Platinum’s graph looked quite similar to gold yesterday, as the precious metal developed what looked like the gentlest of trends in the black but managed to tack on quite a bit before all was said and done, ending the day at $1129/oz., up $16. Overnight, platinum is way up.

Silver rounded out what ended up being a solid but uneventful day for the precious metals by showing the same slight trend as gold and platinum, ending at $12.87/oz., up 4 cents. Overnight, silver is trending much higher. (Click here for charts)

Gold had kind of a blah day, but I’m sure investors don’t mind too much since it was still able to post a modest gain despite the third straight day of falling crude prices.

Nevertheless, holdings of GLD, the world’s largest ETF backed by gold bullion, declined by 15.27 metric tons yesterday down to 1,094.54 tons. Since June 15th, holdings have fallen by 37.61 metric tons.

Darren Heathcote, head of trading at Investec Australia, said the dip was a reflection of the weak sentiment in last week’s market when bullion slipped to below $910.

So it was not surprising to see some investor interest being unwound,” he said.

He added, however, that he would not read too much into the decline.

“I wouldn’t consider it a change to the overall picture, the overall trend, which I think is still relatively positive for gold,” Heathcote said.

In company specific news, Silver Wheaton Corp. announced that construction of the first sulphide process line at Goldcorp’s gold-silver-lead-zinc Penasquito mine in Zacatecas, Mexico is now complete and commissioning work is advancing on schedule. Production and shipment of first concentrates are still targeted for the second half of 2009.

After a ramp-up period, Penasquito is forecast to produce an average of about 30 million ounces of silver annually over an initial 22-year mine life, of which Silver Wheaton is to receive 25% or in excess of 7 million ounces of silver per year.

Source: The Daily Resource 7/15/09

GOLD

LONG TERM

Before getting into the weekly commentary, some comments on the head and shoulder pattern.  I have had several readers who have pointed out reverse head and shoulder patterns in gold, one a long term and one of an intermediate term basis.  I believe there have been some experts that have shown the same pattern recently.  I had shown a long term gold chart in my commentary for the week ending 19 June 2008.  You can find it in the archives of many of these sites and it might better show the patterns discussed.  The long term reverse head and shoulder pattern, as suggested to me, has the shoulders on the left and right sides of this chart with the reverse head in the middle.  As for the intermediate term pattern, the left and right shoulders can be seen on the right side of the chart with the reverse head in the middle.  Unfortunately, I DO NOT subscribe to these being reverse head and shoulder patterns.  They are more legitimately potential double top patterns which I had talked about previously.

Head and shoulder patterns are trend reversal patterns and therefore for a reverse head and shoulder to be present (suggesting an upside break) you would have had to have had a bear market move leading into the pattern.  For a normal head and shoulder the lead in trend would have been a bull market trend.  In neither of these cases do we have a bear market leading into the formation of the pattern and therefore we DO NOT have a reverse head and shoulder pattern.

The long term P&F chart suggests that we are still in a bull market and some distance away from a reversal.  With the existing pattern that reversal would come if the move should go straight down to the $870 level breaking below the blue line and two previous lows.

As for the normal indicators, they too have still not reversed.  Although the price of gold is still some distance above a simple 200 day moving average line I use the weighted method which gives a more aggressive line.  The price of gold is still above this line but only barely.  The moving average line is, however, still in a positive slope.  The long term momentum indicator remains in its positive territory but is moving lower and is below its negative sloping trigger line.  The volume indicator has now crossed below its long term trigger line although the trigger remains in an upward slope.  So, what does all this mean?  It means that the long term rating remains BULLISH but is getting close to being down graded if the negative gold price trend continues much longer.

INTERMEDIATE TERM

In my last commentary the price of gold had just climbed above its intermediate term moving average line.  Unfortunately, it quickly reversed and broke below the line in a decisive manner and is now below its previous recent low and well on its way downward.  The momentum indicator has also moved into its negative zone and below its negative trigger line.  As for the volume indicator, it too is below its negative sloping trigger line.  All in all, the intermediate term rating is BEARISH.

SHORT TERM

The recent trend in the price of gold is easy to see on a short term chart.  Everything here is on the down side.  The action appears to be trapped inside a downward trending channel.  The price is below its negative sloping moving average line and the momentum is in its negative zone below its trigger line.  Both indicators have moved below recent lows.  The very short term moving average line remains below the short term line for confirmation of trend.  Everything points to a still BEARISH short term rating.

As for the immediate direction of least resistance, well the aggressive Stochastic Oscillator is giving us some hope for a reversal of short term trend, at least for a little while.  It is still in its oversold zone but has moved above its trigger line and might be heading to breach its oversold line.  Although this is not necessarily a sign of a reversal of trend it is a sign that the existing trend may be running out of steam and needs a reversal or at least a rest period (such as the period following June 15th).  I will go with the lateral trend as the one with least resistance for now.

