Ref: 09-035A of 1^st December, 2009

Are you reading it correctly? Yes, you are. Am I out of my mind? No, I am not.

Gold prices are on upswing. They are going up at the moment slowly due to rising loss of confidence of the Investors in paper currencies and also people at large. Gold is going up not because of hedge against inflation – no one consciously buy this metal with inflation in mind. Have you ever gone to a jeweler’s or gold shop to buy the gold as hedge against inflation? Definitely not.

The analysts and media who have been touting rise in gold as investor’s intention to hedge against inflation must get their head and speech examined. They have been spreading LIE at the instance of the officials of respective governments. With the loss of confidence resulting in steep decline of US dollar, the US administration has been reiterating its oft repeated stance of strong dollar policy; and when the world is not listening to buy the bankrupt dollar, they have been using media and analysts to tell the world NOT to buy gold, adding that gold market is in bubble which is going to burst one day.

Anything will burst one day.  Everyone will die one day. Does it mean that we should leave our desire to live and enjoy our life? It is nature’s cycle that what is borne today will die one day; and what is falling or rising one day will rise and fall one day. It is the eternal truth. We do not have to go to the Harvard or Wharton to learn that. This is the parental heritage.

Yes, Gold and Silver have been rising due to investor’s preference to get away from paper assets to something real. They no longer treat Real Estate as really a Real wealth! This is why they are turning to Gold. Gold is GOD, Gold is Truth, and in India there is official state Sanskrit symbol “Satya Mev Jayte” that means “Truth Alone Wins”.

This is the reason that even an illiterate Indian is buying gold all the time. He is not illiterate, today’s Bankers, Investment Bankers, Insurers, Central Bankers, Finance Ministers, Governors are.  How do you measure the actions of all Central Bankers, including that of George Brown, the Prime Minister of UK who was the Chancellor of HM Treasury, sold Gold at the bottom of the cycle – $ 260 to $320? Almost all Central Banks sold over 3000 tons of gold at the rock bottom prices during last 15 years.

Is there any demand –supply imbalance that pushes up the gold? No. The demand-supply rule operates in normal times, not in emergency or 911 call.  And why should Gold go to US$ 6400 and Silver to $ 80 as projected by this Author? Why?

What the World Doesn’t Know

..Is the hidden the fact that “United States has lost almost all of its Gold during its covert practice for over 20 years”.  YES, the gold may be there physically at Fort Knox or HSBC Bullion Vault in USA. But that is NOT enough. Who owns the gold is more important than who keeps the gold. It is like your goods are in a warehouse or bank locker.  The warehouse-keeper or banker can not claim Title to or Ownership of those goods. These goods are kept with him in Trust.

The FED and Treasury appear to have been concealing lending of gold to hedge funds by camouflaging transactions through various central banks. When those Central Banks lend to these hedge funds to short the gold, they appear to claim the gold from Fed and Treasury who earmark the gold in its balance sheets.  In other words, the earmarked gold shown in Fed / Treasury balance sheets is in fact owned by foreign Central Bankers and is no longer owned by the United States. If the shorted gold does not return to Fed/Treasury, they will be obliged to show it as “sale” one day. That day of reckoning will come when the Foreign Central Banks start demanding the gold physically.

According to my own research almost 6100 tons of gold earmarked in the Fed/Treasury balance sheets are non-returnable. The hedge funds who shorted it at prices $260 to $360 can not buy back at today’s prices. If they can not return, their deposits will be at the most forfeited. In other words, the Fed/Treasury will be forced to recognize the forced sale of gold @ $260 to $360 or more, but not more than $430 at the most.  That is, Americans have lost their most valuable and prized asset – Gold – due to fraud perpetrated by the Fed/Treasury officials.  It happened without their knowledge because the Fed/Treasury balance sheets were never audited.  The office of OCC (Office of Controller of Currency) conducts only physical verification of the gold, not the true ownership. This is why Ron Paul, Senator, introduced a bill to audit the books of Fed. That is not enough. The gold is handled mainly by US treasury – Fed merely manages the operational part.

