Gold ... and Believing

Over the past six months or so, I have gradually reduced my positions in gold and silver. Why?

• The business of mining is not as profitable as in years past. Rising costs (labour, materials, energy, transportation etc.) have not been offset by commensurate increases in the prices of gold and silver.
• It is becoming more difficult for companies to replace depleting reserves. Political corruption (often in the guise of resource nationalism), armed conflict, and opposition from local residents (sometimes abetted by watchdog organizations) have led to the abandonment of several major and minor projects. Further, explorers and junior companies have found it difficult to obtain financing. In light of this, several companies are positioning themselves for take-overs by larger members of the mining pack in an effort to salvage some value for shareholders.
• I have decided to take some profits and to use the funds for a variety of purposes, including portfolio diversification. For example, a major review of the past year has led me to shift holdings to American companies and multinationals with operations in a variety of markets.

As a result, I have no positions in precious mining companies – all sold off. The remaining positions in precious metals are with Silver Wheaton (a company which has great cash flow) and bullion (Central Fund of Canada). I will continue to maintain these positions without too much consideration for the recent gyrations in the market. I've been through this before.

I am not particularly bothered by recent predictions about the demise of gold and silver as safe havens. Most of the commentary is the product of content hungry media outlets. The recent exploits of the Beave, bombings, spats about casinos in Toronto, the Iron Lady's funeral ... it doesn't make much difference provided that it puts eyes on paper or the screen and ears on sound waves.

From my perspective, the conditions which led to the rise of precious metals remain unchanged:

• the background threat of political instability in energy producing areas of the world;
• mistrust of fiat currencies and fears about the implications associated with the indebtedness of governments at all levels;
• a growing number of examples where governments have expropriated the savings of citizens – not the least of which are rates of return on bonds, CDs and savings accounts which, after taxes, are less than the rate of inflation.
• the general sense that people are more apprehensive about the future.

While I am not inclined to believe in conspiracy theories, there is a growing body of thought that gold and silver markets are being manipulated. Check this:

There are two things to note in these snippets. The first is that the main ideas being promoted about gold are that it is no longer to be trusted, and that somehow the recent move is a result of "risk off" decisions meaning, conversely, that there is increased trust in the larger financial markets that 'investors' are rotating towards. Note that these ideas are exactly the sort of messages that central bankers quite desperately want to have conveyed.

The second observation is even more interesting; namely that the only people quoted work directly for the largest bullion banks in the world. These are the very same outfits that stood to gain enormously if precious metals dropped in price. Of course they are thrilled with the recent sell off. They made billions.

http://www.financialsense.com/contributors/chris-martenson/gold-slam-massive-wealth-transfer-our-pockets-banks?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+fso+%28Financial+Sense%29&utm_term=FSO

As always, it is useful to balance this take against others which proliferate in the media. Many pundits contend that the monetary value of gold is a cultural artifact – an illogical construct based on a thing which does not produce income and, therefore, cannot be valued objectively. They ignore human nature and the propensity of people to be motivated by a host of things which are not driven by economic theory e.g. religion, the “right to bear arms” and all manner of other belief systems. In fact, most of the things we value most in life are not economic constructs: the beauty of a rising sun and the sound of birds starting their day, the satisfaction in completing a difficult task, the comfort of family – golden moments all.