A Reader Question About IRAs and Gold Stocks

I recently got an excellent question from a longtime reader named Bob and I thought I would pass along some of what I told him. Bob has invested a good portion of his IRA in shares of Randgold Resources. The NASDAQ symbol is GOLD. Randgold Resources is a gold mining business based primarily in Mali. Its headquarters are in Jersey, Channel Islands, it is listed on the London and the NASDAQ stock exchanges. Bob has been accumulating shares of Randgold because he feels that as a mining company it is a productive asset rather than physical gold (or paper derivatives of gold) which earns no interest (or dividends).

RandGold Chart1Randgold peaked at around $127 back in October 2012 and has been trending down ever since. During that time Bob has been averaging his costs down with a current average price of $92.00. When Bob wrote, Randgold was near its recent lows of $66. and  he was wondering if I thought he should cut his losses or hold on. Here’s my response: [Read more...]

The Case of the Disappearing Gold

When I was in the 6th grade (many, many years ago) my class took a field trip to New York City and visited the NY FED. The highlight of the trip for me was a ride down the elevator (or more precisely what was at the bottom.

The ride took forever with dozens of kids and one security guard in that tight stuffy space. Anticipation built as we went down what seemed like miles into the earth where the vaults rested on Manhattan bedrock. And what was in those vaults?

Gold! Lots of gold! Each vault had a name on it but not people’s names, countries names. After all in those days people weren’t allowed to own gold.

For years now there has been a controversy as to whether our (the U.S.) Gold is really in Fort Knox (or at least all of it). Ron Paul has been advocating for an audit of Fort Knox for years (in addition to an audit of the FED itself). In February 2013 the government released the results of their audit and surprise, surprise everything is just fine (nothing to see here, move along, move along). As a matter of fact, during the assay they found that some bars were actually more pure than originally thought so the government has increased its valuation of its gold holdings by 27 whole ounces! The audit process revealed that the NY FED houses 34,021 gold bars belonging to the United States, which sounds like a lot but according to SilverDoctors.com

As part of the audit, the Treasury tested “a sample of the government’s 34,021 gold bars” in the New York Fed’s vault five stories below Manhattan’s financial district. Why is this so significant?  As anyone with a simple calculator can discover, the Treasury department has just inadvertently admitted that rather than the official 8,133.5 tons the Treasury reports as the US’ official gold reserves, the Treasury’s actual physical gold stores at the NY Fed are a measly 466.57 tons!   While the Treasury does reportedly also hold gold at Fort Knox, several reports have claimed that up to half of the US Gold is held at the NY Fed! No wonder it will take the Bundesbank 7 years to repatriate 300 tons!

In our recent article, How the Golden Reset Button Could Drive the Price of Gold to $20,000. we told you that Germany wants its gold back. Could Germany be wondering if its gold is really in the N.Y. Fed? In this article Jeff Thomas from “International Man” takes a look at some of the implications of this issue. ~ Tim McMahon, editor

The Disappearing Gold

by Jeff Thomas

NY FED GoldDuring the Cold War, Germany moved much of its gold to New York in case the USSR invaded Germany. It was assumed at that time that the US would be a safer storage location, and of course, they could always ask to have it returned if they wished. But German citizens have become increasingly worried about the security of the 1,536 tonnes of German gold reputedly held at the Federal Reserve in New York. This has resulted in the Bundesbank pursuing repatriation of the gold, beginning with a request to view it in the basement of the Federal Reserve Building, where it is claimed to reside. Of course, the German government had received periodic [Read more...]

2 Types of Money

From the beginning, productivity improved with specialization. If one person can produce fruit more efficiently while the other was a better hunter, more wealth will be generated if the hunter hunts and the farmer farms. Forcing the farmer to hunt or the hunter to farm is just plain inefficient. But in order for the system to work there has to be a medium of exchange. Somehow the farmer has to be able to get the wild game in exchange for his crops. And what if the farmer wants meat but his crops aren’t ripe yet? Well, that is how credit developed. In today’s post Bill Bonner looks at mediums of exchange i.e. money and credit. He examines how they began and what they mean for us and our economy today. ~ Tim McMahon, editor.

Good As Gold

Credit and MoneyOver the last 10,000 years, humans have tried two different kinds of “money.” They began with exchanges based on credit – “You give me a chicken… I’ll pay you back later, maybe by helping you build a new wigwam.”

Then, when society became too large and extensive, they switched to gold and silver. The advantage of this was obvious: You didn’t have to remember who owed what to whom. You could settle up right away. “You give me a chicken. I give you a little piece of silver. Done deal.”

Periodically, governments were tempted to go back to credit systems. Essentially, they issued pieces of paper – IOUs – and declared them “money.” Usually, these hybrid systems began with some collateral backing up the paper. Issuers typically had gold in their vaults and agreed to exchange the paper for metal at a fixed rate. Holders of the paper money were told that it was “good as gold.”

In some cases, people believed [Read more...]

Buying or Selling Gold and Silver?

