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A clear response to detractors of Gold Bullion over the last 10 years…

PUBLISHER of the Midas Letter, James West believes gold is the store of value everybody resorts to when times are rough.

Devoting the past 20 years to helping small companies in the resource sector raise money, further their projects, build their identities and get their stories in front of investors, James West here tells the Gold Report about how important he feels a strong position in Gold Bullion is for investors today…

The Gold Report: James, your work is based upon macroeconomic views. Can you give us some insights into how this plays into your thinking?

James West: Our viewpoint at MidasLetter, from a macroeconomic scheme on a global basis, first and foremost, is that gold is the standard by which all currency and all things of value are measured ultimately.

Gold is the only thing on earth that has for 5,000 years maintained some kind of value whereby it can be traded in exchange for materials and for services, labor and real estate. So there’s really not been one currency in the form of paper or coin that hasn’t actually been made of gold or represented a deposit of gold that has lasted more than 100 years as a global standard.

We’re seeing the US Dollar deteriorate in value over time. On a daily basis it’s like what Brien Lundin says about watching the fluctuations in prices of currencies in gold – "Don’t focus on the bobbing cork because you will lose sight of the rising tide." He’s the first guy who I heard say that so I will have to give him credit for that. And that is really a great statement; for example, they raised interest rates by a quarter of 1%, and of course, gold takes a dive on that news, and the Dollar bumps upwards, and everybody goes, "Ah, the Dollar is saved, everything is back on track, the economy is good, America will rescue itself." And, all it’s going to take is another job report – we have lost another 400,000 jobs – and the markets are going to go in the other direction.

Yet, in the macro sense of time, if you look at how gold has performed against other currencies, it has risen in value on average somewhere in the range of $87 each and every year since 2002; so in that sense, you could say the value of the currency against which it’s measured has deteriorated to an equal degree over the last 10 years or so.

To me, and to a lot of other people, gold is the store of value everybody resorts to when times are rough and when currencies become untrustworthy. We see that in times of national disaster, political upheaval, war and pestilence, the price of gold goes up because demand goes through the roof. People get a little bit scared and they know that whereas currencies can ultimately be inflated to the point of worthlessness, with gold there’s always a finite quantity that can never really be added to – without great effort and great expansion of collective effort worldwide. And so all the gold that’s been mined is more or less still around and very little has been lost through deterioration. The one thing that maintains its appeal in terms of something representative of value no matter what happens is gold.

Adopt that attitude, and then form your strategy in terms of wealth preservation and investment. Evaluate the performance of world currencies and world markets in terms of the Gold Price, and you start to see all kinds of other truths emerge. That helps you have a much clearer picture, a much more realistic picture of how the world actually works.

So we can’t really talk about gold without referencing the work of GATA, the Gold Anti-Trust Action Committee and Bill Murphy. They have single-handedly – very stridently, energetically and enthusiastically – pointed out the fact that the United States Federal Reserve and the Bank of England have arguably, over the last 100 years at differing times and in different degrees of manipulation, used various devices to manipulate the precise price of gold to the system to preserve the illusion that currencies are in good shape and that interest rates are justified in either being very high or very low. From that standpoint you see how the bond markets work and how governments finance their own debt. It’s very important to them how the shape of their currencies look to the rest of the world and one way to create that perception is to manipulate the price of Gold Bullion.

There are a lot of guys out there that say, "Well, the price of gold is manipulated; who cares?" Or, "the price of gold has not been manipulated; that’s all conspiracy theory, and that’s just complete bull."

But no matter what your thinking is, you come back to the realization that if you throw out the idea that the statistics put forth by governments and the value of currencies issued by various tracking outlets – Standard & Poor’s, Bloomberg’s – are easily manipulated when the price of gold is manipulated. And so, when these massive short positions in the derivatives market – either short against or long for gold – materialize by these big banks that are essentially both the originating party and the counter-party in these transactions, these massive transactions in the futures market form the price for the spot price of gold.

