How To Buy Gold Stock

Mоѕt people оf thе world are wеll accustomed with the word stock exchange. It іs the backbone оf anу economy in thе world. But nоw it's time fоr people tо realize thе fact, thаt thе financial sector gеts a lot оf boosting thrоugh the investments in the gold stock market. Thе gold stock market іs increasingly bесоming popular with thе financial institutions.

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The important characteristic оf gold iѕ that іt has timeless worth. It hаѕ bеen аnd wіll remain to be the most sought аftеr metal that yоu wоuld lоok оut fоr. Anоthеr exciting feature іѕ thаt it iѕ а highly liquid metal. The ease with whiсh уоu сan convert it intо cash iѕ worth mentioning. Thеreforе investing in stock market іѕ vеry safe аnd sound.

Thе waу іn which gold hаs catapulted tо nеw highs rіght frоm thе word go аt thе stock еxchаngеѕ speaks volumes аbоut іtѕ demand and popularity. It hаѕ bееn аn outperform when уou talk about othеr stocks or bonds аѕ alternative investment solutions. It hаѕ provided investors wіth consistent growth of thеіr capital. Thе concept оf maximization оf wealth cоmеѕ true in case оf gold.

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Gold іs а rare metal whісh is the rеаѕon whу it's аlwауѕ high оn demand and іs ѕо valuable. Hеrе аgаіn gold-stocks score a point. Thе reserves оf gold аrе continuously decreasing аnd helping іtѕ prices reach to а nеw level. Thіs situation іs going tо carry on іn coming future аlѕо. Hencе investment in golds stock іs goіng tо gеt morе profitable by еaсh passing day. Yоu cаn be rest assured аbоut а safe, profitable and growing investment іn golds-stocks аll уоur life.

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“I see gold hitting $2,500,” says David Tice

David Tice, founder of the PrudentBear Fund, caught up with Daniela Cambone of Kitco News at the 2011 New Orleans Investment Conference to discuss his projections for gold and why he’s bullish – despite being the classic bear.

Source: YouTube, October 31, 2011

Mining for Gold on Wall Street

11/02/11 Baltimore, Maryland – Many technical analysts are saying the gold and silver markets are “breaking down.” I say the precious metals markets are cracking up…with laughter at the monetary shenanigans going on in the US, Europe and elsewhere.

Sure, gold and silver have suffered a sharp correction over the last few weeks. But so what; corrections always occur during long-term bull markets. Gold and silver are still cheap, which means that long-term investors cannot afford to ignore the recent weakness in the precious metals markets.

The gold price, at $1,664 an ounce, is still well below the inflation-adjusted all-time high of $2,330. Likewise, the silver price, at $32 an ounce, could quadruple and still not reach its inflation-adjusted all-time high of $136.

These comparisons do not automatically mean gold and silver are a “buy,” but they do illustrate how much higher prices could climb over the near term simply to “catch up” with inflation.

Now add in the fact that the powers in charge of the dollar and the euro are losing control of the currencies they purport to control, and voilà, you’ve got all the ingredients necessary for a continuing bull market in gold and silver.

If, as I expect, gold and silver prices will resume their decade-long bull market very soon, gold and silver stocks may provide even larger returns than the metals themselves. A balanced long-term investment allocation, therefore, should include both bullion and stocks.

Admittedly, gold stocks have been a big disappointment during the latest phase of the gold bull market. For more than a year, gold stocks have been doing next to nothing, even though gold and silver have been trending higher.

“Gold-mining equities may be married to the gold price,” observes James Grant, editor of Grant’s Interest Rate Observer, “but the spouses are not infrequently estranged.”

Since the day the gold price first jumped above $1,000 an ounce on March 13, 2008, the yellow metal has soared 68%. But over the same time frame, gold stocks, as represented by the Philadelphia Gold and Silver Index, have fallen 3%.

No investor buys a gold stock to lose 3% while the gold price is soaring 68%.

Perhaps gold stocks are due for a change of fortune.

Gold stocks are very cheap, both in relation to the gold price and in relation to most fundamental valuation measures.

The chart below shows the price-to-EBITDA ratio of the XAU Index of gold stocks. This ratio is a measure of price-to-cash-flow and tends to illustrate valuation more accurately than the more familiar price-earnings (PE) ratio.

Today, the price-to-EBITDA of the XAU Index is currently around 6.7 times — the lowest valuation in a decade.

For example, based on enterprise value per ounce of gold reserves (proven, probable and inferred), a buyer of the gold stocks in the table below would pay anywhere from $81 an ounce (AngloGold) to $224 an ounce (Goldcorp) for the gold these companies have in the ground.

Expressed another way, the enterprise value of AngloGold is only 4.9% of the value of its gold in the ground. Most large silver companies are also selling for pennies on the dollar of their in-ground metal.

Obviously, this very rough metric does not take into account the cost of pulling that gold and silver out of the ground. Furthermore, gold and silver mining companies always sell for deep discounts to the value of their metal in the ground. But today’s discounts are much deeper than they have been in several years.

If you don’t own gold stocks yet, now is a great time to buy them. And if you already own them, you should certainly hang on, or add to your favorites.

