Use access key #2 to skip to page content.

Sprott / John Embry: 17 Reasons to Own Gold

Recs

14

June 13, 2010 – Comments (11)

Here is another good article (pretty quick read) of who gold is a good investment, if not the premier investment, for the current macro environment. Most of these I agree with, and some of them I don't. But it is a good article that I encourage you to read.

Here is the article: http://www.sprott.com/docs/Reports/reasons_to_own_gold.pdf

I am going to comment on my views of the points below for anybody who is interested:

1. GOLD IS RETURNING TO ITS TRUE HISTORIC ROLE AS MONEY

Completely agreed - The Gold Blog. Gold/Silver/GSMs (and a little Oil for good measure) - LINK and Why I hold Gold: Why I am a Long Term Optimist and consider holding gold and Optimistic Endeavor, and Why I think the Stagflationary Scenario is more likely Macroeconomically in the Intermediate term (next several years) - http://caps.fool.com/Blogs/why-i-hold-gold-why-i-am-a/402614

2. THE INEVITABILITY OF A COLLAPSE IN THE U.S. DOLLAR

This is a lot too strident / overreaching for my taste. I think a currency crisis is quite likely in the US Dollar, but not a collapse. I suppose it is only a difference in degree, but I don't expect the Dollar to become "worthless" in most of our lifetimes. But, could the Dollar be replaced as the reserve currency within our lifetimes? That is the far more interesting question and I think the odds on this outcome are not at all trivial

3. OTHER SIGNIFICANT WORLD CURRENCIES OFFER NO REFUGE

Completely agree. Some fiat currencies will do better than others (most will fare better than the Dollar) but all will pale in comparison to gold in terms of retaining value and purchasing power.

4. THE DESTRUCTION OF GOVERNMENT BALANCE SHEETS AND THE WIDESPREAD IMPLEMENTATION OF ZERO INTEREST RATE POLICIES MAY ULTIMATELY RESULT IN HYPERINFLATION

I agree with this up until the last word. ZIRP is a plague. The government thinks of all of us as consumers, not citizens, certainly in its policies and rhetoric. "We need to borrow and spend our way out of this recession!". This is why real interest rates are negative. Every policy by the Treasury and Fed are designed to get us to spend and not to save. That said, I do not think ZIRP and borrowing leads to hyperinflation. The problem is debt, and it is collapsing, in the presence of extreme monetary inflation. The problem I think we are far more likely to be facing is stagflation: More on Debt Saturation Equals Diminishing Growth, Employment, and Capacity Utilization… - http://caps.fool.com/Blogs/more-on-debt-saturation-equals/394221

5. THE TRUE IMPACT OF THE MALIGN SIDE OF DERIVATIVES HAS YET TO EXPRESS ITSELF

Completely agreed.

6. INVESTMENT DEMAND FOR GOLD IS RAPIDLY ACCELERATING BUT WE’RE ONLY IN THE EARLY STAGES OF THIS PHENOMENON

Completely agreed. Everybody is calling the top of the bubble, but only a fraction of investors actually hold gold. Homeownership as a percentage of the population was very small before the housing bubble, then with easy monetary policy and easy lending, a huge percentage of the population became homeowners (with homes they couldn't possibly afford for the long term) and nobody thought anything of it, save for a few people calling it a bubble. My point being is that people are very quick to call this a Gold Bubble that is about to burst even though there is very little widespread participation. When >50% of the public holds gold, then there might be a case. Until then, I am very happy to hold gold in the very early stages of this 'bubble'.

7. GROWING RECOGNITION THAT MANY PAPER GOLD PRODUCTS DO NOT HAVE THE GOLD BACKING THAT THEY PURPORT TO HAVE

Exactly. This is why I will never invest in GLD, and why my biggest holdings are CEF and PHYS.

8. MINE SUPPLY IS NOT ANTICIPATED TO RISE FOR SEVERAL YEARS, IF AT ALL

Agreed 100%.

