Best of the Week
Most Popular
1.China Crash, Greece Collapse, Harbingers of Stock Market Apocalypse Forecast 2015? - Nadeem_Walayat
2.Gold Price Awaiting Outcome of Greece Crisis - Clive_Maund
3.Gold Price Peculiar 6 Month Cycles - Rambus_Chartology
4.Gold Price Just a Little Bit More - Bob_Loukas
5.8 Unprecedented Extremes Indicate a Stock Market Bubble in Trouble - EWI
6.Gold And Silver – Without Either, You Will Be Greeced - Michael_Noonan
7.Lies, Damned Lies and Statistics - James_Quinn
8.China Crash, Greece Crisis Harbingers of Stocks Bear Market? Video - Nadeem_Walayat
9.Gold and Silver Record Shorting - Zeal_LLC
10.Markets Big Deflationary Downwave Quick Reference Guide... - Clive_Maund
Last 5 days
Threat Of Cyber Warfare the “Other Reason To Own Physical Gold” Warns Rickards - 30th July 15
The 5 Biggest Myths and Lies about the Middle East - 30th July 15
Greece, Diversion, and the New World Order - 30th July 15
Ibuprofen Warning - The Pain Killer that can Kill You! - 29th July 15
More Ritholtz on Gold, and Another Response - 29th July 15
Crude Oil Price Is Lower – and You’re Richer - 29th July 15
U.S. Home Sales Market Is Dead – This Chart Proves It - 29th July 15
Greece- What Happens When Economists Talk Politics - 29th July 15
The Gold - U.S. House Prices Ratio As A Valuation Indicator - 29th July 15
Will Crude Oil Price Decline Continue? -Video - 28th July 15
Gold & Silver Money Has Devolved Into Debt and Plastic - 28th July 15
Buy and "Own Gold Krugerrands" Says Money Expert Jim Grant, Very Bullish on Gold - 28th July 15
How to Protect Yourself from China's Crashing Stock Market - 28th July 15
Quantum Geopolitics - 28th July 15
Gold Mining Stocks to Weather the Storm - 28th July 15
Stock Market Bulls Beware! - 28th July 15
Will Chinese Stock Market Crash Affect the US? - 27th July 15
Crude Oil Price Under $48! - 27th July 15
Are We Seeing a Trend Reversal with U.S. Interest Rates? - 27th July 15
How to Know When the Gold Bear Market is Over - 27th July 15
Gold Bear Market Phase III - 27th July 15
Silver Bull Hammer Buy Signal - 27th July 15
Gold Cracks Support and Plunges to New Lows - How Low Will Price Go? - 27th July 15
Commodity Markets Breakdown Of 2015 Is Now A Fact - 26th July 15
Gold Price at a Five-Year Low: Here’s What to Do - 26th July 15
Stock Market Primary III Inflection Point - 26th July 15
Central Banks and Our Dysfunctional Gold Markets - 25th July 15
Gold And Silver - The US Dollar Does Not Exist, Part II - 25th July 15
How Wall Street Put Apple Stock in Animal House - 25th July 15
How to Trade Markets Using the Stochastic Oscillator - Video - 24th July 15
A Bond Market Crisis Is Coming... Here's What to Do - 24th July 15
Why There's Resistance to the Iran Nuclear Deal - 24th July 15
Absurd Gold Stock Levels - 24th July 15
Gold Mining Stocks Nearing Rebound - 24th July 15
Misperceptions Create Significant Bond Market Value - 24th July 15
Commodities Distressed Investing - 24th July 15
OPEC Shorts Are Driving Down the Crude Oil Price - 24th July 15
USD Index Rebounds - 24th July 15
If You’re Worried About a Tech Bubble, You’re Focusing on the Wrong Thing - 24th July 15
Gold Stocks Bear Market Bottom Buying Opportunity? - Video
The Stealth War on the United States - 23rd July 15
Commodity Prices, Gold and Silver Stocks Next Leg Down - 23rd July 15
The ‘Real’ Reason the Fed Wants to Raise Interest Rates - 23rd July 15
Crude Oil Price Slump is a Once in a Decade Opportunity to Make Money, Guaranteed - 23rd July 15
Gold Price Hits a 5-Year Low: How to Time the Next MAJOR Bottom - 22nd July 15
Silver and the Deflation Thesis - 22nd July 15
Gold Price Crash - Trend Forecast 2015, Gold Stocks Buying Opportunity? - 22nd July 15
The Three Reasons Behind Iran’s Resistance to the Nuclear Deal - 22nd July 15
Winning the Hunger Games - How to Choose Successful Agriculture Investments - 22nd July 15
Are Free Markets The Solution? - 22nd July 15
Gold Hammered “Unprecedented Attack” - 21st July 15
The Turkish Enigma - 21st July 15
Gold and Silver: The Final Capitulation Commences - 21st July 15
Greater Israel Setback from Iranian Nuclear Agreement - 21st July 15
U.S. Housing Market: Is the Roof About to Cave In (Again)? - 21st July 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stock Market Bubble in Trouble

Gold: The Hidden Dangers?

