Friday, February 29, 2008

How to Lose Double Your Money on Rising Gold Prices with Gold ETNs

Deutsche Bank announced that it will issue three Gold Exchange Traded Notes (Gold ETNs), that will be traded on the NYSE Arca.

The New Gold ETNs are:

DB Gold Double Long ETN (NYSE Arca: DGP)
DB Gold Double Short ETN (NYSE Arca: DZZ)
DB Gold Short ETN (NYSE Arca: DGZ)

The ETNs provide +200%, -200% and -100% monthly returns respectively on gold future prices. The Gold ETNs also provide an additional return equivalent to investing cash in Treasuries which adds approximately 5% return to each Gold ETN, including the Short ETN.

There are two ways to lose money in a Gold Bull Market.

One is to get in the way of a generational gold bull market by going short. Going short is where one bets the gold price will go down.

The other way to lose money is to buy gold on margin and have your entire position wiped out with a margin call. These new Gold ETNs provide you with the opportunity to be wiped out both ways.

They also offer an even better way to lose your wealth in a gold bull market by allowing you to go short gold on margin. That is for every 1% that the gold price increases, you will lose 2% of your capital. When you consider that the gold price has increased over 30% in the last 6 months from around $650 to today's gold price of $970, if you had of owned the DB GOLD Double Short ETN during this time you would have lost 60% of your capital in just 6 months. The bonus 5% T-Bill rate on top of this staggering loss would hardly make up for it.

While the GOLD ETNs also give you the opportunity to go long gold, take careful note that the Gold ETNs are not backed by gold bullion. So you are not investing in gold when you buy the Long Gold ETNs, you are investing in a paper product which is not actual gold. The Gold ETNs merely track the price of gold futures, and you have no rights to any actual gold. There is a big difference between owning a paper product that tracks the price of gold and owning real physical gold coins or gold bars in your possession or gold bullion in secure storage.

Richard Russell the editor and publisher of Dow Theory Letters makes this important point about what gold is and why people buy gold, on his website on the 19th of February:

"Gold is the universal, time-honored standard of wealth. Gold is pure, tangible wealth, and since pure wealth cannot be bankrupted or destroyed, gold is totally 'safe.' Gold is so safe that it doesn't need to pay any interest to tempt people to hold it. Wise men and women don't hold gold for income any more than they hold a ten-carat D color diamond or a Picasso picture for income. They hold these items because they represent timeless wealth."

How To Profit From Rising Gold Prices
The wise way to buy gold is to buy physical gold bullion without margin that you own 100% in the form of gold coins or gold bars.

Monday, February 25, 2008

IMF Gold Sale is a Spit in the Wind

The Bush administration is backing a plan for the IMF to sell off some of its gold.

The Bush administration recently announced it supports sales of as much as 12.9 million ounces, recommended by Andrew Crockett, former head of the Bank of International Settlements of IMF gold stocks

The IMF, which in view of the current surplus of funds most nations have, is becoming largely redundant and is having a hard time keeping its head above water these days.

It tried to get approval, first in 1999, and then again in 2005 to sell some gold to cover its losses, but was knocked back both times. US Congress demanded then that the IMF puts its house in order before it sells off the family jewels.

But these days the El President Bush rules the administration, so it is likely the IMF will get the go ahead in the next couple of months and sell off almost 13 million ounces in the hope that it will stave off a flagging economy, or at least the appearance of one.

If IMF do sell gold, it will be but a hiccup. This small amount of gold the IMF is contemplating selling could easily be gulped down by China without even a burp.

You know what they say. You will be assimilated. Resistance is futile. Nothing, not even selling off the IMF crown jewels, can save this paper economy.

Gold is money! Buy Gold!

Monday, February 18, 2008

China Gold Demand Now Second Largest in the World

In 2007 China surpassed the USA to become the second biggest retail gold market in the world after India. Total consumer demand in China's mainland, Hong Kong and Taiwan reached 363.3 tons, an increase of 23.5 percent from 2006, the World Gold Council indicated in a research report.

