Avoid worrying about the NZD/USD exchange rate when buying gold

An article on Stuff.co.nz this week was headlined “Bullion bullish but beware the bears”.

The excerpt below is taken from the beginning of the article (emphasis added is ours):

The price of gold, now near nominal highs at more than US$1180 an ounce, is expected to climb further, analysts say.

However, they warn New Zealand investors should be wary of exchange rate fluctuations.

Fund manager Liontamer, a specialist in capital protected funds, said the price could rise more than 15 per cent to over US$1400 an ounce by December 31, and continue rising well into 2011.
Investment manager Sean Butler said there was fundamental support for the gold price at current levels. “Central banks in China, India and Russia continue to buy gold, and investors are building up their gold exposures in the wake of global market uncertainty and the risk of higher inflation.

“In the meantime, the supply of gold is tightening. A combination of reduced supply and the large set-up costs associated with setting up new mines is helping to set a new floor under the price of the precious metal,” Butler said.

OM Financial senior dealer Kevin Morgan said the price “could be comfortably above US$2000 an ounce within 18 months”, but saw a possible dip to US$1050 in the next two months.

“I would view that as a buying opportunity,” Morgan said, but cautioned anyone investing in gold to remember that it is priced in US dollars and subject to currency fluctuations.

“A New Zealand investor who purchased gold in early 2009 at US$900 an ounce would actually be losing money despite gold being 25 per cent higher at US$1200 an ounce today.

“The reason for this is that back in early 2009 the NZD [New Zealand dollar] was trading at about 0.5 to the USD [United States dollar] and today we are trading closer to 0.72,” he said.

No counter party risk:

Talk about over complicating things!  Firstly, Liontamer’s new fund - as also discussed in this Otago Daily Times article - uses derivatives to track the gold price.  It doesn’t actually hold bullion.  While it does offer capital protection -  i.e. you will get back at least 100% of your money at the end of the 6 year investment period – this is also achieved using derivitivisation.

The reason we choose physical gold is because it has no counterparty risk.  This simply means we are not relying upon another party to remain solvent to get our funds back one day.  If we buy physical gold and take possession it is ours and ours alone.  Our only risk is keeping it safe from prying eyes and thieving hands.

The price of gold in any currency is volatile!

Secondly is the point that as per the Otago Daily Times article “the Liontamer index follows the movements in the international gold price and is not affected by currency [movements] between the New Zealand and US dollars.”

The stuff.co.nz article also mentions how Kiwi investors should be careful as gold “is priced in US dollars and subject to currency fluctuations”.

The thing is you don’t need to invest in a fund tracking the international/US dollar gold price using derivatives to handle currency fluctuations!  All you have to do is track the NZ dollar gold price yourself (simply the USD gold price converted to NZ dollars by the current USD/NZD exchange rate) and ignore what the media says about the US dollar gold price!  We live in New Zealand not the USA!  (As a bonus, you’ll also avoid paying fund managers fees!)

Best time to buy gold

If you believe gold remains in a bull market (or rather that paper currencies are still in a bear market), then the time to buy is when the NZD price of gold has fallen not when it is soaring.  This can be an emotionally difficult thing to do but this gets you the most bang for your buck – or rather the most ounces for your dollars.  You don’t actually need complex financial instruments and hedging with futures contracts to achieve this.  Just buy when the price has fallen as this is likely to be when the NZ dollar is strong.

NZD Gold 3 Year Chart - Buy the price dips

Do this on a regular basis and the average buy price will be at a good low level and allow for maximum upside and you should hopefully avoid the heavy feeling of watching the price drop sharply just after you’ve bought.

In the above 3 year chart you can see that the NZ dollar price of gold has just dipped down to the 200 day moving average (the red line).  Over the past 3 years this has generally been a good time to buy, with June last year being the only time the price fell substantially further below the moving average.

Our website has gold price graphs from 1 day all the way to 40 years – all in NZ Dollars.  (See Gold Survival Guide Gold and Silver Price Charts.)  The 1 year, 2 year and 5 year charts are particularly useful in seeing where the current price is compared to the past and can help identify when the price dips.

Anyway, that’s just our opinion and as always we offer it freely - but with no guarantees!

Eric Sprott, Jim Puplava and Associated Thoughts

Wild Bill’s Weekly Wanderings 26 July 2010

Following on from last week this week we feature more from people whose opinion we respect.

Among the best is Eric King.  Eric operates with conviction - as does Eric Sprott. Last week, Eric K interviewed Eric S and I urge readers to check out the audio at
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2010/7/20_Eric_Sprott.html

For those of us that prefer to read, I provide a summary of the main points of the interview here.

Eric Sprott with Eric King

The busted “Bailout and Stimulate” formula

The net impact of the stimulus contributions and promises made since 2008 have resulted in a combined budget deficit of close to $2.5 trillion dollars and an incremental net increase in GDP of $200 billion. A $200 billion return for a $2.5 trillion increase in debt represents a terrible return on investment. It implies that the net impact of the stimulus on GDP since 2008 has been a mere 9 cents for every deficit dollar spent. Buying dimes with dollars is bad business, government-funded or not.

(Quoted from the May issue of “Markets at a Glance”.)

It’s the DEBT, stupid! After the stimulus program has been applied and then terminated, the debt has markedly increased, there’s no growth to speak of, and no one has any idea how this debt can be repaid…

Most large banks around the world are operating with way too much leverage. The risk in the system is “unbelievably immense relative to the amount of capital in the system”.

Quantitative Easing II (QE 2) – may be beginning already… Apart from the direct stimulus provided by TARP etc., there has been effectively a ZIRP (zero interest rate policy) in place now for quite some time. The banks can borrow at 0%, lend out at something above 0%, lever that up, and do quite nicely - thank you very much. Pretty soon, they can start reporting favorable earnings…

[Aside: while the above is happening, the banks are quietly starting to write off some of the toxic assets still on their books – which they have been allowed to mark to wishful model, rather than marking to market.
Damn – I wish I could persuade my bank to treat my overdraft as virtual in this way. I can just imagine the look on the face of my so-called “personal banker” if I said “Hey listen – everything’s cool – My overdraft of $10,000 dollars is really only $1, 000 according to my model – so I can borrow another $9,000 right?” What a sick joke.]

