Wednesday, February 29, 2012

Gold’s Purchasing Power

When it comes to gold the main focus seems to be upon its value as an asset but there is another important factor about gold worth considering and that is its purchasing power.

People usually buy gold to protect their assets. Converting currency into gold means that you can keep your asset value, instead of watching it erode away with inflation. The current desperate attempts to handle the financial crisis of too much debt by printing more money to reduce the value of each dollar and so the debt does nothing for the asset value of currency. A dollar is worth next to nothing today compared to its value say 20 years ago. That does not matter some might say as ones income rises to match but if one investigates the true value of the dollars purchasing power 20 years ago compared to today it can be seen that it takes more dollars to buy the same goods and services as it did 10 or 20 years ago far in excess of the amount of dollars to purchase those same items then.

An example is a good quality gentleman’s suit. To buy such a suit 20 years ago would take perhaps the average weekly salary of a worker. Nowadays it might take up to two weeks salary to buy that same suit. A definite deterioration on the value of the dollar and on the living standard of an average American.

Meanwhile back at the gold ranch no such deterioration has occurred. That same gentleman’s suit 20 years ago could be purchased for one ounce of pure gold. This has not change one iota when it comes to the value of gold. These days one ounce of gold will still buy the same gentleman’s suit now as it did 20 years ago.
The same goes proportionately for bread, eggs, milk, water, gas and the myriads of other items we buy that makes life so comfortable.

Each year the cost of living index rises at least 3 and sometimes more percent. Meanwhile interest rates are falling and the two produce a negative gain (if there is such a thing) and this means it takes more dollars to buy the same goods and services as you purchased the year before. In other words, the purchasing power of currency deteriorates while gold’s purchasing power does not. Gold keeps its value come what may.

Gold’s purchasing power, then, gives us another good and sound reason to buy gold, not only to preserve our assets, but also to maintain our spending power for the necessities of life.

Sunday, February 26, 2012

Best place to store gold

Where is the best place to store gold I am often asked.

That can depend on a few factors. How secure do you want the storage to be? How convenient and easily accessible? Importantly, how much will it cost?

Storing gold at home or in the office can be a problem; Gold is heavy and awkward to move around. If you have a lot of it then you need a security firm to cart it around for you and some where safe to store it. Taking a few bars of purchased gold home in a car and storing it in an attic or basement is not the way to go. Most unsafe and no insurance company is going to insure such a valuable commodity under those circumstances.

One country that is opening its door to easier storage of gold is Singapore. Singapore is a major international finance centre and is going through an expansion in terms of a place to invest and do business in Asia. Possibly due to its low regulations, corruption (I wonder if there is a correlation between the two?) and the tax structure being more friendly to businesses than the overbearing western systems.

Currency buying gold in Singapore carries with it a 7 percent GST (Goods & Services Tax) except at the Freeport facility near the Airport.

However the Singapore government has just released the next budget documents and this included waiving the GST on investment grade gold and silver among other precious metals.

Together with good prices for gold and good storage costs, this will place Singapore up with the best of them in terms of less cost at purchase from the 1st of October when the budget is introduced.

In addition the Cisco Certis secure storage facility, is highly secure, fully insured, and you can get a secure box for as little as around 77 USD per year.

Storing gold overseas can be a smart strategy for anyone interested in international diversification, particularly if you are worried about potential gold confiscation.

Another excellent place to store gold is with GoldMoney. Here the gold is actually stored for you in places around the world from London to Switzerland to Hong Kong. With GoldMoney you hold and own the allocated metal in your name, in contrast to ETFs and certificates. Gold Money maintains a one-to-one ratio of metal in the vault and their database. It is easy to buy gold and store it this way. One simply opens a holding account, funds it with enough money to buy the gold and then buys the gold from GoldMoney who then store it in the country of your choice. London, Switzerland or Hong Kong. It is fully insured, audited and. One can 'draw' on any quantity of the gold anytime by simply selling the quantity you want to sell back to GoldMoney and taking the cash. This means you do not have to cash in all your gold. You can also buy any quantity of gold anytime.

There is a storage fee but when you consider the safety and security, not to mention the convenience and value of your asset continuing to increase, it is a small price to pay.