Gold stocks are cheap.

Gold Prices and the Real World

The relationships – both real and imagines – between Gold Prices and events...

YOU MIGHT have thought, last Thursday,  that the 'resolution' to the Eurozone debt crisis would have caused gold to tumble, the Euro to soar, and the Dollar to fall – perhaps with the Dollar Gold Price steady. So why are Gold Prices behaving as they are? asks Julian Phillips of GoldForecaster.

There are so many imagined relationships between gold and other factors and as each one proves incorrect, another takes its place. Is this because the media needs to keep our attention? In part yes, but the credibility that's given to these stories comes from the markets' desire for hope, often unrealistic desperate hope. Gold and silver, in their role as counters to currencies, are harbingers of uncertainty, fear and (to the banking system) a threat to the credibility of paper currencies.

What was thought of as a successful solution to the Eurozone crisis, as the bright fog cleared, was seen as it is –a lifeboat to the Euro and not a repair of the ship. Markets are wise enough to see this, so global buying came in as the deal was announced complete without details. 

The bottom line is that the structural strains of having weak economies joined at the hip to strong economies under one currency cannot work until there is fiscal union and a centralization that overrides national governments, such as is the case in the US It is no coincidence that this is what would have happened had the strong nations of the Eurozone conquered the weak ones in war. Europe has been battling with that problem for well over 2,000 years, so don't expect dramatic success on that front.

A single currency for different economies simply allows capital to flow from the weak to the strong and place untenable strains on the weak. The facilitation of this through loans far in excess of their capacity to repay them made the formula palatable, until now. While there has been a write-off of 50% of Greek's loans, they're burdened with a repayment schedule that continues to leave them in a weakened position. The same can be said of the other debt-distressed nations of the Eurozone (Portugal, Ireland, Italy and Spain).

Until these major issues are rectified from the ground up, doubts about the credibility of the Euro will persist and investors will remain cautious. So as a measure of value it remains suspect. This is positive for the Euro, gold price…

The President of the Bundesbank, Herr Weber, recently gave his reason for holding gold in Germany's reserves. He said that "gold was a useful counter to the swings of the Dollar." What did this mean? The Dollar is the world's sole reserve currency –one on which the bulk of global trade is transacted. It's the bedrock of the world's currencies. If it fell, it would take other currencies with it. They are the branches sprouting out of that trunk. If the concept of confidence in the US Dollar were destroyed, no other currency would stand. The only money out there carrying any global credibility would be gold and silver. 

With a far better structure to cope with the strains currently being seen in Europe, one would assume that the Dollar will be free of such strains, particularly because the Fed can print money at will and spread it across the world. That was the case until a few years ago. Then the perpetual US Trade deficit stretched it credibility too far. The nations that took in these Dollars ploughed their surpluses back to the US and bought U.S Treasuries to the extent that they now own 50% of that market. 

In essence therefore the US has borrowed back the money they exported. This is why it's so easy to keep interest rates so low. Foreign Dollar holders are looking to preserve value and hardly care about the income they receive. This has stopped the Interest rate markets in the US from functioning as they were designed to –to act as a control over the US economy via interest rate levels.

Now add to that, the raging over indebtedness of the US government, a situation that would never be permitted by the markets for private investors. In the belief that the government would rectify this budget deficit, markets have remained benign to the behavior of policy-makers. But lo and behold, government cannot govern this matter, which is why we went through a protracted game of brinkmanship as partisan politics stymied the resolution of the problem. With the game apparently ending in the super-committee being tasked with cutbacks, the Dollar was treated with respect again. But once more, we find partisan politics intervening. The super-committee (a misnomer for sure) is moving to brinkmanship again over party politics, threatening the credibility of the US and its Dollar.

Bear in mind, the party leadership has passed authority to this committee to finalize matters. Once again the credibility of the Dollar is on the line. Unlike Europe, with its fragmented system, it's not individual States that are the problem but the nation's governmental system that threatens the Dollar. In the last week, it's the Euro that has risen and not the Dollar that has fallen, but it looks that way. To see the Dollar fall, see it fall against a group of currencies, not just one.

The fear is that if the Dollar falls, then all other currencies will fall with it. The net effect looks like a stable exchange rate market, because what's there to measure it against? Only precious metals come to mind. Their market is so small, value-wise, that it's ignored by global financial markets. A glance at history shows us that this treatment of gold, silver can only last for as long as it takes one or more nations to break ranks and turn to gold as the real money again. Central banks of the emerging nations have already made that move, quietly and with ever so small steps, by buying gold for their reserves as it becomes available to them.

Gold Stocks

Gold Stocks:

Gold stocks can be as viable investments as gold bullion is these days. The reason is that (old) mining stocks hold a leverage or value to the price of gold. It is without question that the price of gold is not so much high as is the value of the US dollar that has fallen. Since gold is traditionally priced in US dollars, as the dollar falls the price of gold rises. This is the exact reason why gold functions as such a powerful hedge against inflation. (Gold) Metal stocks are linked to the value of gold because of what investors consider to be the reserve of in-ground-gold that mines possess. In other words if the gold stock is purchased when gold is $200 per troy ounce and the spot price of gold rises to $1800 per troy ounce, then the value of the metal stocks also rise because the gold that is currently being mined is suddenly more valuable.