From “green shoots” to cliff diving

The current set of economic data points for the US is just horrible – and the trend indicates even worse to come. Printing money is losing its effectiveness as more and more is printed.

[Aside: It’s just like drug addiction, and for a very good reason – the processes are analogous. As a drug addict increases consumption of whatever it is, the body becomes habituated to the dose – which means that the dose has to be increased to produce the same kick. In the same way, as a society becomes addicted to the availability of cheap credit in order to function, the greater the increase in credit required to maintain the same level of economic activity.]

At all levels, national, state, corporate an individual, we have to reach rock bottom, i.e., we have to either renege on our debts or come forward with a credible plan for debt reduction. The Keynesian approach of continually increasing debt to pay off debt definitely cannot work in an environment where economic growth is anaemic at best.

[Aside: In China, on the other hand, where there is currently a supposed 10% annual growth, it just might work… Oh wait – they just happen to have N trillion US dollars in reserves, right? Seems like the Chinese might not need life support after all. Note to Mr Geithner: maybe, just maybe, it’s not such a good idea to keep lecturing your banker. And please don’t keep telling us you support a strong US dollar policy – that’s another really sick joke.]

Gold

Eric agrees with Ted Butler that there has been extensive manipulation of both the gold and silver paper markets by the bankers.

[Aside: The powers that be might prefer to say that the precious metals paper market prices were “regulated” or “governed” – sounds so much more reassuring, eh?]

Just imagine what would happen if the price of gold were $250 per ounce today. The worldwide demand for gold would be extraordinary… The continuing financial shenanigans are almost certain to ensure an inevitably rising gold price (probably with hiccups though) over time.  The price of gold is the canary in the coalmine – which is why there have been and are so many public pronouncements about it from such luminaries as Alan Greenspan and Paul Volcker.

Social breakdown coming to the US?

If jobs cannot be produced, some people are going to get desperate….

US dollar outlook?

All fiat currencies eventually assume their intrinsic value – zero!   Owning these currencies or storing your assets in them is unsafe!  Now your usual investment advisor might – if push came to shove –recommend that say 5% -10% of your net worth be in precious metals – Eric stated candidly that WAY BEYOND 50% of his assets were in gold and silver – and that he slept very well at night!

He advised us listeners to “go and do thou likewise”. Pretty powerful stuff.

Jim Puplava and Financial Sense

Why did I make the association of Eric King with Financial Sense?  Well, for one thing, Eric and Jim are good friends. I have listened to Financial Sense religiously since it’s inception on the Internet.  I never cease to be amazed and grateful that such a high quality program is available for free. After all, one can pay a lot of money for vastly inferior offerings – on mainstream media, for example…

Thank you for the fantastic public service you provide, Jim.

What I like most about Financial Sense is the quality of debate on the show. I perceive Jim as being ultimately fair-minded – he always presents both sides of an argument, and asks listeners to think for themselves and make up their own minds. In an age which is characterized by communication using slogans or political soundbites – like swarms of locusts, in the words of Leonard Cohen – see below - this is truly a rare and valuable gem.

On a more personal note than usual, throughout my life, I have experienced bouts of intense depression. Curiously, I always know when the depression is lifting – some piece of music grabs me by the gut and won’t let me go. I am moved so intensely that I am lifted out of that terrible state of intense self-absorption. One time it was the haunting slow movement of Beethoven’s Ninth. Most recently the catalyst for rebirth for me has been Leonard Cohen’s Anthem.

Such power and passion! Mr Cohen, I imagine us sitting down together and sharing a bottle of wine, and then I would say this to you: “ Thank you for cracking open my hardened heart and letting the light into my life. In the words of Jacob Boehme, the great Christian mystic, “What kind of spiritual triumph it was I can neither write nor speak; it can only be compared with that where life is born in the midst of death, and is like the resurrection of the dead”.

Sadly for me, I don’t imagine we will ever meet, one reason being that you and I are both getting older…  Good luck with the remainder of Act III, my friend….

Is Now a Good Time to Buy Gold?

While the stats below from Casey Research are based upon the US Dollar price of gold, a glance at the 3 year gold chart in NZ dollars also show that the New Zealand winter has also been the preferable time to buy in recent times, so their thoughts are still worth considering for a New Zealander.  And if you have an interest in precious metals stocks then it’s especially worth a read….

Is Now a Good Time to Buy Gold?

By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

While we’re convinced gold and gold stocks are destined for much higher levels, buying when prices are low can mean the difference between a double or triple and a ten-bagger… a week in Malibu vs. a week in Milan.

There’s no secret formula to buying low, and we aren’t holding the right hand of Midas, but there are periods when prices tend to be lower than others. And if those tendencies play out, it can give us the opportunity to snag a high-quality asset at a bargain price.

So, how do you get a bargain price? You cheat.

I think the secret to getting a low-cost basis on all your gold and gold stocks is this: only buy on significant price pullbacks.

And this can be done without trading or using technical analysis.

I think there’s a good chance we can cheat this summer. For example, here are the average monthly increases in gold since our bull market began in 2001.

In our current 9-year bull market, June and August have seen the lowest average return for gold, representing one of the best times to buy.

You’ll see that in the bull market of the 1970s, summer was also a good time to buy gold.

What about gold stocks? Since 2001, June and July have been among the weakest months and thus one of the best times to buy.

Obviously, these are price tendencies and not certainties. There were Junes when gold was up, and some Julys when gold stocks were up. Meaning, we’d avoid using these charts for trading purposes or in anticipation of an immediate gain. Instead, use these “trendencies” to look for possible price weakness. And if it arrives, use the opportunity to add to your holdings and position yourself for the next leg up in the bull market.

