Source: Neil Charnock, GoldOz (10/22/09)
Gold IS the best game in town and when the music stops it may be the ONLY game in town that can yield any sort of return. The music I refer to here is the sound of spin given some measure of credibility (only to the uninitiated) by massive stimulus spending. . .
Why do I claim that gold is the best game in town? Gold has outpaced all investment classes over recent years—meaning that it IS the leading investment class of this decade. Gold IS at record highs and has broken above resistance in USD but you have heard all that already. Gold IS real money and vital to the monetary system at the highest levels, it IS real wealth and it IS a real store of wealth.
Gold IS the only substance on earth that is convertible to gold—"money" (currencies—bank notes and coins) are not. Even today many people do not realize that the currencies they are forced to use for transacting goods and services are backed by nothing except confidence and more paper. Gold bullion cannot be forged or printed, it cannot be won from the earth without honest effort and hard work so it IS rare—make no mistake gold just IS.
Gold IS a major part of the cultures that are in the process of inheriting some of the power that the USA is losing at present. With vast pools of monetary reserves, manufacturing capacity, cheap labor and or oil reserves at their disposal—countries like China, India, Russia and those in the Middle East are in a unique position in this new emerging era. They love gold and we now have to face an era with a more powerful Islamic Banking system that loves gold too. Gold IS their favorite commodity and money.
The only way out for U.S. citizens IS to get capital out of the USA and or to get their USD's away from the U.S. banking system. This is best done by buying gold—gold IS the answer.
Gold IS won from the earth by mining companies who are in a unique position in the economy at this time in history. They will become in essence, like a form of central bank churning out real money to be used to stabilize economies and currencies used for international trade.
International trading partners of the mighty USA have had to suffer an imbalance of power since 1944 when the Bretton Woods Agreement came into force. The USA was handed this privilege and responsibility because it held the most significant proportion of the global gold reserves at the end of WW2. USD's were originally convertible into gold on request however that all ended in 1971 when Nixon withdrew this function.
They all said "gold IS NOT," but they were wrong and all history and common sense said so. Inflation of the money supply and the "great" modern monetary / banking experiment was here in full force.
This was managed more covertly and expertly than any similar deeply flawed and dishonest monetary experiment in history. That is to say it lasted longer than any similar experiment to such a degree that the modern economic mantra became a new "truth" that even infiltrated education and common beliefs.
As for the so called fantastic era of growth and prosperity, there have been many advances but also many disadvantages too. There is no doubt it was great while it lasted if you were the one with the food and a good job and nice car / house / holidays, etc. But have we really had any meaningful growth in GDP in the Western economies? What about culture, human rights and other higher values revered by civilizations at their heights through history?
Gold bugs adjust the current price of gold in inflation adjusted terms and quite rightly so. The peak of gold at US$850 per ounce in 1980 dollars can be conservatively shown to be equivalent to $3,000 in 2009 dollars. But how about adjusting GDP growth to reflect true inflation? Let's face it 3% growth rates that have been considered strong and viewed in awe by some as unsustainable can be inflation adjusted to show a continuous depression for the last 20 years in the Western world. That is right—no real growth at all and this is absolutely sustainable.
The real capital movement was from manufacturing to the finance sector, from the West to the East and Middle East, from the middle classes to the super rich and the power gradually shifted from the people to the Corporations.
This is a type of shell game where the same particles are shifted around but nothing really changes. The populace gets the fleeting idea at times that they are like the white mouse running around in the wheel in the glass case getting nowhere. But they quickly shift this thought to the back of their mind and out of sight.
House prices went up in the U.S. and refinancing paid for massive purchases of widgets, houses, SUV's, electrical equipment and concrete jungles in China and India but nobody really got any better off—they just went deeper into debt all the while, totally distracted by their new "wealth" as they lost their rights and values.
Look where it all started and then where it went wrong for the common man and the middle classes of the Western World. The '70s were marked by increasingly massive price inflation and fear that the USD would blow up in an unregulated roar—and it nearly did. Gold asserted itself once again at the end of the '70s and history tells that it was put back in its box to suffer through the '80s and '90s in a controlled slumber. This part of history is fascinating if you want to research it. Please do, it will assist your understanding of where and why we are here now staring into our own financial abyss.
World power is shifting and respect for the once mighty USD is gone. The chance of writing off bank debts and clearing balance sheets is unfortunately gone too. Debt woes merely deepened and now interest alone costs the U.S. over 5% of its GDP every year. Trader mentality—your first loss is generally your best loss but that is just too hard for some to swallow—"the song remains the same."
