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Perspectives on America, ‘Short Takes on Wealth – 114
G O L D
This is Jeff Bennett for the Preparedness Podcast, with another installment of Perspectives on America, ‘Short Takes on Wealth – 114’
Today’s topic, “G O L D”
Gold: Get Some
Bill Sardi
I can recall listening to radio broadcasts over the past two or three decades where a purveyor of gold bars or coins came onto the broadcast to say the world faces economic gloom and doom and we had all better buy some gold.
Typically, as the sales spiel would go, radio listeners would hear that the market for industrial gold and silver is opening up in China and that if just one more ounce of gold or silver was used by every person in China, why there would certainly be a shortage of these precious metals. Based upon limited supply and increased demand, the spot price is sure to rise.
Gold for the day of reckoning
If the day comes when the US dollar becomes confetti (it could any day), US gold and silver coins would likely be the only medium of value that US citizens and shopkeepers recognize as an alternative to paper money.
However, today, with obvious worldwide debt that cannot be repaid and the printing of fiat money to meet the government’s obligations, and predictable hyperinflation to follow, a worldwide economic crash is imminent. Marc Faber, publisher of the Gloom & Doom Report, confirms that this time the “gold bugs” (investment counselors who are bullish on buying gold) are not “crying wolf.”
You can play with the big boys
You may perceive the sale of gold bars and coins as a relatively small market compared to another commodity such as oil. But actually, the London Bullion Market Association “over-the-counter” (OTC) gold market, which trades approximately 90 percent of the world’s physical gold trade, averages 2100 metric tons @$1150 per ounce = $21.8 billion in sales a day, compared to 82 million barrels of crude oil per day @$77 per barrel, which totals just $6.3 billion a day. The gold market is 3.5 times greater than crude oil! So you can fully understand the big buyers control that spot price of gold. You can also understand, while you aren’t a big enough player to buy oil, you can buy gold!
Not only do central bankers and gold distributors influence the price of physical gold, but super-wealthy individuals can also influence the spot gold price. George Soros, the billionaire trader, actually attempted to sucker holders of physical gold to sell their holdings as he drew news media attention for his statement that gold represented “the ultimate asset bubble.” However, it was Soros himself who was swooping up all the gold he could buy.
And there are bigger buyers of gold than Soros. If you think Bill Gates and Warren Buffet are the wealthiest people in the world you are falling for the propaganda the world news media delivers. Some investigators report the hidden wealth of the Rockefeller family in 1998 was ~$11 trillion, and the Rothschilds in England $100 trillion.
Price of gold is deceiving
The price of gold and silver have long been manipulated, particularly by the central bank of the United State (the Federal Reserve). However, I will demonstrate here how this manipulation has created a deceivingly low price for gold in the face of news bulletins saying gold has reached an all-time high spot price of $1262.56 in June of 2010.
First, the selling price of gold (called the spot price) is a bit deceiving because this is the speculative price. It is largely influenced by the large buyers of gold, ranging from central banks and sovereign nations to gold distributors, who control the demand market. Whereas the typical reader of this column would be a middle-to-upper class American with limited funds to buy gold or silver coins, not for speculation, but as a survival strategy to pay bills should the US dollar eventually be devalued or hyper-inflation make the dollar worth less and less.
What is the demand for gold?
Just what is the current demand for gold, and how many available dollars are chasing gold and silver coins?
The amount of available dollars to purchase US gold coins by the masses is much smaller than realized. Consider that the top 1 percent of Americans own 42% of the wealth, the top 10% own ~71% of the wealth. Lower income groups won’t likely be purchasing gold and are expected to turn in their gold jewelry to melt down and make a profit as the price of gold soars.
It is more likely that the middle and upper classes will be buying gold, probably US gold and silver coins (1-ounce silver and gold American Eagles) that are legal tender inside the nation’s borders. As a percentage of the population, maybe only 1–4% of Americans own physical gold (i.e. own just one gold coin). If maybe 6 million Americans (2% of the population) become new buyers of just one 1-ounce gold coin @$1175 each, that would come to $7 billion of new sales. Of course, should this occur, the US Mint would have to halt sales mid-year because of inability to meet such a demand. The US Mint could be backordered for an indefinite period of time. The US Treasury Department continues to print paper money ad libitum, elevating the value of gold even further. Look what happened to sales of gold and silver coins in 2009.