What are the odds of a correction in gold and gold stocks this summer?

►Since 2001, almost every precious metal stock, in every summer, has moved lower from its May high. This includes gold and silver. There’s no guarantee this won’t be the summer of galloping unicorn herds, but the record is hard to argue with.

Here are the buy zones I identified for gold and silver, based on a tally of how far they’ve corrected from their May high to their summer low, in each year of the current bull market.

You’ll see that the average price of all pullbacks in gold, from the May highs to the summer lows, is 8.9%, and would take the price to $1,126.98. That’s not to say this price will be hit, but it tips you off that a fall to that level would not be out of the ordinary – and would also be an invitation to buy. You can also see the smallest summer decline, which we’ve already exceeded. We wouldn’t wait for the largest drop to materialize; there’s a good chance you’d be left empty-handed and chasing the stock higher.

Silver is naturally more volatile, allowing us perhaps a better opportunity to buy low. The average summer decline for silver is 16.6%, which would take the price to $16.39. However, the furthest its fallen so far this summer is $17.36, meaning strictly on a historical price basis, a 10% correction from current levels would be perfectly normal. And again, an invitation to buy.

Whatever price (or prices) you select, I’d only use the charts to add to current positions, not for trading. The currency crisis Casey Research believes is inevitable could strike suddenly again and will eventually hit the U.S. dollar, and the last thing you want is to be left standing on the sidelines if gold and gold stocks surge higher. In our opinion, being completely out of precious metals in the middle of a once-in-a-generation bull market would be a mistake. Instead, keep adding to your savings every month and buy when it feels like you’re cheating.

See you in Milan?

—-

Want to see the buy zones for all our recommended gold and silver stocks? Our Summer Buying Guide is an invaluable resource for buying low. And check out our just-released July issue, where a respected bullion seller tells you why in the near future you may not be able to buy gold, at ANY price. Try a risk-free subscription for only $39 per year. Details here.

A Convergence of Crises?

Wild Bill’s Weekly Wanderings 20 July 2010

This week, we are going to take a look out of our window on the world from down under - here in Auckland, New Zealand - and try to put a few things in perspective, adding some input from respected sources as we go.

Everywhere we look, from geopolitics, to the environment, to the financial world, and, of particular concern to us here – to the micro-world of the precious metals markets, we see the same fragility developing….

Storm clouds gathering in many sectors?  Rain already falling in others.

 

• GeoPolitics

There are at least two flashpoints developing in the geopolitical arena – Iran, and North Korea. It’s hard to know whether confrontations between the US and these two countries are inevitable – what we do know for certain is that when countries are on the verge of falling apart internally, they often resort to war against an external enemy – real or manufactured. Chris Martenson, whom we trust, believes that an impending war with Iran is inevitable.

We also know that increasing numbers of US warships are heading towards the South China sea, at the same time as tension is building over the sinking of a South Korean ship, ostensibly by an alleged North Korean torpedo. Is it an accidental coincidence that the Japanese government has recently announced that it would like to shut down the huge US base in Okinawa? Inquiring minds would really like to know…

 

• Environment: The Catastrophe in the Gulf of Mexico

This week, in King World News, Eric King interviewed Matt Simmons, one of the most respected figures in the oil industry. He has had a long career as an energy investment banker, and what he has to say about the disaster in the Gulf is truly alarming. From Day 1 of the crisis the American public appears to have been subjected to propaganda and lies from BP and the Obama Administration – and is still being fed this crap. Now, even if the well riser has been successfully capped, THE PROBLEM IS STILL THERE.

Fact 1:   There is a colossal lake of decomposing oil on the ocean floor, which contains large amounts of methane –which is a deadly toxic gas.
Fact 2:  As crude oil decomposes, one of the byproducts is hydrogen sulphide – another deadly toxic gas.
Fact 3:  The hurricane season is now officially under way. This year, an above average number of severe storms are forecast.
Fact 4:  The physics of water movement tells us that, in the event of a hurricane, deep water is drawn up to the surface from the layers above the sea floor – only, this time, it won’t be water, it will be a highly toxic mix of crude oil, gases and chemicals.
Fact 5:  If the mix described above gets into the air, it is very likely to be blown ashore, and if so, there WILL be large numbers of fatalities.

There seems almost no escape from the conclusion that an environmental and human disaster of unimaginable ferocity is around the corner. I wonder how US citizens will react when they discover that the nightly media tissue of lies that they have been fed, is just that – a tissue of lies.  Ask the people of America to clap their hands, Mr Obama, if they only believe… The new Messiah not only has not delivered – he has refused to do what was necessary, at every turn.

Perhaps some of you do not know that the Obama administration - and BP – have repeatedly been offered international assistance, which has been turned down every time.  The Norwegians in particular have extensive experience in operating in deep ocean oil environments – but that counts for nothing, apparently. I understand from listening to Matt Simmons that Taiwan have a skimmer that can suck up TEN TIMES the amount of oil that any of the equipment available in the US can handle. I also understand that there are some strange laws apparently not permitting foreign shipping in that area. OBAMA IS THE PRESIDENT, FOR GOD’S SAKE! If that is indeed the case, he could have gone on TV and made a passionate speech about how he was going to rescind those laws in the interests of national security – after all, isn’t that what he’s good at - the passionate speeches?

God help the United States. My heart goes out to all in the US – especially to my many wonderful friends there who have done nothing to deserve this fate – except to let themselves be governed by a bunch of mercenary morons – most of whom just happen to be millionaires. The founding fathers of this once great nation, now an empire in terminal decline, must be weeping in their graves.

As never before I truly appreciate the wise words of Lord Acton:  Power corrupts – and absolute power corrupts absolutely.