 

Gold Stocks -The Value of the Dollar:

To consider gold stocks or to ask is gold a good investment, consider the likely hood of the value of the US dollar. America 2011 is sitting on a pre-election year. Traditionally the American investments become slightly more unstable when there is a potential change in presidency. Americans are not fond of change in leadership or rather they are not fond of the uncertainty that surrounds change in leadership. Also, take into consideration the political unrest that is happening in the United States. Movements like “ Take Over Wall Street”, are signs of unrest among the American people. Why are these items important? They are important because they all point to a continually weaker dollar. The wearer dollar means a potential increase in the price of gold. This further translates into better investments for gold and metal stocks. This helps to answer the question – Is gold a good investment?

 

Gold Stocks Vs Gold Bullion:

Gold stocks offer a value that gold bullion does not. That value is the absence of costs associated with buying physical gold. There are no dealer markups, shipping cost, storage costs, or insurance costs that are associated with physical gold. This means that the investment in (gold) mining stocks is just a simple investment transaction. Is gold a good investment? In terms of cost and price, yes it is a good investment. Even considering the astronomical rise on the price of gold today, gold is still a good investment because the likelihood that the American dollar will continue to fall in value. Precious metal stocks should continue to offer a very good return on investment for investors.

 

Gold Stocks – The Price of Gold:

Gold stocks and the price of gold are tied together in a parasitical type relationship. While the price of precious metal stocks does little to affect the price of gold, the price of gold can affect the price of gold stocks. The relationship between stocks and the price of gold revolves around the mining of gold. Specifically, it revolves around the amount of gold that a mine has in the ground. This is called a reserve of gold. As the price of gold rise or falls, the value of the in ground gold becomes more or less respectfully. This is the crux of the risk that is associated with buying any stock. The question to ask is if gold is a good investment. If the answer is yes, then the market is expecting that the price of gold will continue to rise. This would make investing in metal stocks a potentially lucrative investment, as well. This again, goes back to the question about what will happen to the American Dollar? Will the dollar continue to fall in value? Will inflation continue to rise? Will the price of gold continue to rise? All of these questions go in to the determining whether or not gold is a good investment.

 

Gold Stocks – Tips About Price:

It may seem odd that many mining companies have listed different prices of the value of their gold. Why would that be if the price of gold is unilaterally consistent? The reason for the difference in pricing is relevant to all stocks. Issues that can affect mine production are paramount factors that affect the price of gold offered by mines. Political unrest, work or labor issues, natural disasters such as earthquakes, can all affect the value of mining stocks. Other factors that should be considered are the price of operations, production rate, etc. These factors, while affecting the price of gold produced, may actually be beneficial to investors of mining stock. If those factors are corrected, and production goes up while the cost of operations goes down then the value of the stocks will rise. Opportunity, to say the least may be at hand.

Is gold a good investment? The answer to that question will change on a daily basis. This is because the factors that go into determining the price of gold change on a daily basis. For mining stocks, the factors that affect the value of those stocks also change frequently. This makes it difficult to answer that question. Investors should consider the daily price of gold along with the potential for the value of the US dollar to fall or rise, as indicators for gold as an investment. Investment in mining stocks should also be considered carefully with additional research being focused on cost of operations and productivity of the mine in to determine if gold is a good investment. The outcome will indicate who likely the investment will pay off in the future.

Why Invest in Gold?

I am usually asked – why do I invest in gold and gold stocks? There are several reasons why gold prices are increasing and will still increase, however the only answer is the basic principles of provide and demand. in the early 80s, Cabbage Patch dolls were selling 100 times retail value due to lack of offer. This priced many people out of the market and angered parents around Christmas time. i don’t believe the company meant to drive costs up with a limited offer strategy – particularly since it didn’t benefit from the upper costs as a secondary market evolved. Thus, to profit from the demand the corporate had to extend production. i believe that an identical situation is evolving in the gold patch.

From 1980-2001, there was little or no interest in Gold as it fell to a low of $255/oz. Mining firms weren’t able to attract investment capital to bring new mines and comes to fruition, therefore gold provides diminished. throughout this same time period, India and China were getting down to see the fruits of their industrialization efforts. as the countries industrialized, their voters benefited and started moving from the poor to middle class.

There are actually billions of individuals in India and China. each has cultures that encourage savings and have a robust affinity to gold. As a lot of move to the center category and transfer an area of their savings to gold, the investment demand are going to be tremendous. this will be exciting for gold investor; but, which will solely be a fraction of the demand. The central banks of Russia, Argentina and South Africa have all announced that they will be increasing their gold reserves with rumors of China and perhaps all of Asia to follow.

Gold prices shining again

NEW YORK (CNNMoney) -- Gold seems to be regaining its luster. The precious metal has rallied more than $100 in less than a week as investors turn to the precious metal as a safe haven amid concerns about Europe and signs of slow global economic growth.