You must read my book “Sub Prime Resolved” Chapter 14 titled “Where is MacKenna’s Gold” which deals with this issue comprehensively in 30 pages and proves beyond doubt that “United States has lost almost 78% of its gold through covert lending practices to certain banks, investment banks and hedge funds to depress the gold prices with intent to control the inflation numbers to help them justify lower interest rates”. The book uses same official figures churned out by the Fed/Treasury.

There is further possibility of more selling after the writing of this book. Total loss could be 90%

It is a Great EXPOSE since the Watergate Scandal.
The book goes to the bottom of the statistics and its couched language (with double meaning) to conceal the truth. Most of the gold must be belonging to European countries, Switzerland, IMF, World Bank and some other major gold owners such as Australia and Canada, who live in the dream world that their gold is safe in the vaults of the Fed.

When the Truth will come out?

If there is a massive call from the States and Local Governments like California to launch a campaign against the Fed/Treasury to give them enough funds by selling part of existing gold reserve of 8134 tons,  will meet with the denials from US Administration (Fed /Treasury) on evasive grounds.

Both Fed/Treasury know pretty well that  there is no real gold ownership left with them, and that selling of gold belonging to other nations would tantamount to committing breach of trust. Even the President of United States, be it were President Clinton, George Bush or Barack Obama, may not be aware of the constructive loss of US Gold through the hedgers who acted solely at the behest of same Fed/Treasury officials having ulterior motive.

The gold borrowers are obviously who is who in the field of banking, investment banking and hedge funds. If they are sought to be prosecuted, with the threat of perjury, they will come out in the open with the truth.  Some may even commit suicides rather than facing self – incriminatory charges and face imprisonment for life.

When the market realizes that the US no longer has as much gold as claimed, in fact having lost almost 77% as above, hell will break lose in the media, town hall meetings, White House, IMF Head Quarters, World Bank, European Union, Great Britain, China, India and Switzerland. Many of them are the real owners of the gold who presumed that it is lying in safe place in United States. They will realize first time that “United States is no longer safe place to keep gold” owned by them.  What they own is the piece of paper from United States promising them to deliver the gold on demand.

This is why I always mention in many articles and reply to readers that “Physical is Physical, and Paper is Paper” Asset.  One would be downright stupid if he entrusts tons of gold to some one other than him.  It is like entrusting one’s wife in the care of another man. Gold is the kind of assets that must be held by the owner physically.

Turning to recent rise in gold prices, please look at the Open Interest for December 2009 and February 2010. The shorter have been rolling over the contract every two months in the hope that the prices may drop so that they can cover their short position. However, the gold has been rising for over 5 years, denying them comfort so badly required by them. Look at the following “Open Interest” positions (our comments follow thereafter):

At the time of writing, the Open Interest position relating to gold for two key months – December 2009 and February 2010 were as under:

2009.12.01           GOLD Dec 2009 (NYMEX:GC.Z09) OI   12,041 contracts (= 1.204 Million Troy Ounces)

Or 37.45 tons valued at  US$ 1.442 Billions

2009.12.01           GOLD Feb 2010 (NYMEX:GC.G10.E)               OI  364,298 contracts (= 36.429 Millions Troy Ounces)

Or massive 1,133 tons of Gold- 50% of world annual production deliverable in One month

Now, look at the following chart of 27^th November, 2009 when the gold dropped over 4.5% in matter of minutes:

In matter of minutes, massive volume of over 111,000 contracts equivalent to 11,100,000 Troy Ounces or 345 tons were recorded.

Some operators manipulated to crash gold prices in matter of minutes so that they could buy back or cover the short position for Dec 2009 period.

The contracts were rolled over into Feb 2010 contracts where the Open Interest swelled to 364,298 contracts or 36.249 millions of troy ounces or massive 1,133 tons of gold. It represents 50% of world annual gold output to be delivered in one month only.