 

• Economy and Finance

There are so many red flags appearing now that a double dip recession is inevitable – unless QE2 is administered as a huge stimulus to jolt the flailing zombie that is the US economy back into some sort of semblance of life – albeit this will provide only a temporary respite from terminal collapse.  Please read the section below by Ambrose Evans-Pritchard of the UK Daily Telegraph, who sums it all up pretty nicely, if bleakly.

Fed’s volte face sends the dollar tumbling

Rarely before have a few coded words in the minutes of the US Federal Reserve caused such an upheaval in the global currency system, or such a sudden flight from the dollar.

The US workforce has shrunk by a 1m over the past two months as discouraged jobless give up the hunt Photo: AP

The euro rocketed to a two-month high of $1.29 and sterling jumped two cents to almost $1.54 after the Fed confessed that the US economy may not recover for five or six years. Far from winding down emergency stimulus, the bank may need a fresh blast of bond purchases or quantitative easing.

Usually the dollar serves as a safe haven whenever the world takes fright, and there was plenty of sobering news from China and other quarters on Thursday. Not this time. The US itself has become the problem.

“The worm is turning,” said David Bloom, currency chief at HSBC. “We’re in a world of rotating sovereign crises. The market seems to become obsessed with one idea at a time, then violently swings towards another. People thought the euro would break-up. Now we’re moving into a new phase because we’re hearing alarm bells of a US double dip.”

Mr Bloom said a deep change is under way in investor psychology as funds and central banks respond to the blizzard of shocking US data and again focus on the fragility of an economy where public debt is surging towards 100pc of GDP, not helped by the malaise enveloping the Obama White House. “The Europeans have aired their dirty debt in public and taken some measures to address it, whilst the US has not,” he said.

The Fed minutes warned of “significant downside risks” and a possible slide into deflation, an admission that zero interest rates, $1.75 trillion of QE, and a fiscal deficit above 10pc of GDP have so far failed to lift the economy out of a structural slump.

“The Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably,” it said. The economy might not regain its “longer-run path” until 2016.

“The Fed is throwing in the towel,” said Gabriel Stein, of Lombard Street Research. “They are preparing to start QE again. This was predictable because the M3 broad money supply has been contracting for months.”

The Fed minutes amount to a policy thunderbolt, evidence of how quickly the recovery has lost steam. Just weeks ago the Fed was mapping out withdrawal of stimulus.

Goldman Sachs said it expects the euro to rise to $1.35 by the end of the year. The yen will appreciate to ¥83, through the pain barrier for most of Japan’s big exporters. The new twist is that SAFE, China’s $2.4 trillion fund, has begun buying record amounts of Japanese bonds, a shift in reserve allocation away from the dollar.

The signs of a deep and sudden slowdown in the US are becoming ever clearer as the “sugar rush” from the Obama fiscal stimulus wears off and the inventory boost fades. California, Illinois and other states are cutting spending, tightening US fiscal policy by 0.8pc of GDP.

Thursday’s plunge in the Philadelphia Fed’s July index of new manufacturing orders to –4.3 suggests that the economy may have buckled abruptly, as it did in mid-2008. The Economic Cycle Research Institute’s ECRI leading indicator has tumbled, reaching –8.3pc last week. This points to a sharp slowdown or recession within three months.

While US port data looked buoyant in June, the details were troubling. Outbound traffic from Long Beach fell from 139,000 containers in May to 116,000 in June. Shipments from Los Angeles fell from 161,000 to 155,000. This drop in exports is worsening the US trade deficit, eroding the dollar.

The US workforce has shrunk by a 1m over the past two months as discouraged jobless give up the hunt. Retail sales have fallen for the past two months. New homes sales crashed to 300,000 in May after tax credits ran out, the lowest since records began in 1963. Mortgage applications have fallen by 42pc to 13-year low since April. Paul Dales at Capital Economics said the “shadow inventory” of unsold properties has risen to 7.8m. “The double dip in housing has begun,” he said.

Alcoa, CSX, Intel, and JP Morgan have reported good earnings, but they mostly did so in July 2008 just before their shares collapsed. Such earnings rarely catch turning points and can be a lagging indicator. Profits have been boosted in this cycle by cost-cutting, which is self-defeating for the economy as a whole.

The minutes confirm the Fed is split down the middle over QE. Fed watchers say the Board in Washington wants to be ready to launch another round of bond purchases if necessary, pushing the banks balance sheet from $2.4 trillion towards $5 trillion, but hawks at the regional banks are highly sceptical.

A study by the San Francisco Fed said the interest rates need to be –4.5pc to stabilise the economy under the Fed’s “rule of thumb”. Since this is impossible, massive QE needs to make up the difference.

Tim Congdon from International Monetary Research said the US authorities have botched policy response. “They are forcing banks to contract lending by raising their capital asset ratios. They have let M3 shrink by 1pc a month, as in the early 1930s. The solution is simple. The Fed must raise the level of deposits by purchasing bonds from the non-banking system as the Bank of England has done. They refuse to do it,” he said.

 

• Precious Metals

Remember Andy Maguire, the courageous whistleblower who exposed to the world – and the CFTC – the manipulation of the precious metals metals paper market a few months ago?  I am lucky and proud to call him friend. Since that revelation of criminal activity by the banksters, the CFTC has maintained a deafening silence.  Curious isn’t it? Surely this could not be connected to the fact that its chairman, Gary Gensler, is an ex Goldman-Sachs boy? Or could his hands be tied? One thing I am sure of; if the police had such detailed information about a crime you or I had committed, we would be behind bars – that is, unless we had powerful friends in high places….

Each week, Eric King, over at King World News, has fantastic interviews with highly respected figures in the financial and economic world, with an emphasis on precious metals. If I had to choose just one source of information on precious metals investment, this site would be my pick. Eric cares passionately about the fiscal and economic disaster that is the enveloping the United States. He chooses guests who are as courageous and committed as he is – it is very clear from the interviews that they like and respect Eric, in their turn. I was speaking to Rick Rule about this when he was last in Auckland, and he told me that he had really enjoyed being interviewed by Eric.

