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Guest Post: How Will Niagara Falls Fit Through a Garden Hose?
Submitted by Jeff Clark of Casey's Gold And Resource Report
How Will Niagara Falls Fit Through a Garden Hose?
by Jeff Clark, Senior Editor, Casey’s Gold & Resource Report
“There’s no doubt in my mind that we’ll have a mania in gold. And because the gold and especially silver markets are so tiny, the rush into them will be like trying to push the contents of Hoover Dam through a garden hose. Our positions will go absolutely ballistic.” –Doug Casey, September 2009
Dear Readers,
Elmer Sutton’s eyebrows shot up when he saw the ad proclaiming gold stocks might make you wealthy.
It sounded like the perfect solution for his stock portfolio, loaded with investments going nowhere. He vaguely recalled hearing a little about gold, but if what the ad said was true, he thought he could make a killing.
So he called the broker and made an appointment for the next day. The broker seemed very knowledgeable and took the time to explain why he felt gold stocks were one of the best investments right now. He said this was not a get-rich-quick scheme, but that if you stuck with it, you could see potentially enormous profits. It sounded good. Elmer wrote a check for $2,500, and the broker bought three gold stocks for him.
The very next day, gold took a big drop and his spankin’ new gold stocks sold off hard. Not only that, there were riots in South Africa, where one of the companies was located. Elmer was instantly disgusted. He was losing money yet again. This time, however, he’d play it smart and get out before he lost it all – something his wife made sure he understood – so he hastily called the broker and told him he wanted his money back.
“Elmer, you can’t do that,” the broker told him. “This isn’t Woolworth’s.”
“I’m not buying them!” he yelled to the broker and slammed the phone down. Elmer wanted out, and that was that. He wasn’t about to lose any more money in the stock market.
Three years later, long after he’d forgotten about that broker, newspaper headlines were screaming about gold. Everyone at the party Elmer attended the night before was talking about how well their gold stocks were doing. His co-workers bragged about the good deals they were getting buying gold and silver coins. Everyone was talking about precious metals.
Elmer panicked; he didn’t want to be left behind. He scrounged around the house until he found the original confirmations of the trade he'd broken with “that broker”: 1,500 shares of Grootvlei at 35¢, 500 Anglo American at $2.50, and 1,000 Leslie at 50¢. He grabbed his newspaper and saw that Anglo was up 500% since then, and the others were paying dividends – this year alone – totaling more than he would have paid for his shares in 1976.
As the newspaper went limp in his hands, he had a vague recollection of the broker he met with and quickly tracked down the phone number. “I want to buy some gold stocks,” he breathlessly panted to the secretary answering the phone. She said the broker wasn’t in, and that while they would be happy to buy a stock for him, they were actually recommending investors sell their gold stocks.
Elmer couldn’t believe it. How ludicrous! Everyone he knew was buying, and he was personally acquainted with many people who were getting rich. He pushed on. “Look, everyone’s into gold right now. It’s on the front page of the paper, for crying out loud. So I want to buy some gold stocks right away.”
“That’s fine, sir, but I think you should talk to the broker first,” the secretary replied. “We really don’t recommend you do that.”
“I don’t care!” Elmer screamed, which he didn’t mean to do, but panic was setting in. “What’s this clown’s name anyway?”
“Doug Casey,” she replied.
Please Don’t Crowd the Emergency Exit
This true story explains how Doug Casey bought gold stocks at the very bottom of the market, as he took on those abandoned shares from Elmer. But today’s lesson underscores what Doug Casey saw back in the late 1970s: there’s certain to be a rush into gold and silver, and buying before Main Street catches gold fever is the only way to play this trend.
Because when Midas fever hits, prices will explode to the upside, for both the metals and the stocks. How do we know that?
First, let’s look at gold. If we added up all the gold ever mined on the planet, its total value would equal no more than $5 trillion at today’s prices. Yet, look at how this compares to the debt and bailouts and other monetary mischief of current governments...
*MZM (Money of Zero Maturity) is a measure of the liquid money supply in the economy. It consists of coins and currency, checking accounts, savings deposits, and money market funds.
**Year to date figures.
Let’s make this chart very clear. Of the $5 trillion in gold ever mined...
- The U.S. government has thrown over twice as much at the economy in the past 12 months.
- The U.S. debt is more than double this amount so far this year.
- Total global government bailouts are almost four times larger (and this is a conservative figure; one estimate puts it at $24 trillion).
I intended to include annual gold production as one of the comparisons, but the chart isn’t big enough and neither is your monitor: 2008’s global gold production equaled about $73 billion, and to make that figure discernable on the chart would require the Global Bailouts bar to hit the ceiling above your head. That’s how small the gold market is.
The implications are undeniable: when the greater public rushes into gold – whether in response to inflation, dollar woes, war, whatever – the price will be forced up by an order of magnitude.
A Picture Is Worth a Thousand Dollars
While physical gold will protect our wealth, it’s the gold stocks that can potentially make us wealthy.
Once again, to get a sense of the Lilliputian size of the gold industry, I compared it to several other leading industries and stocks.
The value, as measured by market capitalization, of all gold producers around the world is less than Walmart’s. Every gold stock would need to nearly double just for the industry to match ExxonMobil. The oil and gas industry is about 12 times bigger.
When your neighbors and relatives and co-workers and friends all start clamoring to buy gold stocks, the pressure on prices will be enormous, rocketing our positions upwards.