The biggest move came Tuesday, when gold prices added nearly $50, or 3%, to top $1,700 per ounce for the first time in more than a month. Investors also poured nearly $564 million into the SPDR Gold Trust ETF (GLD), one of the most popular funds for investors seeking exposure to gold.

Prices gained another 1.4% Wednesday to settle at $1,723.50 an ounce, the highest level since Sept. 22. Silver prices have also rallied, surging more than 10% over the past four sessions.

The recent big moves have broken the link between gold and other risky assets, which had been moving almost in lockstep for two months.

"We're finally seeing gold prices move up in the flight to quality, along with bonds, the dollar and then yen, which is a positive for long-term investors," said Adam Klopfenstein, senior market strategist with MF Global. "When we weren't seeing gold rally in the face of economic uncertainty, a lot of investors didn't see the point of buying it, and moved to the sideline."

Europe: Grimmer by the minute

Now that gold has regained its longstanding status as a safe haven investment, Klopfenstein said prices will likely continue to move higher.

In fact, before the year is over, gold prices could reclaim record levels above $1,900 an ounce that were reached in August, said Carlos Sanchez, precious metals analyst at CPM Group.

"It looks like we're going to be dealing with continued concerns about Europe, because even though leaders seem to be working harder, we aren't going to get a resolution overnight," said Sanchez. "And even if the United States can avoid a double-dip, the data is showing that the economy is treading just above recessionary levels."

Investors (and the Fed) are addicted to liquidity

Rumblings of another round of bond buying from the Fed -- or QE3 -- is also likely stoking fears of inflation and helping gold prices, said Keith Springer, president of Springer Financial Advisors.

Fed vice chair Janet Yellen, Fed governor Daniel Tarullo and New York Fed president William Dudley have all recently hinted that another quantitative easing program could be on its way.

The Correct Way to Invest in Gold

 

Historically speaking, gold is probably the very first currencies that our ancestors and forefathers utilized for buying and selling. Knowing how to invest in gold, you would make best use of the benefits that you are likely to have since you can predict the mobility of its worth in the marketplace. Gold investment by way of possession of this metal itself, gold mining stock options and mutual funds supplies the most direct stability towards the dollar. When the dollarrate drops, the value connected with gold will certainly surge.
How to invest in gold is a good field to discover. Gold investment is usually the best way to generate income. Today, a yellow metal troy ounce may be worth $1500 (this will be subject to variances in the market). Knowing how to invest in gold, you possibly can harvest an awesome pay back especially if the dollar rate or other currencies continue on dropping. In case you are looking for yellow metal investment, below are a few elements that you can do so that you can come through victorious in gold industry:

1. Purchasing gold bullions. Basically, gold bullions are coins or maybe yellow metal bars. Almost any person can easily have gold bullions these days. If you possess a single or both these gold products, this is a good prospect for you to put your finances in this kind of financial commitment. However, you ought to be cautious in investing in bullions because if the value of yellow metal falls past what you have invested, you'd undoubtedly lose the gain that you are likely to create and also afterwards, a few of what you currently have invested in likewise. Learning how to invest in gold accurately, it is possible to avoid deficits in the future.

2. Investing in gold Exchange-Traded Capital. This is certainly regarded as of the best ways of getting money through yellow metal because it responds the buying price of gold in the market. Individuals learning how to invest in gold choose this approach. Basically, you're going to make investments your dollars that deals large amount of yellow metal. Through placing your investment, you are successfully getting 1/10th oz of gold.

3. Investing in gold mine organizations. If you need to know how to invest in gold desperately, investing in goldmining firms will be extremely advisable. Generally, you will be receiving the share of earnings of what these types of gold mining businesses are getting from their mining expeditions. If the gold mining companies are doing well, you will also get rich as well.

Nowadays, many people are learning the tricks on how to invest in gold. By means of studying a few of the gold investing techniques listed above, you might undoubtedly get a positive way to reap considerable volume of incentives as you realise that the cost of your precious metal is sometimes steady or rising. The worthiness of dollar and also other currencies might drop on the other hand; the worth of gold will certainly still escalate.

The Life Cycle of a Gold Mine: Operating the Mine

Operation is a dynamic and exciting phase in the life cycle of a gold mine. After years of hard work and millions of dollars invested, a miner can finally start to see some returns. Though the basics components of the operational phase seem simple (extracting, processing, and selling the ore) calling the process simple is a gross understatement. The operational phase is complex and requires a great deal of management and planning in order to be successful.

In response to the dynamic economics behind running a profitable mine, the miner puts a great deal of effort into implementing and adjusting key operational strategies when extracting ore. Furthermore, while extracting the ore, the miner may also still be exploring the area surrounding the in hopes of expanding the mine’s reserves. Maximizing profits and resource expansion are crucial undertakings inherent in this phase, as is making sound business decisions to mitigate the social and environmental impacts of mining.

They have started mining….. Now what?

Strategy is the backbone of the operating stage. During the operational phase, miners rely on their strategy to determing how successful and profitable the mine will be. Though some aspects of operating strategy, like resource quality, are out of the miner’s control, important parameters that the miner must address include: their interest in investing into resource expansion (exploration) ahead of mining, and what the minimum cut-off grade of gold is that they are willing/able to mine, and the overall macroeconomic picture for gold.

