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Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Judgment Day for Global Financial Economy

Commodities / Gold & Silver 2009 Dec 06, 2009 - 07:49 AM GMT

By: David_Vaughn

Commodities

Best Financial Markets Analysis ArticleBarrick Gold says the world gold supply has run out.

Wow!  Isn’t that what some have been predicting for the past 10 years?  The president of the largest gold company in the world, Barrick Gold, has just recently announced   that gold production peaked in the year 2,000.  


It is becoming increasingly more and more difficult to find significant deposits of gold ore. And as the tide has turned the central banks have now become serious buyers of gold and no longer sellers. China has doubled its gold reserves these past 10 years.  Asia is turning those worthless US dollars into gold.

Will someone please tell Sarah Palin to get a haircut and take a class in rhetoric?
 
Rhetoric is simply the art of learning to speak well. Persuasive speech without the mouthful of peanuts.  And through the power of effective speech your life begins to develop a sense of purpose and you can influence the thoughts and dreams of a nation. 

Sarah’s recent appearance on The Oprah Winfrey Show rocketed Oprah’s show to its best numbers in 2 years.  Guess someone’s listening to her.  The world awaits your destiny, Sarah.

Ever wonder why Adam decided to share with Eve that forbidden bite?  Adam considered Gods wrath.  He considered his wife’s wrath.  It’s easy to conclude whose wrath he was most afraid of.

And what about investing in those mining companies producing gold and exploring for new deposits?  A lot of money to be made here as long as you remember you're dealing with speculation.

I like that word. 

Let me say it again.  Speculation.  Has a soothing comfortable effect on the tongue. Technically, there is a difference between the term speculation and investment.  Investment supposedly promises safety and speculation in the past has always been defined as risk.  If there is any one thing investors have learned these past 10 years is that no investment is without substantial risk. 

Remember Uncle Bernie? 

Bernard Madoff?  For years known as Wall Street’s most successful money manager. It is really best to classify any and all investing as speculation.  There are no guarantees where ever you place your money.  That’s a hard pill to swallow for 401K participants who were counting on 30% annual returns until retirement.  And back to Uncle Bernie.  I understand that about 50 billion still remains unaccounted for.

What about speculating in mining stocks?

There are those who promise significant profits in just a couple of weeks.  Nostradamus couldn’t do better.  Somehow I feel a chapter needs to be written about gold speculation.   So here we go. 

When you hear any one touting a particular gold or silver mining company as a sure thing then head for the hills.  The following terms below are good warnings to look for.  When you hear the following terms below run. 

“the next big thing” “elephant country” “new improvements in mining technology” “enormous land position”  “no cash”  “no permits”   “may prove up”   “should”     “…quick and cheap to drill exploration holes.”   When you hear this kind of language it sure whets your greed. 

And the following crap below is a favorite.

Someone touting an existing property having over 90 million ounces of gold before the first drill hole has been drilled.  Give me a break.  Or how about?   “There's no limit to the potential size of this deposit!”  And the following is a good one.  “Volume of ore is somewhere between huge and enormous.” “Past exploration confirms…”

And the best probably.  “A great deal can be learned with just a FEW drill holes.”

A few drill holes?  What a load of bull.  A mining company can never drill too many holes.  Who knows what’s under that ground?  That’s what determines what’s under there…lots of drill holes. 

There’s an old saying.  Know how to make a quick 20,000 dollars?  Invest 50,000 in a gold mine.  There’s a lot of truth in that.  Actually, a lot of truth. 

If none of this makes sense then Google Bre-X.  Bre-X provides a good education.  And Bre-Ex is not a soap cleanser.  The mining business is complicated.  The geology of a site is always difficult for even professional geologists to interpret.  Assay results often are not right on the money. 

Precarious  business. 

The following names below are worth following.  Lot of gurus out there worth reading.  A few?

Doug Casey.  John Doody is a master craftsman.    Kenneth J.Gerbino has brains.  Jon Nadler always has a grip on reality and emotions.  Kind of like Spock.  You’ve never heard of these?  Well, you need to acquaint yourself with these guys.  If you do you might just make money. 

The following fellow below may just have been a successful speculator in gold mining stocks. And maybe not.  Who knows?  But the story sounds good.
 
”We talked about Gods grace and all the hell we raised” ”Then one sunny day, I saw the old mans face” “Front page Obituary, he was a millionaire” ”he left his fortune to some guy he barely knew, his kids were mad as hell” ”But me, I’m doing well”  “And i drop by today, to just say thanks and pray, i left a six-pack right there on his grave…” Billy Currington

And back to good analysts to follow?  Don’t forget Dennis Gartman.  Brains there too and perspective and objectivity. There are others not mentioned, but in due course they make themselves heard.  Information is always valuable.  Almost forgot to mention Jim Sinclair!  Been in this business for 30 plus years.  The one and only gold prophet.

Is information important?

The founding father of international finance, Meyer Amschel Rothschild believed in information.  . Though born in a Frankfurt ghetto he had the ability to realize the importance of information.  It was Meyer who put to the test that information can represent the difference between poverty and wealth.

What leads to poverty or wealth is volatility.  What we are seeing today. Instability and volatility generally contribute a great deal to the direction of a share price...whether up or down.   Jesse Livermore lost more money when the markets were “flat.”  But with the depression of 1929 and volatility that went crazy.  He went on to make 100 million dollars.
 
Volatility is always the friend of speculation.

Information is proving in the world markets today that gold is being recognized as real currency.  More central banks around the world are increasing their gold reserves.  Physical gold and physical silver represent insurance and shares in mining companies will always be speculation.  Gold will probably continue its climb.  2,000 per ounce looking more like a reality down the road. 

