The Rush to Buy Gold

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It looks like the rush to buy gold is really getting started, as Julian D. W. Phillips of GoldForecaster.com reports that “the combined gold holdings of the World Gold Council gold Exchange Traded Funds and Barclays Gold Trust” has grown to “1079.83 tonnes, a growth of almost 70 tonnes in two weeks.”

And this is just part of the good news, as “There are many other gold bullion-holding funds in the developed world from Canada to Switzerland that are not included in this total. If they were the total would be approaching 1200+ tonnes. Clearly we are seeing a stampede of institutional fund management into gold at present!”

One of them is the Central Fund of Canada, the top-performing trust in Canada (up 117% in 3 years!) and which holds only gold and silver bullion, is selling another giant swath of shares to get the money to, as I understand it, buy another big potload of precious metals, which is not that remarkable, I guess, except for where the underwriter, according to the press release, “Exercises Its Right To Purchase Additional Class A Shares”, which made a big impression on me for some reason that I don’t understand, but I sense that “somebody knows something.”

To keep things in perspective, Mr. Philips reminds us to “Bear in mind that at $900 an ounce, one tonne of gold costs $29 million, so far.” But even he admits that gold really hasn’t gotten up a good head of steam yet, as “With global pension fund assets estimated at $18.6 trillion by the end of 2005 only a tiny proportion of that amount has entered the gold Exchange Traded Fund market so far. So the 1200 tonnes held in this manner represent only $34.8 billion or 0.19% of these pension funds assets [there are many other types of funds other than Pension Funds as well]. Quite a way to go before gold makes a dent on these portfolios.”

And it is the same thing with silver, as I learn from an essay at SilverMiners.com which had the headline, “Gold Mine Production Down, But Costs Up 24% World-Wide”, which tells you everything you need to know about the future price of gold, which assumes that you already know that the price of everything is determined by the intersection of supply and demand, and in the case of gold, supply was down by 88 tonnes last year and is still going down, while demand is going up, and under which there is a rising “floor” price since the costs of gold mining are mounting, and will continue to mount as long as the corrupt socialist bastard morons running the world continue to increase deficit-spending by governments,and as long as the corrupt socialist bastard morons running the central banks continue to create the money and credit to finance the damned deficit-spending, which causes higher prices!

And, of course, this is already old news to gold bugs around the world, as Nick Barisheff writes in his essay, “Making Money in Troubled Times with Gold” at SeekingAlpha.com that in the last year “Gold rose: 9% in Euros, 45% in British Pounds, 25% in Russian Rubles, and 38% in Brazilian Reals” which is not to mention that gold “increased by 31% in Canadian dollars.”

The reason for all of this is that, as he explains, “In 1971, when the US abandoned the gold standard, total M3 money supply stood at $800 billion. Since then, the Federal Reserve has increased the money supply well in excess of GDP growth. In 1987, Alan Greenspan took over as Federal Reserve chairman and opened the money supply floodgates. He expanded the US money supply by $6.5 trillion during his 19-year tenure to $10 trillion – more than all of the previous Fed chairmen combined. Ben Bernanke surpassed Alan Greenspan’s record by adding another $4 trillion in just the last three years.”

What does this have to do with gold and gold going up in value so high that I can quit my lousy job and get the hell away from my clinging family, all the time whining “Please stop buying so much gold and please just buy us some food, daddy!” and all the rest of their gimme gimme gimme?

Well, since you asked, the point is that “At the end of 2007, above-ground privately held gold bullion amounted to less than $650 billion, and the total amount of silver and platinum bullion was less than $5 billion. Put together, this is less than 1/3 of 1 percent of the estimated $187 trillion of global financial assets”, which doesn’t even start to address the implications that “China, Russia and the OPEC countries are considering substantial increases to their gold allocations in order to diversify their US dollar risk”, which means that “Any reallocation by these countries will drive prices much higher.”

And it is already beginning, as “Last year investors experienced shortages of the smaller wafers and coins, with premiums running as high as 10-40 percent for gold and 30-100 percent for silver”, which may have been what led Citibank to predict that gold could soar to “$2,000 an ounce sometime in 2009.”

