Gold Investing
How This Indian Wedding Tradition Drives Global Gold Demand
An Indian wedding tradition dating back thousands of years is more than a simple cultural practice – it has become one of the biggest drivers of global gold demand.
In a Feb. 12 CBS News' "60 Minutes" report, correspondent Bryon Pitts took a look at how the Indian wedding tradition of draping the bride in gold jewels has propelled India to be the biggest source of global gold demand. India is now No. 1 in gold consumption of jewelry as well as physical bars and coins.
India accounts for about 32% of the global gold market with half of the gold Indians buy spent on jewelry for the 10 million weddings held there each year.
As a result, gold prices typically rise ahead of wedding season as families prepare.
"The demand for gold out of India is fundamental for the health of the industry," Ajay Mitra of the World Gold Council told Pitts. "If India sneezes, the gold industry will catch a cold."
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Is Gold Money?… Don't Ask Ben Bernanke, Examine the Federal Reserve
If you really care about your financial future, here's something you need to know.
It's about a story that received almost zero coverage from the mainstream press. I can't say that I am surprised.
It involves gold.
Thanks to requests by Bloomberg News under the Freedom of Information Act, the Federal Reserve has revealed unprecedented details concerning the personal holdings of its regional bank presidents.
What they found is nothing short of stunning …
Ben Bernanke on Gold
But let me back up a little.
There's an exchange between Fed Chairman Ben Bernanke and Congressmen Ron Paul you need to hear first.
During a monetary policy report delivered to Congress last summer, Congressman Ron Paul asked Bernanke if he thought gold is money.
After a clearly uncomfortable pause Ben said, "No. It's a precious metal." [By the way, if you haven't seen Ron Paul questioning Bernanke about gold, click here. It's already had over half a million views.]
Paul went on to ask Bernanke why it is then that central banks hold so much gold. Bernanke answered that it was simply a tradition.
Well, congrats Ben, you did get that one right, just for the wrong reasons. (Deep down, you surely know the true reasons).
The fact is gold has been a monetary tradition for millennia.
Nearly 2,000 years ago Aristotle laid out what characteristics make for good money. According to Aristotle:
- It must be durable.
- It must be portable.
- It must be divisible.
- It must be consistent.
- It must have intrinsic value.
So it's no accident that the most common basis for money – in all of human history – has been gold.
You might want to reread that: the most common basis for money – in all of human history – has been gold. It's no accident.
After all, only gold meets all five of those requirements for sound money.
It is only in the past century that fiat money has supplanted gold or gold-backed currencies on a worldwide basis.
What makes today's central bankers and their system of printing fiat currencies and setting interest rates so special? It is hubris and nothing more.
Fiat currencies are just a relatively recent, and failing, experiment in economics. So much so, it's become exceedingly dangerous to hold them of late.
Here's why.
Ben Bernanke is Every Gold Bug's Best Friend
After prices fell 10% in December, many investors wondered if the bull market in gold was running out of steam.
That was before Federal Reserve Chairman Ben Bernanke swooped in with a "red cape" and fired the bulls back up.
Since the Fed reassured the world that interest rates will remain at "exceptionally low levels" for another two years, gold has jumped more than 3%.
UBS AG (NYSE: UBS) described the situation simply, "if investors needed a (further) reason why they should be long gold now, they got it yesterday … a more accommodative policy is a very good foundation for gold to build on the next move higher."
To gold bugs, two more years of near-zero, short-term interest rates means negative real interest rates are here to stay, and this has historically been a strong driver for higher gold prices.
Bernanke and the Fed aren't the only central bankers in the fiscal and monetary bullring.
Brazil has cut its benchmark interest rate a few times and China lowered its reserve rate for banks in December. According to ISI Group, 78 "easing moves" have been announced around the world in just the past five months as countries look to stimulate economic activity.
One of the main weapons central bankers have employed is money supply, which has created a ton of liquidity in the global system. Global money supply rose 8% year-over-year in December, or about $4 trillion, according to ISI. I mentioned a few weeks ago how China experienced a record increase in the three-month change in M-2 money supply following China's reserve rate cut.
