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December 13, 2009
Issue 74  -  More Reasons to Own Gold
 
            
(as if you needed any)
 
 There is no way around the fact that our country is on the fast track to disaster.  Trillions of dollars in debt and liabilities and no way to pay for it.  Now congress is going to the raise the debt limit AGAIN.  What don't these supposed smart guys understand about the word "limit"?  I mean a limit is a maximum isn't it?  What point is there in having a limit if you constantly raise it? 

Democrats to lift debt ceiling by $1.8-1.9 trillion, fear 2010 backlash

By DAVID ROGERS | 12/9/09 7:24 PM EST

In a bold but risky year-end strategy, Democrats are preparing to raise the federal debt ceiling by as much as $1.9 trillion before New Year’s rather than have to face the issue again prior to the 2010 elections.
 
This will take the "limit" to $12.1 trillion.  Now remember we had a debt (official) of $1.4  trillion (really over $5 trillion if you count everything) last year so this doesn't give us much room for any more debt.  In fact the debt is at a record level after only two months of the federal fiscal year.

U.S. already $292 billion in the red this year - CBO

Fri Dec 4, 2009 6:11pm EST
Washington - The U.S. government racked up a gaping shortfall in the first two months of this fiscal year after posting a record budget deficit last year, congressional analysts said on Friday.

In October and November, the government spent $292 billion more than it took in, the nonpartisan Congressional Budget Office said.

That was even worse than the same period last year, when the government was on its way to posting a record $1.4 trillion deficit for the fiscal year that ended Sept. 30.

 
So doing a little math and multiplying this by six gives a projected deficit of nearly $1.8 trillion.  This is truly mind boggling and defies any logic.  Remember, Ronald Reagan, who the left complained about because he exploded the debt, increased the debt $1.7 trillion in EIGHT years.  Now we are going to do that in one!  Don't worry, though, Obama will fix it.  He's decided to "spend" our way out of it.  We are doomed.
 
New Obama plans: 'spend our way out' of downturn
Dec 8 12:35 PM US/Eastern
By PHILIP ELLIOTT
Associated Press Writer
WASHINGTON (AP) - President Barack Obama outlined new multibillion-dollar stimulus and jobs proposals Tuesday, saying the nation must continue to "spend our way out of this recession" until more Americans are back at work  
 
Let me ask you this:  If a friend came to you for help and was broke and didn't have a job, would you tell him he needs to "spend his way out of trouble?"  Of course not, that's ridiculous.  But when politicians say that is a good idea for a COUNTRY it is viewed as sane.  It's not sane and it has no chance of working.  We are built on a facade of debt and spending will only dig us a deeper hole.  Then of course there are the political games which cloud the issue.  Here is a quote from GATA about the latest scam:
 
 
From the King Report on Sunday evening:

The ridiculously good November NFP is beyond comprehension. It is not supported by ADP data, other private data, ISM data, tax receipts, which still show large declines, in retail sales and consumer confidence.

Plus the BLS revised September and October NFP 159k higher!!! Thank you, Ministry of Truth!…

Therefore, November 2009 (FY 2010) withheld income & employment taxes are: $271,591 (FY to date) minus $19, 186 (Dec.) minus $135, 328 (Oct) or $117,077.

November 2008 (FY 2009) withheld income & employment taxes are $144,782 (million); November 2009 (FY 2010) taxes are down 19.14% or $27.7B!!! Do you still believe the NFP number?

For the past three months, which BLS has job growth of 1.177m, withheld income & employment taxes are $471,307. For the same period last year, with job losses of 120k, taxes are $581,857.

