Gold Jumps: Has It Become Correlated To The Stock Market?

I’ve been an avid collector of gold and silver coins and have been following the prices for a years.

Gold is supposed to have a negative correlation with the stock market. This year has proved otherwise. Of course, as we’ve seen repeatedly in the past, all asset classes correlate to the downside.

Gold which peaked at $1030/oz earlier this year, has been trading in the $700 range for a few months. There has been a flight to safety, which for most people means buying US Treasuries. Indeed, the flight has been so large that it has pushed the yields down to absurdly low levels. The yield on the 3-month Treasury was almost zero at 0.4% and the 10 year is 3.52%. (The yield on the S&P500 was 3.55% this week, higher than the 10 year Treasuries rate for the first time since 1958).

The way that demand affects interest rates is that as people clamor for T-bills, they push up the prices for these bonds. Since the bonds pay out a fixed interest rate, the effective yield (also called yield-to-maturity or YTM) drops. So it’s the demand for stability in the current globally volatile economic environment that is pushing up bond prices and pushing down yields to almost nothing.

On the flip side, prices for a product fall as the demand drops off. So we’d expect the decrease in demand for gold as the cause of it’s low price. However, there have been several news reports stating that demand for gold is 50% higher than it was last year.

Demand For Gold Hits A Record Even As Institutions Head For Exits (November 19th, 2008)

The US Government Mint had to suspended retail selling gold coins and silver eagles earlier this year, and the Perth Mint just announced suspending production of gold coins.

So even though there is an increased demand for Gold, the prices haven’t been increasing proportionately. There have been several articles speculating on the reason for this.

According to:

The Disconnect Between Supply and Demand in Gold & Silver Markets (August 18th, 2008)

Obviously, enough people are willing to pay for gold and silver, at the previous $978 and $19.50 per troy ounce price, because the U.S. Mint could not source enough metal at those price, and had to suspend coin production.

This proves that people are more than willing to fork over, in whatever currency they are using, the previous prices for gold and silver, in such quantities, that a shortage was already existing, before the price collapse, especially in the silver market.  It is true that people in poorer countries like India, might have back on their consumption.

But, while they were cutting back, demand and consumption of gold in North America, including Canada and the USA, was soaring.  For example, before it suspended production of bullion coins, due to shortages, the U.S. Mint’s statistics show that it was printing 2.5 times as many gold coins, and almost 4 times as many silver bullion coins, this year, compared to last year.  Gold and silver bullion, in bar form, was also flying off North American retail shelves.

Bottom line: Enough people were buying, when the price was high, to exhaust the supply. Basic economics says that, in a free market, this means the price must rise.

Seems like somethings fishy in Denmark! The author further adds that

We have a disconnect between reality markets and fantasy markets.  The COMEX and London Metals Exchange are fantasy markets controlled by the big bullion banks.  They must be engaged in market manipulation, because nothing can explain a big price collapse, in the midst of widespread shortages and robust demand.  A group of big financial institutions, deeply enmeshed in the global trading system, and heavily involved in the gold and silver market, must be deliberately inducing temporary panic, for their own purposes.  These malevolent characters will eventually be able to buy back their short positions at low prices, and, possibly, also, even collect a significant long position.

I definitely think the prices are being manipulated, even though I’m not entirely sure why. One thing I do know is that you cannot manipulate prices indefinitely. Especially in the face of rising demand. Here’s an interesting snippet from the Standard.

(The Standard, Nov 14) Hong Kong: The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

China’s fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson’s US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.

Beijing’s reserves could easily go up to 3,000 to 4,000 tonnes, Tanrich Futures senior vice president Colleen Chow Yin-shan said.

That article was published last week when gold was trading under $720/oz. Since then, its jumped to almost $800/oz, with most of the move occurring yesterday.

Gold Prices for November 21, 2008

The bright green line is yesterday’s movement. Gold moved from under $750 to nearly $800. Looks like gold has become strongly correlated to the stock market after all!

I think the price of gold will continue to rise over the long term. It’s just a matter of how long it takes.

Rogers Still Bullish On Commodities

Jim Rogers recently gave a presentation in Vancouver, Canada where he reiterated his belief that we’re in the middle of a commodities bull market. His logic is simple: the supply of paper currencies in increasing while the supply of hard commodities like aluminum and copper is dwindling. He also believes that there will be a long-term economic shift to China.

Here’s a condensed version of his speech, courtesy of the kind people at Agora Financial Publications.

The commodity bull market has a long way to go. This bull market is not magic. It’s not some crazy “cycle theory” I have. It does not fall out of the sky. It’s supply and demand. It’s simple stuff.

