Gold, Golder, Goldest?

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Here’s what I can’t tell you: Where the price of gold is going.

Here’s what I can tell you: Over the past several weeks, as investor enthusiasm for gold clearly reached the melting point in a big price spike to near $900, I’ve seen almost every gold teaser in the book. Gold is down a bit again today, but the gold bugs are still out in force and certain that they will be vindicated when inflation and dollar devaluation finally rear their ugly heads.

Most of these teasers for gold investments have been around the block a few times — some of them are remnants of the multi-year bull market in gold the culminated in the $1,000+ high price nearly a year ago, others are less than a year old and being enthusiastically circulated.

Does this mean that gold is going up? Or does it just mean that gold mania has hit the mainstream press, and the investment newsletter marketers are taking advantage of that mania to sell a few subscriptions?

I’ll let you be the judge of that, but since I’ve been seeing so many of these lately — and because I’ve received a lot of questions from readers — I thought I’d run through a couple examples from the current crop of gold teasers and share what I know, with, for the older ones, some links to the articles where they were originally discussed.

Some further ado? No? Without, then …

The U.S. Treasury’s Gold Glitch

I’ve reminded folks about this one a few times, but it’s possible that you missed them (I know, I know, there are at least a couple of you who can’t keep up with reading your Daily Gumshoe — there’s no shame in it, don’t worry).

This one is from Steve Sjuggerud and his True Wealth service, and the ad has been running in this current form for a few months — before that, it was around for several years teasing us about a “secret currency” that was better than gold, and, to Sjuggerud’s credit, if you had listened to him several years ago when these ads first got my attention you would have had a very nice run.

Essentially, the tease is that there’s something that’s not only better than gold, but that goes up in price after gold goes up — meaning you get the perfect situation, an investment that goes up at a predictable time.

The answer is a little bit complicated, and the investment is not necessarily fully liquid or easily handled by folks without experience in this field, but the tease is for collectible gold coins — specifically, high quality early 20th Century gold coins, the mint state St. Gaudens $20 Double Eagles that some collectors believe are the most beautiful coins ever minted. They trade at a premium to their gold melt value, and when gold goes up that premium apparently often increases. If you want to read all about it, click here for the full writeup on the “Gold Glitch” … or if you want to go back in time a bit, check out the writeup on the “Secret Currency.”

What else is coming through the floodgates here at Gumshoe Headquarters?

Gold’s Doubling Effect

This one is from Greg McCoach and his Mining Speculator service. Oddly enough, though he focuses on mining stocks — and often on small, exploratory mining stocks that most folks would consider penny stocks — this is not for a stock.

This ad teases us that Greg McCoach has a “secret source” who turned them on to an investment that goes up twice as fast as gold (and down twice as fast, too, though that particular point is not really emphasized). The ad is, frankly, a little silly (not that I don’t love that sort of thing) …

“After all, how could an investment exist, directly related to gold prices, that pays you DOUBLE the gains gold makes?

“… a 25% gain pays you 50%… a 50% gain doubles your money… and so on!

“It seems completely illogical.”

It may be risky, but it’s certainly not illogical — just like all the double- and triple-levered ETFs, all you have to do is use derivatives or borrow money and it’s easy as pie to double the return of an index. As long as you’ve got some, you know, fancy computers and algorithms and stuff.

So this is, of course, the near-equivalent of a double-ETF for gold — though in this case it’s an ETN, not an ETF, so it’s got a bit of credit risk, too. And so far the record has been fine — gold goes up a buck, the ETN goes up $2, more or less (the exact relationship isn’t quite as clean and near-perfect as the Ultra ETFs that mimic big stock indexes, but it’s close).

In case you’re curious, it’s called the Powershares DB Gold Double Long Exchange Traded Note (DGP) — and if you’re more curious than that, click here for the full writeup from November.