What goes up the mostest comes down the fastest.  Silver just can’t seem to get its act together and continues to act a lot worse than gold lately.  While gold lost 1.8% of its price during this past week silver lost 5.5% of its price.  Although it is still acting slightly better than gold over the intermediate and long term, over the past short term the performance of silver puts it in spot 22 out of 24 off the components in the Precious Metals Indices Table.  Only the S&P Gold Index and the Merv’s Qual-Silver Index had a worse short term performance.

Since its recent top in early June the trend in silver price has been almost straight down.  It is heading towards a reasonable support just below the $12 level.  Should it hit $11.50 then most likely it will continue down to test the previous low at the $8.50 to $9.00 level.

Looking through the various indicators silver is now BEARISH for all three time periods.

Most precious metal (gold and silver) stocks took a deep hit this past week.  Average losses, based upon Index declines, were in the order of 6% to 10%.  This has put all stock Indices into the BEARISH camp on the short and intermediate term.  Many Indices have also gone BEARISH on the long term but there still are some hold outs like the Merv’s Gold & Silver 160 Index, the Penny Arcade Index and the Spec-Silver Index which still maintain their BULLISH long term ratings.  The Merv’s new Penny Arcade Index is probably holding up the best, especially when measured relative to its recent gains.  It is still up 402% from its Nov low even after a 21.5% decline from its early June high.

There is no way of knowing when this latest decline in the stocks will end.  We can guess, intelligently or otherwise, but no one REALLY knows.  One must assume that a decline, once established, will continue.  For this reason probably the best policy to protect one’s capital, is to start looking for exits in individual stocks.  When the turn around comes, tomorrow or next year, you will be sitting with cash to take advantage of the new move.  If you don’t exit from your losing stocks, and the decline continues, you do not get a second chance.  You could eventually break even on the next bull move but that may be 100’s of % points from where the stock might bottom out prior to a reversal.

In my view it is always better to err on the side of protecting your capital rather than to err on the side of an ego refusing to see the possibility of any major decline.

Well, that’s it for this week.

Although the press has now set gold aside for hotter stories, I can tell you demand for gold coins continues at unprecedented levels worldwide, and production is still struggling to keep up. Take a look at these recent reports:

***Sales of the Austrian Philharmonic gold coin soared 544% in the first two months of 2009 (vs. the same period the year before), with production at the country’s mint running quadruple its usual volume.

***The demand for Krugerrands is at its highest level since 1986. The South African refinery recently doubled production of blank gold coins to 20,000 ounces per week.

***China, now the fastest-growing market for gold, saw 2008 sales (measured in dollars) rise by 50% over the year before – and total sales in January 2009 were one billion yuan (US$146 million), 30% more than all of last year.

***The U.S. Mint sold 193,500 one-ounce gold Eagles in the first seven weeks of 2009 – equaling the number shipped in all of 2007 and about matching the first half of 2008.

***Russia’s Sberbank says it has “never seen such strong demand for investment coins.”

With this incredible interest in gold, it’s worth going over where to go for the best deals in bullion… and what the stated wait times and premiums are. Here are the dealers that have consistently treated their clients (and our readership) well over the years:

Kitco (Kitco.com; 1-877-775-4826). All bullion products are available at Kitco and can be shipped within 24-48 hours of a paid order. Premiums are slightly higher than our other dealers recommended below, but what’s particularly attractive at Kitco is that you can get silver for less than 1% over spot… Its pool account is currently charging only 14 cents over spot (premium fluctuates daily), which is a great way to build your silver holdings while waiting for physical premiums to come down.

The Coin Agent (thecoinagent.com; 1-888-494-8889, or email thecoinagent@gmail.com). Wayne Lemonier currently offers immediate delivery on paid orders for all gold coins except the Eagle, which takes two weeks.

Premiums for gold coins are 6% over spot for Maple Leafs, 6.5% for Philharmonics and Krugerrands, and 7% for Eagles (one of the lowest in the industry).

Silver bars are at the lowest premium we know of: A 10-ounce silver bar costs $1.75 per ounce over spot, and 100-ounce bars are only $1.50 per ounce over spot. American silver Eagles are spot + $4.50, and silver Canadian Maples are spot + $4. Shipping and handling for silver is $20 per 100 ounces.

Border Gold (bordergold.com; 888-312-2288, ext. 7). Both gold and silver Maple Leafs are readily available and can ship the day an order is paid. Border told us premiums are slightly higher this year than last because the Royal Canadian Mint raised its prices.

