-- Posted Monday, 22 August 2005 | Digg This Article
Introduction
I firmly believe time is running out if you are inclined to purchase precious metals at reasonable prices. If you don’t have a proclivity towards “reasonable prices”, then timing is never a factor. That begs the question what is reasonable? Might we say that a reasonable price is a price relative to other prices for the same item based upon a comparative historical analysis?
In the case of gold and silver, are they reasonably priced based upon a comparative historical analysis? I think not. I personally believe they are quite inexpensive if we take into account a myriad of financial factors covering an extended time frame.
For instance, gold hit a high of about $850 twenty-five years ago and it is currently $450. Now, in comparative terms, what does $100 buy you today? What did that same $100 buy you 25 years ago? Catch my drift?
Therefore, I have to accentuate the concept that when gold hit its previous high of approximately $850 dollars some twenty five years ago, inflation was rampant, interest rates were at 18% or better, oil was significantly lower at $10-20 barrel, housing prices had not soared anywhere near present levels, and the entire financial sector was in pandemonium. The US savings rate was even higher 25 years ago to say nothing of the fact that the debt burdens on all different levels were substantially lower.
Most importantly, gold at $450 per ounce has not factored in 25 years of asset appreciation or financial (i.e., dollar) depreciation. Nor have the inflationary repercussions brought about by over 25 years of horrendous financial management by the US government and its citizens been accounted for and or resolved. I will not go into the inflationary / deflationary debate, but suffice to say, dollar creation by the boatload, and the monetization of the US debt by ethereal off-shore entities, gives one cause for concern.
I can only assume that gold in terms of 1980’s dollars should be priced significantly higher; certainly double of what it is today. Eventually the long term precious metals cycle will rediscover its equilibrium; it always does.
In this piece we’ll cover the basics of precious metals (PM) ownership, dispel a few myths, and hopefully reinforce what you already know—that now is an excellent time to begin the accumulation process in the event you already haven’t. We’ll also cover several geo-political events that demonstrate that other nations and their citizens fully realize the value of owning physical gold and silver. Furthermore, they’ve already begun the process, and if you’re keeping score, “they” are ahead 249 to 12! I hope that sparks your competitive juices even if the score and the numbers are totally mythical.
Just to reinforce these ideas, I’m going to quote from two different writers who I believe have done yeoman’s work to expose the problems encountered by the gold community over the past seven years. That community would consist of investors, miners, exploration companies, major mining companies, analysts, and governments to name but a few.
The first quote is from Bill Murphy in his opening remarks from the talk he gave at the historic Dawson City conference put on by GATA. I find this particular quote to be valuable because it outlines the Gold Anti-Trust Action committee’s platform in a nutshell.
Gold Rush 21
August 9, 2005
Dawson City
Yukon Territory, Canada
The Price Of Gold Should Be Hundreds Of Dollars Per Ounce Higher
There is one particular point I would like to hammer home at this conference and that is the price of gold should be many hundreds of dollars per ounce higher than it is now, and would be if not for the shenanigans of The Gold Cartel.
For simplistic reference why:
*The historic norm of the gold/oil price ratio is 15 to 1, which puts gold above $900 per ounce.
*In the past when the CRB was over 300, which it is well above today, the price of gold was usually above $600.
* From economist Paul Van Eeden: "According to work I have done, I estimate that the gold price should have been about $51.22 an ounce in 1959 and, if you assume that that is more or less correct, you can calculate what the gold price should be today. Compounding $51.22 at 6.07% for 46 years results in a current value for gold of $770 an ounce."
*Then there is the stunning comment made a year ago June at the LBMA conference in Moscow by Oleg V. Mozhayskov, Deputy Chairman of the Central Bank of Russia:
Many have heard of the group of economists who came together in the society known as the Gold Anti-Trust Action Committee and started a number of lawsuits against the U.S. government, accusing it of organizing an anti-gold conspiracy. (This will be the first and last time in my life I will ever be referred to as an economist). They believe that with the assistance of a number of major financial institutions (they mention in particular the Bank for International Settlements, J.P. Morgan Chase, Citigroup, Deutsche Bank, and others), some senior officials have been manipulating the market since 1994. As a result, the price dropped below US$300 an ounce at a time when it should, if it had kept pace with inflation, reached US$740-760."