It is possible, the shorter may try to roll over the Feb 2010 contracts into longer dated months, provided the music does not stop here. If roll over facility is stopped, the short sellers would be obliged to default or doom to their failure.

1. Just imagine. The gold prices have risen to US$ 1195 due to normal investment demand. If those buyers or large investment funds/hedge funds get the wind that there is no real gold with US, a massive rally may ensue due to heavy rush to buy back the contracts under Open Interest. The gold could propel into uncharted territory. It is just wild guess where the gold could possibly go to $1800, 2400, 3200 or 6400?
   1. The gold could go to$ 2400 due to normal Investment demand.  The gold reached the height of $ 850 in 1980s. If you use today’s inflation adjusted dollar, the price could go to $2400 presuming other factors remain constant.
   2. The US$ index now at about 74 could drop to psychological 71 level (intermediate) or 4%. It could drop further to 65 and finally solid support at 61. This means that the dollar could drop by 4% in very short term to 20% in 9 months. In other words, the rise in gold prices due to weaker dollar could rise by another $480 (20% of $2400)
   3. The recent financial crisis has thrown Central Banks (Fed, HM Treasury UK, European Central Bank, China, India, Australia, some smaller Asian nations, to print over $ 6.6 trillions of dollars equivalent. Considering the global Gold Stock of about 80,000 tons in the hands of Central Banks and Private individuals (like Indian/Chinese citizens). If you divide $ 6.6 trillions/80,000 tons of gold, the Equivalent price of excess money will be $ 2,566/ounce.
   4. Thus, the notional price of gold should be $2400 + $ 480 + $ 2566 = $5,446 ounce
   5. ADD to it if the short sellers have to rush to the market to cover their shorts which could be any number $ 1000 to $ 8000.  I am counting only $ 1000 as short covering effect, which would raise the price of gold to $ 6446 or say $6400 as the caption shows.
   6. In reality, the price could rise much higher because the $ will weaken much further, by another 40% ($ index to 40 or about). It will potentially add another $ 2000 per ounce.
   7. The price in non-dollar countries may not rise to that extent, because the effects will be muted to the extent of local currency appreciation.
   8. Gold and silver has outperformed every other Asset class in last 5 years. See the following table.

SILVER

Historically ratio of gold to silver in 80s was just 16 to 20 (When the gold reached $ 800 the silver peaked at $ 50 giving Gold/Silver ratio of only 16. In that case, why our projections give Gold a target of 6400 and only $ 80 to Silver? It should have been $400. But not so, because Silver is no substitute of gold anywhere. It is available plenty and also, an industrial metal. Every copper producer has a bye-product of Silver. Gold is never a significant bye-product of any mining operation. Further, the industrial demand of Silver may gain if new cell battery known as “Ag-Zn” (Silver Zinc battery) replaces the Ni-Cd or Lithium battery.  The new Ag-Zn battery is reported to be super conductor of electricity and heat, far superior to any other battery in the market place. It also implies that Ni and Cadmium prices will turn softer due to lesser industrial demand.