Throughout the mining operation, the strategy has to be routinely revisited and possibly revised as important external economic factors, like gold price and the dollar index influence the economics of the mine. Cut-off grade provides the mechanism by which miners respond to changing metal prices. If prices rise, they can extend mine life by reducing cut-off grade, exploiting previously uneconomic mineralization. This has the effect of extending mine life, while lowering gold output and causing costs to rise.

Profitability

Several factors can influence a mine’s profitability that are both controllable and “uncontrollable”. The “uncontrollable” factors can be separated into two broad categories: geological and financial. The geological factors include: the grade of the deposit and the depth at which the gold is buried. Due to the geology of some mines, the potential for profit will be greater than others. Financial factors, such as the price for gold, the demand for gold and the exchange rates also influence a mine’s profits. Fortunately, gold prices have rallied for the past decade and have no signs of slowing down.

Within a miner’s control are the operating costs. Operating costs are dictated by how much waste rock is mined with the ore (i.e. the grade of the reserve), how effectively the resource is recovered, and how costs are managed. No two mines have the same operating costs. Productivity, safety, and the environmental and social impacts of the mine are also factors to be considered.

Generally, a mine with lower operating costs is a better investment than a mine with higher operating costs. In order to determine what a mine’s operating costs are, investors should be mindful of the miner’s reported gold cash costs (i.e. the cost of production per unit of output) as well as the miner’s annual and quarterly earnings reports. The gold cash costs account for operational cash costs at site level. Many gold analysts caution against looking solely at cash costs, because some costs like depreciation, reclamation, and other non-cash costs are omitted from the calculation, making a mine appear more profitable than it actually is.

As an investor, it is important to keep up to date on a miner’s operational strategy as well as business developments as they have the potential to impact profits- and therefore share value.

Social and environmental considerations

There is a cost to operating with sound environmental and social practices; however, by following sound environmental and social practices, miners develop a good reputation (important if the miner wants to develop more properties in the future). By not following proper social and environmental regulations, miners risk labour disputes, paying for expensive environmental clean-ups, and perhaps even some pricey lawsuits.  In order to be approved to mine- the company had to make certain guarantees to mitigate the social and environmental impact of mining- they must stick to those promises. In the next part of the this series we will talk in depth about the last step in the life cycle of a mine and a key component of a miner’s attention to social and environmental considerations:  the rehabilitation/reclamation of the mine site.

Gold Business for Smarties

Precious Metals are a Stable Investment

Gold prices are on an all time high these days without any sign of dropping beyond basic market fluctuation.  With the way the economy is today, for sure investors are more conservative about where to place investment dollars, but a great idea beyond just investing is perhaps staring your own business.  Gold is a great physical asset that will forever store it's value.  Gold also will always be internationally traded for quick liquidation into cash.  That said, starting a small gold selling business is another way to capitalize on a very marketable asset.  If gold prices only continue to leap, then there's hardly a risk of losing money in the future. Even you were to come across a money inheritance or have perhaps saved up/came across a decent amount of money you would like to invest for maximum profit potentional, gold will one day pay off if not right away.  In other words, even if you purchased lots of gold within a small business with intention of selling right away, you're purchased gold will always sell in the future, if not immediately. Gold investment is financial security.  A great way to start your business is thinking small.  Gold coins are pockets of treasure with there being so many sizes and authenticities to chose from, it need not break your check book.  Buying one collectable coin, more common in the market and made recently still holds value based on the amount of gold that said coin contains.  It's a starting value that will only increase in time. From there, perhaps take that more common coin and sell it for a profit toward a new investor who perhaps has the same start up idea.  You then take that profit, purchase perhaps a less common coin, let that accumulate over a short time and sell that and so on and so forth.  With such a debtor and credit based nation, spending money on a gold coin collectible is only buying away from the credit system that gave gold its current value to begin with.  From there you earn a real savings for the future.   That said, there are not that many trusted gold dealers. given the current market price is well over $1,600 per ounce these days many are trying to capitalize on a gold commodity.  Therefore, while gold is still a great investment, it comes with great risk if not done wisely.  As a new investor, take time to consider the source of your physical gold purchase, check creditionals, check customer reviews as well as making sure your physical gold has a certificate of authenticy. Finally, once you have selected your small gold investment base, it's slowly selling, slowly buying and slowly building your investment and thus your business.  It's not fail proof and it shouldn't be expected to be an instant career switch, but as a side business with proper research along with the help of trusted gold dealers, a gold business will be a successful business, especially for the future.

If you don’t own gold, now’s a good time to buy

 

I’m not sure we are going to see new highs in gold any time soon.
In fact, I’d wager some meaningless nickel coins that we’ve already seen the high for 2011. (The $1,923 an ounce level that was set in early September).
But I would also argue that we’ve seen the lows for the year as well.
After its summer excesses, which were duly chastened when gold fell almost $400 in a week, I would argue that gold is now stabilising nicely above $1,600.
And I suggest that, for those of you that don’t have a position, now is a good time to get one.

What does gold normally do at this time of year?