The reason the price of gold is hundreds of dollars per ounce below where it should be is because The Gold Cartel has clandestinely lent out more than 16,000 tonnes of gold from the coffers of the central banks to keep the price from rising. This means the central banks have less than half the gold they say they have in their vaults. The total gold loans/swaps (including central bank gold sales in recent years) could now even be as high as 20,000 tonnes.
How can GATA make this claim and how do we support our revelations?
For me it all goes back to a year I spent working with Frank Veneroso when he compiled the gold loan numbers. I saw how he did it, who he talked to, etc. Back in 1998 Frank thought the gold loans could be as high as 10,000 tonnes. The annual supply/demand deficit is 1500+ tonnes per year. Without going into all the detail, it is easy to surmise how GATA could come up with a total gold loan number exceeding 16,000 tonnes.
Using two completely different methodologies a few years ago, Reg Howe and James Turk came up with guesstimates that supported Frank’s findings. Reg used BIS derivatives numbers and James used Bank of England statistics.
The BIS derivatives numbers are a smoking gun. As long as GATA has been in existence, the World Gold Council and Gold Fields Mineral Services have linked the huge gold derivatives on the books of the BIS to what the gold producers were up to. Yet, when the hedgers reduced their positions by around 2500 tonnes, and the gold derivatives stayed the same, or went up, they went totally silent, refusing to respond to GATA’s charges that these huge derivatives numbers were linked to a clandestine Gold Cartel lending operation.
How could this have happened without creating a fuss? Simple, the IMF instructed the central banks to lie about the true disposition of their gold reserves, which I brought to your attention yesterday. The IMF has central banks accounting for their gold loans as gold reserves in their vaults. Ironically, these central banks now have a major problem. Because of the size of the annual supply/demand deficit, they cannot get this gold back without driving the price to the moon.
Why the extraordinary resistance to GATA’s findings? Simple again. Not that long ago most of the geography experts thought the world was flat. When it was discovered the world was round, all their prior work was discredited. In similar fashion the mainstream gold world – the bullion dealers, WGC, and GFMS – won’t deal with what GATA has to say because it invalidates their work and exposes their schemes. Since they can’t discredit our discoveries, they refuse to acknowledge GATA at all.
However, the beauty of all is this is the days of the “flat-earthers” are numbered. With the supply/demand deficit so high, mine supply on the wane, and available central bank gold supply dwindling, it is only a matter of time before the price of gold HAS to explode. At the same time, life is going by. The sooner GATA’s findings are accepted by the biggest money in the world, the SOONER the price of gold goes bananas.
What would a $300 per ounce increase in the gold price do for the gold companies here? Would life not be a lot better for you gold fund managers and your portfolio performance than it currently is? Of course it would be. This is why this conference is so vital. Enough is enough. It is time the word gets out there. It is time the investment world be made aware of GATA’s findings.
The confounding part about the manipulation of the gold price is that it is so obvious for all to recognize:
*In the summer of 1998 Fed Chairman Greenspan testified twice before Congress saying, "central banks shall lease gold in increasing quantity should the price rise." GATA’s voluminous evidence makes it patently clear this is just what occurred in the ensuing years.
*Former Fed chairman Paul Volker stated the following recently in his memoirs regarding Fed activity during his regime:
"Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake." Greenspan was determined not to make the same mistake from his Orwellian point of view……………………
That was a long quote! Bill Murphy, www.lemetropolecafe.com , offers a two week introductory subscription to his news letter. With the information being posted about the recent gold conference in Dawson City, there has never been a better time to take advantage of the offer. The talks, speeches, and presentations offered at that seminar were excellent. (A CD will be produced and offered to the public in the not too distant future so you might want to be on the lookout for it.)
Now, gentle reader, I want you to review and truly comprehend these previous paragraphs written by Bill Murphy. Perhaps these thoughts might encourage you to do some of your own research, especially as to the real value of gold, the politicizing of the metal, and why gold competes with fiat currencies. These are very important concepts to understand if you are to look to your financial future and the financial future of your loved ones. Let’s not worry about personalities, about hearsay, and sophomoric claims generated by confusion, ego or the “loyal opposition”. Rather, let us concern ourselves with the real issues at hand.
