Posted on 12/02/2009 7:54:09 PM PST by blam
Precious Metals Stocks, Breakout Or Plunge?
Commodities / Gold & Silver Stocks
Dec 02, 2009 - 07:12 PM
By: Przemyslaw_Radomski
In a world of paper currencies and paper promises, I can think of many reasons right off the top of my head why the price of gold will continue to go up in the long term, however since this essay's length is limited, I'll just mention 5 of them. In short, while it may feel like a bubble to some, I believe we are just warming up.
Last week I mentioned a few of such reasons, but I would like to expand this topic this week. Below I have featured ten of the many points that currently point to higher value of the gold price in the long run.
1. The smart money is already piled into gold. Some of the world’s savviest money managers have taken large positions in gold. I mentioned John Paulson, David Einhorn, Paul Tudor Jones and Jim Rogers I forgot to mention George Soros, who increased his holding in gold in the third quarter with gold mining stocks and with the SPDR Gold Trust ETF.
This week the Wall Street Journal reported that John Paulson, who I did mention last week, is launching a new gold fund, which will include $250 million of his own personal investment.
Other well-known fund managers publicly piling into gold include Bill Gross, Kyle Bass (Hayman Capital), Paolo Pellegrini (PSQR), John Burbank (Passport Capital), Evy Hambro (Blackrock), Donald Coxe (Coxe Advisors), and David Tice (Prudent Bear Fund). I would expect other major mutual funds, hedge funds and pension funds to follow their lead.
2. Central banks are net buyers of gold for the first time in 22 years. This is a major secular change. According to a report by precious-metals research firm GFMS, for the first time since 1987, central banks around the world bought more gold in the second quarter than they sold. India recently bought 200 tons of gold from the IMF and China is expected to purchase the other 200 tons offered for sale.
3. In June there was an item in Bloomberg about Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer, having bought gold for the first time the company’s 152-year history.
According to the report, the insurance company has accumulated about $400 million in gold. I would expect that other insurance companies might follow suit.
4. China holds $2 Trillion in Foreign Currency reserves and only 2% in gold, vs. a 10% worldwide average. The Chinese are seeing the value of their foreign currency reserves turning to dust every day.
If China makes the logical move to increase its gold reserves and reduce its fiat currency exposure to even just the worldwide average, gold prices could move substantially higher.
5. Gold is scarce. The gold industry has not replaced gold reserves mined in over a decade meaning near term shortages. We might get to a situation where there is simply not enough physical gold available to cover the massive quantities of gold that has been pledged.
This situation could push the price of gold to the stratosphere. Hong Kong has recently pulled all its gold holdings and deposits from London and brought them home.
While investors chase gold to get into something more stable than the dollar, producers aren't keeping up. Gold production was down 3% last year, and it was flat in the most recent quarter.
Although mining companies are spending more on new production, especially in China and Russia, that is not enough to offset dwindling output from mature mines.
Central banks hold a lot of gold. But they are not interested to sell and in any case, they are bound by an agreement that imposes limits on sales.
[snip]
I read something today about Dubai. It is not good and could cuase massive destruction to the banking system in excess of $1 trillion.
I’m at quite a crossroad. These waters are unknown.
I bought some old US silver dollars today. (That cured my itch for a while)
I’m still conflicted. I think its too late to get into Gold. Its at like 60x or 70x silver... And that’s too high. Silver might still be a good play. I’m thinking about it.
I bought 100 oz at $13 per a while back...up 6 dollars....not bad, wish I were rich, I would have bought 20K worth if I could have afforded it...tight wife, she wouldn’t let me take the savings and sink it in...just wouldn’t believe me. We would be able to buy a nice car now ;)....maybe next time the economy collapses we’ll be ready
I just looked at the dollar index and it is getting hammered. The dollar got this low about a year and a half ago. The problem now is that we have out of control spending. We don’t have squat for a backstop.
I’ve been 95% invested in PM (precious metal) stocks for some time now. I THINK this rise has further to go, but it might correct here at some point. Who knows?
One thing that persuaded me to stay in over the past few weeks when some pretty smart people I know have been getting out is that virtually every gold bug and market writer around has been calling tops for the past month or more. That seemed like a contrary indicator.
Anyway, I might hedge a bit a little down the line. Too soon to tell.
Actually, old silver is very smart. Old everything is smart. I have one that is 8,000 BC. (old war bag found in the ME)
Wed Dec 2, 2009 6:23pm EST
Miho Yoshikawa
(Reuters) - Gold prices rose to record highs on Thursday as worries about the economic recovery encouraged buying of the metal as a safe haven investment.
Spot gold rose to a record of $1,218.90 per ounce at 2316 GMT, while U.S. February gold futures touched an all-time high of $1,221.00. (Reporting by Miho Yoshikawa)
There’s a reason the Constitution has mention of gold and silver.
There’s a reason wall street hates it.
1. Its real, people for thousands and thousands of years have looked to it as money/wealth.
2. Wall street hates it because they can’t manipulate/counterfeit it or play funny games with it.
If you’re going to own gold or silver allocate some to physical (for the having of Precious Metals) and some to stocks for the potential growth/liquidity aspect of it.
If you do buy the mining shares be SURE you put stops below your purchase price so you can ensure you’ll get something back if the banks manipulate the prices in a short term down swing.
I am laid off from work , but the threat is great enough that just last week, I cashed in some non retirement mutual funds that were stagnant, and bought $13000 in physical silver, then rolled $30,000 of IRA into PM sector funds. It has risen $1000 a day since.
I’m thinking about dropping about 10% of my portfolio into silver.
Bubble.
Here’s Why The Mint Is Running Out Of Gold Coins
The mint that produces the gold American Eagle coins is running low. This chart, courtesy of Ed Steer, tells the whole story. Buyers are snapping them up at levels not seen in years.
http://www.businessinsider.com/heres-why-the-mint-is-running-out-of-gold-coins-2009-12
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