Why did the price of gold hit record highs in 2008? Take a look at the headlines - government bailouts of failed banks, mortgage and credit crises, rising inflation, slowing growth and global insecurity. In order to protect themselves from treacherous financial markets and depreciated paper currencies investors worldwide are turning to gold.
Gold has long been used as money and as a store of wealth, but what's the source of its value? Why does that value sometimes rise so high and at other times fall so low? And what do we know about gold's complex and often tumultuous past that may yield clues about how it may behave in the future?
Gold is a side show on a world financial stage dominated by the dollar. The tail can't wag the dog -gold prices are affected by changes in prospects for the dollar and not vice versa. With uncertain outcomes for the American and global economies, gold's stateless money franchise makes this book compelling reading.
"John Katz is a clear eyed independent strategist and analyst with an extraordinary ability to get to grips with subjects ranging from biotechnology via alternative energy to commodities and gold. Uniquely for a commentator on gold he has no dogmas. To assess the risks and rewards that come with owning gold he introduces opinions from an impressive range of commentators, examines different scenarios that may play out on the world economic stage and highlights situations when owning gold makes sense and when it doesn't. To complete the picture Frank Holmes's contribution to The Goldwatcher explains the risks and rewards. The Goldwatcher has been written for 21st century investors. It will be an indispensable resource for responsible people from institutional money managers to private savers - whether the gold price moves up, down, or sideways."
—Patrick H. Spencer, Managing Director, Head of Institutional Sales, Robert W. Baird Limited, London
"Frank Holmes's stellar track record as a resource portfolio manager is a clear reflection of his understanding of the business, the markets and the factors that affect them. His success is as much about unearthing value as it is about creating an investment process that is religiously followed. If you want to succeed in your resource investment,this book is a must. It's all the more enjoyable because the writing style is easy-going,clear and understandable."
—Pierre Lassonde, Former chairman, World Gold Council, and past president, Newmont Mining Corp
This book is also supported by The Goldwatcher blog - http://wwwthegoldwatcher.com, which addresses news and developments affecting gold and the dollar, updates statistical information and links with sources for data and commentary.
ContentsForeword by Dr Marc Faber
List of Charts and Tables
Acknowledgements
PART ONE – DEMYSTIFYING THE GOLD PRICE
1. Introduction: Why Gold?
Unbiased Research
The Stateless Money Franchise
Crisis and Financial Market Risk Insurance
A Niche Investment
Squaring a Valuation Circle
Leading Questions on Reasonable Prices
Credible Analysis and Commentary
US Defi cits and Missions Possible and
Impossible
The Road to Global Economic Rebalancing
Why Gold Makes Sense Now
Insight into the Post 9/11 World and the Jihad
against America
2. The Gold Mining Industry
Gold Mining Past and Present
Rising Costs and Declining Production
South Africa
The Bear Market for Gold in the 1980s and 1990s
Rising Mining Costs and South Africa’s Marginal
Resources
3. Gold Supply and Demand
Part One: Introduction to Gold Exchange Traded
Funds – contributed by Neil Behrmann,
Editor of Exchange Traded Gold
A New Dynamic in the Supply and
Demand Equation
Part Two: Supply and Demand Fundamentals
and Swing Factors
Supply and Demand Fundamentals
Growing Investor Demand
Swing Factors Affecting Supply and
Demand
The Washington Agreement
Exchange Traded Funds and Sovereign
Wealth Funds
Do Central Banks Still Need Gold and
does Gold Still Need Central Banks?
4. The Rise and Fall of the Gold Standard
Introduction: The Stateless Money Franchise
Unfi nished Business
The Gold Standard and the Gold Exchange
Standard
Gold in 1980 and 2008
Time Magazineon Bring Back the Gold Standard
Robert Mundell on Gold at $10 000
The Offi cial US Enquiry into Restoring the
Gold Standard in 1982
Overview on the Gold Standard
Turning Points
How the Gold Standard Fared
US Fed Chairman Ben Bernanke and the Great
Depression
The Crash of 1929 and the Great Depression
Roosevelt and the Birth of the Gold Exchange
Standard
The Post World War II Bretton Woods Accord,
the Dollar and the IMF
The Triffi n Dilemma and the Gold Pool
Vietnam, Charles de Gaulle, Richard Nixon and
the End of the Gold Standard
Conclusion
5. The Dollar Standard and the ‘Defi cit without
Tears’
The Dangers of Uncharted Waters
The Traditional View
A New Paradigm: The Bretton Woods II Theory
Nouriel Roubini’s Criticism of Bretton Woods II
The Defi cit without Tears
Ben Bernanke
Miranda Xafa
Obstfeld and Rogoff
Barry Eichengreen
Assessing the Risks of a Hard Landing for the
Dollar
This Won’t be Fun
Exchange Rates
US Sovereign Debt Credit Standing
George Soros on the Demise of the Dollar
Standard
Conclusion
6. The Economic Consequences of 9/11 and
George W. Bush
Fire Ready Aim
War Costs without Any Sacrifi ce by Americans
Déjà Vu Vietnam?
