As Gold ATMs Get More Popular, Is Gold Still "Still Worth It"

Reggie Middleton's picture

Reggie Middleton at Emirates Palace in Abu Dhabi Reggie Middleton at Emirates Palace in Abu Dhabi

 Last spring I took a trip to Abu Dhabi and Dubai on a fact findng mission. It was interesting, as the luxury centers in those cities are arguably unmatched  in terms of opulence bling. On the topic of bling, there were several vending machines of interest, one of which in particular caught my eye.

When I was there (March '12), the gold was priced above spot (or at least above what I was able to get it for), but the ability to buy ingots retail, relatively anonymously for cash did intrigue me. The UAE is a cash town, so this should not be a surprise. Now, the question remains, is gold still a worthwhile pursuit considering its run up and subsequent recent correction? Will it really provide practical hedge against the inflation that so many see coming down the pike? Well, let's dabble in the BoomBustBlog archives for some insight...

As excerpted from Deflation, Inflation or Stagflation - You Be the Judge!

In continuing the rant on the possibility of the US entering a stagflationary environment, as was hinted by Alcoa's quarterly report (see "Is My Warning of the Risks of a Stagflationary Environment Coming to Fore?"), I have decided to graphically illustrate the historically most successful inflation hedges. Click graphic below to enlarge.

inflation_correlation.png inflation_correlation.png

As you can see from the excerpt above, unless gold breaks its historical correlation with inflation vs other assets, it stands to be outdone as an inflation hedge. Then again, there are many moving parts to this puzzle. We explored an interesting, in depth (although admittedly self serving) perspective on this topic in Trading Physical Gold: Is Gold In A Bubble? - BoomBustBlog

Trading Physical Gold As Easily As You Trade Stocks: Is Gold Becoming A Tradable Currency After All?

Trading Physical Gold vs Investing In A Physical Gold Trust: Which Is Better?

Reggie Middleton Interviews GBI: Gold Bullion International part 3 of 5

Reggie Middleton's Take on Investing for Inflation, pt. 1

Economic contractions AND rising prices, dare Reggie utter the "I" word - Enter a global phenomenon

Global Recession - an economic reality

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mista president's picture

It appears that Reggie is out of his element when the subject is gold.  With all the credible gold experts to draw from the best he could do was those two guys?

IamtheREALmario's picture

The time to buy gold was when all of those cash for gold stores started popping up for apparently no reason and with apparently no working business plan. Guess they had an inside track on the future. Follow the money.

williambanzai7's picture

Question: which is a better hedge against inflation, Google or bullets?

mccoyspace's picture

The gold ATM is fun, sure. The same folks set one up near Atlantis in Dubai. But everybody in the area knows that you get a way better deal on gold at the Gold Souk.
It's old school Abu Dhabi and doesn't photograph as well as the Emirates Palace, but there are many vendors to choose from and they all do cash. A much smaller bid-ask than the ATM.

And FWIW, that gold ATM profiled in that first video soon stopped taking credit cards. A few "contested charges" killed that right off.

strannick's picture

Has anyone told the shirtless posing one that gold and silver are manipulated?

shovelhead's picture

In days of yore, I would agree with Reggie that Comm. R.E. is an outstanding hedge against inflation and my experience has proved this to be the case. Someday, in the distant future, it may be again.

But this time it really is different because CRE is still in dreamland pricewise and all the hopium in the world isn't going to balance those books.

However, if you asked the guy to whom I sold my property in late '07 (for a ridiculous price) about it, he may answer differently. I haven't seen him around since his last tenant left last year. I guess raising the rents to almost double what I used to charge wasn't possible to cover his really stupid offer price.

The for sale by owner sign's number revealed it to be a bank. The banker asked if I was interested and he'd sell 'for what he had into the property' and told me the price. I laughed and said he was even dumber than the guy I sold it to. Someday I hope to buy it back at an auction...again.

Divorces and dopes with big ideas and bad information are an investors best friend.

whoknoz's picture

let's see...did I read somewhere that central banks are buying up "tons" of rental properties--and JPM is short millions of apartments??...let's compare rigged and non-rigged markets and see where the pms show up...

AwkwardReader's picture

As far as BASEL 3 goes, it's likely postponed till summer. It seems the banks aren't ready when they just can't print the money.

That link doesn't offer concrete evidence that it was postponed but I've read that it has. Until June. I'm sure I can find a link If I scoured hard enough.


