will de naysayers c de forest throo de trees..

To all and sundry,

Every day I get on here to read (hopefully) some intelligent thoughts that I may find useful. Recently though its just been a golds going to $300 (idiot), $800 (going to happen at some stage) and $4,300 (a possibility at the end of a speculative frenzy - never underestimate the power of greed and the fear of missing out) and while there has been a few reasoned comments, most have been pants. So I'm going to put a few things down on paper (keyboard really I suppose) to explain to some who still fail to 'get it'

Firstly, Gold is a currency. Whether you personally believe that matters not. It is. Full stop. Thats why it makes up large portions of central bank reserves, thats why it has been the worlds historical medium of exchange. If you can't accept that its money, stop reading now, because you will gain nothing from this.

Secondly, its well established (whether you believe it or not) that governments/central banks intervene in currency markets to support or supress their currency for various reasons. This includes the gold market. The more pertinent discussion (for another time) is how often and to what extent. Gold is public enemy no.1 because it is the 'canary in the gold mine' reflecting a range of factors from financial health in an economy, currency debasement to trust in a governments ability to pay good on its promise on fiat currency. Remember gold itself does not fluctuate in value. It is the currency that it is valued in that fluctuates. High gold price means low currency value of that particular currency. Thats why in the US a 'strong dollar policy' has involved intervention in the gold market.

In regards to currency debasement, this is the platform from which I strongly believe people should be investing in gold. Many think it should be invested in for its 'safe haven' status and while its not without merit in uncertain financial times, its not what will propel gold.

We have winessed in the last 7 (?) days currency debasement in China, Australia, Europe, England, India and the US though at times, substantial interest rate cuts. This has been done obviously to stimulate economies that are facing deflationary times. Some call this the race to the bottom and not without reason. Each of these coutries with maybe the exception of Australia now has negative interest rates, something gold LOVES.

It is my strong belief (and reason for investing in gold related investments) that over the next X number of years, virtually every currency will be debased in an effort to stimulate the respective economies. For some this is done to increase exports, some to decrease imports and others to stimulate lending and hence investment and therefore economic growth. Asian nations have long kept their currencies low enough to allow their exports to be competitive on a global basis and I suspect we will see this on far more of a global basis now as countries around the world attempt to make their exports more competitive than the nexts in an effort to stimulate their economy.

Now, when I talk about countries debasing their currencies, what do they debase them against. The answer is hard, tangible assets, and gold being a currency, it is beneficiary number 1. All other things being equal, like I mentioned above, a reduction in a fiat currencies value is reflected by a rise in the price of gold priced in that currency, as it is not the value of gold that rises or falls, simply the change in value of the currency it is priced in.

Personally I don't believe the world is about to collapse. It may struggle, suffer or grind along slowly, but life will go on. However, the US is in somewhat of a pickle. To name but a few things, it is highly indebted and that debt is rising rapidly and it does not have the production base required to produce its way out of trouble. Deflation will ruin the rich, poor and middle class alike, as a rising dollar will decrease exports though increasing the price of them, increase imports though decreasing the price of them and increase the cost (PPP) of the nations debt. As I see it this is an extremely unpallatable scenario for those charged with making the big decisions. Hence the 'best' way out for the US is a dollar that slowly but surely decreases in value, until the point where it is in a competitive position in regards to its exports. This will have the added effect of inflating away the nations debt thereby making it far easier to pay a fixed $ amount of debt with less valuable dollars. The proviso here is that they won't be the only ones to try this and hence we may not see the USD Index 'plunge' in value as debasement in other currencies will keep some relativity in the index's value. However, what will occur is a rise in gold against everyone of these currencies, because like I said before, its only the change in a currencies value that changes the 'price' of gold. Currency value down, gold priced in that currency down. I know there has been big debate regarding the inflation/deflation scenario and I don't want to get into it, suffice to say that if enough money is pumped into the sytem we will transition from deflation to inflation and as I have shown above that is the far better optio for the authorities and I just cannot see them not taking that path.

Following on from just above the last sentence, if one has been paying any attention to gold priced in other currencies, one would have noted that gold has reached a new high in each of the follwoing currencies since the start of September: Australia, Canada, NZ, Europe, UK, South Africa, Namibia, Botswana, Sweden and the big granddaddy move of them all the ICELANDIC KRONA, which if I am not mistaken went from something like 120 to the Euro to over 350 to the Euro. Now tell me if a person in Iceland had all his money in gold would his purchasing power now be one third of what it was 2 months ago or would it be exactly the same - thats right folks it would be EXACTLY the SAME. No wealth destruction through the currencies destruction. Gold in and of itself is not a way to get rich, its a way to protect your purchasing power.