How can the past three months show job growth of about 1.3 million y/y when withheld income & employment taxes declined from $581,857 to $471,307 ($101.5B), for a decline of 19% y/y!!!…

-END-

 
 
So in case you don't quite get that, the tax receipts of the government are going down at an alarming 19% rate and yet we are supposedly adding all these jobs?  Doesn't wash in my book.  That, and this chart from contraryinvestor.com:  (great site, by the way, and well worth the $99/yr)
 
 
 
Surging lengths of time on unemployment does not inspire me to have good feelings about our economy.  Also, the job participation rate is not plummeting because we just drop people off the list if they haven't had work for two years.  If you had 5 children and one was out of work for 2 years, would you tell people that all your kids have jobs?  That would make you an idiot, but that's what we let the government do.  Speaking of idiotic, here are two charts from the projected budgets for the next ten years:
 
 
 
 
Now these two charts just don't jibe.  The top is the projected total deficit for the government, while the bottom chart is just the interest on the debt.  Let's ignore the White House's projections and stick with the CBO which is the congressional budget office and is generally considered to be unbiased.  Notice something odd here?  The interest just keeps going higher, but the total debt is supposed to magically go down?  What?  No way in hell that's happening!
 
With nonsense like this, the reasons to own gold just keep becoming more and more compelling.   I did a little research this week in regards to the ETF GLD.  An ETF is like a mutual fund but can be traded throughout the day instead of just at day's end.  There are now hundreds of these things tracking everything from the Dow Jones Industrials to the price of natural gas.  GLD is a gold ETF which supposedly is backed by enough real gold to have all shares exchanged for the real thing.  If true, this would be a great alternative to taking delivery and storing it yourself.  The ETF charges a management fee, but this would be close to same as your storage fees, about 1% a year. 
 
I took the prices of both gold and GLD and divided gold by GLD.  This should be real close to 100% if investors were confident in the fact that the ETF had the gold they claimed.  Here is what I found:
 
Date                  GOLD            GLD            Gold/GLD
12/20/2004        $442              $443.40          99.7%
6/27/2005          $439.20         $439.1           100%
12/5/2005          $508              $507.8           100%
6/19/2006          $566              $563.60        100.4%
12/26/2006        $624              $619.80         100.6%
6/11/2007          $653              $647.0           100.9%
12/3/2007          $791              $782.8           101%
6/16/2008          $883              $870.10         101.5%
12/22/2008        $847              $834.6           101.5%
6/15/2009          $955              $937.1           101.9%
12/7/2009          $1158            $1131            102.4%
 
 
As you can see the value was at parity for about a year (GLD was started in 2004) and then slowly started to trade lower and lower in relation to the real deal.  This shows a few things.  First, for about a year GLD was viewed as EQUAL to gold.  Remember investors as a whole are smart and figure things out if they are amiss.  Information will eventually leak out if shenanigans are in play.  So for a year, everything was fine.  Then, things started to change as the price of gold moved further and further ahead of the physical.  The real item now trades almost 2 1/2 percent higher than the fake GLD gold.  Now if GLD truly had it's shares backed by 100% gold, this shouldn't be possible.  As I said the storage fees should about equal the management fees of an ETF.  So what is up?
 
I firmly believe that GLD is a SCAM.  No one can audit their gold.  It can be stored anywhere and the prospectus is about as clear as mud.  The Central Fund of Canada (Symbol CEF and another investment vehicle that represents real gold) on the other hand has audits and shows actual bar numbers.  Which seems more trustworthy?  Don't buy GLD or SLV (silver's ETF) as they are only vehicles to siphon demand away from the physical market to dampen prices.  If you buy these, you are in effect, LOWERING the price of gold.  Not exactly why you buy them, eh?
 
Don't know if you guys saw this:
 
 

US Mint Suspends 2009 Gold Eagle Coin Sales

2009 American Eagle Gold Bullion CoinThe US Mint has once again suspended sales of American Gold Eagle Coins due to enourmous demand, according to a memo released Nov. 25 to authorized dealers.

 

"The United States Mint has depleted its current inventory of 2009 American Eagle 1-ounce gold bullion coins due to the continued strong demand for this product," said the Mint in a memorandum. "We will temporarily suspend sales of this product to build up additional inventory."

 

This is not the first time the Mint has had to temporarily suspend sales of their bullion coins. In August 2008, Gold Eagle Bullion sales were halted only to be resumed a week later, but under an allocation program that lasted well into 2009.

The Mint appears confident in its ability to start offering the coins again this year, stating an early December return.

