GOLD
The Munger Games
New York Sun Editorial
“Gold is a great thing to sew into your garments if you’re a Jewish family in Vienna in 1939,” said Charlie Munger of Berkshire Hathaway last week, “but I think civilized people don’t buy gold, they invest in productive businesses.” Yet people who bought gold a decade ago are better off than those who bought Berkshire a decade ago; its share value has collapsed over the past 10 years from 238 ounces of gold to barely more than 74 ounces.
Munger said there was “crazy greed, crazy leverage and crazy delusions” surrounding the 2008 financial crisis. He knew a collapse was coming, but couldn’t predict when. Those who adjusted early to this ‘crazy’ period and bought gold better protected their investors than Munger and his partner, Warren Buffett, did.
On the the easy money policies of central bankers, he said he supported the bailouts, but that Fed Chairman Alan Greenspan let the boom go on too long, and had “overdosed on Ayn Rand.”
Really? In 1966, Greenspan wrote an essay called “Gold and Economic Freedom” for Rand’s newsletter. The essay discussed the benefits of a gold standard and why statists, who believe that a government should control economic and social policies, hate it. Gold and economic freedom, he said, are inseparable. In the absence of a gold standard, there is no way to protect savings from confiscation through inflation, and the financial policy of a welfare state requires that there be no way for the wealthy to protect themselves.
“Deficit spending is simply a scheme for the confiscation of wealth,” Greenspan wrote. “Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
So Greenspan must have been overdosing on something other else. And maybe the reason that Berkshire Hathaway shares have collapsed in value is that neither he nor Charlie Munger were paying attention to the civilizing effect of gold and economic freedom.
The Fundamental Case for Gold
Rich Toscano
The investment case for gold is widely misunderstood. Gold is not simply an inflation hedge, although it can act as such. It's not just a commodity driven by industrial or jewelry demand; the majority of gold is held for investment purposes. And it's not disaster insurance; there is little relationship between the gold price and disasters. These common explanations of gold's function are incomplete at best and wrong at worst.
The best way to understand what drives the gold price is to think of it as an alternate form of money. We live in a paper money system in which dollars can be, and are, created in huge quantities at the touch of a button. Gold is primarily an alternative store of value to the paper money that emanates from this system.
The less confidence people have in the monetary system, the more demand for gold (the most recognized alternate form of money throughout history and across the world) will rise. And, because gold supply changes very slowly over time, the more we can expect the gold price to rise along with demand.
Today, too much money has been created (and will continue to be created), debt crises are shaking confidence and interest rates are (and will remain) well below the rate of inflation.
Putting these factors together indicates a potentially severe loss of confidence in the US dollar, and the monetary system in general, in the years ahead. This means the fundamentals for gold are strongly positive.
There are several reasons to believe that these fundamentals are not already priced in: Gold is undervalued based on current money supply, and dramatically undervalued based on near-future money supply; real interest rates are supportive of further gold price increases; and investor behaviour indicates complacency about the dollar.
All in all, gold's fundamentals are very good and set to get dramatically better. Gold is an excellent value, and a crucial investment to protect against the risks to the monetary system that lie ahead.
IMF to Buy Gold Worth $2.3 Billion as Credit Risk Increases
Commodity Online
The International Monetary Fund (IMF) is planning to purchase more than $2 billion worth of gold on account of rising global risks. The IMF currently holds around 2,800 tonnes of gold at various depositories.
“The Fund is facing increased credit risk in light of a surge in program lending in the context of the global crisis. While the Fund has a multi-layered framework for managing credit risks, including the strength of its lending policies and its preferred creditor status, there is a need to increase the Fund’s reserves in order to help mitigate the elevated credit risks,” Bloomberg quotes a report by an IMF staff member, which adds that a $2.3 billion gold purchase is planned.
The IMF's borrowers include Eurozone countries like Greece and Portugal. Greece is the IMF's biggest borrower, and is currently caught in a political deadlock that may scupper its bailout agreement.
Spain is also officially in recession after its first-quarter GDP contracted. Other nations in the Eurozone region show increased signs of slowing manufacturing activity and economic growth.
In such a risky financial environment, the IMF's move could be considered wise and can be seen as an indication of how much trust the mainstream financial community has in precious metals like gold.
Goldman Sees ‘Currency of Last Resort’ Rising
Mark O’Byrne
Problems in the Eurozone are dragging down everything but the US dollar. The political and economic situations in Greece and Spain are deteriorating, and the recent parade of short-terms solutions look set to create an even bigger crisis.
As for gold, physical demand in India has picked up, while the Shanghai Futures Exchange recently began trading silver futures, generating “massive interest” amongst Chinese investors.
