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Posts Tagged ‘We Buy Gold’

By Doug Casey
Chairman, Casey Research
Monday, April 18, 2011

A meme is now circulating that gold is in a bubble and that it’s time for the wise investor to sell. To me, that’s a ridiculous notion. Certainly a premature one.

As you listen to the current blather from talking heads about where gold is going, keep in mind most of them are just journalists, reporters that are parroting what they heard someone else say. And the “someone else” is usually a political apologist who works for a government. Or a hack economist who works for a bank, the IMF, or a similar institution with an interest in the status quo of the last few generations.

You should treat almost everything you hear about finance or economics in the popular media as no more than entertainment.

So let’s take some recent statements, assertions, and opinions that have been promulgated in the media and analyze them. Many impress me as completely uninformed, even stupid. But since they’re floating around in the infosphere, I suppose they need to be addressed.

“Gold is expensive.”

This objection is worth considering – for any asset. In fact, it’s critical. We can determine the price of almost anything fairly easily today, but figuring out its value is as hard as it’s ever been. From the founding of the U.S. until 1933, the dollar was defined as 1/20th of an ounce of gold. From 1933 it was redefined as 1/35th of an ounce. After the 1971 dollar devaluation, the official price of the metal was raised to $42.22 – but that official number is meaningless, since nobody buys or sells the metal at that price.

(More importantly, people have gotten into the habit of giving the price of gold in dollars, rather than the value of the dollar in gold. But that’s another subject.)

Here’s the crux of the argument. Before the creation of the Federal Reserve in 1913, a $20 bill was just a receipt for the deposit of one ounce of gold with the Treasury. The U.S. official money supply equated more or less with the amount of gold.

Now, however, dollars are being created by the trillion, and nobody really knows how many more of them are going to be shazammed into existence. It is hard to determine the value of anything when the inch marks on your yardstick keep drifting closer and closer together.

“Gold is risky.”

Risk is largely a function of price. And as a general rule, the higher the price, the higher the risk, simply because the supply is likely to go up and the demand to go down – leading to a lower price. So yes, gold is riskier now, at $1,400, than it was at $700 or at $200. But even when it was at $35, there was a well-known financial commentator named Eliot Janeway (I always thought he was a fool and a blowhard) who was crowing that if the U.S. government didn’t support it at $35, it would fall to $8.

In any event, risk is relative. Stocks are very risky today. Bonds are ultra risky. Real estate is in an ongoing bear market. And the dollar is on its way to reaching its intrinsic value.

Yes, gold is risky at $1,400. But it is actually less risky than most alternatives.

“High gold prices will bring on huge new production, which will depress its price.”

This assertion shows a complete misunderstanding of the nature of the gold market. Gold production is now about 82.6 million ounces per year and has been trending slightly down for the last decade. That’s partly because at high prices, miners tend to mine lower-grade ore. And partly because the world has been extensively explored, and most large, high-grade, easily exploited resources have already been put into production.

But new production is trivial relative to the 6 billion ounces now above ground, which only increases by about 1.3% annually. Gold isn’t consumed like wheat or even copper. Its supply keeps slowly rising, like wealth in general. What really controls gold’s price is the desire of people to hold it, or hold other things – new production is a trivial influence.

That’s not to say things can’t change. The asteroids have lots of heavy metals, including gold. Space exploration will make them available. Gigantic amounts of gold are dissolved in seawater and will perhaps someday be economically recoverable with biotech. It’s now possible to transmute metals, fulfilling the alchemists’ dream. Perhaps someday this will be economic for gold. And nanotech may soon allow ultra-low-grade deposits of gold (and every other element) to be recovered profitably. But these things need not concern us as practical matters in the course of this bull market.

“Gold sentiment is at an all-time high.”

Although gold prices are at an all-time high in nominal terms, they are still nowhere near their highs in real terms – of about $2,500 (depending on how much credibility you give the government’s CPI numbers) – reached in 1980. Gold sentiment is still quite subdued among the public. Most of them barely know it even exists.

Some journalists like to point out that since there are a few (five, perhaps) gold dispensing machines in the world, including one in the U.S., there’s a gold mania afoot. That’s ridiculous, although it shows a slowly awakening interest among people with assets.

Journalists also point to the numerous ads on late-night TV offering to buy old gold jewelry (generally at around a 50% discount from its metal value) as a sign of a gold bubble. But this is even more ridiculous, since the ads are inducing the unsophisticated, cash-strapped booboisie to sell the metal, not buy it.

You’ll know sentiment is at a high when major brokerage firms are hyping newly minted gold products, and Slime Magazine (if it still exists) has a cover showing a golden bull tearing apart the New York Stock Exchange. We’re a long way from that point.

***

These are some of the more egregious arguments against gold that are being brought forward today. Most of them are propounded by knaves, fools, or the uninformed.

The bottom line is that gold and its friends are no longer cheap, but they have a long way – in both time and price – to run. Until they’re done, I suggest you be right and sit tight.

