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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: pezz who wrote (65796)	8/28/2010 7:49:03 PM
From: TobagoJack	Read Replies (3) \| Respond to of 217615

just in in-tray and out send-tray player 1: one day bonds will crash, but they could go to new all time lows in yields first (i'm referring to US government bonds, specifically). in spite of the huge rally they've had, they remain the most hated asset class. recently there has been talk of a bubble in bonds - usually when this type of talk starts, the market in question still has some way to go. that said, although i can't bring myself to be negative on bonds yet, i acknowledge that all the welfare/warfare nation governments of the West are in principle bankrupt. they will all default one day, whether outright or via inflation. so those holding governmment bonds must not lose sight of this fact, and always keep a wary eye on a number of signposts (i have agreed with David Rosenberg's analysis of the situation except that i do not share his nonchalance about the government's total debt and the chances of it ever getting paid; in addition to this, the Fed under Bernanke is hell-bent on 'averting deflation', which means it will probably one day go one crucial step too far with its money printing). for instance, with Japan's savings rate having declined to a minuscule level, it is only a question of a relatively short time before Japan will have to face the choice of either paying higher interest rates to attract foreign funding or printing money to finance the deficit. my gut feeling is that this looming problem could be a 'tipping point' event for bond markets everywhere. another problem is the crisis in sovereign debt at the euro area's periphery. it is not over. in fact, it seems to be entering the next phase - CDS on Ireland's debt have already broken out to new crisis highs, and all the other usual suspects are playing catch-up. this crisis is a stark reminder that governments can indeed go bankrupt. the extent to which the EU is prepared to continue to attempt to bail these nations out will inter alia determine how quickly the crisis moves from the periphery to the center. all in all it seems possible to me that the bond market will first keep crushing the bears - of which there are still too many - and when it has accomplished that, it will turn around and crush the bulls. The all time low in the 10 year yield (made in 1942) is a mere 97 basis points away. player 2: In regards to bonds, I think that we are relatively late in the game - so I'm inclined not to play them in either direction. I'll look elsewhere for places to invest. I still think that the Japanese Yen and Bonds can rally more. My target is "75." At 75 to the USD on the Yen and 0.75% on the JGB 10-Year, I'd be looking to buy some 5-Year very much out of the money puts on both.... The only problem in shorting JGB's at 0.75% is if the Yen collapses as well, your returns could very much be muted as the gains in US Dollar terms could be much lower than in Yen terms. player 3: If you think we’re late in the game in buying bonds, why wouldn’t this hold true for gold? Who else is left in the world who isn’t long gold who wanted to be long gold? Everybody is already all in..in gold. That’s why despite some very good tailwinds, eg QE2, gold hasn’t made new highs. If jgbs hit .75%, why wouldn’t tnotes hit 1.75%? Equities: everyone has been bearish since 2009. we’re in the new normal but that doesn’t mean we’re looking for a 100 year flood every year. We just had one. Additionally, there are few who will need to sell equities if/when it crashes because ICI tells us retail continues to pull out of stock mutual funds for the past 2 years. Eg. I own zero traditional equity, except reits like analy mortgage. Relative value: 1) Anyone visit Singapore lately and notice how expensive it is compared to a hk or tokyo? Tokyo is one of the most beautiful, cleanest, vibrant cities in the world and its great value now. Best dry powder skiing is in Hokkaido, imho. 2) schools as represented by hk intl school are so inferior as compared to most usa schools, in terms of sports and academics. Eg at hkis, there are 2 academic lanes.. normal and accelerated. In palo alto, there are 5 lanes. Our kids could not test beyond the lowest lane and had to catch up by taking summer school via private lessons. There are 2 soccer coaches at hkis. There are 5 at palo alto. 3) have you tasted the water or smelt the air of hk or asia lately? Try coming to palo alto where the air is pristine blue and water from sierra mountains taste sweet 4) have you bought wine from Costco usa? A bottle of almaviva, probably one of the better cabernets which costs us$120 at hk airport is $65 at Costco here. This bottle rivals any wine at any price. I can buy cases of it without any guilt and bbq my organic beef knowing its not tainted from china. If hkma can intervene and buy hk shares directly in 1997, why cant the fed buy $2Tln worth of made in usa stocks? Why stop at $700B tarp money targeting banks? If the empire is at risk, I don’t doubt Bernanke has other arrows in his quiver. I do hope s&p gets to 750 because I love 50% off sales. Double happiness: player 2 gets his bear call right and I get my bargain. player 4: in the very short term bonds do however look rather overbought now. for instance, the DSI (daily sentiment index of futures traders) has been at 98% bulls for several times in a row lately. the record high was 99% bulls in late 08, and that soon provided a set-up for a tactical short trade. mind you, i am one of the on-the-record bond bulls over many years now, with the only reservation