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Bullion? He Prefers Mining Shares…

By Rick Ackerman Posted on February 15, 2011, 2:52 am EST Last Updated February 18, 2011, 5:41 pm EST

[In a guest commentary here yesterday, our friend Erich Simon used grocery prices from the good old days to buttress his conclusion that $2100 was the “right” price for an ounce of gold. The essay provoked a lively discussion, including the interesting note below from “Radek,” who’d rather own bullion shares than the actual metal. To find out why, read on.  RA]

I think $2100 gold will just be a point in time when we can officially call the beginning of a “gold bubble” – i.e., where perceived value is greater than fundamental value. It will only go up from there for a few years (more or less), ahead of the pace of inflation while the herd gets in. It will go parabolic to heights that [another who posted to this forum] suggested. Then it will pop, and settle down, probably back to the $2100 that Mr. Simon suggested, and rise continuously at a more “steady” rate thereafter. 

This is why I have decided not to purchase any bullion of any kind. Instead I am going to take advantage of the leverage that quality gold/silver stocks offer during the run-up; hopefully, sell at or near the top; wait a year; and then let everything crash and “settle down.” This will allow me to purchase more bullion due to the additional gains from leverage (as long as fees and taxes don’t make it financially unsound, as ‘Ricecake’ noted [above] ).

Why would anyone in their right mind want to purchase bullion (never mind the losses due to fees, premiums, insurance, and potential future government interventions) unless they believe the “end game” is a total and utter collapse of the financial system that forces us to revert to local bartering with said bullion? I see bullion ownership as an “all or nothing” scenario: either you believe the whole thing will come down and we’ll have gold/silver as the final remaining currency, or the government will step in and halt the rise/inflation at some point. If you believe the latter, then owning gold will only lower your potential profit due to the above-mentioned profit-siphoning effects.

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  • dennis February 16, 2011, 8:27 am

    Where will the demand come from, if the ‘masses’ are broke? You can only be worried about that if you unaware of the fact that 1% of the US population has 40% of all of the wealth and 15% has 85%. So the remaining 85% are climbing on top of each other to get their “share” of the remaining 15%, in an economy that has been destroyed by the 1%. A completely untenable situation that the 1% are quite aware of, since they engineered it; aware, they hedge against the financial chaos they have managed temporarily to cover-up, and convert the increasing worthless paper (which, by way of bribing a hapless and thoroughly corruptible political class, they have put themselves first in line to receive) into what they believe to be a reliable store of wealth.
    When will the gold ‘bubble’ burst? When the 1% start believing in something else that will stand in for capital during the crises, so that the return on capital they have managed to monopolize through the crises ( they created) has meaning — that is, when the gold they have accumulated is convertible again into something other than unpayable debts, denominated as electronic book entries they have jiggered and know are no longer real. Should take a while.

  • market Ace February 15, 2011, 11:01 pm

    I think like any asset class it is foolish to concetrate on only one area and use pure greed as a reason to do it. Gold/silver coins in my possession will always have some value (at least they have for 5,000) years. Mining stocks are just pieces of paper that have zero value and are subject to tremendous risk. I agree trading them is OK, but holding for the long term may not be prudent.

    The big miners have consistently not appreciated proportionally to the gold price, becuase of hedges (both gold and currencies) that have cut profits, they tend to average out profits by mining lower grade ores when prices spike and they are depleting their assets all of the time thus their stock is constantly losing value through depletion.

    In addition I think that now that the banksters have lost control of PM prices they can and will attack pm stock prices. In addition any miner in risky political areas can have their mines confiscated leaving shareholders holding the bag.

    Gold in hand is strictly insurance against inflation and should not even be considered an “investment” it is very different than owning stocks for all of the reasons sited above.

  • Jeff February 15, 2011, 8:14 pm

    [ or the government will step in and halt the rise/inflation at some point ] Perhaps you could tell me exactly how they will do that without imploding themselves….Never going to happen and we will have a gold based WORLD currency. The rest of the world is preparing for it….I suggest you do the same. Unless you know something China, Russia, Middle East, Europe, Vietnam, ect,ect. don’t know.

  • Agent P February 15, 2011, 8:12 pm

    I like the poster above – with the farmer and ‘worker’. I see they’re shaking ‘Left’ hands, and the poster is reminiscent of an old Eastern Bloc/Cuba/Mao-era ‘Workers’ rallying-cry advertisement. Hmmm…

    @Richard J –

    Would that be Claude or Ruby…?

