HSBC’s director of precious metals trading and sales, Levin explained that when told the bank’s New York vault had sufficient space available for their gold, several asset managers said they did not want their gold stored in the US. They’d prefer Europe, because they fear that at some stage the US administration might follow the path set by Franklin D. Roosevelt in 1933 and confiscate all US gold holdings as part of the country’s strategy in dealing with the nation’s economic problems.

Who are these asset managers? For a start, they are highly qualified capable men who understand the ins and outs of investment management. Such knowledge usually encompasses monetary matters of the sort that would include gold. As such we would suggest their opinions have value.

Why did Roosevelt confiscate US citizens’ gold in 1933? The US was fighting to come out of the Depression and US banks were struggling in a not to dissimilar way that they are today. The Federal Reserve was fully aware that US money supply was closely related to the gold they held. Money supply had to expand. What’s more…

• Hitler had gained power in Germany. The potential for war now existed;
• The value of gold as a reserve asset that provided liquidity, when all else failed was fully understood;
• The ability to raise money supply by devaluing the Dollar in terms of gold, was an opportunity that had to be taken.

But where was Roosevelt going to get the Gold Bars needed to both enlarge the money supply sufficiently and to provide internationally acceptable money in the event of war?

One of the recognized tactics of war always includes forging your enemy’s money and undermining the home economy. Gold is difficult to forge. So every advantage was there to confiscate gold and if needs be, to devalue the Dollar, and so instantly enlarge the money supply.

This is an example of when "national interests" are seen to supersede those of its citizens. How true the saying, "A true patriot is one who commits you to his cause." And so it is with governments. Should we see ourselves as bound up with our government, or can we make our own decisions when we disagree with government? Each one must answer that question for himself. Many feel the answer has to be qualified by the situation that presents such demands. Many will support their government nearly all the way, but draw the line at their own personal wealth (on which tax has been paid) being confiscated, albeit for cash. It seems this is what these asset managers feel. Certainly the trust in and reliance on government has decayed since those days. Many feel that gold is beyond the pale of such demands.

In Roosevelt’s day, it may have seemed reasonable to most to willingly accede to government demands for the confiscation of gold. Today, with the ability to hold Gold Bullion anywhere in the world, such compliance may not be necessary. Or will it? After all, the market price at the time of Roosevelt’s confiscation was $20, so it seemed a fair price. That was so for two years, until President Roosevelt authorized the devaluation of the Dollar by 75% and raised the price of gold to $35 an ounce. Then many citizens had a sense of humor failure.

Where could the US Government get more gold today? The most accessible gold was locally held Gold Investment in 1933, held by US citizens. To help matters enormously, every US citizen had to declare his assets on a yearly basis to the taxman. So accurate records were held of how much was held, by whom and where it was held. The only way out was to hold rare Gold Coins, which fell outside the classification of simple gold.

It was a great start. The Depression spread far outside the States and the banking problems, like today, covered the developed world. Germany was rising fast and clearly headed for war. Europe and Great Britain were vulnerable in a war. Prudence demanded that a war chest be accumulated and held in the States.

It would be naïve to think that Europe and the UK were caught off-guard by the United States devaluation of the Dollar, as history leads us to believe. No other countries devalued with the US Dollar. They all held their exchange rates to the Dollar at the rate of exchange that stood before the devaluation. This created a massive arbitrage opportunity. Buy Gold in London at the equivalent of $20 and ounce and sell it to the US at $35 an immediate 75% profit. It wasn’t long before the US was holding the bulk of the world’s monetary Gold Bars and coin, over 26,000 tonnes of it.

What principles were established by this accumulation of gold?

1. First, governments not only believe that it is a privilege for individuals to own gold, but that, that privilege can be removed at any time they want;
2. Second, governments will cooperate to the extent needed on accumulating gold, when they believe it necessary;
3. Confiscation is a course of action that will be followed should one or more governments deem it necessary in their national interests.