TARGET QUALIFIER

1. I have a Gold Target of $ 1500 (by March, 2010), $ 1800 (June, 2010), $ 2100 (Sep 2010), $2400 (Mar 2011), $2800 (Dec 2011) and $3200 (June 2012) in normal circumstances due to investor’s demand  and weakness in currency WITHOUT taking into account the short covering related rise or additional Central Bank purchase (such as India)
2. The target could be higher by 50% and time shorter by 25%. If the short covering takes place, Add 50% to the above target  price.
3. Dollar weakness will add more. The dollar has more credential to go lower.
   1. However, if the Obama Administration adopts the measures suggested in my book, the fall of dollar would be arrested or reversed.
   2. However, the gold prices of other countries will rise due to weakening of local currency. In U$ terms they would be corrected.
   3. If dollar is demonetized or reverse split (cancelling current dollars and replacing them 5 to 1), then the price of Gold will decline to reflect the reconstituted currency.
4. In less than 30 months, if the present liberal monetary policy is pursued, and short covering does take place, the gold price could rise to $ 6400 in 30 months. Some major banks in the world could be busted. (2 from USA, 2 from UK, One from Europe) and One from Switzerland)
5. Once the gold therefore rises to $ 3200 or about, the investors may adopt the trading strategy. Until then, they can afford to buy and hold for a period between 12 months to 18 months.
6. There could be predominant selling from India, including Central Bank to book profit. Many may be tempted to sell gold and buy home which is the average dream of any young person.  You have to allow reduction of prices on account of this factor.
7. The current prices of $1200 are therefore screaming bargain. They are still at 50% discount to inflation adjusted dollars.
8. The investor must read my book “Sub Prime Resolved” that cost only $ 59.95. It is advisable to spend $ 60 before committing large resources for investment into Gold or Silver.
   1. If he disagrees wit the finding on Gold chapter, he may not adhere to above targets, but may scale down by 30% to 50%.
   2. He may ignore the effect of short covering.
9. The investor may use the following table as guide. The figures input are dummy. See Excel spreadsheet for Download. The investors may use it to input their own variables.

Anil Selarka, Author (Kalidas)
Hong Kong, Ref: 09-035A  of  2009.12.02

Disclaimer:

Please note that this is the considered opinion of the author. The author is not liable or responsible for any loss or damage the investor may suffer if the situation does not develop as intended or forecast. This article is meant for only experienced investor or professionals who understand the vagaries of trade.

Ref: 0908-030A of 16.08.2008

In this part, we will discuss how to buy physical gold – form, buying source, timing, management and ultimate sale. It also depends on the physical location of the buyer. Some currency issues are also involved.

Having already discussed “why to buy gold” in Series-2, we focus on the subsequent subjects:

WHAT FORM TO BUY PHYSICAL GOLD?

1. For Long Term Savings & Investment
   1. I expect tremendous price rise in gold and silver (of late, silver is fast riser than gold). The reason as mentioned by me in Series-2, that United States has virtually lost gold up to minimum 6297 tons of gold. Although it holds the gold physically, the true ownership lies elsewhere (most possibly in Europe and Switzerland)
   2. When any investment rises 100% to 200%, there is no need to invest on longer terms. When the gold rises, as I expect, one must sell it in the rally. When world economy recovers, and gold prices begin to consolidate at upper level, it will be time to sale and use the proceeds for property and other assets.
2. Price increase in USD an other currencies
   1. Gold will rise most in USD. That is, other world currencies such as Japanese Yen, Swiss Francs, will rise more than others. The investment gain in terms of local currency such as above and also Euro, GBP, Rupee will be less to the extent the currency has risen. That is, if the gold rises by 200% and currency rises by 20%, then the gain in those currencies will be adjusted downward due to currency gain. For example:

   	Gold Price	Yen/USD	INR/USD
   Now	$950	95	48
   Say, 2010	$2,450	81	45
   Gain in % in local currency	158%	120%	142%

