Paper Gold & Silver

Gold and silver Electronically Traded Funds, or ETFs, are strange animals. It’s easy enough to understand the appeal of them; after all- buying, storing, and especially selling physical metal can be an enormous pain in the rear. I guess whether or not they’re a valid vehicle all boils down to personal reasons, and personal motivations.

For the pure speculator, the ETF is a godsend. Tons of liquidity means they can get in quick… and get out quicker. They’re not too concerned with whether or not the asset supposedly backing the fund actually exists or not, because they’re not going to be around too long, and have no intention of ever placing their hands on the product.

In all honesty, these funds have done the precious metal markets a huge favor, by packaging gold and silver ownership into a form suitable for the masses. Dealing with the actual metal is not many people’s cup of tea, and I also think many people hold the view that holding 1000 shares of gold is “investing,” but holding 100 ounces of gold is “hoarding.” Funny how that works, eh?

Much of the current “flight to quality,” as it’s called, is really the desire of investors to avoid getting burned by the exotic (and very opaque) paper investments that have been all the rage these last few years. The recent mortgage-CDO meltdown highlighted to many people the risk of losing everything to an investment that they didn’t really understand in the first place. It’s not so with precious metals; you own them, there they are, and they’re worth whatever they’re worth. It’s hard to obfuscate a chunk of metal.

To me, these ETFs do just that—obfuscate—by adding a layer of abstraction on top of something whose main draw is simplicity and transparency. If I have to wonder if the asset backing the share actually exists, that’s not simple, and it’s certainly not transparent. Not to mention that for those of us who are in it for the long haul, it makes it a little too easy to press the panic button and liquidate on a whim (because it sure would be nice to get that hot tub…).

At the end of the day, I think of a vote for gold or silver as a vote of no confidence in the paper-based insanity that’s been growing in our equity markets. The FED obviously knows that also, judging by the way central banks coordinate massive gold sales in an attempt to hammer the market. They know they can explain away anything *except* rising gold prices.

I suppose this is why the idea of trading gold and silver paper “shares” seems so strange to me. While holding physical metal may be something of a pain, if “the stuff” hits the fan, you can actually use it for what it’s good for—survival.

Back Among the Living

Sorry about not publishing for awhile. My family has been attacked by the illness du jour , and the last couple of weeks have been a bit rough, to say the least.

SO-

I’m working on a new post, hopefully I’ll have it up by tomorrow. In the mean time, check this out. Austria has been producing gold Philharmonic bullion coins for a long time, and this year they decided to start minting them in silver. They may or may not end up being good investments (first year issues sometimes are), but they are neat coins, and I’ve put my grubby paws on several.

I’m sure they can be had from several vendors, I just chose mintproducts.com because I’ve always had good service at a decent price from them.

Disclosure

As mentioned in this post, I’ve decided to purchase a rack of cheap resource stocks. So in the interest of blogger disclosure-as well as coming up with some topics for this blog-I am long the following:

• Gold – Bullion and Numismatics
• Silver – Bullion and Numismatics
• Almaden Minerals Ltd (AAU)
• Apollo Gold Corp (AGT)
• Caledonia Mining Corp (CALVF)
• Coeur D’Alene Corp (CDE)
• Capital Gold Corp (CGLD)
• Evolving Gold Corp (EVOGF)
• Endeavour Silver Corp (EXK)
• Gold Resource Corp (GORO)
• Kimber Resources Inc (KBX)
• Miranda Gold Corp (MRDDF)
• Nevada Geothermal Power (NGLPF)
• Pacific Rim Mining (PMU)
• Silver Dragon Resources (SDRG)
• Santa Fe Gold Corp (SFEG)
• Silverado Gold Mines (SLGLF)
• US Gold Corp (UXG)
• Wits Basin Precious Minerals Inc (WITM)

It took me awhile to cut down my original list to just these guys, I hope a few of them perform well. PLEASE don’t invest in any of them just because you saw them here; do your due diligence. I will say that a couple of these are classic dartboard picks!

