By Jeff Clark, Senior Precious Metals Analyst
Have you ever had any doubts about gold? Does it sometimes feel like it should be performing better? Are you concerned about its volatility? Do you worry about how it might perform in the future? Have you ever wondered about its true purchasing power? Maybe nervous about a big drop in price again? I decided to go directly to the source to address these concerns: Gold himself. He put his arm around me and asked me to tell you a few things…
I hear that you've had some worries about me. I understand. Your world is a very uncertain place right now. And when it comes to money, it looks as though your leaders don't understand some basic monetary principles, making things even more unsettling.
But I want you to know that the problems you're experiencing are actually nothing new. I've seen these monetary, fiscal, and economic difficulties many times before. And I can tell you this: you're safe with me. That's a bold proclamation, but I've provided monetary protection numerous times throughout history – too many to count, in fact. I've served all kinds of people over the centuries, from kings and counts to serfs and servants.
To put your mind at ease, let's review my core characteristics, along with some history, to show how I can protect you against the monetary danger that's likely to worsen in your near future. We'll also take a look at your peculiar set of circumstances to see how I can be of service. By the time we're done, I think you'll feel much better about my ability to help your portfolio withstand whatever is thrown its way.
Enduring Characteristics
Let's start with the basics. I have some characteristics that no other matter on Earth has…
I cannot be:
Printed (ask a miner how long it takes to find me and dig me up)
Counterfeited (you can try, but a scale will catch it every time)
Inflated (I can't be reproduced)
I cannot be destroyed by;
Fire (it takes heat at least 1945.4° F. to melt me)
Water (I don't rust or tarnish)
Time (my coins remain recognizable after a thousand years)
I don't need:
Feeding (like cattle)
Fertilizer (like corn)
Maintenance (like printing presses)
I have no:
Time limit (most metal is still in existence)
Counterparty risk (remember MF Global?)
Shelf life (I never expire)
As a metal, I am uniquely:
Malleable (I spread without cracking)
Ductile (I stretch without breaking)
Beautiful (just ask an Indian bride)
As money, I am:
Liquid (easily convertible to cash)
Portable (you can conveniently hold $50,000 in one hand)
Divisible (you can use me in tiny fractions)
Consistent (I am the same in any quantity, at any place)
Private (no one has to know you own me)
I am internationally accepted, last for thousands of years, and probably most important, you can't make any more of me.
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Showing posts with label Casey Research. Show all posts
Showing posts with label Casey Research. Show all posts
21 February 2012
07 February 2012
The New Reason Gold Stocks Will Soar
By Jeff Clark, Senior Precious Metals Analyst
There are a number of reasons why many of us believe gold stocks will shoot for the moon before this bull market is over – they've done so many times in the past… the gold price still has a long way to climb… and producers are generating record revenue and profits. But I think there's another reason why gold stocks will soar – one that hasn't dawned on many in the industry yet.
The premise for my theory first lies in how gold itself is viewed. Some investors see gold as strictly a commodity or the infamous "barbarous relic." This group sees no compelling reason to buy the metal and so own little to none. Others view it as a play on a rising asset or because of supply and demand imbalances; they buy while those reasons are positive and sell when they turn negative. Still others view gold as a store of value, an alternative currency, or a hedge against inflation; they tend to buy and hold.
Ask yourself why you own gold. Is it because it's just another asset that offers diversification? Are you buying because it's going up and someone like Doug Casey thinks it will continue doing so? Or is it due to a genuine concern about the dilution of your currency, both now and in the future?
What's interesting to note is the shift in the number of investors wanting exposure to gold. Many who ignored it a decade ago are now buying. Those who started buying, say, five years ago, continue purchasing it today in spite of paying twice what they paid then. Slowly but surely, it's becoming more important to more people. To wit, increasing numbers of investors are viewing gold as a must-own asset.
So, what happens when it becomes a must-own asset to a substantial majority instead of a small minority? Sure, the price will rise, probably parabolically, but putting aside speculation on the price of gold for now, have you thought about what happens if you have trouble finding any actual, physical gold to buy?
READ MORE
There are a number of reasons why many of us believe gold stocks will shoot for the moon before this bull market is over – they've done so many times in the past… the gold price still has a long way to climb… and producers are generating record revenue and profits. But I think there's another reason why gold stocks will soar – one that hasn't dawned on many in the industry yet.