Premiums on gold Maple Leafs are only 5.5%, one of the lowest in the industry. Shipping and insurance is $25 for one or two coins. A one-ounce gold bar is spot + $25; 5-ounce and 10-ounce bars are available in limited quantities at spot + $22 per ounce.

The one-ounce silver Maple Leaf is $4 over spot for up to 99 coins and then $3.25 per coin. Both 10- and 100-ounce silver bars cost $2.50 above spot, with the 100-ounce silver taking a week to deliver.

ASI (assetstrategies.com; 1-800-831-0007). Gold Maple Leafs, Philharmonics, and Krugerrands can be shipped immediately upon a paid order, with American Eagles currently taking about three weeks.

One-ounce gold coins are 7.5% to 8% over spot; Eagles are 8.5% to 9%. One- and 10-ounce gold bars can be had at 6%. One-ounce silver Eagles are $4.30 over spot. A 100-ounce silver bar is $2.20 per ounce, and a one-ounce bar is spot + $2.50. Costs for junk silver vary but average about $2.20 per ounce over spot.
Some of our readers ask… why don’t we recommend any of the larger dealers?

Availability and premium are the primary considerations in selecting a bullion dealer. Some of the larger houses may match the prices of our recommended dealers; however, there’s an intangible issue: the hard sell.

Many of the big dealers push high-margin numismatic coins. So while you may get good prices and delivery on your bullion coin, beware the salesman who begins talking up rare coins. You won’t experience this with our smaller dealers, and it’s this no-hassle service that gets our business. If you start to hear, “Hey, my friend, I have a great deal right now on a rare Swiss coin…,” you might want to reconsider where you shop.

Gold is the safe-haven investment in times of crisis, and more and more investors worldwide realize this. But even though gold has risen more than 140% in the last five years, there is something that can give you even higher returns: we call it Toronto’s Secret Gold Investment.

Source: Where to Find the Best Deals in Physical Gold

As we rang in the 2009 New Year, gold at $850 an ounce (in U.S. dollars) was roughly 15% below its all-time record high, set in March 2008.

But everything in life is perspective.  In a year when oil lost 59%, the Standard & Poor’s 500 Index was down 38%, and the Dow Jones Industrial Average gave back 30%, things could certainly be worse for gold bullion investors.  Much worse, in fact.  Just ask the typical investor about his portfolio: He’s likely to grumble, and change the subject.

As it turns out, 2008 marks the eighth consecutive year that gold has clocked a positive annual return.  It’s now starting to look like the trade of the decade.

Truth be told, many are disappointed with gold’s behavior during the October-November stock-market panic, too.  But here again, it’s all relative.  When we compare the Standard & Poor 500 Index (a proxy for the market) with the SPDR GLD Trust (an ETF proxy for Gold) (GLD), we know where we’d rather have our money.

As this chart shows, from September to December, gold, despite its volatility, ended essentially flat in U.S. dollar terms, yet shows a marked recovery since the end of November.  The S&P, on the other hand, looks like an Alpine ski hill heading for Jackson Hole. The divergence between the two is remarkable.

During last fall’s violent stock market downdraft, the U.S. Dollar Index (USDX) put on a spectacular, unprecedented two month – 15% rally.  Spectacular, because to get even a 10% move over an entire year is a big deal for any major currency.

But gold is still (mistakenly) considered by many as the “anti-dollar.”  So its behavior during a U.S. dollar rally does not come as a complete shock in hindsight.

Yet the gold price we see is misleading in two significant ways.

First, try going out there and buying an ounce of physical gold.  In normal times, the average coin dealer will charge in the neighborhood of 3% above spot price. This past November, that premium shot up by 3-5 times, with many charging 10%-15% above spot, plus eight weeks or more for delivery.  So when buying an ounce of gold, how realistic is the spot price, especially during a panic?  In the midst of the mayhem, one larger Canadian precious metals dealer, Kitco, saw its list of products shrivel overnight from about 16 items to merely three, due to a lack of supply.

Second, gold is quoted in U.S. dollars around the world.  But India is the single-largest gold market, with the rest of Asia showing a strong affinity for the universally cherished yellow metal.  Throw in Europe and Latin America, and you can see how most of the world looks at gold through entirely different lenses – through their own currencies.

To be fair, let’s gain some distance from our own provincial viewpoint by taking a small trip around the globe.  This way, we can get a handle on how the price of gold has behaved elsewhere.

Euro Gold

During the anomalous spike in the U.S. dollar last fall, the European euro lost considerable ground against it.  So gold priced in euros shot up.  March saw the record of near € 650 gold bettered in September by € 670 gold.  Europeans were clearly happy with gold’s behavior, which currently sits around an all-time euro high of € 720.

