Does gold set the price for oil?

The article "Does gold set the price for oil?" by Michael Jaeger in the Washington Times has compared the oil price and the gold price for the last 26 years, from January 2, 1986 to March 3, 2012 (6,457 matching intervals). Using basic statistics, a 2-sample t test was performed and the results are eye-opening. The comparison showed that .0602 ounces of gold times the price of gold produces the price of a barrel of oil, with an standard error of just .421%, between the calculated price and the actual price since 1986. For the last 26 years, the price of gold dictated the price of oil with 99.579 percent accuracy. That seems to be quite convincing. Read the full article for all the details. This TV news broadcast "Fiat Dollar Is The Real Reason For High Gas Prices" also talks about the same article by Michael Jaeger.

The Greed Game

In 2008 the BBC has created a 58-min documentary summarizing the past sub-prime crisis from a European perspective. It is online now at "Super Rich - The Greed Game". While it doesn't add new insights, it is an easy to understand summary. It also explains and discusses some of the unfair one-way-bets implications (asymmetric risks) showing how the poor get tapped to make the super-rich even super-richer. It concludes with the comment "we haven't learned from our mistakes".

Tech Bubble 2.0

Silicon Valley and the tech industry as a whole is going through another cycle of incredible hype. Valuations of companies are wilder than ever. The New York Times wrote an article about this new bubble. Apparently we haven't learned anything from the last tech sector bubble. The only difference to the new bubble, Bubble 2.0 seems to be an appropriate name, is that 2.0 is a bigger and bolder bubble. Read the article: Disruptions: With No Revenue, an Illusion of Value.

Understanding the New Price of Oil

Gregor Macdonald has written an interesting article entitled "Understanding the New Price of Oil" that explains how over time the factors determining the oil price have changed. Besides that the article has a lot of small tidbits of highly relevant information regarding the future of oil. Worth reeading.

MF Global

Here is a 23-min summary of the MF Global case: Capital Account of 12/08/11 from RT (first 23 minutes). What is your bank or broker doing?

Whose gold bar is it?

The referenced article is a must read for all GLD holders and even for physical gold holders. Too many financial institutions perform unethical and illegal operations. MF Global brings to daylight some of the problems arising through rehypothecation in the paper and physical gold market. The article "The Gold "Rehypothecation" Unwind Begins: HSBC Sues MF Global Over Disputed Ownership Of Physical Gold" comes to the conclusion that even allocated physical gold held in customers' names by mayor financial institutions is at risk. Is it time to take the metal home?

Re-hypothecation

A new word we need to learn: re-hypothecation. Hypothecation is when a borrower pledges collateral to secure a debt. Rehypothecation, in short, means lending of property lent to one, but of whom one is not the owner. The biggest misuse of re-hypothecation might be the current MF Global scandal. Read this article to see how large and established financial institutions break the law or use loopholes to enrich themselves and have the unaware customers pick up the losses when the bets fail: MF Global and the great Wall St re-hypothecation scandal.

‘D-Day’ Near For GLD

If you own GLD or think about investing in GLD it is a smart idea to read these two articles first:

• D-Day near for GLD
• The Seven Sins of GLD

According to the author Jeff Nielson of the article, "D" can stand for "Default"-Day or "Destruction"-Day. He is wrong about the date when D-Day will occur (he suggested 11/11/11), but his warnings are food for thought nevertheless.

Gold has Changed

The article "Gold bugs beware - The Gold bubble is finally bursting" in the Financial Times argues that the gold bubble is about to burst. I would agree that gold is in a bubble phase, but I see it as a lesser evil than other forms of investment and wealth protection. What the article does bring to ones attention is that gold today is not what gold was a decade ago. Gold has changed a lot due to the creation of popular ETFs such as GLD. Now gold has become an electronic digit on the computer, it can be bought, sold, repackaged, options taken with the click of the mouse or the stroke of a key. It has turned gold into a speculation. Even those of us who dislike the idea of speculation have to live with this new fact. The burdensome and limiting process of a physical object has become a 0 or 1 sent through the Internet at the speed of electrons. Now its here, now its not. It is bought and sold like any other share thousands of times a day when its value moves a cent up or a cent down. With this in mind we can forget anything we know about gold and forget all the lessons learned from gold in the past. Gold isn't gold anymore. Gold is riskier than ever before and it might bring to light many unexpected surprises. Still what is one going to chose for one's personal pension or long-term nest-egg: dollars, Euros, government bonds, oil, real estate, silver or gold? One option looks worse than the other. The least frightening option might still be precious metals.

