Archive for the ‘Gold Prices’ Category
Interview with Jim Rickards on ITM Trading Website
In this 11 minute interview with Jim Rickards, Senior Managing Director for Market Intelligence at Omnis, Inc. and President of ITM Trading Inc a precious metals dealer in Arizona, Mr. Rickards reveals how he comes up with his prediction of gold pricing reaching as high $11,000 per ounce.
Mr. Rickards answers the first question by saying that he prefers a strong dollar with gold backing but to him it is clear that the government is going in the opposite direction by cheapening the value of the dollar through money printing. Therefore it makes sense to look for alternatives to the dollar, but when you begin to look around for an alternative nothing looks good except for gold. Would you want Euros or other fiat currencies? With everything that is going on in the world economic picture I think not.
When you look at supply and demand fundamentals on gold and then look at gold from the perspective of macroeconomic view, gold becomes the only real option, thus Mr. Rickards believes at one point gold will become the only acceptable form of money.
When people say to Mr. Rickards that there isn’t enough gold in US to back the dollar, he simply states that it is not a function of supply, but at what price. If gold was set at $1,200 per ounce that would create deflation, so you have to come up with a price that creates balance.
Mr. Rickards says that he believes gold will go to $3,000 to $7,000 per ounce using his calculations. He says “it is a simple 8th grade math equation” using the amount of gold in the US hoard and the amount of money in the system and you can come up with the price. He did note that the current range represents today’s money supply, further stimulus (money printing) will increase the gold price range. The reason for the range is this: it depends on which money supply figure that you use (M0, M1, M3). Mr. Rickards says that if you include the global gold and money supplies that the figure can get as high as $11,000 per ounce.
Jim Rickards is a very well respected economist/analyst who appears on CNBC on a regular basis. I highly recommend that you watch this interview at www.itmtrading.com, you will find it in the right-hand navigation panel.
Gold Price Correction
Gold is down for the second day in a row. As of this writing the gold spot price on the Comex is $1,181.10. That is down from an all-time intra-day high of $1,265 posted a month ago. Gold is trading in a range of $1,185 to $1,250. The price action has been pretty volatile inside of this range, closing up one day and down the next. This is typical action in any bull market, but is characteristic of a second phase. Traders are capitalizing on profits before the next big move in gold.
The price of gold has fallen for four straight weeks, over concerns of deflation. The CPI has declined for three consecutive months and has not dropped four months in a row since the Great Depression. Look for Unemployment to increase, retail sales to remain weak and consumer confidence to wane further. These factors have contributed to temporary deflation giving many gold traders an excuse to liquidate gold investments tied to the gold price.
With the entire stimulus the US government has put into the system, these deflationary pressures will begin to turn into extreme inflationary pressures. This is the main reason why many experts believe that the gold price has a long way to go before reaching an ultimate record price, before suffering a major correction. Some experts are calling for $7,000 to $15,000 gold prices before it’s all over.
July and August are typically softer months for gold followed by a rise in prices during the fourth quarter, signaling a good time to buy in. This has been true in eight out of the last nine years. Further analysis of the gold market is showing that right now is a great time to buy rare gold coins. Prices are down across many areas of the asset class and are creating great opportunity and extreme values. In fact some coins are estimated to be undervalued as much as $1,400 per coin. These prices are down from December when gold broke the $1,200 mark. Values are best in the MS63 & 64 $20 Liberties.
Does the Gold Price affect the Value of Rare Coins?
The spot price of gold that is reported everyday on the Comex does affect the value of rare gold coins-because they are made of gold. But each coin is affected differently depending on its rarity and quality. Generally speaking, the lower the quality or lower the rarity of a particular coin, the closer it will be to the spot price of gold. Vice versa the higher the quality or rarer the particular coin the further away it will be from the spot price.
