by Joe Weisenthal, BusinessInsider:
In his daily note, UBS floor guy Art Cashin delivers a monster history lesson on Weimar hyperinflation, and the roots of today’s huge crisis.Great stuff.
Originally, on this day (-2) in 1922, the
German Central Bank and the German Treasury took an inevitable step in a
process which had begun with their previous effort to “jump start” a
stagnant economy. Many months earlier they had decided that what was
needed was easier money. Their initial efforts brought little response.
So, using the governmental “more is better” theory they simply created
more and more money.
But economic stagnation continued and so
did the money growth. They kept making money more available. No
reaction. Then, suddenly prices began to explode unbelievably (but,
perversely, not business activity).
Read More @ BusinessInsider.comBTFD...(buy the F**king dips...) and keep Stacking...
from Silver Doctors:
There was a massive silver withdrawal out of the Comex on Friday. Over the past week, there has been a steady increase in the total amount of silver in the Comex warehouses.
However, in one huge withdrawal, 3.6 MILLION OUNCES, a whopping 17% of Brinks total REGISTERED silver inventory was removed on Friday. I have not seen such a large withdrawal from the registered category for quite some time.
Furthermore, this single withdrawal from the Brinks registered category was nearly 10% of all the total registered silver in the Comex warehouses.
NEW IMPORTANT UDPATE BELOW: added at 9:53 pm SATURDAY
Brinks had a staggering 3.6 million ounce silver withdrawal (or 17% ) from its total REGISTERED INVENTORY on Friday. There was an additional 558,390 ounces withdrawn from HSBC.
There were two deposits on the same day. 456,057 ounces was deposited into the JP Morgan warehouse and 1,176,937 ounces went into the Scotia Mocatta vaults.
Read More @ Silver Doctors
Bounty Hunter Pro Gold Prospecting Kit (Google Affiliate Ad)
BTFD...Before the Sheeplez wake up...
Economic Background
Europe: Industrial production in the Eurozone rose by 0.6 per cent in August against expectations of a 0.4 per cent decline. The Spanish 10-year bond yield fell to 5.62 per cent. Standard & Poor`s (S&P) eventually cut the country risk rating to BBB.
South Africa: Another major rating agency has cut the rating of South Africa’s risk to BBB, with a negative outlook, on fears that the strikes in the Mining industry could lead to political and social unrest. Anglogold Ashanti, Goldfields and Harmony have made an offer to the mining unions in an attempt to end illegal wildcat strikes.
China: The Gold production in China has recorded an output of 249.7 tonnes for the period from January until and including August 2012. This confirms China’s worldwide leading position as the largest gold producer. The Indian Rupee finished the week at 52.82 to the US dollar.
Read More @ CPIFinancial.com
There was a massive silver withdrawal out of the Comex on Friday. Over the past week, there has been a steady increase in the total amount of silver in the Comex warehouses.However, in one huge withdrawal, 3.6 MILLION OUNCES, a whopping 17% of Brinks total REGISTERED silver inventory was removed on Friday. I have not seen such a large withdrawal from the registered category for quite some time.
Furthermore, this single withdrawal from the Brinks registered category was nearly 10% of all the total registered silver in the Comex warehouses.
NEW IMPORTANT UDPATE BELOW: added at 9:53 pm SATURDAY
Brinks had a staggering 3.6 million ounce silver withdrawal (or 17% ) from its total REGISTERED INVENTORY on Friday. There was an additional 558,390 ounces withdrawn from HSBC.
There were two deposits on the same day. 456,057 ounces was deposited into the JP Morgan warehouse and 1,176,937 ounces went into the Scotia Mocatta vaults.
Read More @ Silver Doctors
Bounty Hunter Pro Gold Prospecting Kit (Google Affiliate Ad)
BTFD...Before the Sheeplez wake up...
by Gerhard Schubert, CPI Financial:
Physical buying of gold in the region has been good, Gold kilo
bars loco Dubai are trading again with a small premium against loco
London. Economic BackgroundEurope: Industrial production in the Eurozone rose by 0.6 per cent in August against expectations of a 0.4 per cent decline. The Spanish 10-year bond yield fell to 5.62 per cent. Standard & Poor`s (S&P) eventually cut the country risk rating to BBB.