Those issues center around how much value our US fiat currency holds in the eyes of the international community, how long it will hold that value, and what role gold plays within and without the value of that currency. The value of the US dollar is consistently eroding, and as it does, it becomes imperative for each of us to understand how to protect the assets for which we have worked so diligently.
Richard Russell
Now, From Richard Russell (RR), a mentor to many of us, and a down to earth, extremely intelligent guy who tells it like it is, and not like we wish it were. I often quote him because he seems to say things in a way that cuts through the muck. The following is from his daily commentary on August 15, 2005. The man is 80 years young and writes several pages on a daily basis. But he does not write to fill up space and impress us with how erudite he is, but rather to help educate us, his other family, about all sorts of things. Financial markets, life, and ideas. Write to https://www.dowtheoryletters.com/ServicesOnline.nsf/Subscription+Form?OpenForm to subscribe. Or simply go to www.dowtheoryletters.com and follow the prompts.
Mr. Russell has long been gold friendly, realizing and quoting to his subscribers that it is indeed real wealth. I always get the feeling that Richard’s greatest gift is that he sincerely cares. He cares about the country which he fought for during WW II, he cares about his subscribers, and he cares about his family—immediate and extended. You can’t ask for a whole lot more in my book. Oh yes, one more thing—he tells the truth with no spin, based upon 60 years of hard earned experience.
RR……How about these statistics? The US is now graduating 60,000 scientists and engineers yearly. China and India between them are graduating 500,000 scientists and engineers a year, and they are not being handicapped by a "faith-based" government.
"Chindia" is the new buzz-word for the combination of China and India. The current issue of Business Week features China and India on its cover. One article starts, "At an elite tech school near Calcutta, someone is trying to invent the next Blackberry, but one that will sell at a fraction of the US price. Outside Bombay, they're putting the finishing touches on a $2,200 people's car. In a world-class Shanghai lab, a Chinese team is mapping breakthrough cancer research."
If you read the above paragraph and it doesn't start you thinking, then, dear subscribers, you're not seeing the picture. The picture is increasing world competition coming from one-third of the world -- a third of which is very hungry, a third of which is just joining the game. It's a third of the world that wants the good life, the kind of life that you and I enjoy.
I have no idea how it's all going to turn out, but I do believe that we have massive problems ahead, and that we may be on the wrong track.
The US will not continue to be master of the world. The way to power in the future will not be through military supremacy.
The US is losing power via our zero savings rate and our loss of our manufacturing base.
There must be, and will be, a leveling process, and that leveling process will probably result in a decline in the US standard of living while China and India and Asia improve their living standards. They are the savers while we are the spenders. They are the producers while was are the consumers.
The power of the US lies in the rest of the world's willingness to accept US dollars. This cannot last, when the nation that issues the dollars is a nation that is running endless deficits.
Gold always gravitates toward the powerful and the successful, both in individuals and in nations. Gold is now moving toward Asia.
Somewhere ahead the US economy will falter, and then decline. That will be deflationary. The Federal Reserve will not tolerate deflation, since deflation renders the Fed impotent. To fight deflation, the Fed will open the floodgates of fiat money creation. They will send short rates to zero if need be. Under those conditions, gold will move into its third frenzied phase. Interest in gold will then be the opposite of the disinterest that we see now.
...............................................................
The primary bull market in gold that started in 2001 continues to be a hidden non-event as far as the great majority of investors are concerned. They don't know it exists. And the chart below shows you why. Gold has moved up in steps, each step followed by a "discouraging" correction. But when you view the big picture as seen in the chart below, you see that a primary bull market is very much in force.
The easiest and surest way to "play" this bull market is to buy bullion coins, and put them away. You don't worry about price, because you view these coins as pure wealth, and you are not holding them for appreciation, you are holding them for posterity, for your kids, for your spouse, for your estate. If gold rises to $1,000, you're not going to sell your gold coins. Sell them for what? More fiat paper?
