Feb 29 2008 3:16PM

Gold Near $1000

Courtesy of www.adenforecast.com 

Gold is soaring. It’s quickly closing in on the all important $1000 level but most people are looking elsewhere. The economy is the hot topic and everyone’s talking about recession. Opinions are running rampant, discussions are endless and this is making people nervous. The Fed is very nervous too. FED TO THE RESCUE, AGAIN. As signs became obvious that the economy was in serious trouble, the Fed hit the panic button. This followed steep drops in the Dow Industrials and sharp declines in several of the other world stock markets. Knowing the importance of these market signals and probably fearing a crash, the Fed abruptly slashed interest rates. As we’ve often said, when push comes to shove, the Fed will do whatever it has to do to keep the economy afloat and to avoid a recession.

That was clearly illustrated last month and if there was any doubt before, it’s now more obvious than ever that the Fed has been, and will continue to take the inflation path. This is not only true of the Fed but of all the world’s central banks. As you know, money has been pouring into the system for quite a while now. Credit is cheap and it keeps getting cheaper. Money is now also going to be given away to over 100 million people in the U.S. to the tune of about $150 billion. It’s even going to be given to people who don’t pay taxes, all in the hope that they’ll spend this money to help ward off a recession.

Gold Tops $1,000 on Bear Stearns Crisis

By STEVENSON JACOBS – 1 day ago

NEW YORK (AP) — Gold prices bolted above $1,000 again on Friday, hitting a new record after a liquidity crisis at Bear Stearns Cos. rattled Wall Street and fed buying of safe-haven investments.

Other commodities traded mostly lower, with crude oil, copper and agriculture futures falling.

Following weeks of flirting with the $1,000 mark, gold finally breached the milestone Thursday after the dollar plunged against rival currencies. The dollar hit a record low Friday against the euro, which bought as much as $1.5687. The greenback’s fall has been a major driver of gold because investors consider the metal a safe investment in times of economic turmoil and rising inflation.

Investors pushed gold higher Friday in reaction to a plan by the New York Federal Reserve and JPMorgan Chase & Co. to provide secured funding to Bear Stearns in a bid to keep the troubled investment firm from collapsing amid a global credit crisis.

“The fact that gold was able to power back over $1,000 was very much due to the bad credit-related news that continues to sweep Wall Street,” said James Steel, analyst with HSBC in New York. “The credit crisis keep morphing and the safe-haven buying keeps getting reinforced.”

Gold for April delivery gained $5.70 to settle at $999.50 on the New York Mercantile Exchange, after earlier rising as high as $1,009 — a new trading record. The metal rose above $1,001 in aftermarket trading.

Gold has gained nearly 20 percent this year amid the tumbling dollar, record-high crude prices and nervousness about the faltering U.S. economy. Analysts say the metal could go even higher if the Federal Reserve continues its interest rate-cutting campaign when it meets on Tuesday.

Lower interest rates can boost the economy but also tend to undermine the dollar, encouraging investors to buy hard assets like gold and silver. A weak greenback also makes dollar-denominated commodities like gold cheaper for overseas buyers.

Other precious metals traded mixed Friday. Silver for May delivery gained 23.5 cents to settle at $20.655 an ounce on the Nymex, while May copper fell 0.30 cent to settle at $3.820 a pound.

In energy markets, crude oil prices dipped modestly, closing lower for the first time in a week as the slide on Wall Street and U.S. economic worries led to profit-taking.

Light, sweet crude for April delivery fell 12 cents to settle at $110.21 on the Nymex, after rising earlier to just below its latest trading record of $111, set Thursday.

Other energy futures rose Friday. April heating oil futures rose 2.17 cents to settle at a record $3.1465 a gallon after earlier setting a new trading record of $3.222 a gallon. April gasoline futures rose 0.66 cent to settle at $2.6894 a gallon.

In agriculture markets, wheat, corn and soybean futures plunged amid expectations that the U.S. economic downturn will dampen demand.

Wheat for May delivery plummeted 52.5 cents to settle at $11.915 a bushel on the Chicago Board of Trade, while May soybeans lost 50 cents to settle at $13.5275 a bushel. May corn fell 10.25 cents to settle at $5.5925 a bushel on the CBOT.

Are you a commodities investor with friends that think you are “crazy” for investing in precious metals? Do these same friends advise you to indefinitely “buy and hold” a large amount of “well diversified” mutual funds for the “long term”? We are continually amazed at how few investors seem to open their eyes to changes all around them, including what is really happening in the financial markets.