South Africa: Another major rating agency has cut the rating of South Africa’s risk to BBB, with a negative outlook, on fears that the strikes in the Mining industry could lead to political and social unrest. Anglogold Ashanti, Goldfields and Harmony have made an offer to the mining unions in an attempt to end illegal wildcat strikes.
China: The Gold production in China has recorded an output of 249.7 tonnes for the period from January until and including August 2012. This confirms China’s worldwide leading position as the largest gold producer. The Indian Rupee finished the week at 52.82 to the US dollar.
Read More @ CPIFinancial.com
from Testosterone Pit.com:
Spain’s economic problems lie neither in the financial sector nor in
the budget deficit. They are only symptoms of deeply rooted
institutional problems that determine a great variety of issues, from
how the budget is composed to who receives a loan from the politically
controlled banks (cajas). Neither banks nor public workers have ruined
the country, but politicians, a separate class born out of the
“Transition” from the Franco dictatorship to democracy.
Until Franco’s death in 1975, Spain was governed by a fascist bureaucracy, called “Corporate State.” It was formed by the ruling party, the only Workers Union, the only Employers Union, the Catholic Church, and local entities. During the “Transition” to democracy, a series of measures designed as exceptional were adopted to promote regime change. Politicians, out-goers and incomers, agreed on surrounding themselves with class privileges (some old, some new) to ensure the former a comfortable retirement and the latter a slew of protections and privileges.
These privileges were extended to regional pressure groups—Basque, Navarrese, Catalans, Galicians and Andalusians. They were intended as temporary and geographically limited, but over time, they have become permanent and widespread in all 17 autonomous regions and thousands of local authorities.
Read More @ TestosteronePit.com
Your support is needed...
Thank You
I'm PayPal Verified
First, last Wednesday, Turkey intercepted a Syrian civilian jet suspected
of carrying Russian weapons to Syria, forcing it to land in Turkey.
The jet subsequently continued on its trip following stern denials from
both Damascus and Moscow, and after Turkey found no evidence of its
claim. Then yesterday, Syria promptly retaliated against this overt and
unjustified aggression by banning all Turkish aircraft from crossing
its airspace. Now, moments ago, Turkey retaliated to an act of
retaliation against its own initial provocation, by barring all Syrian
flights above its own airspace, and in the process preventing virtually
all local airborne traffic from taking place. In other words: more
mindless escalation which usually ends in a very unfortunate way.
from RussiaToday:
RT talks to Daniel Hannan, Member of the European Parliament who gives his take on what exactly is wrong within the EU.
by Deepcaster, Gold Seek:
“Can’t debate, so they changed the job numbers.” ~Jack Welch, former General Electric CEO
Jack Welch’s Intuition – that the Official Numbers from the Bureau of Labor Statistics are Bogus — is correct (as we demonstrate below). The Real U.S. Unemployment Rate is 22.8% per shadowstats.com.
But of equal importance is Welch’s focus on the importance of having reliable numbers as the basis for making sound Business Decisions (and Investment Decisions, we add) in order to protect Wealth and Profit.
So we lay out here certain critically important Numbers, and indicate resultant Profit Potential.
Consider, for example, Key Numbers which will help determine the future Gold Price (and notwithstanding the Idle comments of Fossils who consider Gold to be an Archaic Relic).
In the first two months of Last Year, Chinese Gold Imports from Hong Kong were about 11,000 kilograms. This year, for the same period Imports were 72,000 kilograms for the same period, about a 650% Increase.
Read More @ GoldSeek.com
Austrian
skydiver Felix Baumgartner's previous two attempts to set a world
record in freefalling from an altitude of 23 miles, or from "the edge
of space" were aborted in the last minute due to heavy winds. In a few
minutes, the daredevil will find out if third time will be the charm
for gravity to finally not be denied. Watch the live webcast below and
find out in an hour when the process is officially scheduled to begin.