  • GlennH February 15, 2011, 6:55 pm

    Stocks? These things can be impractical if the two local exchanges TSE/LSE, DAX/NYSE decide to close settlement for a few weeks and your stocks go no bid when the market opens. Having lived through two serious currency debasements in South America, my only comment is that life was more pleasant to have some diversity in holdings. Things we found useful besides the cash in the back of the bible were: An older 4×4 that is in good conditions (excellent for driving through burning tires in the traffic circle) and some (4) 50 lb bottles of propane that can run a fridge were also very handy. The chaos using only lasts as long as it takes people to develop new dreams and plans… once they realize their current dreams and their perceived immediate future plans had vanished at about the same time as the elite, (along with the cash receipts from the local bank), on the 7:20 AA flight to Miami. We found that this retooling of peoples expectations took 3-6 weeks to unfold and seemed happened a couple time a year. Most of the locals had a little gold and silver tuck away, usually as jewelry and nobody seemed too fussed once the initial outrage had subsided. It is also not a bad time in the economic cycle to carry an extra 10 lbs on the stomach. The just in time model works great till condition do not allow delivery then it works very badly, to say the least. Diversity and some humor.

  • A. Rand Fan February 15, 2011, 6:48 pm

    We can bide our time with this debate and others and I really appreciate learning here and I have tremendous respect for Rick and the regulars. But all things considered, where are we heading? IMO, It’s only a matter of time the system breaks down. How does THE DEBT trend reverse? Obama released the next year US budget yesterday. Pile it on, let’s go. But where? What have the TPTB in store US?

    • brutlstrudl February 15, 2011, 7:41 pm

      Hyperinflation,deflation, or a combination of the two. The only answer is gold in your hand. IF TPTB has something else in mind, I can live with being wrong

  • Radek February 15, 2011, 6:17 pm

    Thanks everyone for your comments!

    My reason for yesterday’s post was simple: there doesn’t seem to be enough discussion as to how the ‘end game’ will play out for today’s financial situation.

    I believe that variants of the scenarios which Phil LaRose, Other Paul and Jim K hinted at will come, but WELL AFTER the gold bubble has popped.

    And at that point..yes, my fiat will most certainly be badly depreciated. But I will have 4 truckloads of it while bullion holders will have 100 ounces of gold valued at 3 truckloads of fiat at the time. So I will be ~33% richer than the bullion holders, because of the leverage offered by stocks.

    Even if during the year of the crash, while I wait for gold to drop from, say $15,000 to $2100 and do nothing with my fiat and it depreciates another 10%, I will still be 23% richer than bullion holders! (please excuse my rough math)

    The general public will gravitate towards convenience and habit, and will still be more likely to continue using fiat on a much grander scale than they will use gold/silver coins to barter with. I will still be able to buy a house/land with ‘cash’, and it will be convenient and fast, instead of hoping that a seller will take my 62.5 lbs of silver coins.

    But: if, as time passes, the end game starts shaping into a ‘complete breakdown’ faster than i anticipated, then, yes, bullion holders will most likely have made the correct decision. By then, however, the bullion will only be useful as long as there is enough food to go around for everyone. Once the food is gone, bullion will be near-worthless. It will be about self-preservation at all costs. Will this happen on a mass scale in North America? I don’t think so.

    Isn’t there always a ‘window of opportunity’ to do something useful with the fiat? Holding it for a long time is clearly dangerous, but what if you hold it for just long enough to trade it for something else that will retain value? (land, more bullion, commodities)..

  • warren February 15, 2011, 5:46 pm

    Stocks (pieces of paper with promises printed on them) are fine. It feels good to watch anything you own increase in value. However, being able to sell “at or near the top” depends on too many variables for my liking.
    “At or near the top” sounds like we can predict when that will be and all we have to do is sit back wait for it to happen. Unfortunately, greed seems to make people wait too long and panic ensues.
    “At or near the top” could happen on the wrong side of the planet while the greedy are asleep. Waking up broke would sure put a crappy taste in the morning coffee.
    “At or near the top” might be with great volatility in markets or even social unrest. Will the market be open? Will the power be on, will the phones work, and will the greedy get to the broker in time??? (Egypt)
    “At or near the top”!!? Do not be so arrogant as to think where you live is immune to chaos. I doubt that there is such a place left on earth. A small amount of gold and silver coin on hand could mean that you are still able to have a cup of coffee on that morning.