The following chart illustrates what would have happened to the Dow Jones Industrial average if it had increased in value at the same percentage rate as gold has since the year 2000.

In the above chart the blue line represents the actual monthly price of the Dow Jones Industrial Average. The red line in the above chart represents the percentage gains of gold factored into the price of the Dow Jones since 2000. In other words, if the Down Jones had performed as well as gold actually has in percentage gains since 2000, the Dow Jones Industrial Average would now be worth approximately 37,000 points. This chart helps illustrate just how significantly better gold has outperformed the Dow Jones Industrial Average since roughly 2000. If an investor had “bought and held” the Dow Jones Index since the year 2000 their investment would barely have broken even after eight years. This is a very large period of time for such poor investment performance. When inflation is factored into the equation of the Dow Jones, the actual return is extremely poor.

But your friends are likely to point out that stocks outperform commodities in the long term. We recognize that from 1980 to 2000 the Dow Jones Industrial Average far outperformed gold in terms of investment performance but this is exactly our point. In our opinion investments are cyclical and not linear. In the 1970’s commodities had a major bull run that significantly outperformed stocks just as stocks outperformed commodities in the following decades. We do not concern ourselves with which investment class is the ultimate investment of all time but rather which investment class is undervalued relative to other investments at any given time.

Unfortunately it appears most investors have a very short term bias and put too much emphasis on their recent experiences instead of history. We believe most investors are bias towards one strategy of investing because that strategy is what worked for them in previous years. Sadly, most of these investors will not learn that their former method for investing may no longer be effective until it is too late.

We wonder what the mainstream media such as television networks, news papers, radio stations and social mood would be like if the Dow Jones Industrial Average were to consistently hit new highs, with a value as high as 37,000 points. Based on the Medias apparent bias on US stocks, likely encouraged by sponsors and advertising revenue, we believe the coverage would be extreme. Interestingly, gold and commodities in general have grown many hundreds of percent points since 2000 yet few members of the media have noticed this significant development in the markets. More coverage on these types of investments would help countless investors find out about such opportunities within a short time. Instead we believe most investors will find out about the mega commodities bull market when it is once again overvalued and at risk of a serious correction. As usual, the cycle will eventually turn and the naive public will likely come late to the party and be destined for failure.

In the big picture we are concerned with what is undervalued now and likely to increase in value in the future, rather than what has already increased in value and therefore should always increase in value. We believe the former is a much more realistic strategy for making money in the financial markets.

Michael Kilbach
March 14, 2008

Mar 14 2008 12:01PM

The Other Reason to Own Gold

Everybody knows that gold is an inflation hedge. That’s why most people buy it. They know from experience that the purchasing power of all national currencies is being constantly eroded by inflation. But they also know that their purchasing power is preserved by owning gold.

For example, the price of crude oil has been rising for decades when viewed in terms of dollars or any national currency. But when the cost of a barrel of crude oil is viewed in terms of ounces or grams of gold, its price is essentially unchanged. In other words, the dollar price of crude oil and the dollar price of gold are both rising more or less lockstep.By owning gold instead of US dollars, you can today purchase basically the same amount of crude oil as at any other time since 1945.

In other words, gold is an inflation hedge. But that is only one of gold’s advantages. There is also another valuable reason to own gold, and significantly, this other reason is becoming increasingly important.

Gold is also a catastrophe hedge. Gold enables us to protect our wealth from a financial meltdown because it does not have counterparty risk.

I wrote about counterparty risk last August in an article entitled “As Financial Tremors Reverberate, Focus on Counterparty Risk”. I recommend re-reading that article for a refresher course on the nature of counterparty risk and how it arises. It is I think important to recognize that the financial tremors are indeed reverberating, and are doing so with growing ferocity. http://www.kitco.com/ind/Turk/turk_aug102007.html

The monetary and financial system is rapidly spinning out of control. We are witnessing the unwinding of decades of reckless credit expansion. Borrowers – corporations, hedge funds, homeowners, etc. – who no longer have the financial capacity to repay their debts are defaulting on their obligations in increasing numbers. In that environment, the safety of one’s wealth becomes paramount, to protect against the catastrophe of default in all types of financial assets.

In short, promises are being broken, so in an environment in which financial assets are becoming increasingly doubted, one needs to own tangible assets. Own things instead of promises, and there is only one money that is not dependent upon someone’s promise and that’s gold. So buy gold; it is the best catastrophe hedge. But also buy gold because it remains the best inflation hedge.