Re-post...
My Dear Friends,
You have to consider the possibility that not only are economic indicators being skewed for election, but so are key markets.
Crude’s multi dollar flop around $100 looked quite professionally induced. The 18 days of body blocks in gold at primarily $1775 cash was not an accident nor did it occur in the cash market. It was an induced reaction to the paper market. We live in an illusionary world of MSM as a tool to create market short term for political purposes. However, every time they pull this off the market loses both participants and confidence. In gold, working against that illusion is huge reserves of private money and many central banks.
They stand as demand for gold now is between $1670 and $1750. This reaction in gold is politically motivated and meaningless drama with short legs.
Regards,
Jim
Jim Sinclair’s Commentary
China bashing has been a habit of western MSM. Comparatively, that is a mistake.
China exports grow much more than expected October 13, 2012 4:16 pm
China’s exports grew at roughly twice the rate expected in September while imports returned to the path of expansion, suggesting government measures to prop up economic growth are working and additional policy action may not be needed for now.
Customs data showed exports in September grew 9.9 per cent from a year earlier, roughly twice the 5 per cent rate expected by investors and up sharply from the 2.7 per cent annual rise recorded in August.
Imports rose 2.4 per cent year-on-year in September, in line with findings in the benchmark Reuters poll that had forecast a recovery from August’s surprise 2.6 per cent annual decline.
The trade surplus was $27.7bn in September, compared with a forecast of $20.7bn and August’s $26.7bn.
“The export data are much stronger than expected, signalling that overseas markets have recovered,” said Xiao Bo, economist at Huarong Securities in Beijing.
Mr Xiao said a trade recovery implied a slide in China’s economic growth was likely to have been arrested, boding well for a recovery to take hold in the fourth quarter to brighten the jobs outlook – a key factor for Beijing as a November leadership transition for the ruling Communist Party looms.
More…
GOLD – The Simple Facts
Nicholas J. Johnson, Mihir P. Worah
For more than a millennium, gold has broadly managed to maintain its real value, even as various currency regimes have come and gone.
The supply of gold is constrained, and we see demand increasing consistent with global economic growth on a per capita basis.
Given current valuations and central bank policies, we believe investors should consider including gold and other precious metals in a diversified investment portfolio.
When it comes to investing in gold, investors often see the world in black and white. Some people have a deep, almost religious conviction that gold is a useless, barbarous relic with no yield; it’s an asset no rational investor would ever want. Others love it, seeing it as the only asset that can offer protection from the coming financial catastrophe, which is always just around the corner.
Our views are more nuanced and, we believe, provide a balanced framework for assessing value. Our bottom line: given current valuations and central bank policies, we see gold as a compelling inflation hedge and store of value that is potentially superior to fiat currencies.
We believe investors should consider allocating gold and other precious metals to a diversified investment portfolio. The supply of gold is constrained, and we see demand increasing consistent with global economic growth on a per capita basis. Regarding inflation in particular, we feel that the Federal Reserve’s decision to begin a third round of quantitative easing makes gold even more attractive.
We see the Fed’s actions in the wake of the financial crisis as a paradigm shift whereby the Fed is attempting to ease financial conditions and encourage risk-taking by increasing inflation expectations. Its policies will likely result in continuous negative real interest rates because nominal rates will be fixed at close to 0% for the foreseeable future.
To be sure, gold isn’t the only asset with the potential to hold its value in inflationary times. For U.S. investors, at least, Treasury Inflation-Protected Securities (TIPS) offer an explicit inflation hedge. What’s more, TIPS tend to be less volatile than gold and, if held to maturity, are guaranteed to receive their principal back – barring a U.S. government default (which we see as incredibly improbable). Still, history shows that gold is highly correlated to inflation and has unique supply and demand characteristics that potentially lead to attractive valuations.