And in that regard, people keep asking me if the government is going to confiscate gold, and I tell them “Why don’t you ask the government?” Hahaha! As if they would tell you the truth! Hahaha!

But not even mentioning that the Federal Reserve can print up all the money it wants, so they would not confiscate gold for the money, or the fact that all the gold held at the Federal Reserve is chump change; if the Fed still has all of its reported 261 million ounces, then at even $1,000 an ounce, all the gold would only be worth a lousy $261 billion dollars! Less than a quarter of the Federal budget deficit for this year alone! Hahaha!

And then the government has to store the gold someplace and start absorbing all of the expenses of guarding it, which doesn’t even address that the “takings clause” of the Constitution which prevents the government from taking anything away from you, including gold, without paying full market value to you, the owner.

So will the government confiscate gold? Why in the hell would they want to do that? Hahaha!

And that means that YOU should be buying it! Whee! This investing stuff is easy!

The Mogambo Guru
for The Daily Reckoning Australia

Mogambo Guru
Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.
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20 Comments on "The Rush to Buy Gold"

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Don
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I am sick of you gold bugs! I advocate a new money standard for a Brave New World! Uranium 235 wheeeeee!

Ross
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I’m a U235 buyer for ERA at $10 Just waiting on the next round of US/UK hedge fund implosions. Hard assets owned by Rubens inspired overgeared global asset annexing mugs wheeeeeeee!

Darren
Guest

I’m right with you guys. The world is in the crapola right now due to the fact that international banking standards have moved so far away from common sense principles – (esp. the Fed!) that gold just simply has to become more valuable….

Greg Atkinson
Guest
Looks a lot like a gold bubble to me although I am probably wrong. I prefer something that nobody seems to like these days..oil. Actually I like Uranium as well, the demand is going to head up over the long term now that nuclear power is coming back into vogue, even the Swedes are going to reverse their decision to shut down all their reactors! I just wish instead of painting schools and giving kids P.C’s the government would direct the funds towards nuclear power. It would create jobs and we can use the uranium we have in our own… Read more »
John
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Wouldn’t call it a gold bubble just yet Greg. You have to remember that in times like these, gold has historically found parity with the Dow (happened in the 30’s as well as the 70’s). Right now, the DOW is worth about 8 oz of gold, which means that gold has a long way to go up and the DOW has a long way to go DOW. Once they get close to each other, that’s when it’s time to sell. Although I suspect that this time it’s going to much further than 1:1 ratio due to unprecedented money-printing and debt… Read more »
Coffee Addict
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Other things being equal, Gold should al least retain its very long term purchasing power which would be in the vicinity of USD 600 to 650 in current prices. But then of course other things are not equal … they’ve gone pear shaped and the current price rise indicates multiple underpinning sea changes.

Anyway, its a good day for some gold junior holds!

christina
Guest

Robert Kiyosaki says that people who expect the future to be just the same as the past are fools

christina
Guest

Ps- what I mean by that is that just because the dow acted a ceratin way towards gold in the past, it doesn’t mean it will act the same way again in the future. I say this with all due respect of course, and with no offence intended

rmk28
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This is the first time I have seen Robert Kiyosaki being quoted in any discussion of cycles, isn’t he the guy who makes a lot of money selling self-help books? Christina for probably a better account of the ‘the past’ try C.P. Kindleberger. His title ‘Manias, Panics and Crashes’ provides better coverage of boom/bust cycles and such than Robert Kiyosaki ever could.

Michael Cash
Guest
Nice article. Don’t anyone go bashing the gold bugs just yet. We may currently be in a deflationary period but the massive volume of money governments are spending along with gold’s long term wealth preservation abilities are only two of the many bullish factors for gold, platinum, and other precious metals. The vast majority of world currencies are being inflated at record levels which means that precious metals will ultimately be valued much higher than current prices. By the way, isn’t Robert Kiyosaki the guy who makes money by having a rich dad and telling people he has a rich… Read more »
AU1064
Guest

Isn’t now or anytime a good time to guy Gold?, just as long as you intend to hold for the long term. Doesn’t really matter right!? Like property. Better to be in the club than out.
Of course we all like to buy at the bottom or near bottom of the cycle.
But seriously, is now a good time with the rapid rise happening? What should we expect?