UK Gold

Gold priced in British pounds sterling has performed astoundingly well.  Brits saw gold at £ 500 per ounce in March, then £ 530 in September, and £ 600 by year’s end.  Gold, now at £ 650, is still setting new record levels, dating back to 1717 when they began keeping records.

Canadian Gold

Canadian gold investors have few gripes. In March of last year, gold was trading at C$1,003; by late September, the price was up by nearly C$ 50. And right now, it hovers at a record C$ 1,160 level.  Despite the amazing strength the Canadian dollar has shown in recent years, gold has performed very well in this resource-based currency.

Brazilian Gold

Brazil is the most populous country in Latin America.  And gold’s performance in the Brazilian real did not disappoint either.  The record set in March at R$ 1,719 per ounce was easily surpassed in September with a sharp spike to R$ 2,069.  Today, it sits at R$ 2,115; which is R$ 415, or 24%, above its March levels.

Indian Gold

India’s currency is the rupee (INR).  And for traditional, cultural, and even practical reasons, Indians are the biggest gold investors on the planet. As in much of the rest of the world, gold set a record near INR 41,000 in March.  It then pulled back in July, but spiked to a new record near INR 43,000 in September.  At roughly INR 45,800 today, gold is priced way above its previous March and September 2008 record levels.

Chinese and Japanese Gold

If anyone should be disappointed with the performance of gold over the past year, it is investors in China and Japan. Gold’s record in March, at CNY (yuan) 7,050, has not been bettered yet.  September saw a spike back near the CNY 6,250 level, and gold currently rests at a price of roughly CNY 6,400 per ounce.

Japan’s gold price hasn’t fared much better.  The March record near ¥ 100,000 per ounce remains unchallenged.  Gold managed a rally to ¥ 95,000 in September, but has since fallen back to the ¥ 84,850 level.

So as the U.S. dollar rose late last year, the Chinese yuan and Japanese yen were the two major currencies that tagged along, making gold investors’ relative losers in those nations.  The Chinese and Japanese 2008 gold experience differs little from the American one. And yet, gold in U.S. dollars is currently just 8% shy of its all time record at $1,023.50.

Despite the recent American, Chinese and Japanese gold experience, most of the rest of the world’s gold investors are a happy lot. When converting the price back into their home currency, those investors are basking in its glow, while gold sits at or near all-time record highs.

For now, however, gold is still priced in dollars for many market participants.  The same is true for all other commodities.  I expect that will change over the next several years.  Scores of foreign central banks have indicated their intentions to lower levels of dollar-denominated reserves to reduce exposure.  Meanwhile, Kuwait has dropped its dollar peg, opting instead for a basket of currencies.  And Iran already trades some of its oil for non-U.S. dollar currencies.

As the U.S. dollar continues to lose value – and hence, its influence – on the world stage, commodities are increasingly likely to be priced either in local money, or to be quoted in a variety of currencies.

Heck, commodities may even be priced in quantities of gold before this is all over.  Gold investors can only hope.

For now, as new price records are regularly being established, most aren’t complaining about the value of their gold.

With their sights set on breathtaking new heights to come, American, Chinese, and Japanese gold investors are sure to see their patience rewarded, as have already so many of their fellow investors the world over.

Source: Gold Setting Records in Non-dollar Currencies

Exactly! But before I could take over and start with my usual rant about inflation and why you should buy gold as a result, Mr. Ruff cleverly cuts me off by saying that “Gold and silver will bounce back when inflation reasserts itself.”

Well, inflation “reasserting itself” is a given, as far as I am concerned! Hell, the money and credit necessary to finance all those higher prices is already being created, and if you don’t believe me, then explain how there is already an estimated $8 trillion in new government spending and lending announced, in an economy whose GDP is a measly $13 trillion to start with! This means a budget deficit of over 50 percent of GDP! 50 percent! Yikes! Unheard of!

That’s the kind of astounding news that makes you run screaming into your Mogambo Blast-Proof Bunker (MBPB), locking the doors behind you in a panic, mentally making plans to get more physical gold bullion against the day when this Whole Stinking Mess (WSM) blows up.

And that kind of panicky, mama’s boy, gold-buying cowardice (The Mogambo Way (TMW)!) may be getting more popular than ever, as Antal Fekete of professorfekete.com reports that “According to the December 3rd Comex delivery report, there are 11,759 notices to take delivery. This represents 1.1759 million ounces of gold, while the Comex-approved warehouses hold 2.9 million ounces. Thus 40% of the total amount will have to be delivered by December 31st.”