Probably my other favorite source of precious metals information would be Ed Steer of Casey Research, together with the rest of the Casey team, including Bud Conrad and Doug Casey himself, both of whom I have also had the pleasure of meeting.

Ed Steer has recently written this personal comment on the implications of the latest COT (Commitment of Traders) report for silver….

“This new Physical Silver Trust that Sprott just announced, will certainly hasten the end of this price management scheme.  One can’t know for sure when the end will come, but when it does, it will be with a bang… not a whimper.  Stories like this make me want to run out and buy more physical silver… which is exactly what I’m going to do when I get up this morning.  And, if you have a few dollars laying around, I might suggest you do the same.

As you know, I’m ‘all in’… and that means that I have 100% of my net worth invested in the precious metals in one form or another… physical metal and the shares.  I certainly don’t suggest that you do the same dear reader, as everyone has their own particular comfort level when it comes to this sort of thing.  Besides which, I’m not an investment advisor.  I just want to survive [and hopefully prosper greatly] when all is said and done… and this is the path I’ve chosen”.

Ed writes a newsletter more or less daily and you can have it emailed to you – the service is free. Again, if you are interested in precious metals investment, I consider it to be a vital subscription.  You can get it for free here.

Next, from Harvey Organ, at his Daily Gold Blog, comes this comment on the latest COT figures…

“Notes:  there was a massive 923,430 0z of silver removed from the customer inventory in silver
again no silver was added or withdrawn from dealer inventory…
 
…In gold:

In alarming fashion no gold has entered the gold comex vaults. A measly 127 oz of gold was withdrawn.  ( I understand 100 of those oz
but have a hard time understanding the 27 oz…..the  minimum bar is 100 oz ,so it is very difficult to explain the remaining 27 oz).

Yesterday saw another 31 contracts exercised for gold metal or 3,100 oz of gold.

The total amount of gold exercised in this non-delivery month of July totals 694 contracts or 69400 oz of gold or 2.16 tonnes of gold.
 
In conclusion, we continue to see a massive exit of silver from the customer vaults.

I want to emphasize the small number of silver contracts that were served upon yesterday, ie 8 contracts.  It seems to me that word is getting around to the ultimate silver owners at the comex to vacate the mother ship.  It is also surprising that the bankers cannot get any other silver holders to lease their silver.

That will explain the massive exodus out of the comex.  A default at the silver comex looks imminent.  Silver will default first.”

 

 And lastly, we include a piece by Bill Bonner of the Daily Reckoning, as quoted by Peter Cooper (ArabianMoney.net)

Why Bill Bonner continues to hold gold

Agora Financial founder and highly respected market commentator Bill Bonner is not tempted to sell his gold, despite the worry that deflation might persuade a few investors to sell.

‘If we were speculators, we might consider selling our gold,’ he says, ‘in tune with our deflation now, inflation later forecast. But we’re not gamblers. We hold gold because it represents real wealth, not because we think it will go up in price.

Gold is money

‘We don’t really know what direction it is going. But that’s why we hold it. We don’t know what direction anything is going. The nice thing about gold is that it doesn’t matter. Gold doesn’t go anywhere. It just sits there.

‘If you buy a bond, for example, you have to worry about the credit quality of the issuer. If things get bad enough, he won’t be able to pay up. Your bond could be worthless.

‘Same for stocks. A stock is a share of a company. If the company goes out of business, your stock certificates (assuming you have them) are only good for decorations. Real estate is more reliable. But there are taxes and upkeep to pay. Gold is a better way to store wealth. You don’t pay property taxes on it. And the roof never leaks.

‘Besides, gold is especially valuable when other forms of money lose their appeal. The trend of debt destruction will probably not end soon. And the feds will probably sooner or later follow Paul Krugman’s advice to raise [the Fed's] long-term inflation target, to help convince the private sector that borrowing is a good idea and hoarding cash is a mistake.’

Investment case

Mr Bonner will no doubt reinforce this message in his keynote conference speech to his annual investment conference, which convenes in Vancouver next week with ArabianMoney also participating for the first time.

Gold is a store of wealth. You also never quite know when its price will surge. An unexpected geopolitical or natural disaster would always send the price spiralling upwards.

But then an economic catastrophe is more predictable with the scale of US debt only having grown since the financial crisis caused by, well, too much US debt.

I have written this piece while feeling very low about what is happening. I have talked to many of my friends in the US who share at least some of the sentiments above, and I want you all to know that there are those of us internationally who feel for you and want to help in any way they can. My only realistic way to help is to write – I have done so as best I can.

If you share these sentiments, please circulate this letter as widely as possible….

This is Wild Bill, signing off from GoldSurvivalGuide.co.nz

Darryl Schoon: The Real Bubble is Government Debt, Not Gold

A simple graphic and a not quite so simple chart show why it is government debt that is the bubble rather than gold itself…

THE END-GAME AND
THE ILLUSORY GOLD BUBBLE

When the end-game began, gold was $35 per ounce. Today, gold is $1200. When the end-game is over, gold will be far higher.

Midway through 2010 we are approaching the end of the end-game, the resolution of the monetary imbalances that began in 1971. For more than 2500 years, gold was money: but, in 1971 that changed. After 1971, money was no longer connected to gold. For the first time in history, money had no intrinsic value

After the Bretton Woods Agreement in 1945 until 1971, the world’s currencies were anchored to the US dollar which was convertible to gold. Thus, directly or indirectly, all currencies could be exchanged for gold; but on August 15, 1971 the US cut the ties between the US dollar and gold; and all currencies became fiat.