    • Steve February 15, 2011, 10:52 pm

      Warren, how many people actually own a Stock Certificate that could be exchanged? More than likely that great mining share is traded via some broker, and We never have the certificate for value in the event of a meltdown. BofA / Wachovia goes broke/bankrupt, and guess what. We don’t have a Stock Certificate from XWS that we paid for, B of A sliced and diced and cut up that paper.

      As long as there is no melt down, no worry.

  • Richard J February 15, 2011, 5:35 pm

    I wonder how long the author of the article has been investing in gold stocks………….I have been at this a long time, and my 10 year average annual return in my trading account is 25%, notwithstanding all the mistakes I have made, so I offer this advice from a standpoint of having achieved some success in this area:
    1. Since over the past 10 years you could have earned an average annual return of around 16% on bullion; you have got to be able to make over 20% annually on your stocks, to justify the extra company, political,geological, management,labor, regulatory, tax, and many other forms of risk.
    2. If you think gold itself is subject to manipulation, just wait until you start trading these stocks.
    3. You will need to invest a lot of time in research, likely a lot more time than you have and you will need to learn through error.
    4. If you are picking stocks on your own,the least risk is in the major companies which seem to have disappointing annual returns, so you have to trade them at least 10 times a year. Major cyclical sell is Nov. to first week in December. Major buy is January through February. Each month, option expiry often presents a buy opportunity.
    5. You are better off to buy the best fund with the best 10 year record. Your volatility will be far lower, you will have tons of free time to keep riveted on the trend, and dabble with a few good exploration plays. The big funds likely make a lot of money on option plays on the large cap stocks, and have far more resources to devote to determining the best take-over candidates.
    6. In view of the above, I am beginning to put more of my portfolio into a large Canadian, bank-run precious metals fund with a 10 year return of about 30% annually. I will also put money into a junior stock oriented fund which did very well last year and should be positioned for the better performance one expects from the mid and small cap space when the market really shifts into high gear.
    7. You are going to need a cast iron stomach at times.
    8. You risk developing paranoia due to the obvious manipulation of the stocks first, then the metal.
    9. Further to point #8, we are all only beneficial owners of stocks, meaning that if there are benefits to owning them, you get to share those benefits. If, through hyperinflation there should be a threat of collapse, there is a significant risk that via Executive Order (already in existence) all gold shares (plus any asset, really) could be seized by the government due to national economic emergency. By the way, it is likely that your shares, unless certificates, are registered to Cede & Company, which is a part of the New York Fed, if memory serves.
    10. The writer assumes he can trade his gold stocks into a currency at some point, and that currency is not going to depreciate in value weekly. One of the reasons to own physical gold is that when the dust of hyper inflation settles, you will have real money (gold) that can be converted into a stable currency which may or may not be a domestic currency.
    11. Gold stock valuations can be a bit like internet stocks in that the basis of valuation seems unreasonable, expensive or not readily understandable. In the late stages of a gold bull market, the in ground reserves and resources per share play a larger role in valuation.
    12. Having said all that, once you are hooked, this is the only game in town. I would love to share my favorite exploration play with you, but am not sure of the rules for posters so I will hint. It is in the world class Redlake area of Ontario, Canada, next door to one of the major producers, with unbelievably high grades of 0.6 oz. of gold per ton. This company has a plant in place which needs some retrofit and the shaft is in place.
    Anyway, good luck to all and I hope you find the above helpful.

  • storfisk February 15, 2011, 4:45 pm

    Every one posting here is correct. However, I think you are all missing a point. Gold bullion, is jewelry,money, speculation, and most importantly, insurance. in addition it is a great way to pass your assets on to your children TAX FREE.
    Gold stocks, unless they pay a dividend, are not invesments. They are just leveraged speculation. Gold bullion, if not held as insurance, is just unleveraged speculation.
    Everyone should hold some gold or silver bullion as insurance. Just as some people are over insured with life insurance, some people are over insured with gold.
    If you can afford to speculate then additional bullion or gold stocks are appropriate for you. But, only what you can fford to lose.

    • mikeck February 16, 2011, 1:54 pm

      Hmm, somehow I thought bullion was wealth…silly me, I could always leave my “wealth” in the bank in the depreciating “dollar” and them I would have, well, pieces of paper to leave my progeny.

  • JimK February 15, 2011, 4:42 pm

    The end game is so important in this question. Here’s how I imagine the outcome:

    “Mr. Jones, the entire $862,000 that your shares of GLD were worth at the time of your bank’s failure will be fully refunded by the National Financial Bankruptcy Insurance Fund… in six months… because we have to print the money first.”

