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A reply to the question: Is it time to sell gold?

IF WE AT the Daily Reckoning were speculators, we might consider selling gold. But we’re not gamblers: we hold gold because it represents real wealth, not because we think the Gold Price will go up, says Bill Bonner of the Daily Reckoning.

We don’t really know what direction it is going. But that’s why we hold it. We don’t know what direction anything is going. The nice thing about gold is that it doesn’t matter. Gold doesn’t go anywhere. It just sits there.

If you buy a bond, for example, you have to worry about the credit quality of the issuer. If things get bad enough, he won’t be able to pay up. Your bond could be worthless.

Same for stocks. A stock is a share of a company. If the company goes out of business, your stock certificates (assuming you have them) are only good for decorations.

Real estate is more reliable. But there are taxes and upkeep to pay.

Gold is a better way to store wealth. You don’t pay property taxes on it. And the roof never leaks.

Besides, gold is especially valuable when other forms of money lose their appeal. The trend of debt destruction will probably not end soon. And the feds will probably sooner or later follow Paul Krugman’s advice to "raise (the Fed’s) long-term inflation target to help convince the private sector that borrowing is a good idea and hoarding cash is a mistake."

In the meantime, the Gold Price may go down in Dollar terms. Which will make a good time to Buy Gold.

Source:Is It Time To Sell Gold?

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?

Real interest rates – after inflation – continue to drive Gold Prices…

GEOLOGIST and MINING ANALYST Craig Stanley believes real interest rates – after inflation – are what’s driving the Gold Price, says the Gold Report.

Ten-year US bond yields might now be positive after inflation, notes Stanley – resources analyst at Pinetree Capital in Toronto, which switched its focus from technology and biotech to the resource sector in 2002 – but if they go negative again, "Look out. The Gold Price could really spike…"

The Gold Report: Craig, in June you wrote that real interest rates are the primary factor driving the rise in Gold Prices. Can you elaborate?

Craig Stanley: It’s important to know the fundamental drivers of the price of any financial asset or commodity in order to determine the long-term trend. For commodities like copper, you have to focus on factors such as mine supply and scrap on the supply side, and GDP forecasts, restocking and index demand on the demand side. But gold is different. It’s stored, not consumed in the traditional sense. Hence, basically all the gold ever mined can come back to the market

Real interest rates are the only metric that is correlated with the Gold Price. If you can hold US Dollars via Treasury bills, notes or bonds and they are paying a positive real interest rate that is not being inflated away, then why hold gold that doesn’t pay anything?

However, it is not a linear relationship. Instead, Gold Prices tend to significantly increase only if real rates become negative. The current bull market in gold that started in 2001 corresponds to US three-month Treasury bill real rates falling below 0%.

That’s why I like to state that Gold is money – money that offers no yield (a negative yield after taking into account storage and insurance) and which is continually valued against fiat currencies that offer a yield.

During times of low to negative real interest rates, gold reclaims its traditional role as money, with investment demand the prime driver of the Gold Price.

During the summer, the Gold Price in US Dollars stagnated as the three-month nominal rate was flat. Then starting in September, the three-month yield started to fall as inflation expectations (as measured by The University of Michigan one-year inflation expectations) rose, meaning real rates went negative and Gold Price went higher.

TGR: Using the real interest rates measurement, is that a price where gold overcompensates for negative real interest rates? What is that price?

Craig Stanley: Real rates are a measure to identify the long-term trend of the Gold Price, not a short-term trading tool. And there is not a specific Gold Price that compensates for a specific real rate. Look at the trend and focus on when real rates go negative.

Given the US Dollar’s role as the world’s reserve currency, I look at US interest rates. The Gold Price starts to rise when three-month real rates go negative (when rates are positive, you’re getting paid to hold Dollars whereas gold doesn’t pay anything). However the Gold Price really takes off when 10-year real rates go negative. That’s what happened in 1979 and very briefly at the end of 2007. The 10-year real rate is positive right now, around 1.6%. As the three-month rate is negative, it’s positive for the Gold Price but if the 10-year real rate goes negative and stays in negative territory, look out. The Gold Price could really spike.

