Posts Tagged ‘invest in gold’
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.
Everything You Need to Know about Gold in Three Sentences
Richard Russell, a prominent financial writer, on July 8th wrote this:
“Fed Chief Bernanke will absolutely not accept deflation… Shrewd gold-accumulators are well aware of this. As the deflationary and deleveraging forces press on the US economy, the Bernanke Fed is ready to devalue the US dollar in its (whatever it takes) battle to hold back deflation.”
Russell sums it up in three sentences:
1. The Fed will not tolerate the growing forces of deflation
2. To combat the deflationary forces, the Fed will devalue the dollar by printing trillions more of Federal fiat money.
3. Once it is realized that the Fed is on the path to devalue the dollar, there will be panic to buy and own gold.
The key to what he has said is “once it is realized that the Fed is on the path to devalue the dollar.” Most of the general public does not realize that this is going on with intention. They don’t realize that every time the Fed prints dollars it devalues all dollars in the system through monetary inflation. It only takes 4% inflation for 17 years to cut the value of the dollar in half! When the general public realizes that the Fed won’t stop printing there will be a mass exodus into gold and the prices will go through the roof; simple supply and demand.
It should be obvious that the Fed hates deflation; they have been inflating the dollar since their inception in 1913. They do this by printing money. This process has been accelerated by the removal of the gold standard in 1971. The Fed can now print money without limitation, thus the reason the monetary supply has increased 2.5 times in 18 months. The deficits are increasing by an average of $4.7 billion per day. But people have become accustom to the inflation tax, so it is just normal.
The new pace with which the Fed is printing money will have massive inflation implications in the long-run and it will be impossible for people to ignore. Own gold now before everyone does. By the time everyone wants in there won’t be enough physical gold for everyone to own in order to protect what they have.
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.
After Hyperinflation comes Gold
Zimbabwe is the latest example in history of what happens when a government and its leaders print money unchecked. For years President Robert Mugabe printed money to pay off debts and government employees, to the extent that the inflation rate at one point was over one million percent annually. But recently it looks as though Zimbabwe is in recovery even as their currency was declared dead as recently as April of 2009.
Zimbabwe was deep in debt and was unable to afford its interest payments. When any country reaches this point it can either go bankrupt or devalue the currency through inflation. Zimbabwe chose the later. As a result the currency collapsed and the country is now debt free. That is right, debt free. However not without consequence, hyperinflation wiped out the savings of all of its citizens, putting 80% of the people of Zimbabwe in abject poverty.
Forced to start over the people needed something to trade with. They chose gold and US dollars. Gold is trusted because it can not be manipulated by government and for now the US dollar is still the world’s reserve currency. So with this quasi gold standard the shelves are stocked again and government controls have gone by the way side and the country is rebuilding. Check out some of the BBC videos on youtube.com covering the panning and digging for grains gold by the Zimbabwe people to buy food.
Unfortunately the United States is on a similar path. We are also printing money to cover deficits at a faster pace than this country has ever seen. There are common denominators in all hyperinflations. There will come a point when these deficits cannot be paid through any combination of taxes, growth or government borrowing. Ultimately the government will need to make a choice, 1) cut government expenditures to the point that the budget is balanced, or the easier choice that is currently being used 2) fund the deficit by printing US dollars. Most politicians will ultimately choose this route as it is the path of least resistance. Unfortunately this leads to inflation and the erosion of savings.
If left unchecked inflation can lead to hyperinflation and in that case you will want to own gold. Owning tangible assets are the only items that can put you in the 20% of the people that are thriving.
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.
Richard Russell Says Get Out of Stocks and Buy Gold
Richard Russell has been writing the Dow Theory Letters and daily market commentary for 52 years. He is well respected around the world for his knowledge of the markets. He uses technical analysis to forecast action in the stock market. He recently wrote this to his subscribers:
“Yes, everybody is searching for the ultimate safe haven. I pick gold. The ironic problem with gold is that it is quoted every minute against currencies. If you have a safe haven item like a Picasso, do you quote its “Possible” price every hour? No, you relax knowing that it will always represent wealth. The same can be said of a great diamond. But because it is quoted hourly, investors worry about gold. I’ve said, and I’ll repeat it, figure your gold in number of ounces, not dollar value. When the dollar is history, gold will still be here, and it will still be an eternal item representing WEALTH.”
