Tuesday, May 23, 2006

 

Investing In Gold Makes A Comeback

Market Watch has the days trading numbers. "Gold futures gained $16 an ounce, copper prices rallied more than 12% and silver futures closed 6% higher Tuesday, fueling speculation that the downward correction from the price peaks almost two weeks ago may have come to an end. Gold for June delivery rose as high as $674 an ounce on the New York Mercantile Exchange before closing up $16, or 2.4%, at $673.70."

"Meanwhile, total demand for gold in the first quarter of 2006 fell 16% to 835 metric tons vs. the same period a year ago, according to figures compiled by GFMS Ltd. for the World Gold Council. The report, released Tuesday, blamed a fall in jewelry demand, particularly in Asia and the Middle East, which is considered to be a 'normal and predictable reaction to a volatile gold price.'"

"But in dollar terms, that was equivalent to a 9% in spending on gold, it said. While jewelry demand fell 22% in tonnage terms when compared with the first quarter of 2005, it reached $9.5 billion in dollar terms in the 2006 first quarter, which was a 2% rise."

"Also, total investment in exchange-traded funds and similar products for the first quarter reached 109 metric tons, a 23% increase in tonnage and a 59% increase in dollar investment vs. a year earlier, the report said. The increase reflected 'the easy access ETFs provide investors to the asset,' it said, and at the end of the first quarter, combined ETF holdings amounted to 496 metric tons."

"The 'most significant finding in the report is the fact that investment demand is surging ahead and that gold is reasserting its monetary value and is regaining respect among Western investors and institutions alike,' said Jon Nadler, an investment products analyst at bullion dealers Kitco.com. 'After being relegated to the dark recesses of the investment arena for two decades, gold is making a comeback that cannot be dismissed as a 'bubble' or the 'next dot com',' he said."

"July silver closed at $13.17 an ounce, up 74 cents, or 6%. The lows Monday were 'excessive, at least in the short run,' for silver, said Peter Spina. 'Once the markets started to rally, prospective buyers flocked back into the market.'"

"July platinum added $36.90, or 2.7%, to $1,319 an ounce, and June palladium rose $15.75, or 4.6%, to stand at $357.50 an ounce. Also Tuesday, the StreetTRACKS Gold Trust exchange-traded fund rose $1.05 cents, or 1.6%, to close at $66.35 and the iShares Silver Trust ETF added 4.1% to end at $130.30."

Comments:
We'll see if this is a real trend. Gold and silver got such a bad rap in the 80's that business school professors would suspect you of militia ties if you brought it up.

Here is an interesting Bloomberg article on Asia.
 
As J.P. Morgan once said "gold is money and nothing else" Both Au&Ag have functioned as money through thousands of years. No paper money as ever "not" failed. We should think of them as true money,instead we put our faith in printed paper and politicians. Wonder which one will win out in the long run?
 
"Wonder which one will win out in the long run?"

Neither I suspect. Gold is a fine store of wealth, but it makes a poor circulating monetary unit (just because ancient gold coins are found doesn't mean they actually circulated). If the dollar fails, it's almost a given that somewhere somehow, a surrogate currency will be invented. It's not the intrinsic concept of a fiat currency which fails the test of time, rather the temptation to debase it appears against human nature. Gold is fortunate to have so few practical uses other than coinage, jewelry, and electroplating. Unlike other transition metals, it has few catalytic uses (a consequence of is redox stability). As store of wealth, we could just as well trust in Xenon gas!
 
"Gold is a fine store of wealth, but it makes a poor circulating monetary unit (just because ancient gold coins are found doesn't mean they actually circulated)."

Gold can still be used as currency without being physically circulated. Not only can back a currency (which typically doesn't last for long, as the temptation to inflate the money supply has proved overwhelming for every government that has tried), but gold can also back electronic transfers of currency -- which is a system that holds huge potential.

Right now GoldMoney (goldmoney.com) is trying just that and they've got a great model. Unfortunately it won't work because its being done on far too small a scale. A major bullion bank could accomplish it though (if there were, in fact, an honest one somewhere).

But the idea of individuals essentially "backing" their own digital currency is a system that holds enormous promise.

Of course... the powers-that-be would never let an idea that honest get off the ground...
 
On using metals for trade. I really liked the Mexican gold coins from several decades ago. They had one that was slimmer than a dime. Silver could be used for change. It would be better than what we use today. Pennies are hardly worth cashing in.

I've never used Goldmoney. Can you draw interest on the balance?
 
If the dollar fails, it's almost a given that somewhere somehow, a surrogate currency will be invented.

If this happens, I bet you could trade gold or silver for a lot of it. You will be starting the fire with what we have now!!
 
do people realize there isn't enough paper dollars in circulation right now? all we need is a few more people going to the bank than normal and we're in trouble.
 
John,
You are absolutely correct. How did you know this? I have now had two instances in the last few weeks, today included, withdrawing cash for 10 oz. Au, and the teller wasn't sure they could handle the withdrawal. In one case, they had to use twenties, no Franklins. In both cases, I'm thinking WTF, it was like a major event. The first time, they were waiting for the day's delivery. This is a MAJOR bank.
 
OT,What would be the best to buy? silver rounds,bars,.999 silver eagles mapleleafs or 90%coins?
 
Metals getting pounded again...
 
Ben --

As far as I know there's no interest on the balance at GoldMoney, but I think that's a good thing: Interest on the balance would require them to behave more like a typical bullion bank (or any other type of bank), and reinvest their deposits. ...Which is where bullion banks get in trouble. And which is why there isn't as much actual bullion in most bullion banks as people believe.

GoldMoney is basically a straight gold/silver play (in which inventory levels are guaranteed), with the advantage of increased liquidity through instant funds transfers and their GoldGrams monetary unit.

Personally I'd be excited if they offered a straight up "ATM card" for gold grams.
 
Also, FYI EverBank has "Gold Bullion CD's". But there's a little more of a 'derivative' feeling to those. And then there's the 5 year lock up -- which is a deal breaker for me. They also have something called "Metals Select", which I think might be similar to GoldMoney, but I don't know much about it.

http://www.everbank.com/direct.asp?idpage=pro_met_ovr
 
Oil at sustained highs, gold stumbling. Those respective markets are more strongly coupled than this I believe.
 
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