I am also very confident that there are a LARGE number of other currencies in which gold has recently gone to a new high. This does NOT signal an end to a gold bull run and EVERYONE who has suggested that gold's bull is over really is either uninformed, niave, stupid or just plain wrong. Thats a fact. Gold hasn't risen to new highs in the $US or Yen because of this repatriation of funds and the unwinding of carry trades which have been fueled for a number of years by borrowing these two currencies. Naturally that WILL change. When, who knows, but the important thing is it will, then tey will resume the downward trajectory against gold. Not necessarily against all other currencies because like I mentioned they will all be racing each other down, so exchange rates may not be that affected, but the gold exchange rate will be.

Two final things to mention from me. Firstly, I read an article a few weeks back (cannot for the life of me remember where), but it made a an interesting comment. And that was that gold rises during times of inflation GROWTH. It doesn't rise with high inflation. ie If inflation went from 1% to say 10% in the space of two years, gold would track its rise, but then if it sat at 10% for the next 2 years, gold would not continue to rise. Naturally it would fluctuate, but not continue to rise simply because inflation is high. I found this interesting and on going back over a few charts, this may be correct. It would explain why there was such a rise back in the 70's with the peak well before inflation came off. Anyway, the inverse would no doubt be true. We have recently experienced an 'increase in deflation growth' if you follow my reverse analogy(?). If gold rise on growth in inflation the reverse would be for it to fall in incraesing deflation 'growth'. So I suspect that as we transition from deflation to inflation (which if the FED's growth in the monetary base is anything to go by, we will be experiencing shortly), we should see upward movement in the gold price becasue we will be experiencing this 'growth' in inflation.

Lastly an interesting chart and a few comments on lease rates. This is taken from the following link:

http://www.minyanville.com/articles/gold-libor-3M-comex/index/a/19867

but I will summarise. As we know gold lease rates spiked in Sept and are calculated by subtracting the 3M Gold Forward Offered Rate (GOFO) from LIBOR). Some of that move was indeed from LIBOR and many believed that was the whole reason, but this was not the case.

Here in an extract from the link:

'However, the move in lease rates wasn't all the pop in LIBOR. As we can see in the chart of 3-month lease rates, lease rates remain elevated and near an 8-year high, even as 3-month LIBOR has collapsed back to below where it was in June, thanks to the Fed's print-a-thon.




That's because the GOFO continues to collapse. As GOFO moves closer to going negative, we get closer to seeing gold move into backwardation, which is fairly rare and uber bullish. Is the physical market tightening simply due to the continued high rate of physical demand and European central banks pulling in their leased gold/not rolling over leases? Is it related to the market sniffing out what you are implying might happen on the COMEX? Or is this related to the gold market sniffing out a potential dollar negative at the coming G20? Or is it all of the above?

I have no idea, but the last time we saw GOFO collapse like this (see the chart below), it was in the days leading up the Washington Agreement (and gold's ensuing 40% upside explosion on the news).




And this happened even though gold didn't seem to give any indication in the way it was trading until literally 4 days before the G7 meeting at which the Washington Agreement was announced that weekend. I'm not sure exactly what's going on, but clearly there something bullish afoot in gold.'

Now its that second chart that I find EXTREMELY INTERESTING especially as we have 'a new Bretton Woods' meeting as many are calling it coming up this month.

Personally I am of absolutley no doubt that over the next decade (maybe less/maybe more) gold will rise for all the reasons I have discussed above and some others, but thats for another time.

The only other thing I would add is that as I mentioned above, gold is not the vehicle for getting rich as generally it simply protects you purchasing power. And that why I personaly choose to invest in gold miners who traditionally have leverage to the gold price (recent action would confirm that this leverage works in both ways). However, where prices are now for gold stocks surely provides the most amazing profit potential that I have witnessed in my lifetime. Kind of like buying financials at the bottom of the '87 crash. They are at lows in relation to the price of gold that have NOT been seen any time since the last gold bull in the 70's.

If you can't see the value in them, then you must have serious internal biases towards gold stocks.

I hope this may at least lay to rest some of the calls for a reasoned explanation of why some of us are bullish gold. If you feel it explains things, feel free to forward stirrers, doubters and naysayers to the post number in the future, to avoid having to explain things again and again, and to those of you who are bullish on gold I hope this has helped to reinforce you beliefs.

And someone make sure SkipperX reads this!

p.s. There is so much more to discuss another time, but Indian buying season, Chinese New Year, possible large delivery requests in DEC and Comex Gold default, manipulation, shortage of retail metal, coin melt bars showing up, IMF cashing in gold to pay for bailouts, mints stopping production of coinage, huge premiums over spot are all factors that can be construed as bullish in the near term and could quite easily take up twice as much space as the above in a discussion.


Ciao