You can see how the price of gold can easily be manipulated because the Spot Gold price is influenced by the growing demand, which is influenced by what the futures markets are doing. So the mainstream news says, "Oh, the futures are down 15% this week; well, gold futures are up 20% over this period of time" and that forms the impression in the minds of investors that gold is desirable and currencies are not or vice versa.

TGR: Obviously, you’re a bull on gold; are you recommending buying bullion, or are you recommending Buying Gold producing stocks or juniors?

James West: Well, I always refrain from giving a blanket recommendation. Different portfolios obviously have different levels of risk tolerance, depending on your age and income, what your ambitions and goals are for yourself financially. I can give you a risk profile that determines whether bullion, producing stocks or junior exploration stocks is appropriate.

It is my view that Gold Bullion is preferable at all times only in terms of your liquid portfolio because you don’t have currency risks with gold. You’ve got the risk of fluctuations in small bite-sized periods of time like on a daily basis or on a monthly basis. But if you look at a chart of gold on any given year, for the last 10 years, the price has risen steadily in the one-year period. So those price fluctuations, up and down, that run the gamut from $50 to $200 over the 35- to 45-day window really don’t add up to much when you’re talking strictly about owning Gold Bullion for capital preservation.

And the detractors of owning Gold Bullion like to say, "Hey, this stuff never pays a dividend and has no cash flow; you shouldn’t own gold for investment." To which, I say, "Well, no, you don’t own gold for investment, even though, arguably, it does pay a dividend in that it has risen in value $87 per year for the past eight years, and so you can take that value out of your gold holdings, and there you would have your dividend. But gold itself does not function that way; it doesn’t function like a public company. It doesn’t decide when to issue stock or when to issue dividends. And so it’s really disingenuous to compare gold to investment that way – the bullion I’m talking about now – because that’s irrelevant.

I think people should own gold for the capital preservation, ultra-conservative side of their portfolio, much better than owning bonds or some fixed incomes where even fixed incomes are running the risk of blowing up in your face at some point in their evolution and wiping out all the capital they were supposed to preserve.

In terms of conservative investment, I think that senior Gold Mining producers are a good bet because in periods of history like this they tend to have a general increase in price. Ours is a conservative investment portfolio where the risk of the company evaporating from the face of the planet is minimal, considering the business they’re in. If you look at new municipal bonds or all of the things that have blown up in everybody’s face in the last two years – real estate, other commodities, etc. – the gold producers represent a very well-performing, blue-chip investment.

Now, in terms of higher risk capital – the Midas Letter itself focuses on capital sufficiency where we view our entire portfolio as a risk portfolio. That’s our tolerance because I am a young man; I don’t have to worry about retiring any time soon. I don’t have a large family to support; I don’t have kids going to a university. I don’t have a mortgage because I don’t believe in credit. And so my portfolio is all about looking for a company based on continuous monitoring of what’s happening in the juniors space where capital appreciation happens on the scale of hundreds of a percent almost overnight.

I am going to look for stocks sub-one Dollar in hopes that the bulk of the ones I recommend are going to go up by 1%, 2%, 3%, 400% within 6 to 12 months, and we’re going to be able to exit that investment. For our part, we don’t care whether a company puts the mine into production or not. We don’t care whether they find any gold or not; all we’re interested in is buying the stock that is going to appreciate within that timeframe.

And so that’s really contrary to industry where everybody says, "Oh, you got to look at the people; you’ve got to look at the project." Well, that’s all true, but really, what you’ve got to look for is the stock going to go up 1%, 2%, 3%, 4%, 5%, 600% in 6 to 12 months and the factors that make that determination.

I’ve got the other portfolio, which we call our "Top 10 for 2009," and we’ve got a couple of open positions in this one, but the average performance with a basket of 10 stocks is up 157.7%, and within that portfolio, the average is low by our estimation.

TGR: Great – quite an interview today! I appreciate your giving us the time.

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Source:Gold's $87 Annual Dividend

Which matters more – the Gold Price you pay, or the quantity you own…?