The premise for my theory first lies in how gold itself is viewed. Some investors see gold as strictly a commodity or the infamous "barbarous relic." This group sees no compelling reason to buy the metal and so own little to none. Others view it as a play on a rising asset or because of supply and demand imbalances; they buy while those reasons are positive and sell when they turn negative. Still others view gold as a store of value, an alternative currency, or a hedge against inflation; they tend to buy and hold.
Ask yourself why you own gold. Is it because it's just another asset that offers diversification? Are you buying because it's going up and someone like Doug Casey thinks it will continue doing so? Or is it due to a genuine concern about the dilution of your currency, both now and in the future?
What's interesting to note is the shift in the number of investors wanting exposure to gold. Many who ignored it a decade ago are now buying. Those who started buying, say, five years ago, continue purchasing it today in spite of paying twice what they paid then. Slowly but surely, it's becoming more important to more people. To wit, increasing numbers of investors are viewing gold as a must-own asset.
So, what happens when it becomes a must-own asset to a substantial majority instead of a small minority? Sure, the price will rise, probably parabolically, but putting aside speculation on the price of gold for now, have you thought about what happens if you have trouble finding any actual, physical gold to buy?
READ MORE
02 February 2012
Doug Casey on the Coming War with Iran
(Interviewed by Louis James, Editor, International Speculator)
L: Doug-Sama, I've heard you say you think the US is setting Iran up to be the next fall guy in the wag-the-dog show – do you think it could really come to open warfare?
Doug: Yes, I do. It could just be saber rattling during an election year, but Western powers have been provoking Iran for years now – two decades, really. I just saw another report proclaiming that Iran is likely to attack the US, which is about as absurd as the allegations Bush made about Iraq bombing the US, when he fomented that invasion. It's starting to look rather serious at this point, so I do think the odds favor actual fighting in the not-too-distant future.
L: Could they really be so stupid?
Doug: You know the answer to that one. We're dealing with criminal personalities on both sides, and criminals are basically very stupid – meaning they have an unwitting tendency to self-destruction. One thing to remember is that most of those in power in the West still believe the old economic fallacy that war is good for the economy.
L: The old broken-window fallacy. Paraphrasing Arlo Guthrie, it's hard to believe anyone could get away with making a mistake that dumb for that long. Our friends at IHS put together a great, brief video debunking the fallacy.
Doug: People like those in power still suffer the delusion that it was World War II that ended the Great Depression for the US. Actually, it was only after the end of the war that the depression ended, in 1946. In his book World Economic Development: 1979 and Beyond, Herman Kahn documented long-term growth throughout the 20th century. Between 1914 to 1946 – a very tough time, with WW I, the Great Depression, and WW II – the world economy still grew at something like 1.8%. I believe real growth would have been several times as great, were it not for the state and its products. But people still believe that spending money on things that explode and kill and destroy is somehow good for the economy.
L: I suppose they think it's okay if it creates jobs here and destroys lives and livelihoods "over there." But aside from the fact that it's not safe to assume today's enemies are not capable of bringing the battle onto US soil, it still ignores the fact that you're spending money on stuff that gets destroyed – like broken windows – and that impoverishes us all. Worse, the cost is not just economic.
Doug: That's right. This coming war with Iran has the potential to turn into something resembling WW III, with enormous consequences.
Now, it's hard to speak with any certainty on such matters, because most of what we have to go on are press reports. Governments keep most really critical facts on their doings to themselves, and what you read in the press is as likely as not just a warmed-over government press release – in other words, propaganda. Meaningless, if not actively deceptive. It is correctly said that in war, truth is the first casualty.
L: Doug-Sama, I've heard you say you think the US is setting Iran up to be the next fall guy in the wag-the-dog show – do you think it could really come to open warfare?
Doug: Yes, I do. It could just be saber rattling during an election year, but Western powers have been provoking Iran for years now – two decades, really. I just saw another report proclaiming that Iran is likely to attack the US, which is about as absurd as the allegations Bush made about Iraq bombing the US, when he fomented that invasion. It's starting to look rather serious at this point, so I do think the odds favor actual fighting in the not-too-distant future.
L: Could they really be so stupid?
Doug: You know the answer to that one. We're dealing with criminal personalities on both sides, and criminals are basically very stupid – meaning they have an unwitting tendency to self-destruction. One thing to remember is that most of those in power in the West still believe the old economic fallacy that war is good for the economy.
L: The old broken-window fallacy. Paraphrasing Arlo Guthrie, it's hard to believe anyone could get away with making a mistake that dumb for that long. Our friends at IHS put together a great, brief video debunking the fallacy.