Meanwhile – and admitting we’re first and foremost gold bugs – the picture for silver is even more dramatic. The potential for silver stocks is jaw-dropping.
If the gold industry is tiny, then silver’s $9 billion market cap makes it a nano industry. The entire silver industry is over 21 times smaller than gold’s! If gold explodes, silver will go supernova.
Consider these macro-facts about a micro-market and what they reveal about silver’s enormous potential:
- There are over 200 companies in the S&P 500 with a market cap larger than the entire market of silver producers
- There are five times more gold stocks than silver.
- Total silver production in 2008 was valued around $10.3 billion (at today’s prices). That represents just 1.5% of the $700 billion bailout last year, and 0.006% of the current U.S. monetary base.
- Of the 20 largest silver producers, only five actually call themselves a “silver” company, due to the fact that about 73% of all silver mined is a byproduct of other metals mining.
Any flood into the silver market would overwhelm it. In other words, the rise will be stunning. While it’s not going to happen tomorrow, I strongly suggest you get on board before that rocket ship takes off.
Just putting these charts together stirred my feelings of restlessness, making me anxious for the mania in precious metals to arrive. But the timing is not up to us. Be patient, because if you’re invested in gold and silver and the respective, high-quality stocks, you’re on the right side of this trend.
Had you bought gold, say, four years ago, when it was around $450/oz, you’d be sitting on a nearly 130% gain. But you could have made up to three times as much with even the most conservative precious metals investments – large- and medium-cap gold and silver producers. It’s not too late to jump on the bandwagon. Click here to find out more.
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Barrick shuts hedge book as world gold supply runs out
http://www.telegraph.co.uk/finance/newsbysector/industry/mining/6546579/...
saw that, not sure how wise it is to buy miners if they have nothing to mine.
just hold physical gold, much simpler.
Agree. But all the same I think one can still buy them as lottery tickets.
Edit: The downside is practically nothing compared with the upside.
'But all the same I think one can still buy them as lottery tickets.'
with a higher chance of winning though
I disagree. Whatever the gold and silver miners do have will be valued at much higher prices than the current prices. Factor that into their earnings and apply a multiple and voila!
Miners are a better play than physical although I don't recommend not owning any physical. That's a must.
the bet on miners and why you buy them is the delta change in the profit margin. If gold/silver rises rapidly and prior to the actual inflation - as it is supposed to and has done throughout history - then the profit margins for miners will increase at a faster pace than the underlying metal price increase. If the lift cost is $450/oz and the price is $900, but the price then rises to $1,350 you have a 100% rise in profit margin with a 50% rise in the underlying commodity. The stock under that scenario would rise faster than the underlying metal. That's why there is a lot of interest in badly run miners right now or ones that are getting their house in order. If they can have the cost/oz drop through cost measures even as the metal price increases its a sure way to get some nice profits.
You also get the prospect of increasing the resources held through exploration.
the junior miner etf launched today, GDXJ
http://www.vaneck.com/index.cfm?cat=3192&cGroup=ETF&tkr=GDXJ&LN=3_02
This is utterly poor analysis. You might want to invest all of your money in gold... that is fine as far as your decision is not based on this report, which is a collection of impressive but completely irrelevant data.
Stay off the bandwagon. This guy is a nut. Gold stocks are like any other stock. You buy high and sell higher. Yes, there will be a mania for physical gold and silver, just like there was for beanie babies. Eventually you will sell your physical gold and silver to buy gold and silver stocks, about early 2012. I am a member of the J.S. Kim investment plan named CIO. I got in during the first quarter of 2009. It is a rocky gut wrenching program and it turns profits-small profits now, but big profits for those who entered in 2007 and, depending on the central bank manipulation, could be big profits in 2012. Buying on dips, big dips, causes one to beat his head against the desk. Be patient Mr. Kim preaches, just be patient.
Gold stocks are way over-priced just like all stocks. Just be patient, they will correct with a vengeance soon. During this time do your homework. Understand what went on in KGC, and, why AEM. Make sure you know if SLW is serious about future P&L’s.
Be wary of posts that provide you with a link.
Be patient with your cash. 2012 will be here before you know it.
Agreed. I've been investing in gold and silver stocks for a long time. There are so many neophytes here who have recently discovered gold. For the most part they will be wiped out.
Anyone who thinks macro forces drive gold year-in and year-out is a newbie. Welcome to the mother of all manipulated assets.
If you're interested in gold -- hold. Don't jump yet. The real shakeouts (notice the use of the plural) are coming.
Not agreed. Neither of you dweebs knows what you're talking about. You're still playing by old rules.
I am Chumbawamba.
+100
How did the oracle from Omaha turn 40k into one of the largest personal fortunes in history?
It wasn't by chasing the next-great cosmopolitan fad.
If you're "interested" in gold, you need to ask yourself (like any other investment) what value does it provide to you - directly.
That's how much it's worth, because most of these manipulated commodities have very little bearing on value-added production.
Zum Beispiel, Gold's force of value is a direct proportion of it's electromagnetic properties and the population's fascination with shiny things.
Raw materials cost X dollars to bring to market. Anything beyond that, and you are paying some other fool for the right to lose money in the future (to speculate).