DURING A RECENT conversation with a fellow gold analyst, he was emphatic that the price one pays for physical gold should be ignored, reports Jeff Clark of Casey’s Gold & Resource Report.

"What’s far more important," he insisted, "is how many ounces I own in relation to the total value of my assets."

Building a core position in Gold Bullion is a smart goal, to be sure – and a strategy Casey Research has been advising for years. However, ignoring the price you pay for gold could be seen as foolhardy.

Sure, gold can act as insurance, but isn’t price part of the consideration when you shop for insurance?

The World Gold Council just released their 2009 annual report on Gold Investment, jewelry and supply trends. From the densely populated pages of interesting data, there’s one compelling tidbit I gleaned that may shed some light on the buying behavior of today’s gold buyers.

Overall investment in gold was 7% higher in 2009 than 2008. This is significant when you consider that demand in the fourth quarter of 2008 – during one of the worst financial meltdowns in history – was so great that shortages of physical metal abounded everywhere. And yet investors bought more gold in 2009 when investor fear about global financial uncertainty was subdued.

Further, 2009 total funds invested in all forms of gold exceeded 2008 by 20%, and the average price was 11.6% higher. In other words, investors were Buying Gold even though the price wasn’t necessarily "low." To be sure, that’s a broad statement. But the fact remains that year-on-year, more gold was purchased at higher prices when the markets were less scary, than when the price was lower and Hank Paulson was on CNBC every 15 minutes pontificating on how to save America’s financial system.

This isn’t to suggest one shouldn’t pay attention to price. And the data doesn’t identify how many of those who purchased gold last year were first-time buyers, as certainly there were newcomers to the sector that contributed to higher demand.

But it begs the question, who would continue to Buy Gold when the price is higher? Whoever doesn’t own enough, that’s who.

The gold I bought last month was certainly higher priced than what I paid in 2008. But I’m trying to position my assets for protection from eventual Dollar debasement and rising inflation. So perhaps focusing more on acquiring sufficient ounces to withstand a storm rather than stubbornly buying none, waiting for "cheaper" prices, however you define that, is a better mindset. Not owning enough gold is equivalent to holding a million-Dollar mortgage and having a $10,000 life insurance policy. It won’t help much when you really need it.

Of course we should pay attention to price. But the trick is not letting that distract you from buying what you need. You’re not Buying Gold bullion as a speculation (although we expect to make a bundle on our holdings), but as a sound form of cash in an environment where government has no respect for a balance sheet and sees inflation as the only way out of its black hole of debt. During periods of inflation, the government does fine; it’s the citizens that suffer from the lost purchasing power of their savings. It’s clear our currency is being debased. What’s your plan of defense?

For those diligently accumulating gold, how do you know when you have enough? Check your anxiety quotient. If Ben continues printing money or Obama promises more goodies than he has the money to pay for, and you remain calm, then you likely have adequate gold. These are the investors who can afford to be stubborn about price as they build their holdings. In my opinion, this is where we all want to be.

What form of gold should you buy? It depends on why you’re buying it. If you understand gold’s role in history, owning a physical form will come naturally to you. If you see the threat of inflation on the horizon, or you worry about what is being done to the Dollar, you’ll perhaps own both Gold Coins and a Gold ETF. If you’re worried about possible exchange controls someday, you’ll consider a Perth Mint Gold Certificate. And the more gloomy your outlook about the global economy, the greater the percentage of all forms of gold you’ll buy.

That said, we maintain a bias toward physical ownership. New York’s SPDR Gold Trust (GLD) and the other Gold ETFs are fine and do offer protection. But the custodian isn’t going to airmail gold to you when you cash in your shares; having the "hard money" in your hand gives you the freedom an ETF cannot. In our book, owning physical gold is where your first Dollar should go.

I remember when my wife and I decided it was time to get life insurance. We just had our kids, and it was time to play grown-up. Given what 5,000 years of history has taught us about the value of gold, and given what’s happening at this moment in history to our currency, are you playing grown-up with your investments?

"If there’s an easier way to Buy Gold, I’ve yet to find it," says one BullionVault user…

Source:Gold: Price Per Ounce or Ounces Owned?