Commodities / Gold and Silver 2012 Dec 06, 2012 - 01:40 PM GMT

By: MarketShadows

Commodities

Courtesy of Dr. Paul Price : Extensive money printing (QE programs) have had many traders stocking up on Gold via ETFs, ETNs, physical coins & bars and through shares of precious metal mining companies. This urge to own hard assets in a soft money environment makes sense on an intuitive basis.


The first two of those statements appear indisputable. Is gold really an inflation hedge? That is subject to debate.

Gold peaked in 1980 at about $850 per ounce. Gold bottomed in 2000 at about $250 per ounce. Annual inflation in the early 1980’s was running in the double-digits. In the 1990s, inflation calmed down but we still saw significant price increases during each and every year. (For more on inflation, see Washington’s Biggest Lie (and Why it Continues to be Told))

CPI (1980 to 2000) inflated by a cumulative 137.24%.

Gold decreased in price by 70.58% (from a high of $850 to $250).

Underperforming by 207.82% over a 20-year period would strain the patience of even the most ardent “gold is an inflation hedge” advocates.

When Gold touched its 1980 high pundits were calling for $2,500 – $3,000 per ounce. 32 years later they’re still waiting. We’ve been hearing $5,000 – $10,000 numbers thrown around recently. Will those predictions prove more accurate? Only time will tell.

Betting on Gold to hold value versus ‘full faith and credit’ fiat currencies does seem appealing. What are the hidden problems with employing some portion of your portfolio in this way?

Recent history shows at least some custodians of your warehoused Gold to have been unreliable. For example, commodity brokerage firms MF Global and Peregrine Financial both failed to protect customer interests in the physical gold ‘safeguarded’ by them.

If you correctly bet on Gold going up you still may never even see your original stake returned, let alone any paper profits. Speculators were willing to risk price fluctuations. They didn’t know they were also subject to outright theft of their property.

Many traders today play Gold movements with ETNs (Electronically Traded Notes) without knowing these have bigger risks than simply the metal’s price action. These ETNs are unsecured obligations of their issuing financial sponsors

It’s no surprise the list above was compiled by issuers of safer Gold ETFs (Electronically Traded Funds).

Physical delivery of Krugerrands, American Eagle gold coins and or bullion bars, and holding them in your own safe seems to avoid the custodial problems. Now, word from ZeroHedge.com confirms that Chinese companies have been actively promoting the sale of assorted counterfeit gold plated items ‘for legal purposes only’.

See the links below for the original articles reporting on this very disturbing practice. The fakes are of such good quality that even professionals have been fooled.

http://www.zerohedge.com/news/2012-09-24/get-your-fake-tungsten-filled-gold-coins-here

http://www.zerohedge.com/news/tungsten-filled-10-oz-gold-bar-found-middle-manhattans-jewelry-district

Worse still, these practices call into question the authenticity of every existing coin and bar in both private and even government vaults. The only way to confirm purity is to open the packaging and drill into the cores of each and every individual item.

This is expensive to do and decreases the value of the underlying gold even if everything checks out. But who will buy your personal stash without knowing for sure if it is the real thing?

The known counterfeiting of well-respected gold coins and bars has now forever damaged the ability to sell gold without huge, value-sapping authenticity testing.

I used to favor shares of mining companies as a safer, liquid, back-door play on rising inflation. However, worldwide political forces and heavy government debt have been catalyzing repudiation of long-term contracts and unilateral nationalization of foreign assets.

The good of days of paying the promised royalties to less developed nations while mining their natural resources appears to be coming to an end. This explains what look like bargain prices on industry leaders like BHP, RIO, FCX, Newmont Mining  (NEM) ABX and others.

All forward estimates may be shot to hell in the political climate that looms just over the horizon. For mining companies with overseas operations, past performance may not be a good gauge of future profitability.

For the individual investor Gold is looking a lot less attractive than it might have originally presented itself.

Disclosure: No position in Gold, Gold ETNs or Gold ETFs.

Market Shadows

http://www.marketshadows.com

© 2012 Copyright Market Shadows - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History