We’re Seeing History Being Made In The Gold & Silver Markets

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/8/15_Were_Seeing_History_Being_Made_In_The_Gold_%26_Silver_Markets.html

Rule - This Is What I Am Doing With My Own Money Right Now

Rick Rules nails it.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/16_Rule_-_This_Is_What_I_Am_Doing_With_My_Own_Money_Right_Now.html

China National Gold Seeks Africa Investment as Bullion Trades Near Record

When the Chinese can't buy physical, above-ground gold bullion ounces without driving up market  prices, they buy future, below-ground productive capacity by acquiring mining companies.

http://www.bloomberg.com/news/2011-05-30/china-national-gold-seeks-africa-investment-as-bullion-trades-near-record.html

Expect Chinese Acquisitions of Mining Companies

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/5/20_Hathaway_-_Expect_Chinese_Acquisitions_of_Mining_Companies.html

Obama Administration calls for 5% royalty on gross proceeds of mines

Great--now the Obama Administration is going after one of the last profitable industries left by levying a 5% tax on the gross proceeds (which is more painful than a tax on net profits) of mining companies.  Why don't they just tax all companies 100%, kill all job-creating enterprises, and just call it a day?

http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=120691&sn=Detail&pid=72068

Guess what, geniuses?  This will only drive miners out of the US--or out of business.  Guess what that does to the price of the natural resource?  Folks, this country's productive capacity is toast.  Sell your SUV and learn how to ride a bike again.

Gold takeovers

Mergers and acquisitions activity is perking up among gold mining companies, as gold prices remain at elevated levels.

http://www.bloomberg.com/news/2010-08-03/gold-takeovers-reach-record-as-bullion-climbs-boosting-bmo-hsbc-merrill.html

Bullion is outperforming mining stocks

http://bmgbullion.com/doc_bin/WhyBullionisOutperformingMiningStock.pdf

Gold is the anti-currency

In an era of fast money and currency destruction, bullion is real money. Central banks are buying bullion, hedge funds and other institutional investors are buying bullion. And the world’s largest creditor – China – is diversifying out of dollars and buying bullion.

“When the price of gold moves, gold's price isn't moving; rather it is the value of the currencies in which it's priced that is changing.”

– John Tamny, economist, H.C. Wainwright Economics

Most investors’ portfolios are heavily weighted in currency-denominated financial assets (stocks and bonds), but few comprehend the extent of their purchasing power loss. The numbers in Figure 5 may help put things in perspective: in the past ten years, the US and Canadian dollars, the UK pound and the euro have, collectively, fallen more than 70 percent in value if measured in that universal unit of money, gold. In effect, investor portfolios have lost 70 percent of their purchasing power. Currency destruction, while it is accelerating, is by no means a recent event, however. Since 1913 (not coincidentally the year the US Federal Reserve was formed) the US and Canadian dollars have lost a staggering 96 percent of their value. Is this trend likely to come to an end? Not in the foreseeable future.

At the end of 2009, America’s total debt was approaching 100 percent of GDP, but most investors are unaware of another, far bigger burden: trillions of dollars in unfunded liabilities for Social Security, Medicare and Medicaid. Money the government promised to taxpayers for Social Security has instead been borrowed for its own use. Money the government promised to fund future Medicare and Medicaid benefits and military/government pensions has not been set aside at all. Richard Fisher, a member of the Federal Open Market Committee, believes total US debt – including Medicare and Social Security – is over $122 trillion (Figure 6). This is more than $390,000 for every man, woman and child in the US, and the number keeps rising.

“Fiscally, we are in uncharted territory. Because of this gigantic deficit, our country’s ‘net debt’ is mushrooming… no one can know the precise level of net debt to GDP at which the United States will lose its reputation for financial integrity.”

- Warren Buffett, Chairman, Berkshire Hathaway

Sprott on CNBC

http://www.cnbc.com/id/15840232?play=1&video=1469756672

The irony with some of the advertisers in the video segment is hilarious. An Arabian airline and HSBC, one of the big bullion banks engaging in price suppression of precious metals at the LME and COMEX. And an interview with Eric Sprott, the penultimate gold bug.

It is also ironic that a gold bug is on CNBC, the financial network shill for Wall Street. To those that know me well, this made my day.

Australian perspective on gold

http://www.moneymorning.com.au/20100329/china-buys-gold.html

It's instructive to roam outside the US to get a worldwide perspective on asset values. Australia's central bank just raised their interest rate for the fifth time in six months, in attempt to dampen inflation as their economy recovers. Nice problem to have, huh?

The Chinese are now the world's largest producer of gold, and the Chinese government is gobbling up available output--domestically and offshore, either via direct purchase or through investments in mining companies. Due to ramping up of their domestic production levels, their reserves will be kaput in 2016. Meanwhile, they are encouraging their citizens to consume gold, after repealing the ownership ban in 2001. Sure sounds like they are counting on their citizens to be the next source of gold when there's none left in the ground.

A hunch...

Shares in gold and silver mining companies are surging higher today, even though the spot price of gold bullion has increased moderately. We'll see if this is a precursor to higher prices for both. See disclaimers on sidebar.