What have other folks been saying? I noticed that there were quite a few comments on my article about Peter Schiff a few weeks back, and I’m sure he’s still touting gold as a significant part of everyone’s portfolio, though I haven’t seen any recent commentary from him to that effect. Andrew Mickey, late of Breakaway Investor and now with Q1 Publishing, recommends buying the gold miners and shorting gold, with the argument that the ratio between those two will converge to historical norms (miners have been clobbered lately).

And finally, we’re seeing quite a few copies of Peter Schiff’s ads at the moment, too, largely for ads that focus on his book, Crash Proof. You may or may not want to pick up a copy of that, but in case you found the little teasers appealing I’ll just give you my five-cent interpretation.

These are the “teasers” for the book:

“The “Gold Standard” Currency Set to Double Your Money in 18 Months! A forgotten British currency – fully backed by gold and the govt. – could soon double in value versus the dollar. In fact, this ultra-safe money will be the hottest currency of the next 18 months, bar none. Few outside of Britain’s Isle of Jersey know about it yet. Schiff shows you a simple way to invest in about 5 minutes, online! Page 229″

I assume this one is probably the “digital gold currency” system run by GoldMoney.com, with servers based on the Isle of Jersey for tax reasons (Jersey is one of the Channel Islands just off the Normandy coast, they are possessions of the British Crown and protected by the UK, but not subject to parliament). This is essentially a digital marketplace for gold that offers digital trading of gold that’s in vaults in the UK and Switzerland.

Peter Schiff is quoted in Wikipedia (the quote probably actually comes from his book, so this is full circle) as endorsing GoldMoney.com specifically: “There are…several places to buy gold on the Internet, and even several that offer storage programs. In general I would be very reluctant to trust most storage programs, but one exception is GoldMoney.com, founded by James Turk, a long-time gold advocate and widely respected figure.” [here's the link if you'd like it]

“Save Your Retirement with 3 Gold Coins: It’s the big secret of the gold-investing world. Certain gold coins are about to soar 3-5 times faster than gold, which is poised for another double in 2009! Schiff has identified the next three gold-coin bonanzas. They’re specific plays on Kruggerands, Maple Leafs… and a third coin set to pop between 1,500% and 3,000%!”

Schiff, in the interviews and commentary I’ve read, doesn’t particularly focus on numismatic coins, he is more likely to recommend bullion coins (ie, coins that are generally valued based on their gold content, not on their numismatic value to collectors). I don’t know what specific coins he would recommend, but if he’s worried about gold confiscation he might be staying away from the US-minted gold coins (which are usually a little bit more expensive, anyway). That would leave a few options that are fairly widely available — Krugerrands are the best known, from South Africa, and are often the cheapest (ie, they trade at a tiny premium over their melt value), Maple Leafs are often slightly cheaper than American Eagles, and you can also fairly easily buy Austrian Philharmonics, Australian Nuggets/Kangaroos (I’ve seen people selling them under both names), or Chinese Pandas.

I don’t know why he believes that bullion coins (if this is indeed his shtick here) would go up 3-5X faster than gold — he has stated that he thinks gold will hit $2,000 this year, and $5,000 an ounce within a few years, so perhaps he believes that gold coins will boom in value as the easiest anonymously tradeable form of gold for individuals. Dunno.

“Make 3,600% Gains with ‘Pure Junk’: Schiff reveals how you can turn sacks of silver “junk” into potential gains of 3,600%. It’s his favorite way to invest in precious metals, and you’re guaranteed not to hear about it in the Wall Street Journal! Page 224″

I don’t know if you’ll read about junk silver in the Wall Street Journal or not, but it is a fairly widespread way of trading silver. Silver coins prior to 1965 were minted out of 90% silver, and many precious metals dealers will sell sacks of these “junk” coins (ie, they’re not collectible — they’re often heavily circulated, beat up, dinged or damaged).