I have w.r.t. the longer term consisting of the fact that i think the government will eventually default (whether outright, or what's more likely, via inflation, is immaterial - at some point there will be a tipping point when the markets cease to believe in the promise to pay, or at least in the promise to get paid with money that has the same purchasing power). Anyway, i would summarize that i think the bond bull market still has some way to go in the medium term, but near term there should soon be a correction that is steep enough to bring the strong bullish consensus of futures traders back to earth. Longer term (how long, i don't know, but the process could be dragged out for some time), see above. As to gold, let us not forget it has been going up for ten years straight. not a single losing year since 2000. and yet, it hasn't really gone up in parabolic fashion, but rather steadily, a bit more in some years, a bit less in others. It could easily have a down year at some point without endangering the bullish trend. The gold market's main driving force is actually reservation demand. This is to say, the willingness, or lack thereof, of the current owners of the stock of gold to sell at prevailing fiat money prices. Consider that the yearly growth of the global stock of gold is only about 1.5% - only the Japanese Yen has a comparably slow supply growth rate (euro area money grows 10 times as much, and US money 7 times - most recent quarterly TMS growth rates). However, practically all the gold that is produced by mines (about 2,500 tons p.a.) is earmarked for non-monetary uses. Jewellery and industrial demand together account actually for more demand than the mines can supply. So the remainder of this demand is supplied by scrap. The investment demand for gold, i.e. its monetary function, is a separate category. Here we see probably some two thirds of the total global stock in play, including central bank reserves, so maybe about half of the existing gold stock is theoretically available for trading. Given the state of the world, and the vast expansion of fiat money claims, the main question is always: why would the current owners of this gold want to sell? It is perfect insurance against governments printing ever more money, and more importantly, it is practically the ONLY insurance against a global systemic collapse. I think the financial system's near-death experience in 2008 has brought home the fact to many people that such a collapse is at least in the realm of the possible. This conviction can only have been fortified by the recent sovereign debt crisis. In 2008, the last line of defense were governments, and it (barely) held. In 2010, we see even this last line of defense being eroded at the margin. So why would anyone holding gold sell it here? Even the opportunity cost of holding gold has become negligible, with central banks everywhere holding interest rates near zero. This means that any new buyers will probably not be able to get it cheaply. Now and then the futures traders at the COMEX lose their nerve, and a $100-$200 correction is always possible when that happens, but every time it does, we immediately hear of 'strong physical demand' showing up. The retail public is not really in gold. Yes, in some countries with strong traditional gold affinity this may be different, but there the public has always held a lot of gold (Vietnam or India for example). Elsewhere though, especially in the West, there's only an occasional flaring up of gold buying, but it usually only happens when there's panic in the air. Most people have been warned away - by their brokers, by CNN Money, by Forbes, by the WSJ, by the FT - all these purveyors of investment advice have been bearish on gold all the way up, and they have yet to change their tune. There are a few prominent hedge fund managers that are in gold, but i would call them good company (Soros, Paulson, Einhorn, Tudor-Jones...). Most fund managers still don't do gold. As Marc often mentions, when you go to conferences and ask people who actually owns gold, not too many hands tend to go up. Alas, there was once a time when 25% of the world's investable assets were in gold and gold-related investments. Now? 0.80%. The conclusion is imo that the bull market has still some way to go - regardless of whether it corrects in the near term or not. ... to be continued in next post Message 26784585

To: pezz who wrote (65796)	8/28/2010 7:49:43 PM
From: TobagoJack	1 Recommendation Read Replies (2) \| Respond to of 217615

... continued in / out trays Message 26784583 player 5: hello player 3, today is a beautiful saturday morning here in freedom rock and money mountain hong kong. one chocolate milk downed, accompanied daughter on her weekly swimming lessons, ipad in hand and iced coffee at poolside. Had fabulous sweet polluted open air breakfast, handed off erita to value-packed filipino ex-teacher nanny for journey to ballet lesson. i now return to toil at the desktop and later, be fashionable, on the apple ipad at some spiffy coffee shop where the women dress and act like women and no one frivolously start any pointless and anti-nature court case for nothing-all reasons. Speaking of anti-nature, given freedom hong kong’s rights, sleep at night was beautiful, for the nighttime Chinese nanny took over the chores of the daytime Filipino nanny. Try that in palo alto or for that matter palo anywhere else. you shall be proven correct this day and day after day in regard to the food in hong kong, and I intend dim some sum for lunch that is just a easy and safe … public transport journey to meet the boyz and machinate over weighty issues free from sarbanes this concern and oxley that rule, so that, when successful, more gold can be engaged with. i shall take your below points one at a time and illuminate your way, so that you too may be saved. <<If you think we’re late in the game in buying bonds, why wouldn’t this hold true for gold?