Disclosure: long precious metals and mining companies.

Jim Cramer jumping on the gold bandwagon

Jim Cramer of CNBC's Mad Money was praising gold's all-time new highs today, as well as a couple gold mining ETF's. Which caused me to pause, as he's been bashing the shiny metal for a while. To his credit, I believe his trust fund owns Agnico, a gold miner.

Could this about-face be the death knell for gold's ascent? Perhaps a correction is in order, and I did take a little profit off the table yesterday. Cramer has been a good contrarian indicator, as I believe most of his calls are wrong-way bets (sorry, Jim, but your track record is questionable), but that doesn't mean gold will stop climbing in price. A correction is expected after recent surges, but the secular bull market for gold since 2001 is still intact, in my opinion. In which case, I'm with Cramer on this one. Booyah!

As long as central bankers worldwide are accomodative with low interest rates and stimulative monetary policies, gold has nowhere to go but up.

I started buying gold and silver coins and mining shares last November, gradually adding to my holdings ever since on dips. With the exception of one, all the mining shares have appreciated triple digits since then, yet Cramer is only now touting the yellow metal. Curious, but predictable.

Does this mean I will exit all my precious metals holdings? After all, as a contrarian, you want to bet against the extreme majority. When sentiment gets too exuberant, you sell. Likewise, when there's blood in the streets, you buy. In other words, has the trade become too crowded? Absolutely not. Because even though some people are now understanding the logic behind holding precious metals as an inflation hedge and as a reliable store of value, very few have acted on this knowledge. I would argue most people don't understand the value of gold--or just have a distaste for the yellow metal. Most won't jump aboard until the mania phase kicks in at much higher prices, when everyone and their brother will be recommending gold as a speculative bet, without understanding its intrinsic role as a means of preserving purchasing power.

The prudent strategy is to sell into that mania--not buy into it. The parabolic rise in gold and silver prices probably won't occur for a few more years, the normal lag time behind an increase in the money supply. Inflation usually doesn't kick in until these massive liquidity injections eventually flow through the economy via bank lending. But then again, we are in uncharted territory. This is a monetary experiment run by mad scientists at the Fed and US Treasury. No country has ever printed so many trillions of dollars so quickly.

An orderly decline of the dollar will cause a steady climb in gold and silver. But should there be a run on the dollar in a currency crisis, the mania phase in hard assets will go into high gear almost overnight.

See disclaimers on the sidebar.

Disclosure: long gold and silver, and long gold mining shares.

Water shortage

Driving down Interstate Freeway 5 (I-5) through California's central valley, dubbed the bread basket of the world due to its rich farmland, I noticed some peculiar signs next to miles of browned-out fields, due to lack of irrigation. One sign seemed to be reasonable: Food Grows where Water Flows. But then the signs became increasingly hostile: No Water = No Jobs = No Future. The last one was a clincher: Congress Created Dust Bowl.

I had earlier purchased a water utility, and methinks a more comprehensive water play is in the cards, whether it's desalinization, pumps, filters, or water purifiers. Warren Buffett's Berkshire Hathaway made a large investment in a water company earlier this year. Not only is the drought causing supply disruptions, but demand is increasing due to population growth and industrial use. For instance, mining companies have been especially active with the Chinese hoarding natural resources, and drilling activities utilize massive amounts of water.

Do your part and conserve water--it ain't free. Oh, and by the way, obtaining a core holding in wheat, corn, and soybeans wouldn't be a bad idea either. Crop yields are diminishing this year due to droughts and floods. Yields were at all-time highs last year, and we still experienced food shortages.

Disclosure: I recently sold out of my commodities holdings, but investigating a re-entry point. I am currently long one water utility.

What to do going forward (part 2)

While I will agree with you on the metals play, you jumped in a bit early (not a sin), as hedge funds are unloading everything to raise cash--stocks, bonds, commodities, their first-born, etc.You're down 10%, but again, not a sin.

What I do object to is your recommendation of speculative mining stocks. Some of these junior mining companies could run out of cash unless the coming boom occurs soon, which it may or may not. An investor would lose all or much of their investment (cash-poor mining stocks sometimes agree to be acquired, albeit it at a low price). It would suck to make the right call on the direction of metals, and but lose money because the mining company ran out of cash. So yes, on mining companies with cash, no on the speculative plays.

I do like your call on coins and some of the larger gold and silver mining companies--as long as they earn a profit and are well-capitalized (have lots of cash).

As for peak oil, that call proved to be disastrous--or really early, as there has been demand destruction due to a worldwide slowdown. An alternative energy play is natural gas MLP's, which are currently yielding double-digits (all-time highs). Their prices have been battered, but I like the bigger ones who are paying out dividends to unitholders, as they must from positive cash flows. I don't mind waiting for a turnaround if I can earn 20% on my money--most of it tax-deferred. Crude oil is sensitive to the worldwide economy. Natural gas is less sensitive to the transportation and manufacturing industries. However, people need to heat their homes, and cook their food. And more fleet vehicles are being converted to natural gas, as it burns cleaner. But like I said, earning 10-20% is better than earning 1%. When energy prices do recover, these MLP's will appreciate as well.