In the 80s and 90s, when people were calling you to buy mutual fund and stocks, no one called to say. “Let’s invest in a sugar plantation.” No one called and said, “Let’s invest in a lead mine.” Commodities were in a bear market and in a bear markets people do not invest in productive capacity. They never have. Perhaps they should have, but they’ve never done it throughout history and probably never will. There has been only one lead mine opened in the world the last 25 years. There’s been no major elephant oil fields [of more than a billion barrels] discovered in over 40 years.

Many of you were not even born the last time the world discovered a huge elephant oil field. Think about all the elephant fields in the world that you know about. Alaskan oil fields are in decline; Mexican oil fields are in rapid decline; the North Sea is in decline. The UK has been exporting oil for 27 years now. Within the decade, the UK is going to be a major importer of oil again. Indonesia is a member of OPEC. OPEC stands for the Organization of Petroleum Exporting Countries. Indonesia is going to get thrown out because they no longer export oil, they are now net importers of oil. Malaysia has been one of the great exporting countries in the world for decades. Within the decade, Malaysia is going to be importing oil. 10 years ago, China was one of the major exporters of oil, now they are the 2nd largest importer of oil in the world. Oil fields deplete, mines depletes. This is the way the world’s been working for a few thousand years and it will always work this way. So supply has been going down for 25 years.

Meanwhile, you know what’s happening to demand. Asia’s been booming. There are three billion people in Asia. America’s growing. Most of the world has been growing for the last 25 years. So supply has gone down and demand has gone up for 25 years. That’s called a bull market.

One of the things you’ll find if you go back and do your research is that whenever stocks have done well, such as the 1980s and 90s, commodities have done badly. But conversely, you find that whenever commodities have done well, such as the 1970s, stocks have done poorly. I have a theory as to why this always works, but it doesn’t matter about my theory. The fact is that it always works this way and it’s working this way now.

So before I set off to my second trip around the world, I came to the conclusion that the bear market in commodities was coming to and end. So I started a commodities index fund. [Editor’s note: An ETN based on the Rogers International Commodity Index trades on the AMEX under the symbol: RJI.] This is an index fund. I do not manage it. It’s a basket of commodities we put in the corner. If it goes up we make money; if it goes down we lose money. But since Aug 1st 1998, when the fund started, it is up 471%.

I [mention this index] to show you that the commodity bull market is not something that will happen someday. It’s in process right now, and it’s going to go on for years to come, because supply and demand are out of balance. And by the time we get to the end of the bull market, commodities will go through the roof. There will be setbacks along the way. I don’t know when or why, but I know they are coming, cause markets always work that way. Commodities have done 15 times better than stocks in this decade and they’re going to continue that [trend].

You remember my little girls. My 5-year old never owns stocks or bonds; she only owns commodities. She’s very happy owning commodities. She doesn’t care about stocks and bonds, but she knows about gold. I assure you, she knows about gold.

Some of you probably diversify, or believe in diversification. I do not diversify; I am not a fan of diversification. This is something that stockbrokers came up with to protect themselves. But you’re not ever going to get rich diversifying. I assure you. But if you DO diversify, commodities are the best anchor because they are not going to do what the rest of your assets are going to do.

I will give you one brief case study about oil, because it’s one of the most important commodities. Some of you know that oil in Saudi Arabia is owned by a company called ARAMCO. It was nationalized in the 70s. They threw out BP and Shell and Exxon. But the last Western company to leave did an audit [of Saudi oil reserves] and came to the conclusion that Saudi Arabia had 245 billion barrels of oil. Then in 1980, after 10 years, Saudi Arabia suddenly announced that it had 260 billion barrels of oil. Every year since 1988 – 20 years in a row – Saudi Arabia has announced, “We have 260 billion barrels of oil.”

It is the damndest thing. 20 years; it never goes up; it never goes down, and they have produced 67 billion barrel of oil in this period of time. When nuts like me go to Saudi, we ask, “How can this be? How can it be that they always have 260 billion barrel of oil?” (By the way, last year they said they have 261 billion barrel of oil). And the Saudis say, “You either believe us or you don’t,” and that’s the end of the conversation.

I have never been to the Saudi oil fields, and even if I had, I wouldn’t know what I was looking at. But I do know something is wrong. I know that every oil country in the world has a reserve problem, except Saudi Arabia of course. I know that every oil company in the world has declining reserves. So I know that unless someone discovers a lot of oil quickly, the surprise to most people is going to be how high the price of oil stays and how high it goes eventually. That is the supply side. Let’s look at the demand side.

