sentence. The vast majority of short positions in gold and silver appear to be held by only 2 – 3 American banks, so, it would be extraordinarily easy to pinpoint the perpetrators. Potentially, they could be prosecuted for market manipulation, common law fraud, state and federal RICO actions, as well as other counts.

In other words, a large scale default on COMEX or NYSE-Liffe would not only trigger the paying of money damages, but would also involve criminal liability. Even if a few individuals within the federal government are complicit, as has been alleged, and the U.S. Justice Department refused to prosecute, there are enough politically ambitious state prosecutors to take up the baton. Futures market short sellers would pay a heavy price if there were ever a big default. Because of this, they will spend whatever money is needed to make sure it never happens.

If a clearing member of an exchange fails to deliver, the futures exchanges are legally liable on the debt. If a clearing member goes bankrupt, performance becomes the obligation of the exchange. If a short position holder cannot or does not deliver, the exchange must either deliver, or pay in an amount equal to the difference between the contract price, and the amount of money needed to buy the physical commodity in the open market. Generally speaking, contract holders are allowed to purchase silver or gold on the spot market in a reasonably prompt manner, and all costs of doing so must be reimbursed.

Contrary to the claims of some sincere but misguided metal aficionados, while gold and silver may be occasionally in so called “backwardation”, both are readily available at the right price. That price, of course, may be considerably higher than the reported prices on futures markets. Precious metal will continue to be available so long as the price is “right”. If short sellers on COMEX are really as naked as some claim, the only result of technical “default” at the COMEX will be a huge “short squeeze”, sending precious metals prices to the roof. During this squeeze, movement of the U.S. dollar, up or down, will be irrelevant. If delivery demands exceed supplies in futures market warehouses, metal will be purchased on the spot market. Short sellers or the exchange will be forced to make good on whatever price is paid.

Here’s how it would work. Let’s say you buy a futures contract for February delivery of 100 ounces of gold at $800 per ounce in December. In February, spot gold is selling for $1,000 per ounce, and you deposit the full cash cost of your futures contract into your account, instructing your broker to issue a demand for delivery. The counterparty can’t deliver because the COMEX warehouse runs out of “registered” metal. There is a huge short squeeze as short sellers run around the world physical market, trying to buy gold. The short seller misses the last day to deliver. Because everyone starts hearing about the missed deliveries, by the next day after the last possible delivery date, spot gold in London starts selling for $1,359 per ounce. Your commodities broker must take the money you deposited and buy the commodity on the spot market for $1,359. The broker will be reimbursed by the short seller and/or the exchange in the amount of $55,900, plus any expenses you incurred in buying physical gold on the spot market. In the end, you get your gold or silver at the price you paid for the futures contract, regardless of the default.

A number of well intentioned, but misinformed, precious metal commentators have claimed that exchanges will escape from this obligation by a declaring a co-called “force majeure” event. Force majeure is a legal doctrine which says that compliance with a contract is excused if an “act of God” makes it impossible to comply. Formal force majeure provisions exist in many NYMEX contracts, including gas and oil contracts, for example. After recent hurricanes in Louisiana, a NYMEX committee declared force majeure, and an extension of time for delivery of natural gas pursuant to the contracts. Unlike gas, however, which is produced from the ground, or must be moved long distances under sometimes difficult conditions, gold and silver are commodities that normally reside in vaults, and are easily transported. It should be noted that, as of this date, no formal written force majeure provision exists in the specifications of COMEX gold and silver contracts. Admittedly, force majeure is a legal doctrine that is implied in every contract, and need not be written down. However, higher gold prices and/or failure to comply with the 90% cover rule are not acts of God and will not excuse contract performance.

Let’s say, as some claim, that short sellers have enmeshed themselves in a web of fake contracts, wherein third parties are contracted to deliver metal to them, even though both the short sellers and the third parties know that these contracts are fake, and there really is no metal to deliver. This web of lies assumedly is designed to protect against claims that they are selling “naked” shorts. The existence of such contracts doesn’t matter to the concept of force majeure. The obligation to deliver cannot be changed by a mere failure of “third” parties to deliver. Failure of contracts owed to short sellers are not acts of God. Failure of third parties to honor their contracts does not excuse performance of the short seller’s obligation to deliver to the final contract holder. It certainly does not alter the obligation of the exchange to guarantee delivery.