The Price of Money

My old economics professor used to say, “Interest is the price of money.” By that he meant of course that when you take on a debt, the cost of that debt—the price of money—is the interest. Simple stuff.

This is why the US Dollar Index tends to crash when the FED lowers key interest rates. As the rate goes lower, the US Dollar is cheaper relative to other currencies. The dollar becomes “cheaper” as in “worth less” than it was worth before the cut.

This is also why the price of hard assets tends to increase after a rate cut. When money becomes cheaper, more of it tends to be all over the place looking for a place to park. This increase in money supply causes inflation: more dollars chasing after the same amount of “stuff” causes the price of “stuff” to increase (in that currency).

I’ve long felt that the stock-market rallies that often occur after a rate cut are nothing more than the market’s re-pricing of stocks to reflect the new lower value of the dollar. In other words, the stock market is the quickest to react to inflation. When viewed from this perspective, these rallies aren’t nearly so spectacular. Your stocks aren’t worth more—your money is worth less.

A look at the one-year DOW chart suggests that the market is building a channel between 11,600 and 12,800. There’s two ways you can look at this—either the market has bottomed and is now consolidating in preparation for a glorious rally, or a short-term floor has developed, and it’s just a matter of one or two more dropping shoes before we resume our trip into the abyss. I suppose the market could also channel for an extended period of time, but that’s unlikely… people are too nervous with their money to let it sit in a market that’s not moving. I would love to think that the market is going to rebound and all is going to be well and good, but I personally know too many people that are losing their jobs, houses, and marriages to think that we are anywhere near done with this mess.

P.S. After reading this article, (and this one also) I’ve also noticed that at the same time the bull market in gold and silver is “ending”, many bullion houses are out of Silver Eagles and Maple Leafs. This one ain’t over by a long shot folks, buy silver!

The Good, the Bad, the Ugly

I received the two silver 2008 Bald Eagle Commemorative coins that I ordered from the mint a couple of days ago, and I must say they are good-looking coins. At $369, I couldn’t quite swing the gold coin, but I did get both the proof and uncirculated versions of the silver. It’s hard, as a coin-collector (*AHEM* numismatist), to explain the allure of a nice coin to someone who doesn’t collect, but I suppose it’s like that with any hobby. I’ve been collecting so long that it’s hard for me to imagine a person growing-up without a coin collection.

I’m thinking about sending these two coins to NGC for grading, along with five or six really nice Peace Dollars that I’ve cherry-picked out of some junk silver. They’ll probably sit there for six months before I finally get around to it.

The price of spot gold has finally closed above $1000 an ounce. Wow. I knew this was coming (and a lot more is coming also, mark my words), but now that it has actually happened it seems incredible. It infuriates me the way the mainstream media downplays the trouble with our economy, as well as the significance of the major bull-market developing in precious metals. I’m not trying to be an alarmist, but there are some major hard-times coming and people need time to prepare themselves. The media will tell everyone that everything is fine right up until the time that bread runs out on the grocery-store shelves. To anyone reading this—get yourself some hard assets, and quick. Don’t take my word for it, do your due-diligence, find out for yourself.

The stock market is a slow-motion train wreck. The only reason it was doing as well as it was is because of inflation and the crashing dollar. It’s amazing how strong a “rally” can look when the market is priced in a toasted currency. The DOW priced in Euros or gold doesn’t look nearly as attractive; in fact, it looks downright scary (and has for some time). Now the market is falling fast, even when priced in a currency that’s falling fast. Stop and think about that for a second… if that doesn’t scare you, I don’t know what will.

Next up for me: I think I’m going to buy a hefty basket of gold, silver, and mineral OTC:BB mining and exploration stocks. It’s only a matter of time before the stocks start doing what bullion has been doing, and for a cash-strapped Joe such as myself, it seems like the way to go! More to follow on that…

Cheers!

-Tom