Trading Physical Gold: Is Gold In A Bubble?

Reggie Middleton's picture



Happy New Year to all on this first day of January, 2012! This is the 4th installment (of 5) of my interview of the CEO of GBI (Gold Bullion International), a unique firm located on Wall Street that allows investors (retail & institutional) to actually buy, sell, trade and store physical gold in the investor's own name. The previous installments (listed below) feature some very tough questions. BoomBustBlog interviews are not pushovers or advertisements. You must be able to hold your own.

  1. Trading Physical Gold As Easily As You Trade Stocks: Is Gold Becoming A Tradable Currency After All?
  2. Trading Physical Gold vs Investing In A Physical Gold Trust: Which Is Better?
  3. Reggie Middleton Interviews GBI: Gold Bullion International part 3 of 5



Related reading:

  1. Reggie Middleton's Take on Investing for Inflation, pt. 1
  2. Reggie Middleton's Take on Investing for Inflation, pt. 2
  3. Reggie Middleton's Take on Investing for Inflation, pt. 3
  4. Economic contractions AND rising prices, dare Reggie utter the "I" word - Enter a global phenomenon
  5. Global Recession - an economic reality
  6. The Butterfly is released!

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Haole's picture

Tough questions!?  You have to be joking.

[sarcasm]Yeah, I'd buy and store bullion through a Wall Street firm amidst one of the global epicenters of financial fraud just because these two clowns can blather kindergarden fundamental reasoning in some lame interview.[/sarcasm]


jomama's picture

humor just gets tougher and tougher to understand, it would seem.

walküre's picture

Is that ORI = Oh Regional Indian at the table?

RobotTrader's picture

Ask General Jim or Rob McEwen if gold is in a bubble.


They probably feel like gold is in a huge, massive depression based on how their company stocks are trading.

Hands down, the worst year ever for TRX and UXG.

Gloomy's picture


   Here's laughing at ya-All the way to the bank. Don't confuse trading with investing.

akak's picture

Don't confuse RobotLemming with an investor with a brain, either.

Like a baby skunk, he can only see one foot (and five minutes) ahead, and is incapable of doing anything other than blindly following the rest of his (momo-chasing) siblings in front of him, no matter where they are going.

FranSix's picture

You might like this article:

Gold Has Left Some Investors In The Dust

The thing about the mining stocks is that they made terrible investments during the depression, not much more than holes in the ground with a liar up at the top.  But the ones that did have a viable deposit became an investor's staple after the devaluation.

RIC.TO, one gold mining company that did well.

Clint Liquor's picture

Have you ever heard of Homestake? Their dividend was higher at the end of the Depression than their Stock price was at the beginning.

FranSix's picture

Mining companies of the era paid out all of their profits above their operations and development costs, which were anywhere between $8-$12/oz.  A sizeable mine such as Homestake would have seen something like $14/oz. in costs, and pay out a dividend of $6/oz., but with the devaluation could pay out $21/oz.

The devaluation was the key to gold mining projects during that historic time.  Curious to note that Homestake got started on the very eve of the Long Depression in 1874, several decades before the Great Depression, where there was no dollar devaluation.

Black Friday, the attempt to corner the gold market preceded the Long Depression.  The price of a five-ounce benchmark $100 gold coin was bid up to $163 in 1869.

GFORCE's picture

Asking a wall st gold ceo if gold is in a bubble, is like asking Dick Fuld if bear is safe. The conflict of interest is embarrassing. 

RobotTrader's picture

By the way, GLD and PHYS still trading tick for tick.

Absolutely no difference between "Physical" and "Paper".

akak's picture

By the way, both RobotLemming and CNBC still sucking on Bernanke's dick.

Absolutely no difference between RobotLemming and a piece of shit.

oddjob's picture

My miners received at least average spot+15% last quarter.

RobotTrader's picture

That interview looks like 3 guys talking to themselves.

All three are staunch gold bulls.

No different than the shills on King World News constantly talking up PM's, yet they failed to sell near the highs and missed the greatest REIT and consumer discretionary stock rally in decades.

Nothing different here.

EscapeKey's picture

Didn't you push Netflix near their all time high?

cocoablini's picture

IF MFGlobal has effectively killed or started to kill the paper futures market, how are the mining companies going to finding a clearing, middleman for their physical? And are gold miners the real futures market in gold, since they have the real ore and have to process it. Would love a Reggie analysis on miner prospects because the miners(smaller) are the ones racing around supplying the demand up until the bubble pops(if it is a bubble.) Looking at miners, that futures market is slumping or has minimal interest.

Pegasus Muse's picture

Great interview.


Ann Barnhardt: The Entire Futures/Options Market Has Been Destroyed by the MF Global Collapse In what is now the most listened to and popular interview Jim has ever conducted, previous futures broker, Ann Barnhardt, tells listeners that the collapse of MF Global is a huge warning sign that spells utter ruin for the markets and investors 

agNau's picture

When will the miners stop trading their real money for paper?
When will the claim to real money be taken by Nationalization?