The amount of silver in these coins is in proportion to their currency value, so the half dollar would have twice as much silver as a quarter, etc. This means these junk silver coin bags are usually sold in currency amounts, typically $1,000. A $1,000 bag of coins (either 10,000 dimes or 4,000 quarters, usually, or some mix of those) includes roughly 715 ounces of silver.

Why would you want to buy these big bags of coins? Well, there is an underlying guarantee that silver bullion doesn’t carry — these are also legal tender, so they won’t ever be worth less than $1,000 even if silver prices collapse. And in the past, when people weren’t quite as excited about silver as they are now, this “junk silver” often traded at a discount to the melt value. Today, unfortunately, the bags trade at a significant premium to spot silver prices.

So there you have it — a few gold investing ideas from the folks who keep our mailboxes full. There was also a good quick summary of the thoughts of a few of the “gold bug” newsletters over at Marketwatch earlier this week.

I hope you can all skip through the panic and paranoia for a few days and enjoy a wonderful weekend!

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28 Responses to Gold, Golder, Goldest?


  1. as one of your UK based readers, i should point out to your US readers that investments in Jersey do not fall under most of the UK legislation – as highlighted recently when the UK and Channel island branches of the Icelandic banks went under, and depositors found they had very little protection – so if they are tempted by any schemes there they need to do thorough research ( as ever, i suppose)

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  2. i bought the m64 gold coins when gold was sellling at approx. i paid about 600/coin from a “reputable dealer”, one of the biggest on the west coast. when gold reached 850/ounce, i went back to sell my coins. no published info on the coins, had to talk to the owner and the coins could be sold for about 1k each, now they sell on ebay or around 1250.

    it would have been better for me to have bought bullion or regular coins.

    the dealers get a huge commision from these 64s when they sell them and them won’t pay the same percentage of profit at time of selling

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  3. A Comment on yesterday’s discussion about Stephen Leeb: I decided to buy a little Western Digital WDC. I bought it early today at 13.10 and a few hours later sold a July 12.50 call at 3.50. If by July, it stays above
    12.50, it should produce about 25% return.

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  4. As James Tuggle points out, buying U. S. gold coins (MintState)looks a lot better on paper than in practice. The reselling to dealers, of coins which have appreciated significantly, is outrageously expensive. They take a huge cut, even on bullion. Even auctioneers take 10-15% of proceeds; granted, they charge the BUYER, but the the bid prices reflect that fact.

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  5. The safest way to buy gold is GTU (an ETF). If you want some silver exposure then buy CEF. If you are a little more paranoid about some brokerage firm not being around to redeem your ETF’s then buy gold coins but stick with current Eagles, Maple Leafs and Krugers. Don’t pay the premiums on Liberties or St. Gaudens. Unless you have some odd affinity for gold, buy it as the ultimate insurance policy against financial armageddon and therefore pay the smallest premium possible,i.e. ETFs or current one ounce gold coins.

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  6. My answer to Patrick would be that the fund is simple to price in that One unit of the fund equals 100 g of gold. Two potential oomplicating factors are the liquidity of the fund here in the US, and it is also a currency play as the fund is priced in Swiss francs. As the Swiss franc is considered a safe haven currency, and as gold is considered a safe haven, you are sort of leveraging up. I like gold as “life insurance for the living” so I really like to keep that aspect of my wealth management very simple.

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  7. How can gold possibly go down in price if 90% of investors believe it can only go up?
    Oh, I just answered my own rhetorically contrarion question.
    Besides, who wants to look at a broading formation indicating a drop to $550 when you have so many bulls “fundamentally” predicting $2,000 or even $5,000?
    Or a just failed 61% Fib retracement from the 7/15 high to the 10/24 low. (Coinciding with an R-1 failure from 7/15 high to the 10/10 failed reversal)
    Well, as a technical trader, I don’t have anything against a fundamental trader. I just wouldn’t want my sister to marry one.
    By the way, is this “fundamental” ever noted anywhere: rising unemployment causes gold holders to sell off their Perth Mint gold, ETFS, and overpriced gold coins ($55 over spot! – both sides!!).
    Just be aware of spec traders who are waiting to sell futures on a weekly close below $820 when the SMAs 9/18 cross and the 40DMA is violated. It will be in conjunction with the two week rule
    on stops and the four week rule on initiating new sells. Just watch and see if Vol & OI swell on the decline.
    But if we do get a bounce off $820 and a rally on good volume, specs will buy it up to $940 in a heartbeat.
    Yeah, in the end, gold is just another commodity. Just don’t tell the gold bugs. It will ruin their day.

