The Great Gold Rush Conundrum


If you haven’t been paying attention to world events regarding money issues, now might be a good time to pull your head from the sands or abandon all hope for your future.

Strong opening line, huh?  Good. It was meant to grab your attention, because all signs indicate that something wicked this way cometh, and I’m not talking about a remake of Saturday Night Fever with Clay Aiken in the role that made John Travolta a movie star.

We’re hearing it from economists. We’re hearing it from analysts. We’ve seen it happen in Iceland already. Glenn Beck has been sounding his panic alarm on this for some time now: The world’s monetary system is in turmoil and the you-know-what is going to hit the fan somewhere in the 2012-2013 time frame, according to some.

Everywhere you turn, people are promoting the idea of buying gold. Gold, being a precious metal, is expected to increase in value according to the market demand, as opposed to world currencies which will, supposedly, tank.

A good friend of mine suggested I liquidate my assets and invest in gold. It would seem to make sense, except for several problems:

  • The thought occurred to me that, with so many people running around, crying “Buy gold! Our currency will be worthless in three years”, might that just create enough fear to start a run on banks and for people to bail out of the stock market? Then in turn, could that cause markets around the world to crash, thus becoming a self-fulfilling prophecy?
  • With a limited supply of gold in the world, there is simply no way there will be enough for everyone who wants it. And if an entity like China wants to buy up all the remaining supply, what does that do to the economy of the rest of the world?

Don’t get me wrong: I appreciate those who are qualified and well-versed in economic matters laying out the possible scenarios. But this is the time for responsible restraint in one’s approach to the issue.

For every person with legitimate credentials voicing their concern, there are hundreds of “repeaters” who just can’t wait to be the first to start a new one of those perpetual e-mails circulating the globe. And if they misinterpret the facts as mentioned by someone who has credentials, you know as well as I, a “Chicken Little” message of panic will result, pointing to the expert as verifying the conditions. By the time Snopes.com clears things up, the damage is done.

If there is ample evidence that is absolutely irrefutable, we are justified in warning our friends. But short of that, we need to procede very carefully or we will create a self-fulfilling prophecy… and a horribly serious one. By all that is holy, I implore: Proceed with caution!

Should gold investing be your choice, here are some things you might want to consider:

According to whatprice.co.uk:

If all the gold ever produced in the world was formed into a single block how long would its edge be?

  • The length of a tennis court [22 metres] ?
  • The length of a football pitch [100 metres] ?
  • The length of a golf shot [200 metres] ?

In fact at 19 metres it’s quite a bit shorter than a tennis court, and that includes all the privately held gold coins, bars and jewellery in the world – some 75% of the total. The world’s monetary gold reserve is a block of only one quarter that volume, and America’s gold reserve is only one quarter of that. Fort Knox hides only a modest hole in the ground.

There’s not much gold left elsewhere in the ground either. Approximately 50,000 tonnes (about a third of what is already out) remains un-mined and will cost in excess of $300 an ounce to extract. Meanwhile – after steadily more detailed worldwide surveys – the mining industry consensus is that large mineral deposit discoveries are now a thing of the past.

OK, now that we know we have a finite amount of gold, the perfect storm is in motion for scam artists to dupe the uneducated.

Purchasing gold is not like driving down to your local Wal-Gold and slapping down $100,000 and walking out with three reinforced bags of bullion. The purchase and management of gold as an investment takes education and awareness most of us don’t have. And that’s what the scam artists are counting on. I predict that one of the largest scam operations of the near future will be boiler rooms selling “gold” to unsuspecting people under-schooled in the process.

A word of advice: If you don’t know the important differences between  allocated and unallocated gold, I suggest you take the time to educate yourself.  While we at Grand Rants do not endorse any web site, I did come upon one site Galmarley.com which seems to have a plethora of information on what to look for and look out for when considering investing in the gold market safely. They offer a free report (incurring no obligation) that covers crucial information for the beginner, including the four main traps for prospective investors. I would consider this a good place to start, but it’s a huge Internet. A little time spent searching will undoubtedly find other sources of information. One caveat: If the same web site is selling a related product, I would be very careful as they may likely tweak the information to fit their agenda.

When you are ready to really dig into the gold market, another web site you might want to consider is Bullionvault which has up-to-the-minute research news on the gold market.

An excellent interview with Joseph M. Foster, portfolio manager at Van Eck Associates, and head of its International Investors Gold Fund can be found here.

The above links are suggested as a starting place for educating yourself in gold investing. Before investing a single dime, however, take the time to do your research. Speak to friends who may have been investing in gold for some time and solicit their input. Talk to your investment company. But be careful! Educate yourself as much as possible in case your friends have not done so.  You may ultimately end up saving them money too.

Oh, and one more word of advice: If you get a Gold Investing solicitation from a guy named Madoff, I’d shred it ASAP.

Gerry Ashley

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