Many investors consider the recent drop in gold, silver and platinum prices to be the perfect opportunity to build (or add to) their precious metals position. With the price down, the basic law of supply and demand has kicked in and demand for silver bullion and silver coins has risen sharply. Short-term, supply has gotten tight, as some dealers scramble to keep up with demand.

We  also saw a major disconnect between Physical Gold vs. Paper Gold as a massive sell order hit the futures market to sell 400 tons of gold! But at the same time small buyers rushed to their local dealer to take advantage of the price drop and stock up on the physical metal. And of course since gold and silver prices tend to move together we saw similar action in the silver market as well.

Gold and SilverIn another article Jeff Clark, Senior Precious Metals Analyst for Casey Research told us that they talked with the wholesalers directly. These are the big boys, the bullion banks, bullion traders, and refiners. They deal in wholesale trades only, in large quantities. These boys supply the dealers and investment funds.

Here’s a summary of what Jeff found out about what occurred during the week after April’s 9.3% selloff in gold… [Read more...]

Gold Mining Stocks are Down – What’s Up?

For many years now I’ve been saying that Gold is a Crisis Hedge rather than an inflation hedge. But it is also a commodity and a monetary instrument. Thus there are a variety of factors affecting its price at any given time. Currently as the world economy continues rolling on people are less worried about catastrophe around the corner and they are beginning to believe that the FED is all powerful and can paper over any and all monetary problems with the stroke of a pen. So why worry? This has taken some of the edge off the urgency to buy gold. Plus as the stock market reaches new highs the “opportunity cost” of holding gold increases. So does this mean that gold is headed for the dustbin and is no longer a good investment? In today’s article by Sean Brodrick we will take a look at where Gold and gold mining stocks are and where they are headed.  ~Tim McMahon, editor

 A Gravedigger’s Banquet in Gold …

by Sean Brodrick

Right now, gold is under pressure, and once-shining precious-metals explorers and developers are getting crushed like old cans.

That’s why, as you read this, I’m in Toronto at the Prospectors & Developers Association of Canada (PDAC), Canada’s biggest mining conference.

It’s the 81st gathering of explorers, developers and resource producers from all over Canada and the world, and is expected to play host to some 30,000 people from 30 countries.

It’s not shocking that so many people — including professional and individual investors — are gathering to get to know the companies that might (or might not) be worthy of their investment dollars.

I’m planning to get as much face time as I can with these experts during what feels like a gravediggers’ banquet in gold. And I look forward to sharing what I learn with you about gold and the people who bring it to market.

First, let’s take a look at the carnage that no amount of polish can cover up in all things related to the shiny gold metal …

‘A Healthy Culling’

After peaking in 2011, gold has been zig-zagging sideways. But as painful as it has been for gold, it’s agony for large-cap miners, who have lost a third of their value.

And it’s a downright heart attack for explorers, who have lost two-thirds of their [Read more...]

What are “Foreign Exchange Reserves”?

Will the U.S. Dollar Be Replaced as the World’s Reserve Currency?

Foreign Exchange Reserves are foreign money held by International banks for use in international trade and in an effort to diversify their holdings and hedge against the inflation of their own currency. The most common items bought and sold with their foreign exchange reserves are oil and gold. Up until 1944 the asset of choice was gold and it was used as the medium of exchange between countries to settle their debts. But in July 1944, delegates from the 44 Allied nations gathered in Bretton Woods, New Hampshire., and made the U.S. dollar  the reserve currency of the world. At that time, the dollar was pegged at $35 per ounce and thus rather than exchanging gold, the countries were able to exchange dollars, which at the time was considered “as good as gold”.

Foreign Exchange ReservesBut because of its reserve status the U.S. was able to pretend that the Dollar was still worth $35 per ounce of gold while quietly inflating its currency and thus eventually France called the United States’ bluff and demanded gold at $35 per ounce and Nixon was forced to admit that the Dollar was no longer worth $35 per ounce and he “closed the gold window” and the last link between the dollar and gold was severed.

But Nixon had another trick up his sleeve [Read more...]

Selling Your Scrap Gold During The Economic Downturn

Selling Your Scrap Gold

Economic downturns are a fact of life and you never know when you might be caught up in events outside your control. That is why you always have to be prepared for the circumstances life might throw at you. If during good times you have accumulated some gold either as jewelry or coins, then selling your scrap gold is one such step that you can take when times are rough. There are many advantages of having some gold as an insurance policy against tough times.

What is “Scrap Gold”?

Selling Your Scrap GoldIn its simplest terms, scrap gold is any gold that is sent back to the refiner for recycling. Mostly it is broken jewelry that is no longer needed. Gold coins are rarely melted down because they are already in a handy readily recognizable format and are therefore easily exchanged (after all they were money). But for the sake of this article we will include coins in the definition of scrap unless they have a premium (collectable) value due to rarity.

Due to the rise in the value of gold in recent times, selling scrap gold has gained in popularity as a means of raising necessary cash. Gold has appreciated as a store of value, and liquidation is a very relevant option especially in dire economic times. Selling gold is not something most people do everyday and so it requires [Read more...]