Doug: People like those in power still suffer the delusion that it was World War II that ended the Great Depression for the US. Actually, it was only after the end of the war that the depression ended, in 1946. In his book World Economic Development: 1979 and Beyond, Herman Kahn documented long-term growth throughout the 20th century. Between 1914 to 1946 – a very tough time, with WW I, the Great Depression, and WW II – the world economy still grew at something like 1.8%. I believe real growth would have been several times as great, were it not for the state and its products. But people still believe that spending money on things that explode and kill and destroy is somehow good for the economy.
L: I suppose they think it's okay if it creates jobs here and destroys lives and livelihoods "over there." But aside from the fact that it's not safe to assume today's enemies are not capable of bringing the battle onto US soil, it still ignores the fact that you're spending money on stuff that gets destroyed – like broken windows – and that impoverishes us all. Worse, the cost is not just economic.
Doug: That's right. This coming war with Iran has the potential to turn into something resembling WW III, with enormous consequences.
Now, it's hard to speak with any certainty on such matters, because most of what we have to go on are press reports. Governments keep most really critical facts on their doings to themselves, and what you read in the press is as likely as not just a warmed-over government press release – in other words, propaganda. Meaningless, if not actively deceptive. It is correctly said that in war, truth is the first casualty.
28 January 2012
Is the Fed Cranking Up the Presses Again?
Dear Reader,
Vedran Vuk here, filling in for David Galland. Today we'll cover a number of topics, most importantly Bud Conrad's coverage of the Fed's announcement on Wednesday. For a while, investors were basically allowed to sleep through these Federal Open Market Committee statements – we get it; they're keeping rates low. However, this meeting had a few key points that should stir investors from their slumber. I'll start with a discussion about the weakening core of European nations. Then I'll return to touch on other topics of interest.
By Vedran Vuk, Senior Analyst
While the euro crisis has taken a momentary breather, let's not forget the even bigger dangers on the horizon. We've all seen the spreads between the PIIGS and German bonds. Needless to say, they aren't pretty. But another chart is scaring me even more at the moment: It's the 10-year bond spread between Germany and France:
That should come as no surprise. The rest of Europe has been following the exact same path as Greece, Portugal, Spain, and all the other "bad guys." It's the same story of excessive spending programs, disastrous labor laws, and widespread government interventions. In fact, the European core must necessarily experience the same problems. If you're following the same stupid policies, you should expect the same bad results. It's logically inconsistent to think that certain policies are absolute failures in Greece while they magically work in France.
The only difference is that the core countries have been able to afford their programs thus far. Countries such as Greece aren't following a unique Greek policy agenda. Instead, Greece essentially tried to mimic Western European policies on an Eastern European budget. Unfortunately, that just doesn't work… but those policies won't work for Western Europe in the long run either.
Now don't get me wrong: I'm not saying that France or some of the other core countries are going into a crisis. I'm just pointing out that the cracks are starting show. If Europe can't shake its obsession with the welfare state, I have little doubt that some of the biggest European countries will be the PIIGS of tomorrow. They're walking the same path as Greece, Ireland, Italy, and Portugal. But because of their stronger economies, they are taking this stroll at a much slower pace while the PIIGS are sprinting toward the end of the road… and the cliff waiting there. Though one country is running for the cliff and the other is walking, make no mistake – they're both on the exact same path.
But let's put this in perspective for now. The spread over German bonds is a little above one percent. This isn't the end of the world. In fact, it's very far from it, and considering all the problems in Europe, I'd still much rather hold French bonds than many other options. However, there are a few important things to take away from this situation. The spread between French and German bonds can teach us an important lesson about US interest rates.
Vedran Vuk here, filling in for David Galland. Today we'll cover a number of topics, most importantly Bud Conrad's coverage of the Fed's announcement on Wednesday. For a while, investors were basically allowed to sleep through these Federal Open Market Committee statements – we get it; they're keeping rates low. However, this meeting had a few key points that should stir investors from their slumber. I'll start with a discussion about the weakening core of European nations. Then I'll return to touch on other topics of interest.
Cracks in the European Core
By Vedran Vuk, Senior AnalystWhile the euro crisis has taken a momentary breather, let's not forget the even bigger dangers on the horizon. We've all seen the spreads between the PIIGS and German bonds. Needless to say, they aren't pretty. But another chart is scaring me even more at the moment: It's the 10-year bond spread between Germany and France:
(Click on image to enlarge)
The media always want to frame financial news in the classical sense: the good guys versus the bad guys. In this case, it's the responsible and prudent core of Europe versus the lazy and uncontrollable PIIGS. However, the chart above tells a different story. The crisis has reached the core itself. Rather than being an impenetrable fortress, countries such as France have their own problems.That should come as no surprise. The rest of Europe has been following the exact same path as Greece, Portugal, Spain, and all the other "bad guys." It's the same story of excessive spending programs, disastrous labor laws, and widespread government interventions. In fact, the European core must necessarily experience the same problems. If you're following the same stupid policies, you should expect the same bad results. It's logically inconsistent to think that certain policies are absolute failures in Greece while they magically work in France.
