Every time the media is scrambling to make something out of nothing…like the Swine Flu…I wonder what’s going on behind the scenes that they’re really trying to draw the attention of the U.S public away from.  There’s been a lot going on in the international financial markets and so few of us really understand exactly what.

Because there are so many distractions in the media, the majority of Americans aren’t even alarmed by China’s calling for a gold linked, international monetary system at the G-20 in London recently. And so few more, know about China’s greed streak for the shiny, gold stuff.

In a recent article, posted by John Browne of Euro Pacific Capital, Browne compares China’s financing of U.S. consumer spending, and thus its own exports, to “vendor financing.” I appreciate this analogy as it really puts China’s buying of U.S. Treasury Bonds into new light for me.

John Browne does say something that I don’t quite understand however, so readers, please help me clarify.

Browne writes, “For a century, American Administrations have relied on the inflationary powers of paper money to finance consumer growth.”

All in all, I tend to agree with Browne’s point of view on the overall direction of the Dollar going downward and the price of gold heading upward. It just makes logical sense if you really understand the implications of all of these Dollars being printed and released into the World Economy under the “Bailout” headline.  As inflation soars, other Nations will inevitably lose faith in the Greenback, gold will become a safe haven, and gold’s price will continue to rise.

Browne sums up the article, and thus his own position on the future of gold prices, by writing, “The biggest winners, personal or governmental, will trade their dollars for gold before there’s a rush for the door.”

However he does mention something that at least sounds a little positive for the U.S. The total gold holdings of the U.S. is said to be 8,132 metric tons while China’s holding are only 1,050 metric tons.  If this is indeed true, is this positive or negative for a gold-linked international monetary system that could be looming on the horizon?

Please comment.

Posted by Corey Curwick on May 8, 2009

Although Howard Ruff is known in many investor circles as the The Prophet of Doom, some of the things in the article I did like.  Ruff believes that within the next 6 months to a year, the United Stated will enter into a hyperinflationary period.  This seems logical if we keep printing bailout dollars in the billions.

Some of the investment choices that Ruff recommends in the article I tended to agree with including:

• Reduce spending
• Don’t buy a bigger house
• Buy metals while they’re down (silver!)
• Buy oil while it’s down

What else should we be investing in? All comments appreciated.

Posted by Tbird on February 4, 2009

With so much hype around the manipulation of metal prices, many investors wonder if they should invest in silver.  The hype comes in the form of the well known conspiracy theories such as that there is a cartel of traders that manipulate the price of silver. Another theory is that governments, institutions, and investors have been hoarding the metal for years to control the price. 

Whatever the theories are about silver prices, the price of this metal went up considerably in 2007 but has seen better days, particularly since June.  See history of silver prices: http://silverprice.org/silver-price-history.html

With the current financial issues we are facing, most investors consider gold and silver to be great inflation hedges. However, this theory too is in question.  Personally, I think the world economy is in for some additional financial turbulence and I strongly recommend silver as being great investment vehicle over the next few years. 

I found an interesting, yet outdated article on the conspiracies surrounding the price of silver at moneyweek.com that you may want to take a look at. ‘Don’t Buy the Conspiracy Theory, Buy Silver.’ (http://www.moneyweek.com/investments/precious-metals-and-gems/dont-buy-the-conspiracy-theory-buy-silver.aspx )

Any comments about the prospect of investing in silver amidst the current financial uncertainty? For the layman out there, maybe someone can continue this thread and describe how you invest in silver?

“It is well that the people of the Nation do not understand our banking and monetary system, for it they did, I believe there would be a revolution before tomorrow morning.” –Henry Ford

Yesterday when the House of Representatives voted down the financial bailout package,
the Dow Industrial experienced its biggest one-day drop in the Index’s 102-year history falling 777.68 points.

And there still is no financial plan in place to help revive the economy.

Historically during times of financial uncertainty, investors have turned to Gold as a hedge. This is because gold is the type of investment that is always an asset. (not simultaneously someone else’s liability).

“Investors are leaning toward it as a hedge against what could happen next,” says Carlos Sanchez, a precious-metals analyst with CPM Group.

But, according to the author of an article I found at www.InflationData.com , Gold is actually a “crisis hedge’ not an “inflation hedge.”

During times of crisis, governments tend to lose control over the price of Gold. However, during more peaceful times, governments are able to keep a ceiling on the price of Gold. This causes Gold to move up in a “stair step” manner.

The author of this article at inflationdata.com also says that gold as an inflation hedge has “a very spotty record.”

But is Gold is a bad investment now? Of course not. However, I do tend to agree with the author’s notion about why the price of gold has not done well over the last twenty years. (See image: price of gold over last 20 years).

The author infers that Governments have historically been known to buy and sell Gold on a whim to create an a sort of “illusion of stability.” The low volume of the gold market compared with say the stock market also lends to it being seemingly easily manipulated by governments.

