By Jon Nadler
17, 2007. Ten days after the beginning of the
Fed rate cuts (and financial market turmoil)
that would eventually bring gold to $1033.90 on
March 17 of 2008. That's how long ago it was
that gold traded at $720 per ounce. We have now
come full circle. The metal is currently showing
a 20% loss over one month, and 3.5% on the one
year timetable. Our long-stated (and much
derided) $732 objective has been achieved, of
that there is no doubt. The remaining question
now emerging is: has gold seen its lows, or are
we at the start of a phase in the mid-to-high
$600's? There is plenty of uncertainty on that
front, for the moment. Maybe the next Hulbert
metric will tell us more. So far, Merv Burak
gets the prize for the week's call for new lows.
Fear not, for there will once again be plenty
of: " No worries!" and " Back up the truck,
honey! "calls coming from the usual suspects'
quarters. Don't know, but it seems that most of
these trucks must have broken gears, having been
in reverse for so long. Along with the alleged
'disconnect' between paper and physical prices.
A broken story as well. Anyhow, copper lost 8.72
and lead lost 9.69 percent on the day. Oil? Off
a "mere" $5.65 per barrel to $66.53 per barrel.
Overnight markets experienced more of the same:
the same surging US dollar, declining crude,
pessimistic equities, and declining commodities.
The list of slumping currencies still headlines
the ruble, the real, and the won (soon to be
renamed the rubble, the unreal, and the lost).
Moreover, the "Iceland Syndrome" appears to be
spreading - this time, apparently starting to
affect my parents' old stomping ground, Hungary.
In a desperate attempt to stem a flight from the
forint, the Magyar central bank raised rates to
11.5% today. Contrasting that move, reasonable
expectations that the European central banks
will soon cut rates to avoid the (likely)
The Dow caved in again, this time by 500-600
points - margin calls will soon follow. If
anyone had doubts about the commodity sector
somehow miraculously escaping the current mania
for cash, they are searching for new careers
right about now. Commodity-trading newsletter
writing is so...90's. Gold took out the $732
level and sank as low as $718.90 intra-day ( a
$50 loss, at one point). Another sizeable gain
in the dollar brought it to 85.60 on the index.
Something has to give? Not in this boxing match,
not thus far.
New York spot dealings continued to find lower
and lower bids, and were off by $45 at $725.00
at last check. While the decline is a perfectly
wonderful and timely Diwali present to India, it
still raises the possibility that the metal is
becoming a "reverse hedge" in a world of
crumbling values. Yes, bullion may fall further
(targets include $675, and $640 - at this time),
but it might lose less than that overpriced
fixer-upper, or the sickly-looking basket of
stocks the brokers are trying to keep one from
Silver fell 60 cents to $9.43. Silver pundits
have fallen silent or are trying to distract
with stories of parallel universes. Quietly,
India is turning this Diwali into a festival
of...silver, but not much gold. As for
bargain-basement prices, look over to platinum
and palladium, as they wear freshly altered
price tags of $829 (down $64) and $175 (off $6)
on the dire news that US auto sales have not
looked this grim in over a of a quarter century.
Gold may even rise, following whatever target
the current slump takes it to, perhaps trying
for $1K once again over the next 6 to 18 months
- this, according to our friend Paul Walker over
at GFMS in London. Paul bases his expectations
of the four-digit achievement on a decoupling
from the commodity complex based on its monetary
attributes - some of which have come under
serious testing of late. Thus far, that divorce
appears to be in question, as gold continues to
hold some very tight hands with oil and base
metals. But, as always, caveat emptor - or
speculator, as the case may be. Personal finance
guru Jane Bryant Quinn delves into the chances
and the ifs, hows, and whys of gold paying off,
in a commentary on Bloomberg's homepage today:
Oct. 22 (Bloomberg) -- Gold is for rich guys --
buying physical gold, that is. The metal's
highest and best investment use is as insurance
policy against a currency collapse. For that
purpose, you need a lot of it, stored around the
world. Owning 20 or 30 coins is nice but won't
protect your standard of living in a world where
dollars are dust.
Gold isn't even a reliable hedge against
inflation. It reached $850 an ounce in January
1980, a price not seen again until January 2008.
During those intervening 28 years, gold plunged
and reared but lost more than half of its
purchasing power. For a 1980 investor to break
even after inflation, gold would have to reach
It might, but how long did you plan to wait?