When you buy gold it is important you have the best place to store gold for your future and to protect your asset.

Friday, February 24, 2012

Gold Poised to Hit Highest Ever

Gold is poised to hit the highest ever according to some analysts and it is expected to climb to new heights before the northern hemisphere summer begins. Helping it along are a number of factors.

Gold demand is escalating around the globe from private citizens to big banks to countries even

world wide gold demand rose in 2011 to a massive 4,067.1 tonnes, worth an estimated US$205.5 billion The highest tonnage level since 1997, according to the World Gold Council's Gold Demand Trends. Of that, 1,703 tonnes (41.8%) came from China and India. A record breaking year for gold demand.

As the financial turmoil continues this is set to increase yet again this year. The continual monetary stimulus will not stop with Japan and the UK now going ahead with their ‘quantative easing’ plans and the Eurozone will continue to inject wet off the presses paper money into Italy, Greece, Portugal and Spain.

Public interest and perception has changed markedly and gold bullion, coins and jewelry are undergoing surge of interest and gold buying as never before seen.
And whereas ten years ago less than five percent of money managers would even entertain gold as an investment being a "non-productive asset class," we have now fourteen US states legalizing gold, and silver, as currency in commercial transactions.

Billionaires, no slouches when it comes to the smell of profit, are buying gold by the tonne. Billionaire hedge-fund manager John Paulson has warned investors to buy gold now, before it surges yet again.*

Some US Politicians, seeing the writing on the wall with the massive and totally unsustainable debt, are now looking at a gold standard and asking themselves, "should we return to a gold standard."

Gold has often been held up as a non investment due to the fact one does not earn interest on gold. This argument pales into insignificance when you consider that interest rates globally have fallen to a 20 year low and earning a fixed rate of interest of less than 2 percent while the CPI is around 3 percent means one is loosing money!

U.S. Federal Reserve has virtually guaranteed that interest rates will remain low for the next two years plus there is even federal talk of having reverse or negative gain on treasury bonds.

This makes gold a positive boom on investment since:

1. Gold does not deteriorate in value
2. Gold buys more currency each year.
3. Ones assets are retained.

Now is probably the best time to buy gold before the next surge upward and onward. After all you want to retain the value of your assets don’t you?


Thursday, February 16, 2012

The Rise of the Gold Bugs

The gold bugs are rising. Even US states, nervous about the failing economy and heavily laden with debt, are jumping on the band wagon.

More and more states are looking at the Utah model of allowing citizens to pay their debts and trade using gold as an alternative to fiat money.

When Governor Gary Herbert signed a bill into law in March 2010, Utah became the first state to stick its neck out and introduce its own alternative currency recognizing gold and silver coins issued by the U.S. Mint as a legal form of payment. Under the law, gold and silver coins, including American Gold and Silver Eagles, are now treated the same was as U.S. dollars for tax purposes, eliminating capital gains taxes.

However, as the face value of some U.S.-minted gold and silver coins is less than the metal value (one ounce of gold is now worth more than $1,700), the new law allows the coins to be exchanged at their market value, based on weight and fineness.

13 states lawmakers including Minnesota, Tennessee, Iowa, South Carolina and Georgia, are looking to follow suit by currently seeking approval from their state governments to issue their own gold based currency.

"In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System ... the State's governmental finances and private economy will be thrown into chaos," said North Carolina Republican Representative Glen Bradley in a currency bill he introduced last year.

The US Constitution bans the states from printing their own paper money or issuing their own currency, but does allow states to make "gold and silver Coin a Tender in Payment of Debts."

“To the state legislators who are proposing state-issued currencies, that means gold and silver are fair game”, said Edwin Vieira, an alternative currency proponent and attorney specializing in Constitutional law.

"A Utah citizen, for example, could contract with another to sell his car for 10 one-ounce gold coins (approximately $17,000), or an independent contractor could arrange to be compensated in gold coins," Rich Danker, a project director at the American Principles Project and conservative public policy group in Washington, D.C stated.

