Why GLD Is Bad and GOLD Is Good

Friends, here is why the GLD fund aka ETF is the worst investment if you like GOLD.

gold2confetti

1.  GLD Is Paper Gold

GLD is actually the SPDR Gold Trust Electronic Traded Fund.  It is a promissory note for GOLD.  It is backed by physical gold but the real ratio is controversial.  See

http://www.forbes.com/sites/afontevecchia/2011/11/15/is-gld-really-as-good-as-gold/#7b10e4f93ca1

2.  GLD Is Supported By The Fed Which Wants the US Dollar High and Gold Low

In a previous post, I discussed how the US Dollar and GOLD move in opposite directions.

In that post, I explained that the Federal Reserve wants to keep the dollar high so to do that, it depresses GOLD prices by encouraging the sales of paper GOLD.  See

https://michaelekelley.com/2015/07/20/dear-fed-plz-raise-gold-price/

3.  GLD is a CDO aka Tranche

Remember the Great Recession of 2008?  It was brought on by CDOs and tranches based on bundled mortgages.  GLD is a tranche aka a bundle of paper gold.

Statistics prove that 13% of CDOs before the Great Recession were sold to multiple buyers.  It is like selling an acre of land in Florida multiple times.

https://michaelekelley.com/2015/01/28/remember-cdos-theyre-baaaack/

4.  Paper Gold is rumored to be oversold by 200 times

You need to read this.

http://www.zerohedge.com/news/2015-11-30/paper-gold-dilution-hits-294x-comex-registered-gold-drops-new-all-time-low

5.  GLD Has Lagged Gold Mining Stocks Year To Date

NEM, a gold mining stock, is up 34% from 01/01/2016 to 2/5/2016.

Meanwhile GLD is up only 10% from 01/01/2016 to 2/5/2016.

That is probably because investment companies are avoiding GLD.  So NEM is a GOOD investment right now not GLD.

 

Here are Solutions when a Recession Comes

https://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

 

Here is Some More Information

Lessons From How The Great Recession Happened and What A CDO Is

http://www.ase.tufts.edu/gdae/Pubs/te/MAC/2e/MAC_2e_Chapter_15.pdf

Good luck!

PS  I own NEM and care about you but I cannot be held responsible for your decisions.

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Dear Federal Reserve: Please Raise The Price of Gold

This sounds selfish but this is the only solution to prevent a world-wide recession.

prayingtogold

There are two possible solutions to the problem of the high dollar value and low gold price.  But before discussing the solutions, we need a little background information.

The Federal Reserve, the European Financial Organizations and the largest banks in the world have agreed to keep the US Dollar as the monetary standard.  To do that they need to manipulate the price of gold so it does not replace the dollar.  This means keeping the dollar high and the price of gold low.

Keeping the dollar high has the added advantage of keeping imports low which improves the US trade deficit.  Having a good trade deficit and a strong dollar gives the impression of a strong US economy.

One problem is Russia and China.  They are not happy with the high dollar value and low gold value.  Consequently they are creating their own monetary standard and creating exchanges in their own currency.  This allows them to avoid the US dollar completely.

Another problem is the largest banks such as JPMorganChase are dealing in large quantities of gold derivatives which is lowering the price of physical gold.  See this:

http://www.zerohedge.com/news/2015-07-09/are-big-banks-using-derivatives-suppress-bullion-prices

The real problem is the amount of debt of many countries around the globe.  Greece and the US are just 2 of 12 countries out of 64 whose debt is greater than their country’s Gross Domestic Product (GDP).  That means almost 20%of the largest countries in the world are in debt as seen in this website:

https://en.wikipedia.org/wiki/List_of_countries_by_public_debt

Now to discuss the solutions to the problems of  high debt and the high dollar value and the low gold price.

One solution is to let the nations in debt exchange their US dollars for gold.  But this could result in the depletion of US gold reserves and then the world would find out that the paper gold value does not equal the physical gold valueThat would cause a run on banks, a rush to cash and possibly a global recession.

Chris Powell of the Gold Anti-Trust Action Committee said, “The system may end when one country pulls the plug on it, exchanging U.S. dollars and government bonds for more gold — real metal — than is available, or when ordinary investor demand exhausts supply, which is more or less how the London Gold Pool ended in 1968.”

So a better solution is to raise the price of gold to eliminate the debt around the world.  Some people are proposing a 7 fold increase in price.