Not being an expert on Comex, commodity futures, or much of anything else, or even being sure that I have the facts, if any, I am nevertheless sure that corruption and fraud permeates the Comex like, umm, the apparently eye-watering stink of my feet whenever I take my shoes off (according to my wife and family, although the cat often seems fascinated with the novelty), just like the stench of corruption has permeated everything else, which is always what you get at the end of long booms financed by over-expansion of the money supply.

And that is why I am proposing that everyone should send me as much cash money and gold as they can, addressed to “Occupant”, priming me with huge, blatant bribes to take command and lead this proud country in a Second American Revolution to replace a hateful government that is “eating out our substance”, which was the cause of the first American Revolution, which proves that “It is always about the money!”, which is also why I am running this “Bribe The Mogambo” scam for all it is worth, again proving that “It is always about the money!” for me, and you are hoping that I will use my dictatorial powers to get your money back for you, again proving that “It is always about the money!” with you, too! Hahaha!

Well, I can see that Mr. Fekete is suddenly anxious to get away from being seen with a raving revolutionary anarchist con-man swindling little cheating rat-like bastard and world’s worst husband and father.

So, prior to retreating, he supplies the synopsis, which is, “Since not all the gold in the warehouses is available for delivery, Comex supply of gold falls far short of the demand at present rates. Futures markets in gold are breaking down. Paper gold is progressively being discredited.”

Then he was suddenly gone, but from the gist of it, it looks like there could be some fireworks in gold within a matter of days or weeks, where the best-case scenario is that gold goes to a zillion dollars an ounce, finally giving us gold bugs the money to skip town and get the hell away from this sleepy little nowhere burg and start over, perhaps to find real love and purpose in life, where thoughts of armed rebellion seem suddenly so far, far away! Whee!

Source: It’s Always About the Money

This from Money Morning:

Of late, I have read a number of analysts, Jim Rogers even, who have expressed the view that gold could dip to the mid- to low $600 level.

It could happen, but I think not. Already, buyers of physical gold are finding anything near $700 to be cheap and are helping to build a floor under the monetary metal. On that topic, a friend sent this item along recently:

(Gulf News, Nov. 12) Riyadh: There has been an unprecedented demand for gold in the Saudi market recently, with over 13 billion Saudi riyals ($3.47 billion) being spent on the yellow metal during the prior two weeks.

Demand is expected to rise still higher as more investors turn to gold as a safe haven in the midst of the global financial crisis, according to market sources.

Sami Al Mohna, an expert on the gold market, said the trend had resulted in a substantial rise in the gold reserves of Saudi investors.

Since soaring to an all-time high of $1,033.39 per ounce in March this year, gold has plummeted 30%.

Gold for December delivery on Monday rose $8.60 to settle at $726.80, roughly the same level at which it traded a year ago.

“Many Saudi investors see this as the right time for making investments in gold as its price is the most reasonable one at present,” said Al Mohna.

Needless to say, the Saudis have a lot of money. Not just a lot… but a really, really, big, stupendous mountain of the stuff.

And like you and me, they’re human. The urge to buy gold this cheap is a pining all gold bugs around the world are feeling.

We are getting regular reports that, at these prices, demand is soaring in India (where price inflation is now running around 11%), and brisk sales have pretty much wiped out physical supplies of small coins and bars in the United States and Europe – among other corners of the world.

On that score, a few days ago, correspondent Jim G. sent along the following:

Most of you are probably aware that there’s a shortage of gold bullion coins at the retail level.

What does that mean?

Today I decided to purchase some gold bullion coins. So I called the Northwest Territorial Mint, one of the larger operations in the country, or at least the Northwest, so I’ve been told.

I called to see what the availability was. The operator put me through to sales, where I sat for 30 minutes. I finally got in my car and drove 40 minutes there, all the while still on hold. When I finally got there, a woman went in the back to see about bullion coin availability. She was told they were back-ordered with 30,000. Not dollars, orders. If I placed an order today, they thought they could fill it in 16 weeks.

To sum it up, I’m buying – if you happen to know a seller.

While we already know $750 is no magic number below which gold cannot fall or below which it cannot loiter, I take no small comfort in the fact that there is a clear increase in demand at that price. In time, as the dollar continues to participate in the fiat currency race to the bottom, that number will ratchet higher and higher still.

Maybe not overnight, but in the next six months to a year, certainly… or as certain as anyone can be about anything these days.

One thing that could get the show on the road – pronto-like – has to do with the continuing presence of the other 900-pound gorilla in the room: Foreign dollar holders.

[A Money Morning investigative analysis back in September demonstrated the muscle these overseas-dollar holders have, by showing how they forced the U.S. government to step in and take control of foundering mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE).]