And while we are on the conservative trolley Newt Gingrich has announced that he will institute a study of returning to the gold standard if he is elected.
South Carolina Republican Representative Mike Pitts has a bill proposing a currency system allowing people to use any kind of silver or gold coin , "whether it's a Philippine Peso or a South African Krugerrand based on weight and fineness. Pitts said in the bill, which currently has 12 co-sponsors, that the state is facing "an economic crisis of severe magnitude."

It seems the tide is turning. People will accept just so much waste paper for a currency that is digging a deeper and deeper hole of debt before they say enough!

Gingrich stated in a speech recently, "Hard money is a discipline. It is very important for us to understand in finance that the entire contraption that has been built up over the last thirty or forty years has so much paper in it, so much debt, so much leverage, that we probably have a fifteen- or twenty-year period of working our way out of it. And yet, the alternative is to get sicker and sicker and sicker."

Mr. Gingrich sent a signal that his commission would be different indicating the co-chairmen would be Lewis Lehrman, and James Grant, the editor of Grant’s Interest Rate Observer.

"The fundamental conclusions of a Lehrman-Grant commission to consider a gold standard may be foregone: We’re for it," Mr. Grant wrote in the latest issue the Interest Rate Observer.

The various states' proposals have also been gaining attention among Tea Partyers and Republicans, many of whom are also endorsing a nationwide return to the gold standard, requiring the U.S. dollar to be backed by gold reserves.

And the Tea Party "father" Ron Paul is sponsoring the "Free Competition in Currency Act," which would allow states to introduce their own currencies.

It seems a gold standard is not that far away after all.

Monday, February 13, 2012

Buy Gold in Vietnam

A Vietnamese sociologist once said, "Empires may fall, currencies may change. ... Gold will always survive."

It is easy to buy gold in Vietnam. In fact it is almost de rigueur. The Saigon Jewelry Company (SJC), a government owned company, has a monopoly on Vietnamese gold bars manufactured in Vietnam.

Pure Swiss 999.9 parts gold per thousand is used in these gold bars. How to buy some of the best and purest gold bars? Well there is a SJC located in every major city in Vietnam from Hanoi to Da Nang, from Nha Trang to Ho Ch Minh City.

You can buy gold ingots, as the smaller gold bars are known, and these range from one gram up to twenty-five grams and can be bought over the counter.

For the Vietnamese, hoarding or keeping gold at home is far better than having cash in the bank.

In 2010 the country purchased more gold per capita than China or India with the domestic gold price outstripping the international gold price. According to the World Gold Council, domestic prices rose by 18 percent overtaking the international market's 11 percent increase.

And even though one ounce of gold costs about a hundred dollars more in Hanoi than anywhere else in the world, it is still considered more valuable than cash. A 60-year-old retiree, Truong Van Hue, stated, "I still like to keep my savings in gold. It's safe for retired people like me. I can sell the gold any time, anywhere, when I need cash."

This has a lot to do with Vietnam's 18 percent inflation rate and a unstable currency, the dong and financial measures initiated last summer include a decree that placed the gold bullion business of Saigon Jewelry Company, a dominant processor and trader, under the control of the central bank.

Many Vietnamese prefer to keep their savings in gold traditionally as well as due to the lesser interest rate offered by the banks. Poor returns in the real estate and stock markets and fears of a potential devaluation in the Dong later this year have also added fuel to the rush to buy gold in Vietnam.

"People have tried to control the damage by fleeing into gold," said Le Dang Doanh, a former senior government economist.

Vietnam's love of the yellow metal is centuries-old, rooted in a history of strife, warfare and want. "Empires may fall, currencies may change... gold will always survive," said sociologist Vu Duc Vuong.

According to Government estimates, between 300 and 500 tons of gold are privately held by Vietnamese citizens outside of the banking system and mostly in their own homes, the central bank governor indicated recently. Bank officials would like this gold to be placed in banks to improve leverage to stabilise the economy.

"If the profit is a little higher and the banks prove their credibility, I expect 80 percent of the public will deposit their gold," Nguyen Thanh Truc, CEO of the Agribank Jewelry Company pointed out.

People on Hanoi's Ha Trung Street, a hub of the busy gold trade, are sceptical of the government's efforts.

"They will make it a bit harder, but I believe there will always be ways to trade the bars," said Tran Hoang Long, a 40-year-old gold trader.