It all depends on Confidence.
Sheep do not care who supplies the food, they will eat. When they cannot then confidence disappears. The Emporer has no clothes.

We are now seeing what contagion can do, and how rapidly it can move.
We will see how effective the damage control. I'm not impressed.

FranSix's picture

As a matter of curiosity, it might be worthwhile to look at bear funds in both gold and silver.  If anything is an indicator of sentiment in the precious metals, that they might be unusually overvalued, that you would look at the ETFs.

Suggest the following ETFs to look at since inception:  ZSL, GLL

TheSilverJournal's picture

Through the scam of counterfeiting gold, or printing more notes redeemable in gold than actual gold exists, value was stolen from actual gold and transferred to the counterfeit notes. When the counterfeit notes become worthless, much of the stolen value will be returned to actual gold. The Fed is in control of the greatest scam ever pulled and the scam is in the process of being revealed.

maximin thrax's picture

I understand the need to own gold, but at what price?

Accepting that since the Fed's creation in 1913 the dollar has lost 95% of its value, shouldn't gold, once we return to a hard-money system (which is the popular speculation) be worth around 20 times the 1913 price, or about $400-$450 per oz, but no more? If so, is three-quarters of the current price due to speculation and perhaps even price manipulation?

With $53 Trillion in combined public and private debt, if something happens to monetary policy that suddenly makes everyone holding gold winners and everyone not holding losers, it seems to me that the majority of people having been so impoverished would have no choice but let go of servicing their share of that $53 Trillion of debt, and we'd see massive deflation take out the price of everything, including gold. Even if fundamentals say gold to $5000, deflationary undercurrents from a mass default could more than counter it, taking gold in a net downward direction.

So it seems to me that a bet on gold is a bet on (1) continued policies that keep debt service and expansion going until the whole economy collapses under unserviceable debt, and (2) a bet that one will know exactly when to sell.

TheSilverJournal's picture

The US going bust will only cause a significant devaluation in the dollar. You're crazy to think the dollar is going to gain strength in the face of a US bankruptcy. What fiat currency has ever held it's value when its host country went bust?...None.

There will be massive deflation in terms of real money, which is gold.

Gold will hit $10,000 minimum. Over time, prices should have been going down, not up. The reason that prices have gone up is because too much money has been printed. My point is that back in 1913, maybe one person could produce 20 loaves of bread in a day and with the technological gains, today that same person would be able to produce 500 loaves of bread (I'm not saying my numbers are right, just follow the idea). So today, with that same ounce of gold, that person should be able to buy 25 X more goods.


maximin thrax's picture

Agree that due to improved efficiency in production many things should be cheaper year over year, and inflation from money printing has prevented that from being the case. But consider that gold performs today exactly as it did in 1913 - jewelry and wealth storage. So even when gold becomes hard money again, it should have no more purchasing power than in 1913 once the dust settles.

Yes, you might get more bread to day than in 1913 but your car will cost multiples of what a 1913 auto would cost to build, even with streamlined production. Oil will cost ever more to produce in 1913 dollars, and buying a flat-screen HD TV will always cost multiples of a radio to produce. And forget comparing the cost of medicine today to that of 1913 in 1913 dollars. You have to consider the cost of living today that includes devices not even dreamt of in 1913 that we now can't live without.

From what you are telling me, you are speculating that (1) the US will default and (2) that will end the currency. OK. However, you have to explain how the loss of expected revenue from all those Treasurys due to defaulting on debt will result in inflation. Especially when you acknowledge that inflation has come from the expansion of credit allowed under our current monetary system.

We have arrived where we are today from credit expansion. Continued credit expansion leads to even higher prices and weaker dollar. Credit contraction cannot also lead to higher prices and a weaker dollar, but to the opposite. Just the maintenance of stable prices requires the combination of income and credit to be equal to the peak amount of spending or prices will retreat. We see this in housing, where investment therein has long since peaked and the contraction of credit leaves us with no bottom in sight.

We have arrived at $53 Trillion in debt. That is against a monetary base of under $10 Trillion, of which only about $1 Trillion is cash and coin. The remaining base is saving accounts, money market, CD's, etc; money that is theoretically there if you want to withdraw it but not if EVERYONE wants to withdraw at once, because it is invested into something else - and therefore someone elses DEBT.

Also, consider the merry-go-round of debt with foreign entities. It's claimed that when confidence in the dollar is lost, all the printed cash will come back to the US and cause massive inflation. However, consider that as a debtor nation we borrow huge amounts of money in exchange for promises to pay. We then spend that money into our economy, creating some amount of inflation. Much of that money leaves the US to go back to the creditor nations due to massive trade and capital imballances, which we will in turn borrow again. Each time we borrow the same dollar the creditor gets another promise to pay. In an eventual default, all those claims on that same dollar, incurred in each cycle of lend and spend, will not be fulfilled. So no money comes back to the US - the creditor only hoards what FRN's it has and REFUSES to lend them out, waiting out the drop in asset prices over here to ten cents on the dollar when he will then spend them.