TGR: Given the tremendous increase in metals prices, why can’t most mining companies greatly increase profits?

Craig Stanley: Some producers have been able to increase free cash flow. But in general, for the gold miners, up until the past year, prices for the inputs used in building and maintaining mines rose faster than the Gold Price. On average, these inputs, such as labor, steel, diesel and increased over 15% annually. However since peaking in 2008 these costs have come down and should flow through to the bottom line once higher cost inventories are worked through.

In addition, foreign exchange has had a big impact. In general, cash costs have increased for mines operating outside the US as the greenback has declined.

Another factor that is rarely discussed is decrease in average grade – in order to produce the same amount of ounces each year, companies have been moving an ever-increasing amount of rock.

Of course, even if earnings and cash flow increase, they won’t necessarily on a per-share basis given the large amount of share issuance, for example in early 2009.

TGR: Pinetree invests in junior exploration and development companies because they represent superior returns, but with that comes higher risks. How does Pinetree minimize these risks?

Craig Stanley: Our portfolio consists of a large number of holdings diversified among stage of exploration and/or development, commodity focus and geography.

TGR: Pinetree is bullish on base metals (copper, nickel and zinc) because of the growth in China and India. On your website you comment on copper’s supply issues related to outages and strikes spiking the price of copper. If the supply issues are choppy, doesn’t it make investing in this sector choppy as well and if so, are you trading in and out of this sector to maximize the spikes in copper prices? Any base metal company in your portfolio you care to comment on?

Craig Stanley: Pinetree’s mission is to identify long-term trends then invest in small-cap companies that can benefit from such trends. We’re a long-term buy and hold investor.

In regards to copper, we’re focused more on companies exploring for copper, not producing it. The biggest factor driving the share price of a copper explorer is exploration results. Short-term fluctuations in the copper price don’t generally have a correlation to the share price of an exploration company.

Also, you can miss out on the potential gains from investing in the long-term trend by getting cute and trying to time short-term reversals. That’s not our objective.

TGR: In your view, where are we in the base metals cycle? Does your answer depend on the particular base metal?

Craig Stanley: We’re in a very long-term cycle whereby metal prices are supported by factors that have become well known over past few years: demand from emerging markets, especially China; limited exploration and resulting discoveries of large deposits over the past few decades; and the secular downtrend of the US Dollar.

We focus more on a company’s management and its projects, only taking the outlook for the commodity into consideration after this.

TGR: Craig, thanks for your time. Much appreciated.

BullionVault: Professional Gold for private investors…

Source:Gold & Copper's Fundamental Drivers

Real interest rates – after inflation – continue to drive Gold Prices…

GEOLOGIST and MINING ANALYST Craig Stanley believes real interest rates – after inflation – are what’s driving the Gold Price, says the Gold Report.

Ten-year US bond yields might now be positive after inflation, notes Stanley – resources analyst at Pinetree Capital in Toronto, which switched its focus from technology and biotech to the resource sector in 2002 – but if they go negative again, "Look out. The Gold Price could really spike…"

The Gold Report: Craig, in June you wrote that real interest rates are the primary factor driving the rise in Gold Prices. Can you elaborate?

Craig Stanley: It’s important to know the fundamental drivers of the price of any financial asset or commodity in order to determine the long-term trend. For commodities like copper, you have to focus on factors such as mine supply and scrap on the supply side, and GDP forecasts, restocking and index demand on the demand side. But gold is different. It’s stored, not consumed in the traditional sense. Hence, basically all the gold ever mined can come back to the market

Real interest rates are the only metric that is correlated with the Gold Price. If you can hold US Dollars via Treasury bills, notes or bonds and they are paying a positive real interest rate that is not being inflated away, then why hold gold that doesn’t pay anything?

However, it is not a linear relationship. Instead, Gold Prices tend to significantly increase only if real rates become negative. The current bull market in gold that started in 2001 corresponds to US three-month Treasury bill real rates falling below 0%.

That’s why I like to state that Gold is money – money that offers no yield (a negative yield after taking into account storage and insurance) and which is continually valued against fiat currencies that offer a yield.