Of course you could listen to the perma-bears, who have predicted as many as 17 of the last five corrections in gold, and decide that gold is in a bubble; that it has no use so what’s the point?; that we’re in deflation, so gold will fall; or write it off because it doesn’t pay any interest.
That’s fine by me. Go ahead. I will sit on my little pot of gold and occasionally taunt you. Or eat a large portion of humble pie, if you prove to be right. (Which you won’t).
Meanwhile, for those who don’t already have a position, or who are looking to increase an existing one, I think an opportunity to get long is about to present itself.
I like to use a mixture of fundamental analysis – why would this market rise or fall? – and technical analysis (TA). Too much reliance on either one does not suit me. I like to marry the two.
I know that gold is in a bull market. I know and understand the fundamental arguments for gold – currency debasement, negative real rates, a banking crisis, monetary stress, a global debt horror fiasco, several thousand years of history and so on. So there are my fundamentals.
A lot of wiser heads than mine knock TA, but I like it. Once I have my fundamentals in place in my mind, TA helps me to identify entry points, exit points and apply some money management. In other words, the fundamentals help me to decide on an investment path, and TA helps me to navigate the journey.
Let’s first consider the seasonal patterns for gold. This first chart below shows the average monthly moves of gold over the last 40 years. Normally, you would expect to see a strong move in gold in early October – which we have had – followed by a decline in the second half of the month.
We appear to now be experiencing that too. Gold began the week at $1,680, went as low as $1,630 yesterday before rallying to $1,660.

I like to be aware of seasonal patterns, but, for me, they are a secondary, not a primary trading indicator. September, for example, is usually a strong month for gold. This year it was horrible. So I don’t rely on seasonals.
(My thanks, as always, go to Nick Laird of www.sharelynx.com for the chart. Incidentally, I interviewed Nick this week in my podcast – he had some extremely interesting insights. This will be uploaded to my site later in the week).
 

A good buying opportunity is coming up

What has, however, become one of my primary technical indicators for gold is the 144-day moving average (144-dma). This shows the average price of gold over the last 144 days. Perhaps it’s coincidence, or perhaps it’s because 144 is a Fibonacci number, I don’t know. But the 144 dma has proved to be an astonishingly reliable bottom-caller since 2009. It seems to have caught the lows once again.
If you look at this next chart, you will see the gold price with, underneath, a red line, which is the 144-dma. Gold’s slides, since 2009, always seems to halt here. (It slipped through briefly a fortnight ago, but this was outside of New York trading so we will cut the 144-dma some slack).

It was the trader Michael Hampton who first alerted me to this average, so credit where credit’s due. I was the first, I think, to write about it, but it’s now finding some renown in the gold-watching blogosphere. Sadly with these things, the more people that are aware of it and use it, the less they work.
But we can worry about that if and when it happens.
Gold currently sits at $1,650. The 144-dma lies at $1,606 and rising. I dare say the two will meet in the coming fortnight, which is when you should be looking to get long. Leave some orders in the $1,610 to $1,630 area maybe? And, if you want to play it really safe, put in a stop loss somewhere beneath that red line.

Gold will never fall below £1,000 an ounce again

As for gold in pounds, I would say buying as close to £1,000 an ounce as you can get makes a great deal of sense. I like making bold pronouncements, so why don’t I give you one here? Gold will never fall below £1,000 an ounce again. Triple-digit gold, in sterling terms, is a thing of the past.
The current price by the way is £1,050 an ounce, so I’m cutting it pretty fine and could easily end up with egg on my face. But I’m making this call as much out of sterling bearishness, as I am gold bullishness.
In short, even though I suspect we’ve seen the highs for the year in gold, we can expect new highs some time in 2012. Now is an opportunity to position yourselves to enjoy them.

Gold Not a Bubble: It’s On Its Way to $10,000/oz

“Gold is not a financial asset to be compared with dot-com stocks or Miami condos and it is not a commodity like pork bellies or crude oil. It is the ultimate currency for the truly sophisticated wealth holder in a time of substantial unreserved credit promotion.”

– Paul Brodsky (Fund Manager)

The recent correction in gold has once again led, to financial commentators warning of a bubble – just as they have incessantly since it first passed $400 an ounce. A bubble usually ends with day after day of speculative higher highs, not corrections like we have just seen or as we saw in August where a $200 fall was followed by the resumption of its decade long rise. That gold continues to climb a wall of worry, and that so many are even calling it a bubble, is actually an extremely bullish indicator since financial bubbles burst only after sustained periods of exuberance. We are far from the days when people lined up for blocks each day to buy gold, as they did in Toronto in 1980.

A simple rebuttal, however, is never enough when discussing gold. It will continue to be subjected to the most aggressive “perception management” assault of any asset class, because it is a direct challenge to all the world’s fiat currencies. Since no paper currency is convertible to gold at this time, this is some challenge. The warnings of bubbles and the many other reasons for not owning gold will continue unabated as gold persists to $10,000 an ounce, or higher. Independent study of the underlying causes of gold’s rising price, in my opinion, is the best way to gain sufficient confidence to buy and hold gold long enough to protect one’s wealth through the turbulent years ahead.