Down in tonnes, strong in Dollars, the gold demand story for 2009 isn’t so simple…

WITH GOLD reaching new all-time highs against the Euro and holding well above $1100 an ounce for US investors, it seems one thing is certain, writes Julian Murdoch at Hard Assets Investor.

Gold demand has never been higher. Or has it?

Last month, the World Gold Council released its latest supply and demand report on the yellow metal, and it revealed more than a few surprises. Because in reality, total gold demand actually fell in 2009, down 11% year-over-year by volume. But due to the higher average price per ounce in 2009, the Dollar value of gold demand remained roughly the same from 2008.

Demand for gold comes from lots of different places: bars and coins, jewelry, dentistry, electronics, some minor industrial uses. And while some applications inherently drive demand more than others, it’s interesting to see how demand has shifted from quarter to quarter.

For starters, as the World Gold Council’s Gold Demand Trends report shows, investors in Gold ETFs just aren’t having that big an impact on gold’s overall demand. In fact, so far in 2010, investment into the big exchange-traded gold-backed trusts has been sluggish.

Gold Bullion held by the SPDR Gold Trust (NYSE Arca: GLD) has fallen to 1,115.51 tonnes – down 1.6% for the year. That’s a big change from the 45% inventory increase GLD saw last year. But that 45% figure is misleading. Taken as a whole, 2009 was a great year for GLD and other Gold ETFs, but new investment demand dropped precipitously over the next three quarters, and although it still rose 87% year-over-year in 2009, ETF demand long term was definitely on the wane.

Even those folks buying physical Gold Coins and bars backed off the gas pedal after the insane demand of the 2008/2009 fall and winter. As ETF investing dropped 67% from Q4 2008 to Q4 2009, so too did so-called bar hoarding – down 55% year-over-year. Even coin sales, which remain constrained by greater supply concerns, were down 8% year-over-year.

In contrast to new Gold Investment demand – at least by weight, which fell in 2009 while holding steady in cash terms – we began to see some slight indications of recovery in jewelry demand last year.

Although the rebound remained slow, some areas such as China showed year-on-year growth; the country saw a 6% increase in gold tonnage demand, which translated to a 19% increase by value.  But we shouldn’t get carried away. Most markets didn’t fare nearly as well, with gold jewelry demand in tonnes dropping 20% for the year and 10% in value. In fact, electronics was the only sector that saw year-over-year gains in demand in Q4 2009.

The World Gold Council cites the economic downturn as a good thing in this case, as it led to a decline in overall electronics inventories. That, in turn, resulted in a modest uptick in semiconductor sales for 2009, which raised immediate demand for gold 25% over Q4 2008. Still, applications where gold remains optional – like dentistry – continued to suffer, given the high prices. Dentistry demand fell 5% year-over-year; other industrial applications were down 13%.

According to the World Gold Council, total gold supply was up 11 percent year-over-year in 2009, primarily due to a spike in recycled gold entering the market in the first quarter.

"Over the year as a whole, the supply of recycled gold exceeded historical norms," the World Gold Council says in its report.

That is, the flood of new cash-for-gold companies put 2009’s supply near all-time highs, despite the fact that central banks once again were net buyers of Gold Bullion worldwide.

Gold Mining supply is also expected to continue rising this year, with major producing nations like Australia talking about 10-11% increases in production in 2010. The effect on prices? That’s where the balance comes in.
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At this point, there’s little question that ample gold supply exists to meet current demand, but most of the flexibility will come from scrap, which is hugely price sensitive. In its latest announcement, the  Australian Bureau of Agricultural and Resource Economics (ABARE) argues that gold will average $1080 an ounce across 2010, before dropping down to $900 again on oversupply. That’s a far cry from HSBC’s suggestion that gold could go as high as $5000 an ounce in the next five years.

So which is it? I tend to follow supply and demand, and right now, the market’s coming off four straight quarters of oversupply. Given that fact, it’s actually quite impressive the metal managed to rally $200 since last March. But I’m not inclined to think $5000 – or even a more modest $1500 – is anywhere in the cards until we see real demand start outstripping real supply.