There you go; you heard it straight from the master!
What the heck was all that about!?
That was simply two well informed gentlemen suggesting why it is a smart idea to begin an accumulation program of physical gold and silver and offering reasons why, each in their own inimitable way. We’ll talk about gold stocks and getting rich in another column but for today, we are once again repeating the mantra that precious metals ownership in this financial-economic-geo-political environment is an excellent idea! One fellow was giving us that historical analysis, to which we previously referred, and the other was suggesting a more urbane geo-political reference to the idea. Both are right on the money. There are hundreds, if not thousands more refined and educated people believing in the same concept. I hope that you too, will be on board by the end of the article, if you already are not.
Gold
So, with all that being said, are you one of the “clairvoyant ones” putting away a few one ounce American Gold Eagles and or Canadian Maple Leafs at these price levels. Physical gold of any nature, size, shape or quantity will serve you well in the future. Several exceptions are numismatics and jewelry. Don’t dissuade yourself into believing that gold jewelry is an investment. Of course it has value, but it is open to a subjective evaluation by a third party in terms of ascertaining its price. This is always a dangerous situation and one that the average person need not become involved. Any time a specific item is open to “appraisals”, the non-experts are left on their own without the proverbial paddle. Caveat Emptor. By all means, buy your loved ones, diamonds, gold, platinum, and pearls, but don’t view them as an investment. View them as the eternal thought of affection they are meant to be.
Silver
Silver is also bound to be a good investment as the world’s financial system falls more and more into disarray. Consider full bags, half bags or even quarter bags of 90% Silver coins. Most of you already know this, but pre-1964, US dimes, quarters, and half-dollars were made with 90% silver. What is a full bag? It is simply $1000.00 face value of any combination of the “old” silver coins. A half bag has a $500 face value and of course a quarter of a bag would be $250.00. Face Value is the actual amount of the coins inside the bag. For instance, 200 pre-1964 fifty cent pieces would amount to $100.00 face value. Often times you will hear them referred to as junk bags of silver coins. They are anything but; as a full bag these days sells for approximately $5200.00 US.
I’d also like you to consider the idea of Silver Dollars. They run about $10 each at today’s silver prices of about $7.00 per ounce, and as such offer a stellar way to protect wealth. Some of the older silver dollars may have some numismatic value (value based upon the age, rarity, and condition of an item), but for the most part they fall pretty much into the same pricing category as the other silver coins.
There is one point about silver coins that we really don’t want to consider but we’d be remiss if we didn’t at least mention it. Should there ever be a time when the world’s financial systems mandate the necessity for another stable currency; these small silver coins may well serve the purpose. Enough said as I prefer not to be branded a radial or an alarmist.
Precious Metal Investment Vehicles
Avoid Numismatics, Jewelry, and Items needing third party Appraisals.
As I’ve mentioned before, please stay away from numismatic coins unless you are an absolute expert. I’ve heard and have experienced first hand, albeit to a very limited degree, the nature of these types of transactions. Grading numismatic coins is an extraordinarily subjective enterprise and the grading of a coin “one rung up” or “one rung down” the gold or silver coin numismatic ladder can cost an inexperienced investor thousands of dollars. To make matters worse, even experienced dealers can make mistakes and when they do, who do they count on to cover (up) their mistakes. Go-on, gettoutta here, you don’t think!?
Stick to basics, deal with a reputable dealer and you’ll do just fine when purchasing your physical gold and silver. Precious Metals Vault at Goldseek.com is a reputable and efficiently competitive enterprise you can trust. There’s the “plug” and that is the sum total of my promotional endeavors in this article. Whether you buy from the PMV at Goldseek.com or from your local reputable dealer in your home town, the point is to begin the process.
The other thing you should do is to shop around! Don’t be fooled by a slick sales piece. With the Internet, it is very possible to shop and compare. If a deal sounds too good to be true, it most likely is. Stay away from special one ounce commemorative coins, silver dollars, or whatever else slick marketers conjure up. They are not investments worth the substantial premium to the underlying price of the metal. Rarely if ever, do these special commemorative pieces appreciate in value, even the ones put out by our own government on behalf of some special endeavor such as the space program.
