Studying The Issues of Gold Price Movements 1

Studying the issues of gold price movements
Compiled by S3ra Sutan Rajo Ali

Jakarta, 11 February 2012
20120109 Gold Tipped to Keep on Shining

20120109 Gold Prices Settle Lower
20111230 U.S. Gold Prices
20111229 Gold, Silver Plumb Recent Lows
20111225 PBOC Official: China Should Adjust FX Portfolio, Buy Gold Assets When Price
Drops
20111224 India Slows Rush for Gold
20111223 U.S. Gold Prices
20111219 Gold, Silver Appear Set to Shine in '12
20111215 Golds Ups and Downs
20111214 Speaking of People Whose Models Have Failed
20111212 Gold Loses Its Shine
20111209 The Rising Price of Gold Boosts GTSOs Outlook for 2012
20111207 Gold Gains Ahead of European Meetings
20111202 Gold Retreats as EU Debt Worries Weigh
20111122 In Nervous Market, Gold Gains Respectability
20111027 Gold Should Get Back to Behaving Like a Safe Haven Any Day Now: Analysts
20110928 Gold, Silver Topple as EU Fears Drain Optimism
20110922 A Gold Rush Wanes as Hedge Funds Sell
20110910 The Conscience of A Liberal: Golden Spikes
20110906 The Conscience of A Liberal: Treasuries, TIPS, and Gold (Wonkish)
20110819 The Hidden Dangers In Safe Havens
20110819 Guyana: Crime Wave Near Gold Mines
20110819 Gold Shines On and On and On
20110818 Gold at Record Prices, Yet Demand Has Slumped
20110815 Gold Fever Gripping the Australian Outback
20110808 UPDATE: Gold Price Hits Parity With Platinum For First Time Since 2008
20110802 Gold Fever Is a Symptom
20110723 In a Gold Lovefest, Shades of 1980
20110719 The Conscience of A Liberal: The Glenn Beck / DeBeers Connection
20110715 Is Gold a Compelling Trade or Long Term Investment?
20110628 The Old Superstition
20110523 Gold is Not an Investment
20110514 Suddenly, Gold Isnt Looking So Solid
20110502 Wall Street Shrugs Off Death of Bin Laden and Turns Attention to Earnings
20110215 Gold Standard
20110203 Newmont Mining Strikes $2 Billion Gold Deal
20100903 Paying Through The Nose For Insurance
20100614 Behind Gold's Glitter: Torn Lands and Pointed Questions
20100513 A Case for Gold at $5,000 an Ounce
20100512 Gold: A Low Risk Bet in a High Risk Environment
20100226 Whats The Best Way To Move A Market? Spread A Rumor
20071208 Golds Quirk: Its Volatile, but Holders Feel Secure
20060507 Finding Comfort (and New Friends) in Gold
20001022 Business; How Gold Has Burdened Economies
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19990504 Editorial Observer; Who Needs Gold When We Have Greenspan?

19960810 Why Not the Gold Standard?
19940501 The World; A Nixon Legacy Devalued By a Cold War Standard
http://blogs.wsj.com/source/2012/01/09/gold-tipped-to-keep-on-shining/
Gold Tipped to Keep on Shining

