kidmercury

GATA is an organization that argues that the price of gold is being artificially suppressed. There are a number of fancy ways central banks and the powers that be can suppress the price of gold, but as you may imagine, all of them ultimately boil down to a lie in which they sell you gold but find ways to avoid actually delivering gold to you. So they can basically create artificial selling demand in the gold market.

One recent event that I think adds a lot of credibility to the manipulation argument is that Comex, a futures exchange where you can speculate on the price of gold, recently decided to allow for delivery of "paper" gold in addition to physical gold. So basically if you decide to accept delivery of a gold order you placed on Comex, you may not actually get physical gold, but rather can get paper gold entitling you to some gold allegedly held somewhere.

To me this is another major indication of manipulation in the gold market. Bob Chapman, a person whose opinion I value very much because he has decades of experience in the gold market and also has an excellent understanding of the geopolitical environment due to the fact that he previously worked for the US Army in counterintelligence, claims that when manipulation in the gold market is finally exposed, the price of gold could shoot to over 2,000 USD per ounce (it is currently trading at around $950 an ounce). I don't know about that, but like I said I have to give Bob props, his game is legit.

So now that we've got the background information out of the way, let's get to the point of this blog post: what's this mean for you and you money?

Well, if the manipulation is crazy and getting worse, we will see two markets for gold develop: the paper gold market, where people are trading promises of gold, and the physical gold market, where people are buying and selling the real thing. One potential gauge we can look at to see how much manipulation is going on is the difference between buying an ounce of gold on the futures exchanges versus buying an ounce of gold that you actually take possession of. If the spread gets very large, manipulation strikes me as the most logical cause.

At this point, I've got both paper gold and the real thing. The real thing is what I recommend on this blog, because that is definitely the safer bet. I am loving Bullion Vault more and more with each passing day; when you buy gold from them you do not have to take physical delivery, but rather can have them store it for you in their vaults around the world. Some argue this is a scam like other paper gold, but I disagree. From everything I've seen, Bullion Vault is a legitimate company that understands the gold market very, very well. The CEO, Paul Tustain, strikes me as one smart f'ing dude.

Part of the brilliance behind Bullion Vault is that they have created their own market for real gold stored in their vaults. So they are not dependent upon the futures exchanges for setting their prices, but rather on the buying and selling demand for the gold in their vaults. I think we will see more things like this, particularly in America, as the American people come to learn the hard way just how corrupt their public markets are.

In spite of all this, the paper market in gold is still something worth playing in, provided you know what the game is and are comfortable with it. Personally I have discontinued buying paper gold and buy a few grams of real gold through Bullion Vault each month. If the paper market for gold falls below $920 an ounce, I'll exit all my paper gold positions and move them over to physical gold with Bullion Vault.

To clarify in case it was not apparent, I do get a kickback if you open an account with Bullion Vault through me. Of course I only recommend stuff I actually believe in so I am happy to recommend Bullion Vault. As far as I can tell they are a great company providing much needed innovation while operating with integrity. Few things impress and delight me more.

The song for the post is "Fool's Gold" by The Stone Roses.

marko

Are you buying gold as a hedge for 'doomsday' scenarios you have described in this blog....or purely speculating on its upside? I'm asking because I have a tough time viewing gold as any more 'real' of a hedge than fiat money. What are people going to do with these bricks of gold....three finger rings or new teeth fillings?

Thought I would ask your opinion on this as I have a lot of friends talking gold and to me I see no fundamentals in the discussion....its like betting on pork bellies because pork bellies would be hyped in the paper as a hedge in recessions....or whaddyathink?

Wouldn't farmland be a much better true hedge?.....people have to eat no matter what, gold or no gold, money or no money.....

kidmercury

hey marko,

thanks for your comment. here is my longer gold sales pitch in which i discuss the fundamentals behind gold. the short answer is that if the political economies breakdown -- meaning if the money supply that government creates and manages is broken -- gold will likely become money. if we return to a barter economy, gold and silver become money, because they are the easiest commodities to trade. gold and silver have a long history of serving as money. in fact, as recent as the second half of the 20th century, paper currencies were backed by gold. for instance up until 1971, the US government guaranteed the convertibility of dollars into gold at a fixed rate. once this convertibility was dropped, we saw massive currency devaluation, a greater polarization of wealth -- rich get richer, poor get poorer -- and greater government debt and spending. there is a school of thought that a return to the gold standard is what we need to solve the economic crisis. i am not so sure about that, but i think the argument has merits and should be seriously considered.

incidentally, most gold bugs are doom and gloomers. personally i have one years worth of storable food. i recommend survival preparations for all living in america. even if nothing happens, i think survival preparation is a good insurance policy -- certainly better than what most insurance companies offer.