The time to be bullish for gold might be starting once again. Goldman Sachs has just released a statement, urging all active traders to begin buying gold. Their central argument is the current rise in real interest rates and that the economy is expected to rise throughout 2012 due to being an election year. With federal easing, gold may go back up as high as $1,840 and so the time to buy is now! MacQuarie Private Wealth goes even further and predicts a rise of as high as $2250, citing the same reasons! Alas, only in the gold market would an improvement in the economy be regarded as something to fear.
In this market, pessimistic sentiment towards gold has always been regarded as a pre-eminent bullish sign. Furthermore, the price of gold has just in general been growing the last few years, but ever since the US federal government first announced its QE in late-2008, the growth has been much more steady, reaching record highs in the last year.
One thing that this undeniable either way is that we are living in historic times for this market. With prices this high, various economies in crises, and the global future remaining murky, the path that gold takes the next few years is an uncharted one and one many of us are waiting to observe in anticipation. Bullion Trading does not make any of its own predictions for this market, nor do we pressure anyone to purchase gold if they strongly feel it is a bad investment at the time. What we do is encourage all prospective customers to do the necessary market research, whether it come from Goldman Sachs, Macquarie, or any other party, and have an educated idea of how the market works and what to expect. We carry many different items depending on your investment plans and hope for returns. If there is indeed a bull market on the horizon, we are here to help and guide you through to a wise purchase.

            Let’s talk a little bit about the SPDR Gold Trust, also known as GLD, which is one of the most popular and active funds used by investors for gold trading.  GLD is popular for having low fees and $68 billion in assets.  Yet now there is talk surrounding GLD and possible scam accusations from individual investors.  And so, now the fund’s prospectus is under close scrutiny, with certain language and choice of words being investigated.

            The prospectus makes a number of statements that will surely raise a few eyebrows, starting with the claim that any bullion found in the vaults that do not “meet the standards of the vault it is stored in” will be written off as a loss to the investor.  So is GLD storing bars of counterfeit gold, fully aware of this deception, with the intention of not officially “discovering” the forgery until after the time of purchase?  If so, it begs the larger question of whether or not GLD actually owns any physical gold to begin with or if it is all simply “paper gold” that they are selling to customers.  The prospectus also states that GLD does not oversee the actions of their sub-custodians, and if those sub-custodians were to commit theft from the fund, any legal action against them would be very limited.  Imagine if there was a bank that offered to store your finances but could not be held liable if those finances were then tampered with by either their employees or some other middleman you don‘t even know.  Not only would you not trust such a bank, but they would be a contradiction to the very definition that we hold banks to be.

            But the smoking gun is a short passage in the prospectus that flat-out forbids trustees from being able to visit the vault and see the physical gold they have purchased.  The reasoning behind this is that the fund wishes to avoid having visitors or have to expose their precious assets to strangers, which is a fair concern, but the poor choice of wording is definite cause for alarm and raises a number of red flags.  There is a famous quote by the late political commentator Christopher Hitchens: “That which is asserted without evidence can also be dismissed without evidence.”  To apply that statement to this example: if a merchant asserts they have sold you gold but cannot produce the item, then there is no difference between them and someone who never had gold to begin with.

            This is not to say that we are making any direct accusation at GLD; in fact, as a fellow participant in the bullion trade, we understand the large number of risks involved and why merchants will want to use wording that protects themselves at all times.  We also acknowledge that for a $68 billion operation to be a scam would be a rather extreme conspiracy.  But the bottom-line is that we advise all investors out there to always exercise caution and be willing to overanalyze every bit of fine print on any prospectus.  Again, this is why it’s always important to do the necessary research before the time of sale, whether you are the buyer or seller.

            One nice advantage about Bullion Trading is that our rules of conduct are almost the polar opposite of GLD’s; we require the customer to be physically present at the time of their purchase and encourage them to inspect the gold themselves, which they can then carry on them when they leave.  And while we do not parade the gold in our vault out to strangers for obvious reasons, we make it no secret what our business is, and we are certainly happy to discuss our gold with anyone who comes in.  This is why, once again, a trusted bullion dealer is a great place for a new investor to start before moving on to any major trust fund.  As for GLD, their situation should give us all pause.  If nothing else comes out of this news story, at least it will motivate investors to start reading the prospectus a little more closely.