The original article actually says "wait for a correction" before getting on the bandwagon. I don't understand what's nuts about his arguments. If you knew your history, you would know that if this is in fact a true gold bull market, the producers will far outperform the physical metal by the end. If it isn't then they will underperform, for sure. But then your physical investment will fall too. Gold stocks lag the gold price at the moment, at least according to Frank Holmes at us funds.
I think buying the GDXJ on weakness is a convenient way of getting a call-like exposure on gold, without worrying about time decay on your holding. Juniors will explode if gold truly rallies. Casey is as close to a genius as you get in investing in my opinion, but he's always early (look at his uranium rec. It ended up a gret investment, but went nowhere for years first. But that's how things work).
So your basically saying....
Stay off the Doug Casey, Eric Sprott, Peter Schiff, Marc Faber, Jim Rogers, John Paulson "bandwagon" Is it that simple ?
You forgot David Einhorn.
I'd be rather be on their bandwagon than Robert Prechter's.
Why '012? Mayan theory?
Why '012? Mayan theory?
Nice post. The author refers to "high-quality gold stocks". Any recommendations?
GS
There is no such thing. There are gold companies with good managers and there are others. Some really goofy things have happened to gold companies during the last 5 months. Study for strikes at mines, deaths at mines, and broke countries where mines exist. Lots of asset sales going on in the industry. Caught off guard?- that is the gold industry.
That's sort of like asking for high quality mortgage backed securities in 2005.
Miners are the most notorious sheisters out there.
'Sure we've got tons of the shiny stuff.. It's all down there underground just waiting to be dug up...'
lolz...
I recommend reading http://incakolanews.blogspot.com/
if you want to start learning a little about this and a guy named Mickey Fulp.
Take a look at DMM.to (wait for a pullback)
THM
One feature that makes gold money is the high stock per flow ratio.
You just can't inflate it!! No other commodity has this feature. Even silver has at least one magnitude less of this ratio.
Martin Armstrong's latest piece.
'Gold $5000+'
http://www.scribd.com/doc/22417671/GOLD-5000-11-11-09
Very interesting read on gold as a hedge on bad government rather than inflation from an historical perspective. Mr. Armstrong holds the train of thought quite well in this paper with a few pertinent sidebars. Because of liquidity and storage issues I have looked to equities and as a better inflation hedge using mining stocks. Physical is a way to have something of measurable and desirable value in the event of government or systemic collapse. With the growing loss of integrity in the market , systemic collapse fear may be driving the physical market for PM. Low volume apart from HFT supports this. Interesting parallel between the Gold Panic of 1869 and todays market as a few deep pockets drive up the price with the expectation that as volume picks up the paper profits can be shifted to real wealth. It will be interesting to see how this plays out, not so good in 1869. Thanks for post , may be of value.
The problem with equities is that if you don't have paper certificates you may not ever recover any of your investment if the system collapses entirely, which I and many others believe is entirely possible (if not probable).
Phyiscal gold and silver, and direct investment in mining companies, or at least paper stock certificates.
I am Chumbawamba.
Very interesting read on gold as a hedge on bad government rather than inflation from an historical perspective. Mr. Armstrong holds the train of thought quite well in this paper with a few pertinent sidebars. Because of liquidity and storage issues I have looked to equities and as a better inflation hedge using mining stocks. Physical is a way to have something of measurable and desirable value in the event of government or systemic collapse. With the growing loss of integrity in the market , systemic collapse fear may be driving the physical market for PM. Low volume apart from HFT supports this. Interesting parallel between the Gold Panic of 1869 and todays market as a few deep pockets drive up the price with the expectation that as volume picks up the paper profits can be shifted to real wealth. It will be interesting to see how this plays out, not so good in 1869. Thanks for post , may be of value.
Buy pawn shops.
Rollerball, that is the most intelligent comment I have read or written about gold in six months. You are spot on. It is the core.
There are some good ones like AUY, HL, and TRE just did a not move up... etc. Just beware of 'paper gold' stocks. Remember folks, you need to read disclosures. Look at GLD as they do not insure their gold and if you read their... well, look at this http://news.goldseek.com/GoldSeek/1235052376.php
Me? Sure mining stocks are fine and go physical as paper promises like GLD could come back and bite you hard. Look at their 10k at http://www.spdrgoldshares.com/media/GLD/file/10k_Sept08.pdf and see pages 54 to 56. Can you say immense counterparty risk?
Go miners or get physical imho. Mix it up, some of each to spread the wealth/risk.
Yeah, that's some serious gold mining industry!
They just opened one "compro oro" in my neighborhood. Gonna ask if they need associates...
Indeed. A friend from school days has one that is doing very well. In fact the worse the economy the better his business.
Last year many small businesses started dealing with pawn shops after the banks froze up.
Small secured loans = big business opportunity.
When the "greater public" is broke how will they afford to rush into gold?
The sell side would like nothing better than to vicariously relive the tech mania through gold. Hell, I imagine tulip bulbs would suffice for these soulless operators if it had not been done already. I am agnostic on gold but when I see the almost daily strident defense that gold is not in bubble, the party (at least this phase of it) is nearly over. I don't care whether its gold or pork bellies - I would not be buying at these levels following such a short and powerful run-up based as far as I can tell upon 1) irrational fear of imminent US dollar debasement and 2) hysterically inrrational fear of hyperinflation. I remain unconvinced either of these scenarios will play out now or even in my lifetime (statistically I've got about 34 years) without the whole world turning to shite. Who cares about gold then - I'll be happy with canned goods and shotguns.
