Thursday, December 6, 2012

Regarding Gold: Follow The Money

Before I address my topic du jour, I wanted to follow-up quickly on my post about the weakening economy earlier this week.  Gallup released a report that was picked up by Zerohedge which showed that unemployment mysteriously jumped higher than previously thought after the election.  You can read about it here:  LINK

Of course, Hurricane Sandy will be blamed for this, but I would suspect that Gallup knows a little more about constructing statistical studies than to make that sampling error.  More likely is lackluster holiday hiring and the release of temporary Government workers hired to help out with the election.  As for the likelihood that holiday employment was weaker than usual, it turns out that not only were Black Friday sales less than forecast, but post-Black Friday sales actually dropped over 3%:  LINK

The reader is free to draw his own conclusions, but it appears as if the data coming in now supports my thesis on the economy.

To transition this into my title topic, there is no question in my mind that the Fed is going to expand its newly-minted QE3 program.  This has been well-telegraphed, but I believe what is ultimately implemented over the next 6 months will exceed expectations, as printing money is the time-honored strategy of attempting to prevent economic depression AND to finance Government spending.

The best way to take advantage of this imminent further devaluation of the dollar is to move as much of your investable funds into physical gold and silver as you can.  Also, you can create rate of return leverage with this by investing in mining stocks (which are egregiously cheap right now).  To implement this strategy, you would be piggy-backing an investor class with the best look at "inside" information regarding the issues of money printing and economic health:  the world's Central Banks.   As chronicled by this report, Central Banks globally have purchased a record amount of over 500 tonnes of gold during 2012:  LINK

To put this in perspective, the world's annual production of gold is around 2500 tonnes, give or take a few tonnes.  This output, despite the rise in China's gold mining production, is in decline - some would say serious decline.  So if Central Banks are buying at least 20% of annual production (it is thought that China is actually buying a lot more gold than they care to report), and likely will increase that off-take in 2013, and if every other source of demand just stays constant, there's only one way the price of gold can go.  There will be plenty of other factors that will drive the price higher, but this is just the sheer supply/demand dynamic.

Given that this is the case, you have to ask yourself why the Central Banks are now hoarding gold.  To me the answer is obvious:   the entities that are in control of the money supply are taking advantage of this powerful position by buying the one asset, in advance, that will rise in value as the supply of printed money rises.  And that would only occur if they intend to print a lot more of it.

Please note that, as always, I advise against using paper ETFs in lieu of buying real physical gold.  Although beyond the scope of this commentary, ETFs are not the same thing as owning real gold for many reasons.  I plan on updating my research report on GLD sometll post it here when that happens.

11 comments:

  1. Hal (bored in the US)Thursday, 06 December, 2012

    I feel this is Deja Vu all over again re: the movie Trading Places. The other CB's are buying gold, while our illustrious CB is buying Treasuries.

    Our CB is out of synch with whats happening. Except what if the other CB's keep storing the Gold with NY Fed? Just asking.


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  2. My philosophy is simple when it comes to the utterances of banksters and politicians (and my ex-wife): listen to what they say and then turn it around 180 degrees; only then might you approach something resembling the truth.

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  3. Dave,

    Nothing is better than having physical gold buried/locked in the
    "optimal" location(s) of your choice. Agreed.

    Now reality is folks have money in 401ks that can not be moved into physical gold. As I understand it the best alternatives for 401k holders are: PHYS, GTU, & CEF. GLD seems to a wholly different animal. Yes, there certainly can be fraud in the other three funds, because humans run them, but I as understand it/them, they largely hold physical.

    Do you have any disagreement with the following statement:
    http://www.goldstockbull.com/articles/central-fund-of-canada-cef-safest-way-to-own-gold/

    "For investors that prefer not to hold the physical gold, yet place a high value on the safety of their investment vehicle not to default, I recommend the Central Trust of Canada (CEF) or its all-gold counterpart, the Central Gold Trust (GTU). Unlike the popular ETFs such as GLD and SLV, these funds do not lease out your gold and they always maintain 90% or more of assets in unencumbered, segregated and insured, passive long-term holdings of gold and silver bullion. Trace Mayer of Runtogold.com, recently published an article detailing the risk of investing in GLD and SLV. James Turk and others have also covered the unanswered questions about these ETFs in earlier articles."

    Thanks again,
    Doug

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  4. FWIW - I thought SilverDoctors was a pretty small operation. It blows my mind a London HF contacted them...for 20 tons..there is something afoot for sure.
    "We can also confirm that SDBullion was in fact approached Wednesday by a UK hedge fund manger seeking the acquisition of 20 metric tons of gold in good delivery bar form, which had been physically tested for purity above .9995 within the past 5 years.
    The fact that a London fund manager has resorted to contacting US retail bullion dealers in attempt to fill a 20 ton gold order speaks volumes to the availability of physical gold (or lack thereof) for delivery in London and the extreme tightness in the physical market."

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  5. Hi Dave, any thoughts on the fiscal cliff? Will they reach an agreement before the year end or we are gonna fall off the cliff?

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    1. Ya. I think it's nothing but ridiculous political theatre made worse by all the bullshit coverage of the topic in the MSM and cable news networks.

      The "cliff" is $100 billion in cuts per year, most of which is a reduction in the automatic spending increases built into the "baseline" budgets.

      BUT, the most likely case is that we are going to see compromise by the House Repubs on taxes AND, more significantly, an elimination of the debt ceiling.

      Bottom line: it's all good for gold!

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  6. Three words...
    Don't dis Dave!!!
    Thanks for not getting sucked into trollville.

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    Replies
    1. LOL. I've learned it's best to ignore trolls.

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  7. hey Dave,

    when was the last time you saw a broncos team beat the raiders
    by 2 touchdowns and be ticked at themselves for not playing better?
    I don't remember anything like going back to the red miller era.

    i mean it looked like a scrimmage except for a couple drops by oakland receivers that could have changed things.

    cheers

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    1. LOL. Oakland put up more of a fight on defense than i expected. Denver missed Chris Kuper at RG for sure.

      Hell, Denver covered the point spread and if that defensive player didn't interfere with Manning's pass to Willis, it would have been a TD instead of a pick and the game would have been over then.

      I give credit to Oakland for putting up the fight they did.

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  8. Just wait until the producers and owners of gold refuse to sell it. Then shit goes parabolic.

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