Friday, January 06, 2006


Will Geopolitical Events Push Gold Over $1,000?

A reader wanted your take on this editorial. "A melt down is on the near horizon, far exceeding that of Chernobyl Ukraine, but this time, will be intentionally done, probably by summer, and Gold will pop to over $1000/oz, virtually over night, and maybe to $1500/oz."

"With moderate-of-late Sharon out of the political picture with a stroke, it will be difficult for Perez to hold the middle ground in Israel's politics to secure a centrist political party victory supporting Palestinian statehood and unilateral withdraw and moderation, as the Likud party chief, and former Prime Minister, Benjamin Netanyahu resurfaces from the shadow's of the parting Sharon. It wont take long either after the March Israeli election."

"The big surprise this day was the lack of a big gold move to the upside. The Gold Cartel must have been in play big time this day, or no one has their eyes open. This may be the cause of staggering open interest driving force in today's action."

I'm no mideast expert, but I am skeptical of huge movements of gold. Mainly because I have been following/buying/selling the stuff for over twenty years and I haven't seen it move that much. One thing to consider is, what would $1,000 gold mean for the US dollar?

I remember when the old Soviet Union was around. At the time they were the largest producer of gold, or close to it. At one point they were forced to admit they made more profit by manipulating the market than they did by mining the metal itself!

Why does gold go down when it events say it should go up? And the thing that frustrated me to no end, was when gold would start on a nice healthy upmove, some central bank somewhere would float a rumor about selling many tons, and the price would drop like a rock. Thus beating down longs.

I would be happy to see the yellow stuff get to $700 or $800. At $1,500 we may not have an economy anymore.

As far as Iran, I have read they have 'Sunburn' missles fron Russia that could sink every tanker in the gulf. If true, I doubt any country wants to risk that. Oil would go through the roof.
I think the "how" is incorrect, but the end conclusion isn't far off.

Israel certainly won't strike Iran until all Security Council options have been exhausted. Yesterday's snub of El Baradei has already set the wheels in motion for non-military international action. (Which of course, won't work for a variety of reasons, but mostly for the same reasons that let Iraq persist with violations of international law for a decade after UN sanctions began to be enforced).

Iran could certainly be the straw that breaks the camel's back. But one can't help notice that the camel is already limping.

The dollar crisis is now in full swing. China is cashing out. Saudi Arabia is frantically cashing petrodollars for gold and real estate (we won't go into why the latter is a mistake), and Bernanke is about to take office. The pieces are all in place for a dollar meltdown. My guess is that when the real estate crisis starts in earnest this Fall, Bernanke will cave to political pressure and repeatedly lower rates. And its important to remember that he won't only lower rates because 'mom and pop homeowner' are screaming, he'll also lower rates because the debt default level will begin to threaten the US banking system as a whole. Another period of low interest rates (not Iran) will be the nail in the coffin for the US dollar.

When the Fed's rate drops. The dollar will tank. The Chinese will not only divest themselves of dollar holdings, but they'll remove the dollar from the Yuan's currency basket. *Then* gold goes to $1000.
OC bear,

I've found bags of silver US coin to be a low mark-up asset that is very liquid.
They are very liquid, and any dealer worth their salt will have access to bags of silver.

Even people who aren't planning to buy right now should shop around for the best prices, because typically the dealer who marks up the least will do that most of the time. I always start in the yellow pages. And don't limit yourself to your immediate area. The price they give you will be some amount over spot. Write it down and compare. Then, when you are ready, call them all again. Jewelry stores may be OK, but some just buy from the dealers and mark it up.

While it's true that silver will sell by it's weight, I have found that an untarnished bar or coin will make the sale go smoother. Plus, it just looks better. If you buy a 100 oz bar, for instance, leave it in the plastic sleeve. Acids from human skin will leave make a stain, over time. The nice thing about bags of coin, besides the lower cost, is they won't stain and you can throw them in the attic and they'll be fine.

It's true that silver usually goes up more than gold, in percentage terms.

It's also true that it usually falls more than gold.
Looking back at this thread, I see that something needs to be explained. Bags of silver coin are typically old US coinage dating from when the silver content was very high. There is no numismatic value, as the coins are very worn and kept in volume.

They are fun to get out and look at. You can handle them and many have a very nice design. Dimes and quarters, mostly.

I also like the 100 oz bars. Englehard bars are easy to sell. The reasons are I rarely buy or sell smaller amounts and they fit nicely in safe deposit boxes.

While we're being practical, those new to silver may not realize how heavy just a few thousand dollars of silver can be. Be prepared for moving it around. Get yourself a strong hand case, not too obvious. Over 20 years ago, when I was 19 I had been accumulating 100 oz bars and some Krugerands in a safe deposit box. I was moving, so I went to collect everything and brought the bank bag that I had used to bring them in. It was so heavy, I had to sling it over my back like a sailor's kit, and the corners of the bars were stabbing me in the back.
Why not just invest in GLD? The spread is lower than physical metals and you can trade it immediately.

Or is the economy going to get so bad that electronic trading might break down? I have theorized scenarios where this would happen, but haven't taken any action to protect myself from it.
A few people have asked how to buy gold and silver metal (as in "not paper").

I haven't done this yet, but will probably move some of my paper over to the hard stuff in the coming weeks.

I'm thinking about using to buy pure gold and silver.

Has anyone else used this service?
WOW!!! This is definitely more like it!

I've always felt that this was a more appropriate arena for discussion of macro issues, especially since those go directly to the value of gold, etc.

Keep it up!
Here's my recommended approach.

If you're not worried about government & currency stability and just want to ride the rocket... go with the Gold ETFs. No markup, highly liquid, etc.

OTOH, if you believe history has a nasty habit of repeating itself... pay cash, buy physical, keep it close, have smaller amounts handy (in case you need to actually buy something with it), and don't tell anyone you have it. Oh, and while you're at it, having a gun and a German Shepherd doesn't hurt, either. ;)

Guess which camp I'm in?
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