My view of course is not inflexible and could be subject to change based upon suitable empirical evidence to the contrary. First test is a major stock market correction and/or dollar reversal. I know, some people believe this will never happen again however I don't happen to be one of them. Let's see how the precious behaves under these particular "laboratory" conditions before throwing all our marbles long. Secondly, unless silver shows some gumption here real soon and manages to close above 18.17 or so, the path ahead looks to be potentially south. Time will tell. Meanwhile I will continue to watch, wait and eschew the hyperbole spewing from the precious metals sector.
Gold is not in a bubble. If you actually took the time to review the charts and study the fundamentals, you would understand that the price of gold is acting exactly as it should. And if you in fact do take time to study the charts, notice that gold has been rising in a slow steady grind, hitting new highs and then plateauing. You have bubble shock, which is understandable after the past several years. Not everything you observe is a bubble. Fundamentals matter. Data matters. Study it.
And if the world does go to shite, with gold I will be able to buy and sell your ass many times over. Without gold your ass will be bought and sold many times over. Now, how does that make you feel?
I am Chumbawamba.
Let me get this straight. You are saying that in a world where logic and rational no longer apply to every facet of the market, rational thoughts and historic patterns are your logic/justification for the belief that gold will rise? I remember hearing the words "if you look at the fundamentals" before. those words scare me. they make little red sirens go off in my brain. please don't respond with "don't worry. this time, it's different."
Let me get this straight. You are saying that in a world where logic and rational no longer apply to every facet of the market, rational thoughts and historic patterns are your logic/justification for the belief that gold will rise? I remember hearing the words "if you look at the fundamentals" before. those words scare me. they make little red sirens go off in my brain. please don't respond with "don't worry. this time, it's different."
afix thine eye on the gold:silver ratio. a clear break above the magic 66 ... spells doom for the SPX
BUY. GOLD. NOW.
GG, I enjoy your posts.
I'm of the mind that the decisions the Fed makes over the next three years will determine whether we get (1) a true depression if the Fed stops printing or (2) an inflationary depression / currency crisis / hyperinflation, if the Fed keeps printing.
Do you agree with this assessment? And if so, how confident are you that the Fed will choose the latter?
I fear that the value of gold may go down if the Fed stops printing.
First - as blasphemous as it may sound - it does not matter at this point whether the Fed stops printing or not. fiat money system is all about confidence. When confidence is lost, money supply does not matter. As Dr.Fekete points out, all hyperinflations, in fact, start with a SHORTAGE of the currency in question (not the cause but a symptom) as everybody scrambles to get rid of their fiat holdings at the same time and as quickly as possible. History shows us that confidence consistently decays throughout the lifespan of a fiat system ending in hyperinflation, the primary cause of which is that untethered to anything of real value, the system is fully abused by the money issuing authority. In fact, theft is the very purpose of a fiat money system. Fiat systems have a 100% failure rate and all - ALL - end in hyperinflation for the reason mentioned above. The Fed will not (and, for a myriad of reasons, cannot) stop printing money. Let's just say that a trend in continuous motion since the past 100 years has about zero chances of being reversed in the dying stages of the system.
i remember about 3 years ago, they were talking about financial reset on the ticker forum. there were some very interesting ideas thrown about on there at that time, that is of course until boss denniger got a bug up his ass about something and started running people off....but i digress. the thing is though that it cannot be fixed and it never could be fixed and no matter how much paper is thrown at the black hole of finance, it will never be enough. it is game set match. it is over. the consensus back then was about that and i agree with that logic. therefore it has to be, as has been stipulated on urbansurvival blog, surely it must be about time for TEOLAWKI. The end of life as we know it. therefore one might surmise what exactly does this mean to fat out of shape totally stupid amerikans during a shtf scenerio? i submit that hell is coming to dinner.
Agreed Gordon....I am much more concerned with lack of faith in fiat currency than inflation.
I am long AEM, looking to add if it drops with an overall pullback. But, at the same time, I would not be surprised to see NO pullback in the price of gold. If gold hits 1200, I will buy more AEM. I like Agnico because they don't hedge their production and their management is good. Cramer recommened them at first which naturally put me off initially, but I like the company's potential and straight talk. And, Cramer is no longer bullish on them.....a buy signal for me, now. :-)
"I would not be surprised to see NO pullback in the price of gold."
Looks like we are entering that phase now. Hold on tight!
I know people charting gold as if it was a stock! They don't realise its a short on paper! Pull up a chart of gold in ZWD on Bloomberg (a little extreme but you get the picture).
Agreed! I cant see how they can engineer a meaningful take down at this point. The momentum is so strong going forward now. The Ponzi Paper Zombies are going to be so surprised when gold takes smaller and smaller breathers and just keeps rocketing!
THE SYSTEM OF IRREDEEMABLE DEBT IS OVER PAPER BUGS!
GET PHYSICAL GOLD WHILE YOU STILL CAN!
As crazy as it sounds, now that we're so casually talking about trillion$ deficits and quadrillion$ derivatives exposures, I honestly see this as the beginning of a *global* hyperinflation.
It sounds crazy to a lot of people I know, but hence my avatar.
But I do think this and have for a year or so now.
I think the only possible 'good' result is a monetary reset to some degree of asset backing. And the asset base of some countries will be exhausted by that time. Possibly the first shall be last as they say.