>> (1) short answer, we can buy defaulted bonds of empires past from every age, from shops and outlet, all nicely mounted in pretty display frames, colorful, coupons unclipped, promising all manner of interest payments, swearing all sorts of principle repayments, and featuring even gold-backed sinking funds for all purposes, railroads never built and canals no longer anywhere. All, meaning every single blasted one, sunk, along with the sovereign issuers. But, a strange truth, we cannot acquire any defaulted gold, not a one troy ounce or gram, from anywhere in the universe. I can be accused of unthinking, but dense I am not. I can clue in on a glaring hint. Gold is forever. Bond is for suckers willing to take equity risk and suffering measly promise. (i) long reply, look at the photo, reflect on the truth. (ii) proper response, paper credit money denominated in us treasury note has had a good run, built up a pile of debt (obligation) cash which has the mathematical imperative to collapse and the hard geopolitical need to implode. Officialdom has the obligation as well as short / intermediate means to forestall the cataclysmic once and for all "game over" call. Whatever they do, everything they do, from here on out, shall be bullish for gold, whether or not they be bullish for anything and everything else. (iii) even in the case of interest rate rising, gold shall remain firm and trend high, because, at current obligations count, interest rate rise shall unleash that which we must take as the gift, chaos; and give rise to that which must partnered, crises. And you must already know about volatility, the friend, and lonely path, the right way. <<Who else is left in the world who isn’t long gold who wanted to be long gold? Everybody is already all in..in gold.>> (2) besides some of the sorry multitude on this e-mail roundtable, who else do we know having any reasonable amount of gold near at hand? Have folks forgotten the taste of q4 2008 so quickly? (i) the main crises, maybe in 3 years, or perhaps in 94 months, shall happen, and when it does, no single or any conglomeration of sovereign powers would be able to save the dusk. When so, how much gold is too much, and where would such gold be? (ii) it is a mistake to think of gold as an investment, speculation, money, commodity, precious metal, noble mineral, faithful object of exchange, political instrument, central bank reserve, store of value and every such thing. It therefore is wrong to array gold against stocks, bonds, cash, real estate and everything else. Gold is a faith. When times went dire, each and every sorry time, gold reign supreme. Time shall go dire once again, and we are closer to the end-game than ever before, already well in the territory of “biblical reckoning”. Gold is a keeper of score, of surplus capital put to sleep, and of excess savings deeply stored, preferably in airconditioned comfort, well away from the hubbub, and ideally, always at the ready to answer the scream of duty that we hope would never be, remaining faithful, horrible year after terrible 4-seasons, generation after generations. <<That’s why despite some very good tailwinds, eg QE2, gold hasn’t made new highs.>> (3) I refrain from responding to that taunt, because as I view the past, gold is up double digits ytd, and shares are down single digit in same 12 months. Bond rose? Great, welcome and embrace, a crowded trade in truth. The rewards for faith, year after trying year: 1999 Dec 31st USD 288/oz 2000 Dec 29th USD 274/oz -6% 2001 Dec 31st USD 279/oz +3% (when you, player 2 and I gathered, with you unbelieving, player 2 hesitating, and I pleading with you both to engage with the faith, and in size; it was also a trying time when my wife forbade me to talk macro anything and gold everything at any of her gatherings – my wife still forbids me the very same way, player 2, relatively to the demands of the faith, is still hesitating, and you are still a heretic – that can only mean all is well for the gold bubble that at this juncture no pin can prick) 2002 Dec 31st USD 348/oz +25% 2003 Dec 31st USD 416/oz +20% 2004 Dec 31st USD 438/oz +5% 2005 Dec 30th USD 519/oz +18% 2006 Dec 29th USD 638/oz +24% 2007 Dec 31st USD 833/oz +31% 2008 Dec 31st USD 889/oz +7% 2009 Dec 31st USD 1,095/oz +23% 2010 Aug 27th USD 1,238/oz +13% Is there anything of the above we should have doubts about? Should one wish to earn a fat 20 percent 'yield' on gold to whip annaly, just short puts on gold, short again, short thrice more, in size, and once inventory full and value just right, short covered calls, and keep doing same, thus we can earn a faithful return. Winning is easy when one pissing down wind, knowing one is sponsored by a bull market and backstopped by spendthrift electorates. Stocks? Peeing into the wind, one lost decade down, and a whole lot of years still to go. The s&p500 is down 31% since January 2000, and down 6% ytd, and you want to play that, akin to playing tag with a locomotive or soviet roulette with a automatic pistol. For mere mortals, thanks but no thanks, given the thankless nature of the odds. <<If jgbs hit .75%, why wouldn’t tnotes hit 1.75%?