US Mint Gold Eagle 2009 Sales Totals:
2009: 1,315,500* 1-ounce gold eagles (794,000 in 2008)
US Mint Silver Eagle Sales Totals
2009: 28,766,600 1-ounce silver eagles (19,583,500 in 2008)
*Sales of gold eagles were temporarily suspended by the US Mint in 2009 for lack of gold blanks.
It’s obvious, from these sales figures, that a tiny fraction of the population is buying newly minted gold and silver coins. Even if sales of all 1-ounce gold and silver eagles were combined (~30 million coins) and each purchase was for just ten coins, that would represent 3 million purchases, many probably being return customers. So maybe 1 in 300 Americans buy newly-minted coins from dealers, or from the US Mint directly. That’s not even one-half of 1-percent of the population.
Reticence to invest in gold
My amateur survey of people I have nudged to think about holding physical gold and silver coins reveals few have heeded this advice. Humans are creatures of habit. Most are happy to relinquish management of their money to others in communal pension plans (virtually all which are either insolvent, such as social security, or under-funded, like private and government worker pension plans).
Instead of buying gold, Americans, about 73 million of them, have chosen to place their money in tax-deferred 401k plans which have fallen in value by 31% from the end of 2007 to the end of March 2009.
Most teachers, truck drivers, nurses and law enforcement officers in this country have relied upon a communal fund to grow their money for retirement. The public has been lulled to sleep, believing others were managing their money responsibly. Many people feel money management is for professionals and is beyond their skill level. But most of these retirement plans have become nothing more than Ponzi schemes.
“The modern mind dislikes gold, because it blurts out unpleasant truths.”
– Joseph Schumper (1883-1950)
To buy gold is to invite fear. Why live with financial doom in the back of your mind? So people pass on the idea of gold and wait to hear if anyone else gives a buy signal before they jump into the gold buyer’s pool.
People say there is nothing they can do about what happens in the future, so they remain paralyzed like deer crossing a highway at night, frozen by the glare of oncoming automobile headlights. They unwittingly have chosen to see the value of their 401k accounts erode by 30% rather than risk making another bad decision.
For most Americans, gold and silver are as foreign as an overseas currency. This generation has completely lost track of the historical fact that the Constitution spells out in Article I, Section 10, that government cannot “make any thing but gold and silver coin a tender in payment of debts,” and that the nation once backed paper money with gold. Paper money was only issued as a convenience to carrying gold – as a paper IOU redeemable for gold or silver. Now paper money is an IOU for nothing.
How much of your investment portfolio should be in gold?
You need a personal strategy to preserve your finances rather than rely upon government or financial counselors. Most people cannot fathom that bankers working in league with government are plundering your money. But that is precisely the current state of affairs.
While gold is growing in popularity in investment circles, according to Marcus Grubb of the World Gold Council, current gold investment allocation stands at less than 0.6% of total global wealth.
How much of your investment portfolio should be in gold? Here is what investment funds have invested in gold.
Harry Schultz, noted European investment advisor, says 40% of a person’s portfolio should be comprised of physical gold.
The folly of waiting for the price to drop
If you are waiting for the price of gold to drop from its current $1200+/ounce range to its 2003 price of $350/ounce before you buy some, you may not understand why there is a growing need for you to own some precious metals, preferably in the form of US coins. You may mistakenly reckon, as many now do, that gold is risky while money in the bank, even if it only draws a low rate of interest, is safer than gold.
Gold Confiscation is for losers:
I have notice there’s on thing that you people who bring up gold confiscation have in common. None of you own any gold!
You are the people, when gold was under $300 per ounce, said “I should get me some gold”.. but you didn’t.
When gold was at $600 you said “I’z gonna buy me some gold”.. but you still didn’t.
When gold was at $800 you said “when gold corrects back to $600 i’m going to load up on gold” … but it didn’t.
Now gold is at +/- $1200 and you realize even if you wanted to buy some gold you can’t because inflation has eaten up all your disposable income.
But, Instead of admitting to yourself that you had made a huge mistake, you come into chat-rooms and try to justify your stupidity by bringing up gold confiscation, as if getting others to agree with you will make your inaction correct. You think fear-mongering the few people who still can afford some gold to join you will make things better because misery loves company.
So, why do even bother me with your “gold confiscation”? Why are you worried about it? You don’t even own any gold.. Your not even in the game.. You have already lost!