By Rhiannon Hoyle
January 9, 2012, 2:49 PM GMT
Reuters
Gold bulls appear to have one very important gal in their corner.
Edel Tully, precious metals strategist for Swiss bank UBS, a key player in the London gold
market, has come out tipping gold to rally as high as $2,500 an ounce this year in a survey of
industry analysts conducted by the London Bullion Market Association, the London-based
trade association that represents the wholesale market for gold and silver in London.
Not only is Ms. Tully a very well-regarded analyst among her peers, but she was easily the
most accurate forecaster among the LBMAs contributors last year, having tipped an average
of $1,550 an ounce. The actual 2011 average was $1,572 an ounce (and the average forecast
put forward by her fellow contributors was just $1,457 an ounce).
UBSs Philip Aubertin, an executive director with the bank, had won the LBMAs prize of
the best gold forecaster the year before.
Ms. Tully is this year forecasting an average of $2,050 an ounce for the gold price, with a
high of $2,500 an ounce and a low of $1,400 an ounce. This compares to an average of just
$1,766 an ounce across the LBMAs 26 contributors, who together tipped $2,055 an ounce
for the high and $1,443 an ounce for the low.
Monday, spot gold the immediate price paid for physical metal is trading around
$1,616 an ounce.
Ms. Tully said in a recent note:
While the floor is somewhat unclear, we think a time will come when a gold rush could
propel the metal significantly higher than last years levels. The catalyst for that, given golds
recent relationship with risk, is unclear. But quantitative easing in the euro zone has to be
near the top of the list and so too is the risk of an increasing dovish Federal Reserve Open
Market Committee.
Still, while Ms. Tully may be more bullish on bullion than her counterparts, many others are
tipping a break of at least $2,000 an ounce.
Expectations suggest another strong year for the metals price, which set a record of
$1,920.94 an ounce in September last year. Based on analyst forecasts, this year could
potentially be the markets 12th consecutive year of gains.
Of those surveyed, only Sumitomos Eddie Nagao, CPM Groups Rohit Savant and BN
Vaidyas Bhargava Vaidya said they didnt expect a new record price sometime this year; and
Mr. Nagao was alone in forecasting a lower average price compared with 2011.
Some banks have been cited reining in their forecasts for the metal over the past week,
blaming it on the markets lower-than-expected base following recent price weakness,
liquidity concerns or expectations of a stronger dollar. But most analysts, in doing this, have
reassured they remain positive on gold.
In a report to clients, HSBC analyst James Steel who forecast an average of $1,850 an
ounce, with a high of $2,050 an ounce and a low of $1,450 an ounce said the bullion
market should ultimately benefit from any negative global economic conditions. He had
lowered his forecast by $175 an ounce.
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Nonetheless, should the LBMAs forecasters be accurate in predicting an average around

$1,766 an ounce for this year, it would still be a 12.3% rise in value on last year. And in the
current environment, thats nothing to sneeze at.
http://online.wsj.com/article/SB10001424052970204257504577150623201884602.html
Gold Prices Settle Lower

By MATT DAY
JANUARY 9, 2012, 3:21 P.M. ET
NEW YORKGold slipped as early weakness in the euro bolstered the view that Europe's
debt crisis would continue to provide headwinds for the precious metal.
The most-actively traded gold contract, for February delivery, fell $8.70, or 0.5%, to settle at
$1,608.10 a troy ounce on the Comex division of the New York Mercantile Exchange.
"Gold continues to battle dollar strength and behave in line with risky assets," Barclays
Capital analysts Suki Cooper and Lynnden Branigan said in a note.
Monday, the ICE US Dollar index touched its highest level since September 2010 as concern
over the state of Europe's financial system pushed investors into the perceived safe-haven
currency. A stronger dollar makes dollar-denominated gold appear more expensive for buyers
using other currencies.
Investors have favored the dollar at the expense of precious metals in recent months as the
strain in Europe's financial system has deepened. Some have favored the flexibility of cash on
the chance that the euro zone's debt struggles could descend into a crippling credit crunch.
But ahead of a series of euro-zone meetings, news conferences and debt auctions, many
markets shifted into a neutral mode Monday afternoon. U.S. equities posted slight gains
recently while the euro rebounded from its early lows.
Hedge funds and other large money managers tracked by the Commodity Futures Trading
Commission cut their bullish bet on Comex gold futures and options to the lowest level in
almost three years during the week ended Jan. 3, the commission said Friday.
The net-long position held by such traders, or the difference between the number of bets on
higher prices and bets on lower prices, fell 1% on the week, to the lowest since Jan. 20, 2009,
the CFTC said.
"The speculative market remains wary of gold's prospects, which might explain the failure of
gold to sustain upward momentum," said Marc Ground, an analyst with Standard Bank, in a
note.
Gold futures rose 3.2% last week, as buyers returned to the battered market after its 10%
decline in December. Some investors viewed the pullback as a buying opportunity, with
many analysts expecting economic uncertainty to boost the appeal of alternative assets such
as gold in 2012.
Write to Matt Day at matt.day@dowjones.com
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U.S. Gold Prices

DECEMBER 30, 2011, 11:30 A.M. ET
New York (Dow Jones)--Engelhard Corp's base price for industrial gold bullion was
$1,575.82 per troy ounce, up $41.57 from previous. It's selling price for gold in fabricated
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form was $1,694.01, up $44.69. Handy & Harman's base price for gold was $1,570.00 per
troy ounce, up $39.00. The fabricated form price was $1,695.60, up $42.12.
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ows&cd=1&hl=id&ct=clnk&gl=id&client=opera
Gold, Silver Plumb Recent Lows