Together, negative real interest rates and growing global money supply power the Fear Trade for gold. The pressure these two factors put on paper currencies motivates investors from Baby Boomers to central bankers to hold gold as an alternate currency.
To continue reading, please click here…
Jim Grant and the GOP Joining Forces to Bring Back the Gold Standard
With two GOP presidential candidates saying they'd add legendary Wall Street pundit Jim Grant to their administrations, bringing back the gold standard clearly has moved up on the Republican agenda.
Ron Paul, for whom returning to the gold standard has been a decades-long crusade, has said he would name Grant chairman of the U.S. Federal Reserve. In his case, that would be a compromise – Paul has often called for the Fed to be abolished altogether.
Meanwhile, Newt Gingrich has promised to appoint Jim Grant to head a commission to study the possibility of going back to the gold standard.
Grant, who publishes Grant's Interest Rate Observer, is a well-known gold bug and critic of the Fed.
His ideas have attracted increasing favor in a party that blames the Fed's easy money policy for the country's economic problems.
Grant calls the current system of fiat currency an "anachronism" and questioned the "command and control, top-down system of having a handful of people at the Fed dictate interest rates."
He's worried that the Fed's quantitative easing policies have created a bubble in Treasury bonds.
And make no mistake: If a Republican president gives him the opportunity, Grant already has a plan, starting with making a public case for the gold standard.
"I would then lay out a timeline for the conversion to a constitutional dollar, a dollar as envisaged by the Founding Fathers," Grant told MarketWatch.
Grant said he believes a dollar should be fixed "like a foot, or a pound."
Such a policy would arrest the steep decline in value the dollar has suffered since the United States abandoned the gold standard in 1971 – a point Paul often raises on the campaign trail.
"Since 1971, since we lost our link to gold, the dollar has lost 85%," Paul recently told NPR. "So if you were a saver and wanted to take care of your kid's education, even if you made a little interest, you're going to lose money."
Middle-class worries like that have helped make a return to the gold standard a major issue in the 2012 Republican primary battle.
The other two remaining GOP contenders, Mitt Romney and Rick Santorum, are believed to be against a return to the gold standard, though both refrain from talking about it.
Of course, Republican proponents of the gold standard may not need Paul or Gingrich to win the nomination to move the issue forward.
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QE3, $2,200 Gold, and the Trillion Dollar Bazooka
It's the beginning of a new year, and there's no shortage of big headlines…
Europe is on the financial brink, Iran is a powder keg, and precious metals like gold have retreated.
It's also a time when there is no shortage of financial forecasts.
Even though these kinds of predictions about the future can be tough to make, I'll admit it's kind of fun to look forward and see what the future may hold.
Like in December 2010, when I said I expected gold to reach $1,900/oz in 2011. Some people thought that I was crazy. At the time, gold was trading for just $1,390/oz.
But just nine months later, that turned out to be a pretty good call as gold hit a new high of $1,923/oz. before eventually pulling back.
Better yet, in January 2010, I even said gold would eventually top $5,000. Of course, most people thought that call was preposterous.
Now, even Standard Chartered bank's analysts expect gold to climb to $5,000.
Gold Prices 2012 Forecast: How to Make Double the Gold Profits in the New Year
Despite a pullback from its all-time high of $1,923 an ounce a few months ago, gold is still trading in the $1,700 range. In fact, the glittering metal has gained 22% in the past 12 months.
What's more, I believe gold prices will eclipse $2,200 an ounce in the next year, and shoot beyond even $5,000 an ounce after that.
With the economy still in turmoil – and the U.S. dollar sinking even lower in 2012 (Take a look right here to learn how far the dollar will sink in our new report) – gold prices will continue to rise.
So there's obviously still time to get in on this once-in-a-lifetime bull-run, if you haven't already.
Of course, every investor should at least have shares of a gold-based exchange-traded fund, but if you really want to profit from the price surge, you ought to look at gold mining companies.
Let me explain.
