Defending wealth against stock market bubble bursting

With expectations of the stock market's bubble bursting, Peter Schiff recently provided his thoughts on how to protect our wealth during that period of time.

First, he said it has to be understood that there has already been three stock market bubbles since the turn of the century that were inflated by the Federal Reserve. This one is by far the most dangerous to the market.

Schiff doesn't believe there will be a fourth market the Fed can successfully inflate. He may be right. My view is this is why the Fed is entering into a period of quantitative tightening, so it can clear the way for another round of quantitative easing when the next bubble hits.

The problem is there is a very good chance the bubble will burst before it is able to clear the way for another round of inflating the money supply. Under that scenario, there is little it can do without having an enormous impact on the value of the dollar.

The answer to Schiff is to invest in physical gold and gold stocks in order to preserve buying power. He believes the gold market doesn't “really reflect all the potential for inflation, the potential for dollar debasement."

Schiff believes investors in general are overly optimistic about the future, and have entered into a state of complacency concerning their stock positions. He thinks that's why the market continues to soar to record levels.

He also cites the relatively low price of gold as another example of the market being overly exuberant about the future.

That said, he does admit investors will have to be able and willing to take on some risk, and not make rash decisions to sell when the current volatile market takes significant swings.

He sees investors doing well if they have a long-term investing horizon. If they do, he sees a lot of opportunity in the sector. Schiff thinks that opportunity isn't far away.

Battle for Gold Floor Continues On

There are a lot of theories floating around out there making a case for or against the price movement of gold. Recently I made the case for the robust demand for physical gold in the form of jewelry and coins, as well as by central banks - especially central banks in China and other Asian countries - providing price support for the precious metal.

While that is real and is part of the equation, other elements are in play which could pressure the price of gold down even further. In other words, we may not have found a floor yet, even with the robust demand for physical gold.

continue reading on the downside risk for gold

 

Can Physical Gold Demand Support a Floor?

An article at CNBC was recently run suggesting gold may have hit a floor, citing HSBC, which offers three reasons why that may be the case, including retail demand from India and China, slowdown in exchange-traded fund (ETF) gold liquidation, and continued acquisition of gold by central banks around the world.

In-depth look at how physical gold will affect prices.

Gold in a World of Failing Government

The majority of people still don't really understand the importance of gold, as they look at it primarily as an investment rather than a hedge against disaster and a protector of wealth.

This is why even in the midst of a failing global economy investors aren't buying up some physical gold as part of their financial strategy.

In some parts of the world, especially Europe, there is the very real possibility of social upheaval as the unemployment rate continues to climb in nations such as Greece, Spain, Ireland and Portugal. Young people have been hit the hardest, and of course are most likely to look for a scapegoat if things begin to unravel and a catalysts launches protest across the region. For no other reason than that people should have some physical gold on hand to protect them against the potential fallout from such a scenario that is increasingly probable.

We shouldn't pay attention to the financial media, as overall, around the world, the media has to be considered almost another arm of the government, as it prints out or reports on TV and the Internet pretty much what world leaders want to be reported on, unless the situation is so obvious there is no way it can be hidden.

Just look at recent stories of a recovery and economic healing even though the economies around the world are a disaster. You would think there was some type of economic revival going on the way most of the mainstream media asserts increasing economic health.

Whether you believe it or not (and you should), everyone that has wealth to protect should have some gold on hand because once unrest arrives or inflation begins to soar, the price of gold and silver will skyrocket, and the cost will be prohibitive for many seeking to buy some gold at that time, if it is available at all.

The major reason to own gold isn't for the purpose of building wealth, but protecting it and having something of value in case a worst-case-scenario plays itself out.

It's not a matter of if, but only where and when, as well as how widely it'll spread, concerning the surety of social unrest of some type breaking out in the world beyond the Middle East. 

Those holding gold will be positioned to ride it out better than those that are looking for equities, bonds and cash to sustain them.

Think of gold first of all as a safe haven, and only secondarily as something that can be used to grow wealth. And for physical gold, it's real value is solely in protection and little else. That must be understood if you're going to position yourself for the inevitable breakdown approaching, even if it doesn't happen in the specific country you live in.

Don't think if people storm banks and governments that you'll be spared some of the pain as far as financially goes, as now that almost everything is connected, what happens in one part of the world, especially if it were Europe or important parts of Asia, that it won't affect everyone around the world. It will. Be prepared by holding physical gold.

American Eagle Gold Coin Sales At 11-year High

With faith in paper currencies plummeting around the world, gold in a number of forms is being acquired by investors, and for phyiscal gold, the one-ounce American Eagle gold coin enjoyed the highest sales for May in 11 years.

The U.S. mint said they sold approximately 190,000 American Eagle gold coins in the month, as an increasing shortage of physical gold coins has investors pouring into the market.