This is the premise of my upcoming book, $10,000 Gold – Why it will get there sooner than you may expect. In this article, we will look at three of the most significant reasons why gold is not in a bubble and will continue rising in value for years to come.

There are two ways of looking at gold. The first is the Western way, viewing gold through the lens of fiat currency training. This approach sees gold as a wealth-gaining asset that can be traded like any other asset class or commodity for currency gains. The second way is how the world’s major gold buyers at this time see gold. The Chinese, Indians and Middle Easterners see gold as a wealth-preserving asset that serves the purpose of money. The second group will ultimately be responsible for driving gold into the five-digit range. Many of these people have had direct experience of the damage to one’s wealth a currency crisis can cause. The most aggressive buyers, the Chinese, experienced 4,000% inflation per month between 1947 and 1949.

If gold were a commodity it would be in a bubble, but it is not. Gold has been money for over 3,000 years, and still is today. Although never officially recognized as such, gold trades on the currency desks of all the banks and brokerages, and is held by central banks. Since 2009, central banks have become net buyers of gold. Pension fund manager Shane McGuire makes the point in his book, Hard Money: Taking Gold to a Higher Investment Level , that gold and silver are really the newest asset class, not the oldest, since until 40 years ago they were money. Many readers will remember a time when silver dollars were exchanged in stores at face value.

To step outside a fiat mindset, we encourage our clients to think in terms of ounces of gold rather than dollars—a task that is much easier to do when one owns gold. We encourage them to ask questions like, “What is the risk in ounces of an investment?” and “How many ounces can I expect to gain in return?”

This perspective gives us the single most important insight into gold’s true behaviour, as it tells us that gold is not rising in value – currencies are losing value against gold. This means that gold, as money, can appear to rise in value as far as currencies can fall. In light of this, we can look at three features of gold’s rise that tell us it is not only not in a bubble, but unless current monetary policy is drastically changed, it will almost certainly rise to $10,000 an ounce and beyond.

These features are:

1. The loss of purchasing power of global currencies
2. The inflationary effects of money creation
3. Irreversible trends will continue to cause gold to rise

1. Loss of Purchasing Power

A basket of goods that cost $100 in 1800 would have cost $102 in 1900. During this time, the dollar was pegged to gold. Today that same basket would cost over $4,000. This is what we mean by loss of purchasing power. Over the past decade, the Canadian dollar, the euro and the Japanese yen have lost over 70% of their purchasing power against gold (Figure 1). The US dollar and the British pound have lost over 80%.

The next chart (Figure 2) takes a longer view. It shows how the same currencies, including the venerable Swiss franc, have performed against gold since President Nixon closed the gold window in 1971.

What is the cause of this loss of purchasing power, and will it continue? Currencies lose purchasing power against gold for one simple reason: Currency supplies are expanding faster than gold supplies. Bullion is the one form of money governments cannot artificially multiply. Since 1980, above-ground gold bullion supplies have risen, on average, about 3% per year. We can see in the next chart (Figure 3) a comparison with the much more rapid rate of currency creation provided by MZM, one of the most reliable indicators of currency supply.

Another way to understand this loss of purchasing power is by looking at the number of ounces it would have taken at different periods to buy a house, a car or the Dow.  In 1971, an average car cost 66 ounces of gold; an average house cost 703 ounces of gold and the Dow cost 25 ounces of gold. Today, 66 ounces of gold would buy nearly four cars, 703 ounces of gold would buy two houses and only 6.5 ounces of gold would be needed to buy the Dow (Figure 4).

2. The inflationary effects of currency creation

In 1983 Webster’s Dictionary defined inflation as:

“Inflation is an increase in the amount of money, resulting in a fall in its value and a rise in prices of goods and services.”

Since the presidency of Bill Clinton, government Consumer Price Index (CPI) reports have moved from being a fixed measure of a standard of living to a flexible measure of a standard of living. Through a variety of machinations such as hedonic regression and substitution (if steak becomes too expensive, remove it and substitute with hamburger), these measures grossly understate true inflation. Currency debasement (a term derived from the Roman practice of hollowing out gold and silver coins and filling them with base metals), leads directly to inflation. In the few dozen hyperinflations that have occurred throughout history, all have been the direct result of governments attempting to compensate for slowing growth through currency creation, which is exactly what we see happening today. Figure 5 shows that this currency creation has already turned exponential.

Fortunately, one economist, John Williams of ShadowStats  (Figure 6) continues to track the original basket of goods governments used to track inflation prior to the early 1990s. His data shows inflation running at a much higher rate than is publicly acknowledged. His CPI is at 12%, over eight points higher than the “official” inflation reports.

Eventually, we will have to admit the truth about inflation, the truth that anyone who eats, drives or sends their children to college already knows. Figure 7 shows what gold and silver would trade at if we were to accept Mr. Williams’ CPI numbers.

3. Irreversible Trends Will Continue to Cause Gold to Rise

Finally, there are many independent trends that are having a direct impact on the price of gold. The most prominent are central bank buying, Chinese and Indian buying, the movement away from the US dollar, peak gold and under-investment in gold by pension funds.