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Source:Gold Demand Update

What first ailed the Dollar has now sent the Gold Price in Euros soaring…

THE PIECE we wrote on gold de-coupling from the Euro/Dollar exchange rate proved correct, notes Julian Phillips at the Gold Forecaster.

The action of the last week has shown that as gold rose strongly in the Euro in the Pound and is moving up in the Dollar alongside most currencies.

More than that, market commentators are now mentioning this too. But this action involves far more than these two main currencies.

To make the point, we ask you, "Which is better, a glass cracked in the higher part of the glass or cracked in the lower part of the glass.

Now replace the glasses with the Dollar and the Euro. Both are now under question.

Above is a picture of a $50 Bill as you see it today. Below is a picture of a $50 bill from yesteryear then called a "Gold Certificate".

It was exchangeable for $50 worth of Gold Bullion when gold was fixed at $20 an ounce. Note the same President’s picture there.

What would he think…?

The modern note is not exchangeable for any gold let alone 2.5 ounces. And therein lies the problem of valuing any Dollar bill. Its backing is your confidence in the government and the monetary authorities issuing it, as a reliable measure of value.

The United States is not alone, of course. The Euro is now going through a similar loss of confidence. But put in your mind’s eye a situation where the currency has the backing of gold and the government overseeing the currency. The dual support gives it far more value. Whereas today, you have a currency without the backing of gold and with the backing of a government trying to control the state of the economy by printing vast quantities of money in the belief that when the time is right they will withdraw it and re-establish monetary stability.

History alone gives us due cause to be prudent, doesn’t it…?

On my recent trip to London I was given a $100 trillion bill from Zimbabwe. It will not even buy one sheet of toilet paper. The currency is no more. And if currencies are to retain more than a captive set of users, they have to retain the inherent disciplines that gold brings. History has shown that both politicians and bankers cannot resist the power that comes with money, and they eventually distort it. The distance between currency management that reinforces the value of that money (not just stable prices) no matter what pain is involved and profligacy is a long one. Once travelled it is extremely difficult to go back as confidence has gone.

Take a look at both the Euro and the Dollar over the last few months and you can see how far along that road we have travelled. Greece is threatening to go to the IMF and Germany still has not announced it is willing to bail out the country. Now look from Greece westward through Italy and Spain and those countries that rely on tourist spending on second homes and holidays. They’re all in the same boat. Once Greece is helped, others will come too. It’s more than just Greece for sure. If the IMF bails them out the Euro will weaken.

The real issue is of course the Dollar and the Pound Sterling. As we say in our global currency slot below, we are waiting for the morning to arrive when we wake up and find one Pound for commercial transactions and one Pound for capital transactions (last time called the Dollar Premium; I started my stock exchange career as a dealer in the capital currency in 1971). As for the US Dollar, keep your eyes on those 10-year Treasury bonds to see how the Dollar is faring internationally.

If China has stopped buying T-bonds and is selling, then the yield will rise and the Dollar will fall. Or did the People’s Bank merely threaten to do so?

Sadly, Gold Prices are now a thermometer to the state of global currencies and the decay of confidence. As the Dollar weakens we are seeing gold rise. As the Euro weakens the Gold Price rises and when the Pound falls gold rises. The price of gold in local currencies is being more widely quoted now, not just a US Dollar price.

The problem is systemic. All currencies operate the same way and their health springs from the US Dollar and the Euro. Only resource producing or China oriented currencies look healthy at the moment. But even there we have to realize that national power lies with people irrevocably committed to putting their national interests ahead of global interests. A global reformation is called for!

But in this scene, global national authorities, without the dominance of one single nation, have neither the will nor the competence to rectify problems.

Extrapolate this situation and you see an increase in the level of currency crises in both severity and consequence. Suddenly the musings of the IMF head, M. Strauss Kahn on a completely new global currency becomes pertinent. Unless this road is followed and quickly, the situation will darken considerably.