Rare coins are graded on a scale from 1-70. This is called the Sheldon scale (quality scale). Each level in grade represents a higher level of quality. Investors and collectors alike generally try to achieve high levels of quality for their purchases. If a coin is a low grade and is a common issue its value will be more affected by the price of gold rising and falling. If a coin is a high grade and is a rarer issue its value will be less affected by the price of gold. There are many combinations of quality and rarity, so you can see there are many variables in how the value of a coin can be affected by the spot price of gold.
The most valuable US rare gold coin is the 1933 $20 Saint Gaudens. It sold for over $7.5 million in 2002. This gold coin contains one ounce of gold, and at the time of its sale at auction the value of the gold content was around $400. This specimen at the time was thought to be the only 1933 $20 Saint Gaudens in existence, thus it was extremely rare. Because of this coins rarity, the value of the gold content is negligible. On the other hand a very fine graded 1924P $20 Saint Gaudens with a population in the tens of thousands, sells for around $1,600 which is only a few hundred dollars more than an American Eagle gold bullion coin. You can see that the value of its gold content dominates the value of this coin.
Typically, individuals looking for a combination of growth and affordably look to acquire coins in the mint state range with rarity numbers between 1,000 and 15,000 specimens known to exist in a particular grade. Again, quality levels mixed with rarity will determine value, as well as how fluctuations in the spot price of gold will affect a coins value. To understand more on how this works speak with a reputable dealer.
Gold Bubble?
I found this chart produced by Casey Research.com and I couldn’t stop looking at it. It is by far the most convincing chart I have seen in regards to showing that gold is not in a bubble. The chart compares previous familiar bull markets in the Nasdaq and gold in the 1970’s. Take a look and decide for yourself.
It looks like we are heading for extreme upward action in the not to distant future. Gold has only increased 400% in this bull market thus far, whereas in the last gold bull market gold increased from $35 per ounce to $850 per ounce, which is an increase of over 2,300%. Looking at this chart and the figures we are a long way out before we can use the term bubble.
Look at mentalities at the end of a bull market. Everyone is trumpeting the investment. There are a lot of naysayers for gold in the media today. When the third and final phase hits, everyone will want in. It is nearly impossible for anyone to resist the panic phase of a bull market, and thus the reason why prices rise rapidly. Most of these naysayers do not own gold, but one day they will. But I would rather be in now before the price skyrockets.
Look at what foreign central banks around the world are doing. The World Gold Council (WGC) reported that Russia, Venezuela, the Philippines, and Kazakhstan all bought gold in the first quarter; and China which is the largest gold producer in the world buys every ounce they produce. This shows us that those in the know want gold as a protection against fiat paper.
Gold can definitely correct in the near-term and hopefully it does because it will be another buying opportunity. Jeff Clark editor at Casey Research said “Stocks are vulnerable, bonds are toast, currencies are fiat. Other than cash, where are you going to put money right now?” Gold and silver in my opinion are the only option.
Central Banks Join the Gold Rush
In an article dated June 18, 2010 on CNNMoney.com, central banks around the world have been buying into the gold rush as fears of Europe’s debt crisis mount in conjunction with a slow worldwide economic recovery. All of this fresh buying has pushed gold to new record highs. Gold closed at a new record high yesterday at $1,248.70 and so far today has reached a new intraday high of $1,263.50.
For the first time since 1997 foreign central banks are net buyers of gold. Prior to last year they were all pretty much net sellers with the exception of China who has increased its gold reserves 76% since 2003. Most central banks like to diversify their holdings in order to decrease risk, but with the US dollar and the euro under extreme pressure due to money printing, central banks are turning to gold as a hedge against paper currencies. Because unlike fiat paper currencies, gold has an intrinsic value that cannot be manipulated by any governments’ economic policies.
The countries that are buying the most gold are Russia (26.6 tonnes 2010), Kazakhstan (3.1 tonnes 2010), Philippines (9.6 tonnes 2010), India (200 tonnes last year) and China (454 tonnes last 7 years).