wasabu
Guest
Dear AU1064, better to be “in” the club of depreciating asset holders than “out” of it? What are you a Demented Mogambo Guru Sheep (DMGS)? Just in case you’re not an expert in the history of Gold and Silver, listen to the GURU once in a while and stop going “baa baa”. Answer 1: Yes Gold is always Good cos it maintains it’s purchasing power… noooooooo it doesn’t make you rich. You get rich by working hard and being smart (WHBS haha I love Ripping Off Mogambo Style (ROMS). Then you put your hard earned wealth where it’s safe and… Read more »
AU1064
Guest
Dear Wasabu. What are you, some kind of idiot. I asked a simple innocent question and you go off at me. Gold is NOT the only place to put money. I have invested in multiples of property for years now but gold is something that is new to me. It has placed me in an excellent position in my mid 30s. And you are wrong, it is NOT better to be in the clud of depreciating asstes. That’s exactly how to remain porr and go broke. Appreciating assets are better than depreciating assets hahaha By the sounds of things you… Read more »
Clud Nine
Guest

Welcome back, Steven.

Lachlan
Guest
Robert Kiyosaki made money writing a book/s to alert the uniformed that you can get wealthier by investing/creating passive income etc. He played off the difference between his poor dad (biological father) who had some kind of moral/socialistic aversion to investment and another father (adopted by….forgotten now) who new the principles of investing/capitalism and became rich. He made the point that by writing these books (intellectual property) he would be creating passive income through future sales well after his work was complete. Not sure how successful it all was but he became well known for his books. And by the… Read more »
Dan
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One thing Kiyosaki neglected to mention about his own methods – he recognised a Ponzi Scheme (US Real Estate bubble & broader boom economy) when he saw one and basically invested in it. Did he teach people when to recognise when the scheme was about to fail? Gold is very likely to enter a Ponzi phase once it becomes popular enough – of that you must be very wary. That is, buying promises is different from buying reality, ie: bullion buried in your garden (or in a bank vault) vs. stocks or certificates. It will not be the first time… Read more »
Biker Pete
Guest
Better to bury soakwells in your backyard, Dan! :) Yes, the tangibles rule! I’m currently reading Melvin & Chan’s “Buy Property With Your Super”. Not far enough into it to take a position yet, but with my Super about to materialise, I need to look at better returns than cash. Not bullion-averse, but I’d never bury it where it might be lost for millennia. The Brits continue to unearth such stashes, perhaps indicating that Alzheimers, dementia, strokes, heart attacks and chariot accidents aren’t all that new. Large structures with doors, windows and the like are at least visible to one’s… Read more »
Dan
Guest

Pete: I personally don’t think that hoarding is a good retirement plan. Not to blow one’s own trumpet, but I wrote a blog entry regarding this, the idea being: If your retirement plan consisted of helping your kids (including as adults and parents), setting them up for life, making sure they aren’t struggling (emotionally, spiritually and materially), then the returns are much more reliable than any super fund. They might fail, but less likely so than some faceless company with glossy brochures. If you stash bullion, the kids ought to know how to find out where you put it.

Ned S
Guest
Kiyosaki reckoned the biggest stock market crash in history was coming because America’s 401k system was creating a stock market bubble is my recollection? He said things like “Every time a law changes, the future changes.” (Or at least credited his rich dad with having said it.) And reckoned that the real ways to make money were through being a big business owner or an investor. While also pointing out that employees don’t morph into professional investors “without developing an educational system to support such monumental change.” And Yes, he wasn’t adverse to a bit of property flipping as best… Read more »
Biker Pete
Guest
You mean Christmas and birthday presents might include the latest Whites 500C metal detector, Dan? Pleased to report that neither of our sons needs any financial help. Both exceeded our wildest hopes for them before their mid-20s. I completely agree with your view that most of us can manage our own finances far better than “… some faceless company with glossy brochures…” You’ve obviously read Melvin & Chan (2008)… at least as far as pages 5 & 6. (I’m impressed… . Virtually word-for-word… . ) I think Kiyosaki’s primary message is that the failure of our education system in not… Read more »
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