The quiet is deafening

George Rebane

Gold is now comfortably at above $1,400 an ounce and rising.  It has risen over 28% in 2010 and over 170% in the last five years.  The other precious metals – silver, platinum, palladium – have done even better. 

The official word is that there is nothing to worry about.  The world economies are slowly working their way out the Great Recession.  Interest rates are low.  More fiat money is being printed daily to make it easier to borrow.  With all the pent up demand and new cleantech legislation just kicking in, the job situation is bound to get better in the coming year.  Inflation - excluding education, healthcare, food, fuel, and utilities – is low.  At the same time the biggest buyer of US Treasuries is now our own Fed using freshly printed bills to quantitatively ease the economy.  We are assured that none of this is monetizing (sounds better than ‘inflating out of’) our debt.  Things are looking up.

Meanwhile, over to the side, right there behind the curtain, central banks the world over are quietly laying in stores of bullion, as are corporations and private investors.  And who knows what it all means that also quietly, ever so quietly, people who don’t need to but can, are beginning to borrow as if they didn’t have to pay it back.  No one wants to spook the sheeple for then there will be hell to pay.  Shhh!

From the 29dec2010 WSJ – U.S. investment bank Goldman Sachs Group Inc. says it expects gold prices to climb to $1,690 an ounce, and potentially even higher, over the next 12 months as a new round of quantitative easing keeps real interest rates low and drives excess capital flows from countries with trade surpluses—which have traditionally parked their money in U.S. government bonds—into other investable assets, such as gold.  "We believe that the crisis of confidence in the financial markets is just getting started," says Peter Grosskopf, chief executive of asset-management firm Sprott Inc., which holds $6.5 billion of assets, including physical gold bullion. "Deficits will widen and we will continue to invest more in the precious-metals sector."

Comments

[Mikey McD]

Comical: "Inflation - excluding education, healthcare, food, fuel, and utilities – is low." George, you and I must live in a bubble where the cost of living IS going up...

Bumper sticker: Gas was $1.81 when Obama took office

Since inauguration day and since QE 1...2...:

Price of gas is up over 55% since inauguration day

Price of food: http://finance.yahoo.com/echarts?s=DBA+Interactive#chart1:symbol=dba;range=6m;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

price of healthcare: My premiums are up over 19% since Obamacare

[Dixon Cruickshank]

I have a pic of a sheeple, George I'll send it to you - cute little thing female too.

I'm trying to figure it out myself, gold is high but....

[Dave C]

Buying physical precious metals is much better than buying shares in the metals, even if the shares can be converted to a physical asset at a later date.

Any one buying physical bullion should be prepared to hold, hold, hold. Bullion brokers have a vigorish (The Vig, or brokers fee) in the 10% range over the spot price. Plus a few percent more for a certificated and serialized ingot. In California, if a single transaction purchase of bullion is under $1500, sales tax is applied. Thus, a 16oz. ingot of silver, using $30 spot per ounce, plus the vig, sales tax and a certificate will wind up costing in the $600 range. This puts the value of your ingot at around $37 per ounce. Put the ingot in your safe deposit box and forget about it for a few years.

Later, if you decide to unload the ingot at say $45 per ounce with a broker you'll get spot less a couple of percentage points. Additionally, the broker will give you a 1099. Thus, depending on your individual tax rate, you will pay a capital gain. However, nothing precludes the owner of the ingot to sell it to a private party and bypass the 1099 requirements.

Buying shares of bullion is riskier. The buyer has to insure he has a reputable broker. Insure the broker will actually purchase the bullion on the day they recieve your funds and not hold the funds for a few days hedging the price will go down. Expect to pay the brokers Vig of 10% up front, plus a monthly account maintenance fee. Later, if you want to convert your shares to physical bullion, you will pay a fee to have it cast in to ingots of your choice of weights, usually around 5%. Or, you can call your shares for cash at spot less a 4-6% transaction fee.

Stay away from buy as you go plans where you send a broker (say) $500 per month and the broker buys the bullion each month in your name. All you are doing is buying the average market whether it goes up or down.

Best bet: Buy physical bullion, put it away and forget about it until you need it.

I am not a bullion broker, I am an investor.