By MATT DAY
DECEMBER 29, 2011
Bloomberg News
The price of silver, shown here in bars at the offices of Gold Bullion Australia, fell to its
lowest point since January.
NEW YORKWorries about the debt crisis in Europe dragged silver and gold lower,
sending the battered markets limping into the end of the year and highlighting investor
demand for cash.
Precious metals sank in near lockstep with the euro, as the common currency's decline to 14-
month lows put Europe's strained financial system in focus. Investors are concerned that the
euro zone's stress could set off another global financial crisis and are watching the euro as a
gauge of the situation. Since mid-December, silver and gold prices have mostly tracked the
euro, rising when it climbed and falling when it slid.
On Wednesday, silver settled at its lowest levels since January, and gold at a five-month low.
Silver started 2011 at its highest price since the Hunt Brothers tried to corner the market 30
years ago, and the metal seemed poised to touch record highs above $50 an ounce as
investors sought a cheap alternative to gold.
The euphoria ended in a crash that took prices down by a third in late April and early May.
The market struggled to find its footing in the months that followed, as investors reassessed
the safety of precious metals.
Silver and gold are valued for their perceived ability to maintain value during economic
turmoil, but that view broke down this year as worries about the financial health of the euro
zone mounted.
Banks and other investors were trying to shed risk by selling their silver holdings, said Frank
McGhee, head precious metals dealer with Integrated Brokerage Services. "This is all based
on the euro-zone debacle," he said.
Silver for December delivery fell $1.505, or 5.2%, to settle at $27.192 a troy ounce on the
Comex division of the New York Mercantile Exchange. Futures are down 12% for 2011.
Gold for December delivery fell $31.30, or 2%, to $1,562.90 a troy ounce, taking its year-to-
date gain to 10%. Futures hit record intraday highs above $1,900 in September.
The euro's fall and the reaction in precious metals mirrored a similar set of declines after the
currency dropped below $1.30 on Dec. 14. The benchmark gold futures contract on that day
slid below its 200-day moving average for the first time in more than two years, a bearish
signal for market participants who place bets based on patterns in market activity.
On Wednesday, silver received an additional drag from a weak growth outlook for the euro
zone and signs of a slowdown in top metals consumer China. Industrial demand accounts for
about half of silver consumption, and the metal is used in everything from solar panels to
televisions and photography. "I don't see much scope for an increase in [industrial] silver
demand" in 2012, said Erica Rannestad, an analyst with commodities consultancy CPM
Group.
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The selloff didn't spare other precious metals already on edge amid the shaky growth outlook.
Platinum fell to the lowest levels since November 2009, with the January-delivery contract
settling down 3.2% at $1,387.70 a troy ounce. Palladium sank 2.9% to $647.15 an ounce.
In other commodity news:
OIL: Nymex crude futures retreated below $100 a barrel as stock markets declined, but the
prospect of additional sanctions on Iran kept a floor under prices.
Light, sweet crude for February delivery settled down $1.98, or 2%, to $99.36 a barrel. Brent
crude on the ICE futures exchange lost $1.71, or 1.6%, to settle at $107.56 a barrel.
Wednesday's retreat in Nymex crude marked the contract's first decline in six sessions and
was fueled largely by a selloff in the equities market.
Dan Strumpf and Leslie Josephs contributed to this article.
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/BT-CO-20111225-
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hen+Price+Drops&cd=1&hl=id&ct=clnk&gl=id&client=opera
PBOC Official: China Should Adjust FX Portfolio, Buy Gold Assets When Price Drops
DECEMBER 25, 2011, 9:17 P.M. ET
BEIJING (Dow Jones)--China should adjust its foreign-exchange portfolio and buy more
gold assets when the price of the metal drops, People's Bank of China Research Bureau
Director Zhang Jianhua said in remarks published on Monday.
The Chinese government should be wary of the risk of inflationary pressures picking up, and
should buy gold as a hedge against that possibility, Zhang said in the central bank-run
Financial News.
China already holds a small portion of its US$3.2 trillion of foreign reserves in gold.
Zhang did not give any indication of what proportion of China's foreign-exchange holdings
should be held in gold in future.
Newspaper website: www.financialnews.com.cn
-Eliot Gao contributed to this article, Dow Jones Newswires; (86 10) 8400-7705;
eliot.gao@dowjones.com
India Slows Rush for Gold