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  8. I disagree profoundly with Steve Bell that Gold is just another commodity”!

    Gold and Silver have been REAL MONEY for over 5000 years and have with only slight fluctuations due to Central bank manipulations MAINTAINED purchasing power in total contrast to ANY fiat currency that has nothing backing it but FAITH, (misplaced in my view) in the governments that in cohorts with their Cewntral Bank issue their brand of counterfeit money.

    Which would you rather have, pretty pieces of paper with numbers printed on them that have LOST 40% in purchasing power since 2000 or beautiful shiny coins that have INCREASED over 225% in actual purchasing power in the same time period? (Based on bullion value, not numismatics)!

    IF there were a free market in gold and silver the prices would already be over $2000. for gold and over $100. for silver, (1980 inflation adjusted prices) and once the inflation generated by the injection of TRILLIONS of new paper dollars kicks in, they will roar even higher.

    The fact is the bullion banks and establishment economists (whose malfeasance got us into the present financial mess) hence my LACK of faith, KNOW that once enough people realize what a PONZI SCHEME their game really is and wise up to the need to preserve puchasing power, it is “game over” for them.

    That is WHY they are so desperately intervening in the free market to PREVENT gold and silver from rising to their free market value, to keep people from realizing their LOSS of purchasing power and efforts to RESTORE FAITH in paper with no intrinsic value, but they WILL LOSE that battle eventually.

    Any student of history should know that governments and despotic rulers have ALWAYS sought to fleece their subjects by clipping or debasing coinage and the substitution of counterfeit money no longer backed by anything but FAITH in corrupt rulers is only the final manifestation of an unsustainable economy!

    WHY do I call our present monetary system a PONZI SCHEME? Simple, look up the definition in the dictionary and it fits perfectly. WHY you ASK?

    As Graham Towers former Governor of the Bank of Canada stated; “every bank loan is a new creation of money, and when it is paid back it ceases to exist” now consider this, if you have a good job, good credit rating, adequate down payment, ( WAS once true) you will have no problem getting say a $200,000. mortgage, (french for death gamble), which for many it is economically) but here is what few have ever considered.

    When you sign that paper that gets you the $200,000. credited to your account to disperse to the real estate agent, builder etc. you are agreeing to pay back approx. TWICE AS MUCH (depending on interest rate and amortization period) and since this EXTRA money is never created, the INTEREST accumulates as debt!

    Stated another way, PRIVATE Bankers through the Federal Reserve Act of 1913 were in effect given a MONOPOLY to create our circulating medium out of thin air (since we went off the gold standard in 1971) and the ONLY WAY that the economy can continue to function is if NEW BORROWERS can be enticed into going into debt to replace the money that is being paid to the banking cartel in usury, (INTEREST), the terms are synonymous!

    So WHY is it a Ponzi scheme: read the dictionary definition again! Without an exponentially increasing number of new borrowers to REPLACE the money being paid back in interest, there would very quickly be a LACK of circulating medium to sustain an economy, but because the interest is never created and therefore can technically never be repaid, EVENTUALLY the DEBT PYRAMID becomes so large that the collective amount of interest being paid sinks the scheme just as in any pyramid.

    OUR PROBLEM IS DEBT, at all levels of government, corporate and private and since our money supply exclusively comes into existence as DEBT, no matter how much money gets printed, we can NEVER borrow our way out of debt!

