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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Commentary Of The Month
May 17, 2004
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By John Kamin

Inflation fears pushed gold up to $428.80 oz., a 2004 high; when Consumer Price Index came in increasing ½% for March, annualized rate of increase 6% inflation! But other times, even when CPI stretches higher, gold goes down. How can that be? Here’s the strange explanation.

Inflation fears spawn fears about interest rates going up. FRB would be forced to raise interest rates to hold down inflation. But if interest rates go up, U.S. dollar will become more attractive (even with higher inflation). When the dollar goes up, gold (usually) goes down.

Therefore, you have the nonsensical situation short term where fears of higher inflation (which leads to higher interest rates) actually drive gold prices down!

Here’s another farfetched theory. In a currency crisis, gold usually is supposed to go up, right? But if the currency crisis affects all markets, including Wall St., real estate, people have to raise cash, right? So, market followers think that people will sell gold in such instances. Gold fell in the 1987 crash when DJIA lost 25%. Why? One analyst explained it this way, "When you have to raise money fast and get margin calls, you don’t sell what you should, you sell what you can!" And in a currency crisis, one thing that is usually salable is gold. So, instead of going up in a currency crisis as is traditional long term for gold, hard-pressed sellers could drive down the price of gold by concentrated forced selling (to meet margin calls, other demands for immediate cash!). Make sense?

THE LONG AND THE SHORT OF GOLD.

As with most half-truths, they make some sense, over the short term. But longer term, fiat money, higher inflation, higher interest rates usually mean higher gold prices. Higher producer prices as evidenced by Producer Price Index (wholesale) lead to higher retail prices (as in: decreased purchasing power of each currency unit (the U.S. dollar).

CAUTION. I do not recommend leveraging gold or silver, gold or silver coins, nor borrowing upon them! If you’re going to buy gold coins or silver coins, pay 100% in full, own them outright, take physical possession. Take control of your assets.

You’ll sleep better at night. You won’t get margin calls; won’t have bankers and lenders hounding you for more collateral on existing loans threatening to "quickly sell you out if you don’t".

How much should you have in gold coins? For most people, with income or substantial assets, I suggest 5% to 10% of net worth. There are people who prefer to have 40% or 50% of net worth in gold and silver coins, and that’s their business. Others think they have a "position" in gold coins if they own $5000 or $10,000 worth. That’s inadequate in terms of hard money, emergency money. As President Bush points out, we are at war. No one knows where terrorists would strike next. Which would you rather have, a paper receipt for some gold or silver or coins that are highly leveraged upon which you have borrowed most of the equity? Subject to calls for more collateral or margin calls? Or physical coins?

In the event of crisis, I think only physical possession will do. Only physical possession of gold coins, hard money, will protect you against dealers going bankrupt in a sudden crisis.

Some people ASSUME that coin dealers don’t borrow money. Most coin dealers I know (including many larger ones) borrow heavily against their assets, inventories, depend upon credit lines to make purchases, etc.