It was as if someone removed a pin from the axle of international commerce when the US dollar was no longer convertible to gold. Previously, the US dollar was linked to gold, and other currencies were linked to the dollar. Everything was stable. It is no longer so. Once the pin connecting gold and paper money was removed, everything changed. The axle of international commerce began to vibrate and lately it’s been getting much worse. The fear is that the wheels are now about to come off.
Page 9, How to Survive the Crisis and Prosper in the Process

THE BEGINNING OF THE END-GAME

The cutting of ties between money and gold set in motion the extreme monetary instability that was to characterize the 1970s. In 1960, the US prime rate was 5 %. At the end of the decade, the rate was 6.75 %. But when money became fiat in 1971, US rates became extremely volatile, vacillating between 4.50 % and 21.50 % during the next ten years.

In my article America at the Crossroads and the War on Gold, I pointed out the role of former Fed chairman Paul Volker in destabilizing the monetary system. Believed by most to be a “hard-money hero”, Volker was, in fact, the very opposite.

Volker, as under-secretary of the Treasury in 1971, played a critical—and largely unknown role—in the removal of gold from the international monetary system and is therefore responsible for much of the monetary chaos which has since ensued:

From 1969 to 1974 Mr. Volcker served as under-secretary of the Treasury for international monetary affairs. He played an important role in the decisions leading to the U.S. suspension of gold convertibility in 1971, which resulted in the collapse of the Bretton Woods system.
http://en.wikipedia.org/wiki/Paul_Volcker

Appointed as Chairman of the Federal Reserve by President Carter in 1979, Volker was at the helm when inflationary forces he had earlier unleashed almost destroyed the US economy in 1979-1981.

Volker’s draconian raising of interests rates in 1980 was necessary to quell the inflationary fires he had lit in 1971; and although successful, Volker’s role is not dissimilar from others who put out fires they themselves start.

THE END-GAME ACCELERATES

While it was Paul Volker who set the end-game in motion, it was Alan Greenspan, his successor at the Fed, who would greatly accelerate the process by putting US financial markets beyond the reach of government regulators.

Volker was replaced by Greenspan as Fed Chairman because Volker wouldn’t dismantle existing financial regulations as desired by the Reagan White House and Wall Street investment banks. As Nobel Prize winner Joseph Stiglitz later explained:

Paul Volcker, the previous Fed Chairman known for keeping inflation under control, was fired because the Reagan administration didn’t believe he was an adequate de-regulator.

In Alan Greenspan, Wall Street got the Fed chairman they wanted, someone who would provide them with an unending flow of central bank credit and who would turn a blind eye as to what they would do with it. Alan Greenspan was Wall Street’s wet dream come true.

During his 19 year tenure as Fed Chairman, Alan Greenspan ushered in an era of loose credit producing massive profits for Wall Street along with two of the largest bubbles in history, the US dot.com and US real estate bubbles.

Greenspan with consummate political timing resigned as Fed Chairman just before his extraordinary credit bubble collapsed. However, a third, even larger bubble which Greenspan nurtured, still has yet to burst. This is the government bond bubble, by far now the largest bubble in history

The enormous government bond bubble was “Fed” by the excessive issuance of credit made possible by the removal of gold from the monetary system, thereby allowing governments to freely borrow what they had just printed.

Once Volker controlled the fires of runaway inflation in 1980/1981, the issuance of government credit and debt exploded upwards under Greenspan’s tenured aegis at the Federal Reserve.

This soon-to-be fatal rise in US debt would not have been possible had the US dollar been tied to gold. This is why both bankers and governments who profit and live by debt oppose a return to the gold standard or any attempt to again tie their currencies to gold.

…a gold standard and a redeemable currency…enables a people to keep the government and banks in check. It prevents currency expansion from getting ever farther out of bounds until it becomes worthless…
Professor Walter E. Spahr, Chairman of the Department of Economics, NYU, 1927-1956

Banker John Exter, present when Volker cut the ties between the US dollar and gold, later commented on the consequences of Volker’s historic decision: The final link between the dollar and gold was broken. The dollar became nothing more than a fiat currency and the Fed [and especially the banks] were then free to continue monetary expansion at will. The result..was a massive explosion of debt

Today, the debt is due and owing and repayment is increasingly in doubt. Economics isn’t rocket science. It’s cause and effect and since the introduction of debt-based money, the primary cause of economic expansion has been credit.

The consequence of credit is its deadly effluvia, debt; and when the issuance of credit can no longer service or roll-over constantly compounding debt, parcus nex, economic death, otherwise known as the end game, ensues.

The enormous amount of government debt—total sovereign debt now totals $34 trillion dollars—can never be repaid. The end of the end-game will come when investors collectively realize this is so. That realization has not yet happened. When it does, for most it will be too late.

THE ILLUSORY GOLD BUBBLE

Some believe gold is a bubble. It is not. The price of gold, however, tracks a bubble and that is why it is mistaken for one.

WHICH ONE’S THE BUBBLE?
THE RULER OR THE BUBBLE?

The real bubble is government debt, not gold. Government debt is a bubble that hasn’t yet burst; one that has grown even more rapidly in the last two years as almost all nations went far deeper into debt after the 2007/2008 global collapse.

..sovereign debts grew by almost 30% in just two years. Sovereigns became the majority of worldwide debt. Several countries doubled their debts from 2007 to 2009 (BIS data)
http://www.calculatedriskblog.com/2010/07/how-large-is-outstanding-value-of.html

This recent meteoric rise in government debt has been matched by a corresponding rise in the price of gold. When government borrowing rose after 2007, the price of gold also rose, from $700 to $1200 per ounce, almost precisely tracking the rise in government debt.

…the ballooning size of the US Treasury’s debt, which hit a record $12.8-trillion last month, has been a steady linchpin supporting the historic rally in the gold market over the past decade. As a general rule of thumb, every $1- trillion of fresh debt issued by the Treasury equates with a $125 /ounce increase in the price of gold. As long as the Fed and G-20 central banks continue to peg ultra-low interest rates, - and G-20 governments continue to flood the debt markets with huge quantities of IOU’s, - it translates into monetization, and the trajectory for the gold market would stay bullish. http://www.sirchartsalot.com/

When the government debt bubble bursts—and it will—gold will not collapse as will bonds and other paper IOUs. When it happens, the collateral damage to the US dollar and fiat currencies may well be fatal and the price of gold—the only safe haven in such times—will explode upwards.

