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Lock and Load

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Gold looks to be range bound for the time being...

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G'day. The Lisa and I made it safely to New York (via Tokyo) and are finding it tough acclimatizing to the oppressive 100 degree heat. Fortunately Meehan, Farley, Depew and the MVHQ team directed us to an air-conditioned little bar down on 2nd Avenue where we put into effect the only way I know to overcome jet-lag: drink beer, and plenty of it. Such is the dedication of the MVHQ team that they kept us company until somewhat later than planned. Well, you have to keep up the fluid intake in this sort of weather.

On gold, one point that people should be aware of is that the liquid futures price of gold is significantly higher than spot. I saw a gold price pop up on the box a few minutes ago and got a bit excited with the $650 print. Why does the media put up a gold price without saying what delivery date they are working to?? The spot price of gold should be the only price posted unless specifically stated otherwise. The current liquid futures contract is trading some $10+ higher than spot delivery metal. The contango is as high as it's been in years, being a function of higher nominal interest rates and gold lease rates that are basically ZERO. If you want to borrow gold, it's free! Selling gold forward is a little more attractive these days to those producers who are so inclined.

The Lisa and I had a great flight across on Japan Airlines. Good tucker, nice wines and happy staff make 22 hours in the air bearable. It's also the only time I ever get to see any recently released movies. I had heard of V for Vendetta but never seen it. I watched it 3 times and still was taking notes! A very thought provoking and powerful film for sure. Hmmm.

A few weeks ago, I received a package from a nice bloke from NY. It was a great book that everyone should read if you get the opportunity. It's out of print these days but there's always somebody who knows someone who knows where to get something. (Thanks Jordan – you'll have it back on Friday). The Invisible Crash by James Dines was published in 1975. The observations, analysis and conclusions are so applicable to today as to be downright scary. Do yourselves a favor and read it. There are some notable quotes that pop up throughout the book, some that are worth bringing to your attention (especially while I've got bugger all to say about gold).

"Gold is a very special and completely unique metal. This yellow element has spurred emotions, ignited passions, and spilled blood like nothing else in the history of the world, with the possible exceptions of women and land." James Dines.

"There is nothing inherently wrong in effect with fiat money, provided we get perfect authority and God-like intelligence for kings." Aristotle.

"Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money." Daniel Webster.

"Government is the only agency which can take a useful commodity like paper, slap some ink on it and make it totally worthless." Ludwig von Mises.

" Though {paper money} has no intrinsic value, yet by limiting the quantity, its value in exchange is as great as an equal denomination of coins, or of bullion in that coin….Experience, however, shows that neither a state nor a bank ever have had the unrestricted power of issuing paper money without abusing that power; in all sates, therefore, the issue of paper money ought to be under some check and control and none seems so proper for that purpose as that of subjecting the issuers of paper money to the obligation of paying their notes either in gold coins or bullion." David Riccardo (written in 1817.

"When the paper system collapses, the survivors will dig in the rubble and they will find gold" – The London Times, 1974.

"Surely there is something ludicrous about our obsession with digging up a pretty but rather useless yellow metal in South Africa in order to rebury it in Fort Knox." The Burnham View, Vol 11, No.8. Burnham and Company, Wall Street, July/August 1963.

"Some say there isn't enough gold to back currencies in this day and age of a greatly expanded economy. This is ridiculous. If you raise the price of gold high enough you can have a value high enough to reach any amount. It is not the quantity of gold that is relevant, but the price at which it is sold. And, it is an outrage, which the American people have somehow never been bright enough to demand, to allow foreigners to buy our gold without permitting Americans to buy it. We think that any American should be allowed to own either gold or paper as he so chooses to protect himself from the ravages of inflation. As it stands now, there is precious little place to hide, except to buy selected gold shares" James Dines May 12, 1972.

(LM note - This as penned before the Gold Confiscation Act 1933 was repealed in 1974).

"We envision disaster unless Nixon immediately raises the price of gold to $400, makes the dollar freely convertible into gold, ends foreign aid, and makes a surplus in our trade balance a matter of top national priority." James Dines, May 1973.

Anyways, gold looks to be range bound for the time being and I wouldn't be surprised to see us have another crack at $620-615 level where we should see good support from the physical market, again. Check your London Fixes and note how that one setting at $605 was an aberration, unlikely to be repeated, IMO.

Looking forward to tomorrow night's trip to Yankee Stadium with Professor Weldon. The Blue Jays are gonna win three in a row and get back in the race again – just watch!

Best to all and it is good to be back in NYC again…

Laurie.
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Position in gold

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