    … Or

    “Mister Jones, the GLD fund, as it turned out, had some title issues with the gold in it’s possession, as well as some counter-party failures to deliver and counter-party failures to pay on options, and the liqudation value of the fund is 23% of the nominal value… at the time of it’s liquidation… for which you will be fully reimbursed… in six months…”

    Or…

    “Mr. Jones, your mining shares in the Canadian company Yamana are quite valuable, however the currency controls implemented between the US and Canada do not allow you to sell the stock or to collect the dividends without paying the 30% International Transaction Fee in the ‘Save American Jobs Act’ despite the fact that you ‘own’ the shares.”

    You can probably come up with a few of your own.

    This is a bureaucratic continuation outcome, not a ‘reduced to barter, bullets and whiskey’ outcome. No ‘failure of the system’ required. The system of separating us all from our wealth is a robust system.

    • Steve February 15, 2011, 10:46 pm

      I tend to agree. Mr. Jones used valueless federal reserve notes to become a debtor in possession. Pushed far enough and a mouse will bite the nose of the cat that cornered it.

  • Tech-trac February 15, 2011, 4:29 pm

    Mining shares as measured by the XAU have been declining in relative strength since #1999, Even the bull run in AU from $2001 has failed to reverse this long-time trend. ETF’s anyone?http://stockcharts.com/webcgi/Pnf.asp?S=$XAU:$GOLD&Y=U&B=1.00&N=A&C=2

  • Mercurious February 15, 2011, 3:45 pm

    @ Andy So where is the perpetual demand for gold going to come from?

    I read a while back all gold company shares in the world were capitalized at less than what just Coca Cola was floating; that was before the big run up so it may have changed significantly since, but you get the picture. It doesn’t take all the money in the world to squeeze PM shares, nor does it take choosing between bread or a gold Buffalo. It just has to take breaking the expectation that government denominated script is worth holding…and that’s getting to be an easier sell by the moment.

    For me, I like simple. I don’t want to have to guess about the quality of mine management, political risk, higher taxes on mines, environmental slow-ups, PE valuations on a share, ad infinitum. I also believe that if there is a real panic squeeze–something that seems to me to be quite possible if we can believe some of the stories that are being told now–bullion on hand prices will blow past shares. Do I need metal now or two years from now when mining operations begin?

    With all that said, I keep my bullion secure and out of reach of our friendly government and trade in AGQ, with double long leverage to silver prices. Take a look at the recent history compared to the darling of the segment, SLV. I think the trend is my friend, with benefits.

    I like to do other things than follow the market. I want really uncomplicated assets that I got in early on, kept an eye on for trend changes, and I’m not married to. I love what this has done for my tax-free retirement accounts. As I’ve said before, at least half the satisfaction will come in cashing out and flipping the bird to Uncle Sugar legally.

    • Steve February 15, 2011, 10:44 pm

      Real nice. My question, does Joe Sixpac own Coca Cola, or is he just a debtor in possession, having a FRN tally count against him, as he works for his master/creator the congress. Check out the Law of Escheats to discover whether or not the government says We have the right to inherit property, or are we just debtors in possession.

  • Avocado February 15, 2011, 2:44 pm

    Herd? What herd? Notice anything about this chart?

    http://www.economagic.com/em-cgi/charter.exe/var/togdp-householdsectordebt+1960+2011+0+0+0+290+545++0

    Back in the 70’s, the last really big run for gold, household debt was only 43% of GDP at the start of the bull market, and rose to 48% at the end. The “herd” had money to spend and invest in gold.

    Today is a LOT different. We started the bull run at 70% of GDP and “peaked” at almost 98% in the 2nd quarter of 2009. Since then the ratio has fallen by quite a bit, (91%) and shows no sign of slowing down.

    If ever I’ve seen evidence of contraction in the economy this is IT.

    The “herd” is BROKE. Where are they supposed to get the money to propel gold through the roof to the point where everyone is buying gold? 27% of mortgages are now underwater vs. 23% in the previous quarter. Nothing like this was happening in the 70’s. We were RICH back then. We are anything but rich today.

    So where is the perpetual demand for gold going to come from?