>> (4) Yes, sure, T-notes can most assuredly go to 1.75% and I reckon 0.75% is almost a sure thing. Trouble is that photo attached above. A doubling and tripling of already near-nothing debt-ly credit money meant fuck all to the argentinians and zimbabwans, and the same logic applies to the usa domain. Spoke to osk of Malaysia yesterday, and they say their bank in Cambodia offers 7 fat % yield. Anyone wish to be tee-ed up? Nice knowing anyone. T-notes going the way of japan is, absolutely, not a bullish trend, for it can and does mean one and a single thing, that the rot is spreading, cancer wasting, and the end-game is nearer even if 7 – 15 years away. The 7 - 15 years is the time we have remaining to provision the deep keep, stock up the citadel, and gather that which is only available in volume of 2 regulation sized swimming pools, noble gold, and aggregate that which is in store of 1 regulation pool proportion, strategic platinum. We must try our best and collect our fair allocation, relative to 7 billion spirits and 700 trillion of notional paper. In other words, 9 years down and perhaps 9 more to go, until well within defining process horizon and biblical event singularity. <<Equities: everyone has been bearish since 2009. we’re in the new normal but that doesn’t mean we’re looking for a 100 year flood every year. We just had one. Additionally, there are few who will need to sell equities if/when it crashes because ICI tells us retail continues to pull out of stock mutual funds for the past 2 years. Eg. I own zero traditional equity, except reits like analy mortgage.>> (5) I fear we did not experience the 100 year flood. What we saw was a mere leak from a punctured dam. The perfect storm of sovereign default, planetary nuclear fallout, and vaporization of middle class this way comes, at a most inconvenient time. <<Relative value: 1) Anyone visit Singapore lately and notice how expensive it is compared to a hk or tokyo? Tokyo is one of the most beautiful, cleanest, vibrant cities in the world and its great value now. Best dry powder skiing is in Hokkaido, imho.>> (6) Tokyo is Japanese, Japanese are silently but surely dying off. Want beautiful? Iceland is also beautiful. Clean? Stockholm is cleaner. Vibrant? Kabul rocks everyday. Dry powder? For what and what for? None of that has anything to do with life and living. We ought to engage with uproarious life expectancy, within environ of massage at the drop of a coin, where women behave as women and men can be men, all natural, and the only ones off limit are friends mamas, daughters and wives. Let me see, per the Beatles song, when we are 85, can no longer fend off drive-by shooters on the highway or agile enough to even park cars and scare off the boyz, do we really want to be in California? What are you thinking if you are? Think. Think again. Think thrice more. And I am gentle enough not to invoke the very nice weekly reflexology sessions ;0) and the daily #@$# should one be so inclined. <<2) schools as represented by hk intl school are so inferior as compared to most usa schools, in terms of sports and academics. Eg at hkis, there are 2 academic lanes.. normal and accelerated. In palo alto, there are 5 lanes. Our kids could not test beyond the lowest lane and had to catch up by taking summer school via private lessons. There are 2 soccer coaches at hkis. There are 5 at palo alto.>> (7) I do not know why you choose to compare a drug-and-roll usa style hkis to a palo alto school. The best part of hkis is over. Its top students these days are all mainlanders. Its American flavored kids can no longer rest on the laurels of the fading empire and currently, unless getting off their tush, are at the bottom of the roll, by all reports. I also venture to guess that 50% of the active members of the American club are Europeans and Asians. My guess is that any kids in these parts not engaging properly with mandarin will end up being sashimi in the new normal, and by that measure, sooner rather than later in engineering palo and science alto, it be just and only a gigantic wasabisabi serving Indian food. My daughter is not yet six, reads a lot and writes plenty in both English and Chinese, practices Wushu, taps on piano, chants tang poems, knows gold is the best money, loves lego (engineering), adores magic school bus (science), and plays well enough in monopoly. The isf education, accounting for tax regime and tuition, adjusted for safe commute and tallying up no-guns anywhere, is value-laden. Besides, HK math education is second to finland and third to none in the known universe. There was a bit of fluff published recently about how English shall remain the dominant business and science language, about which I agree with and am thankful for. The same fluffy author went on to suggest that the top scientists and ip-generators shall remain English-only / English-primary speakers, to which I say rubbish. Ip generation cannot remain independent from manufacturing and application, and day to day, a scientist able to engage with multiple languages will always kick the behind of scientists of single language platiform, just as a multi-discipline engineers or a renaissance scholar would always ball-crater the merely trained and just read. <<3) have you tasted the water or smelt the air of hk or asia lately? Try coming to palo alto where the air is pristine blue and water from sierra mountains taste sweet>> (8) Yes, it taste good, like enterprise, especially when shipped from france; and smells fine, like diligence, particularly if humid. Want pristine air? Try New Zealand, they do not have gangs shooting at clans. Want sweet water? Try Bocari Sweat. <<4) have you bought wine from Costco usa? A bottle of almaviva, probably one of the better cabernets which costs us$120 at hk airport is $65 at Costco here. This bottle rivals any wine at any price. I can buy cases of it without any guilt and bbq my organic beef knowing its not tainted from china.