Global hyperinflation is what Jim Sinclair has been warning for a while now.
http://jsmineset.com
I am Chumbawamba.
Many thanx for the link, chumbawumba...I did not know that. Too much research to do and too little time!! That's now on my 'read now' list.
Much appreciated since I know enough about JS to know that he is considered a bit of a guru.
(PS: Who are you again?...Sorry, couldn't resist, since your handle comes from a couple of Aussie doorsigns! which is a bit less famous than the Tubthumping album!) :-)
Thanks for the response. I agree that hyperinflation is the inevitable end-game. But timing is the key, and I'm not sure that your logic here couldn't have been used at the prior peak in 1980 too. I am open-minded to going all-in on gold, but I'll stay hedged for now. Appreciate the discussion.
One big tell is that this time they are issuing multiple-trillions in debt, as if they are going all-in to sucker in every last dollar from every fool along with printing money out of thin air to fund the part which remains unsubscribed by the suckers (dollar-deflationists). A huge part of the money so mopped up will be funneled to the insiders who can then buy hard-assets. They did not do this in 1980. It tells us that TPTB have zero confidence that they can revive the system this time as they did in 1980. The world has run out of suckers. Plus the US Government obligations right now are so huge that they cannot be wiped out absent a currency reset, which was also not the case in 1980. The US Economy has been hollowed out since 1980 - there is nothing left to revive now. Sure, the process felt euphoric - but it was heroin induced euphoria. The body is dying from heroin overdose now.
makes sense to me and (if I understand it) seems consistent with FOFOA. Fiat systems have a 100% failure rate and all end in hyperinflation. I guess this is the biggest one yet and with a long history of suppressing gold prices and now losing that battle and a large world market all scrambling for the same thing, the upshot may be like nothing ever seen before...?
well actually, isn't it true that the fed printing has not achieved any velocity because the banks are not lending? so, so far, we have been in a relatively deflationary environment. what happens when all of that cash hits the real world? what then? if gold behaves like this now, what will it do then? there is only so much of it. now of course, the rothschild banking syndicate has most of it, but nevertheless, they so far have been unable it would appear to control it all. but stay tuned. they may try somehow someway.
GG, in all the gold comments I have seen you post I have
never seen you guide readers on:
1)Gold in what type (Maple leafs, Kruggerands, etc.)?
2)Reliable & reasonable gold purchasing resources (read:\
no rip-off boiler rooms & reliable delivery)
3)Gold storage issues at home or, on site/off site.
4)Would you be investing in gold mining minors that seem
to have more upside than the majors; since it seems that
the majors have risen too far especially given Barrick's "little" hedge close-out problems.
5)Silver and silver miners. Poor man's gold or too dual
purpose for high valuation multiples. Price ratio of silver
to gold is really out of whack compared with historicals.
Comments appreciated. As always I truly enjoy your thoughts
and perspectives as I have been an equity guy for 35
years and came to gold a few years ago. Guess I had my
"come to Jesus moment" of our reckless gov't and banks.
There are many that still believe in a "two party" system because of history, but the two party system of equities and fixed income is giving way to a third independent party called precious metals (gold & silver). Many investors/speculators realize stocks have risen in the extreme and have moved their funds into bonds, thinking that is their only option.
This is like our political choice of having to go with the lesser of two evils. There is still huge risk on defaults but those aren't priced into bond yields right now. There is a huge risk of corporation collapse but that isn't priced into dividend yields right now. When investors then realize that equities are pumped and there is no revenue growth, and that bond rates can only go up (prices down) because they are at the lowest historical rates, THEN THERE IS ONLY DOWNSIDE ON MOST BONDS AND MOST EQUITIES AND THERE WILL BE A HUGE FLIGHT TO SAFETY, NOT INTO TREASURIES OR THE DOLLAR, BUT INTO GOLD TO PRESERVE PURCHASING POWER.
Warren Buffet said to expect 4% return on your money (he represents the equity world), Bill Gross said to expect 4% return on your money (he represents the fixed income world). Question: If these two individuals state the expected return is 4% on both equities and fixed income (primarily the investing universe as we know it) while we know there is significant risk on the downside to both bonds and stocks along with the purchasing power of the dollar sliding and potential tax increases - What is the proper risk / reward position? In fact they have debased the currency at roughly 4% per year since the inception of the fed so there really is no real return looking forward after inflation and taxes. So securities returns are expected to be 4% before taxes or inflation.
Now look at the return of gold over the last 10 years compared to every asset class - it can protect your purchasing power (6000 years) as well as provide upside when that upside down inverted pyramid comes crashing down - into the base that is gold. The Wizard of Oz was right, follow the yellow brick road. In the original book, Dorothy had silver slippers and it was changed to ruby red for the movie. It was trying to tell us there is a man behind the curtain and that we should follow gold & silver. Smart investors have been accumulating since 2001 and there is a reason Fort Knox has guards.
I believe if deflation accelerates (we are currently in a deflationary deepression), cash and gold will be the survivors. In hyper-inflation without job & wage growth, strategic land and gold will be the survivors. Gold is currently predicting a USD currency crisis, hyperinflation, or deflation with a flight into real wealth safety from other asset classes. He who has the gold makes all the rules - do you want to help make the rules or just follow them?