Central banks were net sellers for nearly two decades until 2009, when they officially became net buyers. We can expect this trend to last two decades as well. During the gold “bull” market of the late 1970s, the Chinese public was not allowed to own gold. Today, their government encourages gold ownership, and has even made several significant innovations to facilitate this goal. The Chinese government has also led by example, with China’s central bank publicly stating it would like to increase its reserves from 1,100 to 6,000 tonnes. Unofficially, they have stated a target of 10,000 tonnes.

There can be little doubt that a race to exit the dollar is underway, as governments feel the US has no choice but to continue debasing their currency just to meet existing obligations. Peak gold, like peak oil, occurs when gold miners fail to increase production or discovery despite the rising price of the underlying commodity. Gold production has fallen since 2005, and is only slightly higher in 2010. To quote a recent exhaustive Standard Chartered Bank report:

“In our study of 375 global gold mines and projects, we note that after 10 years of a bull market, the gold mining industry has done little to bring on new supply. Our base-case scenario puts gold production growth at only 3.6% CAGR over the next five years .”

With pension funds holding less than 1.5% of their assets under management (AUM) in gold bullion, they will have little choice but to increase their position as gold continues to outperform all other asset classes.

These trends are significant, but they are all capable of being changed, however unlikely that may be. What cannot be changed are the “irreversible trends.” These have an indirect impact on the price of gold; they are causing growth to slow, and are therefore creating the need for governments to compensate through ever-increasing currency creation.

Three of the most significant “irreversible” trends are:

1. The aging population
2. Outsourcing
3. Peak oil

The largest population sector, the baby boomers, are starting to retire, and living longer than any previous generation. Their demands, which previously fuelled growth in the global economy, will reverse. They will downsize, reduce spending, liquidate investments and draw down on pension funds, social security and medical benefits. This will reduce GDP, increase unemployment, reduce government revenues, increase budget deficits and require even greater currency creation. This will reduce confidence, further debase currencies and result in increasing gold prices.

With the advent of globalization and outsourcing, politicians and multi-national corporations have let the genie out of the bottle; this has resulted in the decimation of the manufacturing base in Western economies. This will manifest as systemically high unemployment, reduced GDP, higher government deficits and further currency debasement. Again, this will lead to higher gold prices.

In September 2010, a German military think tank reported the German government was taking the threat of peak oil seriously and preparing accordingly. Numerous studies around the world have concluded that we are very close to peak oil production, which will be accelerated due to Gulf drilling bans. This will lead to higher price inflation for most goods, reduced GDP, higher trade deficits, and higher budget deficits.  More monetization will result, thereby debasing currencies.  Higher price inflation together with further currency debasement will again be a driver for higher gold prices.

Like a spinning top must continue spinning or fall, our modern economic debt-based fiat system depends on perpetual growth. It is disturbingly similar to a classic Ponzi scheme, which requires new borrowers to bring currency into existence that can be used to pay the interest on the previous loans. The greatest threat to its health is slowing growth or deflation. With interest rates near zero, central banks have only one tool left to combat slowing growth—currency creation, which means inflation. These irreversible trends, therefore, virtually ensure gold will continue rising in value for years to come.

In conclusion, I know many readers are hesitant to buy as they feel they have “missed the boat.” Perhaps this Chinese proverb will help:

The best time to plant a tree is twenty years ago.
The second best time is today.

Marc Faber: Gold is “Dirt Cheap” — Price Could Reach $10,000 per Ounce

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Eleven years into a gold bull market, Marc Faber publisher of the Gloom Boom and Doom report still doesn't think gold is in a bubble. Joining us via Skype from Chiang Mai, Thailand Thursday, Faber told the Daily Ticker's Aaron Task there are fundamental reasons why gold, already nearly 30% higher for they year, will continue to gain value.

Faber admits the price of the precious metal may remain volatile; after hitting a new high of $1923.70 on Tuesday, gold has fallen about $100 per ounce.

But in the long-term "gold will be very well supported" because of global demographics and the continued debasement of fiat currencies, including the U.S. dollar. Compare gold prices to the amount of wealth created in the emerging markets over the last decade and the increase in the monetary base around the world, the price of gold is "relatively low," says Faber. Compare it to the quality of politicians and at $1,800 per ounce gold is "dirt cheap," he half jokes. He won't put a price target on the metal but he does say, "according to some statistics the gold price today should be worth between $6,000 per ounce and $10,000 per ounce." If that's true, then "dirt cheap" might be the right phrase.

Monetary policy is not only buoying the gold market, it's also responsible for the recent market turmoil, Faber says. "I have argued for years that the Federal Reserve with its artificially low interest instead of creating monetary and economic stability it has created more instability by creating the Nasdaq bubble, the housing bubble, the commodities bubble and now creating a giant government debt bubble."

That's not to say Faber is uber-bearish on stocks. He thinks stocks will remain range-bound for the rest of the year and that the see-saw market will persist for the foreseeable future. He predicts global stock markets will go up and down at least by 20-30% annually for the coming years.

For now Faber recommends investors stay diversified: 25% in stocks, 25% in real stocks, 25% in gold and silver and 25% in cash.