The Indians use 1/20th as much oil as their neighbors in Japan and Korea use. The Chinese use 1/10th as much per capita. There’s 2.3 billion people in India and China alone. Well, the Indians are going to get more electricity. The Indians are going to get motor scooters. They are going to start using more energy, so are the Chinese. But if the Indians just doubled the amount of oil used per capita, they would still use only 1/10th of what the Koreans use. If the Chinese doubled their oil use, they would still be using only 1/5th what the Japanese and the Koreans are using. So you can see what kind of pressures there are on the demand side for oil and energy, at a time of terrible stress on the supply side. These are simple things.

So I would urge you are to take a lesson from my little girls. My little girls are learning Chinese. My little girls are getting out of the US dollar. My little girls own a lot of commodities. I would urge you to do the same.

While, I’m not going to be learning Chinese any time soon, I’m still holding on to my gold, silver and energy stocks. They’ve taken quite a beating this year, but I they’re still in a long-term bull market. Even though the US dollar has shown some strength in the past 2 weeks, nothing has changed in the fundamental economy. The US government is still broke, it looks like we might have a Trillion Dollar deficit by 2010, and  yet it still willing to bail-out Fannie Mae and Freddie Mac at the tax-payers expense.

The World’s Most Expensive Gold Coin

China just released a 10 Kilo Gold Coin to commemorate the 2008 Olympics that are currently being held in Beijing. 10 kilos of .9999 Fine gold is a staggering 321 ounces, more than 22 pounds and its more than a half foot in diameter! Not only is it the largest gold coin, it’s the rarest as well: Only 29 have been struck for the entire world and all have been sold.

This spectacular museum piece is housed in an exotic African Blackwood presentation case, which is crowned with a 35 pound carved stone dragon. The coin is legal tender with a face value of 100,000 Yuan and is Proof struck, which means it has an ultra-high relief, frosted design set against a flawless mirror background.

A company in the US is currently selling it for a whopping $1 million! That’s right One Million Dollars!! Considering that it contains 321 ounces, and each ounce sells for $960, that means its worth about $308,000. Charging $1 million for it is a bit too steep a premium, but considering that there are only 29 in existence, I can see the lure of owning something rare appealing to many people. Especially those people with a lot of money and not enough places to spend it! If I had a million bucks to spend on gold, I’d buy the 100 Kilo Canadian Maple Leaf instead. And this coin cotains .99999 pure gold!

But since I don’t have a million dollars lying around, I’d rather keep on buying my 200 year old Napoleon 1st French gold coins for under $500 each! I don’t know if the Chinese will be minting any more of these Olympic gold coins, but I’m positive Napoleon 1st is definitely done minting his collection! I already have several of these, and they’re really quite spetacular.

UCLA Loves Me!

I managed to get accepted in the UCLA Anderson School of Management. Since I applied in the third round I think thats quite an achievement. Of course, applying so late virtually guarantees no funding or fellowships. This kind of sucks since I did get a 740 on my GMAT which typically helps in getting MBA fellowships (unless you’re going to the top 5 schools). But on the other hand UCLA is ranked #12 for the full-time MBA program.

I was looking forward to not having any student loans when I graduate, especially after receiving a fellowship from UCSD. But UCLA’s program is much more highly ranked so the question is whether its worth spending the extra $60,000.

Of course, if we go through a period of hyperinflation (which I think we’re already in the beginning stages of) then in 10 years, $60,000 might only seem like $10,000! In which case, going to even the most expensive school will look like a good investment in hindsight.

In the worst case, I’ll take out a tax-deductible student loan to cover the costs of my education. Well actually thats not the worst-case scenario. Having to sell off my investments and gold & silver coin collection would be the worst case! But I’m hoping the passive income generated by my investments will help provide me with living expenses for the duration of the MBA program. Or maybe someone will buy my blog for $50,000! 😉

10 Reasons Why Gold Should Break $1000 This Year

Today’s guest post comes from Bruce, CEO of Superior Gold and includes a free silver coin!

For many years I was a successful real estate investor. However, I realized that the market was getting very speculative and decided to get out while the going was good. In 2003, I sold my last investment property located in North Carolina. At the time, I had many colleagues in the tech sector, finance sector and even senior managers at well known companies all telling me of their plans of quitting their jobs and becoming future Donald Trumps.

To many of them, the real estate investment boom would never end. These weren’t small investors who bought a $100k house and flipped it in 6 months for $160k. No, these were very smart guys who were thinking of playing in the big leagues; backing local builder’s subdivisions, buying spec land on beach frontage and getting into the commercial flipping game. Many of these investments had $250k down-payments!