Gold & Silver are the investments with the lowest down side and greatest upside combination over the long term, the only questions are % physical, which stocks while keeping an eye on the naked shorts by the cartel, and how much cash in case they are successful in bringing the price down for a very short time period (so that you can buy more gold & silver at a discount). GDXJ is ready for launch, will buy and continue accumulating higher quality miners like JAG, AUY, and GG.
The business environment is getting worse not better (greater unemployment means less consumption/consumers), so only invest in lowest cost providers in the broader market that provide items people need (not want like Harley Davidsons) and that provide a secure dividend with a history of increasing them. A low volume high price strategy is not going to work long term in this environment - Blockbuster video game rentals for $8.00 for example just spur on competitors with little or no overhead.
On that note, Dollar General is launching an IPO at the end of this week, the symbol will be DG (I will investigate it first, but am interested in buying). If you want to join the dark side, cigarettes are so addictive even the President is hooked - great yield on MO while it lasts or until it is taxed or regulated to death (meaning no more credit lines for consumers to afford to buy it with the sin taxes).
Interesting analysis. I'd say it is the most compelling explanation of why to speculate on tangible resources that I have seen.
However, in the standard end-of-the-world scenario, where we are all freed from the clutches of a collapsing pyramid - the fact that no one owns physical gold will make it worthless to the masses.
Sure a couple people have some plated rings, but the majority of hard commodities are not physically owned or held in inventory by individuals at any level - so they completely break down as a tangible standard of currency. Paper is still paper, even if it's printed on something other than processed wood.
furthermore, before such events unfold - such behavior is simply more crowd-sourced group-think. By prophesizing the tangible value of gold, we are in fact undermining that very value as we draw more and more speculators into the market.
If we really want to preserve the tangible value of a commodity - we should be telling people to divest from it, and drive our net purchase price down.
Don't tell anyone - but I for one have been piling up my unfiltered Lucky Strikes.
Thanks for the kind words, I can only state you must be an individual of noble lineage and superior intelligence to recognize greatness.
The tangible value of a commodity is time and scenario dependent, in a crisis requiring flight it would be of benefit to have portable wealth. I am willing to sacrifice the potential spread so that ZH bloggers/friends will survive the wealth destruction and be positioned as wealthy land owners with me to rebuild our new society post crash.
Cigarettes and booze could be useful for bartering if the SHTF, and it is only being a good boy scout to plan for different possible scenarios and a worst case scenario for peace of mind and a sound sleep. Food, water, and defense capability are also important.
Too many people try to tie gold to inflation, gold to US Government Fiscal mismanagement, Money Supply, etc.
The reality is that people OUTSIDE of the U.S. are looking at the inherent instability of an empire in decline and are buying gold as insurance against the consequences of a smaller U.S. footprint in world affairs and the deliberate devaluation of the dollar to attempt to dilute the cost of paying back the debt load at the national level.
Hence, gold is serving the same purpose it has throughout history since the decline and fall of Rome to the current era:
Insurance against instability.
Decline and fall of empire, insurance against instability. Yesh indeed.
Gold has risen about AU$60 in the last two weeks. At about AU$1200 now.
http://goldprice.org/gold-price-australia.html#30_day_gold_price
Despite the uninformed internet donkeys who seem to find it a sign of 'responsible government' when the Aussie RBA raises rates 1/4 of a percent, no matter the unproductive debt levels, toxic assets, and unemployed peasantry the country is burdened with. Don't bother researching the country's economy or anything, just buy the propaganda of the apparently least desperate of the fiatsco governments.
A small but increasing crowd of us prefer to step off the debtor treadmill and let our gold speak for itself.
The rest of the crowd, 'In Godman Sachs They Trust.' The saddest thing is, a lot of these latter group aren't even Americans. Our countries' economies are nowhere near as 'decoupled' as some would like to think.
PS: What on earth happened to the CAPTCHA? 36 times _ equals 36? Marla, there goes the neighbourhood...
Whadif The Fed The congress the Banksters the Pres
Decide that gold owners are hoaders and preventing recovery
Whadif they outlaw owning gold like they did before
Executive Order 6102
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Executive Order 6102 is an Executive Order signed on April 5, 1933 by U.S. President Franklin D. Roosevelt "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates" by U.S. citizens.
Contents [hide]
1 Effect of the Order
2 Invalidation and reissue
3 Abrogation and subsequent events
4 False Rumors of Safety Deposit Seizure
5 See also
6 References
7 External links
[edit] Effect of the Order
The Order required U.S. citizens to deliver on or before May 1, 1933 all but a small amount gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve, in exchange for $20.67 per troy ounce. Under the Trading With the Enemy Act of October 6, 1917, as amended on March 9, 1933, violation of Executive Order 6102 was punishable by fine up to $10,000 ($166,640 if adjusted for inflation as of 2008) or up to ten years in prison, or both. The price of gold from the treasury for international transactions was thereafter raised to $35 an ounce; this had no lasting effect on the value of the dollar[citation needed], which thenceforth was determined by its value relative to other world currencies.
Order 6102 specifically exempted "customary use in industry, profession or art"--a provision that covered artists, jewelers, dentists, and sign makers among others. The order further permitted any person to own up to $100 in gold coins ($1,664 if adjusted for inflation as of 2008; a face value equivalent to five troy ounces of Gold valued at $4800 as of 2009).