Well, this one says it's not postponed. So, who fking knows. Up is down, black is east.

bigchs's picture

inflation correlation  ... i wish u would label the axis...   u seem to have good research, but i can't get past the garbage


WhiteNight123129's picture

Let us see here... Humm...Fed prints 3.9 years of World Silver production every month, there is 1,200,000,000 silver above ground at 30 Usd, that is 36 billions, there are 210 trillions of debt. The problem is that debt instruments are redeemable in currency you have to fabricate thse units to avoid default...and you want financial assets as inflation protection.... you could try to extinguish a fire with gasoline and see what happens... financial assets in excess in relation to GDP can not be the solution to protect against their own oversupply, this is self evident Reggie, come on, you got us used to better thought process than that.

WhiteNight123129's picture

BTW Reggie, while your facebook analysis is very good, what happens to the short if Facebook uses its network for payment transaction effectively?


americanspirit's picture

There are plenty of excellent well-reasoned arguments for and against owning gold and silver, but just hold a silver eagle or better yet a golden Austrian Philharmonic in your hand for a few seconds and all the noise becomes irrelevant. If there is any security at all in this world you are holding it. And hopefully you also have a nice little Glock close by.


Oh wow Reggie. You are so cool. A little birdie told me that when you're not globe trotting and hob-nobbing with the powerful elite that you prefer to get your fudge packed in the NYC meat packing district.

You are a meat packer.

True or false?

chumbawamba's picture

Oh, come on, he looks so AWESOME standing there with his arms folded in front of someone else's palace.  You are not impressed?

I am Chumbawamba.

caustixoid's picture

Man, closeted homosexuals are nasty.  Hope you ease up when you come out "uncompromised".

Element's picture

You looking for a hook up?


Lol. Cramer-Reggie starts on gold and you're ready to swallow.

If Creggie was so impressed with the investment grade vending machine stock he would have to file the apporpriate paperwork with the IRS upon re-entry into the US.

Let's see....

The Olympians have to do it for their gold metals but Creggie is exempt?

This form has Creggies name in it. Click it and see. Lol

Tags: Tax fraud, Tax evasion, Tax cheat, offshore tax haven, reggie middleton, instruction on how to smuggle gold from Dubai to avoid taxation.

Element's picture

I'm not really all that interested, you just seemed a little bitter-'n-twisted by a bad-experience you've had, which you appear to blame on others.

jeebuswept's picture

I read a while back that they were installing gold ATM's in Harrods, London.

supermaxedout's picture

Basle III !!  

Does the discrimination of gold under the actual Central Bank rules stop now by 1.1.2013 or not? 

Is gold moving from tier III capital class to tier I capital ? That is in my the opinion the most important question around gold right now.

The actual regulation from the BIS (Bank for Intl Settlements) in Basle (the Central Bank of the Central Banks) makes it obligatory to discount 50% if a bank holds gold as assets. This rule applies to all Tier III capital. Under the new regulation which is expected to be introduced by 1.1.2013 gold is moving up the value ladder. It is regarded by the BIS as Tier I capital. Tier I capital consist of so called risk free assets, which are Dollars, Euros, US Treasuries, German Bunds etc. Tier I is highly liquid and regarded as stable in valuation

I have not read anything anymore since several months about the new Basle III rules. Its just like dead quiet. It might be there is still fighting going on behind the curtains and it is therefore not yet decided finally if gold moves up to Tier I.  But on the other hand I believe to read and hear nothing concrete is a sign that things do really change by 1.1.2013.  There is no open opposition against that move anymore. That indicates me that no one of the big players wants to be in the opposition because it is already decided and is going to materialize. It would not look good to oppose something what is soon a general accepted rule of the banking world, whether one likes it or not.

If this holds true, then by 1.1.2013 banks can diversify their capital reserves more freely into gold without harming their capital base.  Gold would be treated like a  currency, like Dollar, Euro, Yen etc.  This should stabilize the gold price with an upward trend.  All the banks of this world will then be involved in making the price, which means they do not have a reason to short gold,  unlike the US administrations practice of the past decades.

The banks will drive the price of gold, not to fast and not to disruptive but steadily. Its a bankers dream. All banks have the same interest once they hold gold in their books. They all want the price of gold going up, because this increases their capital base. Without doing anything, A rising Gold price is like printing money (fiat) for the banks.    I just wonder how much that will be.  It might  have the potential to kick start the long expected inflationary downturn, therefore I dont not expect extreme movements soon.  But its not sure if this can be controlled.  A strong rising gold price is all it needs to solve the most pressing problems of Portugal, Italy, France and others. Their central banks are stuffed with gold and unlike the gold of Germany its all located in their countries.

So lets wait and see.



