Valuing Gold

Nathan Mayer Rothschild, - once the richest man in Britain and probably in the world, was appointed as the chief bullion broker to the Bank of England in 1840, and went on to operate the Royal Mint Refinery in 1852. 

N M Rothschild & Sons became a powerhouse in investment banking, lending, underwriting government bonds, discounting commercial bills, direct trading in commodities, foreign exchange trading and arbitrage, and dealing in Gold bullion. 

When asked what the value of the barbaric metal was worth, Nathan used to say, “I only know of two men who really understand the true value of Gold – an obscure clerk in the basement vault of the Banque de Paris and one of the directors of the Bank of England. Unfortunately, they disagree.”

Ben Bernanke also admitted on July 17th that he doesn’t understand the yellow metal. “No one really understands Gold prices,” Bernanke told the Senate Banking Committee, adding he doesn’t get it either. Calling it “an unusual asset,” the Fed chief said that investors hold Gold for “disaster insurance” and as an inflation hedge. He expressed surprise about the latter, noting “movements in Gold don’t predict inflation very well.”

Bernanke is right.  Gold has little to do with inflation hedging and everything to do with disaster insurance.  

Gold is a Monetary Stability Hedge.  Say it 100 times slowly.

The price of gold at $2000 an ounce reflected a combination of great worry about the management of the US economy by the major banks - including the Fed.  Coupled with a certain amount of trading/gambling that attempted to game the prevailing sentiment.

Gold at $1300 represents an enormous amount of faith restored in Big Banking and the Fed - coupled with gambling/trading by those same banks attempting to game the prevailing sentiment.

To figure out which way gold will go you have to figure out the true overall risk to the US and Global banking system, which is to say you have to figure out how stable the paper monetary system is.  This gives the sure fire long term direction to gold.

Shorter term you have to figure in the gambling/trading of the Big Banks who are gaming the sentiment that they are, in fact, helping to shape.

This is why unless you are a Big Bank, trading right now is a fools game.

But it is also why, over time, gold will certainly come to reflect the true overall risk factor to the Big Bank economy.

Because if you think that a monetary system based on gaming ever greater amounts of debt is inherently stable, then you should pour all your money into options on stock futures.

The question: With 60 quadrillion dollars of debt derivatives floating around, how long can a debt crisis be delayed by the exponential creation of debt?

The same answer will tell you when gold will once again take off.

Goldman Sachs and the Fed: If it ain't broke, fix it

Fed Draws Fire for Oversight 

of Bank-Owned Commodity Operations
2013-07-23 23:20:01.270 GMT


By Michael J. Moore and Jesse Hamilton
     July 24 (Bloomberg) -- The Federal Reserve faces new
pressure to explain why it lets banks trade raw materials and

control supplies after congressional witnesses said regulators

can’t really grasp what lenders are doing in industrial
businesses.

 

GS Elevator Gossip ‏@GSElevator10h

#1: You can get away with just about anything if you're buying the drinks.

Goldman Sachs with the blessing of the Fed is not satisfied with being able to gamble free money from the US taxpayers (borrowed from the Fed at 0 percent) in the high risk commodities futures markets.

They've now figured out that if they own the storage and supply chains for these commodities, they can make money by both manipulating the price and betting on the prices they're manipulating.

And it's all perfectly legal!

And who pays?  The US taxpayer once again foots the bill with higher commodity prices on all end products we buy in retail stores.

 

 

GS Elevator Gossip ‏@GSElevator18 Jul

#1: Too many people are smart enough to be angry, but not smart enough to be successful.

    "Warehouse owners (Goldman Sachs) authorized to hold aluminum by the LME
have created artificial limits on available supply, leaving
prices inflated relative to the massive oversupply and record
production.  Storage practices that have driven premiums higher forced
aluminum users to wait more than 18 months in some cases for
delivery."    JPMorgan, Morgan Stanley and Goldman are among the lenders
whose commodity trading is in jeopardy as the Fed reconsiders
letting banks ship oil and store metal.

 

Gee, it's great to be so smart you can make endless sure fire one way bets.  And know that when you screw up even those sure things, the US taxpayer is there to bail you out.

What are the rich buying? Everything

 

Gold may have suffered a temporary setback, but the rich are trading dollars for real things at a furious pace:

Fox fur fetches record prices at Finnish auction

HELSINKI | Thu Jun 13, 2013 11:59am EDT

(Reuters) - Fox fur fetched record prices at a week-long auction in Finland that ended on Thursday, as strong demand from Asian buyers made up for weak European spending.

