Financial Advisors and Gold

from The Delaire Report - August 30, 2010
Most investment advisors, stock brokers and financial planners who are in their thirties or even forties, were brought up in a world where gold had no importance. All they knew were the boom days caused primarily by an unprecedented and uninterrupted massive credit expansion that begun in the US in 1980. Suddenly, as we all know, this all came to an abrupt halt in August 2007.

As a result of this tragic economic disaster, countries around the world were sent into recession and governments were compelled to spend trillions of dollars in attempt to prevent a total meltdown of the monetary system as we know it. The problem is, someone has to pay for all this monetary expansion. While those investment advisors in their thirties and forties who have never heard of gold, search for high yielding investments finally realize that in times like this, it is more important to simply protect your wealth they evidently believe that the single safest place to be is in government bonds in particular US Treasuries. But, most Treasury bonds are at record low-interest rates. The long 30 year T-bond now yields 3.77%. and the 10 year T-bond yields a ridiculously low 2.63%.

The national debt of the US is approaching USD14 trillion and soon government debt to GDP will be more than 100%. Gross government debt in the U.S. stood at 85% of GDP in 2009 and will reach 108% of GDP by 2014, according to IMF projections. The U.K.’s gross government debt stood at 69% of GDP in 2009 and is expected to reach 98% of GDP by 2013. With slow GDP growth, high levels of unemployment which will result in a smaller tax bill, governments will experience difficulty funding all this debt. And, as a consequence, they will continue to increase money supply which will ultimately debase their currencies even further. This will cause the value of gold to rise. Since 2001 as the US dollar has lost more than 30% of its value gold in dollar terms has increased more than fourfold.

On August 25, according to Reuters, the Federal Reserve asked a U.S. appeals court to delay implementing a ruling that would force the central bank to disclose details of its emergency lending programs to banks during the financial crisis. The Fed programs were designed to shore up the financial markets, and more than doubled the central bank's balance sheet to well over $2 trillion, especially after the September 2008 collapse of Lehman Brothers Holdings Inc. Wednesday's emergency request for a 90-day delay came after the U.S. Second Circuit Court of Appeals on August 20 denied a motion by the Fed to rehear the case, which had been brought by Bloomberg LP, the parent of Bloomberg News, and News Corp's Fox News Network. In March, the Second Circuit ordered the Fed to disclose information, including the names of bailout recipients and amounts received, that the news media had requested under the federal Freedom of Information Act. The Fed argued that allowing disclosure could stigmatize banks, causing a loss of confidence that could lead to deposit runs, bank failures and damage to the economy.

This non disclosure of information by the US government reminds me of the continual requests to do an audit on the US gold reserves which are supposedly around 8,000 tons. As unbelievable as it seems the last audit done of the gold inside Ft Knox was done in January of 1953. The years after 1953 saw hundreds of millions of ounces of gold fly out of the US. On August 24 in an exclusive interview with Kitco’s Daniela Cambone, Ron Paul called for an audit of the US gold reserves. “If there was no question about the gold being there, you think they would be anxious to prove gold is there,” Paul said of Federal Reserve. Now, why won’t the US government allow an independent company to conduct an audit on gold? The answer is pretty obvious. Because they don’t have the gold they claim to have. And, in today’s economic climate, if the US suddenly stated that they have only a fraction of the gold that they claim to have, can you imagine what would happen to the greenback?

My point is, if you look at the problem of global sovereign debt, slow economic growth which translates into weak corporate profits, high unemployment, low interest rates, devaluing values of major currencies, and then add to the mix the potential of a much lower figure of gold held in the US reserves what do we have? We have a recipe for a major calamity. While I cannot see the total collapse of the US dollar the current economic scenario is frightening and if you simply choose to ignore it, you will be financially destroyed over the next several years. And, the only way to protect yourself against this trend is to hold real assets including metallic money such as gold and silver.

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David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients.His articles and commentaries on precious metals have been published in dozens of newspapers, publications and websites both locally as well as internationally. He has been a featured guest on numerous radio and TV shows, and is a regular guest on JSE Direct, a premier radio business channel in South Africa.David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.For more information go to: www.lakeshoretrading.co.za