Chris also said, “… a study in 2006 by the Scottish economist Peter Millar concluded that to avert such a catastrophic debt deflation, central banks would need to raise the gold price by a factor of seven to 20 times in order to reliquefy themselves and devalue their currencies and society’s debts…”

For more information on what Chris Powell said, read the following website:
http://www.gata.org/node/14839

Okay.  I admit I own GLD and UDN and this would benefit me.  But now I am giving you the chance to also profit from this information.  here is some more useful information:

https://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

Thanks

Why Another Recession Is Coming – In English

Friends, here is a tutorial on how we got here and how to prepare for the worst.

ssminnow
Easy Money

The Federal Reserve (Fed) offered Quantitative Easing (QE) 3 times.  At first it saved the big banks and the stock market started going up.  But then the Fed kept giving out easy money to the big banks.

Leveraged Loans and Junk Bonds

The banks, that received the QE money, issued junk bonds and leveraged loans that were used for debt creation not real products and services.  Specifically QE went to Mergers and Acquisitions (M & A) and oil investments.  Here is an example.

Richard Baker, chief executive, along with his investment firm, NRDC Equity Partners, relied heavily on borrowed [leveraged loan] money. Of the $1.2 billion that it paid for Lord & Taylor, only $25 million [2%] came in the form of equity, with the remainder made up of debt financing. [The New York Times]

Do you think any of us could buy a house with 2% down? Nope.

New Bubbles

For 2014, three things happened.  The dollar reached a new record high, the Dow Jones hit a record 32 times and leveraged loans went back to 2008 pre-recession levels.  Some economists are calling this a bubble.  Here is a chart to prove it.

See https://michaelekelley.com/2014/12/20/leveraged-loans-predict-crash/

Some Good News

The good news is the stock market is up, gas prices are low and unemployment is back to 2003 levels.

But the Economy Struggles

The economy is struggling for several reasons.  First, the easy money went into debt rather than real products which creates jobs.  Secondly, very little money went into infrastructure which also creates jobs.

And Wage Inequality Is Greater Than Ever

The CEO to worker compensation ratio is 296 to 1 today versus 20 to 1 in 1965.   The rich have gotten richer.  Unfortunately the upper class does not change its spending patterns.  Several studies have proved this despite what politicians say.

So the economy has stalled even though the stock market is up.  Only the middle and upper classes have money to invest in the rising stock market.

Oil Price Drops and Leveraged Loan Bubble Bursts

Oil prices have dropped because of excess supply and over-leveraged oil investors.  For more information see this easy to understand website.

http://wolfstreet.com/2014/12/07/bloodbath-in-oil-patch-junk-bonds-leveraged-loans-defaults/

Solutions for the Federal Reserve and Congress

Here are some solutions because blogs should offer solutions rather than just complain about our problems.

There is still time for the Federal Reserve to pump up the economy by providing funding specifically for infrastructure which will create jobs and kick start the economy.  Also Congress, or better yet, each state can raise the minimum wage.  The economy will only take off if new jobs are created or lower class or middle class people get pay raises.

Here is a list of 7 suggestions that will not soak the rich.

http://www.marketwatch.com/story/7-ways-to-help-the-middle-class-without-soaking-the-rich-2015-02-05?page=1

But if the government drags its feet or does more of the same Quantitative Easing, here is what you can do to prepare for the worst.

Solutions for the Rest of Us

https://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

Lessons From How The Great Recession Happened and What A CDO Is

http://www.ase.tufts.edu/gdae/Pubs/te/MAC/2e/MAC_2e_Chapter_15.pdf

Good luck!

New Obama Dollar Coin Announced

WASHINGTON D.C. – The Treasury Department announced today that they are pressing forward with the minting of a new dollar coin with the silhouette of President Barack Obama.

orange_obama_coinThe President was “thrilled” to hear about the new coin, a White House source confirmed.  He had been “totally furious” that he had spent time the precious week posing for a trillion-dollar platinum coin that would never be minted. See http://www.newyorker.com/online/blogs/borowitzreport/2013/01/obama-furious-he-wasted-week-posing-for-coin.html

Treasury officials reversed course and decided to commemorate the historical second inauguration.  They will be using funds budgeted before sequestration.

After the overwhelming success of adding color to paper money, the Treasury Department decided to start coloring coins as well.  When asked why the color orange was chosen, Robert Steel of the Treasury Department replied, “The coin is only 10 percent silver and 20 percent nickel so it does not really matter.”

Mr. Steel also announced that the coin would be available in 60 days assuming it passes testing to see if any teeth marks could be detected.

Both Treasury and White House officials collaborated on the coin’s design.  In acknowledgement of all the various religions found in the U.S., the coin will not have the words “In God We Trust.”

The coin fiasco behind him, Mr. Obama has now apparently turned his attention to balancing the budget within the next 100 years.