Liquidity
Tax Cuts, Defi cits and Debts
‘Implicit Debt’ on Entitlement Commitments
Bush’s Ownership Society: Dismantling the
Barriers to Home Ownership and the Real
Estate Bubble
Borrowings Using the House as an ATM
Budgets, Social Security and Unfunded
Entitlement Commitments
President Bush and Social Security Reform
Bottom Line: Federal US Fiscal Policy Remains
Unsustainable
The Bottom Line: Federal Fiscal Policy is
Unsustainable
The Realities of Implicit Debt and
Generational Accounting
Why We Should Consider Gold
For How Long Will Asians go on Lending for
Americans to go on Spending?
7. The End of Cheap Oil, ‘Chindia’ and Other
Tipping Points to Instability
World Economic Forum Annual Risks Review
The End of the Days of Cheap Oil
Conclusions from the International Energy
Association 2007 Outlook
A Finance-based Economy with Excessive Debt
Dollar Falls as a Tipping Point
Sovereign Wealth Funds
Will Alternative Energy Come to the Rescue?
8. Globalisation & Global Economic Rebalancing
Introduction: Skating on Thin Ice
Financial Imbalances and Global Economic
Meltdown
Protectionism, Mercantilism and Mutual Interest
IMF Engagement on Global Economic
Imbalances
Extracts from Headline Comments from IMF
Staff Report on Financial Imbalances
The $ as America’s Currency and Everyone Else’s
Problem Again?
Scenarios Outlined by the IMF
Outcome of the IMF Consultations
China’s Approach to Growth, Reform and
Stability
Sustainable Development as China’s Priority
China’s Current Account Surplus
Approach Emphasizes Stability
US Treasury Secretary Paulson’s Approach to
Cooperation with China
Can the IMF Avoid Global Financial Meltdown?
9. Gold Prices: Infl ation, Defl ation, Booms and Busts
Introduction: A Crisis of Confi dence
Information Resources Including the LBMA
Annual Gold Price Forecasts
Accessible Information
Drawing the Threads Together
Prospects for Gold
The Refl ationary Rescue
An ‘Anti Risk Strategy’
Messages from History
Price Overshoots
What’s Different this Time?
Gold Price Suppression
A One Way Risk to Prices
Papering Over the Cracks
Do Trees Grow to Heaven?
10. Investing Choices
Bullion, Coins, Shares in Funds and Mining
Companies
Gold Bullion and Coins
Gold Coins and Bullion Bars
Advice from a Coin Dealer
Exchange Traded Funds
Futures Contracts and Increased Risk Reward
Exposure with all Derivatives
Gold Mining Shares and Gold Funds
Investing in Gold Mining Shares and Gold Funds
Timing and Strategies
Taxation
‘How to’ Resources for Trading and Monitoring
Eagle Wing Research on Gold Funds
PART TWO – GOLD INVESTING STRATEGIES
BY FRANK HOLMES
11. Inside U.S. Global Investors
Our Golden Rule: Moderation
How We Work
12. Investing in Gold Equities
What’s Driving Gold?
The Investing Universe
Gold Stock Funds
The Return on Capital Model
The Five Ms
Managing Volatility
Correlation
Gold Seasonality
13. Gold Mining Opportunities and Threats
Geographical Shift
Gold Production Peak
Exploration Spending
Industry Consolidation
Rising Operating Costs
Summary
PART THREE – APPENDIX
Fact Book
Chart Book
Gold: Chronology
Notes
Bibliography
Webliography
Index