Beware Of The Gold-BUYERS
Jeff Nielson
November 9, 2009
Several weeks ago, Fortune published a piece of tripe warning of a "gold bubble" (see "Beware Fortune's Gold Warning"). As "evidence" to support this assertion, it pointed to the explosion of companies looking to part you from your gold and silver - and aggressively advertising to do so. Supposedly this was an indication of the "mania" typically encountered as an asset-bubble nears a top.
As I immediately countered, in any sort of manic stage, the mania revolves around the widespread desire to buy gold and silver - not sell it. In fact, what Fortune's "evidence" actually demonstrates is that gold can't possibly be anywhere near its top, when there are vast numbers of people willing to sell their gold and silver at only a fraction of its current price.
A CNN video vividly illustrates that most of these gold (and silver) buyers are nothing but sleazy, rip-off artists, with even the best of these companies offering no more than 2/3 of the current price. Indeed, when the CNN reporter was pretending to negotiate a sale of an item of gold jewelry, when she mentioned (after receiving an initial "estimate") that she was a journalist - doing a story on gold-buyers - several of these businesses doubled their offer/estimate.
In CNN's research, it found that some of these rip-off schemes pay as little as 18% of the actual value of the gold. It must be noted that these are considered "scrap sales", and such bullion never yields 100% of value to sellers. However, as I noted in a recent commentary ("Investment Check-list for Precious Metals Miners: part I"), gold miners find it profitable to extract a ton of ore in order to process a gram of gold (roughly 1/28th of an ounce).
If gold miners can turn a profit on such processing, clearly the cost and labour involved for processing/recycling "scrap" gold cannot possibly justify a discount of at least 1/3rd of the actual value. None of these companies offers fair value for the precious metals they seek to buy.
Naturally, my own advice to those holding gold or silver jewelry and other items would be to hang on to all of it. Understandably, with many people suffering from the current economic crisis, some of these people face difficult budget decisions - with no good options. If people feel they must sell some of their precious metals possessions, at least make sure you obtain the "top dollar" for your sacrifice.
This means, first and foremost, don't even consider a company urging you to simply tuck some gold and silver into an envelope and mail it to them. If these bandits are willing to cheat people face-to-face to the degree demonstrated by CNN, imagine how badly you will be treated if you are not even present to negotiate a price in person.
In fact, a piece of jewelry, clearly described and simply listed for sale on E-bay would likely fetch a significantly better price than what most of the gold-buyers are prepared to pay. In larger cities, many have at least annual precious metals "shows", which among other things offers buyers and sellers the opportunity to do business - in a more even-handed environment.
However, before people get to this stage, step back and look at the "big picture". Contrary to the garbled nonsense from Fortune, when there are lots of people advertising to buy something you own this is a very good indication that this is an asset which at worst will retain its value - and is more likely to appreciate.
Week after week, I provide examples of the economic fundamentals which don't simply support higher gold and silver prices, but are supportive of much higher prices. Many of the veteran commentators n this sector are busily revising higher their long-term targets on gold and silver. Were these people too timid in their earlier predictions? Hardly.
Those who early this decade were predicting "$1000 gold" were generally laughed at. The reason why these astute analysts are now raising their earlier targets is because (as I have pointed out on many occasions), the "leaders" of the developed nations (i.e. those "owned" by the Western banking cabal) are exceeding the recklessness which prompted the original target of $1000 - and are prepared to continue this recklessness indefinitely.
I guarantee that if people were able to travel back in time even four or five years and you told one of these knowledgeable individuals that as 2009 was drawing to a close that the world would begin to replace the yen with the U.S. dollar - as the new "carry trade" currency - that these forecasters would have selected much more ambitious targets.
Further cementing current trends, over the weekend, the IMF released a statement that the U.S. dollar was still "over-valued". This is actually nothing more than stating the obvious. The United States can't pay its bills, it certainly can never repay a penny of its debts (i.e. $60 trillion in total public/private debt) - and sitting on the immediate horizon are an additional $70 trillion or so in "unfunded liabilities" (which will move significantly higher if Obama's minor health reforms become law).
The U.S. dollar may not be seen as worthless today, however, that verdict is inevitable - either through formal default on its unrepayable debts, or through hyperinflation (to delay default), followed by default. Thus, while I would suggest it is inadvisable for anyone to sell gold or silver for any paper, fiat currency, to swap gold and silver for U.S. dollars is clearly one of the worst trades in history.
Gold and silver are the ultimate "rainy day" assets, and should be the last liquid asset which people liquidate to cover their bills. A better alternative is to reduce spending to the greatest degree possible, and to buy gold and silver with any surplus dollars. Those who still have the urge to "turn gold into cash" will obviously be much happier with their decision (long-term) if they make that swap with gold at $2,000/oz rather than $1,000/oz.
Jeff Nielson
www.bullionbullscanada.com
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