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Summer Notes from All Over
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(July 8, 2009) Gold prices are softening, and many buyers are making vacation plans or have already escaped to work-free havens. This might be the perfect time to ramble down the yellow brick road…
Because we are gold bulls ourselves, we are always on the alert for any mention or even offhand remark about the ways of our herd. Such was found in a July 6th Barron’s article by Michael Santoli, entitled “Conversation Starters for the Holiday.” In it, he quotes Dennis Gartman, who Mr. Santoli refers to as the “straight-shooting listener to markets at the Gartman Letter,” as saying, “We do find the frenzy with which the gold bulls are pushing various conspiratorial theories these days interesting.”


It is not further revealed by Mr. Santoli exactly what was so ‘interesting’ about this alleged frenzy. But in today’s usage, the adjective ‘interesting,’ when placed as an object of the verb ‘find', actually means “inadvertently
self-revealing, obviously biased, and/or predictable,” which of course is the opposite of interesting. So we can probably assume that Mr. Gartman meant his statement as a snide remark.

The very phrase “conspiratorial theories” is itself a loaded one, meant to suggest that some sort of crackpottery is evident. This is often the criticism from the Wall Street corner when hard-money advocates put in their two cents worth. For instance, in trying to understand our current economic unpleasantness in the context of the tight relationships, personal familiarity, and revolving-door title-swapping which constitute a cozy interplay and mutual back-scratching among the Department of the Treasury, the Federal Reserve, and various financial institutions which share, seemingly, only one obvious characteristic: enormous size.

Really, Mr. Gartman, it’s all in how you phrase it. What from the outside might look like a ‘conspiracy,’ is simply an example of coordinated teamwork to those insiders involved and those who profit therefrom. Maybe in this instance we might find a happy medium by using the word ‘collusion.’ Call it what you will, there are some questions floating around that are, in fact, ‘interesting’ in the traditional sense of the word.

For instance, how did Goldman Sachs come to rule the United States of America? Why are the Treasury and the Fed working together in throwing money at institutions that ordinary Americans would be more interested in throwing other things at, such as tomatoes, or rocks? Why are certain massive financial and insurance companies deemed too big to fail? Is there no end to federal efforts to restore these once-profitable firms to financial health no matter how badly they screwed up?

We could work up a healthy populist anger about all this, and many in Congress are doing just that – witness their attempts to micro-manage compensation of bank CEOs and claw back the bonuses doled out to various genius quants and MBAs who recently took banking and the insurance dodge to whole new convoluted levels of financial monkey business.

And certainly there is a time-honored appeal in lumping together that seemingly non-productive group known as financial workers, and denouncing them as a criminal class. Today we are even seeing a revival of the term “banksters,” a word formed by the conflation of bankers and gangsters. “Banksters” was a common pejorative that blossomed during the first Great Depression (1929-1940), when bankers and their institutions destroyed many a working person’s savings in the days before the FDIC was created to protect depositors.

In a sense, the Federal Deposit Insurance Corporation saved the reputation of banking as we know it. At least it did until this recent economic unpleasantness, when the federal policy towards bankers somehow became very benevolent. Call it ‘private gain, but public pain.

But, back to gold: This morning (7/9/09) the Wall Street Journal delivered the shiny yellow stuff, in the form of a tall stack of gold bricks on the cover of their Personal Journal section, to illustrate an article by Larry Light, entitled “Catching the Gold Bug.”

“More and more investors are acquiring physical gold, or bullion, in the form of small bars the size of iPhones, or coins like American Eagles and South African Krugerrands,” writes Mr. Light, “Individuals’ bullion purchases almost doubled last year, amid apocalyptic panic over the financial system, to 862 metric tons.”

The article over all is a pretty fair report on acquisition of physical gold by ‘regular folks’ who are buying gold to put away. Gold has not only earned quite a bit of respect as an investment over the past few years, but also increased respectability as more and more sophisticated individuals and money managers have come around to gold’s charms and utility. One investor stated to Mr. Light, “Owning bullion is buying insurance against the unknown.

And the good news these days for gold bullion buyers is that premiums have returned to more ‘normal’ levels, and supply from the refiners and mints is now meeting demand. Today’s market is much more consumer-friendly than last fall’s feeding frenzy of high demand, spot supply shortages, and ramped-up commissions.

The days of ‘allocation’ to dealers by the US Mint are now over, and the Mint has caught up on demand for both 1-ounce gold and silver Eagle. With any luck, we could see 2009-dated fractional gold Eagles by this fall. Whether we see gold Buffaloes or platinum Eagles this year will depend on the Mint’s continuing to have sufficient striking capacity (not a problem) and a good supply of coin blanks (often a problem, as such production is outsourced).

Lately, we have gotten a lot of inquiries about placing precious metals in an IRA. This is a very popular business these days, particularly for salespeople who sell Proof gold Eagles, certified and graded bullion, and other profitable ‘value-added’ products to unsuspecting IRA owners.

But even if you can avoid getting ‘up-sold’ into expensive precious metals exotica in your IRA, we still maintain that even holding basic, no-frills gold bullion in your IRA is not an optimal strategy.

First, the beauty of physical gold is that it is wealth itself, in your personal possession and under your control, come what may - but gold in an IRA is stored in a distant depository. Secondly, the strategic advantage of an IRA is that it shelters your gains and interest income against taxation - which gold doesn’t generate anyway.

You probably won’t find many gold dealers who agree, but in our opinion, putting gold in an IRA cancels out the advantages both of gold and of an IRA.

 

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