This is such a great statement. Gold has always held its value. People get nervous with the day-to-day price action in the market, but gold needs to be thought of in terms of the big picture. If you are a day trader then you need to be concerned with the day-to-day, but a typical investor needs to use gold as a safe haven first and foremost, and a safe haven is a long-term investment.
Rare gold coins are even more so a long-term acquisition. Rare gold coins/numismatics do not typically fluctuate every day, therefore they are less volatile in their price action. They tend to lag behind bullion in terms of timing. If the price of gold rises dramatically, rare gold coins typically take a few days to respond. It should be noted that the more common a coin, the more it will fluctuate with the spot price of gold. The rarer issues will not be affected as much by the spot price of gold’s rising and falling.
Rare gold coins, are like a Picasso, “you can relax knowing that it will always represent wealth.” So stop watching the day-to-day action and relax with the peace of mind that you own something that will always represent wealth.
Gold Breaks old record close of $1,218.30
On December 3, 2009 gold set a new record close of $1,218.30. Since then gold came down to the $1,050 range then ran all the way back up to break the record on May 11th, 2010. Gold’s last price that day was $1,227.40. Since then gold has hovered around that price never going higher than $1,240 and not lower than $1,225.
We are now in uncharted territory. There is no resistance on the top of gold so technically speaking we don’t really know how high it will go from here. Some experts are calling for $2,000 per ounce by the end of this year. Some more conservative estimates are between $1,300 and $1,500.
There are a few factors that are playing a role in gold breaking records. These are timing in the bull market, inflation and supply and demand.
We are only in the second phase of a three phase bull market so look to see higher and higher highs. New records will continue to come. However to compare the current record price to the $850 per ounce high in January of 1980, one must adjust for inflation. If we do that gold would need to break $2,300 per ounce to really be considered a new all-time high.
The dollar has lost much of its purchasing power since 1980 and look for that trend to continue. Some say that it is planned because it is the only way that our country can afford its debts. It only takes 4% inflation for 17 years to cut the debt (and the dollars value) in half. We all know that 4% inflation is pretty easy to achieve. As inflation picks up expect to see gold follow.
Only a small percentage of Americans own gold. As fears continue to mount amongst concern for the dollar and other fiat currencies, more and more Americans will acquire gold. This new demand will also contribute to higher gold prices.
Gold will be much higher than it is today before this bull cycle is over. Rob McEwen of U.S. Gold believes gold will hit $5,000 per ounce sometime between 2012 and 2015, and he is known for his timely predictions.
Almost 1,000 point drop in Dow on Thursday called a mistake
Lincoln once said, “You can fool all of the people some of the time, and some of the people all of the time, but you can’t fool all of the people all of the time.”
Shame on the press for knowing better and still printing stories about the supposed trading error that set off the largest inter-day drop in the history of the NYSE.
Someone I work with was an institutional trader years ago before the highly evolved computer systems that Wall Street has now and he said, this size “mistake” would have been nipped in the bud back then. Let me explain:
1. At the point of order entry the brokerage firm has software that checks an order for completeness and that the trade matches the positions in the account. If it doesn’t, then the order is held till the order is corrected. (i.e. wrong stock, wrong number of shares, wrong price etc.) Believe me selling a BILLION of anything would raise a red flag before the order went out to the exchange.
2. Stock transactions are entered in shares not dollar amounts. Bonds are done by dollar amount NOT STOCKS! You don’t order to sell $10,000 worth of Proctor and Gamble. You check the current stock price and figure how many shares you need to sell and round up or down. Provided the computer checks your account and you have enough shares to sell, see 1. above.
($32 stock price … sell 310 shares = $9020 sell 320 shares = $10,240, this isn’t rocket science)
3. Even if the order did somehow get the exchange, a $1 BILLION dollar order would be questioned. The entire New York Stock Exchange only trades 2-3 billions shares in a day. Nobody at the NYSE is that asleep at the wheel to not notice that order. A billion is a thousand million.
McDonald’s, 6 burgers please, … 6 burgers please, …6000 burgers please… I rest my case!
4. The “market maker” is an individual on the floor of the exchange that is responsible to maintain a fair, organized, equitable and balanced market in the stock, “PG”, that they manage. He is there to help match trades and maintain the “book” of orders on a particular stock. Balancing buyers and sellers and preventing runs up or down. Giving the market stability. He knows the stock and how it trades and who trades it. He would catch the order when it was presented.