Rupee's Fall Hits World's Biggest Consumer of Gold, and Possibly Global Prices
By DEBIPRASAD NAYAK and TATYANA SHUMSKY
DECEMBER 24, 2011
India historically has been the world's biggest consumer of gold, much of it cast into jewelry.
MUMBAIRavi Chaturvedi was looking forward to giving his wife a gold ring as an
anniversary present this January.
But with gold prices stubbornly high in rupee terms, the 34-year-old bank manager says he
has changed his mind: He now plans to give her a mobile phone.
It is a telling choice.
Many Indians are either scaling back or eliminating their gold purchases outright. The drop-
off in demand is exposing cracks in what gold investors have traditionally perceived as a
solid support for global prices.
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With many of its religious and cultural traditions steeped in the precious metal, India
historically has been the world's biggest consumer of gold, much of it cast into jewelry. Gold
plays a particularly important role in wedding ceremonies, and physical demand for gold
usually rises significantly in the fall and winter, which are considered auspicious times for
getting married.
This year, however, the wedding season dovetailed with a rapid depreciation of the rupee
against the dollar as investors fled India amid jitters about the broader economy.
India's imports of gold fell to 20 metric tons in November, down as much as 75% from a year
earlier, according to estimates from the Bombay Bullion Association, an industry group for
the country's gold dealers.
Many investors and analysts believe that is a key reason why gold prices haven't bounced
back even though concerns about Europe's debt load and the viability of euro persist.
Dollar-denominated gold futures in New York peaked at $1,888.70 an ounce in early August
and have since declined by 15%. The price Indians paid for gold, in rupees, continued to rise
beyond August, hitting a record 29,270 rupees ($558.59) per 10 grams on Nov. 16 as the
Indian currency weakened against the dollar.
Gold futures on Friday eased 0.3% to $1,604.70 a troy ounce in New York, while in India the
price of physical gold is up slightly at 27,710 rupees per 10 grams.
In recent years, the market for physical gold has been overlooked as investors focused on its
growing popularity as a "safe-haven" asset that retains value during crises and on big
positions taken by hedge-fund titans like John Paulson through exchange-traded funds.
But the retrenchment in India shows that trends in physical demand can still exert significant
influence on prices. "You have to keep focus on India at all times," said Nelson Saiers, chief
investment officer at New York-based hedge fund Alphabet Management LLC, which has
about $600 million under management.
If the rupee continues to weaken together with India's economy, "it will hurt the [price] floor
on gold," Mr. Saiers said.
Roughly a third of global demand for gold in the form of jewelry, or 649.9 metric tons, came
from India in the year ended Sept. 30, according to the World Gold Council.
Ornate necklaces, armlets, earrings, bangles, gold chains and finger rings are an essential part
of a Hindu bride's trousseau and are usually bought by her parents.
Shraddha Kulkarni was recently trying on jewelry with her daughter at a shop in Mumbai's
Zaveri Bazar gold hub. "We were earlier planning to give about 100 grams of gold jewelry to
her, but the high price has forced us to limit it to 70 to 80 grams," Ms. Kulkarni said.
Vasu Acharya, a director at Parker Bullion, based in the western city of Ahmedabad, said
demand was slack. He said sales were running at 20% of last year's levels.
"If gold demand is like this now, I shudder to think what it will be in January" after the end of
the wedding season, which lasts until the middle of the month, Mr. Acharya said.
Some analysts, however, argue that the drop in demand is temporary, and represents Indian
consumers postponing gold purchases.
Buyers in India "are apparently anticipating a larger decline in prices and are reportedly
holding out for such an eventuality," Kitco Metals Inc. North America's senior metals analyst
Jon Nadler said in a note to clients.
That is the strategy Sumitra Jain opted for, saying she would only buy part of her daughter's
wedding-jewelry requirement now and wait for a further decline in prices to buy the rest.
Indian jewelers are trying to attract customers by shifting to lightweight jewelry from heavy
gold ornaments. Some also are trying to woo customers with offers such as an option to lock
in the lowest price between the booking day and the delivery date.
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Daman Prakash, a director for MNC Bullion, a trading firm based in the southern city of
Chennai, said he expects to see more demand from retail customers when prices fall to
26,000-27,000 rupees per 10 grams.
Biman Mukherji contributed to this article.
Write to Debiprasad Nayak at debi.nayak@dowjones.com and Tatyana Shumsky at
tatyana.shumsky@dowjones.com
Corrections & Amplifications
India's imports of gold fell to 20 metric tons in November, according to estimates from the
Bombay Bullion Association. An earlier version of this article incorrectly said the imports
fell to 20 million metric tons.
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U.S. Gold Prices