This is why the Gold Price is moving now. As politics will have it, unless push comes to shove and the situation becomes dire, little will be done. Smart money, institutional money is quietly moving a portion into gold as a measure of prudence.

How far will the Gold Price run in the next move up? This section is for subscribers only…

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Source:Why is the Gold Price Rising?

Stocks and bonds are high, not low, and big government is deemed a solution, not the problem…

SO THERE’S good news…and bad news…and a lot of news in between, writes Bill Bonner in his Daily Reckoning.

Consumers spent a little more than was expected of them, new figures say. And manufacturing did a little better than expected too.

On the other hand, the federal government’s tax receipts plunged in the month of February…and bank lending is still contracting. Last week it shrank $33 billion – the 7th week in a row it has contracted.

How does an economy expand when the banks are lending less money? Beats us.

We believe the "expansion" reported in the latest GDP figures is mostly counterfeit. It’s government spending and hot money filtering into the economy. Still, it’s amazing that the GDP figures are positive.

The Dow was flat yesterday. The Euro rose a little – on expectations of a settlement of the Greek affair. Greece only had a month to sort out its problems. That was two weeks ago. The "clock is ticking," say news reports. Most likely, the Hellenes can’t really sort their problems out on their own. Greece will need some sort of bailout – even if it is limited and tentative – from Germany. Stay tuned.

It will be interesting to see what happens when Britain runs into trouble financing its deficits. It won’t have the Germans to help. Britain never took up the Euro. It will be on its own.

But the big news from yesterday is that gold hung onto Tuesday’s $19 boost per ounce. Why did gold suddenly shoot up? We don’t know. But our guess is that gold will suddenly shoot up a lot more. We’re in a deflationary period. That means everything is going down in price. But against what? Well, against money. Against real money that is – meaning Gold Bullion.

Gold should continue to go up until this deflationary period is over. That doesn’t mean there won’t be more hiccups and reverses in the gold bull market. But one of the surest trends of our time is the crack-up of the paper money system. And that is bound be good for Gold Prices.

Chris Wood of CSLA says he gives the Dollar Standard five more years. Maybe it will be a bit more…maybe a bit less. But one thing is sure. Governments cannot continue to run such huge deficits forever. There will come a day of reckoning.

The feds are hoping it comes at a time and place of their own choosing. They all want to ease their way out of their troubles…with the help of consumer price inflation. You heard central bankers talking last week about increasing the inflation target from 2% to 4%. If they can actually control inflation so precisely, it will be a miracle. But that is what they hope to do.

A few years of 4% inflation would do wonders. In ten years, they would have cut a third of the national debt – in real terms, of course (supposing that they don’t add to it even faster). Not only that, the debts of the private sector would be eased too. At 6%…debts would be cut in half in a decade. With half the debt burden – the private sector might be ready to begin a new period of growth. That is the feds’ real strategy…to de-leverage the private sector enough that it can grow…and increase tax receipts.

By the way, that was what happened in the Reagan administration. The inflation of the ’70s forced up interest rates and caused the worst recession since the Great Depression. But it also lightened debt loads – so much that the economy was ready for another big growth spurt.

This growth really paid off in the ’90s…and the very early years of the Bush junior administration. Thanks to growing tax revenues, both Clinton and Bush were able to pay down the huge debts of the Reagan years…and still increase spending. The economy was able to "grow its way" out of debt.

Then, with the war on terror and the micro-recession of 2001, the budget magic of the ’90s was lost. Bush apparently never met a spending bill that he didn’t like. Spending exploded…especially time bomb spending for health care, which increases automatically year after year.

Then came the depression…known popularly as the Great Recession of 2007-2009. Tax revenues fell. Spending increased even more. And now the deficits come hard and fast. And there seems to be no way to "grow our way out" of them.

All of the conditions that made for a boom in the early ’80s are making for a bust in the early 2010s. Interest rates are at record lows, not record highs. Stocks are high, not low. Bonds are high, not low. The government is the solution, not the problem.

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Source:Just Like 1980 Wasn't