Don't Be Fooled by Gold's Recent Dip – We'll Still See $2,000 an Ounce in 2012
If you're concerned about where gold prices are headed after yesterday's (Wednesday's) bear-market buzz, don't be. This is just a brief pit-stop in what continues to be an epic bull-run for the yellow metal.
Gold prices fell below $1,600 an ounce Wednesday for the first time since October, settling down nearly 5% at $1,586.90 an ounce Comex division of the New York Mercantile Exchange (NYMEX). That's below the closely-watched 200-day moving average for the first time since January.
There are a few reasons for this slump: Panic over the Eurozone and its weakening currency, banks' need for cash, and year-end profit-taking have all taken their toll on gold this week.
Still, while gold prices may be stumbling right now, they are not headed for a long-term bear market – not even close. In fact, it's something our own gold and global resources specialist predicted months ago.
Money Morning Global Resources Specialist Peter Krauth said as far back as August that gold prices were due for a pull-back, so this minor blip isn't surprising – and it definitely isn't permanent.
"This is something I saw coming," said Krauth. "Back in late August, as gold was pushing $1,900, I told my subscribers it was due to pull back, and likely to trade in a range between $1,600 and $1,800, and that's exactly what we've seen so far. We could see a bit more weakness, but I think we're much closer to a bottom at this point."
Here's why.
A Weak Euro and the Scramble for Cash
One of the biggest factors contributing to lower gold prices is the Eurozone and its increasingly weak currency. The euro fell Wednesday to $1.2998 against the dollar, its lowest level since January. That forced many traders into the dollar.
"As investors flee the euro, the "risk off' trade means they're falling back on the U.S. dollar," said Krauth. "A higher U.S. dollar, in turn, means lower gold because gold is priced in U.S. dollars."
Krauth said Europe's economic turmoil has forced the region's banks to hunt for more cash, which has led to more gold leasing transactions, further pressuring the precious metal's price.
"European commercial banks are desperate for cash," said Krauth. "They could well be "borrowing' central bank or other sourced gold to lend out simply to raise cash temporarily. Interestingly, gold lease rates just spiked back up on Dec. 7, the very same day we started that recent bout of gold price weakness."
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The Gold Price Conspiracy Uncle Sam Doesn't Want You to Know About
Is it really so preposterous to believe the United States and Europe would conspire to keep pole position in the global financial system?
I don't think so – and neither does China.
That much was revealed in a diplomatic cable recently uncovered by Wikileaks.
According to the 2009 cable from the U.S. embassy, China believes the United States and Europe have, as a matter of policy, suppressed the price of gold to discourage its use as a reserve currency.
And there's a pretty compelling case to be made for a gold price conspiracy.
The Gold Price Conspiracy
The cable summarized several commentaries in Chinese news media sources on April 28, 2009.
"The U.S. and Europe have always suppressed the rising price of gold," it reads. "They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency."
According to the cable, China believes that by building its gold reserves, it can not only safeguard itself against the declining value of the dollar, but encourage central banks around the world to expand their gold purchases, as well.
"China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold," the cable said. "Large gold reserves are also beneficial in promoting the internationalization of the RMB."
Now, if all we had were the Chinese claiming the U.S. and Europe were suppressing gold prices, it would be easy to disregard as superficial propaganda.
But in fact, there's evidence that supports this claim.
In the decade between 1999 and 2009, central banks – dominated by the West – were net sellers of gold in every single year. And that's despite the fact that gold in that time soared from $250 an ounce to $1,200 per ounce – a nearly 400% gain.
Then there's the infamous "Brown Bottom."
Between 1999 and 2002, Gordon Brown, then U.K. Chancellor of the Exchequer (and later Prime Minister), decided to sell nearly half of his nation's gold reserves. At the time, just the advance notice of these substantial sales drove gold's price down from $282.40 an ounce to $252.80.
Those gold sales yielded an average price of $275 an ounce, raising a total of $3.5 billion. Today, those 395 tons of gold would be valued more than $19 billion.
You have to admit, it doesn't make a whole lot of sense to sell a solid asset whose price is moving steadily higher each year – especially when the United Kingdom's debt problem then wasn't nearly as bad as it is today.
The answer: Because there's a conspiracy afoot.
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