Look for the trend to continue as sovereign debt crisis continue to mount. As the gold prices continue to rise rare gold coins will benefit as they tend to lag behind spot gold in their price action (this is not always the case but has been lately). As spot gold rises in value it signals the general public to buy, and most buyers of rare gold coins are private individuals not large institutions. The supply of rare coins in the market is limited by the fact that there are only so many of them in existence. Therefore relatively small changes in demand can have big effect on value. The more new private buyers that enter into the market for rare coins the faster the prices rise. This simple set of circumstances explains why rare gold coins tend to out perform gold bullion in the long-term.
US Inflation Effect on Gold Prices
The simple definition of inflation is the printing of money. Those in the media, government and Federal Reserve would like us to believe that inflation is the rising of prices. Typically you will hear this described as “price inflation” rather than “monetary inflation” which more accurately describes what is really going on. According to the government, at this point inflation is not an issue. This is because the CPI does not include food, energy, and healthcare and makes exceptions for advances in technology; therefore the CPI is always grossly understated.
Why we haven’t seen significant “price inflation” yet is due to the fact that money is not being lent out. Banks have around $1 trillion in reserves held with the Federal Reserve. Credit has gotten much tighter, unemployment has increased and overall credit worthiness has declined. These set of circumstances has kept money on the sidelines of the economy. When this money floods the system we will most certainly see price inflation.
As far as monetary inflation is concerned we have seen an enormous amount of this here is the US. The M3 money supply has increased more than 10 fold since the 70’s and I have heard figures that the Fed has printed 2.5 times the money supply in the last 18 months with no signs of stopping. The Bush administration was running a deficit of about $1.7 billion per day, whereas the Obama administration is running about $4.5 billion a day. It took 204 years to create the first $1 trillion; we will create the next $1 trillion within the first seven months of 2010. This is a staggering amount of monetary inflation.
How does all of this affect gold prices? Gold is a hedge against inflation. In dollar terms gold has consistently proven to hold up to inflation. For example, 100 years ago an ounce of gold could buy a nice men’s suit, today an ounce of gold will still buy a nice men’s suit. So as price inflation heats up expect more people to jump on the gold band wagon. This demand will create higher and higher highs in the price of gold.
Jim Rickards said, “It is the case that real debt cannot be repaid through any feasible combination of growth and taxes.” Therefore the only option is to continue to print money which will lead to inflation, then hyperinflation and then collapse of the dollar. Gold will do progressively better in each one of these circumstances. So look for the rising gold trend to continue if for no other reason than the government is printing money at an alarming rate.
1794 Silver Dollar Sets New Record Price in Private Sale
A 1794 Silver Dollar graded PCGS SP66 just sold for $7.85 million, a new world record! This coin is believed to be the first silver dollar ever minted by the United States, and is the finest-known 1974 dollar specimen in existence. The coin was sold to the nonprofit Cardinal Collection Educational Foundation (CCEF) in Sunnyvale, California. The previous record was set in 2002 when a 1933 $20 Saint Gaudens sold for $7.59 million.
James Turk sees Gold at $8,000 by 2015
At the 2010 World Mining Investment Conference in London, James Turk opened his keynote by reaffirming his previous prediction that gold will reach $8,000 per ounce by 2015. He bases his predictions on past performance. When asked about where he thought gold would be by the end of this year he responded with $1,800 to $2,000 per ounce.
While his predictions are based on past performance the kicker is that he believes this price increase will be due to the debasement of the monetary system. Rather than an increase in wealth it will be gold keeping pace with inflation as the dollar continues to be printed and the debt continues to grow. He believes that physical gold and silver are the only real money and one true way to preserve wealth in this environment.
James Turk has one thing right for sure and that is gold and silver are the only true money. All currencies world wide have no intrinsic value. Gold and silver have no debt attached to it and are free from liens or encumbrances. Whether or not his predictions on the price will come true, well we will have to wait and see. Turk tends to be one of the more aggressive forecasters on gold prices.