   2. If you are living in country with pegged currency, like Hong Kong, the gain will almost same as USD. Or may be 0.5% t 1% smaller up to the movement allowed within the bandwidth for currency mechanism. (In Hong Kong, they allow 0.5% to 1% maximum)
3. Buying Physical Gold in USA: There are many counters, but the best is APMEX and MONEX. They have no hidden commission, the mark up is smaller and delivery is fast. APMEX delivers only within United States. They do not store it.  MONEX does.
4. Buying Physical Gold in Hong Kong: Bank of China, Hong Kong sells gold (0.9999) with bank’s marking in 1 to 5 tael bars (1 Tael = 37.5 gms appx). Mark up is about 1%. They also sell Paper Gold (called gold by pass book). One can also buy Gold from reputed gold dealers in tael form from say such as Wing On paying just 1% to 2% mark up. The licensed gold shops are generally safe in Hong Kong. However, be careful of the shops who sell imitation jewellery along with gold. Check out their licenses. Gold usually bear 0.9999 stampHong Kong is also unique in selling 24K gold jewellary which is cheaper than centers like India. The making charge is fixed (not per gram as in India) per article. I once paid only HK$ 150 for gold chain for myself weighing 50 grams or just HK$ 3 or Rs 18 per gram compared to what you pay @ Rs 100 to Rs 120 per gram in India.Yes, in Hong Kong, they do quote ornamental gold prices separately which is usually higher by 3% to 4%. They may also charge 2% commission which, if one negotiates, will not be charged.I once tried to sell HK made 24K ornament in India. The Ghatkopar dealer paid me full value instantly in cash. The gold dealer also need 24K gold from reliable source.
5. Buying Physical Gold in UK/Europe: through GoldMoney. They buy for you and also deliver in many countries in Europe and others. Check out their list. Mark up is 1.25% to 2% at the most. Further, there is no charge when selling; so the cost of buying and selling is halved. If required, they provide storage facility at London and Europe at little cost. The gold is physically held on your behalf at the storage centers.
   1. Buying Gold in India: There are two issues here. Buying gold bars and gold ornaments:

1. i.      Private and Nationalized Banks: They make only one way market, and charge almost 10% higher than the international market. This is acceptable, because the price also include 2% import duty and 2% sales tax. This is 0.999 fine gold, not 0.9999. Not much difference (price difference just 1%)
2. ii.      Buying from MMTC: One can buy from their own or franchised retail shops. They sell medallions with 0.999 fineness. (see the picture on the title). They also make only one way market. The mark up is nearly 11%. They will not buy back from you. You end up losing 8% in real terms, but when your gain could be 150% (as I expect, but that is only opinion), who cares for 8%?
3. iii.      Buying from large Gold/bullion dealers: One may buy gold bars or lagdis from gold dealers at cheaper than bank prices. However, do take the invoice even if one has to pay 2% sales tax. The reason is Tax department usually equate the raw gold investment as evidence of “black money” though they do not bother about investment up to Rs 5 to 10 Lakhs now. If it is “ornamental” gold, it is known as “Stree dhan” or “Woman’s Wealth” which is usually untouchable.

1. 1. Buying Gold Ornaments: There are 2 or 3 constraints. Indian women do not allow their family members to sell gold, especially when they are in ornament forms. The reason is, the moment they buy ornaments; they show up to friends or other family members. If they are sold, their friends and relative may presume financial difficulty for their families.22K and 24K The gold ornaments sold in shops are mostly 22K (in reality they are 20K). The price is also lower than 24K. The reason being that the gold being soft material, and Indian women usually work physically more in kitchen, the ornaments if made of 24K will deformed. When such ornaments are sold, the gold dealer reduces the price by “kasar” being the loss of gold on melt if the ornaments are of 22K or 90% fineness.
   2. Buying into Gold Pool: Some online dealers like KITCO offer facility of buying into Gold Pool. It means that they do not segregate your purchase from common pool, although Gold is physically bought by them. It is not derivative or options. It is straight forward spot sales or purchase. If one needs physical delivery of purchased gold, then only they separate it from the pool and deliver it to you. The charges are usually heavy. Please check from the dealer KITCO before buying, so that you have no troubles later.
   3. Buying on Imprest system basis: Many people try to time the purchase of gold. This is not an asset where an Investor can follow price movements. Gold price movement depend on multiple factors, such as exchange rates, oil prices, political stability, violence, bomb blasts, social tension and present days of economic crisis.Whey one knows nothing, he should not bother to use his brain for timing. Instead, he should adopt the system to buy the gold on “Imprest system” basis, that is, buying little by little every month, and buying when the gold has corrected. Such Imprest buying averages his cost gold purchase, and more often than not, he is always below the market price, that is he is always in gain.
      The Imprest System of Buying is the best method of investment. It is similar to Recurring Deposit account with the bank.