SAT 800's picture

You're missing something very important. Basically, the 800lb. Gorilla in this context. If the regulations are changed; all central banks that hold gold will immediately be "re-capitalized" because the book keeping rules changed. This is the problem to keeping the can kicking going; re-capitalization. This, I would say, is the "reason" for this proposed regulatory change; certainly it doesn't signify a sudden attack of sanity; or the recognition of the Ponzi nature of all the national currency systems; I think it would be surprising if they didn't make this change; of course, it's bad psychology for them; and I'm sure they hope it gets as little coverage as possible. Probably, they ought to anounce it on Super Bowl Sunday, or something; so that no one notices.

notadouche's picture

So one gold ATM machine equals a bubble?  What does that say for the US dollar?  In my town alone there are hundreds of "dollar" ATMs and yet not a single "gold" ATM.  If "gold" ATM's actually become 1/10th  as prevalent as regular ATM's then I would suggest gold would be much much higher as I would infer that more and more people that had never been in the maket for gold would be buying gold driving the price up many times over.

Peter Pan's picture

Gold has a portability, divisability, hide-ability, durability and uniformity that is second to none. Good luck trying to make good on storing corn or trying to deal in empty commercial real estate. It's the ultimate insurance when things go crazy.

Gold hoards are still being found thousands of years later in English fields. The people who hid them were spot on, they just didn't survive their particular predicament to go back and unearth them and that today will be the big "if" when chaos makes an appearance for all of us.

Just remember that wheel barrows ful of cash in Germany were dumped on the street and the wheel barrows stolen. The same will happen more or less in an age where too much debt is not secured against or backed by anything tangible due to sky high debt and heaven high unfunded liabilities.

Then again gold is not for everyone because an increasing number of people don't have either the money or the sense to protect themselves.

MeelionDollerBogus's picture

Could very well be some did survive long enough to realize they didn't like their offspring enough to say where the gold is - and just kept their mouths shut having spent all they needed to for their own survival.

fuu's picture

The bubbles are coming from your bong Reggie.

kaiserhoff's picture

So many comments about interest rates.  It's true that when interest rates revert to market forces, gold will take a hit.

On the other hand, when pigs fly, no farmer's corn field will be safe.

Which comes first?  Kaiser does not know, but so many others are sure they do.

markettime's picture

If interest rates go up for a healthy reason, not because of downgrades in the credit rating of the US debt. If the savers can outpace inflation through higher interest rates they will jump form gold to savings instruments. However if that debt is comprised of garbage then they will hang onto gold even more. That is my opinion anyway.  

DosZap's picture

It's true that when interest rates revert to market forces, gold will take a hit.

How do interest rates revert?.

With the amount of debt run up,and Obama already STATING new tax revenues wiil be for NEW spending, the Fed(as I see it) is stuck at zero, maybe a quarter to a half basis point, or the interest on the already in the sytem fiat, EATS THEIR lunch.

I do not see an increase (Reversion), even remotely possible.

Reversion, requires Fed rates up, and that cannot happen.Not unless the GDP & Employment changed to 4-6%.I see many more losing jobs overall than are ever going to be rehired.

Just IMO.

kaiserhoff's picture

Yeah, pretty much what I see.  Benny has a tiger by the tail.  He can't let go, but he can't run until he lets go.  Nothing changes until something big collapses...., paging governor Moon Beam...

cobra1650's picture


What is the time frame of the data?  My point is that many of those asset classes  did not exist in previous centuries?


Thank you

Rearranging Deckchairs's picture

I guess apartment buildings are the best inflation hedge. On the other hand you can't pack an apartment building in your suitcase as you leave the fourth reich as a refugee.


SmittyinLA's picture

Apartments are OK as long as tenants are assets and not liabilities, when the free shit army has their "free shit" reduced, rents will drop, rent revenue taxes are also coming.



cornflakesdisease's picture

And when them folks move in, those that pay, move out.  Apartments can make you, or break you.

After Hurricane Katrina, our apartment excepted Katricians regardless of their background.  In the span of 4 months, 87 families moved out.  I know, I delivered the mail to the complex.  Suddenly the apartment owners no longer do things like that.  Too late, the once nice complex has a perminent reputation as crap.

WhiteNight123129's picture

If you borrow against it fine, but when nominla interest rates rise financial assets get crushed, Gold rises as long as real rates are negative, even if nominal rates rise (see the 70s). So when nominla interest rates rise while real rates are still negative, it will be wehn long Gold financial assets will be the best play.