Those foreign-dollar holders are at work in the gold market, as well. For proof, just look at China. Like their Saudi counterparts, Chinese investors have at their disposal a lot of greenbacks. Actually, not just a lot, but enough to remake the Great Wall, for China’s currency reserves are currently estimated at $2 trillion.

China’s investors face the same worries that we face. They’re watching the daily financial news and are realizing that this crisis is getting much, much worse. With that realization comes the desire to add gold their holdings.

On that front, here’s some news from Hong Kong…

(The Standard, Hong Kong. Nov. 14):  The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves “in a big way,” the source said.

China’s fears about the long-term viability of parking most of its reserves in U.S. government bonds were triggered by Treasury Secretary Henry Paulson’s US$700 billion (HK$5.46 trillion) bailout plan, which may make the U.S. budget deficit balloon to well over US$1 trillion this fiscal year.

The U.S. government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields.

The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.

Beijing’s reserves could easily go up to 3,000 to 4,000 tonnes, Tanrich Futures senior vice president Colleen Chow Yin-shan said.

In another article from Bloomberg News, the head of China’s gold association commented that he thought China could triple its reserves. The Bloomberg report featured this quote.

China has the world’s biggest foreign-exchange reserves at $1.9 trillion, according to data compiled by Bloomberg. It is also the largest overseas holder of Treasuries after Japan. China’s demand for gold jumped 23%  in 2007, making it the world’s second-largest consumer.

The Asian nation may buy more gold for its reserves on concern the $700 billion U.S. bank bailout will cause declines in the dollar and Treasuries, The Standard newspaper in Hong Kong reported today, citing an unidentified person.

In the final analysis, we can’t say with certainty what path gold will take between now and the time this crisis is over. But until I can see some tangible evidence that it has lost its value as money, I’m a happy holder and – at less than $750 an ounce – a buyer.

Source: Gold is a “Buy” at $750 or Less … But in the Low $600 Range, it Will be an Absolute Steal

“Nobody has the Eagles or the Buffalos right now. We bought 2,000 ounces late last week, and those were the last 2,000 ounces that we can find in the marketplace,” said David Beahm, vice president of New Orleans-based Blancard.

“If we don’t have them, nobody has them,” Beahm said. He added that he has been recommending customers to buy the one-ounce Canadian Gold Maple Leaf gold coin instead.

Top Canadian precious metals dealer Kitco reported that demand for gold bullion coins has increased significantly in recent days.

Kitco’s Senior Analyst Jon Nadler said American Eagles are still in stock even though delays in supply and shipping of all bullion products could be possible due to high demand.

This high demand for gold coins during the recent price slide bodes well for the future prospects of the shiny metal… The current spot price of $839 an ounce seems like a bargain compared to highs of over $1,000 earlier this year. With uncertainty in the stock market and weakness in the US dollar gold continues to be an attractive way for preserving wealth.

On my site’s page on gold’s daily price, I make available a five-day chart of gold’s price. On that page, you will find my commentary on gold. Beginning on the 18th of March, and posted on the 19th, I wrote that I believed gold had probably entered a bear market. That call looked as though it was way too premature, since gold’s intra-day high had been $1,037 on March 17. In the very early morning of March 17, I ran an article on my site on how to short gold to protect your position in coins.

Here is what I posted on my gold price page. If you have visited my page, you should recall this.

I think gold has entered a bear market. I posted this article on March 19, 2008:

http://www.garynorth.com/public/3263.cfm

The offsetting factor is fear of war with Iran. See my Department: War With Iran.

http://www.garynorth.com/public/department32.cfm

Just for the historical record, here is what I wrote on March 18 and published on March 19.

Gold could fall. I expect it to fall. So, you may pay a price for owning gold coins. I expect to.

If you are not willing to pay the price, you should sell all or part of them, or short gold bullion to compensate you for the loss. In short, count the cost. This is a universal rule (Luke 14:28-30).

I think the precious metals are a bubble market today. It is ending. Here is a crucial sign that it is ending. India is not buying. When Indians stop buying gold, they must be replaced by new buyers. Who might they be?
. . .

One day’s move should not be regarded as a definitive turning point — not after a seven-year run. But there are signs that the run is over for now. It is time to think about recession and even price deflation. As I have said for months, the FED is deflating. We should expect prices to follow.

Silver and platinum also fell on March 18. They are moving together in lock-step, up and down, yet the economic fundamentals for the three are completely different. So, something is driving them that cuts across individual markets. But what? I think it is the last of Greenspan’s bubbles: the commodity bubble. I think the bubble is about to end.

But what about oil? Yes, even oil. But the rate of declining price will be less than with other industrial commodities. I think this will also be true of gold.