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Source:US Gold Confiscation: The Risks

Here he speaks to Mike Norman, anchor at HardAssetsInvestor.com, about the outlook for Gold Investment and the other precious metals…

Hard Assets Investor: At the same time as gold has been prices lately, the US Treasury market is also doing very well. How do you explain gold, which is an inflation hedge, going up alongside Treasurys, which I guess would be a deflation hedge?

Jeffrey Christian, managing director, CPM Group: Well, I think gold is going up, not so much because of inflation concerns – that’s definitely in there – but it’s currencies, it’s financial market stability, it’s sovereign debt in Europe. Gold is rising because financial investors are concerned about all of those factors. And I think Treasurys are doing strong for the same reason. If you think about it, the two hardest assets in the world are gold and Treasurys.

Now, it seems strange to think about Treasuries as being a safe haven with all of the problems that the Treasury had in 2008, continuing into 2009, and with the fiscal deficits and monetary easing. But the fact of the matter is, around the world, when people get worried, they run to the Dollar and to gold.

HAI: Right. The Dollar has been very, very strong of late. But is it true that gold goes up in a deflation?

Jeffrey Christian: Well, it’s hard to say that it’s true, because we’ve had very few real deflations in history, in recent history. The big deflation that we had coincided with the Great Depression. And gold came into the Depression on a fixed price. And there was so much investor demand for gold that the governments had to abandon the Gold Standards that existed in the late Twenties, early Thirties, and allow gold to float, at which point Gold Prices basically appreciated 60%.

A lot of people think that Roosevelt raised the price 60%, but he didn’t. What he did is he kept raising the price until he found a market clearing price. So, he was really letting the market set the price for gold. And he had to keep raising the price until it got up to $33 before people would say, "OK, now I’ll give you my gold."

HAI: Right…

Jeffrey Christian: And then if you take that deflation out, and you go back and you say, "What about other deflations?" we saw three bouts of deflation in the 1870s, 1880s and 1890s. And in each case, you saw a tremendous Gold Investment demand. So, it’s not that gold makes particular sense during an inflation, but what you see in deflation is so destructive of economic sensibilities and systems that people flock to gold as a safe haven. They say, you know, "This could bring down the whole house of cards."

HAI: Let’s talk about gold as an industrial metal, the fundamentals of supply and demand. How do they look?

Jeffrey Christian: If gold were just a commodity, Gold Prices would be lower than they are today, and the fundamentals would be pointing to even lower prices. You’re starting to see mine production rise in response to the fact that we’ve had higher prices for a significant period of time now. We saw an increase in mine production last year. We’re going to see it increase this year. And our view at CPM – which is somewhat contrary to a lot of other people in the gold market – is that you’re probably going to see Gold Mining production rise pretty much year in, year out, for the next decade or so.

HAI: Isn’t that bearish though?

Jeffrey Christian: That is bearish. That’s what I’m saying. There’s a tremendous amount of gold coming in from old jewelry that’s being sold, and industrial demand, which is primarily jewelry, has fallen off sharply because of the high Gold Prices and the economic constraints facing the world. So if Gold Prices were determined by mine production, scrap and fabrication demand, Gold Prices would be headed lower.

But Gold Prices have never really been determined by those things. Those things are important to the price, but the key has always been investor demand. Gold Investment demand is now a very important part of the supply-demand dynamics. Ten years ago, investment demand was 15% of physical trade. Now it’s 40-45% of physical supply and demand balance.

The problem is sustainability. What are the factors that are driving investment demand? Basically the whole host of economic and financial and political uncertainties. And as long as those problems are facing investors, investors are going to continue to Buy Gold. If we ever get to a situation where investors become less concerned about inflation, currencies, stock markets, bank stability, debt deficit, if we ever get to that point, you would expect Gold Prices to come down, because investors can walk away.

HAI: All right. So, give us your short-term, let’s say, six-month, one-year outlook for Gold Prices.