    There are two basic problems; 1) easy credit produces bubbles when prices get bid up and also DESTROYS any incentive to save! Without savings the banks have inadequate RESERVES on which to lend. 2) Being debt based our monetary system by its very nature reaches a point where there is no more acceptable COLLATERAL left to loan against even IF the banks had the reserves to do so.

    This explains the housing bubble, i.ie. because banks MUST LEND or die, every rule in the book was bent out of shape to FIND BORROWERS, (if you could fog a mirror you got a mortgage at below market rates) sub-prime, liar loans the whole enchilada driving up prices to unreasonable levels beyond what average wages would support.

    It also explains the present drop of interest rates to near zero (they are after inflation) another lying manipulation by government to HIDE the fact trhat the real increase in prices is easily DOUBLE official inflation rates.

    We are ALL BANKRUPT, it has just not been formally acknowledged yet and the present “bailouts” will only hasten the day when economic reality DEMANDS this artificial debt be repudiated and HONEST MONEY restored to the system.

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  9. Ah the true believers. How would the gold sellers make money if they couldn’t count on you giving it to them.
    Here is an experiment for you.
    Take a solvent credit card, $85 dollars in green paper and a 1/10th ounce gold coin worth currently about $85. Go into any store or restaurant and see which one the proprietor wants for $85 worth of goods. Even if he does believe it is a gold coin and not titanium (same specific weight) gold plated, he isn’t going to take it.
    You can do this in five years or fifteen and get the same result.
    You see, if gold gets out of control in contrast to the dollar, the government will confiscate it and make it illegal to use. Then who you gonna give it to for that basket of food at the store?
    You gold bugs are the ones who need to look at history. Confiscatory laws are replete in modern and ancient history.
    But you keep buying gold with a 6.5% premium on the buy and 6.5% on the sell when you need it to purchase something and tell me how you win giving up 13% BEFORE you take a risk.
    If gold were that important, why are Kitco, Ampex, Monex, Euro-Pac and hundreds of others willing to turn it over to you for you paper?
    Are you all that naive?
    You argue my point for me when you say gold “would be, should be, is” worth X DOLLARS. Why? Because you are just speculating on it, not using it as currency. Do you get it yet or are you still being sucked in by the gold Gurus?
    But then again, I love unreflective certitudes. Do you have any others you can share?

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  10. while gold is a commodity, its a commodity with little to no use in modern, everyday life. so it trades on pure speculative & sentimental value – we have seen examples of both in the above posts. The advent of fiat currencies and its advantages & proliferation, has all but ruled out gold use in monetary situations. Except in panic situations….will we get there? I dont know, but Schiff (& others) argue that hope springs eternal in the human breast (as this perennial Mets fan will attest).

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  11. For those who care (and I realize many won’t), note my comment from 10 Jan, above.
    The gold market is currently stalled at $820. Am I some kind of guru or genius or have some “secret insider information”? No. I follow indicators and trade gold like the commodity it is.
    Did your gold guru tell you to exit gold and look to re-buy when it dropped $35 from Friday’s close? Or did he tell you some nonsense like, “you haven’t lost until you sell”.
    Well my friend, like it or not you are out $35 on each ounce of gold you own. Oh, plus the 3-6% commission when you sell it. (By the way, does that mean when gold gets to $2000 an ounce it will cost you up to $120 to sell your coins? What a racket.)
    Another point, when the dollar is worth nothing, how can you say that gold is worth $2,000 an ounce? There is no dollar. How will you price it? And do you think you will just walk into a grocery store and say, “Here is a 1 ounce gold coin to pay for these groceries. Please give me back a ½ ounce gold coin.”
    If this country gets to this point of Armageddon the gurus talk about, you would be better off having lots of lead to sell. In the form of bullets. I imagine a 9mm cartridge would get a loaf of bread.
    Are you getting this yet? The only one making money is the guy selling you gold along with the promise of ______________ (fill in the blank).

