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Thursday, April 13, 2017

PaGA 2017: Day 18a A Few Things About Gold

Every so often get information from many different sources. I only recently got acquainted with a few charts from Rosland Capital, a firm that handles precious metals.  Some of this is outside information from them, as well as a few other sources like the Federal Reserve and a Gold & Silver Blog, but hey, some of you out there want to know more about gold, and who knew that you can only directly invest in 10% of this commodity. Here is his contribution providing some insights.

Less Gold, More Gold Certificates

While only 10% of gold demand is finance-based, the precious metal’s price often changes in response to market events and even other commodities. With the Federal Reserve unloading a portion of its balance sheet accumulated during the later part of the 2008-2009 Recession potentially later this year, it is worth taking a look at how gold historically behaves during recessions and bull markets. After all, the Fed reported that it had on its balance sheet over $11 billion in gold certificates in 2016, making some investors scratch their heads as to just what this means for gold demand.
Over the past five recessions, gold has shifted from moving in unison with copper to moving against it, as shown below. Originally from a site on using gold IRAs, silver and other precious metals to hedge retirement savings, the chart illustrates gold’s shift from left to right, starting with the recessions of 2001 and 2007-2009. Since March 2001--and especially given post-9/11 geopolitical uncertainty--gold has become a safe haven during recessions, moving along with the US dollar, which had a relatively muted bull market during the past two recessions.


As you may know, the Federal Reserve doesn’t own any gold outright, as the Gold Reserve Act of 1934 transferred the right of gold ownership to the US Treasury. This essentially means the certificates are worth far less than the market price of $1250-1270 an ounce we’ve been seeing lately. The New York Fed still safeguards gold in its vault in Manhattan, however, charging the Treasury, as well as foreign central banks and governments a fee if they move their gold holdings into or out of the vault.

By the sixth year of the bull market in 2015, the amount of gold at the New York Federal Reserve decreased by 47.1% from 1973, an important year for gold (at least for the Federal Reserve) shortly after what economists consider The Great Inflation period started. Today the Fed’s gold certificates are still quoted at $42.22 per ounce, not the market price. What that essentially means is the Fed would receive 1973 prices for the certificates if it redeems them at the US Treasury for dollars.

Just like the Federal Reserve Notes issued to the American public that replaced the non-fiat yet nearly identical dollars before them, “Not Redeemable in Gold” is a stipulation that applies to the Fed’s own gold certificates as well.

So let me end with what I know.  Here is a graph of the nominal and inflated (2014) historic price of gold:


As that graphic only goes up to 2014, more recently:


This you could have guessed, but the USA owns the most gold, almost an ounce for every person in the country.  As we have a population of around 320 million, the worth is $412 billion. We own 73% of what gold has been refined, and most can be found at Fort Knox, Kentucky, still an Army post.  China is #7 and Japan #9.

Why did I want to educate you about gold?  Well, there is an expectation that, maybe due to someone named Donald Trump, the stock market will soon crash.  Is gold a good investment?  With only one recent exception (early '80's), yes;

Thus, to cover yourself, if you believe that there will be a major market correction--remember, we are near an all-time high in stock prices--stash some cash and get more gold.

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