Precious Metals Prices are beginning to look and “feel” stronger
My belief is that we are in the early stages of a sustained bull market in precious metals and as this bull picks up steam, the prices you are quoted today may look very attractive in a year’s time.
I am also a strong proponent of Grass Roots Movements, or word of mouth campaigns. By sharing this information with your friends, you are helping to start and participate in a grass roots movement that endorses real money. Owning gold and silver and other precious metals is a way that you not only help yourself, but you are actually helping your country. If you share this information with friends and family, you are also helping them. Is this a convoluted way of thinking? I don’t think so. Why are you helping your country? He who owns the gold makes the rules. He who owns the gold helps to increase the wealth of the Nation in which he resides.
China is Empowering its Citizens, Is the US Empowering Theirs?
Right now, this very moment, China is opening the doors and paving the way for their citizens to purchase and accumulate gold and silver. They are even encouraging the practice. The Asians are smart as they come where financial matters are concerned. They are patient and they know the value of saving. They certainly understand the concept of he who owns the gold makes the rules; at least financial ones.
By allowing their citizens to participate in precious metals ownership, the Chinese government is in point of fact allowing their citizens to help support their own national currency, the yuan or the renminbi. With that many people, who already have such a long standing respect for gold and silver, purchasing the metals, it can only be positive for the price and for the underlying wealth of the country. If only the United States was more attuned to what the rest of the world already knows.
As a quick aside, why do you think that US policy is one of “containment” vis a vis gold”? Could it be that they realize that gold has always served as a barometer and if they control that barometer, they control the perception of the value of the US dollar, inflationary concerns, economic perceptions, and the idea that the US dollar will maintain its reserve currency status? Do you get the feeling that the US government is for or against gold?
I’d like to see the US Government endeavoring to encourage and sustain gold ownership by its citizens instead of always appearing to sabotage it.
Financial Insurance
I personally don’t view the purchasing of physical gold and silver as the ultimate investment vehicle. Rather, I view the practice as a way of protecting wealth first and foremost. It’s an insurance policy that has a very real possibility of increasing in value. That’s the way I’d suggest you look at the practice of purchasing physical gold and silver. Purchase a few coins here and there, store them in a safe place, and don’t worry about the day to day fluctuations in the price of the precious metals. When you look back in a year or two, you’ll most likely believe that you made a wise choice.
Begin the Process, Take the First Step
People often have the misleading perception that you have to many thousands of dollars to get started in precious metals ownership. This is simply not true. You can begin with a few hundred dollars and the purchase of ten or twelve silver dollars. The idea is to take the first step. The old Chinese proverb that “the longest journey always begins with the first step” could not contain more significance. Once you’ve taken that first step it becomes easier to take the second and third. You will find a dealer that you trust and you will both gain familiarity with each other and with your own personal goals. Eventually after receiving a few deliveries, you will begin to build confidence and trust in the process.
But please, be aware with whom you conduct business. Crazy stories abound! Stories like the con men who took 100 ounces of lead and plated it with 18 or 22 carat gold so it looked and felt like a 100 ounce gold bar! I’m not trying to scare you but rather to point out that the world is awash in swarthy characters. Currently identity theft is the number one crime in America—need I say more?
I would like to add that surprisingly enough, reputable gold and silver dealers work on razor thin margins. This is particularly tricky as often times dealers might make $15-20 on a sale or purchase of a $450 product. Think about I for a momentt; the “spread” as it is called, is quite nominal for such a valuable item. One miscue and the profits for an entire month can be wiped out. This is one of the reasons few dealers accept credit cards. Once they get to know you, they will accept checks but will not deliver the order until that check has cleared. A beloved friend in the business once told me, that 99% of the “gold bugs” he has dealt with over a 30 year period have been honest as the day is long. That little tidbit always stuck with me. It would appear to me that we “hang around” with a pretty good group.
“Time is running out” might be viewed as one of those inflammatory sales idioms. In this case, it is not. My personal interest is in seeing that the average American understands what is occurring out there in “financial land” (derived from the old Walt Disney TV series of Frontier-land and Adventure-land, etc—I do believe you might have to be at least 50 years old to appreciate these terms unless you’ve visited Disneyland lately!)