If enough of that $53 Trillion defaults (maybe as little as 20%) then most of the money base is lost, much wealth and assets against which more money can be lent into existence is destroyed, and all that's left is actual cash in hand and in bank reserves. If all the currency you have is in your wallet and under your sofa cushions, and the bank has closed, I can guarantee you deflation. The idea that folks will just toss their FRN's in the trash when they are down to their last few bucks is absurd. That is when FRN's will be most cherished.

TheSilverJournal's picture

If they actually did what you're saying by restructuring the debt, stop printing money to bail out the banks, allow depositors to lose their deposits, stop printing money to keep rates down and allow rates to soar, then FRN's may retain some value. It's very hard to guess how much value FRN's would have because the only thing that gives them value is faith and a bank run would certainly cause faith to be lost on one hand, and on the other hand a bank run would cause the supply of FRN's to fall, so what that equilibrium price is hard for me to guess. No matter what, the purchasing power of gold and silver will rise, although it is possible, i guess, that physical FRN's could rise more.

Having said that, I don't see any signs that the US will honestly default on its debts and stop printing. Obama has not even acknowledged that there is a problem. Bernanke seems very committed to keeping depositors from losing their money. All I see in the future is spend spend spend, print print print.

jomama's picture

if it can continue indefinitely, is it still a scam?

TheSilverJournal's picture

First, it cannot continue indefinitely which is shown by the "bankrupt but nobody knows it yet" state of the US that must borrow 40% of what it spends.

Second, yes it is still a scam. The inflation tax is outright theft. That is my purchasing power that I've earned and when the new money is printed, it gets its value from the currency in my bank account. So they are stealing my money without the actual numbers in my bank account changing.

Construct's picture

I have my gold in a plastic bubble.

Papasmurf's picture

That's good.  That way it won't rust.

Widowmaker's picture

Gold blowjobs international is as shoddy as a MF Global 3 dollar bill.

It you dont hold physical you hold the bill.

Mugatu's picture

The Turbinehead sure has one bitchen beard.  It looks like a photo where someone drew in the beard with magic marker.   

Marty Rothbard's picture

He's Sikh.  Devout Sikh do not cut their hair, or beards, usually keeping them under their turbans.   Ethnically, he is most likely Punjabi, from India, or Pakistan.  Sikhs have a reputation for honesty, fidelity, and self sacrifice, in the tradition of the Satgurus.   There are alot of common themes, between their philosophy, the Austrian school, and libertarianism, believe it or not.  I'd buy gold from this guy, but I'm not sure I'd store it with him.

   By the way, Bullionvault is not like MF global.  They publish a list of the good delivery bars they hold.  Their holdings are predominantly in a Viamat vault in Zurich, although they do have some in NY, and London.  They are audited daily by Viamat, and the audit is published on their website.  They offer only allocated accounts.  Their CEO is not Jon Corzine, and has never worked for Goldman Sachs.  They do not offer margin accounts.  Lotsa differences.

BigInJapan's picture

Hey, I'm overseas...

I could err hold any gold anybody wants to send me...

Sure, and you can pay me to do so as well...

Sure... yeah,,, seems like a sound business plan, doesn't it?

s2man's picture

Awesome. Mine's in the mail.  Many thanks.

CapitalistRock's picture

Very funny Reggie. For those that have not watched the video: it's three gold bulls sitting in a room laughing about how there simply is no bearish case for gold (and no strong case for fiat paper).

devo's picture

In order for it to be a bubble more than 5% of the population would need to own it. Just saying.

s2man's picture

Yup.  When average Joe runs to it in fear or greed, then we can call it a bubble.

"If you don't buy gold at $1500, you will at $3000".

AmazingLarry's picture

Bubble....fart. Pop goes the stinky.

strannick's picture

Hearing the gold bubble talk, as I  have since $500 gold, makes me happy and tingly, knowing that most are as clueless as ever, and that I will be able to trade govt debt paper money paychecks for gold for a while longer. What a concept. Thank you, a stinky bubble never smelt so good.

SAT 800's picture

Is Gold in a bubble? No it isn't. Not now. now it's just gum stuck on my face. It used to be a bubble.

goldenboy's picture

MF Global. How much wider do you need your eyes opened? Buy physical Gold and keep it under your own 'lock n key'. 

StychoKiller's picture

Reality will continue to beat you with a 2 by 4 until you learn the lesson...

GrinandBearit's picture

That dude Brian can't be any older than 26.  Probably gets all his info from listening to Jim Sinclair, Jim Turk and/or Bob Chapman.

SAT 800's picture The owner doesn't have a turban and it's a very simple business model. fully explained on the website.

Non Passaran's picture

Wow, that sounds great, just like MF Global!

SAT 800's picture

No, it is not in any way shape or form "like MF Global". Try read the website, he no gone broke the head to read, eh?