Francis Crick's DNA letter to his son sells at auction for a record $6 million

Alan Boyle, Science Editor NBC News

April 10, 2013 at 4:48 PM ET

Christie's /

Francis Crick sketched this diagram of the DNA double-helix molecule in a 1953 letter to his son, Michael. "The model looks much nicer than this," the elder Crick wrote.

A 60-year-old letter in which biologist Francis Crick told his son about DNA's double-helix structure, weeks before the Nobel Prize-winning discovery was revealed to the world, sold at a New York auction on Wednesday for a record price of $6 million.

Record Auction Price for Barnett Newman, $43.8 Million, Is Set at Sotheby’s

Emmanuel Dunand/Agence France-Presse — Getty Images

“Onement VI,” a 1953 abstraction by Barnett Newman, was sold on Tuesday.

By CAROL VOGEL

Published: May 14, 2013

Keats and Bronte’s manuscripts sell for record breaking prices at auction

Andrea Divirgilio / April 14, 2013

Amongst the collectible this year, which has seen a surge in demand, is original manuscripts dating back in history, As a part of the Roy Davids Collection Part III: Poetry: Poetical Manuscripts and Portraits of Poets auction event, the John Keats manuscript from his early poem ‘I stood tiptoe on a little hill’ sold for £181,250 ($278,128), and Charlotte Bronte’s ‘I’ve been wondering in the greenwoods’ bought in £92,450 ($141,864), both of which stood to be record breaking prices for their works.

Rare Australian Coin Fetches Record Sale Price

By Suzan Clarke

Mar 8, 2013

One of the first coins ever used as Australian domestic currency was this week sold for the U.S. equivalent of about $508,000, setting a new world record, the auctioneer said.

 May 25, 2013, 10:20 am

 

U.S. & World Coin News and Articles

Record-Setting $10 Million Silver Dollar Certified By Professional Coin Grading Service

- January 31, 2013

This 1794 Flowing Hair dollar, graded PCGS Specimen 66, set a world record as the most valuable coin sold in an auction, $10,016,875. (Photo by PCGS.)

(Santa Ana, California) - The 1794 silver dollar that set a world record rare coin auction price of $10,016,875 was certified for authenticity and grade by Professional Coin Grading Service (www.PCGS.com), a division of Collectors Universe, Inc. (NASDAQ: CLCT). PCGS certified it as a specially-struck (specimen) gem-condition coin and numerically graded it Specimen 66 on the numismatic grading scale of 1 to 70.

Vintage Apple-1 Sells for Record $671,400

By STEVE LOHR

Apple’s stock price may be well down from its peaks last year, but the market for the company’s oldest computers continues to set records.

Emmanuel Dunand/Agence France-Presse — Getty Images Sotheby’s sold an Apple-1 for $374,500 last year. A few months later in Germany, one sold for $640,000.

World Record auction price for unique Aston Martin DB4GT

Photo courtesy Aston Martin.

Aston Martin: May 20, 2013 - A unique Aston Martin DB4GT fetched a world record price of £3,249,500, the highest ever price paid for an Aston Martin at auction, when it went under the hammer as part of the Aston Martin Centenary Sale at Aston Martin Works on 18 May 2013. The sale itself also realised a record total of over £10 million, with every lot sold.

Corcoran’s Clark Sickle-Leaf Carpet breaks world record at Sotheby’s auction

By Katherine Boyle,June 05, 2013

• 

The Corcoran Gallery of Arts Clark Sickle-Leaf Carpet, from the collection… (Collection of William A.…)

 

 

Lifestyle

|

5/16/2013 @ 9:52AM |

Harry Winston Buys 101-Ct. 'Perfect Diamond' For Record-Setting $26.7M At Christie's Geneva Auction

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Harry Winston is celebrating its acquisition by the Swatch Group in a big way as it purchased a pear-shaped, D color, flawless diamond of 101.73 carats for more than $26.7 million Wednesday at Christie’s Geneva Magnificent Jewels Sale.

Bernanke: QE INFINITI IS FIRMLY ENTRENCHED

No rate rise on horizon: Bernanke

• AAP
• July 18, 2013 1:43PM

Federal Reserve chairman Ben Bernanke has reiterated the Fed isn't close to raising interest rates. Source: AAP

FEDERAL Reserve chairman Ben Bernanke has reiterated the Fed is nowhere close to raising interest rates, assuring markets that the US easy money tap would not soon dry up.