    Andy

    • Benjamin February 15, 2011, 3:39 pm

      Andy,

      It’s been a while since I’ve given this any thought, but the first thing that springs to mind is world-wide demand. But that will not sustain in the long run (and perhaps for not much longer). Still, we mustn’t forget that there is nearly 6.7 billion other people in the world, and that central banks and/or other such institutions actually have the lions share off the market. Scarcity, ie, which reminds me…

      The demand is coming from those stealing from us. I used to think, once upon a time, that central bankers were “chrysophobic” (fear of gold). That is an assumption based on their denouncing/seeming to ignore it, though. They are quite the gold bugs and it just might be that our government is as well.

      But that’s another story for another time. Still, if you haven’t already, look up Bix Weir and “The Road to RootA”. He names quite a few names we’re all familiar with, and backs this up with proof that there are in fact “good guys” who are well aware of what gold is and why. This, however, may not be good news (but again, that’s another story for another time!).

    • Robert February 15, 2011, 7:07 pm

      “So where is the perpetual demand for gold going to come from?”

      I will assume this is a serious question, and not a facetious one…

      The demand already exists today. All that has to happen is for people to shift their willingness for payment away from fiat instruments.

      The total CUMULATIVE Gold producer market cap does not equal Microsoft’s.

      If the people who have no exposure to Gold only begin to shift to a 3% metal sector exposure in their existing equity portfolios, then this sector will be going on a rocketship ride.

      New demand does not have to happen- all that has to happen is a shift in perspective and some asset re-allocation.

      I personally know unemployed people who have cashed out their 401k, took the tax hit, and are shifting the net assets into bullion. Normally, this would be a eyebrow raiser for the natural contrarian, but in these circumstances I think these folks are ahead of the curve.

      The debt to GDP, or debt to income ratios do not provide an adequate case that there is not enough monetary energy to generate a bull market mania someday down the road…

    • Steve February 15, 2011, 10:41 pm

      Why not shift to the Law, and use of specie? Spending growth Nov/Dec/Jan = credit card debt.

      How does that work? Joe Sixpac takes his Visa down and buys some silver, but; cannot pay his bill? There are a few out there that can buy specie Money, but; the masses are simple debtors in possession waiting for the repo man.

      I’ll bet that the majority who can purchase and hold PM are on sites like this, and Joe Sixpac doesn’t have a clue, or the ability to buy anything PM. What does that work out to? 00.005 percent of the population can pay off the 400k in debt forced by the congress, and still hold PM beyond their Visa debt, freely?

  • Jackson February 15, 2011, 11:28 am

    Now that is what I call a top picker! I really doubt he will be so lucky.

    Anyway, I have to vote for bullion on this one. Government could easily nationalize the mining complex all together.

    Also, if we go to barter economy it will be after the government steps in with gold confiscation, price controls, rationing ect. I wish the writer all the luck in the world if he thinks buying his gold back with unwanted toilet paper is going to work. Gold would be ‘off market’…. ummm duh! Isn’t that what a barter economy is? If you want gold then you have to trade other ‘goods’ to get it because people aren’t trading in the local currency.

    It might be a good idea to hoard up guns, food, cars, land and widgets to buy back your gold but currency? I seem to be missing something.

  • Other Paul February 15, 2011, 6:39 am

    Erich,

    What will premiums, fees, insurance, and extent of government intervention, after the crash? What if after the crash your fiat won’t buy anything or be badly depreciated?

    I suspect that it will be much easier for governments to expropriate mines than bullion. Then what will your shares be worth? Remember the fate of the Chrysler bondholders in 2008-9?

    Thanks for your contribution to the discussion.

    • Benjamin February 15, 2011, 10:33 am

      “I suspect that it will be much easier for governments to expropriate mines than bullion.”

      Just wondering if you have conceived a scenario by which that would be the outcome. I have one in mind, but would like to hear yours first.

    • FranSix February 15, 2011, 4:33 pm

      Anyone believing wholeheartedly that mines will be expropriated more easily that bullion have no idea what they’re talking about.

      Oh yes? Which unmined deposits lying fallow are threatening political stability? In which country? How many mines? Which mines in particular? What size corporations? Throwing out of work how many people? On whose request? For which cockamaimie political purpose? Restricting investment in the mines for what gain?

      Mines are economic drivers and the Australians learned the hard way last year just how a mining tax affects their economy.

      The only thing that would wipe out the industry is a massive bear market in bullion, and that was over since 2000. We have had a concerted effort by central banks and commercial interests to demonetize gold and failed. That means mines are bound to be very cash rich.

      CASH RICH.