They'll be dooming their populace to penury. Not a good idea IMHO, if you want to keep taxing them. China and India know this which is why they are encouraging their citizens to buy more - they know which side their bread is buttered on. Frankly, I'd be having second thoughts about even living in such an idiocy-filled country anymore. The US is practically a dictatorship at this point - it's just that the people don't know who their dictator is.
Not just the US...also Aus, Canada, UK, and I suspect all OECD countries altho I only know about these ones.
Agree that China and India are safeguarding their citizens much better. Russia too...??
What do you think of the possibility of the 'bankster' class (Godman Sachs, JPig, CBs and government aparatchiks) buying up gold now while it's still around, then when supply is exhausted taxing the hell out of it to get what's left out of the hands of us peasantry, and then locking it away for good?
This may sound way too paranoid by some but it's the nightmare vision I get sometimes.
Sort of like the way, in my home country, the only people who can *actually* afford houses now (ie, the *house*, not the debt for a house) are banks. And banks have been buying up all the houses, and letting them out to us for huge dead-end mortgages, like you can't believe recently. Supported by our 'responsible government' giving taxpayer money as vendor grants to prop up housing prices. So in the end no citizen can afford a roof, and the banks own them all. (Or most.)
Not to stray too far on a tangent, but could the same sort of thing happen with gold? A bankster cornering of the market. The actual taxation revenue in several countries is dropping fast, but being replaced by fiat 'printing'. So why not dispense with a taxpaying class altogether, and just have a nation of debt-slaves who toil for debt/fiat/paper? While the 'banking' class holds all the gold. The traditional wealthy asset-owners/huge working underclass.
No confiscation necessary. Just taxation on gold 'capital gains'...? I hope this question is clear.
Sure, I wouldn't put it past them to plan - and maybe even try to execute - such a nefarious scheme, but then again you have to remember what happened in France.
I'm lost...I googled 'gold' and 'France' and I got some hits that didn't seem pertinent. Remember I'm still new to this 'real money' gig. :-) What happened in France? Just a term to google? and I'll research it.
Are you going to do another gold post soon? Seems like it would be timely...apologies if you did and I missed it, not being on here every day.
At least I don't feel so crazy reading these gold posts. It feels like everything I used to think was 100% wrong, like unplugging from the matrix these past three years or so I've been buying gold. But sometimes it still feels very strange the thoughts you come to, just taking the logic of our fiat situation step by step to its logical and inevitable conclusion. You think (want to think) you must have missed something...!
(And I do read paperbug articles too, not to fall into confirmation bias. But the logic still only goes one way, the end of the fiat system, and no paperbug argument I've read ever even addresses it. Just seems to assume fiat is normal and somehow it will be restored. Even the brightest paperbugs, eg Denninger, don't address that purely fiat money always self-destructs, and why that is.)
Try googling "John Law".
Try googling, "Let them eat cake!"
Renfield:
Just taxation on gold 'capital gains'...?
It wont happen ... that is the beauty of GOLD. Its honest money and one of the traits of honest money is that it is anonymous.
As for gold confiscation? Can't see it happening. Remember what happened after FDR confiscated privately held gold? He devalued the US FRN by 60%. Yes, gold went from $20.67oz to $35oz. That is no longer possible unless they want to return to a gold standard and what would the price of gold be to rebalance the U$D? $10K, $20K ... pick a number.
I actually don't think confiscation will happen either, for the same reason as you...it would necessitate a return to a gold standard of sorts, and Bermonkey would rather eat his own intestines than see that happen I think.
By honest money, do you mean that it could be taxed only if 'redeemed' in pure fiat currency...which would be stupid, given why we own gold in the first place?
PS: Nice avatar...I have watched that film until I've nearly memorised the script.
Renfield,
If you want to know what is going to happen to Gold after this Loss of confidence/Hyperinflation event, you need to check out fofoa.blogspot.com
Think of it more as a currency exchange. Gold is money... its a persons savings.
The knock on gold was that it doesn't pay interest/dividends ... at this point having money in the bank doesn't pay interest. So exchanging a gold coin for fiat is no different than USD for Euro... except you don't have to go to a bank to do it.
Always liked the Renfield character. Brilliant yet slightly demented
US taxation on capital gains occurs with any reported transaction, even inflation or devaluation gains gratis the FRB inflation or Geithner dollar scam. So to avoid the taxation/confiscation people are talking physical, which will put them in the same mode as the cash economy, untaxed cigarettes and drugs, illegal aliens, and vulnerable to the same hijacking and snitching that goes with them, worst case. Best case, the investor makes out like the people who bought gold dinnerware in the 60s.
Consider whether to use your credit card or take your GPS cell phone with you when you buy the physical.
The hunt brothers tried to corner the silver market --- and failed --- but today's banksters are much more a threat
The Hunt Brothers and the Silver Bubble
Brian Trumbore
President/Editor, StocksandNews.com
In 1973, the Hunt family of Texas, possibly the richest family in America at the time, decided to buy precious metals as a hedge against inflation. Gold could not be held by private citizens at that time, so the Hunts began to buy silver in enormous quantity.
In 1979 the sons of patriarch H.L. Hunt, Nelson Bunker and William Herbert, together with some wealthy Arabs, formed a silver pool. In a short period of time they had amassed more than 200 million ounces of silver, equivalent to half the world's deliverable supply.
When the Hunt's had begun accumulating silver back in 1973 the price was in the $1.95 / ounce range. Early in '79, the price was about $5. Late '79 / early '80 the price was in the $50's, peaking at $54.
