Monday, February 9, 2009

Gold and Bonds

"Treasuries don't make sense at these levels. ... Because of their low yields, government bonds are a trap. ... We're a worse credit than Germany, and a least a few other countries. ... Countries default in a number of ways. They default by inflation. ... Ireland and Iceland are examples of economies that have gone too far. The U.S. has had the benefit of being the world's reserve currency. How much longer can we abuse it? Probably not too much longer. ... Perhaps the biggest question for the next few years is whether the dollar can hang onto its reserve-currency status. ... When you see a single-A or double-A-rated California muni yielding 6% to 7%, you should anticipate Uncle Sam will bail out Dear Arnold", Bill Gross interviewed by Lauren Rublin at Barron's, 19 January 2009.

"My one recommendation for the longer term is physical gold. ... Gold is the only currency that won't get devalued. It will be revalued. If the Fed's liabilities had to be covered in gold, it would sell for more than $6,000 an ounce. We aren't going back to the gold standard, but the markets won't trust the central banks anymore. ... Gold will stay in a bull market. It can't be manipulated like a currency you can keep printing. ... You can sell it, but unlike a currency, you can't make it out of thin air. You have to dig hard to get it out of the ground, and there is a limited quantity available. ... If you're a little more adventurous, you can buy gold stocks", my emphasis, Felix Zulaf (FZ), interviewed by Lauren Rublin at Barron's, 19 January 2009.

Quoted without comment.

FZ is president of Zulaf Asset Management in Switzerland. I disagree, FZ, we are going back to the gold standard. When? After all currencies collapse including the: dollar, euro, pound, yen, etc., and price gets high enough. The monetary base at last reckoning was $1,742,684 million, with 261.5 million ounces of gold to Uncle Sam's credit, that's $6,664 an ounce. Gold is cheap!

8 comments:

Anonymous said...

"we are going back to the gold standard. When? ...After all currencies collapse including the: dollar, euro, pound, yen, etc., and price gets high enough..."

You're really stepping out with that call IA... broad currency collapse... it could the ugly face of globalization...

Independent Accountant said...

Anonymous:
If I disagree with 999,999,999 people in a billion, so be it. When conditions get desperate enough, and the price of gold gets high enough, count on it! Mankind will reach down into the rubble of 5,000 years of history and rediscover gold. Why does Uncle Sam sit on 261.5 million ounces of the "barbarous relic"? If it is worthless, he should sell it and reduce the national debt. Unc can realize $235 billion at $900 an ounce. So? The national debt is over $10 trillion, plus we have $62 trillion of actuarial debts. Will Unc sell? At what price?
I remember when Nixon "closed the gold window" in 1971. No one thought that would happen either. The trick for Zimbabwe Ben (ZB) is to get gold's price high enough and to disquise what he is doing. Think about it for a while and see if you can figure out how ZB will reinstitute the gold standard. How, not if.

Junior said...

AWWW CRAP - I just sent all my gold to Cash4Gold.com...

I don't know...that's a pretty adventurous call. But where else could we possibly go at this point?

Anonymous said...

Zurrrr...

Cause that is the only way that ZB could tame hyperinflation is to exchange Treasuries for Au?

(I'm feeling a topic for doctoral studies...or that giant team of researchers at the Fed or BIS)

Independent Accountant said...

Anonymous:
See my 2 October 2007 post. I don't see ZB doing anything. I think it more likely China will take matters out of ZB's hands by surreptitiously buying gold, then after it has accumulated a pile, announcing what it did. All in the best tradition of Jack Hirschliefer. What would I do if I were the PBOC head? Buy 10 million ounces of gold contracts for each open month. When the contract ends, take physical delivery! It would only be $9 billion a month for China, pocket change for a country with $1.9 trillion in foreign exchange reserves.

Anonymous said...

Oui oui... tea leaves for Au...

"I think it more likely China will take matters out of ZB's hands by surreptitiously buying gold, then after it has accumulated a pile, announcing what it did."

Yes... I think you have it right.

Did Geithner badmouth China to relieve pressure on Treasury yields?

Anonymous said...

1) What are your thoughts on the IMF's announcement on February 11, 2009 about its intention to sell 400 metric tons of gold to fund its financing base?

http://in.reuters.com/article/domesticNews/idINLB54061420090211

Could it be an effort to prevent the recent rise in gold prices?

2) It also begs the question, whether the IMF "owns" any such gold or if has been sold already. Are you aware of any independent audit of the IMF's gold holdings?

3) Doesn't the IMF need the Congress's approval for any sale of gold? If so, wasn't the Congress always, always rejected such requests?

Thanks.

Independent Accountant said...

Anonymous:
Big deal. 400 tonnes is 12,860,400 ounces or $12.2 billion at $948 an ounce. Zimbabwe Ben can print up ten times that in a day.
Back in about 1976-78, the IMF held a series of gold sales. So?
I agree, this in an IMF attempt to suppress gold's price. I don't know if the IMF needs Congress approval or not. I know of no audit of the IMF's gold holdings.