Government stimulus packages have given the banks some breathing space to rebuild and play the yield curve, trade—and write off some bad debt. It bought them time and it bought time for the populace and business to reduce debt too. Initially it was government capital injections that restored the bank reserves and liquidity but not enough for them to pass on via strong lending activity so the government had to fulfill this with cash for this and cash for that. Clunkers and houses, etc. . .
The lack of lending capacity and activity—and the lack of a debt securitization market which allows the banks to shift debt to another party so that they can lend their allocations again all over again is the reason for this great jobless "recovery."
I have been reviewing the company report pages as I ready myself to update GoldOz Members pages this week and took notes on which companies raised capital—borrowed or received money via new share issues. I was going to add to our file on capital raising but there were so many that I have considered doing a list of the companies that have not raised money.
In such a tight debt market it is striking and highly significant to see the amount of money raised in the Australian gold sector since late last year. The smart moneyed sophisticated investors and banks ARE buying into this sector. They believe gold IS a great investment in this highly risk adverse economic climate. For decades they considered the gold mining sector to be high risk—well, well, well how about that—the wheel does turn while the masses are asleep.
These stimulus packages are coming to an end near mid 2010 so where do we go then? The smart money IS getting into gold and IS getting into gold shares. The stimulus money is working its way through the system and this takes longer than most people and analysts think. For now the show goes on and we see the Dow back around 10,000, but is that inflation adjusted? How much new money has been created since the Dow first reached this level in April 1999? Answer is heaps—and heaps so inflation adjusted Dow is nowhere near the 10,000 it reached in 1999.
The emperor is wearing a suit of nothing—he is nude and most people can see that and are waking up and scared and don't know what to do. This is not the fault of Obama or Rudd (Prime Minister of Australia) or the other new leaders so don't waste your time getting angry at them even if they are making some bad decisions. They are caught in between a rock and a very hard place with nowhere to turn.
I hate to be negative as it is not in my nature so I prefer to stay with an up-trend and promote survival. The message within this article is important enough to cover again and again however—cover your rear end and get up to speed and fast. Time is running out before the next down leg and you have the chance to do something—it is up to you.
This Internet phenomena has given publishing power to the truth but you have to sort through the material yourself and study it all to get educated enough to understand what is happening. Of course there are wide discrepancies of opinion—much debate and guess work when we discuss what lies ahead.
Those of us that have been with this gold boom since the beginning had the gift of foresight and timing—we have been trying to share that message since then and we keep at it. Gold IS the answer to the investment woes of the lucky ones and getting into this asset class, and what ever level this may be, you will benefit as we have. You can become one of the lucky ones it is a matter of scale—it is all relative even if you can only afford one gram of gold it is better than none.
We cannot on all honesty tell how the game will play out. The global power dynamics are shifting; dangerous geopolitical tensions are emerging over currencies, commodities, food, land and oil. The economy is in uncharted waters and we all need a hedge—protection from these uncertain times. Gold IS and always WAS important, valuable and a safe haven in troubled times.
Our part in this at GoldOz is not just education about gold—we specialize in the Australian gold mining sector and investment techniques—we hope to assist you too in this role with this part of the puzzle. We are still running a special—offering some free bonus time for Gold Member subscribers and I hope you will join us—or at least join in the fun and make some money in the coming months.
Good trading / investing.
GoldOz has developed a basic Member area (news only) and a Gold Members area with substantial investment tools. GoldOz web site is a growing dynamic resource for investors interested in PGE, silver and gold companies listed in Australia, ASX share quotes, Aussie Gold Index charts, brokers, bullion dealers in addition to the company research via our paid Membership services.
Neil Charnock is not a registered investment advisor. He is an experienced private investor who, in addition to his essay publication offerings, has now assembled a highly experienced panel to assist in the presentation of various research information services. The opinions and statements made in the above publication are the result of extensive research and are believed to be accurate and from reliable sources. The contents are his current opinion only, further more conditions may cause these opinions to change without notice. The insights herein published are made solely for international and educational purposes. The contents in this publication are not to be construed as solicitation or recommendation to be used for formulation of investment decisions in any type of market whatsoever. WARNING share market investment or speculation is a high risk activity. Investors enter such activity at their own risk and must conduct their own due diligence to research and verify all aspects of any investment decision, if necessary seeking competent professional assistance.