A unique store of value
For more than a millennium, gold has served as a store of value and a medium of exchange. It has broadly managed to maintain its real value, even as various currency regimes have come and gone. The reason is that the supply of gold is not at the whim of any governmental power; it is fundamentally supply constrained. Total outstanding above-ground gold stocks – the amount that has been extracted over the past few millennia – are roughly 155,000 metric tons. Each year mines supply roughly 2,600 additional metric tons, or 1.7% of the outstanding total. This is why gold can be thought of as the currency without a printing press.
The downside of gold is that it generates no interest. One ounce of gold today will still be only one ounce next year and the year after that. Because of this, gold is sometimes referred to as a non-productive financial asset, but we feel this characterization is misleading. Rather, we believe gold should not be thought of as a substitute for equities or corporate bonds. These have equity or default risk and therefore convey risk premiums.
Instead, gold should be thought of as a currency, one which pays no interest. Dollars, euro, yen and other currencies can be deposited to receive interest, and this rate of interest is meant to compensate for the decline in the value of paper currencies via inflation. Gold, in contrast, maintains its real value over time so no interest is necessary.
More…
Your support is needed...
Thank You
I'm PayPal Verified
Spain’s economic problems lie neither in the financial sector nor in
the budget deficit. They are only symptoms of deeply rooted
institutional problems that determine a great variety of issues, from
how the budget is composed to who receives a loan from the politically
controlled banks (cajas). Neither banks nor public workers have ruined
the country, but politicians, a separate class born out of the
“Transition” from the Franco dictatorship to democracy.Until Franco’s death in 1975, Spain was governed by a fascist bureaucracy, called “Corporate State.” It was formed by the ruling party, the only Workers Union, the only Employers Union, the Catholic Church, and local entities. During the “Transition” to democracy, a series of measures designed as exceptional were adopted to promote regime change. Politicians, out-goers and incomers, agreed on surrounding themselves with class privileges (some old, some new) to ensure the former a comfortable retirement and the latter a slew of protections and privileges.
These privileges were extended to regional pressure groups—Basque, Navarrese, Catalans, Galicians and Andalusians. They were intended as temporary and geographically limited, but over time, they have become permanent and widespread in all 17 autonomous regions and thousands of local authorities.
Read More @ TestosteronePit.com
Your support is needed...
Thank You
I'm PayPal Verified
from Bullion Street:
Singapore has repealed a 7% tax on investment-grade gold and other
precious metals to spur the development of gold trading in the country.
It is hoped the move will lift demand for gold bars and coins in the
fourth quarter and applies to gold of 99.5% purity, silver of 99.9%
purity and platinum of 99% purity.
While in the works for several months, the repeal came into effect on October 1.
Singapore is hoping the scrapping of the tax will lure bullion refiners to the country and convince trading houses to open storage facilities, transforming it into a key Asian pricing hub. along the lines of London and Zurich.Currently holding 2% of global gold demand, the Southeast Asian city-state aims to hike that to 10% to 15% over the next five to 10 years.
Currently, Singapore imports gold bars from Australia, Switzerland, Hong Kong and Japan, which are then sold to buyers in Southeast Asia and neighbouring India.
Read More @ BullionStreet.com
Singapore has repealed a 7% tax on investment-grade gold and other
precious metals to spur the development of gold trading in the country.
It is hoped the move will lift demand for gold bars and coins in the
fourth quarter and applies to gold of 99.5% purity, silver of 99.9%
purity and platinum of 99% purity.While in the works for several months, the repeal came into effect on October 1.
Singapore is hoping the scrapping of the tax will lure bullion refiners to the country and convince trading houses to open storage facilities, transforming it into a key Asian pricing hub. along the lines of London and Zurich.Currently holding 2% of global gold demand, the Southeast Asian city-state aims to hike that to 10% to 15% over the next five to 10 years.
Currently, Singapore imports gold bars from Australia, Switzerland, Hong Kong and Japan, which are then sold to buyers in Southeast Asia and neighbouring India.
