January 30, 2008
"Paper money eventually returns to its in-trinsic value - zero." - Voltaire (Philosopher, 1694-1778)
Welcome to Miles Franklin
WEEKLY GOLD AND SILVER UPDATE
As the bull market in precious metals continues it's 6 year advance, there's a need to supplement the Miles Franklin Newsletter with timely updates. They will focus on interesting and important events in the precious metals industry, and will be emailed every Wednesday.
CEO, Editor in Chief
Gold, Silver And Platinum All At Or Just Below All-Time Highs
Last December, gold was still struggling to reach $800 an ounce. Now, $900 is in the rear view mirror and $1,000 is just around the corner.
I have been following the price of gold for the past 25 years and honestly my friends, I have never seen anything quite like this before. 7 years ago, just about everyone had given up on gold as an "investment." In those dark days, I wrote that everyone should have a little gold for "insurance" -- a "just-in-case" asset that would rise in the event that something unexpected happened and stocks or the dollar ran into trouble.
Well, it all started to change in 2002. At first, the change was gradual and most people did not pay attention. Gold bottomed in 2001 at $252 an ounce. Man, it was tough to make a living in the precious metals industry. Then a curious thing happened. Gold broke through the $300 an ounce barrier, and stayed there. What would happen next? Was this the long-awaited awakening of gold? Most people said "no way." But I had a gut feeling that this was the time to move into gold and silver. I started to accumulate gold, silver and the mining shares in a big way. It was the smartest thing I ever did, since I proposed to Susan. By mid-03 gold hit another landmark, passing $400. By late-05 gold was at $500. By now, a few people were taking notice and business was pretty good. In early-06 $600 fell and now things were all smiles at Miles Franklin. We were making a lot of money for our clients. Briefly in mid-06 gold rushed ahead of itself and topped $700. The euphoria didn't last long as the "Cabal" launched an all-out assault, using an enormous amount of central bank gold to crush the price. Gold tumbled nearly $200 an ounce back to the mid-$550 range. Was it all over? In every newsletter, I literally begged my readers to load up and wrote that this was not the end - we were still in the early stages of a generational bull market and this was just a "Cabal" engineered correction. By mid-07 gold reached another plateau at $800. Gold had rebounded some $250 an ounce in just one year. And now, gold has exploded to $930 and even the negatively biased Wall Street media are calling for gold at $1,000 this year. Typical! Gold has been rising between 20% -30% a year since 2001 and the Wall Street predictions are not even up to the typical gain that we have witnessed for years. What idiots! How about $1,100 or higher for 2008. Even that figure will probably prove to be low. As Jim Sinclair constantly reminds you, THIS IS IT!
GLD, The Gold Exchange Traded Fund (ETF), Good Or Bad?
I'd like to venture into an area that is subjective, but I have a story for you that you should give serious though to. What's it been now - a couple of years or so, since the first gold ETF hit the market? This much is a fact. It has been a smashing success. In fact, as I understand it, GLD was the most successful EFT of all. It now holds around 650 tonnes and the amount is growing rapidly. Is this a good thing for gold? It depends. There is little doubt that the ETF has re-directed investment dollars away from the traditional gold products and into the ETF. As a result, the gold mining shares, the majors and especially the juniors and exploration sector stocks, have been dead as Grogan's goat. It's a good thing for me that I got into this area early, in 2002, and made a small fortune before the ETF was launched, because in the past 2 years there has been little to crow about in this sector.
There is no question that millions of dollars that would have gone into physical gold now reside in the ETF. "So what," you say! Let's dig deeper.
A gold ETF is about as unlikely a product to be approved by the (anti-gold) regulatory agencies, let alone promoted by Wall Street. If you believe that the motivation was "profit," I would argue that it makes no sense. Wall Street could promote mining shares, but then again, they rarely ever do. Wall Street and the Fed HATE gold. Hate is not too strong a word here. They work overtime discrediting gold as a worthless investment and they work overtime suppressing the price of gold. Why launch a gold ETF?
Have you ever heard of Occoms razor? It states that if there are multiple reasons that can be used to explain something, "The simplest explanation is probably the correct one." Well, let me give you my explanation why the gold ETF was created. It is the simplest and most logical explanation, at least in my distorted mind.
I have been writing about gold confiscation since 1985. My first paper, "A White Paper on Gold" was all about confiscation and what investors could do to protect themselves from a future confiscation. I wrote an article for the LeMetropole Café on confiscation in 2002. As you may recall, gold was confiscated in 1933 by FDR and the law is still on the books. "Owning gold," I wrote, "is not a right, it is a privilege." That, my friends, is a fact. A desperate government can do anything, and our government is looking more desperate by the day and there is no question that they understand that at some point in the near future they will need a lot of gold to back up a sinking US dollar. Now follow me on this. The task of confiscating gold in the US is daunting. What would the government do? Inventory every safe deposit box in every bank and depository? Send agents into the homes of millions of citizens and search for a handful of coins? Face the outrage of the citizens who most likely would refuse to turn in their gold? These are not good choices, are they? But wait - why not create a vehicle that would act as a magnet for gold, a vehicle that would concentrate most of the gold into one easy to access area, the ETF gold vault. Why not let American's buy all the gold and hold it in a vehicle that by its very charter pays out in DOLLARS, not in GOLD. Then, our government could declare a national emergency and confiscate all of the gold in the ETF, an amount that will probably be well over 1,000 tonnes at the time, and with the assistance of the Fed, create a few billion dollars or even tens of billions of dollars and pay everyone off. No law would be broken. No confiscation back-lash to deal with. What a beautiful plan.