For example, gold was $670 on August 10, 2007 when my article on counterparty risk was published, and crude oil was $71.50 per barrel. When viewed in terms of gold, crude oil was 3.3 goldgrams per barrel.

Gold today is $992, and crude oil is $109. So both prices have risen considerably in dollar terms, but the price of crude oil today is 3.4 goldgrams per barrel, essentially unchanged from last August. Gold performed as expected, being a nearly perfect hedge against inflation.

So when considering all of its advantages, gold provides what everyone wants – peace of mind knowing that the portion of your wealth placed in gold is safe.

by James Turk

Half of gold in central banks gone?
Watchdog: ‘We want to expose and stop the manipulation’

U.S. central banks may have less than half the gold they claim to possess in their vaults, charges a watchdog group in an ad scheduled for publication in the Wall Street Journal this week.

As WND reported, the Gold Anti-Trust Action Committee, or GATA, claims the Federal Reserve and the U.S. Treasury are surreptitiously manipulating the country’s gold reserves by participating in undisclosed leases, according to an advance copy WND obtained of the ad running in Thursday’s edition of the Journal.

GATA believes much of the borrowed gold out on lease will never be returned to the central banks.

“With the demand for gold so strong worldwide, it has become impossible to return much of the leased gold without driving the price to the moon,” said GATA’s chairman, William J. Murphy III.

“Most observers calculate central bank reserves are supposed to have about 30,000 tons of gold worldwide in their vaults, but we believe the amount of gold actually there may be more like 15,000 tons,” Murphy said. “The rest of the gold is gone.”

The U.S. Treasury denies the claim, insisting the stock is accounted for regularly.

(Story continues below)

“We want to expose and stop the manipulation of the gold market by the United States Treasury and Federal Reserve right now,” Murphy said.

“The purpose of this ad is to wake people up in the investment world as to what is going on behind the scenes in the U.S. gold and financial markets,” Murphy told WND.

He explained GATA has decided to pay the Wall Street Journal $264,000 for a one-time placement of the full page ad in the national edition because the financial press has not covered the story.

“We have had two major international conferences since 2001; the mainstream financial press has blackballed our message,” Murphy explained.

“Anybody Seen Our Gold?” the ad is titled, charging U.S. gold reserves held at depositories such as Fort Knox or West Point may have been seriously depleted as they are shipped overseas to settle complex transactions utilized by the Federal Reserve and the U.S. Treasury to suppress prices.

GATA further charges the U.S. government strategy to manipulate the price of gold has begun to fail.

History of Bushonomics - From FDR to Bush I & II (continued)
by AL MARTIN
The problem with savings-generated growth is that it can only sustain a certain growth in population.

A savings-generated economy cannot, on a per capita basis, generate as much GDP as a consumption-based economy.

The problem – and one of the inevitabilities – in the grand scheme of things of the Second World War was the economic agenda then prevailing from the 1930’s.

People never think of it this way because they’re usually not smart enough to take the broader, deeper, and more expansive look, a macro-economic and macro-political perspective of the planet.

What the Great Depression of the 1930’s proved to governments globally is that the era that had always existed of savings-generated economies was failing.

The Great Depression of the 1930’s signaled this. It also pointed to the necessity of a change.

In other words, global population had now reached the point where savings-based economies could no longer generate sufficient gross national product, as it was then called, (sufficient per capita gross national product) to sustain the numbers on the planet at that time.

The Great Depression was a signal that a change was necessary from a savings-based global economy to a consumption-based global economy.

That’s why the Second World War was necessary. The Second World War had nothing to do with political agendas and everything to do with economic reality.

The Second World War was necessary, as Bernard Baruch, President Franklin Roosevelt’s financial advisor, pointed out subsequently in his biography. After all it was Baruch and the so-called Baruch faction within the New Deal economic management team of FDR that urged FDR to get the United States in the war by any means.

Why? In order to prevent the United States from collapsing in the 1930’s, the Roosevelt Regime had turned to a massive fiat-based financing of the economy, deficit spending, in other words.

From 1933 to 1941, the FDR Regime spent more than $125 billion in monies that it didn’t have. (Equivalent to some $4 trillion in today’s dollars.)

There is, of course, a parallel to what’s going on now in America. But it wasn’t only the Roosevelt Regime that had done that. The necessity of the Second World War, was that, not only the Roosevelt Regime, but, in fact, all of the Western European regimes, Britain, Canada, and even Russia, had, during the Great Depression, essentially sustained their economies through enormous deficit spending, which, in turn, held the planet together, with a blanket of fiat money. It was an absolute necessity.