With the economy still facing risks, especially from government spending cuts, Bernanke told a congressional panel on Wednesday the Fed is still planning to trim its quantitative easing stimulus, if growth continues at a steady pace.
But expectations that the Fed was poised to start tightening monetary policy, which have sent interest rates jumping and sparked turmoil in global markets, were unwarranted, he stressed.
"I don't think the Fed can get interest rates up very much, because the economy is weak, inflation rates are low," Bernanke told the House Financial Services Committee.

"If we were to tighten policy, the economy would tank."

BLOOMBERG: Housing starts plunge to lowest level in year:

'We're bound to have some hiccups along the way'

(BLOOMBERG) — The residential real-estate rebound suffered a setback in June as housing starts unexpectedly fell to the lowest level in almost a year, curbing how much construction contributed to U.S. economic growth last quarter.
Work began on 836,000 houses at an annualized rate, the least since August and down 9.9 percent from a revised 928,000 pace in May, figures from the Commerce Department showed today in Washington. The drop was led by a 26.2 percent plunge in multifamily projects, which are more volatile than work on single-family homes.

 

BLOOMBERG:

Gorilla Capital Flipping Homes as Rebound Revives Rapid Trades

By Heather Perlberg - Jul 19, 2013 7:50 AM ET

John Helmick lloves to buy homes reeking of cat urine and doesn’t mind if they’re infested with rats, bats or bees. His seven-year-old Gorilla Capital seeks out some of the most distressed properties to avoid competition and get the best deals, then sells them 60 to 120 days later after major renovations for an average 13 percent return. After flipping 400 homes last year, he expects to sell 500 in 2013 in eight states across the country, making the Eugene, Oregon-based firm one of the largest companies of its type in the U.S.

GOLD AND METRICS:

Gold simply measures confidence in the paper monetary system.  

No metrics really matter.  

What matters is how many people feel they need the insurance of gold against mismanagement of the paper economy at how many ounces, and what is the supply to these people.  

There are those who take their insurance in paper gold -  ETF and Futures – and obviously they can be easily spooked out of their positions.  Most of them are just speculating anyway.  

There are also those who want their insurance in real gold.  This includes many central banks.  These holders tend to be more long term (stronger hands)  So, gold goes up as more and more people lose confidence in the paper system.  

Why people lose confidence and when is hard to quantify.  

My confidence in those managing the paper economy is very low.  So I hold a lot of gold.

At the moment the massive global easing coupled with a flow of European and Japan paper into the US economy seems to have restored a certain amount of confidence in the US paper economy.  

I think that confidence is misplaced.  So I still hold a lot of gold.

Maybe I'll be wrong.  Maybe Infinite debt can cure the ills of too much debt.

We'll see.

Told you so dept.

Economy skids dangerously close to contraction

Commentary: Spending weakening, but incomes still growing

MarketWatch First Take Archives |

July 15, 2013, 12:31 p.m. EDT

By MarketWatch

WASHINGTON (MarketWatch) — U.S. economic growth has again slowed sharply, skidding dangerously close in the second quarter to an outright contraction in gross domestic product.

Following the releases Monday of tepid reports on retail sales and inventory accumulation, forecasters marked down their GDP expectations from 1.4% to 1.1%. It’s probable that U.S. GDP rose less than 2% for the third quarter in a row, and it’s possible that growth was less than 1% for the second quarter in the last three.

With all the world's money pouring into the US:

With all the money of the world's richest 1 percent fleeing into the US right now the dollar has been pushed to stratospheric heights equal to - well the most anemic pre crash low of '06.

Yet this is enough to get commentators salivating about the strength of the dollar.

And it is strong - compared to the Euro and the Yen.

With an average 1.6 percent GDP for 2013 - five years into a "recovery" this tremendous strength will come crashing down the moment the US loses about half a percent of GDP and heads back towards ZERO and below.

Half a percent of GDP.  That's all the holding the dollar up right now. 

And think about this: the PPI came in at .8 percent in June.  If you counted that as the GDP deflator - which you well might have done before the government changed the metrics - that half a percent would already be gone.

Then where will the money flow?

Follow the money....

As Europe implodes and China consolidates, the world's richest 1 percent have been flooding into the US dollar to buy up US stocks and real estate. 

It's been absurdly cheap for them to do for five years because they;'ve been borrowing US dollars at close to 0 percent, to leverage purchases.  Hedge funds are flipping real estate like 2007 - and exotic debt instruments dominate bank balance sheets.

The Fed is keeping real rates low to negative indefinitely.  They have chosen to side with the world's 1 percent and against the US middle class.