9. CENTRAL BANKS ARE NEARING AN INFLECTION POINT WHERE THEY WILL NO LONGER BE IN A POSITION TO SUPPLY THE GOLD NECESSARY TO KEEP THE MARKET IN EQUILIBRIUM

Again, a perfect comment. Western central banks have been net sellers for the last 10 years. This has kept the price of hold from rising as fast as it otherwise would. But consider the fact that gold has increased 500% during the last decade *despite* net selling (more supply coming on to the market) from the worlds largest gold holders. Both the Canandian and English Central Banks are out of gold ammunition, and the Federal Reserve and Treasury are in a similar position. .... and demand continues to increase.

The makes the IMF Gold Sale issue that much more important: Five Questions About Gold The IMF Refuses To Answer - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=384031

10. INCREASING LIKELIHOOD OF ACCELERATING PURCHASES OF GOLD BY EASTERN CENTRAL BANKS

I have talked about a possible avenue here: Gold - China's End Game? - http://caps.fool.com/Blogs/gold-chinas-end-game/338913

11. INCREASING SKEPTICISM ABOUT U.S. GOLD RESERVES

Agreed. See point #9 above.

12. LARGE SHORT POSITIONS

Completely agree. See Silver, Short Positions, and Potential Squeezes - http://caps.fool.com/Blogs/silver-short-positions-and/366926. Same thing applies to gold.

13. INCREASING RECOGNITION OF THE FACT THAT THE GOLD PRICE HAS BEEN SERIOUSLY SUPPRESSED

Agreed. I am sure gold bears label this statement as gold bug wing nut conspiracy theory talk. But GATA has amassed much evidence to support this claim.

14. THE SUPPRESSION IS EVIDENT IN THE CONTINUING EXTREME UNDERVALUATION OF GOLD

I agree. Altough as Bill Fleckenstein points out, gold is very difficult to value to begin with: Bill Fleckenstein Interview - http://caps.fool.com/Blogs/bill-fleckenstein-interview/401191. But I lay out a few ways in which gold can be (IMO) reasonably valued: Update on the Dow/Gold Ratio and a few more Gold Ratios and  ContraryInvestor: The Many Faces Of Gold - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=400090

15. THE RELATIVELY SMALL SIZE OF THE GOLD MARKET

Agreed.

16. GOLD IS IN AN ESTABLISHED POWERFUL BULL MARKET

Completely agreed: binve's Gold Foil Hat Zone: More Thoughts on Gold's Massive Bull Market - http://caps.fool.com/Blogs/binves-gold-foil-hat-zone/403421

17. GOLD HAS ENDURED

Completely agree - The Gold Blog. Gold/Silver/GSMs (and a little Oil for good measure) - LINK

11 Comments – Post Your Own

#1) On June 13, 2010 at 4:38 PM, TMFBabo (100.00) wrote:

Regulatory filings or annual reports on PHYS seem to be very hard to find (I can't find any!).  Nevertheless, I just read the last semi-annual report from CEF and have to say that I'm impressed. 

I've always wanted to hold a small amount of gold or silver because I believe in proper asset allocation and that any smart allocation strategy includes hard assets such as real estate, metals, timber, and what have you.  If I take the plunge, I think I'll buy CEF because I've yet to see you or Sinch say anything bad about it.  I'd consider PHYS too, but show me a friggin' annual report!

By the way, I'd like to note that it's impressive the way you handle yourself on CAPS.  I've seen people throw sarcasm and rude remarks your way, but I've yet to see you respond in kind.  You also post "thanks!!!" even when someone says something useless when leaving a comment on your blog.  I don't get how you can stay enthusiastic (almost too enthusiastic, sheesh).  I'm also led to believe you're genuinely happy to see people contribute comments, no matter what. 

Anyway, keep up the good work!

Report this comment
#2) On June 13, 2010 at 4:59 PM, Tastylunch (29.20) wrote:

Binve

hey buddy

read these last week and thought of you

http://www.commodityonline.com/news/Soros-warns-of-gold-bubble-again-25361-3-1.html

http://humblestudentofthemarkets.blogspot.com/2010/01/simple-style-rotation-model.html

It's funny people are taking Soros's comment about Gold being an emerging bubbleas a sign to get out when to me that really that means Soros is likely actually getting in deeper. He has been a great bubble rider for decades now.

He is cagey like that though, he carefully worded it so he could be "right" either way in the media. But last I looked he was a net buyer of gold assets...