Guess what. When that day comes, and I believe it will - all of the people who think they own gold in their ETF will be out in the cold. Sure, they will get dollars back, equal to the value of the gold at the moment, but the price of gold will explode from that point as it will then be in the best interest of the government to allow gold to RISE in price, since they will then own most of it, and they will END their decades long suppression of the price. Then, go try and buy some gold with the money that the ETF pays you back.
There is only one way to own gold, and that is to actually own gold. Don't fool yourself that a derivative of gold, a paper representation of the real metal is a substitute for the real deal. Own it, keep it in your own possession and in a few years you will have the most valuable financial asset on the planet. Own an ETF position in gold and you will have missed the investment of a lifetime.
It's a great hoax that they have unleashed on the unexpecting public. You think you are buying gold but you are really buying gold for the government - in advance.
The same argument goes for SLV, the silver ETF. Less than 4, probably 2 large commercial banks are short around one year's production of silver. The silver ETF can be used to bail them out as well, and probably will.
Several of my very close friends have shunned gold and silver physicals for the ETFs. They like the "convenience" of being able to buy and sell with the click of a mouse and they prefer not to deal with storage issues. No matter what I say to them, it makes no difference. They will "get it," eventually. I will hate to say "I told you so."
Another real problem, as I see it, with the ETFs is that it is too easy to sell your gold and silver. If the price drops, you sell. This is not good. When you own physical gold or silver you will rarely sell it. That is how it should be. Owning gold and silver is a long-term proposition, and for most of you, the metals should not be used as trading vehicles. A friend recently, acting on my advice, purchased $210,000 worth of gold, but he refused to buy physical gold and instead he invested in a gold ETF. The price of gold fell $30 and he sold out. Then the price whip-sawed back up $60 and he was locked out. All he could do was complain and whine that he blew it. Serves him right. He may never get back in now, and will miss the bull market of a life time.
There are times when the ETFs do make sense. I use SLV or GLD to "store" funds that I am setting aside for taxes or future bulls and I will take my chances on the ETFs short-term rather than accept 2% or 3% annual interest in a money market fund. I use them as a check book. My wife has a few hundred thousand in ETFs, but that is only because this money is in her pension plan and she has no other way of playing the gold and silver bull market. She is doing very well indeed, but rest assured, in the next year or two, when she fully retires and takes control of the funds in a self-directed IRA, the ETFs will be history and she will own nothing but the real McCoy.
I will not be publishing a Wednesday newsletter next week because I will be in Orlando speaking at the Smart Money Conference. Stay tuned, I will be back in two weeks.
We are sending this short report out today but please look for our Newsletter coming out at the end of th week.
In This Issue
Gold, Silver And Platinum All At Or Just Below All-Time Highs
GLD, The Gold Exchange Traded Fund (ETF), Good Or Bad?...
World Money Show
Miles Franklin, Ltd.
Jim Sinclair's wrote:
There is no limit to the degree of fiscal and monetary stimulus that will be unloaded as this part of the Formula unfolds. This, to me, guarantees gold at $1650 minimum and the US dollar at .5200 on the USDX.
US slides into dangerous 1930s 'liquidity trap'
By Ambrose Evans-Pritchard in Davos
Last Updated: 12:29am GMT 25/01/2008
The United States is sliding towards a dangerous 1930s-style "liquidity trap" that cannot easily be stopped by drastic cuts in interest rates, Nobel economist Joseph Stiglitz has warned.
"The biggest fear is that long-term bond rates won't come down in line with short-term rates. We'll have the reverse of what we've seen in recent years, and that is what is frightening the markets," he told the Daily Telegraph, while trudging through ice and snow in Davos.
"The mechanism of monetary policy is ineffective in these circumstances. I'm not saying it won't work at all: it will help the banking system but the credit squeeze is going to go on because nobody trusts anybody else. The Fed is pushing on a string," he said.
The grim comments came as markets continued to suffer wild gyrations, reacting to every sign of contagion spreading to Europe, Asia, and emerging markets.
Wall Street has begun to stabilize on talk of a rescue for the embattled bond insurers, MBIA and Ambac.
The Fed's 75 basis point rate cut allows the banks to replenish their balance sheet by borrowing at short-term rates and lending longer term, playing the credit 'carry trade', hence the 9pc rise in the US financials index yesterday. But confidence remains fragile.
One share of the Dow buys only 13.40 ounces of gold, a new low.
One ounce of gold buys a big 55.22 ounces of silver, that's too much silver
China capped a fifth year of double-digit growth in 2007 and looks poised to unseat Germany for the third place in the global economy.
The US budget deficit will grow to at least $219 billion this year, up from $163 billion last year, according to the Congressional Budget Office. When the cost of the Iraq war is included, the deficit for the 2008 financial year will be closer to $250 billion.
Dubai 2007 gold trade increases 29% to $19.03 bn.