Jeffrey Christian: Our six-month, one-year outlook for Gold Prices is we think that Gold Prices could be a little weak over the summer – June, July, August…

HAI: How weak is weak? You’re talking about back down to…?

Jeffrey Christian: $1140 an ounce, maybe $100 off of where we are today. So, not that far. And, you know, not that far compared to where we were prior to, say, this year. And, on the up side, we’re looking for a potential for the price to spike up to $1300. That’s our range for the next, really, six months or so.

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Source:Deflation & Gold Investing

IT SEEMS LIKE we have been on the sidelines for an awfully long time now, writes Gene Arensberg in his Got Gold Report from Atlanta, Georgia.

With our short-term trading ammo, we’ve been waiting for gold and silver to correct as it sometimes does this time of year. We thought gold was beginning to correct in our last full report two weeks ago and it has corrected a goodly amount in Euro terms, but in US Dollar terms gold seems to be range bound, knocked around to date only by rumors and rumors of rumors, but range bounded by about $1217 on the upside and the $1180s on the downside.

Silver Prices have seen a similarly tight range for the period, but we sense the trading for silver has been a teeny bit stronger than gold. Silver saw good resistance in the $18.50s, but saw aggressive bidding in the $17.50s since our last full report. It may not seem like it with a Friday sell-down for the metals, but both gold and silver turned in slightly higher highs and lows for this most recent thin-liquidity summer trading week.

We are once again beginning the upcoming thin liquidity summer trading week on the sidelines with our short-term metal trading ammunition, glad as ever that we hold physical metal for longer-term purposes, still waiting for a sure-enough vulture opportunity to reenter with our short-term trading ammunition.

Last week both gold and silver ended not all that far from the upper ends of our expected support zones. We will go into the reasons why a little later, but if precious metals are driven lower and into our expected zones of potential support we are very likely to take long positions as we mentioned in our last full report two weeks ago.

If we do get the chance for reentry just ahead, as always it will only be with appropriate new-trade trading stops for peace of mind and protection. We think there are ample arguments to support where we mark potential technical support for gold and silver, but if those support zones prove to be just plain wrong, then we want out – and quick – with our trading capital.

Longer term, we still see nothing which undermines the secular bull market thesis for gold metal, but short term we think traders should consider tightening their trading stops for gold, Silver Prices and larger mining shares.

The fact that gold has corrected strongly in Euro terms, but more or less moved sideways in US Dollars over the past two weeks is a "tell". We could be wrong, but we strongly suspect that the gold correction is not yet over; we see the potential for further downside, but we suspect that downside is now more limited. We will get to why in the course of the rest of this offering.

Our indicators suggest that significant to strong dips for gold may be bought with confidence, but as always, only with appropriate new-trade trading stops for peace of mind and protection. They are merely indicators, not a functioning crystal ball.

As for silver, we look for overwhelming support to show somewhere in the $16 to $17 range, but it would not surprise us if silver were to show support right here in the $17.80s (equivalent to $17.40s for the SLV silver ETF trust). Given silver’s relatively high volatility we are more likely to scale into a new position with silver than we are with gold.

Meantime in the latest Commitment of Traders data, courtesy of US regulators the Commodity Futures Trading Commission (CFTC), we see the current positioning of large commercial players as more bullish than bearish.

As a proportion of total open interest, the large commercial traders (acting for miners, refineries and bullion banks) now hold 43.7% as their "net short" position (bullish contracts minus bearish contracts). But we think it suggests that the largest gold "hedgers" are taking advantage of most any dip in the Gold Price to reduce their relative net short exposure.

Using just Commitment of Traders reporting days (the Tuesday) as a guide, over the past two COT reporting periods the large commercial traders have covered or offset 41,608 contracts or 14.3% of their collective net short positioning as gold metal moved a net $28.29 or 2.3% lower to $1212.21 an ounce. For each Dollar lower in price, the large commercials reduced their net short positioning by about 1,470 contracts using net figures. We see that as a fairly "hot" pace of LCNS reduction.