I believe in the Austrian School’s theory of money, including the business cycle. I have written a short book on this. I am not so committed to a position proclaiming the ever-rising price of gold that I am willing to abandon Mises’ theory of the boom-bust cycle in order to hold such a position.

Gold is ideal for Mises’ inflationary crack-up boom, although not as good as a home with a garden in the country and a few thousand gallons of diesel. This is not the crack-up boom. There has to be monetary inflation for a crack-up boom to occur. Today, there isn’t any.

If you wonder how I came to this conclusion, read my mini-book, “Mises on Money,” which is posted on Lew Rockwell’s site.

http://www.Lewrockwell.com/north/mom.html

I was convinced on March 18 that the recession caused by the Federal Reserve’s relatively tight money policy would lead to a fall in the price of all commodities, especially the precious metals. I believed that the commodity market was the last of the bubble markets. The real estate market popped in 2006, and had continued downward. I was convinced that the last market of Greenspan’s bubble economy was the commodities market.

Investors go from market to market, trying to find the next market that is going to boom. This chase proves to be futile. They chase bubble markets; they get killed by bubble markets. I was convinced that commodities were going to fall, and that this was the end of the road for the bubble markets.

In July, the commodities market did begin to fall. I think this publicly marked the end of the commodity bubble. One thing could bring it back: war with Iran. That would be disastrous internationally, and it will push the price of oil and the
precious metals much higher. It was the threat of war with Iran that kept gold above $900 — not monetary policy, not the fundamentals of the market, not technical indicators, and not any of the other meaningless statistical indicators that are used by defenders of a bubble market to persuade investors that the market is anything except a bubble market.

You will no doubt see lots of reports on this or that indicator that shows that the correction in gold and silver and
platinum and palladium and copper and zinc and all the other metals is temporary. I don’t think it is temporary.

I still worry about war in Iran. I don’t think people should ever discount too heavily the idiocy of governments regarding war. The absolute stupidity of the President of Georgia in launching a military invasion of the Russian-dominated province of South Ossetia last Friday is indicative of what rulers do without counting the cost of their actions. This is normal. So, while the fall in prices of oil and the precious metals has given me some confidence that neither United States nor the State of Israel will launch a pre-emptory strike against Iran in the near future, I am certainly not willing to bet all of my money, including gold, on this assumption.

Nevertheless, I have been public in my warning since the middle of March that I believed that the bull market in gold and silver has ended. If we are talking economic fundamentals, gold and silver have had their big run. From now on and for months ahead, the pressure will be downward.

One such link is the price of money, as decided by the US Federal Reserve. Gold’s stellar 58% gain in the seven months starting 18th August began with the Fed’s first change to US interest rates in 18 months.

Last August’s 0.25% cut to the Fed’s “discount rate” – the interest rate it charges commercial banks to borrow short-term funds – was the Fed’s first interest-rate cut since July 2003. By the end of March 2008, it became a 3.0% cut to the bank’s key Fed Funds target.

And gold’s initial jump turned into a pole vault…

The real cost of borrowing Dollars – or rather, the real returns paid to anyone saving money today – clearly impacts the demand for investment gold.

You can measure this real rate of interest quite simply. Just subtract the rate of Consumer Price inflation (CPI) from the Fed Funds interest rate, as on the chart above.

Then compare this changing value to the price of gold, and you’ll see that when the real returns paid to cash sink below zero, investors and savers tend to pay more – or demand more – for gold.

That’s what investors and savers did in the 1970s. It’s what they then did NOT do again until real US interest rates sank towards and below zero during the first six years of this decade.

Why choose gold when real interest rates sink? Because if central bankers, driven by a fear of “deflation” in asset prices and consumer spending, try to stop the public hoarding cash, then people will seek out reliable stores of value instead, led by hard assets.

Unlike real estate, however, gold bullion remains a highly liquid, easily priced asset that can store huge quantities of wealth in a very small space. Unlike corn or crude oil, it needn’t cost you a fortune to store or insure either – just 0.12% per year at BullionVault, for example.

And gold, as the action since August’s first Fed cut reminds us, has acted as a reliable store of wealth for more than 5,000 years. In times of monetary destruction, or so history says, it’s human nature to seek an escape from fast-shrinking currencies.

Another important connection – also related to the Fed’s new rate-cutting cycle – sits in the currency markets.

In particular, look at the Euro/Dollar exchange rate. Because as the Dollar sank vs. the Euro in the back-half of 2007, daily movements in the US Dollar gold price were more strongly linked to the Euro than they were to crude oil, the broad commodity markets, and even the price of silver – gold’s poor cousin in the precious metals market.