The only difference is that the core countries have been able to afford their programs thus far. Countries such as Greece aren't following a unique Greek policy agenda. Instead, Greece essentially tried to mimic Western European policies on an Eastern European budget. Unfortunately, that just doesn't work… but those policies won't work for Western Europe in the long run either.
Now don't get me wrong: I'm not saying that France or some of the other core countries are going into a crisis. I'm just pointing out that the cracks are starting show. If Europe can't shake its obsession with the welfare state, I have little doubt that some of the biggest European countries will be the PIIGS of tomorrow. They're walking the same path as Greece, Ireland, Italy, and Portugal. But because of their stronger economies, they are taking this stroll at a much slower pace while the PIIGS are sprinting toward the end of the road… and the cliff waiting there. Though one country is running for the cliff and the other is walking, make no mistake – they're both on the exact same path.
But let's put this in perspective for now. The spread over German bonds is a little above one percent. This isn't the end of the world. In fact, it's very far from it, and considering all the problems in Europe, I'd still much rather hold French bonds than many other options. However, there are a few important things to take away from this situation. The spread between French and German bonds can teach us an important lesson about US interest rates.
25 January 2012
The Demise of the Petrodollar
Rumors are swirling that India and Iran are at the negotiating table right now, hammering out a deal to trade oil for gold. Why does that matter, you ask? Only because it strikes at the heart of both the value of the US dollar and today's high-tension standoff with Iran.
Marin Katusa
Chief Energy Investment Strategist
Casey Research
The official line from the United States and the European Union is that Tehran must be punished for continuing its efforts to develop a nuclear weapon. The punishment: sanctions on Iran's oil exports, which are meant to isolate Iran and depress the value of its currency to such a point that the country crumbles.
But that line doesn't make sense, and the sanctions will not achieve their goals. Iran is far from isolated and its friends – like India – will stand by the oil-producing nation until the US either backs down or acknowledges the real matter at hand. That matter is the American dollar and its role as the global reserve currency.
The short version of the story is that a 1970s deal cemented the US dollar as the only currency to buy and sell crude oil, and from that monopoly on the all-important oil trade the US dollar slowly but surely became the reserve currency for global trades in most commodities and goods. Massive demand for US dollars ensued, pushing the dollar's value up, up, and away. In addition, countries stored their excess US dollars savings in US Treasuries, giving the US government a vast pool of credit from which to draw.
We know where that situation led – to a US government suffocating in debt while its citizens face stubbornly high unemployment (due in part to the high value of the dollar); a failed real estate market; record personal-debt burdens; a bloated banking system; and a teetering economy. That is not the picture of a world superpower worthy of the privileges gained from having its currency back global trade. Other countries are starting to see that and are slowly but surely moving away from US dollars in their transactions, starting with oil.
If the US dollar loses its position as the global reserve currency, the consequences for America are dire. A major portion of the dollar's valuation stems from its lock on the oil industry – if that monopoly fades, so too will the value of the dollar. Such a major transition in global fiat currency relationships will bode well for some currencies and not so well for others, and the outcomes will be challenging to predict. But there is one outcome that we foresee with certainty: Gold will rise. Uncertainty around paper money always bodes well for gold, and these are uncertain days indeed.
Marin Katusa
Chief Energy Investment Strategist
Casey Research
Tehran Pushes to Ditch the US Dollar
The official line from the United States and the European Union is that Tehran must be punished for continuing its efforts to develop a nuclear weapon. The punishment: sanctions on Iran's oil exports, which are meant to isolate Iran and depress the value of its currency to such a point that the country crumbles.But that line doesn't make sense, and the sanctions will not achieve their goals. Iran is far from isolated and its friends – like India – will stand by the oil-producing nation until the US either backs down or acknowledges the real matter at hand. That matter is the American dollar and its role as the global reserve currency.
The short version of the story is that a 1970s deal cemented the US dollar as the only currency to buy and sell crude oil, and from that monopoly on the all-important oil trade the US dollar slowly but surely became the reserve currency for global trades in most commodities and goods. Massive demand for US dollars ensued, pushing the dollar's value up, up, and away. In addition, countries stored their excess US dollars savings in US Treasuries, giving the US government a vast pool of credit from which to draw.