Once the silver market was cornered, outsiders joined the chase but a combination of changed trading rules on the New York Metals Market (COMEX) and the intervention of the Federal Reserve put an end to the game. The price began to slide, culminating in a 50% one-day decline on March 27, 1980 as the price plummeted from $21.62 to $10.80.
The collapse of the silver market meant countless losses for speculators. The Hunt brothers declared bankruptcy. By 1987 their liabilities had grown to nearly $2.5 billion against assets of $1.5 billion. In August of 1988 the Hunts were convicted of conspiring to manipulate the market.
Bernake: "Buy gold, you fools, hahahaha! But all you want! I will soon make it illegal to possess in public. Bwah-ha-ha-ha!"
I guess, it is safe to hold physical gold in countries like India where government might not do these kind of things.
Yeah, just like speeding is illegal.
Cramer ... is that you?
How right you are sir! This is something I have studied
intensely for about 8 months and here are my conclusions:
http://sanityisdead.blogspot.com/2009/07/why-congress-is-farce.html
sell gold now
Please read this article if you really want to know
what is going on with the "emperial power".
http://www.thenation.com/doc/20091130/roston
What will we have to do to buy 25 ounces of Physical Silver to place into our Vault?
The 'Market' is not going to melt down yet--it will continue to melt up. If the dow is 15000 and the $ is worth .05. what keeps $GOLD from going up?
Gold stock bashers seem to forget about the slingshot effect that the gold price has on miners.
Enough people where negative on gold on this post that I am convinced to put more on the table. The list of superstar investors bullish old gold keeps growing.
This guest poster presumes to hyperbole his argument with a 12 Trillion US bailout figure. The bailout committed by the Treasury is a few hundred Billion, and the Fed is holding almost a trillion in MBS etc. The rest is a promise of a bailout, with the final accounting could be a smaller amount than the ongoing Medicare/Medicaid/HospitalAid programs. The Fannie/Mae,Freddie Mac/FHA loans will worth somewhere north of 0 cents on the dollar. In the end, the promises are all subject to legislative change, just like it says in that yearly letter from Social Security.
The bailout/Ponzi schemes are so bad, that exaggeration of them denigrates the arguments against them.
Having watched the Gold charts for the last year, what strikes me now is the absence of those near daily downward spikes. Invariably they occurred during the late London/early NY trading hours. Anyway, they seem to be gone, like a bad migraine that passed. I can only surmise that the increase in physical buying means the gold market now shrugs off the paper GLD shorting by the major commercial players.
What is coming into focus is a worldwide realization on the absurdity of holding fiat currency when Central Banks have run amuck. It's as if folks can sense this is a game of musical chairs and the music is about to stop.
Physical Gold (silver too) can't be counterfeited. It has a 6,000 track record. Fiat currency, SDRs, bonds, equities, derivatives (all paper) can/are gamed to the point of incredulity. All with the tacit (and more) support of the politico whores.
Let the implosion begin
GOT GOLD SUCKAS!!!
dup sorry
Very fine piece and most helpful. Sell Gold now.
I bought gold now, instead. Just a little, what I could afford, plus silver.
so the value of all the gold ever mined is $5tn. do you know what's the value of all the world's CB reserves?? $4.5tn. trying to prove anything with this kind of numbers is well. not really smart. besides, that chart shows US GDP at $9tn. this is so amateur, is there anybody out there who measure GDP on YTD basis?
i was born in USSR and my dad saved a lot of his wealth in gold. well guess what, after USSR collapsed and there was a hyperinflation having gold helped. but we did so much worse than people that had other type of assets, like a cistern of oil in the depot. or a plot of land. having gold is a great idea if u got to pack your stuff and flee, BUT, you also pay premium for that and don't forget that you only hold gold to exchange it for smth.
agreed. you cannot eat it. you cannot shoot it. you cannot grow food on it. it has its place however. it will be much worse here than the collapse of the ussr or argentina for that matter.
It's easy to get a barometer on gold. At every social opportunity bring the subject up, and ask your friends if they own any. I told a friend who covers hedge funds to buy Gold in 1999, and he derided me for the advice until about 3 month sago. He now admits it was a good idea - he still doesn't own any.
Call me silly, but I'm still buying.
http://www.telegraph.co.uk/finance/newsbysector/industry/mining/6546579/...
Barrick shuts hedge book as world gold supply runs out
Global gold production is in terminal decline despite record prices and Herculean efforts by mining companies to discover fresh sources of ore in remote spots, according to the world's top producer Barrick Gold.
oh my...
Gold miners can go out of business. They do not necassarily own rights to the gold in the ground, and even if they do, if they go out of business, too bad. If they fail, someone else will come in and mine the gold they intended to mine, but your stock does not give you rights to the new companies profits.
I would suggest gold coins from the U.S. Mint, as only these are legal currency in the U.S.
"Physical Gold (silver too) can't be counterfeited."
Shhhh! EVERYTHING can and is counterfieted. Treasury bonds, stocks, statistics, everything.
http://www.financialsense.com/fsu/editorials/kirby/2009/1112.html
The SEC may be finally doing something proactive. Just read SEC requested a copy of STOCK SHOCK--new movie about market manipulation and naked short selling of Sirius XM stock (among others). Amazon has the movie on DVD, or stockshockmovie.com has it.