      In families in India, Imprest system is automatically and unconsciously followed by the women folks. Most families have more than 3 children or adult members. The elders start buying gold, when an adult is about to attain the marrying age in 5 or 6 years time. He buys some gold every year.  This is nothing but the Imprest system I mentioned above.

2. STORAGE OF GOLD
   1. Gold does not require much storage space. Further, women folks do not take care of their nails, but will take good care of gold. If house is secure, and has safe, one can store there. Alternatively, one may keep it in Safe Deposit Locker with any bank. It is better than any other place. Insurance not necessary, if it is in bank locker.
3. MANAGING PHYSICAL GOLD ASSETS: You have bought gold as an investment. You must be prepared to sell it if the rise is sudden and gain is very large. If you have ornamental gold, the selling will not generate profits unless the gold has advanced by 50% (because you pay about 15% higher due to ornamental gold price differentials and making charges, and losing of “kasar” , another 10% at the time of selling. (This is applicable only in India, do not bother if you are in some other country)If you are holding gold bars, biscuits, lagdis, or even 24K gold ornaments, it is easy to sell them without losing much on selling commission side. The women folks (in India, Middle East) at home also do not object to selling of such gold. Your purpose of investment is better served. This is why buying proper form is more important at the start of investing process.In centers like Hong Kong, the dealer pays immediately on spot when one sells the gold. Most trades in Hong Kong are in 24K quality or 0.9999 fineness. In a country like India, the practices vary. Large dealers pay immediately, but small dealers who sold your gold to some one, will pay only when he receives the payment from his buyer. There is a trading risk involved for 2 or 3 days.If one has bought gold from US or UK from the dealers mentioned above, there is not much trading risk. The traders like APMEX, MONEX or KITCO release the payment as soon as they receive the delivery of gold sold. If they have gold in account, they pay immediately on 3^rd day.
4. BUYING BOOK ENTRY GOLD (via Gold passbook): Some banks in Hong Kong and Singapore do allow their customers to buy gold through accounts known as “Paper Gold” or “Paper Silver”. The extent of gold purchased is credited to customer’s GOLD PASSBOOK account and his normal account is debited. The gold need not be taken physical delivery. When one sells the gold, the gold account is debited and normal account is credited. Since the customer is not dealing with third party, but deals with his own bank, the trading, storage and other risk is reduced. This is what they call “Paper Gold”.If one does not want to hold “physical gold” he may opt for “Paper Gold”. In spite of advantages, I never like “Paper Gold”. This is already explained in detail in Series 2 on my article dated 11^th August, 2009 (ref: 0908-029A). I therefore avoid repetition.
5. BUYING GOLD ETF: This is relatively new phenomenon. ETF stands for Exchange Traded Funds. Such ETF usually have mandate to invest into physical gold. However, there is no guarantee that they will not misuse the mandate to buy into gold derivatives like futures, options or even short selling. We have to rely more on the integrity of the managers and their level of competence.Such ETF trade in Units. Each unit usually represents certain fraction of physical gold. Each ETF may have different charter. It is beyond the means of the investor to study such charters.The Paper Gold is otherwise a better investment because the investor is in total command. In GOLD ETF, an investor has to consider the managers smarter than he is. He has to trust him. Such ETF do not pay dividend in cash. It is more like Mutual Fund investing into gold assets.Many investors make mistake in believing that each Gold ETF is same in character. It may not be so. An individual investor should always invest into very simple products. Such simple investments traditionally make more money than complex instruments, Looks at today’s economic crisis – most so called professional banks lost in products they never understood at first place, and the investors used to trust them as “professionals”