Good investing,

Doug Casey

Editor’s note: Doug Casey, chairman of Casey Research, is a best – selling author, international investor, and entrepreneur. He travels the world looking for the best real estate and natural resource investments. His work is required reading here at DailyWealth.

Each month, Doug and his team provide subscribers of The Casey Report with the kind of investment analysis you won’t read anywhere else in the world. We think one good rant from Doug is worth twice the subscription price. Click here to learn more about The Casey Report.

Published March 04, 2011
FoxNews.com

Utah took its first step Friday toward bringing back the gold standard when the state House passed a bill that would recognize gold and silver coins issued by the federal government as legal currency.

The House voted 47-26 in favor of the legislation that would also exempt the sale of gold from the state capital gains tax and calls for a committee to study alternative currencies for the state.

The legislation now heads to the state Senate, where a vote is expected next week.

Under the bill, the coins would not replace the current paper currency but would be used and accepted voluntarily as an alternative.

If the bill passes, Utah would become the first of 13 states that have proposed similar measures. The others states are Colorado, Georgia, Montana, Missouri, Indiana, Iowa, New Hampshire, Oklahoma, South Carolina, Tennessee, Vermont and Washington.

Backers of Utah’s bill say they want to send a message to the rest of the country.

“People sense that in the era of quantitative easing and zero interest rates, something has gone haywire with our monetary policy,” said Jeffrey Bell, policy director for the Washington-based American Principles in Action, which helped shape the bill.

“If one state recognizes gold as a valid currency, I think it would embolden people not just in other states but in Washington,” he said.

The U.S. used the gold standard from 1873 until 1933, when President Franklin D. Roosevelt outlawed the private ownership of gold amid the Great Depression. President Richard Nixon abandoned the gold standard altogether when he announced in 1971 that the U.S. would no longer convert dollars to gold at a fixed value.

Critics of the gold standard say it limits countries’ control over its monetary policy and leaves them vulnerable to financial shocks, such as the Great Depression. But supporters argue that the current financial system’s dependence on the Federal Reserve exposes the value of U.S. money to the risk of runaway inflation.

Read the entire article HERE.

By Diane C. Lade, Sun Sentinel
5:18 p.m. CST, December 17, 2010

What’s being billed as the first gold-dispensing ATM in the nation opened for business Friday at the Town Center in Boca Raton, spitting out an after-dinner-mint-sized gold bullion into the palm of its first customer.

The “Gold to go” gold bullion vending machine, developed by the German company Ex Oriente Lux AG, was brought to the states by PMX Gold LLC, a South Florida business that buys and sells lease purchase options on gold mines. Twenty “Gold to go” ATMs already are operating in malls, hotels and airports in Europe and the United Arab Emirates.

The first one installed, at the luxury Emirates Palace Hotel in Abu Dhabi, is so popular that its inventory needs to be replenished daily, said Ex Oriente managing director Thomas Geissler. He thinks the concept will be equally successful in upscale U.S. communities like Boca. “Americans like vending machines,” he said.

Ex Oriente will be unveiling another ATM, with a different operating partner, in Las Vegas by the end of the month. PMX president and CEO Michael C. Hiler said he’s talking with Simon Property Group, Town Center’s owner, about staking a claim in some of its other malls.

The shiny gold-colored metal vending box, slightly smaller than a phone booth, is in the middle of the mall concourse leading to the food court. Buyers can chose from four weights of 0.999 Pure Credit Suisse gold bullion bars and two weights of U.S. minted American Eagle gold coins.

Prices on Friday ranged from $122 to about $1,400; the machine updates them every 10 minutes to keep current with gold rates. The ATM takes only U.S. dollars but will later be equipped to take credit cards, said PMX president and CEO Michael C. Hiler.

The vendors make between 4 percent and 15 percent commission, depending on the item’s weight, which is built into the price. Hiler said the ATMs in Europe each take in about 250,000 to 300,000 Euros monthly in sales, or $331,500 to $397,800 U.S. dollars.

Gold to go hopes to cash in on two emerging trends: recession-stunned Americans’ growing fascination with gold, and the increased sophistication of vending machines. “Cash for gold” storefronts have mushroomed over the past year, as precious metal prices reach record highs.

At the same time, vending kiosks — selling everything from designer purses, brand-name beauty products, DVD rentals and electronics — have sprung up at airports, grocery stores and malls. Industry analysts say the market for these high-tech machines is growing, as retailers see them as a way to reach shoppers without paying store rents or employees.

The gold coins and wafers dispensed by the ATMs look more like gifts than a hedge against inflation, popping out of the machine packaged in an elegant black box with gold lettering. Each tiny bar or coin comes with a certificate number and a money-back guarantee if it’s returned to PMX within 10 days, plus or minus any changes in the market rate.

Geissler said “Gold to go” customers pick a vending machine over a traditional bank because it’s quicker and in a relaxing, yet secure, environment. Tourists and shoppers looking for an unusual gift are among the machine’s biggest fans.

Read the entire article HERE.