Simply put, what is occurring is a total spin job as pertains to the public, their money, their multinational corporations, and their government. We’ll save the details for another column.
Iran is now beginning to tilt the Equation in favor of anything but the US dollar
In the last week, Iran has come out and stated that they will begin to price their oil in Euros, not dollars. This is another nail in the coffin for the US dollar. Saddam Hussein stated before the US invasion of Iraq that he was going to price the oil from Iraq in Euros. The US PTB (Powers that Be) do not appreciate this concept in the least because oil has historically been priced in dollars. Their view is that the status quo should not be disturbed.
But the real point to consider behind these pattern changes is this. When oil is priced in other currencies, there is less demand for dollars. It also makes oil more immediately accessible to other nations without going through the US power broker hierarchy. What about the idea that he who controls the oil makes the rules? All of these combined items will ultimately signify that their will be less demand for dollars. That ultimately leads to the question of whether or not the dollar can maintain its international reserve currency status. Take away that status and the entire international financial ebb and flow is altered. In essence, our national credit card is taken away and all of a sudden we are on a pay as you go mode.
And dear readers, if you as a sovereign nation do not need dollars, who you gonna call? No, you will not be calling ghost-busters (although there might be some merit to eliminating such an ethereal threat to US “security”). You will be calling the US Treasury so those dollars can be redistributed back to the Homeland. The greater the number of countries that pay for oil in currencies other than the US dollar, the more the dollar is likely to become “a barbaric relic of the past” (sic) and the more that reserve currency status is put into jeopardy. The answer is Blowing in the Wind, dear reader. The wind has a weird smell to it and it’s blowing downwind from where we stand as a nation. (please refer to Richard Russell’s comments above!)
More importantly, the less control that the US has over the one universal commodity in such great (and increasing) demand across the globe, the less the power the US has to influence world objectives and perpetuate national and international agendas. Reveal one more layer to that peeled back onion and we have a reserve currency that is losing value just at a time when it needs to increase its value. The US dollar is the common stock of the United States economy. If the world has confidence in that “stock” it appreciates because the world wants to purchase or hold more of it. When the world loses confidence in that stock, it depreciates. Where, along that continuum, do you think the United States currently stands?
Regardless of what you are being told, the US economy is not doing all that well as of August 2005. US job creation is really about the lower paid entry level, burger flipping, floor mopping, customer greeting, kind. It is not about the manufacturing, creating something of value that the rest of the world needs, kind of jobs.
As the rest of the world becomes more cognizant of all of these and a thousand more valid concepts that are dollar unfriendly, gold will again begin to glitter like never before. The Euro and the Swiss Franc are not the currencies to replace the dollar as the world’s reserve currency. However, there may be one on the horizon to keep our eyes on. That would be the one from the country that currently appears to be manufacturing most of the world’s goods.
Time is running out because we are competing with the rest of the world for those bags of silver and for those US American Eagles and Canadian Maple leafs. When China is really up and running, their citizens will be salting away as much gold and silver as they can afford. China’s economy has its own problems as does the government. However, make no mistake about it; they are on a fast track towards total industrialization. That means more money for its citizens to purchase gold and silver and purchase they will. Remember that Asian cultures endorse savings (and education) while western cultures endorse proliferate spending and instantaneous gratification. It also means that they will be competing for the rest of the world’s resources as never before. This competition would include oil and gold.
Listen, if a Chinese laborer in one of the Southern Provinces of China can put a little something shiny away, a citizen of North America can do the same! What is the difference? One individual has the knowledge, desire, and the will. The other does not.
America truly does need to wake up and realize which way the wind is blowing. Tell your friends and family what you believe even if it’s painful. And by all means, begin your own process of accumulating and saving your own precious metals vault. You now know how, you know why, and you know it’s not too late.
It’s time to put away some real wealth for our collective rainy day.
Until next time,
D. Stewart Armstrong
Consultant to the Junior Mining Sector
consulting@seacoastpub.com
-- Posted Monday, 22 August 2005 | Digg This Article