    • Other Paul February 15, 2011, 5:47 pm

      Benjamin,

      I should have clarified my comment on expropriation.

      Governments taking ownership/control of private property is not uncommon, with many examples recently in Venezuela (including mining and mineral assets).

      It is easier for government agents to knock on a company’s headquarters’ door to take the mining company’s assets, than to collect property (bullion) from thousands of individuals.

      As for the triggering mechanism for expropriation, I don’t have a scenario. But the US Government doesn’t seem to have much hesitation now to have the Fed monetize trillions of US Treasury debt. I guess that could be the equivalent of expropriating the value of fiat dollar on a weekly basis.

    • Steve February 15, 2011, 10:31 pm

      I just don’t get it. The Banking Act of 1913 places a general and paramount Lien against property discharged by FRN, creating only a debtor in possession.

      The Deed you hold is ‘Fee Simple Absolute’. Fee, fife, feod, feud, feudal tenant, peon, serf, slave.

      You citizenship is legislatively created in corporate character by your Master the Congress, 14th amendment subject.

      You practice democracy instead of the Republican Form.

      And now there is talk of ‘owning’, ‘freedom’, ‘specie’, ‘free gold’.

      Get ahold of yourself.

    • Benjamin February 16, 2011, 10:12 am

      Other Paul,

      Sorry for the latent response, as I had something of an emergency to address yesterday afternoon.

      Anyway, I find your answer more than adequate, despite the lack of a trigging scenario. Indeed, I don’t think there even needs to be one, but a justification is another story. It’s a terrible mess to explain what I mean, exactly, but if you’ve been following my almost daily rants about coining, one thing is clear: It’s not the gold and silver per se that matters. It’s who weighs the currency. As to why I think Congress would “suddenly” up and do so is because things are getting out of control and people are asking all sorts of “wrong” questions.

      The Fed is not a chrysophobic institution. It took me a while to figure that out, and now, it seems, a while longer to figure out that neither is our government. Let’s construe some things here, shall we? (sorry of this goes way O/T and/or seems to ignore anything you wrote, but it’s necessary to fill in some background. Bear with me, please).

      “The Congress shall have the power … To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures”

      I’m 99% tempted to bet both kidneys that no one can argue that anything in Article I, Sec 8, cls 4 says that Congress can _determine_ weights and measures, nor that anything written there says they have absolute power to coin money. Intended or not, everything written there, and even the very beginning of Article I (re: taxes) says that only Congress can enact the Coin Act, as decided by the people (or market ie). Think about it…

      The weight of a currency is the extent of burden a people choose to put on themselves. To tax, means to burden. Therefore, to lay or collect a tax is to make official what the nation as a whole, through minting, decides. Or, ie, only Congress can enact the Coin Act. If individuals and/or individual states did so, commerce would go down the tubes and take the Republic with it. It has to be a national/Congressional contract. In turn, the Coin Act regulates the value, and represents the fixing of weights and measures. Coining money is simply making it all official, through Congress.

      But we don’t have to follow that meaning. And if we don’t, then Congress, not the people, have absolute power in these matters. And that being the case, they can indeed GM your mining company of choice (on U.S. soil), as you nor the “owner” have any good business touching the stuff. If you were dabbling in cars made in Detroit, fine, but this is too serious for you or anyone else to handle, savvy?

      And if GM can experience a sudden turn-around, well, then the same might happen on any kind of land thought to be poor in gold. But what the hey. While they’re at it, why not make it so that, in order to retain land priveleges (Steve knows) at all, a federal agency had to declare the land gold-less enough for you to stay on it? And why not lie about that, too?

      Truth or lie, there is a state of emergency here that requires us to not question petty details. Government needs to raise and manage a new currency, now that the Fed is “gone”. And besides, it’s not like France will ever again pull that stunt of demanding gold vs paper. Now that world trade is fully saturated with those who have an interest in maintaining tight control for safety and security, they just won’t be asking those sort of dangerous things. And since YOU have so many bills and taxes to pay, why even bother trying to exchange in order to prove they are lying? Heck, how many people would even know to demand, these days? And of the few who do, how many realize where the power to determine currency weights really lies, and why?

      I would say I’ve gotten way ahead of things (a nice way of saying off the deep end), except for what I’ve come to see about coining and weighing. The metals themselves of course cannot provide Liberty. We’ve plenty of examples where this wasn’t at all the case. But people having the power to decide the burden of tax? That’s some powerful stuff, therefore they would want to have it ahead of us, wouldn’t they? After all, it never pays to be a day late and a dollar short. And that’s why, according to some things I read, Congress, like the Fed, might be more on the ball than many would give them credit for.