Gold vs. Oil

Both resources oil and gold are interesting from an investment perspective. Both are natural resources and interesting options in times of change. Oil took quite a nose dive over the last weeks and gold is up by 30% YTD. Why is that? The answer nobody can know for sure but there are certainly many factors ranging from economic growth, economic forecasts, resource discoveries, exploration costs, speculation, global stability, wars to political signals. Here is an interesting up-to-date chart comparing oil to gold. On the chart one can quickly see that the oil to gold ratio has doubled ion just one year (2008 to 2009) and is overall quite volatile.

Gold as Safe Haven?

While the article "'Safe Haven' Assets Start to Look Risky" does not have a lot of facts and hard data it gives some common sense perspectives on safe haven investments in current times. It does a light comparison of gold, Swiss Francs and government treasury notes.

Gold Purchases

Who is buying gold? The latest data of state gold purchases and sales have been published by the World Gold Council. This data shows the following countries as leading gold purchasers over the last 10 years:

• China: some 550 tonnes
• Russia: some 420 tonnes
• India: some 200 tonnes
• Mexico: some 100 tonnes

It is interesting to see that there is no European country, not a single one, that has purchased any significant (5 tonnes or more) amount of gold at any point in time. The US hasn't bought any gold either. India and Mexico have been single one-time purchases. China and Russia are continuously buying mid-sized amounts year by year. Europe as a whole has sold around 3,000 tonnes of gold over the last decade.

Saudi Arabia is listed with a one-time 180 tonnes entry, but as far as I can tell this is not a real purchase but a paper adjustment.

It is a telling sign that the US and EU are not purchasing any gold with respect to any future currency decisions the politicians/banks of these countries will make.

Bitcoin Hacked

Amazing. The dollar is crashing. The Euro is crashing. And now also the Bitcoin is crashing. But the crashes are for different reasons, and the causes the resulted in the Bitcoin crash are easier to fix. Read this article on the events of this month in Bitcoins entitled "Inside the Mega-Hack of Bitcoin: The Inside Story".

What we learn from these events are:

• Bitcoin like any other currency is affected by human emotions and speculations. It goes up and down. Its value rises or drops on rumors, politic events and so forth. To this degree the currency does not reflect value but perceptions. Nothing new about this but the drastic rise in value over the last weeks and the following drop has demonstrated it.
• Bitcoin as a currency is still very young and not yet mature. The key issue currently is that some 90% of all exchange operations are traded on a single exchange. The currency is distributed by design, but currently its exchange is nearly centralized through this near-monopoly of the exchange named Mt. Gox. More companies must come forward and build exchanges so we have a more decentralized and less monopolized exchange infrastructure. This heavily used exchange Mt. Gox was compromised and user login, password and wallet data stolen, misused and later published openly. This is equivalent to a master heist in which a major bank is hacked, online bank account data such as account numbers, user names, and passwords stolen to be used later to login and transfer money. Clearly the exchange Mt. Gox is to blame. They had a poor security set-up.

Let's give it some more time to mature.

Inside Job

Inside Job is an extremely well made documentary from 2010 that won a series of awards for its content and quality. Interviews with the director Charles Ferguson are on YouTube. It explained the crisis that started showing its effects in 2008 exceptionally well. I loved how the documentary film started, the very first 30 seconds. "Iceland. Population 320,000 inhabitants. GDP $13 billion. Bank losses $100 billion." That first glimpse into the crisis explained it all too well. These 4 partial sentences drove the point home. It made us grasp the issue in a few seconds. 3 tiny local banks borrowed 120 billion dollars. 10 times the size of Iceland's economy. The accounting firm KPMG audited the banks and found nothing wrong. International rating agencies gave them a AAA credit rating. But that all changed in literally an instant. The house of cards collapsed. The full movie can also be found here. Watch it.

Gold

Just like silver, gold is also up and climbing. And there are lots of news around gold.

First, there is World Bank chief Bob Zoellick who said "Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today." He made further comments that hinted at a gold standard. Amazing, the chief of the World Bank hinting about a gold standard. That is massive news. It was reported instantly. The next day came all the expected retractions and he said he was misinterpreted and that in fact he did not call for a gold standard.

One may think about this as a slip of the tongue or true misinterpretation. Independent of that, he was certainly right when he said "Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today." Why? Gold has been made an official currency for collaterals of large financial transactions. A press announcement from ICE states: "IntercontinentalExchange (ICE), a leading operator of global regulated futures exchanges, clearing houses and over-the-counter (OTC) markets, today announced that ICE Clear Europe will accept gold bullion as collateral for all energy and credit default swaps (CDS) transactions beginning 22 November 2010." With ICE putting this policy in place other operators and clearing houses will have a competitive incentive to follow.

Gold is gaining in importance in the financial world it seems.