Right now both Gold and finanical assets rise, because the nominal rates were going down (finanical assets bullish) which real rates were negative (Gold bullish), when inflation rises and rates rise (finanical assets bearish) it is still perfectly doable to have negative rates if those rates are behind inflation (Gold bullish). So at that point you have a 1970s bifurcation.

Another thing to consider. Since there is too much debt to GDP, and since Equities are residual claims above debt (see Stock markets in 1929 and 2009), and since someone´s debt is someone else asset, you end up with teh statement that there are too many financial assets (debt and equities) to GDP. So trying to beat inflation when inflation is here to make nominla GDP go up in relation to finanical assets (debt and equities) sounds a little weird. Granted stocks will fare better because they will benefit from capital structure arbitrage.

But a real bull market for finanical assets is when you start a leveraging cycle, are we there at this point Reggie? We could perfectly restore debt to GDP by massive bankruptcies, but that should not help financial assets much.

Dalio understand that perfectly, when he says that Gold is a hedge against financial assets (excess of those I would add personally).


silverserfer's picture

vending machines selling tiny bits of overpriced gold tells you nothing about movements in the gold market. The large flow of gold into the hands of the ruling class is tonnage obtained thru "cash for gold" campaignes, misinformation fear campaignes regarding bubbles and price drop propaganda, mining contacts, royalties exchanged for fiat of said country,  and outright theft thru military action(Saddam & Omar as examples). The real flow is covert. This overt outflow from the bankers is just a pony show for the kiddies.   

WhiteNight123129's picture

Reggie, you are a bright analyst but you are missing a key piece in understanding Gold.


The amount of the hoards is not governed by the state of prices, but by the market-rate of interest, which, however it may be essentially identified with the rate of profits on capital, is well known rises and falls in the first instance, with every contraction and expansion of the medium through whose agency capital is distributed, whether that be money or credit.

Long story short it is a hedge against negative real interest rates which are manipulated to prop up excessive financial assets to GDP.

When the money printing stops, and interest rates are positive in real terms  Gold will be dishoarded.That is why you need to hedge your gold by shorting the treasuries and other financial assets.

Also note that in the 80s post Volcker, inflation was going down but still largerly positive yet Gold was getting crushed even if nominal inflation was far from null. The inflation is not the issue with gold it is the real rates. In the 80s post Volcker, real rates were positive, and that is absolute Kryptonite for Gold.


silverserfer's picture

whitenight the money printing  will not stop untill the BIG golbal default. any play on treasuries will be worthless. A new currency will already be in production and you will only be able to buy into it with tangible assests. not any of the old paper  (maybe at 10,000 to 1 or some tiny fraction of what it once was). Gold is the bridge to the new currency when it arrives.

Bicycle Repairman's picture

"Gold is the bridge to the new currency when it arrives."

1. Get to the bridge

2. Answer the 3 questions from the troll

3. Profit.

WhiteNight123129's picture

You are possibly correct, but I am risk averse, so if the Fed is dismantled and the US decides to restructure its debt, than what is your downside shorting treasuries? Very little, plus it is a source of cheap financing locked for 30 years. Consider the situation of the hedge fund borrowing short at close to 0%, this hedge fund think that I am stupid borrowing at 2.8% but the difference is that my borowing rate is locked. Eventually rates will rise, the real rates might still be positive and you might still want to hold Gold (remember it is the real rates which matter), but if what I think will happen which is rates eventually go to their true market levels, one way of the other, you will feel great to have been able to borrow from Uncle Sam at 2.8% for 30 years because that is essentially what shorting treasuries is, borrowing from Uncle Sam at 2.8% to buy far superior assets...

Remember that when I short treasuries I receive the cash upfront and I am able to lever up my assets without worrying of short term financing  my leverage (30 years maturity), so I receive the cash upfront since I short and I can spend it on hard assets leveraging up only a little. If the Treasuries are worthless that will not bother me too much because the cash I receive from shorting will be used to buy assets which will yield far more than treasuires in nominal appreciation and or cash payments, so I will repay with confettis.

This is how fortunes were made during Weimar, borrowing Marks (equivalent to shorting treasuries) and buying Gold backed currencies, you keep borrowing buy foreign Gold back currencies, repay confettis, buy more and so on and so forth. This is actually the way to bankrupt America, that is Short Treasuries, long hard assets...