We know where that situation led – to a US government suffocating in debt while its citizens face stubbornly high unemployment (due in part to the high value of the dollar); a failed real estate market; record personal-debt burdens; a bloated banking system; and a teetering economy. That is not the picture of a world superpower worthy of the privileges gained from having its currency back global trade. Other countries are starting to see that and are slowly but surely moving away from US dollars in their transactions, starting with oil.
If the US dollar loses its position as the global reserve currency, the consequences for America are dire. A major portion of the dollar's valuation stems from its lock on the oil industry – if that monopoly fades, so too will the value of the dollar. Such a major transition in global fiat currency relationships will bode well for some currencies and not so well for others, and the outcomes will be challenging to predict. But there is one outcome that we foresee with certainty: Gold will rise. Uncertainty around paper money always bodes well for gold, and these are uncertain days indeed.
17 January 2012
When Will Silver Make a New High?
By Andrey Dashkov, Research Analyst
In last week's Metals, Mining, and Money, Jeff Clark estimated that given the magnitude of the correction that started last September, it may take until May 2012 for gold to reach a new high. This week let's take a look at how long it may take for silver to rebound.
It's a commonly known fact that silver is more volatile than gold. Already in this decade, silver has risen by a factor of 12 from its ten-year low ($48.70 vs. $4.07), while gold has seen about a sevenfold climb ($255.95 vs. $1,895).
This volatility – as you'll see in a minute – holds for corrections as well. On average, silver's retreats have been deeper and longer than gold's. The three big gold corrections we looked at last week averaged 22.8%. Take a look at the three biggest for silver, along with how long it's taken to recover and establish new highs.
In last week's Metals, Mining, and Money, Jeff Clark estimated that given the magnitude of the correction that started last September, it may take until May 2012 for gold to reach a new high. This week let's take a look at how long it may take for silver to rebound.
It's a commonly known fact that silver is more volatile than gold. Already in this decade, silver has risen by a factor of 12 from its ten-year low ($48.70 vs. $4.07), while gold has seen about a sevenfold climb ($255.95 vs. $1,895).
This volatility – as you'll see in a minute – holds for corrections as well. On average, silver's retreats have been deeper and longer than gold's. The three big gold corrections we looked at last week averaged 22.8%. Take a look at the three biggest for silver, along with how long it's taken to recover and establish new highs.
(Click on image to enlarge)
06 January 2012
Why Has Gold Been Down?
By Jeff Clark, Casey Research
In spite of some short-term fixes, there remains no real resolution to the sovereign debt issues in many European countries. We're certainly not spending less money in the US, and now we're bailing out Europe via currency swaps with the European Central Bank. Shouldn't gold be rising?
Yes, but nothing happens in a vacuum. There are some simple explanations as to why gold remains in a funk.
The MF Global bankruptcy, the seventh-largest in US history, forced a high degree of liquidation of commodities futures contracts, including gold. Many institutional investors had to sell whether they wanted to or not. This is similar to why big declines in the stock market can force funds and other large investors to sell some gold to raise cash for margin calls or meet redemption requests.
The dollar has been rising. Money fleeing the Eurozone has to go somewhere, and some of it is heading into US bonds, which means first converting the foreign currency into dollars.
It's tax-loss selling season, something that's also impacting gold stocks. Funds and individual investors are selling underwater positions for tax purposes. Funds also sell their big winners to lock in gains for the year and dress up quarterly reports.
In spite of some short-term fixes, there remains no real resolution to the sovereign debt issues in many European countries. We're certainly not spending less money in the US, and now we're bailing out Europe via currency swaps with the European Central Bank. Shouldn't gold be rising?
Yes, but nothing happens in a vacuum. There are some simple explanations as to why gold remains in a funk.
The MF Global bankruptcy, the seventh-largest in US history, forced a high degree of liquidation of commodities futures contracts, including gold. Many institutional investors had to sell whether they wanted to or not. This is similar to why big declines in the stock market can force funds and other large investors to sell some gold to raise cash for margin calls or meet redemption requests.
The dollar has been rising. Money fleeing the Eurozone has to go somewhere, and some of it is heading into US bonds, which means first converting the foreign currency into dollars.
It's tax-loss selling season, something that's also impacting gold stocks. Funds and individual investors are selling underwater positions for tax purposes. Funds also sell their big winners to lock in gains for the year and dress up quarterly reports.
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