Monday, June 28, 2010

Gold for the Golden Age

Coxe Advisors' June 2010 economic update for BMO Capital Markets is a lengthy 53 pages, but contains the best description of the current state of the Gold market I've seen (starting on page 32).

Zero Hedge has posted that section as: Don Coxe Dissects Gold.

The longest-established text-based religion in the West is about the God of Jacob—His works and His worship. For roughly five thousand years, a believer summed up his credo by saying, ‘I believe in God.’

But when this credo arrived, it had to share space with an alternative belief system that was around for thousands of years before the Judaeo-Christian era began. A believer in this system summed it up, ‘I believe in Gold.’

The following event he describes also set off bells and whistles for me when it happened.

We think that future historians may well report that the moment when gold once again became a store of value was when the dollar began soaring in response to the stench of seared Greece—and gold climbed right along with it. The asset classes that have been inversely correlated since Keynes’s time suddenly united.

The conclusion is as follows.

What we believe is unfolding is a rush into gold by individual investors who look at the astronomic growth in financial derivatives—particularly collateralized debt swaps—and government deficits at a time when the effects of demographic collapse are finally being understood. According to some guesstimates we have heard, the supply of outstanding financial derivatives may be in the $70 trillion range, dwarfing the combined value of money supplies and debts. The total value of gold is so minuscule in comparison to the supply of these software-spawned instruments that it cannot be any real help in stabilizing global finances—but it can be a haven for investors seeking to protect themselves against an implosion of majestic proportions.

In addition to Don Coxe, I would also recommend you read Eric Sprott's monthly reports and Mike Shedlock's daily blog.

Finally, even mainstream media in the form of The New York Times is acknowledging Uncertainty Restores Glitter to an Old Refuge, Gold.

So aside from buying gold coins and bars which you hide in some secret location (NOT at a bank), I would recommend the Sprott Physical Gold Trust. The Gold is stored at the Royal Canadian Mint (not at a bank), and the Trust Units are directly convertible to Gold (in case currencies have become worthless).

Update on April 16, 2012: The Royal Canadian Mint has now introduced Exchange Traded Receipts which are perhaps even better than the Sprott Physical Gold Trust.

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