Read More @ BullionStreet.com
from Reuters:
South African police fired stun grenades and rubber bullets to break up a sit-in by protesters at a police station over the weekend and arrested more than 70 miners from a nearby Gold Fields mine, police said.
As many as 600 miners from Gold Fields Kloof mines staged a sit-in at
Westonaria police station, about 45 km west of Johannesburg on Friday
night, police said in a statement.
After failing to disperse the protest, police said they fired rubber bullets and stun grenades. The crowd responded by breaking windows and causing other damage at the station.
Read More @ Reuters.com
South African police fired stun grenades and rubber bullets to break up a sit-in by protesters at a police station over the weekend and arrested more than 70 miners from a nearby Gold Fields mine, police said.
As many as 600 miners from Gold Fields Kloof mines staged a sit-in at
Westonaria police station, about 45 km west of Johannesburg on Friday
night, police said in a statement.After failing to disperse the protest, police said they fired rubber bullets and stun grenades. The crowd responded by breaking windows and causing other damage at the station.
Read More @ Reuters.com
Greece could leave the eurozone within the next six months, the Swedish finance minister Anders Borg has warned.
by Angela Monaghan, The Telegraph:
Greece could leave the eurozone within the next six months, the Swedish finance minister Anders Borg has warned.
“It’s most probable that they will leave,” Mr Borg said, speaking from the annual meetings of the International Monetary Fund in Tokyo.
“We shouldn’t rule out this happening in the next half-year.”
His comments came before a meeting of European Union leaders in Brussels on October 18-19, to discuss strengthening economic and monetary ties in a bid to restore confidence in the single currency.
Mr Borg said a Greek exit was unlikely to have a major impact on markets because “in practice everyone already understands which way the wind is blowing.”
Read More @ Telegraph.co.uk
by Angela Monaghan, The Telegraph:
Greece could leave the eurozone within the next six months, the Swedish finance minister Anders Borg has warned.“It’s most probable that they will leave,” Mr Borg said, speaking from the annual meetings of the International Monetary Fund in Tokyo.
“We shouldn’t rule out this happening in the next half-year.”
His comments came before a meeting of European Union leaders in Brussels on October 18-19, to discuss strengthening economic and monetary ties in a bid to restore confidence in the single currency.
Mr Borg said a Greek exit was unlikely to have a major impact on markets because “in practice everyone already understands which way the wind is blowing.”
Read More @ Telegraph.co.uk
High Probability Of More Losses For The Equity Markets. By Gregory Mannarino
from KingWorldNews:
Today King World News is reporting on incredibly important
developments taking place in the gold and silver markets. Acclaimed
commodity trader Dan Norcini told KWN, “… those big swap dealers we were
talking about last week, which made the very rapid transition from
being net long, to very large net shorts (in silver), they now have the
largest net short position they have had since January 2008, Eric.”
Norcini also warned, “This is a very big build by the swap dealers on the short side of silver, against a very big build on the long side by the hedge funds.” Norcini has been stunningly accurate in his predictions of the movement of the gold and silver markets. Now the acclaimed trader discusses incredibly important developments in both gold and silver: “If you start with the gold Commitment of Traders Report, Eric, one thing we talked about last week was the overextended position of the speculative longs in this market. They are building a very sizable net long position.”
“When you look at the hedge funds, the hedge funds now have their largest net long position in a little bit more than a year now. So they (hedge funds) continue to buy, and they are generally getting up in the area now that they are starting to become a little bit lopsided on the long side.
We had some liquidations of longs from the small speculators….
Dan Norcini continues @ KingWorldNews.com
Today King World News is reporting on incredibly important
developments taking place in the gold and silver markets. Acclaimed
commodity trader Dan Norcini told KWN, “… those big swap dealers we were
talking about last week, which made the very rapid transition from
being net long, to very large net shorts (in silver), they now have the
largest net short position they have had since January 2008, Eric.” Norcini also warned, “This is a very big build by the swap dealers on the short side of silver, against a very big build on the long side by the hedge funds.” Norcini has been stunningly accurate in his predictions of the movement of the gold and silver markets. Now the acclaimed trader discusses incredibly important developments in both gold and silver: “If you start with the gold Commitment of Traders Report, Eric, one thing we talked about last week was the overextended position of the speculative longs in this market. They are building a very sizable net long position.”