DECEMBER 23, 2011, 11:31 A.M. ET
New York (Dow Jones)--Engelhard Corp's base price for industrial gold bullion was
$1,610.38 per troy ounce, up $0.50 from previous. It's selling price for gold in fabricated
form was $1,731.16, up $0.54. Handy & Harman's base price for gold was $1,605.00 per troy
ounce, down $1.50. The fabricated form price was $1,733.40, down $1.62.
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o+Shine+in+'12&cd=1&hl=id&ct=clnk&gl=id&client=opera
Gold, Silver Appear Set to Shine in '12

By RHIANNON HOYLE
DECEMBER 19, 2011, 3:37 P.M. ET
It's been a somewhat turbulent year for precious metals in 2011, but analysts are predicting
that gold and silver prices will make solid gains in 2012 as both move back into favor with
investors as alternative stores of value.
Despite last week's washout in the precious-metals market, most industry participants seem
certain that gold prices will rise for a record 11th consecutive year in 2012. Gold futures have
gained 12% this year on the Comex division of the New York Mercantile Exchange. Silver,
which is down 6.8% in 2011, is also expected regain its footing as a cheaper alternative to
gold.
Losses in wider markets in recent months have encouraged investors to sell risk assets,
including gold, despite the metal's reputation as an alternative store of value when times are
tough. Gold shed more than 8% of its value last Monday through Wednesday, moving in
tandem with stocks, copper and oil, as investors sought to maintain their cash cushions and
cover margin commitments. Silver, which is more thinly traded than gold and therefore tends
to react more violently to wider market shifts, lost more than 10%.
But some market participants, such as U.S. investment bank Morgan Stanley, now cite gold
as their top commodity play for 2012, due to the uncertain macroeconomic environment.
Many analysts predict the muddied global economic outlook will boost gold prices to all-time
highs next year, with a break above $2,000 an ounce for the first time widely expected.
Demand for safe assets will re-emerge on concerns over the health of the euro-zone and U.S.
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economies, they predict, while threats to major currencies like the dollar and the euro, from
potential new quantitative-easing measures and the euro-zone debt crisis, will also push
investors toward gold.
The prospect of another year of low or negative real interest rates in developed countries,
particularly the U.S., should be a draw for new money in gold, as has been the case this year.
Low rates reduce the opportunity cost of holding gold, an asset that provides no yield.
A number of factors should also support silver in 2012.
"Investors [are expected to] raise their exposure to silver due to increased usage in new
applications, higher offtake from emerging markets and continued concerns over the stability
of the global macro economy," said Bank of America Merrill Lynch metals analyst Michael
Widmer.
Even with gold's recent difficulties, it has performed better than some other commodities this
year. Gold's 12% rise compares with a 9.4% rise in Brent crude-oil futures and a 26% decline
in Comex copper
Morgan Stanley analyst Hussein Allidina is now forecasting an average of $2,200 a troy
ounce for gold next year, up from an estimated average of $1,612 this year and from
Monday's settle at $1,594.40 an ounce on Comex.
Bank of America Merrill Lynch forecasts an average of $1,850 an ounce for 2012, after
predicting $1,573 an ounce this year. Still, it said it expects prices to rally potentially as high
as $2,500 as central banks maintain loose monetary policies. In silver, it forecasts an average
price of $34.03 an ounce next year, down from its forecast of $35.46 in 2011 but up from
Monday's settle at $28.822 on Comex.
To be sure, there are risks. Alec Letchfield, chief investment officer for wealth management
at HSBC Global Asset Management UK, said the recent rout in the gold market illustrates
that bullion isn't necessarily a defense in times of market turmoil.
Still, while further bouts of heavy selling can't be ruled outparticularly in times of concern
over cash liquidityif macroeconomic uncertainty continues to cloud the outlook for
investors, new highs for gold are unlikely to be far behind. And even though the road to
record highs for silver may be a little more difficult, gold's sister is also likely to regain some
of its shine in 2012.
Write to Rhiannon Hoyle at rhiannon.hoyle@dowjones.com
http://blogs.wsj.com/source/2011/12/15/golds-ups-and-downs/
Golds Ups and Downs

By Francesca Freeman
Bloomberg
December 15, 2011, 2:08 PM GMT
Its handbags at dawn in the gold market this week.