To put that figure into perspective 363.3 tons, is equal to 10,596,250 troy ounces of gold, at today's gold price of approximately $900 US that is $9,536,625,000 US Dollars worth of gold.

Mainland China gold demand, including gold jewelry and retail gold investment, reached 326 tons, an increase of 26 percent from 2006. This is the first time it has surpassed the 300 ton level. The gold jewelry demand in mainland China reached 302 tons in 2007, a year on year growth of 23.5 percent. Gold Jewelry and other ornaments have always been a form of savings in China since time immemorial.

India which has the world's largest gold demand had a gold demand of 773.6 tons in 2007, while the US now in third place had a gold demand of 278.1 tons.

"Encouraging civilian reserves of gold has strategic significance and economic value," said a director of the Peoples Bank of China's (China's Central Bank) official news vehicle back in 1998 when gold was around $300US. Can you imagine the US Federal Reserve Bank giving such a recommendation and what it would do to the gold price?

The article went on to say "If there are problems with the U.S. dollar, there will be an international catastrophe." "Reducing reliance on the dollar, and maintaining greater diversification in foreign exchange reserves is the only way to reduce the risk," it said. "As a result, an increase in our country's gold reserves is necessary."

It looks like the Chinese people have been taking notice of the advice from their central bank to buy gold. China's mainland gold demand rose 18% percent from 2006 level to 94.3 tons during the 4th quarter. This was when the gold price rocketed from the breakout area of of around $730US to around $900US.

Consider this, the U.S. possesses 262 million ounces of gold for its nearly equal population. Were China to achieve the same financial gold backing, it would require 1.2 billion ounces of gold. The same amount of ounces of gold owned by all the world's central banks and more than ten years of global gold mining production. However, China is now the worlds largest gold producer, surpassing South Africa in 2007.

According to the Peoples Bank of China, China’s foreign exchange reserves as of the end of 2007 were $1.53 trillion. If their central bank were to have 10% of these reserves ($153 billion) in gold they would need 168.3 million ounces of gold at the current gold price. The Chinese central bank currently has 19.29 million ounces of gold leaving them 149 million ounces of gold short. China could buy all of the IMF’s gold, and they still would not have 10% of their reserves in gold.

China's Gold demand is likely to continue to increase and put significant upward pressure on gold prices for many years to come, particularly if the US Dollar continues to decline in purchasing power as many analysts are predicting it will do. If China's new sovereign wealth fund decides to purchase gold, expect significantly higher gold prices.

Friday, February 1, 2008

How Much is Our Gold Really Worth?

GATA, the Gold Anti-Trust Action Committee sponsored a full page ad in the Wall Street Journal on Thursday proclaiming the hidden manipulation of the gold price by the world's central banks.

GATA, is a charitable organization, founded in 1999 "to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities," according to its Web site, www.

Chris Powell, managing editor of the Journal Inquirer in Manchester, was a co-founder of the Gold Anti-Trust Action Committee Inc., or GATA, together with William J. Murphy III of Dallas, Texas and a former commodities trader and former wide receiver for the then-Boston Patriots.

Titled "Anybody seen our gold?," the ad stated, "since 2004, four major international investment houses ... have issued reports stating that Western central banks have been manipulating the gold market."

"Rigging of the gold market is really part of a coordinated central bank scheme to regulate many markets," It goes on, "If you look closely enough at certain places, they are really candid about it. Government intervention in what are believed to be free markets is close to pervasive, in our opinion."

The ad notes gold's recent rise toward $900 an ounce "shows that the price suppression scheme is faltering. When it is widely understood how central banks have been suppressing gold, its price may rise to $3,000 or $5,000 or more."

The assertions in the ad are all backed by documentation, which is available for viewing through links on the GATA Web site, according to Powell, "All of this stuff is public record," he added.

Powell also stated that the organization doesn't have any other officers or members, though it does have "3,000 people on our e-mail list." The organization raises money through donations

Further information is available at