Why Gold is a Good Investment for Inflationary Times

The Impact of Inflation on Savings

If you keep your money in the bank or in money market funds, inflation can eat away at their value. Inflation can be deceiving because your account balances won’t go down. However, when you take your money out to buy something, you might notice that you won’t be able to buy as much as you used to. Therefore, if you don’t put your money into something that keeps up with inflation, you’ll soon find your savings won’t buy as much.

As an investor, you need to be prepared for the risk of inflation. It happens when there is too much money chasing too few goods, so prices have to go up (because of an increase in the money supply). When the economy is facing high inflation, it is very damaging to your savings and investment portfolio. However, not all investments do poorly when inflation is high. Gold tends to do well during periods of high inflation and can be a good investment hedge against inflation risk.

The Impact of Inflation on Investments

Gold InflationTraditional investments like stocks and bonds grow faster than regular savings accounts. However, they are still a poor solution for inflation.

Inflation is also very damaging for fixed income investments like bonds. A bond pays out a certain interest return on your money each year. Inflation cuts into this annual return. Say a bond pays a 5% interest rate and inflation is 4%. This means the actual return on your bond is only 1%. If inflation really takes off, it is possible for bonds to earn a negative rate of return. Therefore, bonds are real problem investments during periods of [Read more...]

Gold and the Federal Reserve

Gold-US Dollar Link

by Chris Vermeulen

The $1800 per ounce level continues to be a major technical resistance area for gold. After hovering near $1800 recently, gold moved sharply away from that level last week to close at $1735 an ounce.

Despite that, more fund managers and analysts continue to point to a bright long-term future for gold prices. John Hathaway of the Tocqueville Gold Fund says gold will reach new highs within a year. He based his forecast, like many others, on the fact that negative real interest rates look likely to persist as Ben Bernanke and the Federal Reserve continue to print money.

New York Federal Reserve GoldBelieve it or not, some mainstream analysts are also touting gold’s potential. Merrill Lynch analysts point to the correlation (discussed in a previous article) between the price of gold and the expansion of the Federal Reserve’s balance sheet since the start of QE1 in early 2009.

Based on the current path of the Federal Reserve’s balance sheet expansion, Merrill Lynch came up with two longer-term targets for the price of gold. They project gold to hit $2,000 an ounce next summer and to hit $2,400 an ounce by the end of 2014.

What is the Federal Reserve Gold Coverage Ratio?

Another way to look at gold and the Fed is the so-called gold coverage ratio. That is the amount of gold on deposit at the Federal Reserve versus the total money supply. According to Guggenheim Partners, the gold coverage ratio is at an all-time low of 17%. The historical average is about 40%, meaning that gold would to more than double to reach the average.

Looking at the Fed’s balance sheet is [Read more...]

Civil Liberties Rest Upon Sound Money

Sound Money = Freedom

Over the years I have written many times about the necessity of sound money to base our economy on and the results of wanton reckless money creation that will alway result in inflation and a worthless currency either sooner or later. I’ve told you about how inflation affects you, and how the Money Supply affects Inflation and Who Inflation Hurts the Most. I also spoken at length about the value of gold as the Timeless Inflation Hedge and how Gold is Still Money.

Today, Wendy McElroy, author of The Art of Being Free shares a deep and fascinating research on all the main issues we face: the loss of security in the name of security, the state’s role in strangling economic opportunity, the petty central-planning that has regimented every aspect of life and the loss of basic civil liberties.

The best way to fight back, she says, is to find and build freedom for ourselves. We must discover the art of being free. The last chapter alone has been called “one of the most inspired and inspiring pleas for real-life liberty ever penned”. Here we have a manual on not only what is wrong with the world but also for how to refuse to be beaten back by our overlords.

McElroy is a member of the editorial advisory board of Laissez Faire Books. In today’s article she will show us how modern “Fiat” currency is no longer a store of value but has become a vehicle of plunder. And how freedom is function of reliable currency and the less reliable the money the less free we are as well. You can see a current example of this in yesterday’s article on Financial Trend Forecaster- Trends: Argentina’s Finances Going Bust Again?.

The idea of government guaranteeing the quality of money is “the sickest joke in economic history. Governments have always robbed their subjects by debasing the currency, but this abuse, in recent years, has burst all bounds of decency and sanity.”

 

Civil liberties require sound money. And nothing ensures the quality of a commodity as surely as competition.

Civil Liberties Rest Upon Sound Money

by Wendy McElroy

Sound Money

Privately Minted California Gold Money

“Fiat” is money with no intrinsic value beyond whatever an issuing government is able to enforce. When it enjoys a monopoly as currency, fiat inevitably turns the free market functions of money inside out. Instead of being a store of value, the currency becomes a point of plunder through monetary policies such as quantitative easing. Instead of greasing society as a medium of exchange, the currency acts as a powerful tool of social control. The second harm is far less frequently discussed than inflation, but it is devastating. The personal freedoms that we know as “civil liberties” rest upon sound money.

In his classic book The Theory of Money and Credit (1912), the Austrian economist Ludwig von Mises argues, [Read more...]