Let’s change direction here and take a history lesson. 

History always repeats itself.  Lot to learn from the past.  A lot of people often refer to the decline and death of the Roman Empire.  Don’t think it ever really fell.  Sure, the emperors all died and civilization collapsed.  But Rome’s influence continues to endure and shapes the very foundation upon which our civilization exits.   Its influence truly never died. Its influence still reigns today.

The ancient Roman world began around the 8th century BC.  Just a humble little trading post that began its road to fantastic wealth by trading salt along the Tiber River. Officially, the last vestige of Rome, Constantinople, came to an end in 1453.  What is that?  From the 8th century to 1453 is over 2,000 years.

What does this have to do with anything, especially gold and current events?  So much so that Rome created the blueprints for modern day society, modern finance and even the futures currency.

Nothing new under the sun. 

Particularly economics and finance.  Throughout history, the ancient Egyptians, Babylonians, Rome, the medieval era, France, Germany, the 20th century, the 21st century.  Always a predictable pattern. Never ending economic cycles.  A little variation here and there.  But nothing new under the sun.

Pompeii had air conditioning…known as evaporative cooling.  Modern day air conditioning was not re-invented until 1902.  Romans also invented central heating, long forgotten, and not commonplace again until the mid 20th century.  Indoor plumbing and running water was available in every major city in the empire.  Both indoor plumbing and outside running water became a forgotten luxury by the 6th century.  Not until the 18th century would common citizenry enjoy running water.  And, oh, those flushed toilets I like so much.

Rome had the brains and engineering to build a great sewer system 2,600 years ago, the Cloaco Maxima and its still in use today.  Rome’s engineers provided public toilets flushed with running water and elaborate fountains were every where.
 
Rome designed horse racing stadiums called hippodromes.  The one in Rome held as many as 250,000 spectators.  These hippodromes were scattered all over every major city in the empire.  Chariot racing was as popular in that day as world soccer is today.  The Blues (Venetii) and Greens (Prasinoi) chariot racing teams raced against the Reds (Rousioi) and the Whites (Leukoi). 

Engineering marveled the age then.

Stretching from the Atlantic Ocean all the way to the western edge of Parthia, modern day Iran.  Rome paved over 250,000 roads all over Europe, North Africa, and the Mid East.  Just in Britain alone there were over 6,000 miles of paved road.  And many of these roads are still being used today.  Roman roads were often as straight as our modern expressways and even tunneled through solid rock where necessary. The only difference in modern day road systems and the Romans is that ours require more maintenance and are constantly in a state of deterioration.  Contractors have learned to build things in our day that quickly fall apart so they can shortly be built again.  More money made this way.  

The US senate, the executive branch, all old ideas.  Their Capitoline Hill we call today the Washington DC capital.   All today’s classic buildings are patterned in the ancient Roman style.  And the major building component was concrete.  The secret of making concrete was lost and not rediscovered until 1756.  Over a 1,000 years with out concrete until just 250 years ago. 

The point in all of this? 

We can see what our past forefathers did to ruin their economy and currency.  And this understanding proves that what is happening today was learned long, long ago.

 In an effort to attempt to deal with their increasing economic problems the rulers gradually began to devalue the currency beginning around 60AD and eventually became even worse when the silver content was substantially reduced in coins.  And the economy only worsened.  By the 3rd AD century the amount of silver content in a silver coin was only .02%.

One reason the economy began to fall apart in the roman world was because the existing currency was debased.  Much as is happening again today.  As the money became worth less and less people began spending even less money. 

Always, through the ages, the middle class is eventually squeezed out of existence, economic opportunity ceases, and the majority becomes the poor masses dependant on the state.  And as an economy worsens the middle class eventually became lower class.

And inflation ensued.
 
And of course inflation then was caused by the creation of more and more debased currency.  Like the US pre 1964 coins made of silver and now made of some trash metal.  The phenomenal rise in prices in the later empire followed the large increase of the amount of money in circulation just as today.

And in the later empire it became forbidden to hoard gold and silver coins and the penalty became death.  Sounds like the United States under FDR in the 1930s when physical gold and silver was confiscated from the average man in the street.  Inevitably, we are all just conduits for stupidity and avarice.

Jim Sinclair – “Be careful as gold is going to $1224-$1278, $1650 and then on to Alf [very, very high!] Numbers. Ask yourself if you are a speculator or an insurance holder?”

Summary

A major cycle is unraveling in the global financial economy today.  And as this crisis cycle evolves the world as we know it will for ever change. 

Every world cycle is about freedom and security.  Some will want freedom and others will want to keep the security and the status quo. Some want to be free while others happily will wear a golden collar of servitude provided by a polite government.

Always look for the gold in the ground.  “Proven & Probable” is always the superior classification for the best affirmed deposit.  This is the term the banks like best before lending money. 

FREE subscription to Gold Letter, Inc.

David Vaughn
David4054@charter.net

The future legacy of the United States will be the refined art of financial leverage.

© Copyright 2009, Gold Letter Inc.

“The Worldwatch Institute, an organization that focuses on environmental, social and economic trends, says the current rate of global demand for resources is unsustainable.”  

The publisher and its affiliates, officers, directors and owner may actively trade in investments discussed in this newsletter. They may have positions in the securities recommended and may increase or decrease such positions without notice. The publisher is not a registered investment advisor. Subscribers should not view this publication as offering personalized legal, tax, accounting or investment-related advice. The news and editorial viewpoints, and other information on the investments discussed herein are obtained from sources deemed reliable, but their accuracy is not guaranteed. © Copyright 2009, Gold Letter Inc.

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