Goldman Sachs has confirmed that it remains bullish on gold and believes that gold will rally as the euro crisis deepens and the US engages in more stimulus.
Goldman stands by its forecast for a rally in gold this year, saying that the precious metal will advance to $1,840 per ounce over six months as the Fed embarks on a third round of QE in June.
Gold remains the ‘currency of last resort,’ according to Goldman analysts.
Goldman’s gold forecast implies a 15% return in six months.
“In early 2009, we suggested that gold had become the currency of last resort, overtaking the US dollar’s status due the rising risk of sovereign default and debasement concerns,” says a Goldman report. Even as the US currency advanced and gold fell on the European crisis in recent months, “it is too early for the dollar to reclaim this status.”
“The case for higher gold prices remains in place,” the report continued. “US economic and employment data has now disappointed for several weeks, European election results point to further stress in the euro area, while anecdotal data suggests that physical gold demand remains resilient.”
Bill Gates Drinking Anti-Gold Koolaid
Ryan Jordan
Is the system trying to tell us something? First Charlie Munger, then Bill Gates on CNBC trashing and dissembling on gold. There was so much misinformation in the Bill Gates interview that you have to wonder if Bill is some sort of propaganda minister for the powers that be.
Gates got his facts wrong about central bank reserves, and about new gold that would somehow be digitally mined thus improving supply. The ‘computer/Internet fantasy crowd’, as Jordan puts it, is conditioned to believe that the world can only get better; that technology will solve all problems. This mentality should have died after two stock crashes, a real estate bust, and a public that now realizes something is just not right with the world's financial and political system.
As for silver, Gates didn’t explain that if his technological fantasy world came to be—one that needed to service and produce more amazing technologies for billions more people—demand for silver would skyrocket. And this would happen at a time when savers are dealing with negative real rates, and creditors are making waves about the need for currency diversification.
As for Gates’ opinions on diversification, you don't diversify with more paper. You diversify with real assets, like gold and silver. Gold is still a buy in the eyes of central banks; silver is the money of the masses, who collectively have a lot of buying power and are starting to see through establishment rhetoric.
Today’s markets are a challenge; gold could pull back to $1,500 and silver to $26 in the near term. But gold and silver are not near-term assets. Now is the time to buy. If you are new to precious metals, congratulations— they are on sale. And they may get cheaper—but they won't stay cheap forever.
Jordan thinks that, somehow, the current pullback in precious metals is a signal to investors to move away from the same-old, same-old investments in a world gone, if not forever, then at least for a generation.
Gold ETF Raid Imminent as China Flushes J.P. Morgan of Physical (GLD, SLV, PHYS, IAU, AGQ)
Dominique de Kevelioc de Bailleul
It seems the Chinese are finally ending the Fed-sponsored JPMorgan (JPM) gold manipulation scheme—but not until they strip out every ounce of physical gold in a brilliant maneuver against the Comex gold cartel.
With the cartel highly levered in the gold market, JPM is trapped in an unwinnable game. Market forces will eventually push prices up in the face of higher demand. This will happen on China’s timetable, as it distances itself from the US dollar reserve currency.
Noted gold authority Jim Willie says that a fair gold price will come only after a strong correction in paper-dominated gold, and that soon the Comex system will be revealed as an official price-fixing mechanism designed to make dips and rallies look like normal processes.
The Fed is a customer of JPM, and accounts for a huge share of JPM’s dollar volume. JPM stores significant amounts of gold and silver on behalf of customers, who can hedge it on a forward basis through JPM, which in turn hedges in the commodities market.
JPM says it is not running a direction position, that it has offsetting positions. But at a ratio of approximately 100:1 of paper ‘hedges’ against physical gold, the only customer large enough to cover such a bet for JPM would be a printing press—the Fed.
Willie says the ‘Eastern coalition’ has been stripping JPM of physical gold as the price drops. As the Chinese buy physical during Eurozone banks’ massive deleveraging process, the gold sold by the Eurozone in an effort to remain liquid shifts from West to East at fire-sale prices made possible by JPM’s paper shorts.
China and its Eastern partners have a window of opportunity, prior to the US presidential election and/or a Fed announcement of more QE, to accumulate as much gold as possible before the price moves higher. Meanwhile, the delevering process is costing the cartel its bullion.
The US could buy time in the event of a gold raid by China (a force majeure in the gold market would collapse the dollar and the means of funding US military operations against Iran and others). It could confiscate private gold assets, such as those held in exchange-traded funds, gold that is not available to JPM.
So where do Americans go to flee the dollar? The answer is still gold, in physical form stored outside the US and away from a government hell-bent on achieving its objectives.
