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We will be back the markets and have a short talk about: "Emptying The Coffers?" Just listen to the experts and share your thinking so that we can learn together! Emptying the Coffers? Presidential hopeful Ron Paul recently made headlines by suggesting that the US sell gold holdings to try to curb debt issues. The government has been butting its head against the debt ceiling, which will likely be raised shortly, so why would selling be a good idea in Paul’s eyes? More importantly, what would compel a nation to sell bullion assets and would it be a good idea? Past performance is not indicative of future results. ***Chart courtesy of Gecko Software First let’s dispense with the reasons behind the suggestion. The US is fumbling beneath the weight of substantial federal debt. So heavy is the burden that the country was recently threatened by a downgraded outlook on credit-worthiness. This was no joke, as the idea of one of the globe’s biggest financial machines being downgraded was enough to send most investors running for cover. The debt ceiling of $14.294 trillion has been reached, and as of the middle of May, US Treasury Secretary Timothy Geithner is in a position where he has twice asked for the lid to be lifted. The trouble now is that Congress may have to look at some extraordinary measures to get funds, including federal employee payroll trimming. When the debt reaches its ceiling, the tarnish on our reputation is pretty visible. That is why the outlook for the nation was lowered. Foreign holders of our debt won’t want to take the risk that the US will falter, and the strength of the US dollar comes into question. In an attempt to resurrect our global reputation, Ron Paul is basically suggesting that the government sell gold holdings to take care of a chunk of that debt. There are other things that the Treasury could sell, including land, but from the congressman’s perspective, the gold in Fort Knox is “just sitting there.” Gold prices are at high levels compared to other dates in recent history which furthers the argument that selling at all would mean selling now when prices are high. Most banks and governments have some form of bullion holdings and the US has oodles. According to IMF data, we hold about 8,000 or so metric tons at least (as of the late 1990s.) Conspiracy theories aside, that is. So why not sell some when prices are over $1,500 a troy ounce? The answer is a little delicate – how do you know when it is the right time, if at all, for a bank to sell? Famously, some leaders made potential blunders when they decided to sell gold holdings. Australia’s bank famously sold the majority of its holdings in the late 1990s because the bank’s board didn’t believe that prices were going anywhere. They also argued that......

"Bursting a Bubble" will be what we are talking about. Whenever you care about Gold Bullion market, let's check for the information that supports your trading and share your opinion so that we can learn together! Bursting a Bubble Last week’s commodity sell-off was dramatic for many markets, harkening back to the drop in prices seen in 2008. This, of course, sparked the inevitable mention of a bubble bursting (or getting ready to). This kind of language has a strong impact on investors and prices alike, but the big question should either be “is there a gold bubble waiting to burst?” or “is the belief in a bubble the more likely thing to deflate?” Before jumping on board with the idea that all higher priced commodities are just short opportunities waiting to happen it is prudent to consider what a bubble entails. For most of these characteristic past price plunges the whole picture offers a substantial difference to what I see in precious metals. Bubbles are often an inflating of prices with little fundamental reasoning behind them. Like their namesakes, they are large objects – or in this case, events with hollow composition. Think about some of the biggest examples of bubbles. Tech stocks, housing, and more were all fast climbers, posting gains that far exceeded their intrinsic value. The trouble is who can argue what the real value of some of these is at the time of the peak price? If there are buyers willing to pay a certain price then it can be argued that the value is just. In reality, some analysts suggest that a bubble appears when an asset is not being priced correctly - that a mania is taking hold without rational causes. A great example of this is the story of the mania over tulips. To oversimplify a recent bubble let’s look at the mechanics of the housing collapse. The number of participants who were buying and building more and more for the hopes of boundless profits forgot about the inherent purpose of real estate – as a place to live. Think about all of those shows about flipping homes (buying them to repair or update, and then sell for ridiculous profits) and all of the infomercials on real estate fortunes. All of this mania was built on the assumption that prices could only rise and that notion was funded by really bad loans. It was the perfect recipe for a bubble - and completely without substance. What about precious metals? Gold and silver, like most commodities, have a basic value supported by the dynamics of supply and demand. Then you throw the US dollar in the mix, and a whole new world of dynamics opens up. In the current environment, any weakening of the dollar has supported movements higher. This was exacerbated by moves from the Federal Reserve to stimulate an economic downturn by turning on the printing presses and increasing the money supply. This supply influx was known as quantitative easing and has come in two distinct waves. The second - QE2 - is set to expire next month, which has some critics of higher gold prices screaming sell. The trouble with this view, and a suggested catalyst for a bubble-bursting price drop, is that just because QE2 is coming to an end doesn’t mean that the money supply suddenly contracts. The Fed won’t actively be pumping funds into the system, but they aren’t scooping it all back up into their hideout either. Until they shift their policy in a way that reins in this extra cash this is a mute argument. The second argument against prevailing bubble theories comes from the function of gold (and to some extent silver) as possible stores of value and guards against inflation, i.e. inflation hedges. With several notable countries – the U.S., most of Europe, Brazil, China, and more – fighting to rein in inflation, there is less chance for gold to be shed from portfolios as investors hope to arm themselves against the rapid price increases. The final, and in my opinion, most important flag that waves in the face of naysayers is the fact that central banks have turned from being sellers of gold to buyers. Many notable countries like Mexico, Russia, and China have been adding to their official gold reserves rather than selling off portions. The idea that they are willing to allocate assets in this area says something. Gold is often frowned upon since it pays no interest payments meaning it isn’t earning money while it sits there. For these banks, having gold likely means protecting wealth.

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