However, it seems likely that individuals will continue to buy gold in Vietnam to protect their assets regardless of the price in Dong.

Tuesday, February 07, 2012

Gold is better than US Treasury Bonds

Gold is better than US Treasury Bonds. The interest rate on bonds is currently anywhere from .60 percent to 3.6 percent depending on the bond, the maturity and other factors.*

The rate of inflation in the US is currently 3 percent according to government figures**

So the actual return on US treasury Bonds is anywhere from zero up to about 1 percent.

Now In a recent report to the Secretary of the Treasury from the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association, it was stated that, "It was broadly agreed that flooring interest rates at zero, or capping issuance proceeds at par, was prohibiting proper market function. The Committee unanimously recommended that the Treasury Department allow for negative yield auction results as soon as logistically practical."(bold added) ***

This means in effect that one would pay to lend money to the US government.

Given that, according to a recent article in Forbes, "The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years…", it means that if one owns treasury bonds, one’s assets in bonds would not so much fall as plummet. This may explain the Chinese determination to reduce their US dollar holdings and the steady build up of gold. China’s gold holdings doubled in 2011.

The estimate is the Chinese bought a massive 490 tons of gold in 2011 from just 245 tones in 2010.

In the coming years, the deteriorating US dollar will be worth a fraction of a cent and indeed the prospect of a wheel barrow of dollars to buy the groceries for the week is not as farfetched as it sounds.

It means also that gold is better than bonds. True holding gold bullion or coins does not make any interest, but at least it keeps its value and you can still buy the same bag of groceries with the same amount of gold now as you could many years ago, something that cannot be said for the dollar.

The catch phrase, 'Buy Gold' is coming into its own and now takes on a new meaning. People are buying gold like it is going out of fashion. Banks and institutions are buying gold. States and countries are buying gold. It’s time to protect ones assets.

Gold is, indeed, better than US treasury Bonds.


Thursday, February 02, 2012

Gold Price UP or currency DOWN?

Every man and his goldfish is offering predictions on how much the gold price is going to go UP in the coming year.

Lets take a new look. Let’s look at how much currency is going to go DOWN in the coming year.

For the gold price, in fact, does not change at all. If one could simply go out and buy goods and services with gold instead of paper money, one would use the same amount of gold to buy goods and services as one did say … fifty or a hundred years ago. The amount or quantity of gold one uses to buy the same goods and services has not changed.

The same cannot be said for paper currency.

Gold is not an investment that earns interest. The only way you can get interest on the basis of gold is buying some stock or shares in a gold mining company and getting a dividend each year based on the type and quantity of stocks or shares one has. For most people these days, buying gold and keeping it is based on the premise that it will be worth more later down the track than it was when it was bought. A reasonable assumption one might say.

But while the actual value, in terms of goods and services, does not change; or if it does it is a very slight change, what it DOES do is preserve the value when the generally agreed upon currency for the society in which you reside changes.
So the questions then becomes how much paper currency can I get if I sell my gold down the track?

Historically the more money is printed, sorry … the more Quantative Easing is implemented, the less value there is of the existing money. This means the more of it is needed in order to purchase any goods and services than before the money supply was increased. Simple to understand which makes one wonder why it is done. Anyway the value of the US dollar, by way of example, has decreased over the past as can be seen in the graph above. Since 1900 to the present day the value of 100 dollars has decreased down to 3.64 in 2010. Gold, on the other hand has not. If you purchased 3 ounces of gold in 1900 at 35 dollars an ounce, today those three ounces it would be worth on the order of around 4800 dollars. NOT because the gold has gone up but because the dollar has gone down.

So anyone buying and owning gold for any appreciable time is going to be a winner by default, as it were, as they are not buying currency that is going to depreciate in purchasing power over the duration.

To buy gold then is a matter of self defense for someone who wishes to preserve their wealth, or even some savings, not matter how big or small.

Unless a miracle happens, it is almost a certainty that the value of currency is going to continue to depreciate and it is going to continually take more and more currency just to buy the basic necessities of life it is in anyone’s self interest to buy gold and keep it just to preserve some savings.

The lesson then is to, buy gold and preserve what you have for the future without letting it erode away!