“When you look at the hedge funds, the hedge funds now have their largest net long position in a little bit more than a year now. So they (hedge funds) continue to buy, and they are generally getting up in the area now that they are starting to become a little bit lopsided on the long side.
We had some liquidations of longs from the small speculators….
Dan Norcini continues @ KingWorldNews.com
More Middle East Escalation: Turkey, Syria Bar Flights Over Each Other's Airspace
First, last Wednesday, Turkey intercepted a Syrian civilian jet suspected
of carrying Russian weapons to Syria, forcing it to land in Turkey.
The jet subsequently continued on its trip following stern denials from
both Damascus and Moscow, and after Turkey found no evidence of its
claim. Then yesterday, Syria promptly retaliated against this overt and
unjustified aggression by banning all Turkish aircraft from crossing
its airspace. Now, moments ago, Turkey retaliated to an act of
retaliation against its own initial provocation, by barring all Syrian
flights above its own airspace, and in the process preventing virtually
all local airborne traffic from taking place. In other words: more
mindless escalation which usually ends in a very unfortunate way.RT talks to Daniel Hannan, Member of the European Parliament who gives his take on what exactly is wrong within the EU.
“Can’t debate, so they changed the job numbers.” ~Jack Welch, former General Electric CEOJack Welch’s Intuition – that the Official Numbers from the Bureau of Labor Statistics are Bogus — is correct (as we demonstrate below). The Real U.S. Unemployment Rate is 22.8% per shadowstats.com.
But of equal importance is Welch’s focus on the importance of having reliable numbers as the basis for making sound Business Decisions (and Investment Decisions, we add) in order to protect Wealth and Profit.
So we lay out here certain critically important Numbers, and indicate resultant Profit Potential.
Consider, for example, Key Numbers which will help determine the future Gold Price (and notwithstanding the Idle comments of Fossils who consider Gold to be an Archaic Relic).
In the first two months of Last Year, Chinese Gold Imports from Hong Kong were about 11,000 kilograms. This year, for the same period Imports were 72,000 kilograms for the same period, about a 650% Increase.
Read More @ GoldSeek.com
'Europe can be strong without Euro'
Uniting nations under a single currency is a bad idea, Austrian billionaire-turned-politician Frank Stronach told RT. The Eurozone's single currency is crippling the EU, and Stronach aims to demonstrate to the world that it can live without the euro23 Miles Of Free Fall - Live Webcast Of Felix Baumgartner's Third World Record Attempt From The Edge Of Space
Austrian
skydiver Felix Baumgartner's previous two attempts to set a world
record in freefalling from an altitude of 23 miles, or from "the edge
of space" were aborted in the last minute due to heavy winds. In a few
minutes, the daredevil will find out if third time will be the charm
for gravity to finally not be denied. Watch the live webcast below and
find out in an hour when the process is officially scheduled to begin.Re-post...
My Dear Friends,
You have to consider the possibility that not only are economic indicators being skewed for election, but so are key markets.
Crude’s multi dollar flop around $100 looked quite professionally induced. The 18 days of body blocks in gold at primarily $1775 cash was not an accident nor did it occur in the cash market. It was an induced reaction to the paper market. We live in an illusionary world of MSM as a tool to create market short term for political purposes. However, every time they pull this off the market loses both participants and confidence. In gold, working against that illusion is huge reserves of private money and many central banks.
They stand as demand for gold now is between $1670 and $1750. This reaction in gold is politically motivated and meaningless drama with short legs.
Regards,
Jim
Jim Sinclair’s Commentary
China bashing has been a habit of western MSM. Comparatively, that is a mistake.
China exports grow much more than expected October 13, 2012 4:16 pm
China’s exports grew at roughly twice the rate expected in September while imports returned to the path of expansion, suggesting government measures to prop up economic growth are working and additional policy action may not be needed for now.