 
So the mint can't make enough gold to meet demand and yet the price gets mauled here recently?  Have you ever seen a market reach a peak when there were shortages?  Were there shortages of tech stocks in 2000?  Was there a lack of houses in 2007-8?  No, quite the contrary, there was a glut of these things and THAT is why they collapsed.  You will never see a market "top out" when there are shortages, it just can't happen.  Here is a blogger's take from GATA:
 
 
Dave from Denver hits the nail on the head…

Tuesday, December 8, 2009

An Obvious Question About The U.S. Government Gold Stock Goes Begging

Given the "robust" inventory of 100 oz. gold bars being reported by the Comex, how on earth is it possible that the U.S. has to keep suspending production of gold eagle and gold buffalo coins due to "a shortage of supply of gold?" The U.S. Mint announced yesterday that it is suspending production of 1 oz. gold eagles and buffalos for the balance of 2009. This is, I believe, the third time this year the Mint has suspended production:

"U.S. Mint now suspends all one ounce gold coin sales due to shortage of physical gold"

As a matter of fact the Gold Bullion Act of 1985 authorizes the U.S. Mint to use U.S. Government gold reserves if necessary:

In the absence of available supplies of such gold at the average world price, the Secretary may use gold from reserves held by the United States to mint the coins issued under section 5112(i) of this title. The Secretary shall issue such regulations as may be necessary to carry out this paragraph".

It would seem that if the United States has 8100 tons of gold, as reported by the Federal Reserve and U.S. Treasury, then there should NEVER be a shortage of gold with which to mint coins. What gives?

Here is the complete text of Gold Bullion Act of 1985:
Where's Our Gold Coins?

Again, inquring minds want to know, where is all the gold? How come the U.S. Mint didn't foresee the same shortage everyone else in the market has been seeing and make sure that it had plenty of production blanks to meet demand? If the Comex supposedly has 9 million ounces of 100 oz. bullion bars, the Mint should have been able to take delivery of some of that gold in order to meet its legal obligation to produce gold coins in an amount that meets demand. How come the U.S. Mint is not using U.S. Government gold reserves, as per the law?

Something smells fishy here, and I think we all know what it is: the physical supply of gold is extremely tight, the paper shorts in gold (Comex, GLD, LME, etc) are in big trouble and the price of gold is now at the mercy of the physical market. I would suggest this situation is one of the primary reasons that the Federal Reserve and its supporters in Congress are going to any lengths to derail efforts to force an independent audit of the Fed, which would include a physical audit of the gold it supposedly holds.

 
This is not just fishy, it's down right smelly.  These guys are lying!  They just want to sell as little gold as possible as they are having trouble feeding the physical demand.  I recently mentioned that John Paulson, one of the most successful hedge fund managers ever, was beginning a gold fund in January.   Here is a tidbit about him from MIDAS:
 

Speaking of John Paulson, one of my top sources phoned today with the following:

Someone he knows personally was recently at a Paulson investment presentation, with gold the star of the show, and who did he trot out in as his "cow bell," none other than Alan Greenspan. Heavily paid consultant Greenspan told the attendees that the structural problems are so severe that the central bankers of the world have NO CHOICE but to go on printing money in extravagant fashion and that gold is clearly the place to be.

 
So here you have the king bubble blower himself, telling the rich that gold is the place to be.  Now, he didn't say this in a public forum, but at a hedge fund presentation.  Remember you have to have a million dollars liquid assets to be an accredited investor, and only accredited investors are eligible to buy hedge funds.  So these guys are all rich and Greenspan, who caused much of this debt problem, is in there telling them to protect themselves from the money printing that will be coming.  Please get yourself a Christmas present this year, a shiny gold coin.  You won't be disappointed. 
 
Lastly, you know that I rail against fiat money and it's lack of any real backing.  Well here is a paper note on ebay, backed by gold, that did a little more than keep it's buying power.  have a great week!
 

PORSCHEAHMET 1928 $1000 THE FINEST KNOWN CGA GEM67 GOLD

THE BEST OF THE BEST CGA GEM GOLD CERTIFICATE FOR SALE

Item condition: Uncirculated
Time left: 7 days 2 hours (Dec 19, 200920:05:20 PST)
Price: US $20,995,000.00 Buy It Now

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