We’ve already discussed Austria’s famous gold coin, the Philharmonic, but the 1915 Corona 100, though no longer minted, is an important piece of history. The Austrian Mint first unveiled these coins in 1892 as legal tender. The reverse depicts the coat of arms of Austria superimposed over a crowned Imperial double-headed eagle. The date and the face value of the coin are written twice, in Latin and German. The obverse depicts the bust of Franz Josef I, who ruled as both king of Hungary and emperor of Austria, and his reign saw the beginning of the Austro-Hungarian empire.

His brother, Franz Ferdinand, is especially notable in the history books, as his assassination is regularly cited as the catalyst for World War I. One troy ounce Coronas have a 35mm diameter and 90% purity. This means they are only 21.6 Karat gold. They were minted in denominations of 1, 2, 5, 10, 20, and 100 Corona. So why is 1915 such an important year? It was then that the coin was discontinued. This would seem extremely appropriate, being one year into the Great War and one year away from Franz Josef’s death. As a result, any and all Corona coins found with a 1915 date are official restrikes from later dates. This makes 1915 a year of infamy that has continued to produce gold throughout history since long after it has ended. Today these coins remain notable collector’s items and so much a part of Austrian history that it’s no wonder gold coins were later reintroduced as legal tender in the form of the Philharmonics. Obviously, someone new to the gold scene may prefer coins that are currently active, as well as ones in higher purity, such as the Canadian Maple Leaf. Yet, a serious investor should not be deterred by the Corona’s current status but really look at the global picture. In 2008, at the height of the financial crisis, Austrian gold proved to sell better on a global basis than Eagles or Krugerrands! Austria’s unique place in history and both world wars give it a certain mystique, and perhaps this makes its gold seem to be “more stable” that those of other economies. So, with the economic future still uncertain, any investor who wishes to hedge his finances for the international market would do well to familiarize himself with the Austrian Corona.

            In previous articles, we have made mention of how gold has been valuable since the days of the world’s earliest civilizations.  Perhaps then it should be no surprise that in the Middle East, the cradle of human civilization, gold is currently being embraced as the “Real Money.”  Iran has turned to gold bullion as its dominant form of currency in international trade, and given its major oil reserves, the nation is very active in trade on a daily basis.  Everyday, Iran’s Central Bank exports oil in exchange for finances that it then uses to import food.  However, these funds may be in different national currencies, or may become frozen depending on the specifics of its institution of origin.  Central Bank governor Mahamoud Bahmani has realized that accepting gold bullion in place of these funds is an effective way of cutting out this middle-man process and ensuring the transactions proceed even quicker.

            Iran’s turn to gold has been partially instigated by sanctions placed on them by the United States government and the European Union.  Yet how ironic that, while the Euro and U.S. dollar are inflating and going through crises, Iran prospers under its use of gold.  It once seemed that purchasing gold was the only way to “preserve one’s wealth.”  Today it seems that gold is the only wealth there is, and exchanging it for cash is a major liability.  Consider the fact that a single dollar bill is no different than a hundred dollar bill; both are made of the same paper, designed with the same ink, and weigh exactly the same.  What makes the second bill worth anything more than the first?  Just that a different number happens to be printed on it.  Both are essentially worthless items that are only given value by consumer-confidence in the government that issues them, a government that could theoretically print out more if need be.  The whole system is artificial.

            On the other hand, gold is made valuable not because of any numeric designation but because of its literal content and density.  It is a scare item that cannot be printed at will and is valuable through its very existence.  Two tons of gold are worth more than two kilograms of gold not because of any random number are printed on the item, but because there is a larger physical quantity of the material.  Its greater value is obvious.

            And yet, Federal Reserve chairman Ben Bernanke was famously quoted as saying that he did not consider gold to be money and that most central banks only hold the precious metal as “tradition.”  It would seem that Bernanke is so caught up in a “traditional” mindset of the national fiat that he is not in touch with the current economy, in which a global form of currency is required and gold appears to be the only commodity with enough value and recognition to take that spot.

            Iran’s use of gold in its international trade may be a major step towards legitimizing gold as the “new money” and lead an example that the rest of the world will slowly follow once certain economies begin to recover quicker than others.  Perhaps Iran is on to something that our Federal Reserve has not yet seen because it is too caught up in “tradition.”