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A WORD ON GOLD INVESTING:

NOTE: The history of gold is the history of political power in the world. The ebb and flow of governmental gold selling and buying shows the ebb and flow of world power. Right now: Net sellers: IMF, United States, ECB. Net buyers: China, Russia, Vietnam, Indonesia, Brazil, India. Draw your own conclusions.

First principle: gold is not an inflation hedge. During periods of massive inflation you could buy almost any commodity and make a killing. You don't need gold.

Second principle: gold is not a safety play. There's no such thing as a safety play in the financial markets. It's an entirely meaningless phrase. Any investment, including cash, treasuries and gold can wreck your portfolio if acquired in the wrong environment.

Why buy gold? Gold is a monetary instability hedge. Say it 10 times slowly.

It is a monetary instability hedge because it is a stable currency. It is a currency because it is used as such by the world's central banks. It is stable because it can not be printed at will or created electronically.

Gold does well during periods of inflation when the inflation is a product of a huge current account deficit and a weak currency rather than a product of a rapidly expanding economy and a stable currency.

Gold does well during periods of deflation when the deflation is a product of a debt driven liquidity crisis morphing into a solvency crisis rather than a product of a stable yet stagnant economy experiencing a bout of very slow growth.

You must analyze gold in relation to other forms of currency. Because gold is priced in other currencies. Just as other currencies are priced in gold.

World Financial Assets excluding derivatives (500-2000 trillion) and world real esate (75 trillion?)

  • $4 trillion in notes and coins (global M0, Mike Hewitt at Dollar Daze)
  • $25 trillion in bank deposits (mid-2008, eFinancial News)
  • $16 trillion in short-term notes (all issuers, Bank of International Settlement)
  • $60 trillion in domestic debt securities (again, both corporate & public, BIS)
  • $23 trillion of international bonds (ditto)
  • $33 trillion in stocks
  • the value of gold compares at some $4.4 trillion, or scarcely 2.7% of the total. And that figure, please note, includes all gold ever mined in history.
  • These prices are subject to market fluctuatiions. But you get the picture.
  • Finally, consider this: there is currently about 90 billion dollars of gold held by the public in the Gold ETF's (exchange traded funds). At the same time there is about 26 trillion dollars under management in the US pension funds.

They key however is the 500-2000 trillion in unregulated derivatives. This will be the issue of the next 5 years that must and will destroy competing currencies. Derivates are priced mostly in dollars. Even Gold derivatives are priced in dollars. Financial instability due to disruptions in the derivatives markets have not yet been priced into gold.

 

So who's to blame for our current mess? Sorry, but it's not Karl Marx. Let's start with Ronald Reagan, a man who turned the greatest creditor nation the world had ever seen into a debtor nation. A transition from which we have never recovered. (See a note on supply side economics below.) George Bush 1 tried to restore some fiscal sanity, and was crucified by his own base for this act of apostasy. Then Bill Clinton handed the reigns of the economy over to the CEO of Goldman Sachs, Bob Rubin who trashed Glass Stegal, which opened the way for the tragic era of unchecked Wall Street greed. This set the stage for George Bush 2 who destroyed the regulatory and oversite systems and stocked them with lobbyists and coroporate cronies who used the offices to plunder the American tax payer. Then when system collapsed under the weight of its own greed and inefficiency Bush installed the CEO of Goldman Sachs to take over the government, and Henry Paulsen used the opportunity to effect the greatest transfer of wealth (form the US tax payer into his own pocket) the world had ever seen in a series of bank "Bailouts." Enter Obama who is now restoring oversite not by getting smart capable people back into existing positions, but by creating whole new layers of government beaurocracy, with borrowed money. There's plenty of blame to go around. But ultimately we elected these clowns.EEnto

What's going on in the stock market right now? Massive debt is, by nature, deflationary because the debt service drains the economy of productive capital. This is being fought by massive Quantitative Easing, which means the printing of dollars for the purpose of buying our own debt from ourselves in order to prop up the bloated debt market. This is highly inflationary. Deflationary forces drive financial (paper) assets down. Inflationary forces drive them up. So far, in world history, Central Banks have never been able to stem the tide of debt deflation indefinitely without creating hyper inflation. Maybe this time will be different. We'll see. According to the bank of International settlements (BIS), these are the first world countries currently running a total public debt greater than 100 percent of GDP: Austria, UK, Ireland, Greece, Spain, Portugal, Italy, Netherlands, Germany, Japan (200%) and the United States of America. What is certain is that the epic battle between deflation and inflation is sure to be highly destabilizing.

Add to instability a crisis of confidence: The financial markets have been willingly misrepresenting their products for a long time. Does anyone really believe a word their broker or banker tells them anymore?

70 percent of the market volume is high frequency trading. That mean when you place a trade, Goldman Sachs' (et alii) super computer picks it up, front runs your trade and makes a fraction on every trade - charged to you. They do this thousands of times a day. Because they're so smart. Some day they'll be the only ones left in the market.

 

SUPPLY SIDE ECONOMICS: The original institutionalized fraud.

Massive debt + opaque financial system = tremendous short term profits for the very few.

The 'supply' in supply side economics is easy money. The idea is that a ready supply of easy money would iron out the business cycle. Easy money is a synonym for debt. We create money in this economy by floating debt. The Supply Siders figured any amount of debt would be manageable since we could always pay it back in printed dollars. After all, we have the world's reserve currency. Other countries with strong currencies followed suit. What resulted is an absolute orgy of debt.