You are a loser!!
Buying gold when the price is low, and selling when it is high, means you want to play speculator. Certainly, buy low and sell high is always in order. But, to be repetitious, the marketplace for gold is largely influenced by large buyers, such as purchases by central bankers, sovereign countries. For example, in 2008 the International Monetary Fund approved gold sales of 403.3 metric tons, representing one eighth of the Fund’s total holdings of gold at that time. World Gold Council also indicates a great deal of the demand for gold is exercised in ETFs (exchange trade funds), where, by the way, profits are often taken in cash rather than physical gold.
Profit-taking by selling gold in return for continually worth-less paper money would be folly. Don’t expect others who own gold to sell you some even if prices soar. Gold owners would be trading an asset that is rising in value for a piece of paper of diminishing purchasing power. Gold is going to become very scarce in the coming financial and currency crisis.
What is the true value of gold?
There IS a crystal ball. It is not difficult to see the immediate economic future. Almost all countries of the world are in debt that cannot readily be repaid. They are printing more fiat money to pay their bills but suffering the consequences of dilution of the purchasing power of their currency in doing so.
When the rate of expansion in the supply of money exceeds the rate of growth of goods and services in an economy, there will be inevitable hyper-inflation (e.g., $10 loaves of bread).
So it was not surprising to learn that gold, for which there is a limited supply, appreciated more over the past decade against all of the world’s currencies, for which there is, via the printing press or creation of electronic money, an unlimited supply.
If you are holding money in the bank, or hoarding paper money under a mattress, it is currently being diluted in value as the money supply continues to grow (see chart below), or nations may decide on political suicide and officially devalue their currency. Examination of the following chart shows the U.S. has chosen the former.
Advisor Gary North says the U.S. continues to “kick the can” and print money instead of truly dealing with the crisis.
The problem is that impending hyper-inflation is not realized immediately when government first dumps it into the economy as it hasn’t had time to go beyond the banks into the marketplace. The Federal Reserve, fearing hyper-inflation, has chosen to freeze bailout billions in the banks and pay bankers to park this money rather than loan it out to grow the economy and overcome unemployment. This is because, once bailout money has gone through the fractional-banking system and becomes ten times more money, it will massively dilute the value of existing money.
- Data: Federal Reserve Bank, St. Louis
Use the increased supply of money to gauge the true value of the dollar.
The World Gold Council has published a report entitled “Linking global money supply to gold and to future inflation,” which says for every 1% increase in US money supply there tends to be a 0.9% increase in the price of gold. So examine the above chart and see how much the money supply has suddenly increased.
Ned Schmidt of the Market Oracle has documented that the money supply has risen by an annualized rate of 1200% from June of 2008 to November of 2009. But the spot price of gold hasn’t risen in a parallel fashion, which is evidence of continued manipulation. If the World Gold Council formula is correct, gold should be trading at over $10,000 an ounce today!
“There can be no other criterion, no other standard than gold. Yes, gold, which never changes, which can be shaped into ingots, bars, coins, which has no nationality, and which is eternally and universally accepted as the unalterable fiduciary value par excellence.” – Charles De Gualle (1890-1970)
The Next Round of the Worst Financial Crisis in 100 Years is coming… AND the government is out to make you PAY for it!
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Will Your Savings Survive a Global Banking Wipeout?
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What Happens When the U.S. Sees Hyperinflation?
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What If Taxes Soar Not Only for the “Rich”?
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Can You Survive If the Stock Market Tanks?
Between the Stock Market Wipeout… waves of Bank failures… soaring government spending that will lead to hyperinflation, and the destruction of the dollar’s value… Isn’t it time that you prepare for the uncertainty, which lies ahead? Protect your money NOW, or forever – kiss it goodbye!
I offer you over 50 years experience of hard asset ownership and knowledge, and am prepared to handle the smallest detail in the balance and protection of your portfolio. As the future of uncertainty continues to blanket this great nation of ours, I believe that I can offer you the privacy, safety, security and possibly some profitability, which you deserve.
I invite you to visit Flying Eagle Gold.com and our sister site, GoldenIRA.net, for further information regarding Protecting Your Wealth – or, call me, Jeffrey Bennett, at 623-327-1778 for a private consultation. That’s 623-327-1778.
Join us again for another installment of Perspectives on America, ‘Short Takes on Wealth.’
Until then, I am Jeffrey Bennett.