Most investors in my circle don’t know that, up until about five years ago, it was illegal to invest in gold in China. When that market opened up, obviously there was an increase in worldwide demand for gold when China was free to buy Gold. (See image: price of gold over last 8 years) By 2006, the Shanghai Gold Exchange had become the world’s largest trading exchange for gold bullion with its trading volume well ahead of London, New York, and Hong Kong! Now that’s an incredible fact to ponder on when looking at the price of gold.

But if not Gold as an effective inflation hedge then what are some other inflation hedges?

· Commodities ?

Price Inflation is defined as the increase in the costs of various commodities. (Although it is also caused by an increase in the money supply). The idea is that, by investing in various commodities, you should be able to at least break even. What commodities have historically done well in times of inflation? Oil. And oil is also a primary component of the increase in the consumer price index. Also, think about the fact that China is also increasing the global demand for oil along with gold. China will also increase demand for other precious metals. And what about world demand for food and what that will do to its prices? Yippee.

· Inflation indexed bonds ?

Yes, there is such a thing .These bonds have an inflation adjustment characteristic. But they are not adjusted according to the “actual” inflation rate of course.

Any other suggestions for inflation hedges besides the ones I’ve mentioned in this post? Or any thoughts on utilizing gold as an inflation hedge?

The price of gold soared 9 per cent in one session to end the Wednesday trading session at $US850.50 an ounce. This percentage gain was the most in one session since September of 1999.

BGF Equities analyst Warwick Grigor said, “A large move in gold overnight is a signal that times are changing. It is not an intra-market movement — it is more fundamental.” He also said, “This could be the start of a new bull market in gold.”

But why has the price of gold being going down in the last few weeks? One reason is that hedge funds have been getting rid of their gold to raise cash to pay brokers who had lent them money to make investments. However, this was slightly offset by the Fannie Mae/Freddie Mac bailout that actually pushed gold prices up.

Analysts think the price of gold will continue to rise in the next few months. What do you think and why?

Posted by Eric Malachowski of Project Liberty

As any contrarian knows, the biggest, fastest payoff a speculator can earn is when an extreme situation corrects itself.

For instance, betting against tech stocks was unbelievably profitable in 2000. This was one of the greatest extremes in the history of finance. Techs traded for 100+ times earnings (many had zero earnings), so the likes of Cisco, Yahoo, and JDS Uniphase had tremendous distances to fall.

The same goes with homebuilding and mortgage stocks in 2007. “Extremely” stupid lending practices helped send mortgage giant Countrywide Financial from $43 per share to $5 per share in just 12 months. Shorting Countrywide and homebuilding shares was like sitting down at a broken slot machine.

Right now, we have an extreme situation in the commodities market… one you can use to make a lot of money in gold. It all comes down to the gold/oil ratio. Because gold and oil respond similarly to inflationary pressures, the two tend to trade in a predictable range.

Over the past 25 years, one ounce of gold has bought, on average, 15 barrels of oil. When an ounce of gold can buy 20 barrels of oil, it’s expensive and due for a fall. When an ounce of gold can buy less than eight barrels of oil, it’s cheap and due for a rise.

Right now, gold buys you just 6.5 barrels of oil – less than half its traditional purchasing power. The tremendous rise in crude oil prices is the cause of this situation. Crude has gained 155% in the last 18 months. Gold has gained “just” 50% in the same time. As you can see from the chart below, this disparity has left the rubber band pulled extremely tight.

There’s no guarantee this extreme will work itself out quickly. But this is one trade worth keeping on the radar. If oil stubbornly refuses to correct from its levels above $140, gold could easily pop to $1,000 and beyond in just a few days. In 2005, a similar extreme reading preceded gold’s rise from the mid-$400s to the mid-$600s.

If you haven’t bought gold as “catastrophe insurance,” now is a great time to do so. If more cockroaches crawl out of the mortgage debacle and into mainstream headlines, you’ll likely get a $100-$200 per ounce jump in your investment. Whether it’s through buying bullion, gold stocks, or an ETF, right now is an extreme opportunity in gold.

Good investing,

Brian Hunt,
Editor in Chief, DailyWealth

In 1963 gasoline was about $0.30 to $0.35 per gallon. Back then there were these things called silver dollars and they were interchangeable with paper dollars. So one dollar would buy you about 3 gallons of gasoline. (By the way when was the last time you received a piece of real silver as change?) Today that same silver dollar worth $17.50 will buy you over 4 gallons of gas! What’s going on?!?!!

Any comments?

Posted by Eric Malachowski of Project Liberty

For this episode of Live On Purpose Radio, Dr. Paul interviews Eric Malachowski, who has an interest in and considerable experience with gold and silver. The diluting of paper money is discussed, with the solution being a return to real value, both in our money and in our focus. Finding the ways that you can personally add real value to others is the foundation of establishing a firm economic future.

The interview can be heard here at Live Purpose Radio