For the average investor, gold boils down to a
speculation on higher prices. The latest run-up
started in August 2007, when the housing market
visibly started falling apart. From $652, it
raced up to $1,003 an ounce last March,
zig-zagged back to $747 in September, jumped to
$905, then slid to $772 as of yesterday.
Hedge funds drove the market but individuals
jumped in, too. So far this year, investors have
purchased 611,000 newly minted, one-ounce U.S.
gold coins, compared with 315,000 in all of
"We've seen a switch in appetite, with investors
moving from futures to physical gold, either
owning it directly or going through
exchange-traded funds," says Suki Cooper, an
analyst at London-based Barclays Capital.
Coins purchased strictly for their gold value,
not their numismatic value, are known as bullion
coins. Many countries mint them -- South Africa
(Krugerrand), Canada (Maple Leaf), China
(Panda), Austria (Philharmonic) and Australia
(Kangaroo), among others. The U.S. Mint makes
Buffalos and American Eagles. For investment
purposes, you want the one-ounce size.
That is, if you can find them. The yearlong run
on bullion has dried up the supply of coins for
immediate delivery. Everything was out of stock
last week at the online dealer onlygold.com.
Kitco.com had Maples at 7 percent more than the
spot gold price.
"The premium will likely come down 1 or 2
percent when all coin supplies improve a bit,"
says Jon Nadler, senior analyst for Kitco Metals
& Minerals in Montreal.
The various mints project the number of coins
they expect to sell each year and produce on
demand. Toward the end of each year, they let
their inventories run down while gearing up for
next year's run. The surge of buyers left them
short of high- quality blanks.
Currently, the U.S. Mint is striking only a
limited number of 2008 Eagles. The wholesalers
are on allocation. No Buffalos are being shipped
at all, although a small number might still be
minted before the end of the year. By late
December, dealers expect to start receiving 2009
Coin of the Realm
For U.S. investors, American Eagles are the
bullion coin of choice. You can put them into
individual retirement accounts as long as they
remain in their original U.S. Mint capsules.
(It's not clear that Buffalos are allowed.)
Eagles also slip through a loophole in the tax
reporting law, says Scott Travers, author of
"The Coin Collector's Survival Manual." Dealers
have to report to the Internal Revenue Service
if you sell 25 or more Maples or Krugerrands.
They're not required to report your sales of
American Eagles and some other coins, although
some may do so. (Kitco, in Canada, says it does
no tax reporting at all.)
Normally, one-ounce Eagles sell for 5.5 percent
to 7.5 percent over the gold price, Nadler says.
Small dealers might mark up the price even more.
In this buying panic, I saw online dealers
charging as much as 13 percent more than spot
gold. Their Web sites warned that there might be
a wait before your Eagles could be shipped.
On EBay and the Home Shopping Network, coins
sell at fantasy prices. A set of Eagles in four
different weights was offered on HSN at
$4,999.99. In gold, it's worth about $1,450.
Prices like these take advantage of neophytes. A
coin dealer might sell a four-coin set for
$1,850, Travers says.
A cheaper way of buying gold is through an
exchange traded fund. The most widely traded
fund, SPDR Gold Shares, costs 0.4 percent a year
in fees, plus your brokerage commission. You
don't own the gold directly. A trust holds large
gold bars (warehoused principally in London) and
sells shares against them, which are traded on
the open market. You can't redeem in gold
It costs even less to buy bullion in a pool
account, such as the ones offered by Kitco. Like
an ETF, a pool account sells shares in a large
bar of warehoused gold. You pay just a hair over
the spot gold price, and sell it back to Kitco
for just a hair under. There are no annual
expenses. For a fee, you can redeem in gold
itself. As with ETFs, you depend on the pool's
trustee to support its guarantee.
Gold, by the way, is taxed as a collectible --
whether you buy it in the form of coins, ETF
shares or an interest in a pool account. Your
tax rate on long-term capital gains would be 28
percent, compared with 15 percent on other
assets. Only a significant price gain (or
currency collapse) redeems your bet."
We now have to get back to the drawing board and
sketch the next phase out. The repair work to be
done is quite daunting, while the path of least
resistance still points to commodities on sale.
We expect intense accelerated and exaggerated
patterns over the next three weeks. What else is
new. Just don't worry. Too much. Not good for