Meanwhile the vast US middle class is drowning under stagnant incomes, a stagnant job market, and soaring tuition, housing, energy and food costs.  And those living on fixed income are dying.  There is no yield.

And US debt continues to skyrocket.

Here's the question:  What happens when US stocks and real estate bubble implodes?  Where does the richest 1 percent go with their capital?

Because that final refuge is where you should go too.

You can try to milk the last drop out of the stock market and real estate bubble.  But the richest 1 percent have already made their money there.

Where will they go next?

Where will they seek refuge when the dollar collapses under the weight of unserviceable debt, as they know it must?

Figure that out.

Your capital depends on it.

The biggest bubble in history; the US Debt Bubble - and still growing fast

 http://www.usdebtclock.org/

It's all coming here - Right Now. Where does it go when the next recession hits the US?

Ruble to Real Roiled as No Brick in BRICs $13.9 Billion Lost

By Ye Xie, Maria Levitov & Ksenia Galouchko - Jul 10, 2013 3:57 AM ET

“Every decade, there’s a theme that captures investors’ imagination -- the 1970s was about gold, 1980s was all about Japan and 1990s was about technology companies,” Ruchir Sharma, the New York-based head of emerging markets at Morgan Stanley Investment Management, which oversees $341 billion, said in a phone interview on July 8. “Last decade it was about the BRICs. That theme has basically run its course.”

Economist Caution: Prepare For 'Massive Wealth Destruction'

Tuesday, 09 Jul 2013 09:45 AM

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Take immediate steps to protect your wealth . . . NOW!

That’s exactly what many well-respected economists, billionaires, and noted authors are telling you to do — experts such as Marc Faber, Peter Schiff, Donald Trump, and Robert Wiedemer. According to them, we are on the verge of another recession, and this one will be far worse than what we experienced during the last financial crisis.

Marc Faber, the noted Swiss economist and investor, has voiced his concerns for the U.S. economy numerous times during recent media appearances, stating, “I think somewhere down the line we will have a massive wealth destruction. I would say that well-to-do people may lose up to 50 percent of their total wealth.”

When he was asked what sort of odds he put on a global recession happening, the economist famous for his ominous predictions quickly answered . . . “100 percent.”

Faber points out that this bleak outlook stems directly from Federal Reserve Chairman Ben Bernanke’s policy decisions, and the continuous printing of new money, referred to as “quantitative easing” in the media.

Faber’s pessimism is matched by well-respected economist and investor Peter Schiff, the CEO of Euro Pacific Capital. Schiff remarks that the stock market collapse we experienced in 2008 “wasn’t the real crash. The real crash is coming.”

Schiff didn’t stop there. Most alarming is his belief that daily life will get dramatically worse for U.S. citizens.

“If we keep doing this policy of stimulus and growing government, it’s just going to get worse for the average American. Our standard of living is going to fall . . . People who are expecting Social Security can’t get all that money. People expecting government pensions can’t get all their money . . . We simply can’t afford to pay them.”

Equally critical of the current government and our nation’s economy is real estate mogul and entrepreneur Donald Trump, who is warning that the United States could soon become a large-scale Spain or Greece, teetering on the edge of financial ruin.

Trump doesn’t hesitate to point out America’s unhealthy dependence on China. “When you’re not rich, you have to go out and borrow money. We’re borrowing from the Chinese and others.”

It is this massive debt that worries Trump the most.

“We are going up to $16 trillion [in debt] very soon, and it’s going to be a lot higher than that before he gets finished,” Trump says, referring to President Barack Obama. “When you have [debt] in the $21-$22 trillion [range], you are talking about a [credit] downgrade no matter how you cut it.”

In a recent appearance, Trump went to so far as to say the dollar is “going to hell.”

Where Trump, Faber, and Schiff see rising debt, a falling dollar, and a plunging stock market, investment adviser and author Robert Wiedemer sees much more widespread economic destruction.

In a recent interview to talk about his New York Times best-seller Aftershock, Wiedemer says, “The data is clear, 50 percent unemployment, a 90 percent stock market drop, and 100 percent annual inflation… starting in 2013.”

Gold moves from weak hands to strong hands:

As George Topping of Stifel Nicolaus puts it, "Annualizing 2013 year-to-date figures, China's gold imports would be equivalent to 50 percent of [world] mine production."