Not long ago when Germany agreed to be part of the bailout of Greece, German gold coin sellers ran out of product in about one day, as Germans have experienced a failed currency in the recent past, and many remember the effects it had on those unprepared for it.

Mints from around the world have said demand for gold coins has risen substantially, as well as for small gold bars. One reason for the smaller gold bars rather than larger ones is portability, which is considered if a crisis emerges which disrupts the economic system.

For retailers of any sort, they know May is one of the worst sales months of the year, and gold sellers are looking forward to a terrific summer if May is any indication of the growing demand out there.

While gold is sold in much higer quantities through other outlets, the growth of the physical gold market comes from the fears of a geo-political collapse, where money wouldn't do anyone much good.

J.P.Morgan's (NYSE:JPM) Gold Storage Facility

J.P.Morgan (NYSE:JPM) announced today it will be opening a new gold storage facility in Singapore in the latter part of 2010, built in response to growing demand from institutional and retail investors looking for a place to store their gold bullion.

A number of those holding physical gold bullion want or need multiple places to store their bullion, which a new one in Singapore will help meet those demands.

The new storage facility will also help serve the market dealing with physical settlement of futures contracts, which while including gold, will also help with other precious metals as well.

It'll also serve as a storage vault for exchange traded funds and other deals which involve physical settlement of gold or other precious metals.

SPDR Gold (NYSEArca:GLD) Record Bullion Holdings

SPDR Gold Trust

Gold bullion held by SPDR Gold Trust (NYSEArca:GLD) has reached record levels, as the exchange-traded fund added 9.7 metric tons of gold to its reserves, the highest ever held by the ETF.

Holding as of Thursday for SPDR stand at 1,140.43 tons after adding the physical gold to their holdings.

The increase in gold was the largest addition in over six months, and represented an increase of 0.9 percent.

SPDR said their net asset value stands at $42.09 billion.

China Giving Gold Prices Support

China and Gold Price Support

Even though there has been a pull back in gold prices lately, leading the usual clueless commentators to question gold prices going forward, China remains a solid customer of gold, and recent changes in their laws had freed up its citizens to acquire more jewelry and hold a bunch of physical gold.

Of course this is small potatoes compared to the inflation and safety factor being priced into investing in gold, and that isn't going to change for a long time to come.

But adding the physical gold freedom in China and you have even more reason for gold to continue to rise for years to come.

China and Gold Price Support

Physical Demand for Gold Increases Ahead of Indian Religious Festivals

Gold is expected to rise based on physical demand, as the Indian religious season is close at hand, and analysts have said the demand is so high at this time for finished products that refiners are having difficulty keeping up with it.

Even so, the major mover of gold prices, the U.S. dollar, is still expected to be the primary mover of gold prices, as many believe gold hasn't bottomed out yet, and until the U.S. dollar corrects, the yellow metal will struggle to make gains in any significant way.

Gold Rises on Oil Price Increase and Inflation Concerns

Gold went as high as $936.50 an ounce today before settling at $926.60/928.40 on the last quote in New York. That's a slight increase over Monday's close of $935.30/926.10.

Record-breaking oil prices continue to hold the gold market up, even as other economic data put downward pressure on the metal. Oil closed at $113.79 a barrel, up by $2.03.

Even so, there was some sell-off as prices for U.S. producers was better than expected. That makes it more possible the Fed won't cut interest rates at their next meeting.

"Oil is clearly a factor. Technically also, gold looks better because it broke through a weak trend line resistance," said Michael Jansen, analyst at J.P. Morgan Securities.

"But I think we will continue to consolidate. The recovery from under $900 is not hugely convincing and there are still concerns that the physical market is very subdued. Overall, we will tend to trade in the $900-$950 range for a bit longer."

With the India wedding season in full swing, physical demand for gold remains fairly strong, although high prices have kept other parts of Asia from buying.

Gold futures in the U.S. ended at $932 an ounce for June delivery, up by $3.30.

Sharia Law Now Governing New Gold Security

The announcement that Dubai Multi Commodities Centre and the World Gold Council have created a new company to launch an ETF gold security that will comply to Sharia law is fascinating, in that many people in the United States, for non-Sharia reasons, have looked to do similar things. I'm referring to the shares being backed by physical gold.

The fund, named Dubai Gold Shares, will trade on the Dubai International Financial Exchange once approval is garnered from the Dubai Financial Services Authority.

The World Gold Council is an industry body that is funded by the top gold mining companies in the world. The WGC, along with the DMCC didn't reveal their stake in the joint venture.

As far as the gold bars backing the shares go, they will be of Dubai and London Good Delivery Standard, and will be placed in the vaults of DMCC, and a sub-custodian, HSBC.

Dubai Gold Shares will be denominated in U.S. dollars.