The recently revealed Bank of International Settlement 382 ton gold swap is evidence of gold’s value in such times. Hinted at by Julian D.W. Phillips in his insightful article, Gold Is Back As Money, Michael J. Kosares connected the dots in his post, BIS Swap Signifies A Threat To Europe, Not To Gold, by pointing out that the swap was probably conducted with Portugal..

Portugal, whose gold reserves equal ( or rather equaled) 382 tons, badly needs to refinance its debt and when investors no longer trust sovereign bonds, gold is far more preferable as collateral than a government’s promise to repay.

Note: In the swap, the BIS most likely used commercial banks as intermediaries in order to disguise central bank use of gold as financial collateral.

The European debt crisis marks the beginning of the end of the government debt bubble. Only a false sense of confidence is now supporting sovereign bond markets. In the spring of 2010 that confidence was shaken; and, someday, it will disappear entirely.

We live in interesting times. We are in the end-game.

Buy gold, buy silver, have faith.

Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
Blog www.posdev.net/pdn/index.php?option=com_myblog&blogger=drs&Itemid=81

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9 People We Trust in the Precious Metals World

Wild Bills Weekly Wanderings 13 July 2010

This week, we adopt a slightly different approach, and present some notes on several different topics:

• People we Trust
• Data we Love – False Interpretations we Hate
• The Paper Market vs the Physical Market

• People we Trust

Over several decades of market experience we have learned the hard way that, just as with life in general, there are people you can trust and those you should not. Trust has to be earned over time of course, and one of our aims on this site is to bring you information that we believe to be valid, largely because we have learned to trust the information source. We also try to introduce you to information sources that satisfy our criteria for accuracy and trustworthiness.

Here is a (not at all exhaustive) list of people that we have learned to trust, in no particular order. Some we have met in person, and most are known to each other. All share a distrust of government and institutional propaganda, and the rigged markets controlled by Wall Street. All understand the importance of accurate data determination and abhor false interpretations of that data. I have been trained professionally as a data analyst, and I share that interest in data and the abhorrence of the crappy announcements that often follow its release. All are also aware of the implications of the global pressures on scarce resources and the debt millstones around the necks of almost all western governments.

Chris Martenson, Jim Puplava, Ed Steer, Ted Butler, Eric King, Doug Casey, Rick Rule, Pierre Lassonde, Marc Faber.

If you really want to get behind the façade of lies that is dished up to us daily from the media as so-called financial and economic news, you could do no better than check out, as we do, the sources above. As I have already said, this list is my no means exhaustive, and we have many other sources that we trust and follow also.

From now on, we hope to feature a “trusted source of the week” and report on what that person is currently saying about precious metals, and markets in general.

This week we mention Ted Butler, whose work is known and trusted by us, and many many others in the precious metals community. Each week Eric King over at King World News carries a weekly metals wrap with Ted – which for us, is always ‘not to be missed’.

Ted is a man who chooses what he says very carefully. He is definitely not given to wild pronouncements, and always bends over backwards to give people the benefit of the doubt. So when he stated publicly recently that the activities of the big 4 short sellers of paper gold and silver constitutes a criminal enterprise, and that the CFTC was maintaining a deafening silence in the face of such activity, this was powerful stuff indeed.

We will discuss the implications of this further in an item below.
 

• Data we Love – False Interpretations we hate

Jim Quinn, over at theburningplatform.com is another who is able to look behind the crap that masquerades as financial news and tease out the details that can expose these false prophets. 

The Truth About Consumer Credit

July 10, 2010
 
The Federal Reserve reported consumer credit Thursday afternoon. The amount of consumer debt fell for the 15th time in the last 16 months. The dingbats on CNBC used their dire voices to conclude that the American consumer has taken austerity seriously, is truly cutting back on credit card spending. The MSM spouts the usual drivel about how the consumer is getting tired of being so tight fisted and will begin to spend again.

Why is it that supposedly the best financial minds on TV and Wall Street are so stupid they can’t even look at a basic chart, use a calculator and realize that the consumers have not cut one dime of spending? Are they lying on purpose or are they so clueless a 3rd grader could do better analysis?

Below is a chart showing the dramatic decrease in the change of consumer debt. Now let’s get real. Consumer debt outstanding peaked in 2008 at $2.56 trillion. One and a half years later it has PLUNGED to $2.42 trillion. Yeah the consumer sure has buckled down.

Now this is where Larry Kudlow and Maria Bartiromo would have to actually think before they opened their traps. We know that banks have been writing off credit card debt, auto loan debt and other consumer debt at a 9% rate for the last two years. Everyone get your little calculators out. This means that the outstanding balance of $2.56 trillion at the end of 2008 would have been reduced by 13.5% over the last 18 months because the banks wrote it off:

$2.56 trillion x 13.5% = $346 billion written off.
$2.561 trillion – $346 billion = $2.215 trillion

The outstanding consumer debt as you may have noticed is $2.42 trillion. Is a lightbulb going off over your head yet? The American consumer has ADDED $200 billion of debt in the last 18 months. The delusion continues. Americans have done exactly the opposite of what they should be doing. The savings rate has plunged again and consumers are whipping out their credit cards and buying cars with 13% down and financing for 6 years.

I ask you again. How can the million dollar talking heads on CNBC not do this simple 5 minute analysis before reporting falsehoods to the American public?
Revolving credit (credit card debt) is off 14.9% from the peak. Non-revolving debt (auto, furniture, and other loans) is off 1.5% from the peak. 

 Disclosure: No positions

 

• The Paper Market vs the Physical Market for Precious Metals

Ted Butler, who we featured above, often talks about the disconnect in the precious metals markets that exists between the paper and the physical markets. This disconnect holds for both monetary metals, but is particularly marked in the case of silver.

