Financial Post on Gold

I am in Toronto, which is why you cannot find me.  

Canadians still read or, at least, many papers seem to think so. You learn much about the U.S. reading local papers.  There are things our government is doing that I have not seen reported in the U.S., all part of building a massive web around the people. 

I located the article below when I searched for today's article (they delay publication online) about the Canadian experience in the 1990s, when I lived here, when a massive new tax system, a national sales tax on goods and services called the GST, was enacted through an hysterical Gilbert and Sullivan maneuver. As it turns out, the new tax did NOT pull Canada back from their budget crisis.

It was "spending cuts" that saved the budget. The article pointed out the idea that the GST saved the day is an illusion not supported by the figures. We know about liberal delusion in the U.S. I will see if I can capture the article and send it to everyone, including Mr. Gibson, who is in need of some financial education. Without survival, all his skills and honor are without use.

The Canada I knew no longer seems to be here, other than the programming of school children to hate the U.S. for, well, you know, "they are bigger than we are and don't pay us any attention." They also have stand-up comics who make a career of attacking the U.S. in a news format. Probably, they had such stuff before the U.S., as they are more inventive in things media. 

When I moved here in the early 1990s there was a horrible mass murder of women in a college library. A prominent sidebar to the accounts concluded that the murders where the fault of Ronald Reagan. I swear this is true. You cannot figure how a very pleasant community of well educated, busy people have a thoroughly irrational streak. You start to understand that there are many types of religious programming, as with Muslim murderers, NAZIs, or soccer fans.  As the song goes: "Teach your children well...."

You can learn about yourself when you assess your enemies. I am happy that we are attacked by stand-up comics. Imagine if there were reasonable arguments presented to rebuff the idea that the United States should remain moral, fiscally sound, and pleasant. 

Newspapers, here, are filled with commentary about the U.S. and how it has to come to grips with the reality of debt.  They had their run with Marxists and seem to prefer economic soundness.  Frankly, I was surprised by the fiscally conservative analysis (agreeing with me.)

Anyway, here is an interesting article. Frankly, I liked it because of the the headline.  This says it all.  You can click on the blog title to go to the Financial Post's website.  I would recommend this site unlike the Bloomberg site I had been using as a home page.  I don't have time to figure out what is spin and what is news.

Scott:  How about Frack Tyranny!  We can get that published. Or, should we be true revolutionaries and go for it?  Yeah.  Frack em. More on the idea of buzz words, later. It is a serious consideration.

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‘Not to own gold is to trust governments’

REUTERS

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Jonathan Ratner  Aug 12, 2011 – 2:48 PM ET

Gold’s panic-driven breakneck ascent to US$1,800 per ounce may signal that the metal is a bubble, but it might not matter. The precious metal may be vulnerable to a pullback or even a correction, but the longer-term case for bullion is hard to argue against. So if you think it’s too late to buy gold, think again.

While the ongoing eurozone debt crisis, recent U.S. debt downgrade, and fears of another recession contributed to the massive equity sell-off and record move in gold, low interest rates, slow economic growth and central bank currency diversification should keep gold at elevated levels in the years to come.

“From a trading point of view, it almost looks like time to sell some gold,” said Greg Taylor, portfolio manager at Aurion Capital Management. “But over the next few years while we’re going through this financial crisis, it is something that everyone should definitely have in their portfolio.”

Aside from the United States’ US$14.3-trillion in debt, the U.S. Federal Reserve’s conditional commitment to keep interest rates low for the next two years provides another reason to limit gains in the U.S. dollar. At the same time, many other countries are trying to keep their currencies lower.

“There is a devaluation of currencies going on to try and stimulate economic activity,” Mr. Taylor said. “The only quasi-currency that can’t happen to is gold.”

Ed Sollbach, market strategist at Desjardins Securities, agreed that currencies are having a major impact on gold prices.

“Whenever there is worry about currencies, gold could have a big spike,” he said, adding that he considers gold itself a currency. “Gold is always going to be a store of value, whereas over time the dollar or any currency loses it value to inflation.”

Desjardins recently raised its gold price target for 2011 to US$1,820, but Mr. Sollbach is still cautious. He pointed to the fact that gold has moved higher even on some days when stocks rebounded.

“To be honest, we’re a little uncomfortable when you see gold gain $30, $40 or $50 every day,” the strategist said. “That kind of big move ultimately doesn’t end well. The metal can go a lot higher, but it’s kind of in the bubble phase and it’s going to be very volatile, so people should be careful.”

Fenton and Jonah Waxman noted that the metal’s price has been building in a rising probability of a reflaring financial crisis, as well as U.S. dollar weakness and climbing inflation expectations.

Deutsche Bank recently maintained its US$2,000 gold forecast for 2012, noting that prices would need to reach US$2,178 to be considered extreme across seven indicators, including relative to both the producer and consumer price index, as share of global GDP, versus base metals and crude oil prices, and compared to the S&P 500.

“We believe the main beneficiary of super low interest rates in the United States, a weak U.S. dollar, a view that central bank holdings in the U.S. dollar are still excessive and ongoing questions over the stability of the financial system, will be gold,” Michael Lewis, global head of commodities research at Deutsche Bank, said in an Aug. 10 report. “In our view, events over the past week have raised the probability of a price spike in gold.”

Mr. Lewis believes financial markets will be vulnerable to recurring bouts of risk aversion for the next few years as governments in the United States and Europe struggle to bring down debt to more sustainable levels.

One long-term concern would be if the United States is not able to regain its AAA sovereign credit rating as this would reduce the appeal of U.S. treasuries as a diversification asset. This could also help fuel a steady decline in U.S. dollar holdings among foreign exchange reserves, which has been underway in both advanced and emerging economies since the end of the 1990s, Mr. Lewis noted.

China and other central banks have been increasing their gold holdings, and are expected to be net buyers of bullion for the third consecutive year, making it the first time this has happened since the 1980s.

Yet another factor that would sustain investor appetite for gold is what Mr. Lewis considers the “non-negligible” risk of a collapse in the U.S. dollar.

“We believe the greenback’s only saving grace is the sovereign risk problems facing the eurozone, which is helping to prevent a more meaningful appreciation in the euro,” he said.

Record-low yields suggest investors are still comfortable holding U.S. government bonds that pay very little and aren’t worried about inflation. However, if a small group of them decide to exit the US$14.3-trillion U.S. debt market and avoid the euro, some expect to see a big move in gold as it is a much thinner market.

Marc Faber, editor and publisher of The Gloom, Boom & Doom Report, considers gold overbought and warns that it may correct on the downside. However, over the long term, he believes people should have part of their savings in gold “because not to own gold is to trust governments,” he said on television this week.

Posted in: Investing  Tags: Bonds, Bubble, Bullion, Central Banks, Correction, Currencies, Debt Crisis, Euro, Gold,Inflation, Precious Metal, US Dollar, Yields