What is the most concerning about his predictions is that the rise in the value of gold will be due to hyper inflationary conditions. That means that our wealth will not increase due to the rising value of gold (for those that own it) but only be maintained. All dollar denominated assets and fixed income products will lose value dramatically. So the message here is buy gold and silver in order to preserve what you have spent years building.
Why Gold Prices are Not in a Bubble
As the price heats up on gold and breaks records in nominal terms more people become fearful that gold is in a bubble. These concerns are justified as people do not want to buy in at a top. Many people lost a lost of money in the dot com bubble of 1999-2000 and the real estate bubble of 2004-2006. People do not want to get caught in a bubble again. To understand that we are not at the top of the gold market yet, one must only look at the trends.
Gold has been in a 10 year bull market, starting in 1999 with a low price of $252.20. Since then the price of gold has been steadily rising building a solid foundation all along the way. Just because we have seen gold recently break a record price in nominal terms (adjusted for inflation the real all-time high is around $2,300) does not indicate a top is being formed. Typically tops come when prices rise dramatically over a short-period of time with no corrections or foundation being built along the way. If you take a look at the gold chart below you will notice many ups and downs, but if you draw a line from beginning to end the trend is steadily rising. There haven’t been any dramatic gold price run ups without a slight correction behind it.
Typically a bull market will experience three phases. The first phase is the accumulation phase where the asset will go up slowly without too much attention being paid to it. On the chart below this represents 2000 to the middle of 2005. The second phase, where we are now, is the awareness phase. In this phase prices will rise a little more dramatically than the first phase due to increased attention being paid to the asset by Wall Street and the general public. Notice that everyday gold receives more coverage on air. More commercials to buy and sell gold pop up weekly and new companies are formed to meet demand.
The third and final phase, which is probably a few years away, is the panic or speculation phase. This is where the price will rise very fast without any significant corrections. This is where bubbles are formed. This is where you want to sell. Most people make the mistake of buying too late in the third phase. In the third phase everyone will be bullish on gold. All of your friends, neighbors, waiters etc will want in. When exactly this phase will play out, in my opinion will be determined by what goes on in the economy. If governments around the world continue to print money to bail us out, gold could do well for a long time to come.
Gold down big this Morning
Gold is down nearly $31 per ounce this morning and silver is down around $.91 as I am writing this. This correction in gold came right after Germany said they would no longer tolerate naked short selling in Euro denominated assets like bonds and bank shares. This proclamation from Germany has set stocks and commodities in a sell-off. Gold initially rallied after the news but so many investors had to cover trading losses and margin calls that gold bullion soon succumbed to selling pressure.
This is a healthy trend in the market. Those of us that are invested in the gold market want to see gold prices rise and fall. If gold prices shoot up dramatically they will fall dramatically as there would be no support underneath the price action. We want to see healthy support and resistance levels being built as the upward trend continues. The nine year trend is up and we are in uncharted waters in terms of price action above $1,240 an ounce. So look for the price to be somewhat volatile. Support is probably somewhere between $1,180 and $1,200, and resistance is probably somewhere between $1,230 and $1,240.
Eric King of King World News had it right when he said this on his site on Monday, “Stop looking at the daily fluctuations in the price of gold; they are completely meaningless. Keep your eye on the big picture, and that is the secular structure of this bull market in gold. Do not give up your core position in gold. Learn to look at significant corrections in the gold market as opportunities to accumulate.”
Simply put, gold is up 9 years in a row; therefore look for corrections as opportunities to accumulate more gold and silver. The great thing about numismatic/rare gold coins is they tend to lag behind bullion in terms of price action. Gold is down $31 per ounce but numismatic gold has not moved even $1. If the downward trend continues there will ultimately be a correction in numismatics as well, but the rarer the issue the less likely short-term corrections in gold prices will affect them. Rare gold coins do not fluctuate nearly as often as gold bullion, therefore they tend to be somewhat more stable.
When looking for opportunities look at the fact that bullion is at an all-time high, but rare gold coins have not even come close to the levels they experienced in 1989 (their last major bull market).