The  physical market in silver and gold is extremely tight. Investment demand is increasing steadily, as many more people around the globe are becoming increasingly concerned about the fragile and fraudulent nature of our money system. The paper market, on the other hand, is controlled by the banking cartel led by J.P. Morgan, who are able to pull their bids at specific times and force the paper price down, thus allowing them to cover their short positions and to rebuy long positions – then allowing the price to rise to a higher level, where the game starts all over again. The good news is that these forced corrections give us tremendous buying opportunities to purchase physical gold and silver at artificially low paper prices. 

It’s just like going into the supermarket and finding your favourite items on sale again and again.

Time to Board the Gold Stocks Train?

Casey Research’s Jeff Clark indicates that gold shares may well have separated from the broader US stock market.  Before we get to his thoughts, we’ve quickly plotted for an NZ comparison the largest gold stock on the New Zealand share market, Oceania Gold, versus the NZX50 index for the last 2 years.

Oceania Gold versus the NZX50 - 2 Year Chart

As we don’t have a gold stocks index it’s not a direct comparison to the US since Oceania Gold is just one company.  And especially as Oceania has made some significant improvements to it’s operations in the past year or so and so it’s share price reflects this.  However Oceania did track the broader NZ stock-market from March 2009 (when global markets bottomed and started to perform), through to the end of 2009 and since then it has out performed the NZX50 in a major way.

Interestingly this rise also was in line with when the NZ$ gold price started to rise in November 2009.

Nonetheless an interesting chart to consider and keep in mind for a New Zealander as you read Jeff Clark’s perspective on gold shares versus the broad US stock market below…

Time to Board the Gold Stocks Train?

By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report
One of the big hints that gold stocks will be ready for take-off is when they stop following the broader markets and strictly track gold, particularly if the market falls and gold stocks don’t. We now have data showing this has just occurred.

From April 2009 to April 2010, gold stocks mirrored the S&P. The two markets held hands as often as high school sweethearts; there was very little separation between them. While it wasn’t always a daily connection, any weekly and especially monthly chart showed them moving in tandem.

Until now.

For the quarterly period of April through June, gold stocks advanced 11%, tracking gold’s gain of 10.7%. The S&P, however, lost 14.1%.

We haven’t seen this level of separation between gold stocks and the general stock market since the first quarter of 2009. This demonstrates obvious strength in our sector, and is precisely the kind of action that can signal we’re getting closer to our precious metals investments starting a major leg up.

In the big picture, this data should be considered a short-term indicator. However, it’s a refreshing reminder that at some point, it won’t matter what the broader markets are doing. In the precious metals bull market of the 1970s, the Barron’s Gold Mining Index soared 652%, while the S&P gained only 22% for the entire decade. This means that if you’re bearish on the economy, you don’t have to be bearish on gold stocks.

Whether this is the beginning of permanent separation or not, the following chart tells us the stock market, in relation to gold, is going one direction.

At gold’s bottom in April 2001, the Dow/Gold ratio (DJIA divided by gold price) was 41.2. It now stands at 7.9 (as of July 2).

When gold peaked in January 1980, the Dow/Gold ratio reached “one,” meaning they were both selling for about the same price. To hit that same ratio today, gold will have to go higher and the Dow simultaneously lower. The fundamental reasons gold will rise are far from over, and a second leg down in the broader markets seems almost locked in at this point.

In this context, Doug Casey’s call for a $5,000 gold price doesn’t seem so farfetched. It also coincides with his call for a Greater Depression, an environment not exactly suited for higher stock prices. $5,000 gold = 5,000 Dow.

Where do you think they’ll meet – three? Eight?

This has obvious implications for your investments. If you’re investing for the big picture, you first want to think twice about any conventional stock investment. You might even consider a short position on one of the indices, something without a time limit, such as an inverse ETF.

Second, you should plan on higher gold prices. While pullbacks are inevitable, it does mean that even if you don’t own gold yet, it’s not too late. In fact, any excuse you have now for not buying gold will seem shallow and meaningless when the dollar begins cratering and so does your standard of living.

Third, don’t shy away from gold stocks. Yes, they’re still stocks and thus vulnerable, and we’re not sure the separation is here to stay, but selling your core holdings would be, in my opinion, a mistake. One of these days gold stocks won’t wait around for you to jump back in. And you could find yourself chasing them, a tactical error for the investor looking to maximize profit from what we believe will be a once-in-a-generation bull market.

In fact, if you had followed only this strategy since the precious metals bull market began in April 2001, you’d be up 375% in your gold holdings and up 707% in your gold stocks. An investment in the S&P, meanwhile, would’ve returned you exactly zero.

It’s our opinion this trend will continue. Gold stocks could very well get cheaper in the short term, handing us an excellent buying opportunity. But in the big picture, they’re destined for much higher levels.

My advice is to make sure you’re on the right side of this trend.

—-
What’s a good price on gold, silver, and precious metals stocks? We’ve charted every summer pullback in prices since the bull market began in 2001, giving us target zones for every asset in our portfolio. Our Summer Buying Guide is an invaluable resource for identifying a good bargain in our industry. And you can access it right now, for $39 per year, with a risk-free 3-month trial. Click here for more.

Silver Price Charts: What Can They Tell Us?

An NZ Video Guide to Investing in Silver: Part 2

Here’s the second video in our new ”Gold and Silver Videos”  category.  The first video An NZ Video Guide to Investing in Silver covered a range of topics on silver investment.

In this video “Wild Bill” (who also writes our “Weekly Wanderings” column every week) returns and hones in on silver’s price performance with a discussion of US and NZ silver price charts, including:

• Silver’s performance over the past 10 years in US dollars
• Charts of Silver in NZ dollars versus Silver in US dollars
• A look at silver’s performance versus gold
• Taking the historical price movements into account, how best to purchase silver
• The gold/silver ratio and how to use this measure as a trading strategy

Please post a comment below and let us know what other topics you’d like to hear more about in future videos…