      Triggering scenario? None, except the need to stay ahead of free people. With condfidence in the system erroding like never before (and no offense to any natives), I think the time fast approaches where we get to be shuffled around like the Indians.

    • mikeck February 16, 2011, 1:38 pm

      Benjamin,

      You have, probably inadvertently, touched upon some of the reasons we, here in Virginia, are working on passing a law denying all federal government authority /oversight upon anything manufactured and staying within the commonwealth. Molon labe

  • Edwardo February 15, 2011, 6:25 am

    With respect to the question, why own bullion, I advise you to get acquainted with the following site immediately. http://www.fofoa.blogspot.com

    • DiverCity February 15, 2011, 6:00 pm

      I regularly read FOFOA. However, much like another complicated but very intriguing topic I’ve been studying lately — Modern Monetary Theory — it seems to me that free gold has many hallmarks of religious belief.

    • Robert February 15, 2011, 6:39 pm

      “it seems to me that free gold has many hallmarks of religious belief.”

      -You better believe it does. Right , wrong, valid or invalid… Gold is considered “God’s money” by just about every religious book out there.

      That in itself would imply that Gold is a lucrative hedge against wealth devaluation in a word where faith in the governments of men is ebbing…

    • DiverCity February 15, 2011, 7:02 pm

      @ Robert,

      “Free gold” is a term of art whose definition is quite distinct from the typical goldbug’s reasons to own gold. Me? I like gold precisely for the reason you do — it has no counterparty risk in a world dominated by oligarchs and their governmental minions in whom I have about zero faith. Once again, however, while certainly in favor of gold, the notion of “free gold” as articulated by FOFOA is an order of magnitude or two beyond that perspective.

    • A. Rand Fan February 15, 2011, 7:48 pm

      Gold does not go away. As a store of Wealth it can be the asset all agree upon. Over the long run what other asset compares? Freegold is held or transferred, never lent.

    • DiverCity February 15, 2011, 8:14 pm

      @ A. Rand Fan,

      Nice concise synopsis of freegold. I wax and wane, rinse and repeat.

  • Benjamin February 15, 2011, 5:34 am

    Indeed, the discussion was quite lively yesterday. I’m still reading through some of those many and varied answers. Today will be no exception, I’m sure!

    Mining shares vs bullion?

    I don’t see any difference at all. If bullion doesn’t matter, then how can mining shares which have/produce it be any better? One has to concede that the two are more or less the same (equally useless or equally useful). Depending on which system we’re talking about, that I know that that is true.

    In today’s system, I vote for equally useless. In a system we simply don’t have and might never have had, though, they would both be used to their fullest potential…

    http://www.rickackerman.com/2011/02/2100-%e2%80%98sounds-right%e2%80%99-for-an-ounce-of-gold/#comment-17697

    Today, they are not even being used to their minimal potential. Let me show you what I mean…

    You have a mine which you have good reason to believe will produce a respectable amount of metal. Only trouble is, you haven’t the capital on your own to get to it. So you sell shares of the future, hoped-for profit. While a return ounces invested can still generate marginal (or better) returns, due to currency weighting which will, given the nature of things, tend to lower with time. Risks never go away, but neither do rewards, in a truly free civilization.

    But today, this is out of the question. Currency weights are not decided at all (in any readily perceptible way?), let alone by the decision of the general public. So mining shares are not all that powerful. Neither is bullion, for that matter. Nor cash. Nor stocks in “winning comapnies”. And that is because we’re not in control. Many must know this, but still, many probably figure they can out-smart Them, with this delusion surely enhanced by the fact that some play the game better than others.

    I fell into that trap yesterday when addressing Erich Simons commentary. While I still see that as the likely outcome, aruging the gold/oil ratio is meaningless because, quite simply, it’s all authorative nonsense… with teeth. While oil might trade on the charts for 2-3 grams per barrel for some time yet, I have to wonder what the real cost would be in some parts of the world. Like, say, the United States. As pointed out by one poster yesterday, the price of low quality bread in Zimbabwe is quite high (.1g/loaf is ridiculous, which is about 4.50 in USD. And gold is hard to come by for the poor panning people doing that). So while charts may show this or that in the future, reality is certain to differ.