>> (9) Who in his right mind would buy wine at either Costco or HK airport? You are supposed to acquire wine from the likes of IWM iwm.com.hk inexpensive, fine, selected, vetted, beautiful, and delivered. <<If hkma can intervene and buy hk shares directly in 1997, why cant the fed buy $2Tln worth of made in usa stocks?>> (10) Fed can, and I am counting on it. The trouble with shares is that they are shares of business and equity of enterprise, that which is being destroyed by the fiat money inflation which had been and is called upon to save them. Player 3, S&P500 dropped 31% in 10 years and 6% in 8 months, and the money in which they are valued went into a black hole from which light does not escape. I would be even more bullish on gold if the FED promises and enables another 20 trillion. Wake up to the truth, that fiat money inflation has been and shall continue prove to be a nightmare, inception-like, layer after layer and year after year, per history since primordial times during which gold, at all dire junctures, ruled. <<Why stop at $700B tarp money targeting banks? If the empire is at risk, I don’t doubt Bernanke has other arrows in his quiver.>> (10) Good. Counting on it. Bring it on. No mercy, minus the regret, and allow absolutely no quarter. My faith is strong and I wish to be tested. <<I do hope s&p gets to 750 because I love 50% off sales. Double happiness: player 2 gets his bear call right and I get my bargain.>> Between the S&P morbid and frog-boiling action and the searing burn of the USD, S&P500 is down from 4.23 troy ozs to 0.86 troy ozs, or down 80%. My guess is that it would go to 0.8 tro ozs, or 98% down from eop 2000 reckong. Admonition, that the last halving is the most painful. Besides, gold is young player 3: I m glad that I was able to change ur mind on gold? Btw, if u wish to enjoy your mountain of gold in ur ripe old age, drink lots of green tea, full if anti-oxidants to keep away the shenzen pollution which hit new records back in June when I saw u? :-) player 5: Hk life expectancy is second only to japan and third to none, just as math education is second only to finland and third to none. We must not argue with the numbers even as we are tempted to challenge fate. Green tea? I do that, alternating with coffee days. Pollution? Live long and polluted, not a problem. Live short and clean, big problem. ... to be continued in next post Message 26784586

To: pezz who wrote (65796)	8/28/2010 7:50:24 PM
From: TobagoJack	Read Replies (2) \| Respond to of 217615

... continued in / out trays Message 26784585 player 6: Hello Jay, today is a beautiful Saturday morning here in San Diego, part of the bankrupt State of California. There is no rain, just the normal mild sunny summer day. One cup of Peet's coffee down, one more left in the thermos. The mind is clear is and ready to think about gold, bonds and TEOTWASKI. What dawned on me is the obvious. For the next few months, Bernanke is going to be doing some insanely stupid acts mislabeled as monetary policy. His ego is not going to allow economy failure on his watch. Then there is the election. The democrats are going to match Bernanke on the fiscal side with Xtreme stimulus, especially if it appears that they are going to lose more seats than expected. If the republicans gain strength, the market is going to view that as HOPE, the same message that got Obama into office. In either case, the market is likely going to be supported by these promises and unlikely to tank. That scenario makes shorting a dangerous strategy. As for interest rate in general, the mounting global sovereign debt and inability to repay resulted in a three horse race. Who will blow up first, the yen, the euro or the dollar? Under these conditions, why do I want to make "money"? (defined as paper with some number printed on it and the face of some dead person) Should we all be calling Tulving? tulving.com player 5: yeup, why wager when the rules of the game is not even clear? what is the upside? what would the wins be worth? beautiful sunday morning did the hawaiian luau bbq last night delicious piggies before that, did powwow amongst the boyz re women's underwear and world's heat exchangers wonderful piggies jack the tiger cub is starting to look seriously at his surroundings, 5 minutes at a stretch he is able to turn his head from the glint of his sharp eyes he sense intelligent awareness reminds me of the young velociraptors in the jurassic park movie as they hunted through the kitchen, looking for sashimi re portfolio allocation and the state of is, i believe contexts may act to separate the galant adventurers from the toiling peasants if i need x to live, have an active but non-money management related active income of x, and have a portfolio of 100x, in the current circumstances i am happy to gear the portfolio to most likely earn 2x and if lose, lose only 1x; whereas in the "water is warm and visibility is 1 kilometer and no sharks anywhere" times i may gear the portfolio to earn 15x or 20x and prepared to lose 5x. under the circumstances we have been in since 2000, gold had temporarily shone as an investment, as opposed to simply shining as a faith, and going forward, my sense is that at some juncture gold would do another phase change, transforming from investment allocation to a speculation desire, and when so, we can start to unload. i am certain i would be able to write tomes on the ill of gold to scare myself :0) amen 1999 Dec 31st USD 288/oz 2000 Dec 29th USD 274/oz -6% 2001 Dec 31st USD 279/oz +3% 2002 Dec 31st USD 348/oz +25% 2003 Dec 31st USD 416/oz +20% 2004 Dec 31st USD 438/oz +5% 2005 Dec 30th USD 519/oz +18% 2006 Dec 29th USD 638/oz +24% 2007 Dec 31st