FROM JOHN HUSSMAN:

"the composition detail in the household survey was hardly an indication of a robust economy, with a loss of 240,000 full-time jobs offset by a 360,000 gain in employees reporting that they usually work part-time. Fully 352,000 of this increase fell into the category of “part time for economic reasons (slack work or business conditions).” 

 

When we analyze the financial crisis and subsequent recovery, the key events are actually very clear. In March 2009, the Financial Accounting Standards Board bowed to political pressure and removed “mark-to-market” accounting requirements, loosening U.S. accounting rules to allow banks “substantial discretion” in how they valued the distressed assets on their books, and making it possible for them to avoid insolvency even if they were in fact insolvent. 

Since then, banks have largely refused to restructure mortgages and other loans, and the Federal Reserve’s zero-interest rate policies have allowed banks to gradually recapitalize themselves on the backs of savers earning zero-interest and homeowners locked into higher-interest mortgages. Many of these banks should instead have been restructured, at no loss to depositors, and with bank bondholders bearing the cost. 

The Fed did not save the economy. Rather, the Financial Accounting Standards Board rescued the banks by making their accounting more opaque.

The Fed’s policies then shifted the costs of financial recklessness onto those who are not financially reckless – particularly ordinary savers and the elderly on fixed incomes, while the economy has more or less floundered.

The statistical recovery

Once again a great labor report sent capital flowing from around the world into the US stock market.  The Dollar soared.  Gold plunged.

Over the last five months the US has averaged 178,000 jobs per month.  145,000 of those jobs appeared in no survey, were reported by no employers, but were simply added into the figure by government bureaucrats who decided based upon theoretical models to add those figures to the survey numbers.

In other words the US economy is averaging job gains of 30,000 verifiable jobs a month.  

QUOTED FROM THE BLS: The civilian labor force participation rate, at 63.5 percent, and the employment-population ratio, at 58.7 percent, changed little in June. Over the year, the labor force participation rate is down by 0.3 percentage point.

 

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 322,000 to 8.2 million in June. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

 

The average workweek for all employees on private nonfarm payrolls was unchanged in June at 34.5 hours.

 

 In June, average hourly earnings for all employees on private nonfarm payrolls rose by 10 cents to $24.01. Over the year, average hourly earnings have risen by 51 cents, or 2.2 percent.  (In other words stagnant when including inflation.)

 

 DURING THIS SAME PERIOD (last five months) GDP HAS AVERAGED 1.6%

 

Is that a portrait of a booming economy?

 

No, obviously not.  

 

 It describes an economy on life support, dependent on nearly 100 billion dollars a month of Fed Stimulus Money.

 

But it is better than Euorope and the Emerging Markets.  So foreign investment keeps flopwing in here.  Until that changes, gold will remain under pressure.

 

But, as the dollar strengthens, and rates rise, that will eventually compromise profits, crash the stock market and tip GDP into negative territory.

 

Then where will the flow of funds go?

 

 

 

What's up with Gold?

Whether or not you believe the markets are manipulated, you can still ask: Where are the buyers of gold?

What's going on?

Europe is coming apart at the seems.  Japan is dying.  China is not yet viable.  And the US is growing at under 2 percent - and only - if you accept the notion there's absolutely no inflation.  (Otherwise an accurate GDP deflator would have us in recession)

And there's your answer.

The US is losing the ugly contest.  It doesn't make us beautiful, but compared to the other trolls and ogres competing, we're definitely the pick of the sad, sick, ugly litter.

Therefor there's a tremendous capital inflow into our barely breathing economy.  So the dollar is strong as people are buying dollars to invest in US Industry via the Stock Markets.

And as long as competing paper currencies are turning into dollars to invest in US Equities gold will remain under pressure.

Then you get the spin machine.  Right, Left, it doesn't matter they all buy the fact the housing is rebounding (then why is lumber and copper crashing?) and the Consumer is strong (With declining incomes and massive unemployment) and the Political System is healthy!

All this hype helps the US dollar and hurts gold.

But really, if gold bases here, let's say between 1000 dollars and 1400 dollars, everyone will say gold has cracked, it's in a permanent bear market, the luster is off bla bla bla.

But it's current base is still 4-5 times higher than the last base ten years ago.  Is that really so horrible?

It will languish here until the US dollar is so strong, and the US markets are so inflated, the US tips into a depression that can't be statistically discounted, that can't be pumped up with QE Infiniti, and that will be brutal enough that everyone will realize it's here no matter what the spin.

Then the last reserve paper currency, the dollar, will seriously deflate and gold will move back off it's base of 1000 -14000 and move another 4-5 times higher.

Is that so horrible?