Topic: Economics
IF INVESTORS WERE SMART ... ... they'd be bidding up the price of gold and silver - instead of OIL!by Alex Wallenwein
(Conservative)
Wednesday, April 30, 2008
If traders and investors were smart, they would bid up the price of gold instead of oil. Likewise, if governments and central banks were smart, they would take the lid off the gold price and actively encourage investment in that most precious of all commodities.
Why?
Simple. Everybody can live with a high and further rising price of gold because such would not in any way drive up the prices of other commodities, of transportation, of manufacturing processes, and of all products that are either hydrocarbon based themselves (like all forms of plastics or rubber) or that require hydrocarbon input (such as heating/cooling energy).
In short, piling money into gold would actually preserve the buying power of those worthless but over-hyped forms of scrip and electrons we all refer to as "money".
As long as my fiat dollars buy approximately the same amount of the things I need in order to just exist next year, or five, maybe ten years from now, I can live with a high price of gold even if I'm not a gold investor.
But I might become one, if I see gold rising to fantastic heights relative to dollars.
However, if it's the price of oil that gets bid up, things look different. More and more of my meager paycheck will go to gasoline and heating/cooling my home while everything else gets more expensive as well, and while the buying power of my dollars drops against other currencies.
The problem is, of course, that neither governments, nor banks, nor other large (oil) corporations benefit from higher gold prices. So governments, their central bank paymasters, and the large corporations that feed off of both institutions do their utmost to suppress gold whenever they can and actually encourage speculation in oil and related products.(1)
Why?
Why would they do this?
Most of them buy into the global warming/Kyoto treaty scam, so they think higher prices will cause you to drive less. As a neat side-benefit, the oil companies get to make record profits.
What makes me think this is intentional? Well,for one thing, oil inventories are actually rising. Supply is up,demand is waning - but prices are rising anyway. I see no underhanded attempts to manipulate the oil price down.
As far as gold and silver are concerned, however, demand is high and supplies are shrinking - but the price is falling despite serious inflationary pressures and tremendous dislocations in the debt-driven financial markets, all of which usually support gold. Hence, underhanded downward manipulation of the gold price is occurring.
Doesn't take much to figure that one out.
If you presume that central banks, governments, and large corporations are all run by individuals who have the best interest of their respective countries and their countries' populations at heart, it really makes no sense at all.
But the title of this article isn't "If Governments Were Smart ...". We already know they are stupid - or at least that they have reasons for acting that are different from those most people attribute to them.
So, let's get back to traders and investors' mindsets:
Traders of course will put their monetary electrons wherever they see a quick, "tidy" profit. Right now, in the trading world, it seems as if oil is considered a better and more sure-fire quick-profit deal than gold. Gold is being suppressed (or, for the uninformed, "doesn't perform well"), and oil keeps on shooting up.
No problem. Oil makes sense for traders at least in the very, very short run, which unfortunately seems to be the only time horizon they are mentally equipped to operate in. In the longer term, this profit calculation is turning into a wash, however.
In the longer run, the precious electronic currency units they earn with their tactics are buying less and less of what they want in life, reducing their effective profit margin considerably. The more this happens, the more they must rely on further trading profits, just to be able to keep up, just to break even and eke out yet another little bit more so they can brag about it but the higher oil goes, the more expensive everything else becomes.
Bad, bad traders.
How about investors, then?
Buying stocks in oil companies seems like it would be all the rage, lately. Well, actually no. One look at two of the largest oil companies in the world will show you that their stock price has benefited little if anything at all from the most recent run-up in oil prices.
Do the oil companies care, however? Uhm, no. Their profits are up, big time. Why their stocks don't reflect that is yet another issue, but we will not deal with that in this article.
So, if there is any such thing as "smart money" out there, you know where it should be going but it doesn't. If there was any such thing as "smart governments" out there, you know into what type of asset class they should be encouraging investment but they don't (except for maybe China, which actively encourages its citizens to buy gold).
Where does that leave you, as a retail investor?
Should you "fight city hall" and put your money in gold rather than oil? Well yes, of course. (What was that famous investment maxim, again? Buy low, sell high right?)
The lower gold goes, the more you should be buying. Why? Because you know it won't stay low. Besides, what we call the "price of gold" is a complete mirage anyway, and the fact that it is being manipulated downward in this worldwide financial crisis amid heightened inflationary expectations should be seen as yet another indication of official stupidity, and therefore as a gift from "stupid" - straight to you.
Euro vs. Dollar Gold Monitor subscribers are aware of technical warning signals of (yet another) impending precious metals sell-off are mounting, but so what? All the more reason to buy in when gold drops down to $800. If it drops even lower, the better. If the fiat establishment feels compelled to let you buy the only thing that can be used as physical money and that has real value for less and less worthless scrip, so be it.
In the end, you'll have the gold, and they will have the worthless fiat scrip. Now that's what I call a "trade"!
Got gold?
Alex Wallenwein
"The best way to destroy the capitalist system is to debauch the currency." Vladimir Lenin
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2008 Alex Wallenwein, all rights reserved.
Published: Wednesday, April 30, 2008
Last modified: Wednesday, April 30, 2008
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Posted By: Jake, the champion of the constitution
Date: 2008-04-30 18:50:54
Alex, you hit on something I am writing about as well. Have you checked out gata.org? lemetropole.com? Pls take a look if you haven't already. Commodities worldwide - oil, food - are spiking, so should gold. You are right, its a good time to buy, but the theme of the article I am writing is that gold (and maybe also silver) is an investment, but its really freedom, what do you think?
If you remember a few weeks back. The weekend of the Bear Stearns bail out. The Plunge Protection Group met all weekend to come up with a strategy. That Monday before the open it looked like doomsday. But low and behold it wasn't. Both Oil and Gold dropped dramatically. Gold more so than oil. Gold hasn't been able to get beyond $950 ever since but oil rebounded off of $99 and reached new highs. Somebody started flooding the market with gold. A central bank somewhere? Who knows? I think the price of oil is a bit ahead of itself but the underlying fundamentals a very poor for oil. Oil is going much, much higher. Probably sooner than any of us think. I'm predicting there will be shortages somewhere in some country by the end of the third quarter. Then "katie bar the door".
Also, regarding oil, the big american oil companies own very little of the worlds oil. They have not been growing their reserves. They have been flat for about 4 years now and it's not for not trying. They explore, they drill, they just can't keep up with decline. Mostly they have been buying back shares to prop up their prices. I can't say their PE's are low because I believe the entire market is over inflated. The stock market is a casino.
Most of the worlds reserves are in the hands of state owned companies.
if you remember when the PPT started their games, and oil/gold dropped so fast, the IMF started liquidating their gold reserves. i dont remember how many ounces they sold, but it was quite a chunk. some 400 metric tons i think.
What am I missing? Investors are bidding up the price of gold along with the price of oil. Just like during the last oil shock of the 1980s. Of course, the price of gold fell by half within a year or two and stayed there for twenty years.
Gold is a valuable commodity but it is just a commodity. It isn't magic. It isn't freedom and it isn't god.
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2008 Alex Wallenwein, all rights reserved.