I would be lying if I said that none of them did well. One of my former associates has done incredibly well, and is one of my best clients now. But for the majority of them, the losses in terms of time, money, and piece of mind has deterred them from ever using the words “real estate” and “investment” in the same sentence!

I only bring this story up, because at the time I was 3 years into my precious metals business. I had felt that it was not only a good time be investing in gold, but to become a seller and promoter of gold. As a gold broker I tried to persuade many of my colleagues to diversify their 401(k), IRA’s and savings account into gold. If you think selling houses is difficult today, try to convince an upwardly mobile 30-something that allocating a portion of their earnings into gold was the right thing to do in 2003. My, how things have changed! Gold Bullion is on a tear, rising over 250% from January 31st 2003 to January 31st, 2008. And in 2007 alone, gold rose more than 30%. Not bad for the world’s oldest currency.

I strongly believe that gold will rise even higher this year and that everyone should have a portion of their investments diversified into gold. While I know that not every reader will agree with me, I would challenge you to provide a safer place to store your money in 2008.

Here’s why I think gold will break $1000/Oz this year:

1. Oil prices continue race to peak levels and for the first time in history GOLD has taken a peak road of it’s own.
2. Iraq war will not end in 2008, not likely 2009 furthering your contribution to the war fund by all Americans.
In times of uncertainity, gold always does well.
3. Real estate market has years to recovery, more than likely a minimum of 4-7 years. Yet another sector that faces great uncertainity. Again, bullish for gold.
4. Job losses are continuing to mount in the American market where Corporations continue to outsource American jobs overseas.
5. China and India continue to record a demand for gold as America continues to enrich their economy based on goods made in their country.

6. European Central Banks will not be able to make available GOLD to other foreign countries thereby creating a shortage. By holding onto it,they’re increasing their wealth.
7. The US Federal Reserve continues to deny that inflation exists and in trying to quell to recession,it will be forced to decrease interest rates. This will weaken the dollar, which has an inverse relation to gold prices.
8. The government faces future obligations for Social Security and Medicaid worth $57 Trillion. It is promoting a weak dollar through increased the money supply to make it easier to repay debt.This will also push up the price of gold.
9. Global markets, while usually non-correlated, usually re-couple on the downside. Stock markets are usually inversely co-related to the price of gold. Seeing the worldwide correction in markets last month bodes well for the price of gold.
10. Gold is still undervalued. Adjusting for inflation, it will have to hit $2,300/Oz to achieve parity with the peak that occurred in 1980.

As President of the Superior Gold Group, I oversee a knowledgable and informed team of client specialist. We specialize in assisting clients diversify their portfolios by targeting a healthy 30-40% of their retirement funds and or personal savings into gold and other precious metals investments. Unlike other gold brokers we know that investments come in many shapes and sizes, but we advise our clients to never leave their nest egg in one basket. We would love to discuss how we can assist you. Give us a call at 888.969.6465 ext 102 or visit our site at

Clients who get the best results are those that expand their concepts of traditional investing (stocks,mutuals, CD’s, and savings accounts, etc) to include the knowledge of real money (i.e. Gold) and how fiat currencies have historically always led to a countries bankruptcy.

Also, if you mention the Living Off Dividends Blog and request a free information packet on portfolio diversification, we will extend a one-time courtesy gift of a Silver Kennedy half dollar. This half dollar in the early to late 60’s was valued at .50 cents. Today, due to the high prices of silver, it is worth a minimum three (3) to four (4) dollars, making it more valuable than a one dollar bill. How’s that for keeping up with inflation!

Start NOW with Precious metals. Pick up that phone and make the call! 888-969-6465 ext 102.

“Building Wealth You Can Touch With People You Can TRUST! The SUPERIOR GOLD GROUP”

Gold Breaks $800/Oz

Reacting to the Federal Reserve’s rate cut today, gold surged past the $800 barrier for the first time since 1980! I’ve been hawking gold as an investment for 2 years and no one’s been listening to me!

According to a press release today:

Gold last topped $800 an ounce in 1980, when prices reached as high as $875 an ounce in January. Adjusted for inflation, an $800 ounce of gold in 1980 would be worth more than $2,000 today.

I think that gold will probably hit atleast $2,200 if not more.  Some people are predicting higher amounts, like $3,500. I’m not sure. But I do know the US Dollar is a lousy investment right now.

Oil closed at $94.51 and the Canadian Dollar now cost $1.06!

