Do you have to be a terrorist to understand gold?

Britain's "best selling financial magazine" MoneyWeek has a piece on the back page called "The Magic of Gold" (10 February issue but I've only just noticed it was available online sooner) by Bill Bonner.

Bill writes for the Daily Reckoning. In a recent piece for the site he covered the gold standard and US politics.

Near the end of it he highlighted a Reuters story  about Sovereign Citizens and the Redemption movement and was unconvinced by FBI fears that there were some extreme criminal terrorist elements to this 'movement'.

Bonner said: "The FBI says these people are “extremists” who believe they have a right to protect themselves from what they see as an overbearing government. The G-men tell us that these extremists can turn violent “at the drop of a hat.”

"How long before they’re rounded up? And maybe they’ll round up “potential domestic terrorists” too, even those who have never committed any crime? And what about gold bugs? They may look harmless, but they give aid and comfort to dangerous elements, don’t they?"

Even so the FBI seem to take the problem pretty seriously: http://www.fbi.gov/stats-services/publications/law-enforcement-bulletin/september-2011/sovereign-citizens.

There is a habit of calling gold bugs terrorists like this spat between analysts at GFMS and GATA (the Gold Anti Trust Action Committee)

It is hard to tell how relevant this stuff is to the UK investor. There's not much evidence of it in the MoneyWeek piece. Instead we get an encouraging sales pitch for gold - which I should probably listen to (more below).

But the question for newbies to gold investing like me is whether there's really some kind of ideology driving the gold ownership of a lot of these gold commentators - not straight forward investment judgement.

There may not be anything wrong with that ideology but it could add a layer of complexity to the gold stories we are told - which is why it is interesting. Anyway, that sort of discussion is beyond me at the moment.

In MoneyWeek Bonner says: "We associate a rise in the price of gold with inflation. But gold is much more versatile than we think. It protects your wealth when paper money loses its value. It also protects our wealth when paper money gains in value. It protects you when you are right and when you are wrong."

When the value of money diminishes you get inflation. Bonner says that inflation will see the price of gold soar. He thinks Bernanke's aim at moderate inflation will help but suspects he'll overshoot.

The opposite scenario is deflation when money increases in value. Bonner points to the great depression when "the price of gold rose against dollars, even though the prices of food, clothes and other consumer items (as well as the prices of investment assets) were falling in dollar terms."

It sounds like a free lunch and I've always wanted one of those.

So, obviously I should be buying. Why not now? Gold is down a bit today and as the chart shows - and as chart-loving commentators have pointed out -  the price of gold tends to jolt from the $1,600s to the $1,700s - there's no smooth moves here. And its nearing that area now - around $1,715 - because of Greece and the euro... (Reuters)

So although the gold ETFs I do not own are down I'm still hanging on for worse.

More navel gazing at Gold ETF Investor: saver, trader, investor?

Comments in the last post suggested that I only buy on 'red' days... like today.

But I'm still not ready yet.


Part of this is because I still believe the price could fall further but this isn't really an excuse anymore, I should have a longer term view. So I'm doing nothing while I work out what I should be doing, for how long and with how much money. (Although, if I'm honest, I know I'm also delaying in the hope the gold price will fall and make a decision to buy easier - and I can't quite accept that this may not be a good idea.)

So for now I'm just gathering up what people claim is going on and views on how and when to buy gold.

What's happening today?


Why is the price going down today? Here's Reuters view  with comments from Michael Lewis, analyst at Deutsche Bank saying current price moves don't have much to do with fundamentals and a note from UBS analysts which expects Chinese demand to fall.

But recent figures on Chinese gold imports have turned most gold traders positive according to Bloomberg.

Gold ETFs seem to be have been down all day in various forms

With the US dollar version looking a little worse as the dollar index rose.

What would I get if I bought now and how would it compare to previous buying and selling?



Between 22 September 2011 and 16 December I paid £3,058 for 28 PHAU shares with purchases on three different occasions:

On 12 December 2011 I bought 10 shares for £104.58 each - £1,057.74 in total (after fees).

On 4 November 2012 I bought 10 shares for £108.01 each - £1,092.10 in total (after fees).

On  September 22 I bought 8 shares for £111.98 each -  £907.78 in total (after fees).


If I bought today I would get 10 gold shares for £1,062.52 in total (after fees) which is not much worse than my current best buying rate on 12 December. 

But I think I'm going to hang on for now for academic reasons.




My BlackRock Gold and General fund is back to where it was before the price gyrations although...

I did buy a bit more back on November 24 and 25 which didn't match December lows but wasn't such a bad move as my ETF sale may prove to be 

Food for thought on when and why to buy gold

Bill Bonner, writing in Money Week on 6 January said: "And how about gold? Buy it when people predict it will go lower, not when they expect it to rise. Of course, you don’t know where it will go. But when people think it is going down, odds are… it is cheap."

He also said: "We explained yesterday, we don’t think gold is going to go up this year... even so, we should probably expect it to go up again. Because the danger of thinking it will go up is far lower than the benefit of thinking it will down. We don’t know where gold is going in 2012 but the rest of the monetary system could slip into chaos and calamity at any moment. Gold is the only thing we can depend on."

He gave more on prices in an earlier Forbes article where he thought gold could still fall back to £1,200 but I'm not sure if these are still relevant post the December lows.

"Gold is not too cheap at $1,500. At $1,900 it was too expensive.... In the meantime, we’ll probably see a further correction in the gold price…perhaps down to $1,200. Or, perhaps it will stop at $1,400. We don’t know. And it doesn’t matter. Buy gold on dips; sell stocks on rallies."

When Jeff Lewis interviewed Grant Williams (pointed out in a piece by Bron at Gold Chat), he also mentioned the threat of a $1,200 low but I don't know if it still stands since the pre- New-Year lows.

He said: "I suspect going into 2012, the set up for both precious metals is bullish providing they can hold these levels and I think that is important to know. A lot of very good and well-respected chartists worry that gold could correct to 1,200 to 1,400 bucks. And certainly, if you look at the technical pictures, that could happen. Silver could correct down to the low-20s; it absolutely could happen. But it’s important to decide whether you’re a trader or whether you’re an investor. If you’re investing in silver and you’re investing in gold, based on the fundamental reasons to do so, then falls to the price aren’t that much of a problem for you because they give an opportunity to buy more metal at cheaper prices. If you’re a trader, it’s a whole different world and you have to be very agile and you have to be very attuned to moves like this that could go significantly lower.

But then on 3 January 2012  John Embury at Sprott Asset Management told King World News: "When gold broke through $1,000, I said it would never trade below $1,000 again and it hasn’t. I now think that, unless we have a complete and total financial collapse in the world, I would be surprised if gold ever traded below $1,500 ever again."