    There is no way to come out ahead unless you are one of few who decide and run policy. If that’s you, then you wouldn’t be here among us “peons”. So like everyone else, you can only follow the shifting of wealth about the world, and think you’re winning if you play well enough. Anyone can be ahead of the pack, but none of the pack are the rabbit. And that is how things are going to be until we assert our right coin or not coin in order to increase/decrease currency weight.

    • Steve February 15, 2011, 5:12 pm

      Bread, wheat, and what it takes to obtain them are questions to be debated and understood. Gold has no value in the face of anarchy, unless one hires an army in counterforce.

    • Robert February 15, 2011, 6:35 pm

      Benjamin-

      I think what you so eloquently stated her in 1200 words is:

      “A bird in the hand is worth two in the bush”

      Gold in-ground, and refined Gold above ground vary in their utility only in that gold above ground is portable, while Gold in ground can only serve as a capital (work) generator. Even if you know it’s there, and you feel secure that you “own” it as the title holder to the property, until it is dug out, it is not money.

      Capital and money are different things, and serve different purposes. Capital moves economies. Money facilitates exchange (barter) by serving as a stored value proxy for real capital.

      Just as printed currency is fiat money, so too money must be considered as fiat capital.

    • mikeck February 16, 2011, 1:20 pm

      Steve,

      I do not understand why you keep insisting that anarchy is mob rule…me thinks you are getting it mixed up with democracy. 😉

  • FranSix February 15, 2011, 4:40 am

    The way to evaluate a gold mining company is its share value divided against gold, and its prospects for production. One thing that miners worth their salt do is pay dividends, or they may have established a deal with a major. Goldcorp. sold their Osisko stake this week, btw, so not all is easy street.

    One of the fundamentals that miners had faced in increasing quantities since the 1980’s was central bank sales and lend/lease programmes for short of gold contracts. Short of gold derivatives are now being sold to pensioners as we speak as a viable investment vehicle.

    With the entire above ground central bank supply sold many times over, the sole source of gold is the miners. Grade is the key ingredient, and I would say geology has to be consistent right along with the findings.

    • Benjamin February 15, 2011, 6:42 am

      “With the entire above ground central bank supply sold many times over, the sole source of gold is the miners.”

      Since you mentioned it, I figured this interesting and fun little bit of trivia was in order…

      In the above-ground gold supply alone, there’s approx 150 decillion atoms au…

      15 Quadrillion
      15,000,000,000,000,000 (cont.)

      1K quadrillion
      0,000,000,000,000,000,000

      One quadrillion currencies could revalue 1,000 times every year of 15 quadrillion years, without pause, before we ran out of gold atoms in which to do so. At that rate, and if our own Sun turns out to have max life of 100 billion years, we’d have enough gold atoms to see us through 15 quadrillion one millions of lifetimes of our Sun.

      Holy Astro-califragilisticexpiali-nomical, Batman!

      Not that mining is or ever will be obsolte, but we should wonder if it or free market-weighted currency is the greatest source.

  • Phil LaRose February 15, 2011, 4:38 am

    If we sell at the top and are now in dollars and because the credit rating of the U.S. is “0” and nobody wants our debt or our dollars, the world chooses another reserve currency, what happens to our investment in dollars? Would it be better to stay in gold?

  • ggerow February 15, 2011, 4:05 am

    I own all miners (mostly juniors) at the moment but have 2 concerns: 1. If oil continues to rise, it will chop into the miners margins big time since this is a major expense for them. Secondly, if the market happens to crash or go into a severe decline, the miners will foloow in a rush for liquidity. This was evidenced in 2007-2008 during the crisis.

  • bill child February 15, 2011, 3:48 am

    good luck finding gold… gold will nack the crashing currencies ,,, nations , governments and banks will be buying at 1650 and higher

    and realkly the timing thing is questionable ,, sell stocks at high rush in buy gold at low… so you strated buy gold at 250 ,, sure

  • Andy B February 15, 2011, 3:39 am

    Rick, the reason to own bullion is to have a hedge in any number of directions. If we get equities floundering, gold sagging, run-to-safety events, then bullion is in a different category than the miners; it’s not completely correlated.

    On the other hand, I cannot, and have not been buying at these prices.

    I feel the real bullion value is more like 1000$ or a little more. I will buy at current or higher levels as I take profit on miners, but only trading shares of gold for physical, at a “profit.” I can’t force myself to buy any at current levels levels with cash. So my approach is more feathered in as miners rise, than a timing thing…Love to know more of your thoughts.


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