The Liquidation That Stole Our Christmas

December is traditionally a wonderful time for the stock market. It tends to rally strongly towards the end of the year, for some reason. So, it’s unprecedented that we start the month off with a 7.7% one-day drop in the Dow. This after a stronger than expected “Black Friday” sales season.

What gives?

Don’t ask the media. It’s not of much help. “U.S. stocks slid the most since October, wiping out more than half of last week’s rally, on growing concern the global economic slump is deepening and consumers’ access to credit is shrinking.” Media headlines are excellent examples of how markets make opinions.

I can imagine the reporter being told, “The market’s going down. Quick! Come up with a headline as to why!” One of my favorites is why the COMEX price of gold declined as much as it did today. (That’d be 5.6% for those of you keeping track at home.) Why the gold price would’ve declined, I have some suspicions, but the one thing I do know is that it’s not, as Bloomberg said, due to reduced “commodity use.”

How would I know this?

Easy. Just take a look at the latest Gold Investment Digest release from the World Gold Council. The report states:

Gold demand, in tonnage terms, rebounded strongly in Q3 after several quarters of weakness. Identifiable demand totalled 1,133.4 tonnes, up 170.1 tonnes (18%) on the levels of a year earlier. In US$ value terms, this represented a 51% rise to $31.8 billion, an all-time record high and a 45% leap from the previous record set in Q2. The recovery in demand was triggered by a fall in the gold price, which coincided with sharply escalated levels of economic and financial uncertainty.

After briefly testing levels above US$950/oz early in the quarter, the gold price fell back, briefly touching levels under $750/oz in mid-September. Nevertheless, the average for the quarter, at $872/oz, was 28% higher than Q3 2007’s $680/oz.

The biggest contributor to the increase in total identifiable demand in Q3 was identifiable investment, up 137.5 tonnes (56%) relative to year-earlier levels. Jewellery demand rose 45.5 tonnes or 8%, while industrial and dental demand declined 11%.

So, Bloomberg is incorrect in saying that this crisis has caused any sort of reduced demand, because that’s just not the case. I’ll write more about the conspiracy against gold this week, but it appears that I did not get the COMEX short squeeze for Christmas I was hoping for.

In other news, Ben Bernanke has told us that the Fed might need to buy US Treasuries to aid the economy. That’s code for “print money.” You see, the Fed’s reserves are US Treasuries, and it’s recently swapped those for toxic debt to keep banks from failing.

So, where would they get the money to buy up US Treasuries?

Easy, they print it.

As told most clearly in G. Edward Griffin’s The Creature from Jekyll Island: A Second Look at the Federal Reserve, the Federal Reserve Committee creates the money it uses to purchase US Treasuries. So, the Fed is going to be doing a lot of printing. Not only that, they are going to be doing so in an effort to keep interest rates low.

Let’s see here … Printing lots of money,  low interest rates …

Looks like it’s time to buy gold!

7 thoughts on “The Liquidation That Stole Our Christmas”

  1. Preston,
    Don’t give up on the squeeze just yet. See:

    BTW, I recently did some comparisons of 3 popular sources of Gold Bullion. Perth Mint, Gold Money, and Bullion Vault. If you were to invest $1 million at Perth Mint, for instance, it would cost you approximately $35,000 after redemption. And this is for unallocated gold. True, they are backed by the Australian government and insured by Lloyds of London but the gold is theirs, not yours. I don’t remember the figure I came up with for Gold Money but the spread was huge (both to buy and sell) as was the storage cost for their allocated gold. At Bullionvault you can get $1 million of gold (allocated, it’s your gold stored in a professional vault and also insured by Lloyds) for $2,000 after redemption and approx. $1,000/yr storage. You can also buy as little as a gram. If you’re looking to own the yellow metal it makes sense to compare the major players and do yourself a favor. Spend some time on the bullionvault site. The amount of information and the level of transparency is staggering. -Mark

  2. Buying gold does seem to be a good move, whether you’re rich enough to buy it by the ton or you just pick up inexpensive jewelry from pawn shops.

    This post by a survivalist in Argentina highlights the need for gold as a currency after stuff hits the fan and your paper money is worthless:;f=1;t=044387;p=1

    Interestingly, the quality of the gold is not much of a factor when you’re dealing with utterly desperate times. The black market assumes that all gold used for trade purposes is of low quality. You might as well get the cheapest gold rings you can find if your goal is to have currency on hand for an economic collapse.

    If your goal is to turn it around in a couple years for more money than you paid for it, I guess bullion is probably smarter.

    The linked post also highlights the need for the ability to operate independently off-grid without reliable water, power, food supplies, or law enforcement.

    I haven’t bought a gun yet (don’t know the first thing about using one), but I’ve got at least a month’s worth of calories and water stored away and I can survive without heat or electricity for intermittent periods. Now I guess I need some gold.


  3. Hey Cathy,

    Good to hear from you. Thanks for the post. I’ll take a look at it. I hope all is well and that you have a Merry Christmas.


  4. Hi Preston,

    I read yesterday that Bush was moving into Preston Hollow in Dallas. Suddenly, I wondered, “What happened to Preston Poulter?” I was pleasantly surprised to see that you had a blog and had even run as a Libertarian for Texas Rep.

    I enjoy this blog and the Libertarian perspective. You write plainly and with great focus. You write without much malice. It’s nice to find a blog that is about a person’s passion for betterment rather than an attention grab or a vehicle for invective.

    I hope your find the Argentinian’s words interesting. He’s living the best he can in a world that went from prosperous to dangerous gradually. So that’s a mild blessing — economic collapses don’t often happen to an entire population overnight. You can kind of see them coming if you’re looking. This gives you time to spread your message about how to prepare for a period of increased self-reliance.

    Aside from economic collapse, I am concerned about infrastructure collapse for various reasons. Avian influenza (H5N1) is probably on a collision course with mankind. It’s endemic in bird populations now. Every farmed chicken/duck/turkey that is raised and consumed is a living flu laboratory that is gradually mutating the virus into something that can potentially be transmitted to humans. Once that happens, we will likely see a global pandemic that cripples our import markets and results in critical supply shortages as people become reluctant to leave their homes.

    This is a decent book to read about bird flu: Take note of his personal affiliations with animal rights groups as a potential conflict of interest. The science and history of pandemic influenza as he describes them are still sound (if a bit simplified). I found it to be a good primer. Everyone’s obsessed about the economy while this monster slumbers somewhere in the world.

    Either way — economic collapse or influenza like in Stephen King’s The Stand, people have much to gain by preparation for harder times.

    Thank you for the kind wishes. I hope my chatter isn’t clogging up your blog. I enjoy having intelligent people to talk to.

    – Cat

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