5. For decades the SEC and the NASD have used a software program that monitors all transactions on all listed exchanges. “Stock Watch” is designed to look for unusual trading activity in individual stocks, sectors, options you name it. If all of a sudden orders go off the charts one way or the other on a stock, their computers give them an alert. They will investigate the alert and contact the orders source and grill someone as to who, what, where, when and WHY!!!!! An order of that magnitude would have someone on the phone in a heartbeat.
The only reason that the press hinted at a mechanical Wall Street breakdown is to placate the already cynical disenchanted public, trying to pacify the masses that the market is safe and stable. Nothing could be farther from the truth. Own gold!
Fundamentals on Gold Remain Strong
The basic fundamentals that move the price of gold are supply and demand and dollar fluctuations. The price action on a daily basis can be measured in terms of predominant buying and selling of gold, and strengthening or weakening of the dollar.
Even though we are off of our most recent record gold price of $1,218 in December of 2009, the fundamentals for gold remain strong. Gold is one of the scarcest resources in the world. Mining output has increased as the bull market has raged on but demand has still outpaced the new supply increases. This has come from new investors and NGO’s (non-governmental organizations). In addition, foreign central banks have become net buyers of gold as of late, whereas before they had been net sellers for many years.
The World Gold Council said that “investor flows, specifically from western markets, have provided a key means of support during the course of the credit crisis as investors sought to diversify their exposures to other assets and protect their wealth against market shocks.” It is simple, demand is outpacing supply, and therefore the price of gold is rising, and has been for the past 9 years. The fundamental demand for gold continues to grow.
On the dollar side of the equation we continue to see the central banks around the world print money at will. This helps gold in two ways. The first way it affects gold is the more money that is printed the more fear it produces in citizens of that respective country. People become fearful of inflation or a collapse and want to divulge themselves of their currency. The more fear that exists the more demand there will be for gold. The second way that money printing affects gold is the more money that is printed the less that currency will be worth over the long-term. This is simple inflation, which can lead to hyperinflation which can lead to a currency collapse. As the value of a currency falls, the value of gold will rise in that currency.
Investment demand for gold worldwide is strong and the central banks are helping to fuel that fire. In my opinion they will continue to do so as it is the path of least resistance in addition to making debt easier to afford, and the world is deep in debt. So look for the fundamentals on gold to continue to show strength for years to come.
Dr. Marc Faber on CNBC
Dr. Marc Faber was recently seen on CNBC in a piece they called “Governments will Bankrupt Us.” Dr. Faber is editor and publisher of The Gloom, Boom and Doom Report and is a frequent contributor to CNBC. He states that he is extremely bearish on the world. The governments around the world are taking over in conjunction with inflating the monetary supply. The printing of money is a temporary patch to the economy which is giving us a bull market in stocks.
He further states that the bull market in stocks will continue for a while due to all of the stimulus, but in the end will ultimately bankrupt the sovereign nations. “If you print money like in Zimbabwe… the purchasing power of money goes down, and the standards of living go down, and eventually, you have a civil war,” he added.
Dr. Faber says that instead of holding cash people should gradually accumulate physical gold and silver. “Paper money will go down relative to precious metals. So in that environment, I think you…should all accumulate some gold.”
This is what I have been telling people all along. Whether the world collapses or not, everyone should own physical gold. Gold protects people from the effects of inflation and hyperinflation. Currencies, especially fiat currencies, fail. It is a matter of time before the U.S. Dollar will suffer the same fate. Dr. Faber is sometimes dubbed Dr. Doom, but he points to things that we should all be concerned about… Money Printing!
We have watched nation after nation throughout history take on this strategy and it always eventually ends in failure. Look at Germany from 1919 to 1923. The government was printing money like crazy. In 1919 one ounce of gold was worth 170 Deutsche Marks. By the end of it all in November of 1923 one ounce of gold was worth 87 trillion Deutsche Marks. So if you buried an ounce of gold and 170 Marks in 1919 by 1923 your gold would have maintained its purchasing power and your Marks would be worthless.
This type of money printing is disastrous for people with savings, and the U.S. government has increased the money supply by 2.5 times in the past 18 months. Buying gold is a great strategy to protect what you have spent years accumulating. If you do not own any start accumulating before it is too late. Get in while gold is still cheap.
http://www.cnbc.com/id/36704832/Governments_Will_Bankrupt_Us_Marc_Faber