I have no doubt Gold will drop like a stone at some point but not before it gets to its' parabolic phase. And that my eyes that has not happened yet as hard as it is to believe...

 bullishbabo

That's cause Binve's a very good dude. He acts in the way all Fools should...

civil, open minded but resolute in his opinions,does his own due diligence and never uses ad hominems. We disagree from time to time, but he always has my respect.

Once upon a time CAPS in general was more like that, before the market collapsed. But now people everywhere are angrier for understandable reasons. CAPS is affected just like everywhere is.

But yeah a lot of CAPS players could benefit from following his example in how to treat people.

Report this comment
#3) On June 13, 2010 at 6:02 PM, binve (< 20) wrote:

bullishbabo ,

>>Regulatory filings or annual reports on PHYS seem to be very hard to find (I can't find any!).  Nevertheless, I just read the last semi-annual report from CEF and have to say that I'm impressed. 

PHYS is brand new (a couple of months old). I wrote a few posts before it came out (http://caps.fool.com/Blogs/all-that-glitters-is-gold/349219, and I was the first to ask Caps to add the ticker (see my pitch for PHYS as binve and binv271828). Yeah, CEF continues to be my largest real life holding.

>> If I take the plunge, I think I'll buy CEF because I've yet to see you or Sinch say anything bad about it. 

There is nothing bad to say (assuming you are bullish on PMs). Rigorous auditing, well-timed bullion purchases, transparency, and in Canada!

>>By the way, I'd like to note that it's impressive the way you handle yourself on CAPS.  I've seen people throw sarcasm and rude remarks your way, but I've yet to see you respond in kind. 

Thanks man! I am really not here as an ego trip or to defend some sort of agenda. That is why I never take attacks personally (or really pay much attention to them). I am a guy with an opinion and I want to share that opinion and what things that I found useful in forming that opinion. Before I read TMFSinchiruna’s blog (a couple of years ago, back when he was just Sinchiruna :) ), I thought gold was stupid. I had all of the same preconceptions and misconceptions that people typically have. I was born after the gold convertibility window was closed in 1971. I have always lived in a world when gold was not an official currency. I am not a gold bug in any way. But I have gone through the process from being a skeptic to seeing the value in gold. So I had an open mind and allowed my preconceptions to be changed by a guy who stated his opinion truthfully and honestly, and who didn't resort to ranting and screaming and arguing.

So that is why I do what I do and the way that I do it. I believe any message that is worth hearing stands on its own and doesn't need constant argument and defense. That's not to say it is absolutely right or that everybody will eventually come to the same conculsion. But I think ranting detracts from an argument, and never really strengthens it (of course, I have has some pretty spectacular rants about financials in the past, don't get me started :) )..

>>You also post "thanks!!!" even when someone says something useless when leaving a comment on your blog.  I don't get how you can stay enthusiastic (almost too enthusiastic, sheesh).  I'm also led to believe you're genuinely happy to see people contribute comments, no matter what.

LOL! Yeah, I suppose I am just a little too enthusiastic :) But that kind of goes along with what I wrote above. I am a guy who is just expressing an opinion, not trying to defend an argument. So when I relay that opinion and it is well-received, it is a very nice thing and I am geniuinely happy that somebody found it useful.

>>Anyway, keep up the good work!

Will do! Thanks man!!

Tastylunch ,

Hey man!!

Yep, I remember those Soros quotes, and other articles out around the same time (in Feb), he clarified what he meant: You want to be in a bubble as it is forming. Those are the best gains. His view of gold as a bubble and mine seem to be very similar:- http://caps.fool.com/Blogs/binves-gold-foil-hat-zone/403421:

And this sets up the final bubble ... the Gold Bubble.

Now I don't mean this pejoratively. And I am not casting a negative connotation on it. Bubbles are what they are. When Central Bank monetary policy forces all of us to become speculators by not rewarding savers, then bubbles are formed.

Gold doesn't care that it is in a bubble. It is quietly and quiescently preserving wealth. Again Gold is NOT about price, gold is about value.

I don't hold gold because I like shiny objects. I don't hold it because it makes the world go round. I hold it because it will be the last currency standing that preserves wealth as the world's economy goes through this painful deleveraging process.

That second link was *very* interesting, thanks!

