Most people understand that the US dollar is a fiat currency. A portion of the population has invested in gold as a hedge for the future. There are three ways to invest in gold: stocks (gold mines and ETFs), paper gold (your physical gold is managed and stored remotely) and actual possession.
Gold stocks whose value is dependent on mining gold are dependent on the ability to produce gold and profits. The price of gold may go up but if a mine’s supply of gold is exhausted, your investment is gone. This is simple finance 101: any stock not making a profit becomes worthless. Gold ETFs such as GLD are an easy way to trade quickly with little commission structure. The issue with ETFs is whether or not they actually have the gold reserves to cover their price.
The paper gold option is very common: you buy gold in some form and pay a company to hold it in your name. This reduces the risk that your gold will be stolen from where you store it and it is convenient for selling quickly since these companies generally buy and sell gold or are associated with other companies that do buy and sell precious metals. The issue here is whether they have sold your gold without your knowledge. This “fiat” gold strategy was outlined previously.
The last option is physical possession of gold. This can be broken out into two categories: gold or numismatic coins. Both give the owner the physical possession of gold. Regular gold coins cost less: the price of gold, minting charge and commission. The numismatic gold coin’s price depends on the rarity and condition of the coin. In the past, numismatic gold coins have been exempted from government confiscations.
To be clear, your decision to purchase physical gold may be dependent on whether or not the government will be able to confiscate private property. The consequences of a fiat currency used to gain political power are now apparent.
Chris Powell, Secretary and Treasurer of the Gold Anti-Trust Action Committee told Bernie Lo on CNBC Asia overnight that central banks are continuing to manipulate the gold market as they are interested in supporting government bonds and the dollar and keeping interest rates low.
Powell warns about “paper gold” and says that we “try to persuade investors that if they are purchasing gold, they had better get real gold – metal. They should not get “paper gold” and keep it within the banking system.”
He says that “there is huge naked short position in gold” and estimates that perhaps “75% to 80% of the gold that the world thinks it owns does not exist and is just a claim on a bullion bank that is underwritten basically by the central banks.”
Bernie Lo asks what is the “end result”?
With regard to price Powell said that he does not make predictions but he wonders “what the value or the price of gold will be if the world ever discovers that 80% of the gold that it thinks it owns – does not exist.”
“There may not be enough zeros in the world to put behind the gold price then.”