WhiteNight123129's picture

Erratum: the real rates might still be NEGATIVE and you might still want to hold Gold.

silverserfer's picture

dismantling the fed, end the fed.. the ruling class who owns the fed and ecb will decide that. Not Ron Paul or any of us. JFK tried to do it and they made a comemorative half dollar out of him. They will decide when the default will happen. debt to them is just cracking the whip on all us serfs. taxes, all that. its all paper owed to them by them. You buy $1 worth of treasuries they buy $1,000,000. If you are risk adverse then long term paper is much more risky than you think

all countries buy hard assets as much as they can once they convert to all fiat(unbacked currency). Once it happens the clock is ticking on when it will end. You buy as much(oil, gold silver, anything) you can as last as your $ is coming off the printing press. The emerging markets with valuble natural resources will only accept it for so long before they realize the scam. The US will default not go bankrupt. Our military will ensure that. We will start a new currency and the game will start anew

WhiteNight123129's picture

Yes, I am risk averse so that I why I am shorting treasuries and being long hard assets.Treasuries have very little nominal upside but massive real downside.

BTW, if more people short treasuries, this will push up Gold. Why? I think Martin Sibileau has a good analysis on that. In order to avoid rates moving up and pushing the interest payment up as a percentage of revenues, the Fed would have to crank up more treasuries purchases, which should help your long side. Long Gold short treasuries is like a tune with two voices at the same time, they move and complete each other very well, individually those tunes are bland. What I mean is that you ahve to be able to relate the interplay between money printing, rates repression and Gold prices. If more people were shorting the treauries, the Fed would have to increase the money printing, which would be good for your precious metals.

So if you want teh Fed to print more money, short the treasuries. Actually Pimco and other by providing a flow of purchases out of the existing money supply help the Fed in mitigating the rate repression from new currency units.

If a lot of people neutralize the flow of purchases by shorting the treasuries, the rate repression falls now not anymore between Fed front runners using existing money supply in exchange for a small bribe on the one hand and the Fed on the other hand. If you neutralize the front runners flow of purchases by shorting treasuries, the burden of rate repression falls squarely on money printing. To that extent, a bit of this phenomenon is happening right now between PIMCO saying is getting out of the long end of hte curve favoring the short end because of the end of FDIC insurance which will push the TBTF into the short end of hte curve. If collectively Gold bug short treasuries, they will force the Fed to print massively more.


quadcap's picture

What vehicle do you use to short treasuries without having to worry about getting squeezed out?   It sounds like margin requirements make it infeasible to do what you're saying.   Can you elaborate?

SAT 800's picture

With regard to your statement about gold bugs shorting treasuries; This is a bit difficult to imagine; but somewhat the effect will be obtained, I believe; as MOM and POP dis-invest themselves from their fixed income funds, (they put in over 300$B in the last year); some of this money will flow into some form of pm's; even GLD raises the price of physical; and probably some of it will just go into physical. The thing is, the physical store of Silver is so small, it's ridiculous; and more people are figuring this out every day. go to and look up their daily audit of the silver vault,; and the history of this Silver vault; they started selling certified good bars only recently, 2 years, or something; and it has just exploded. Just as an indication of how many relatively well-informed people there are it's very interesting; certainly the numbers are increasing, not decreasing. The reason I expect significant dis-investment is dis-appointment. buyer;s remorse. I think inflation will become a topic of discussion in 2013; and more and more of these people will realize they're actually losing buying power. (the people in the bond funds; sorry for the semi-coherent typing).

silverserfer's picture

anyone who has been trying to short treasuries, stocks or trying to go long pm's in the paper real had been punched in the balls by bernanke and their printing presses. they will keep inflation away from pms and deflation away from treasuries and equities as long as they can to keep the masses contributing to their 401k's. The sheep must not be spooked, they must be slowly hearded and shorn slowly 

SAT 800's picture

I have been making money shorting the long treasury bond contract which is in a bear trend. you're not well informed on this subject.

silverserfer's picture

yeah and everyone I know that played similar trades for more than a few years started to get that junkie twitch with bags under their eyes saying how they had to quit that shit like it was crack rock. Anyway I assume your not parking your $ and leaving it for a long time like we were discussing. Holding you position for a few weeks to months is not in the context of what I was talking about. Judging by your snive comment I would suspect your well on your way to geting that twitch. Papermonkey.

WhiteNight123129's picture

The money has four type of impact

  1. lowering interest eates
  2. pushing land up
  3. chasing uwards all interest bearing securites
  4. finally pushing all commodities upward

Ounce you know that you can short VALE last year, short some brazilian consumption there, buy asian plantations there.


silverserfer's picture

your playing musical chairs in the dark. there are 10 chairs to sit in and 50K of you dancing around looking for a place to park your money or still trying to make money. scary thing is the ones playing the music know when it will stop and are already siting down enjoying a cocktail watchin gyou prance around with night vision goggles.