New Coin Purchase

[Picture of 1 Oz Silver Eagle]
I recently mentioned that I made $500 dollars last month from online advertising. Rather than use that money to expand or improve my lifestyle (also knows as “buying crap”), I decided to invest it in something that has intrinsic value.

The US Dollar has losing value over the past 2 years. Just today the Dollar index dropped to its lowest recorded value of 77 and I think its going to keep on dropping. Typically precious metals like Gold, Silver and Platinum do well in times of a weak currecny.

Why do I think the Dollar will continue to weaken?
Because the economy sucks and is being manipulated in wierd ways. To quote someone quoting the late Dr. Richebacher, a smart and wealthy economist,

“All this emphasis on statistics and calculations.,” he went on, rapping his silver-handled cane on the table for emphasis, “without a proper theory, it is all nonsense. And your economists seem to have no theory at all.they just think they can manipulate the system in order to get whatever outcome they want. They think economic growth comes from consumer spending and that they can control consumer spending by adjusting lending rates. It is unbelievable that anyone takes this seriously. It is capital formation that really matters. A rich society is one with a great stock of capital. One that builds capital and puts it to work to create more capital. A rich society is not one where people consume. Just the opposite. It is not what is consumed that creates wealth; it is what is NOT consumed. Yet, all the Anglo-Saxons focus on motivating consumers to consume. And now they are consuming more than they make. I tell you, in 70 years of studying economics, I have never seen such nonsense.”

[Picture of 1 Oz Silver Peace Dollar]

And in order to “save the economy” the FED is going to cut the interest rates, which will increase inflation and weaken the dollar. Even the Governor of the Bank of England, Gov. King said yesterday that “If central banks cut interest rates in the current environment, they run the moral risk of rekindling speculative risk-seeking, i.e. supporting the very behavior that caused the current market crisis, namely the underestimation of risk.”

A country’s currency is an indicator of its economy. If the country has a good balance sheet, positive flow of funds, a good business plan, strong leadership the currency will be strong. Right now the US has none of those qualities.

Anyway, I spent the $500 on some silver coins. Regular readers already know I like buying gold and silver coins. I bought about a dozen each of the perth mint silver tigers, 1920s Peace silver dollars & 2007 silver eagles. They’re beautiful coins, make good gifts and hopefully will continue to appreciate as the Dollar keeps losing value.
[Picture of 1 Oz Perth Mint Silver Tiger]

New Million Dollar Coin

In part as a marketing exercise, The Royal Canadian Mint has produced a $1 million face value coin containing 100kg of .99999 pure gold.

With gold currently trading at $660 per ounce and each kilogram containing 31.1 ounces, the actual cost of the gold in the coin is worth just over $2.5 million USD!

It seems to be part of a marketing exercise to promote its .99999 pure gold Maple Leaf bullion coin. Current Maple Leaf gold coins are .9999 pure. In contrast, South African Krugerrands, while containing a full ounce of fine gold, are only .9167 percent pure with the balance made up with copper, so they actually weigh more than an ounce.

First Morgan Silver Dollar Arrives

I got my first Morgan Silver Dollar today. Morgans are beautiful, large and allegedly the most popular collectible coin in the US today. This particular specimen was minted in 1896 making around a 110 years old. Its in pretty good condition for a coin of that age. Considering I only paid $21 for it, I’d say its a great deal too!

It has the liberty face on one side and an eagle on the other. Because of the eagles’ somewhat scrawny appearance, they used to be called buzzards! Its called the Morgan after the dude who designed the coin.

Gold At $100 Off Its 2006 Highs

Lunar Gold DogGold has retreated quite a bit since its high of $730 on May 11th 2006. Its currently trading around $630/oz. I see this as a good buying opportunity. While I’m against dollar cost averaging, I think gold is in the beginning of a bull cycle and this justifies buying on dips.

Lunar Silver Dog

I recently bought another Australian Lunar Series coin. This time I got the Dog. Also got it in the Silver coin and surprizing the species of dog is different on both of them.

british gold sovereign
Anyway, I also bought some gold British Sovereigns [around 100+ years old], some French and Swiss francs and an 1873 Danish “Mermaid” Coin.
danish mermaid 20 kroners
I also bought a 200 yr old gold coin of Napolean Boneparte! [Ok maybe I’m going nuts with this gold coin stuff, but its hard to stop buying those damn things now!] Better stop now before the wife gets upset!

I also got a bunch of Silver Eagles. Funny how the price of silver is so low considering that its used in electronics as well as jewellery. Compared to Gold [which in my mind is inherently useless] it hasn’t gone up as much. Anyway I’ll post pictures of them later.