Customs data showed exports in September grew 9.9 per cent from a year earlier, roughly twice the 5 per cent rate expected by investors and up sharply from the 2.7 per cent annual rise recorded in August.
Imports rose 2.4 per cent year-on-year in September, in line with findings in the benchmark Reuters poll that had forecast a recovery from August’s surprise 2.6 per cent annual decline.
The trade surplus was $27.7bn in September, compared with a forecast of $20.7bn and August’s $26.7bn.
“The export data are much stronger than expected, signalling that overseas markets have recovered,” said Xiao Bo, economist at Huarong Securities in Beijing.
Mr Xiao said a trade recovery implied a slide in China’s economic growth was likely to have been arrested, boding well for a recovery to take hold in the fourth quarter to brighten the jobs outlook – a key factor for Beijing as a November leadership transition for the ruling Communist Party looms.
More…
GOLD – The Simple Facts
Nicholas J. Johnson, Mihir P. Worah
For more than a millennium, gold has broadly managed to maintain its real value, even as various currency regimes have come and gone.
The supply of gold is constrained, and we see demand increasing consistent with global economic growth on a per capita basis.
Given current valuations and central bank policies, we believe investors should consider including gold and other precious metals in a diversified investment portfolio.
When it comes to investing in gold, investors often see the world in black and white. Some people have a deep, almost religious conviction that gold is a useless, barbarous relic with no yield; it’s an asset no rational investor would ever want. Others love it, seeing it as the only asset that can offer protection from the coming financial catastrophe, which is always just around the corner.
Our views are more nuanced and, we believe, provide a balanced framework for assessing value. Our bottom line: given current valuations and central bank policies, we see gold as a compelling inflation hedge and store of value that is potentially superior to fiat currencies.
We believe investors should consider allocating gold and other precious metals to a diversified investment portfolio. The supply of gold is constrained, and we see demand increasing consistent with global economic growth on a per capita basis. Regarding inflation in particular, we feel that the Federal Reserve’s decision to begin a third round of quantitative easing makes gold even more attractive.
We see the Fed’s actions in the wake of the financial crisis as a paradigm shift whereby the Fed is attempting to ease financial conditions and encourage risk-taking by increasing inflation expectations. Its policies will likely result in continuous negative real interest rates because nominal rates will be fixed at close to 0% for the foreseeable future.
To be sure, gold isn’t the only asset with the potential to hold its value in inflationary times. For U.S. investors, at least, Treasury Inflation-Protected Securities (TIPS) offer an explicit inflation hedge. What’s more, TIPS tend to be less volatile than gold and, if held to maturity, are guaranteed to receive their principal back – barring a U.S. government default (which we see as incredibly improbable). Still, history shows that gold is highly correlated to inflation and has unique supply and demand characteristics that potentially lead to attractive valuations.
A unique store of value
For more than a millennium, gold has served as a store of value and a medium of exchange. It has broadly managed to maintain its real value, even as various currency regimes have come and gone. The reason is that the supply of gold is not at the whim of any governmental power; it is fundamentally supply constrained. Total outstanding above-ground gold stocks – the amount that has been extracted over the past few millennia – are roughly 155,000 metric tons. Each year mines supply roughly 2,600 additional metric tons, or 1.7% of the outstanding total. This is why gold can be thought of as the currency without a printing press.
The downside of gold is that it generates no interest. One ounce of gold today will still be only one ounce next year and the year after that. Because of this, gold is sometimes referred to as a non-productive financial asset, but we feel this characterization is misleading. Rather, we believe gold should not be thought of as a substitute for equities or corporate bonds. These have equity or default risk and therefore convey risk premiums.
Instead, gold should be thought of as a currency, one which pays no interest. Dollars, euro, yen and other currencies can be deposited to receive interest, and this rate of interest is meant to compensate for the decline in the value of paper currencies via inflation. Gold, in contrast, maintains its real value over time so no interest is necessary.
More…
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I'm PayPal Verified
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