USD 833/oz +31% 2008 Dec 31st USD 889/oz +7% 2009 Dec 31st USD 1,095/oz +23% 2010 Aug 27th USD 1,238/oz +13% player 7: ft on gold... The true value of gold By Ellen Kelleher Published: August 28 2010 00:23 \| Last updated: August 28 2010 00:23 The Baird & Co warehouse sits in a dreary business park, half a mile east of London’s City airport. A black Mercedes and a blue Jaguar near the entrance are the sole touch of glamour. Step inside, and men in overalls are fashioning medallions, bars and rings from molten gold, purified in vats next door. EDITOR’S CHOICE Why we’re all marketers now - Aug-28 The seven secrets of a happy life - Aug-28 Chile six months since the earthquake - Aug-28 From an office upstairs, Tony Baird, the company’s managing director, and a former coin dealer, presides over the hubbub. “Gold is stable,” he says. “It’s the value of money that goes up and down.” Baird & Co sells gold to everyone from pension funds to jewellers, and as the MD says: “Our machines can’t work fast enough these days.” Demand for gold has risen since September 2008, when the financial crisis began roiling the markets, following the collapse of Lehman Brothers. Investors may have lost faith in paper money, but by June this year, $81.6bn was stored in gold-backed, exchange-traded funds – more than eight times the amount invested in March 2006. Meanwhile, the Rand refinery in South Africa, which produces the world’s most popular gold coin, the krugerrand, has been forced to increase production to keep up with demand. And in May, the Austrian Mint sold 238,000oz of its Vienna Philharmonic coin, a six-fold increase in a year. . . . All the talk of gold infuriates some investors. They argue it is too expensive, and its price could drop sharply if the hedge funds and asset managers with the largest positions in the market sell. “There is so much hype attached to gold mainly because it’s perceived to be a safe haven,” says Patrick Connolly, an adviser with the Bath firm AWD Chase de Vere. “But it doesn’t give off income and the price is very high and depends solely on demand and supply. We are nervous of investing in any asset class that has risen so much in value.” But a cadre of loyalists claim that gold offers a hedge against both inflation and deflation, and is a store of value when equity and bond markets fall apart. Their enthusiasm ranges from mild appreciation of gold’s ability to outperform in a downturn to more zealous admiration. One thing some “gold bugs” do not buy is the idea that gold is too expensive; in fact, they argue that the price would be much higher were it not for the manipulation of the market by central banks and bullion banks, which handle government trades. “This price suppression is a scandal,” says Bill Murphy, founder of the Gold Anti-Trust Action Committee (Gata). “And it’s going to be huge when it is exposed.” Since 1999, Gata, one of many gold bug organisations promoting conspiracy theories, has fought to pull back the curtain on the gold market. “Gold is the economy’s thermometer,” says Murphy, “and every time its price goes up, it’s bad for banks, for Wall Street and politicians. So it’s in their interest to keep it down.” Murphy is a rangy man in his mid-sixties, who enjoyed a short career as a wide-receiver for the Boston Patriots, the American football team now known as the New England Patriots, before he surfaced on Wall Street. Here, his experience was a riches to rags story. “I made a fortune in copper, then lost it,” he says on the poolside veranda of the Raleigh Hotel, in Miami’s South Beach. He also runs a website aimed at gold bugs, Le Metropole Cafe (www.lemetropolecafe.com), with an annual membership fee of $299. It is from this electronic pulpit that Murphy argues that the cost of gold should rise, due to the instability of the world economy and markets. “There hasn’t been an independent audit of US gold reserves since 1955,” he says. “Don’t you think that’s a bit suspicious?” Murphy is not alone in calling for a public audit of the gold supplies held by central banks and the International Monetary Fund (IMF). Ron Paul, a Republican congressman who ran for president as a Libertarian candidate in 1988, has been calling for an audit of the gold held by the US Federal Reserve since 1982, when he served on the US gold commission – set up to examine the role of gold in the monetary system. “We were in a financial crisis and inflation was high,” Paul recalls. “But the Federal Reserve wasn’t interested. I remember Paul Volcker [then president of the Federal Reserve] walking into a room in 1980 – at the height of the financial crisis, when gold went up to more than $800 per ounce – and saying, ‘What’s the price of gold?’” According to Paul, “Everyone knows a high gold price is a vote of no-confidence in paper. That is why governments will manipulate and try to give you an artificial price for gold.” In his book Gold, Peace and Prosperity, Paul decries the end of the gold standard – the practice of backing currencies with a fixed weighting in the metal, which took many forms through history. President Nixon brought an end to the gold standard in 1971, as part of his attempt to overcome the strain of funding the Vietnam war and the US’s mounting trade deficit. Paul thinks the system of fiat money facilitates “governments’ attempts to inflate, control the economy, run up deficits and fight senseless wars”. He worries, too, that both the supply of paper money and government debt levels are spiralling out of control. “My beef is with the paper money,” he says. “All the problems we’re having today were destined to happen. Gold plays an important role in the monetary system because it restrains