6. BUYING INTO GOLD FUTURES AND OPTIONS: These are high end derivative products demanding your constant attention. This is not part time job – but almost full time job. It requires lot of reading of various items affecting gold prices, such as financial crisis, government policies, interest rates, oil prices, exchange rates etc. Yes, if one is on right side of the trade, it will make money several times. But 99 out of 100 people lose in this game.Yes, if one wants to take risk and also make or lose large money, he may buy options. If long term options are bought, it may be manageable. Since I am not in favor of this product, I do not want to suggest them to the Individual Investors. Mutual Funds and ETF deal with OPM or Other People’s Money, whereas as an individual, you deal with your own money. If they lose money, they can raise more money in new IPO but you can not.Losing no money is another way of making money. Money saved is also money made. My simple principle is that focus on single simple product. When you have to buy gold, why go for ETF, Futures or Options. Just buy gold and store it. That’s it.
7. BUYING GOLD STOCKS: This is yet another fashion to invest into gold assets. We go backwards. If gold is to go higher, the companies producing it must be making more money. This is where many make serious mistakes.Almost all producers sell their gold 2 to 7 year’s forwards at premium.Even gold producers do not understand how the gold price moves. They know only how to extract the gold, not the markets surrounding it.Many large producers like American Barracks, Ashanti Gold lost heavily in such forward trades what they called “hedging”. They sold 4 to 7 years of gold production forwards when the gold was trading at $ 250 to $350. They used to take the cue from sale of gold by IMF, Australia, Belgium and Britain as indicator of future. They were proved to be terribly wrong. Ashanti Gold from Ghana came into serious problems due to such untidy hedging.When the oil prices rose, dollar fell, the gold prices trebled in less than 5 years. These gold miners could not capitalize on higher spot prices. They had sold millions of ounces of gold, almost entire production, in 5 to 7 years forward market say at US$ 350 to US$ 450. When the gold prices rose to $ 800 to $ 1000, they had no more gold to sell. They even did not buyback the future contracts on seeing the trend, because whatever money realized by them were used to buy more mines.Since I am taking a view that gold prices may double or treble in less than 1 to 2 years, due to my belief that United States does not have gold as projected – they lost over 6200 tons of gold – in hedging or shorting operations surreptitiously, (Read my new book SUB PRIME RESOLVED – Chapter 14 – Where is Mackenna’s Gold?) If major gold funds or hedge funds take a clue from this Chapter, hell may break lose in the gold market. This kind of rise is not yet anticipated by the market, and as such, the gold stocks do not reflect such trend.
8. However, the major factor is whether the concerned Gold Mining companies have enough un hedged or free gold stocks from their production, so that in the event of major rise in gold prices, they could sell in the spot market? Such information is known only to the management of those companies, and usually not disclosed even in balance sheets. However, major gold stocks like American Barrack, Newmont Mining and Newmont Gold, and some other names in Australia, Canada, South Africa and USA may offer good opportunities.Whether these companies have hedged or un-hedged position or not, no one bothers, because they put 1+1 together, and buy the stocks without any investigation or study. So they will make money. One may buy large cap gold mining stocks in correction because the major run on gold is few months away.

   Further, most of South African gold mining companies trade as GDR or ADR on London Stock Exchange or on American exchanges such as NYSE, NASDAQ or ASE. If the gold rises as anticipated by me, the currencies of those countries will also rise. I therefore feel that the currencies of Australian Dollars, Canadian Dollars, and South African Rand will rise against USD. Indian Rupee may also rise.

Let us not get into sophisticated (complicated) gold related stocks, derivatives etc. Make it simple. If Gold is likely to go higher, just invest into Gold only – no futures, no options, no gold stocks, and no derivatives. Invest into something you understand, and if you don’t understand the exotic issues relating to gold, don’t break your head into it. Just make it simple like a Bread and Butter. Just buy physical gold, that’s it.

Next article will be on other core Savings products – Bank, CDs, RDs, and Corporate Deposits. You will learn many things in such simple instruments that you will often wonder why did not you know that before? Wait until 21^st August, 2009

Anil Selarka,
Hong Kong, 16^th August, 2009

Ref: 0908-030A

Book Web: http://www.subprimeresolved.com

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