During times of low to negative real interest rates, gold reclaims its traditional role as money, with investment demand the prime driver of the Gold Price.

During the summer, the Gold Price in US Dollars stagnated as the three-month nominal rate was flat. Then starting in September, the three-month yield started to fall as inflation expectations (as measured by The University of Michigan one-year inflation expectations) rose, meaning real rates went negative and Gold Price went higher.

TGR: Using the real interest rates measurement, is that a price where gold overcompensates for negative real interest rates? What is that price?

Craig Stanley: Real rates are a measure to identify the long-term trend of the Gold Price, not a short-term trading tool. And there is not a specific Gold Price that compensates for a specific real rate. Look at the trend and focus on when real rates go negative.

Given the US Dollar’s role as the world’s reserve currency, I look at US interest rates. The Gold Price starts to rise when three-month real rates go negative (when rates are positive, you’re getting paid to hold Dollars whereas gold doesn’t pay anything). However the Gold Price really takes off when 10-year real rates go negative. That’s what happened in 1979 and very briefly at the end of 2007. The 10-year real rate is positive right now, around 1.6%. As the three-month rate is negative, it’s positive for the Gold Price but if the 10-year real rate goes negative and stays in negative territory, look out. The Gold Price could really spike.

TGR: Given the tremendous increase in metals prices, why can’t most mining companies greatly increase profits?

Craig Stanley: Some producers have been able to increase free cash flow. But in general, for the gold miners, up until the past year, prices for the inputs used in building and maintaining mines rose faster than the Gold Price. On average, these inputs, such as labor, steel, diesel and increased over 15% annually. However since peaking in 2008 these costs have come down and should flow through to the bottom line once higher cost inventories are worked through.

In addition, foreign exchange has had a big impact. In general, cash costs have increased for mines operating outside the US as the greenback has declined.

Another factor that is rarely discussed is decrease in average grade – in order to produce the same amount of ounces each year, companies have been moving an ever-increasing amount of rock.

Of course, even if earnings and cash flow increase, they won’t necessarily on a per-share basis given the large amount of share issuance, for example in early 2009.

TGR: Pinetree invests in junior exploration and development companies because they represent superior returns, but with that comes higher risks. How does Pinetree minimize these risks?

Craig Stanley: Our portfolio consists of a large number of holdings diversified among stage of exploration and/or development, commodity focus and geography.

TGR: Pinetree is bullish on base metals (copper, nickel and zinc) because of the growth in China and India. On your website you comment on copper’s supply issues related to outages and strikes spiking the price of copper. If the supply issues are choppy, doesn’t it make investing in this sector choppy as well and if so, are you trading in and out of this sector to maximize the spikes in copper prices? Any base metal company in your portfolio you care to comment on?

Craig Stanley: Pinetree’s mission is to identify long-term trends then invest in small-cap companies that can benefit from such trends. We’re a long-term buy and hold investor.

In regards to copper, we’re focused more on companies exploring for copper, not producing it. The biggest factor driving the share price of a copper explorer is exploration results. Short-term fluctuations in the copper price don’t generally have a correlation to the share price of an exploration company.

Also, you can miss out on the potential gains from investing in the long-term trend by getting cute and trying to time short-term reversals. That’s not our objective.

TGR: In your view, where are we in the base metals cycle? Does your answer depend on the particular base metal?

Craig Stanley: We’re in a very long-term cycle whereby metal prices are supported by factors that have become well known over past few years: demand from emerging markets, especially China; limited exploration and resulting discoveries of large deposits over the past few decades; and the secular downtrend of the US Dollar.

We focus more on a company’s management and its projects, only taking the outlook for the commodity into consideration after this.

TGR: Craig, thanks for your time. Much appreciated.

BullionVault: Professional Gold for private investors…

Source:Gold & Copper's Fundamental Drivers

The Great 2008 "Gold Rush" WRGB, NY - Nov 24, 2008 He's not advising his clients to invest heavily in gold coins right now, noting that the price has dropped since its high in March and it doesn't pay … Has Gold Become Correlated to the Stock Market? Seeking Alpha all 2 news articles

Source:The Great 2008 "Gold Rush" – WRGB