government spending.” Without it, Paul argues, central banks have the power to print money without pausing to consider the consequences, and more impetus to spend it. While they refuse to rule out the reintroduction of the gold standard if economic Armageddon descends, a clutch of economists contacted by the FT are quick to poke holes in Paul’s ideas. “The basic problem with the gold standard is that fluctuations in the demand and supply of gold destabilise the price of everything else,” explains Ken Rogoff, a Harvard professor formerly in charge of research at the IMF. “The only countervailing advantage is that gold arguably provides a better anchor for long-term price stability.” However, even Rogoff believes we are witnessing an international scramble for gold. Gold reserves have long been a measure of wealth, and shifts in the location of the world’s biggest deposits testify to the fierce economic wars the US and Europe are waging with China and India. The US still possesses the most gold, according to the World Gold Council, with 8,133.5 tonnes – about 70 per cent of its foreign currency reserves. Germany is in second place, with 3,407 tonnes. Then comes the IMF (which is selling more than 160 tonnes on the market) with just under 3,000 tonnes; Italy, with 2,451.8 tonnes; and France, with 2,435.4 tonnes. Russia, which went on a buying spree last year, has 668 tonnes. The UK, meanwhile, has just 310 tonnes, and the European Central Bank 501. And what of China? It now produces more gold than any other country, but ranks only eighth on the list. However, since 2003 it has increased its gold reserves from 400 tonnes to at least 1,054 tonnes, by quietly buying from domestic mines, and made moves to liberalise its gold market ¬further. These include increasing the number of banks permitted to trade ¬bullion internationally and announcing measures that will encourage development of gold-linked investment products. The changes come as the ¬country’s investors continue to pour record amounts of money into gold. Last year, Chinese investors bought 73 tonnes of bullion, up from 18 tonnes in 2007. The view on Wall Street and in the City is that China still buys gold from domestic mines as it must bulk up on the metal to diversify its portfolio as the size of its foreign reserves increases. “It would cause quite a stir if China came into the international market and tried to buy big amounts of gold,” surmised one strategist. “But we still think they’re ¬accumulating gold, just not on the international market.” Other countries are likely to take action as well. According to Rogoff, “Emerging market central banks will probably want to raise the share of gold in their foreign exchange reserves, bringing them closer in line with advanced country central banks.” In part, Rogoff explains, this is because the shift from an over-reliance on the dollar to currencies such as the euro is not “sufficient diversification against the risk – which is low, but certainly non-trivial – of a generalised global inflation”. . . . It’s not just central bankers who are looking to acquire gold. ¬Private bankers are on the hunt as well. Take Adam Fleming, for example. The nephew of James Bond’s creator Ian Fleming, and heir to the Robert Fleming Holdings fortune (the family’s merchant bank was sold to Chase Manhattan Bank in 2000 for $7.75bn), Adam also professes to be a gold bug, and an occasional supporter of Gata’s causes. The great-grandson of Robert Fleming, a Dundonian who made his fortune investing in US railroads following the American Civil War, Adam Fleming joined the family business in 1970, honing his interest in mining in Johannesburg. He opened offices for the family business across southern Africa and served as chairman of Harmony Gold Mining, after its acquisition of Kalahari Goldridge Mining. Over tea at the Fleming family’s private bank just off Trafalgar Square, he bemoans the opacity of the gold market. “Gold and silver are the DNA of currency,” he says. “When the chips are down, precious metals are the only fungible currency.” Fleming believes we are seeing gold begin to reassert itself in real currency terms. “The levels of paper money have reached an extreme never seen before,” he says. “I worry about the markets.” Fleming also argues that it’s in the interest of governments for gold markets to remain somewhat opaque; that today’s system of fiat money rests on keeping much of the inner workings of monetary policy secretive. “Politics and gold are uneasy bedfellows,” he says. “And politicians like to control their currency.” Fleming is critical of Gordon Brown’s decision as Chancellor, in 1999, to sell more than 400 tonnes – about half – of the Bank of England’s gold reserves in a series of auctions and buy foreign currencies. The move was controversial, as the gold price hovered around an average of $275 an ounce, and it met with considerable opposition from the Bank of England. “It was an astonishingly imprudent mistake,” Fleming says. According to Fleming, manipulation of the gold market by governments is nothing new: he argues that it occurred as early as the mid-1930s, when Franklin Roosevelt forbade private gold ownership, apart from ¬jewellery. As for Gata’s hypothesis that central banks still engage in covert manipulation of the gold market, he feels that all currencies, not just gold, are regularly manipulated by the monetary authorities. . . . The recent rumours of manipulation first arose in 1998, following the collapse of the hedge fund, Long Term Capital Management (LTCM). One tale sent into cyberspace by Gata was that LTCM was short of more than 400 tonnes of gold at the time of its implosion. Gata