Some are still skeptical. What if the entire COMEX and NYSE-Liffe exchanges fail? I doubt that will happen. First, let me say that I do not agree with bailouts. Companies, whether in the financial district or in Detroit, should fend for themselves. No one should be allowed to become parasites who feed on the taxpayers, as the big banks and automakers have now become. If companies make mistakes, behaving in an inefficient and/or outright stupid manner, they and their executives should pay the price. The process of creative destruction is essential to prosperity in a capitalist system. Bad actors and inefficient operators should be swept away to make room for innovation and steadier hands. But, my views are not shared by the U.S. government or most other governments around the world. A large number of the clearing members of both COMEX and NYSE-Liffe have already been bailed out by their respective governments. Huge institutions like JP Morgan (JPM), Citigroup (C), Morgan Stanley (MS), Merrill Lynch (MER), Goldman Sachs (GS), Bank of America (BAC), UBS and Credit Suisse (CS) are considered “too big to fail.”

Can you imagine the exchanges not being too big to fail, when their individual members are? What chance do you think there is of the Federal Reserve allowing the entire COMEX or NYSE-Liffe exchange going bankrupt? In my opinion, the chance is close to zero. A massive failure to deliver is highly unlikely, but, if it did happen, and if the exchanges were unable to comply with their legally binding guarantee, the government will step in and provide gold from Fort Knox and enough money to buy silver in the open market, no matter what the price. The end result will merely be a huge price increase, and an end to the assumed legitimacy of futures market prices, not a default.

Summing things up, if you want to buy gold and silver, but don’t want to pay high premiums, buy them on futures exchanges. First, open a futures account with a commodities broker. Make sure it is a real commodities broker and not an imitation. Stock brokers, like Interactive Brokers, ThinkorSwim, MBTrading, and a number of others claim to be “futures brokers.” In truth, they are not. They can only offer you speculation, and not hedging services. They will not deliver, and will forcibly sell you out of your positions, even at great loss to you, if it comes too close to the delivery date. So, instead, make certain that you open your account with a real commodities broker, like RJOFutures.com, PFGBest, lind-waldock.com, MF Global, e-futures.com or any other broker willing to arrange deliveries. You can speculate just as easily, using a commodities broker, as you can using a stock broker that dabbles in futures. But, if you want delivery, you must have a real commodities broker. Steer clear of stock brokers unless you want to buy stocks.

Middle class families, looking for safety in precious metals, but who don’t have enough money to buy 100 ounce contracts, can buy deliverable mini-gold and mini-silver contracts on the NYSE-Liffe futures exchange. The mini-contracts require delivery of as little as 33.2 ounces of gold and 1,000 ounces of silver. If you want delivery, however, make sure you do not buy COMEX based miNY gold and/or miNY silver contracts. These COMEX mini-contracts are cash settled. The standard contracts, however, on both the COMEX and the NYSE-Liffe (consisting of 100 ounces of gold and 5,000 ounces of silver) are all deliverable.

The highly leveraged nature of gold and silver futures contracts create high levels of volatility. That should be kept in mind when you decide to put a large portion of your investment assets into precious metal. Big price rises and deep dips are commonplace. Most of these market movements occur without much regard for the forces of supply and demand in the real world market. If you need the money tomorrow, steer clear. But, if you want to preserve your family legacy with something that will take you safely through depressions and hyperinflations, over years and decades, gold and silver are good choices.

If you demand delivery and just put your bars in a safe place, you don’t need to worry about the volatility. The price is sure to rise in the longer term because of the fundamentals. Remember, as you watch the dizzying roller coaster of so-called “official spot” prices, that you are buying for the long term and/or for emergency use. Day to day price fluctuations should be ignored.

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