Gold Investing: Can Gold’s Run Be Stopped? (GLD, PHYS, SLV, ABX, SLW)
George Maniere: Everything that makes any sense tells me that gold’s run is over. The spot price of gold closed at $1788.90 which is $11.00 from its all time high. The Gold ETF (NYSE:GLD) closed at 173.94 which is $1.19 from its all time high. The charts are screaming sell and gold keeps shrugging it off and rising in price.
There are sermons from every brilliant economist that we need to return to the gold standard as if that will cure our economic woes. They tell us a return to the gold standard will restore a strong dollar and also restore our economic stability. These prognostications beg the question if the gold standard, which was abandoned on August 15th 1971, was the backbone of the strong dollar, why did the dollar continue to rise in value throughout the 1980’s? In case you didn’t do the math Monday was the 40th birthday of the floating exchange rate system of the deleveraging of the dollar from gold. So Happy Birthday to our devalued dollar!
The fact is that money is simply a medium of exchange. It’s the new age form of barter and indeed it is very effective. It is a universally accepted form of value that facilitates trade amongst people. If I want a car but only have sheep to barter, the car dealer might not want to make that trade. Using paper currency makes it possible for society to exchange goods in a fair and agreeable way for all parties. I read in a recent letter of Martin Armstrong that there are still tribes in Africa that use cattle as money.
My mind understands oil. While OPEC would make plenty of money if oil were $70.00 a barrel, they really need oil to be $85.00 a barrel because that extra $15.00 a barrel is needed to keep the populations of the OPEC countries placated. The people that are rioting in the Middle East are not doing it for sport and they are not rioting for democracy. They are rioting because they are hungry. The fact is that the U.S. dollar is the world’s reserve currency. All commodities trade in US dollars whether it is oil, gold, cotton or food. Therefore a weak dollar means more expensive food. We all see it here at home. Coffee that was $3.00 a pound is now $6.00 a pound. Milk is almost $5.00 a gallon. Imagine how this is impacting countries that are ruled by petty despots. So these rulers have taken to using the age old method of the carrot and the stick. First they shoot into the rioting crowds with rubber bullets (we hope) and then they bribe them with a stipend and give them just enough money to eat and take care of their family.
My mind understands the inverse relationship between the dollar and the 30 year Treasury bond. As the dollar gets stronger the bonds grow less valuable and as the dollar gets weaker people seek the safe haven of the US Treasury as it gets stronger.
What, however, I cannot get into my brain is the refusal of gold to even slow down. While the CME raised the margin requirements on gold by 22%, yet gold barely skipped a beat. In fairness it did sell off for two days but then it was back to business as usual, up $25.00 a day. Yesterday it closed at $1788.90 which is $11.00 from its all time high. The Gold ETF (NYSE:GLD) closed at 173.94 which is $1.19 from its all time high.
It is obvious that the powers that be are not enjoying the rally in the gold market. The CME, perhaps under pressure from government officials acted to raise margin requirements on the gold futures contract by 22%. Back in April, the CME, under the same pressure from the Feds acted to raise margin requirements (the good faith deposit that a buyer or seller needs to post against a futures position) on silver (NYSE:SLV) not once but five times. This action resulted in silver plummeting from $49+ to just under $33, or over 32% in just 5 days. Gold’s response was that it hardly took notice.
So what is driving this relentless move up? Global currencies continue to be debased. As Daniel Webster said to the Senate in 1833 “We are in danger of being overwhelmed with irredeemable paper, mere paper, representing not gold nor silver; no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors and a ruined people.” Mind you he said that in 1833. Does it ring a bell? Voltaire said back in 1729 “Paper money eventually returns to its intrinsic value – Zero.”
Until now currency debasement was confined to one government or region. Never before in history has there ever been a simultaneous creation of unlimited amounts of fiat money.
The consumer confidence index is at an all time low, as the massive amounts of debt have led people to tighten their pocket books which under normal circumstances would be prudent and healthy but in today’s world this is exactly what we don’t need. Moreover, this is not confined to our country as the debt in the Western world has led to a global slowdown.
These last twenty years have been based on an unprecedented worldwide creation of debt. Now it is time for the piper to be paid. Exceptional things never last since the natural order of things can only be tampered with for a very limited amount of time. We have now coming to the end and the consequences will felt in all aspects of society for a very long time.
Gold is just telling us that the U.S. government is getting everything wrong!
I remain long the SPDR Gold ETF (NYSE:GLD), ETFS Physical Swiss Gold Shares ETF (NYSE:SGOL), Sprott Physical Gold Trust ETV (NYSE:PHYS), iShares Silver ETF (NYSE:SLV), Sprott Physical Silver Trust ETF (NYSE:PSLV), ProShares Ultra Silver ETF (NYSE:AGQ), Barrick Gold Corporation (NYSE:ABX) and Silver Wheaton Corp. (NYSE:SLW).
I have an MBA in Finance and 38+ years of market experience. In 2009, I knew the market was seriously oversold and committed a serious amount of capital to the market. Needless to say things went quite nicely but I always remebered 2 important things. Hubris equals failure and the market can remain illogical longer than you can remain solvent. Please feel free to email me at firstname.lastname@example.org.