questioned, too, whether the gold auctions the Bank of England arranged in the wake of that collapse were orchestrated to aid bullion banks’ efforts to cover gold short positions. LTCM, however, denied the allegations. LTCM’s former lawyer James Rickards later told the Financial Times: “Gata raised this in 1998 out of thin air. It fitted their paradigm that central banks always and everywhere manipulate the gold market. As counsel, I wrote a letter including a sworn affidavit from a principal, rejecting the allegations and demanding a retraction. They printed the letter as ‘proof’ of the gold conspiracy. I gave up at that point because I realised they were not persuaded by evidence and I did not want to engage further.” With hindsight, it is clear that Gordon Brown’s decision to auction off such a large chunk of the UK’s gold reserves at such a low-price was ill-advised. But the official aim of the programme was to shift more of the reserves into foreign currencies and other assets which bear interest. A report on the sale of the gold reserves conducted by the National Audit Office in January 2001 concluded that the auctions were “conducted according to current notions of best practice” and emphasised that central banks in Canada, the Netherlands, Switzerland and Malaysia disposed of gold around the same time. “The overall aim was to restructure the UK’s reserve holdings to achieve a better balance in the portfolio by increasing the proportion held in currency,” the auditors wrote. “The decision was taken against a background of a decreasing market value of gold, which over the last 20 years has fallen from a high of $850 per ounce in January 1980 to an average annual price of under $300 per ounce since the start of 1998.” Many economists are also quick to pick apart Gata’s hypothesis that attempts at market manipulation are suppressing the gold price. “Gold is a vast market, and it’s not subject to national boundaries,” says Jeffrey Nichols, of American Precious Metals Advisers. “How it could be manipulated and still have risen so much over the past decade baffles me. The idea strikes me as almost ludicrous.” Martin Murenbeeld of Dundee Wealth Economics is more succinct. “It’s bunk,” he says. “It’s a massive conceit on the part of gold people to think that gold is so important that the Federal Reserve and the president of the United States are out there manipulating the gold price.” They may be bunk, of course, but such conspiracies only add to gold’s mystique. And the whisper campaigns attract a sizeable congregation at Bill Murphy’s Le Metropole Cafe. “There are still plenty of deluded individuals sufficiently conditioned by governments and the mainstream media that they believe that the gold market is free and fair,” wrote Gata supporter Paul Mylchreest in Thunder Road, his internet newsletter. And even those who take a sceptical view of Gata still appreciate that the law of supply and demand could support the gold price, which hovered around $1,220 this week, for some time to come. The volumes being extracted by miners in South Africa, Australia, China and the western United States are falling. At the same time, central banks, pension funds and people on the high street are badgering bullion dealers for more. . . . The rising price of gold also coincides with public disaffection with our governments’ inability to resolve our difficulties. Poor economic reports keep rolling in. George Osborne has asked UK government departments to outline cuts of up to 40 per cent, in one of the toughest spending squeezes of any advanced economy in recent times. In the US, fewer jobs than expected were added to the payrolls in July, while Ben Bernanke, chairman of the Federal Reserve, has said he believes the ¬Federal Budget is on an “unsustainable” path. Looking ahead, the world may be entering the second leg of a W-shaped recession, sinking again just as we thought the economy was set to improve. It is not surprising, then, that people are returning to gold. Arguably, buyers’ interest is not so much a vote of confidence in precious metals as a lack of confidence in central banks and governments. We may be witnessing nothing less than a populist uprising against the financial system. Maybe it just comes down to, as a Financial Times reader pointed out in a letter to the editor last month (July 6), whether you can trust politicians and central bankers. He quoted George Bernard Shaw: “You have to choose between trusting the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And with due respect for these gentlemen, I advise you… to vote for gold.” Ellen Kelleher is an FT personal finance writer player 5: correction: gold does earn a wonderful yield, just trade options around the core position. the more volatility stomached, the higher the yield, especially if one can deal with gdx and its options simply one big macro gaming. platinum, given its industrial use, has a more honest lease rate the extent of gold contortion is, imo, evident in the magnitude of differences of rates between gold and silver vs platinum and palladium, after factoring out some premium for industrial use kitco.com when paper everything blows up, i would like to have some physical silver on hand, that which is most manipulated i am fundamentally an optimist, else i would have a life time supply of canned food near at hand player 8: lol!!!!!!!!!!!!!! hilarious. and true. finally, a succinct and plotted outlook. you are, after all, practical. i'm looking at ranches now (yet again). they are starting to fall in price. but i'm in, yet, no hurry. deflation is still a friend. and someone has to be here to pick up a few bits left from team usa's scorched earth policy.