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  12. It’s true that there is a big premium to buy/sell gold but why do you think that’s so? People want it, LOL.

    BTW, newspapers in my area have run ads daily for months offering to buy everything from my gold teeth to gold sorority pins. Are they the “dumb money”? I doubt it.

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  13. I agree, people want it. Give the people what they want. As a broker, that is what I did, too.

    I also will buy all the gold I can. As long as I can buy it for under spot. No, they are not dumb. They buy gold at under spot and hedge it in the futures market until they can sell it for $50 over spot to some smuck who will then sell it back to them for $50 under spot when he needs dollars. Then they do it all over again.
    I think they call it a business or something like that.

    What, you think they are buying and socking it away?
    If so, they can call Kitco and get all they want. At a premium.
    And since gold is now $820 an ounce, even with a $50 premium they would still be getting a bargin if it was going to $2,000 as some predict. And at that price it is still $13 less than some traders paid for it on Comex just last week with no mark up!

    You gettin’ it yet? It is just a commodity for buying and selling and speculating. If it was something more then it would be priceless and not going down in value as it has for the last three days.

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  14. People; It’s time for some of you to get over yourselves, and go vent with “Dear Abby”…And some others to go trolling for new clients in a different forest…

    Tough times…You bet!…
    Cash is “King”…No it isn’t; And hasn’t been since 1913, if ever…
    If nightcrawlers could be produced in as great a quanity as USD’s…
    Someone would be chorteling that
    “nightcrawlers” were “King”….
    “Buy and Hold”, is passe, and only
    losers and dolts don’t know it.
    Horse-Hockey!….That myth is screamed by those making a damn fine living, churning accounts legally, if not always ethicilly.
    Go sell short-term stategies only, to the horse marines…Or to your
    elderly parents and relatives, who
    live off the dividends of their Dupont, or Lockhead, Exxon, Ge…
    And were doing so long before you people “Discovered” the investment world.
    Cash is a “convenience”….
    Gold and Silver et al, are not….
    They’re by-products of mining for other commodities for the most part (But not always)….
    The buying and selling of precious metals, as as viable a business, as the selling of anything else…
    Except that the dealers will hold gold bought at the top of the market forever, rather than take a loss…Hence, when gold prices drop…The retail market dries up……….Unless more is minted or brought to market at lower prices.
    If you are suspicious or ignorant
    about precious metals…Collect stamps…I mean that…More is made on stamp collecting, than in rare coins…
    Now…Let’s get back to the thrill of “sleuthing”, and leave personal
    anxieties at the door.

    In the words of that great American philosopher; Richard Pryor…”‘Straight up the middle;And no excuses”!

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  15. I don’t personally own any, but I have heard folks recommend all of those at one time or another — there has been a big pair trade on to buy the miners and sell gold by some folks, because the ratio of the gold mining stocks index to the price of gold reached an all time low in the last month or so (they’ve recovered a bit since).

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  16. Myron – Excellent comment. Gold is a commodity and subject to hype, pump & dump, and EMOTION. I’m glad you set us right.

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  17. Noticed your comment on GTU and gold discussion. I’ve had it over a year. Do you know why had it a drop of around 5 points, apparently on open, at end of last week. Never seen it do anything like that.
    Thanks.

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  18. GTU issued 975,500 new units on Friday. The offering was priced at 33.83. This caused the existing units to plunge. GTU insisted that the new shares wouldn’t be dilutive to existing unit holders. They were wrong.

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  19. Talk about rants. But glad to see you understand gold is but another commodity.
    One point you are slightly in error on though is that dealers do not “hold” gold at the top (or bottom), they hedge it until they can sell it. At a mark-up.
    Like you said, it is a business so they don’t take a risk. $20 below spot on the buy, $50 above on the sell and keep it hedged so you don’t care where the price goes.
    By the way, the premium is dictated by how much demand there is for the gold, not a constant % of the value.

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