>>He is cagey like that though, he carefully worded it so he could be "right" either way in the media. But last I looked he was a net buyer of gold assets...

Exactly :)

>>I have no doubt Gold will drop like a stone at some point but not before it gets to its' parabolic phase. And that my eyes that has not happened yet as hard as it is to believe.

Yep. At some point we will get a 1980 style run up in gold, and then at another point we will get a 1981 style drop in gold. Right now we are like in 1975, and everybody is trying to say we are ready to pop and drop. I think the calls of the bursting of the gold bubble are premature at best :)

And thanks for all the props man!! The really mean a lot coming from you.

Take care my friend!..

Report this comment
#4) On June 13, 2010 at 6:24 PM, blesto (32.22) wrote:

binve! Good work as usual!

Are ETF's the best way for a small investor to invest in Gold?

Physical gold is also nice to hold, I suppose, but risky in keeping it secure.

Report this comment
#5) On June 13, 2010 at 6:38 PM, blesto (32.22) wrote:

Another question.

When I hear that gold is being sold off and vice versa, is that physical gold or the shares of indexes and ETF's?

If its the physical gold that's being sold off, then isn't someone else buying it?

I guess what I'm really asking, is who determins the current price of gold?

Hope these aren't to stupid of questions.

Report this comment
#6) On June 13, 2010 at 8:25 PM, binve (< 20) wrote:

blesto ,

Thanks! I appreciate that!

>>Are ETF's the best way for a small investor to invest in Gold?

Yeah. As far as a proxy for physical gold and silver, that you can buy or DCA in smaller quantities, CEF is probably the best call.

>>Physical gold is also nice to hold, I suppose, but risky in keeping it secure.

Yep, there are issues with every approach, which is why I like to spread my risk out:  I like physical, I also like firms like GoldMoney and BullionVault ("almost"-physical), I like both CEF and PHYS, and I like quality miners (producers). I like to spread out my risk among several

>>When I hear that gold is being sold off and vice versa, is that physical gold or the shares of indexes and ETF's? If its the physical gold that's being sold off, then isn't someone else buying it? I guess what I'm really asking, is who determins the current price of gold?

For the short term, it is a little of both. When we talk about the Gold price there is a 24 hour market, just like Forex. Part of the time it is the NYMEX price, part is the London Spot, part Australia, etc. But the biggest swings happen when the exchange is open during US hours. ETFs exacaserbate this to some degree. When GLD is traded, there is some amount of physical that is moved around, but it is not really on a daily basis. Most of the movement is due to futures activity at the Comex.

Now, like with any futures activity, it is not necessarily physical stuff that gets moved around. Like with oil, there are speculators who will never take delivery and will roll their contracts over. Same with gold. Except the gold market is *much* worse. The amount of paper gold and leveraged bets out there far exceeds what the phsyical market could bear. This is one of the reasons why many of us say that the physical market and paper market are drifiting further apart: See this post, comment #7 (http://caps.fool.com/Blogs/binves-gold-foil-hat-zone/403421.

This is why buying either physical or a very good physical proxy (such as CEF or PHYS) is critical as an investment and why GLD makes a horrible investment (IMO).

>>Hope these aren't to stupid of questions.

Definitely not!! Thanks!!..

Report this comment
#7) On June 14, 2010 at 1:05 AM, Tastylunch (29.20) wrote:

more Soros (new stuff)

http://www.businessinsider.com/george-soros-we-are-just-entering-act-2-of-the-crisis-and-were-totally-screwed-2010-6

Report this comment
#8) On June 14, 2010 at 8:43 AM, binve (< 20) wrote:

Tastylunch ,

That's a *really* good article man, thanks! I will probably repost as a post, if that's okay..

Report this comment
#9) On June 14, 2010 at 2:15 PM, Tastylunch (29.20) wrote:

yeah sure. It's not like it belongs to me anyway. :)

glad it was of value to you.

Report this comment
#10) On June 14, 2010 at 2:26 PM, binve (< 20) wrote:

Tastylunch ,

Thanks man :)..

Report this comment
#11) On June 23, 2010 at 11:08 PM, rwebankrupt (78.37) wrote:

Try sedar.com Binve for info

Report this comment

Featured Broker Partners


Advertisement