The debt was bolstered by monetary policy that kept interest rates low for an extended period of time, tax policy that favored debt over equity, and regulatory policy that allowed financial institutions to operate opaquely. Policy was justified by a systematic doctoring of government figures such as the CPI which in turn bolstered GDP numbers. Moreover, as more and more debt was created through financial engineering and policy prescription, the prices of these were bid up higher and higher. This led these products to become grossly inflated in value compared to any inherent economic worth they might possess. The risk inherent in these products were purposefully misrepresented (in collusion with the rating agencies) and sold throughout the world to investors who were ill equipped to assume such massive risk. Once the bubble burst, the value of these products dropped precipitously.

If marked to market and sold at market value, these instruments would still bankrupt the world banking system. Thus "mark to market" has been suspended indefinitely and the Fed has cleaned up the mess with 27 TRILLION DOLLARS of bailout money (read your tax dollars). Which means the Fed is technically bankrupt, since their balance sheet is filled with crap nobody else in the world would ever buy. And still the balance sheets of the banks are only solvent as long as "mark to fantasy models" persists. How long can this game last?

METHODS OF GOLD COLLECTING/INVESTING:

How to invest in gold:

Gold bullion coins are the most popular and most liquid form of bullion. They trade at a premium to the spot price which rises and falls according to a demand which is linked to the overall financial stability of the current period. Bars are cheaper, but somewhat less popular, hence they trade closer to the spot price.

Paper gold (futures, gld, cef) track the spot price, and are extremely liquid, but like all paper assets, they are subject to possible default. Paper gold during periods of high instability can also be extraordinarily volatile. 99% of gold futures contracts are never exercised. There is no question that there are far more contracts than underlying bulllion. What will happen if some large player demands delivery and the bullion isn't there?

Historical Investment coins tend to move with the overall public (collector, investor) interest in gold, though the bullion content comprises only a tiny percentage of overall value. The rest of the value depends on demand which in turn depends upon historical importance of the periods, events, and personnages depicted; as well as rarity, state of preservation, and overall beauty of the compostions, as well as the skill (and perhaps fame) of the artists who rendered them. High grade investment coins have been appreciating right through the financial crisis. Check out recent auctions.

Confiscation? During periods of great financial dislocation governments may suspend gold trading, and make illegal gold bullion ownership, as they did in 1933 during the great depression. Some feel that pre-1933 gold coins will be indemnified from such a confiscation, because of collector value. There is a thriving market in 20th century pre 1933 gold coins because of this. Certainly, historical investment coins will be indemnified because of their small bullion content and high collector value.

Gold Stocks. Gold stocks also tend to rise and fall with the price of gold. But a down market can bring stocks down regardless of gold action.

Ancients vs US coins: Test your coin IQ. Take this pop quizz at home: A top quality lincoln wheat penny in a scarce year and mint can cost 15,000 dollars. There might be 5000 of these pennies in similar condition. And it looks subatantially similar to a billion other pennies you can get at the bank for 1 penny. A top quality Julius Caesar portrait denarius can cost 15,000 dollars. There might be 30 coins in similar condition in all the world. And it looks substantially different from any other coin minted in world history. Which will be more valuable in 10 years?

BUYING! Top quality coins are rapidly disappearing from the market. I am always seeking new ancient, medieval and world high quality material. Because of low overhead I can pay top dollar. Please contact me if you are looking to sell. I am only interested in coins of the highest quality.

Resources:

To learn more about gold coin prices at auction: www.coinarchives.com

To see coins for sale in an on line coin mall: www.vcoins.com

To learn more about gold stock investing: www.midasfunds.com/gold-investing.html

To follow the ancient coin market subscribe to: The Celator magazine: Post Office Box 839
Lancaster, Pennsylvania 17608 USA, www.celator.com .

 

Glossary: (Grk) tongue

Coin: Koine (Grk): common.
Money: Hera Moneta (Lat) Hera the warning Goddess, in whose temple the Roman mint was located.
Dollar: Joachims-taller (Ger.) those of the town where silver was mined and minted into "tallers"
Cent: (Fr.) one hundred.

Shekel: (egyptian, then semitic) a unit of wieght
Stater (Grk) translation of Shekel - Hekte (Grk) sixth, Trite (Grk) Third
Nommos: (Grk) coin, law, - Nomizo: to reason
Drachm: (Grk) handful, small portion- Di (2) Tetra (four) Penta (five) Octo (eight)

Denarius: (Lat.) ten - the original division of ten Denarii to the Aureus
Aureus: (Lat) Gold
Solidus (Lat.) fine, pure, Semissis (Lat) half, Tremissis (Lat) third
Orichalcum (Grk) bronze, coin
Argentus (Grk) silver, coin
Bezant: (lat) Solidus of the Byzantine Empire

Dukat: (Lat) Dux, Ducas: Leader
Florin: (Lat) Flower, from Florence
Or: (Fr) Gold
Ecu: (Fr) shield - coat of arms
Escudo: (Sp) shield - coat of arms

 

Contact me: Jeff Kahn, PMB 280, 123 Seventh Ave, Brooklyn NY 11215. Phone: 347 517 4055
Email: Jkahn21@nyc.rr.com