Silver

Silver is acting unusually in the markets. In 2010, silver has doubled. The 2010 low-price was $14.82. The 2010 high mark so far was $28.638. What could justify such insane increase in the silver price. Speculation is the only possible answer. When can we get to a real economy based on real productivity, producing real and useful goods? We must move away from a speculative, financial economy where gains and losses are all in numbers if we want to avoid bursting bubbles and a unfair and unjust society.

A friend sent me these links: JP Morgan and HSBC are manipulating the silver market since 2008. This is not the first time in history that banks or rich individuals are manipulating the silver market. The interesting part about this current manipulation is that it was picked up by the independent news and activist groups. People like Max Keiser and Alex Jones rallied and promoted people to buy silver in order to financially hurt JP Morgan and cohorts. It is a risky business to put yourself as a single small investor against the bullies like JP Morgan. Nonetheless, it is fascinating strategy - although uncertain in success - to band together many small investors to bring down a giant bank by betting against it on a market gamble, in this case the silver market. According to Max Keiser as long as the silver price remains higher than $25/oz. JP Morgan is punished. As a last note: let's not forget that this war cry to buy silver to crash JP Morgan is also a form of silver market manipulation. But at least this is a public one talked about on the internet, while JP Morgan's shorting is a stealth maneuver hidden from the public.

PS: About 2 weeks later this was posted: Is J.P. Morgan Getting Squeezed in Silver Market? According to this JP Morgan is now manipulating the copper market to offset losses in the silver market.

European State of Affairs

European state of affair is very gloomy. First Iceland. Then Greece. Now Ireland. Next is Portugal. And the prediction is that Spain will follow. Thereafter maybe Italy. Many people have predicted it. It did happen just as predicted. Only the governments said it would never happen. Take Ireland, up to the very last day, the government of Ireland was denying any problems and talks to the IMF and the EU about a rescue plan. The next day it was all official. How can anyone lie so blatantly?

About Spain? Some say the the European Financial Stability Facility will be out of funds to rescue Spain. Will they increment the fund? Where would the money come from? EU printing presses? US printing presses? Currently the Euro/US$ exchange rate is approaching 1.50. The Euro is very strong and the EU economy is suffering under it. This seems a good opportunity to print Euros, rather taking a $-based credit from the US (IMF or similar). Printing Euros would weaken the Euro currency and remove pressure from EU companies, but it would be against US wishes as the only interest of the US is to flood the whole world with printed US dollars. The gain for the US of sending $-based credits to the EU would be 3-fold: more dependency of the whole world on the US currency, weakening the US dollar even more thereby strengthening US companies, and profiting from future interest payments. So, will the political strength of the US be powerful enough to force the EU to take a US credit rather than print its own Euro money?

Will Spain be rescued? I am sure about it, the question is only how, i.e. by whom.

Overdose

The documentary Overdose shows us the future. My favorite sentence is: "The US government has handed out stimulus packages to the tune of ten thousand billion dollars ($ 10,000,000,000,000). That's more than the total cost of the US government for World War I, World War II, the Koren War, the Vietnam War, the invasion of Iraq, the New Deal, the Marshal Plan, and the moon landing". (37:17 or if you are watching the equivalent 3-part series it is Part 3, 6:00-6:22). Wow. Now, that is a good visualization of the amount spent on the bail outs and stimulus packages. My second favorite sentence follows right afterwards: "G.W. Bush has recked up more national debt than all presidents combined before him, from George Washington to Bill Clinton. And Obama is close to create more national debt than all presidents before him, including G.W. Bush."

Watch the Swedish 46-min documentary from 2010 entitled "Overdose: The Next Financial Crisis".

Crisis Survival Community

Dr. Jörn Berninger, a macroeconomist and crisis manager, runs an excellent video blog entitled "Crisis Survival Community" as well as a textual Financial Crisis Blog on his home page. I follow him for more than half a year now and found him insightful. He also has a German speaking blog with very similar content. Have a look at these sites yourself, check out his predictions and listen to his comments which now and then also include some hints regarding personal financial investment decisions.

Let's Make Money

Through the documentary "We Feed The World" I stumbled across Austrian filmmaker Erwin Wagenhofer. His second documentary is called "Let's Make Money". It was released in 2008 and is 110 minutes long. It is on its way to be as successful as his first documentary. It already won the German Documentary Prize in 2009.

The official web site and the partner site are currently available only in German. The trailer is here. The German version of the full film is currently on YouTube.

In it he interviews investors, financial managers, politicians, workers and homeless people. It is about globalization and privatization. It is sizzling. I love the line "Privatization originates from the Latin word 'privare' which means 'to deprive'." A viewer posted a comment in IMDB with the title "Anyone with a bank account should see this film". Do you have a bank account? If yes, go see it!