That doesn’t necessarily mean that gold won’t continue to sell off even more. It can and it might, but it certainly does mean that the largest "hedgers" and short sellers of paper gold closed out a big chunk of their collective net short positioning on a $50 drop in the Gold Price two weeks ago, and didn’t put the shorts back on as gold recovered $19 last week. We would call that another "tell".

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Source:"Vulture Opportunity" in Gold & Silver Prices

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Source:U.S. Gold Bureau Unveils Precious Metals Poker Sets That Let High Rollers Play … – PR Web (press release)

Particularly if the broader stock-market falls and Gold Mining stocks don’t. We now have data showing this has just occurred.

From April 2009 to April 2010, gold stocks mirrored the S&P. The two markets held hands as often as high school sweethearts; there was very little separation between them. While it wasn’t always a daily connection, any weekly and especially monthly chart showed them moving in tandem.

Until now…

For the quarterly period of April through June, Gold Mining stocks advanced 11%, tracking gold’s gain of 10.7%. The S&P, however, lost 14.1%.

We haven’t seen this level of separation between gold stocks and the general stock market since the first quarter of 2009. This demonstrates obvious strength in our sector, and is precisely the kind of action that can signal we’re getting closer to our precious metals investments starting a major leg up.

In the big picture, this data should be considered a short-term indicator. However, it’s a refreshing reminder that at some point, it won’t matter what the broader markets are doing. In the precious metals bull market of the 1970s, the Barron’s Gold Mining Index soared 652%, while the S&P gained only 22% for the entire decade. This means that if you’re bearish on the economy, you don’t have to be bearish on gold stocks.

Whether this is the beginning of permanent separation or not, the following chart tells us the stock market, in relation to gold, is going one direction.

At gold’s bottom in April 2001, the Dow/Gold ratio (DJIA divided by Gold Price) was 41.2. It now stands at 7.9 (as of July 2).

When gold peaked in January 1980, the Dow/Gold ratio reached "one," meaning they were both selling for about the same price. To hit that same ratio today, gold will have to go higher and the Dow simultaneously lower. The fundamental reasons gold will rise are far from over, and a second leg down in the broader markets seems almost locked in at this point.

In this context, Doug Casey’s call for a $5,000 Gold Price doesn’t seem so farfetched. It also coincides with his call for a Greater Depression, an environment not exactly suited for higher stock prices. $5,000 gold = 5,000 Dow.

Where do you think they’ll meet – three? Eight?

This has obvious implications for your investments. If you’re investing for the big picture, you first want to think twice about any conventional stock investment. You might even consider a short position on one of the indices, something without a time limit, such as an inverse ETF.

Second, you should plan on higher Gold Prices. While pullbacks are inevitable, it does mean that even if you don’t own gold yet, it’s not too late. In fact, any excuse you have now for not buying gold will seem shallow and meaningless when the Dollar begins cratering and so does your standard of living.

Third, don’t shy away from Gold Mining stocks. Yes, they’re still stocks and thus vulnerable, and we’re not sure the separation is here to stay, but selling your core holdings would be, in my opinion, a mistake. One of these days gold stocks won’t wait around for you to jump back in. And you could find yourself chasing them, a tactical error for the investor looking to maximize profit from what we believe will be a once-in-a-generation bull market.

In fact, if you had followed only this strategy since the precious metals bull market began in April 2001, you’d be up 375% in your gold holdings and up 707% in your gold stocks. An investment in the S&P, meanwhile, would’ve returned you exactly zero.

It’s our opinion this trend will continue. Gold Mining stocks could very well get cheaper in the short term, handing risk-friendly investors an excellent buying opportunity. But in the big picture, they’re destined for much higher levels, we believe.

My advice? Make sure you’re on the right side of this trend.

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Source:Gold Mining Stocks Tracking Gold