This “correlation co-efficient” would stand at zero if gold’s daily movements bore no relationship whatsoever to the Euro. It would be negative if gold rose when the Euro slipped back (as happened to oil in the fall, albeit marginally as the chart shows above). The correlation would stand at 1.00 if they always moved together in lock-step.

And as of last month, gold and the Euro were more tightly connected with a correlation of 0.62 than gold and crude oil (0.45) or gold and the broad Goldman Sachs Commodities Index (0.29).

What does this tell us? First, the gold price is behaving much more like a currency than it is acting like a raw material. This is unsurprising given what little use gold has as anything other than a store of value.

Barely 15% of last year’s total gold fabrication worldwide ended up in either electronics (as gold bonding wire), coating for Space Shuttle windows, or in people’s teeth as dental fillings. But that lack of apparently practical use – which actually grew by 49 tonnes from 1998 to total 411 tonnes in 2007 – doesn’t mean gold is useless.

You’d hardly say the European single currency holds zero value, correct? But you try fuelling a jet engine or building a highway with Euros today, and no end of bloggers and financial hacks will step up to say your failed experiment just proves that it’s useless.

That’s why smart institutions such as the Royal Bank of Canada trade gold alongside the Euro on their currency desks, rather than it to their commodity teams. If you think the long-term decline of the Dollar is only set to grow worse, you might want to consider joining them, too.

As you can see, the gold price in euros has risen by more than 160% from its lows of 1999, even as the European currency has surged against the Dollar.

The upshot? Don’t be misled by that strengthening correlation between gold and the Euro. You would still have better rewarded a bearish view of the greenback in gold than in the European single currency or any other major world money. And while the Euro has risen by 48% against the Dollar since March 2003, gold outpaced that gain by a further 97% on top.

But just before you open a new internet window and type “buy gold” into Google today, hang fire for a moment. Because yes, the Dollar’s 12% loss vs. the Euro has somehow created a 28% gain for European gold investors since last August. And yes again, the Fed’s new rate-cutting campaign still has no firm end – let alone a reverse – in sight.

But if everything’s lined up for a fresh surge in world gold prices, why did the market pull back so sharply in the middle of March? Plunging 15% from its new all-time record above $1,030 per ounce, the gold market now stands some $100 lower. The Euro, in contrast, has risen since then. So too did the oil price.

The latest cut to Fed interest rates lopped another 0.75% off the gross returns paid to Dollars as well. So why the big swoon?

“This sharp reversal in price cannot be explained by a stronger US Dollar,” note the team at Virtual Metals in London, writing in the April edition of Metals Monthly on behalf of Fortis Bank. “Gold’s decline measured in Euros has been larger than in Dollars.

“Nor can [the drop] be explained by a reduction in inflationary expectations, as this hasn’t happened,” they go on. “Instead it seems to be narrowly based on improving sentiment in the credit markets…”

This chart “shows a close relationship since October 2007 between the gold price and the benchmark Markit CDX investment grade index, which measures the risk of credit-swap defaults,” explain Matt Turner, Gary Mead and Jessica Cross at Virtual Metals.

In plain English, the Markit CDX measures the cost of buying insurance against non-payment by 100 big corporate borrowers in the United States. And “as the Bear Stearns panic subsided, the index fell sharply, and so did gold.”

Meaning? Gold didn’t only surge on the Fed’s rate-cutting frenzy to mid-March. It also gained as institutional investors ran for cover amid the world banking crisis – a crisis which has yet to end.

No one’s to create at will, gold is also no one’s liability – not if it’s owned outright, rather than as a mere credit on a gold dealer’s ledger. Incredibly, London professionals have told BullionVault, around 97% of the world’s gold dealing take place on this kind of “unallocated” basis, attaching a real risk of default to the vast bulk of day-to-day gold trading.

Perhaps that concern explains why, alongside gold futures and exchange- traded gold trust funds, the latest GFMS analysis notes “healthy growth” in physical gold bullion investments, “mainly in allocated accounts.”

This market in late 2007 “was dominated by institutional and high-net worth investors,” the group’s Gold Survey 2008 goes on. “Many of the latter bought gold as a safe haven, soon after the the sub-prime credit crisis erupted.”

Demand from smaller retail investors, in contrast, “grew over the year (and notably in the last couple of months), but its contribution to total investment remained marginal overall.”

In short, the mass of private investors and savers still have yet to buy gold or even consider it. So if you were concerned that gold might be reaching some kind of bubble, you might want to consider the absence of “last fools” to date.

You might also want to note that, so far, the threat of US corporations defaulting on their debt obligations has been more imagined than real. Just what happens to the price of insuring corporate risk – and the resulting dash into gold – when debt defaults really do start to turn higher?

Adrian Ash
for The Daily Reckoning Australia

P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.