Much to the surprise and/or dismay of many, gold has taken a dramatic dive, breaking below
$1,600 a troy ounce for the first time in almost three months as deteriorating faith in the
future of the euro-zone sent the euro tumbling, dragging dollar-denominated assets such as
gold down in its wake. At the same time, conscious cash generation has combined with
waves of technically-driven selling to escalate losses in gold, pulling several key levels of
support out from underneath it in the process.
Although analysts and traders had consistently warned of increased volatility amid macro
jitters and illiquid, end-of-year trading conditions, few had anticipated the depth of golds
slide, which has seen the yellow metal shed over 10% of its value in just six trading sessions.
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For those that claim to have seen it coming, the cries of, I told you so, have begun in
earnest.
No one has been more outspoken in this regardor triggered such talk-back from the
marketas independent markets commentator and former gold bull Dennis Gartman, who
first noted worrisome damage to gold prices in his daily Gartman Letter on December 6,
following a drop in both dollar- and euro-denominated gold the previous session.
Mr. Gartmans firm had been holding a long position in euro-denominated gold for some
time, and he soon swapped one quarter of his gold holdings for equities. Mr. Gartman
continued reducing his exposure to the metal in the days following, eventually removing his
gold position entirely early this week. Mr. Gartman had also been holding gold denominated
in yen.
While Mr. Gartmans decision to reduce his gold exposure has drawn criticism of varying
degrees by other market participants, it was his proclamation Tuesday that gold is entering a
real bear market that seems to have put the market into a real spin.
We have the beginnings of a real bear market, and the death of a bull, read Mr. Gartmans
daily note.
Analysts and traders have been fairly uniform in their view that gold, despite its ups and
downs this year, still has legs to its bull-run further down the line. Gold is, after all, a
traditional hedge against wider market insecurity, and the wider market is, by anybodys
standards, insecure.
While Mr. Gartman cites threats of physical violence among the outbursts against his shift
toward gold, a more measured case for strong gold prices has been prevailing among banks
and trading houses in recent days.
The resilience of investor flows into gold exchange-traded funds and signs of reviving
demand for gold in emerging marketsas highlighted by strong gold imports into Hong Kong
in October and a pick-up in physical demand for gold in India in recent daysare both factors
that should help spur gold prices higher next year, said HSBC analyst James Steel in a recent
note.
Mr. Steel reckons anyone who calls an end to the gold bull market is pretty much off their
rockers:
It is not logical, in our view, to call an end to the bull market while prospects for emerging
market demand remain positive and ETF holdings remain firm. 0
Swiss-bank UBS also continues to forecast an average 2012 gold price of $2,050/oz, based on
expectations of continued sovereign stress, a European recession and further central bank
buying next year.
Still, most agree that the pathwherever it leadswill be bumpy.
With liquidity drying up, [commodity] volatility could even jump higher towards year-end
while downside risks remain, said Commerzbank.
http://krugman.blogs.nytimes.com/2011/12/14/speaking-of-people-whose-models-have-
failed/
Speaking of People Whose Models Have Failed

Paul Krugman
December 14, 2011, 2:17 pm
The latest polls show Newt slipping in Iowa but not to the benefit of Mitt Romney.
Instead, it now seems possible that Ron Paul will win the caucuses.
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Now, Paul is unique among the GOP contenders, or for that matter among politicians in
general, in making monetary policy his signature issue. So its worth noting that he is among
those who have been wrong about everything in this slump.
Heres a sample from earlier this year: Ron Paul: Gold, Commodity Prices Big Event
Signaling Economic Collapse. Oh, and for fun: Understanding Why Ron Paul Knows More
About Inflation Than Does Paul Krugman.
Ahem:
The second of those articles, by the way, predicts a surge in consumer prices in the second
half of 2011. Not according to either the CPI or, for those who are convinced that the
government is lying, billion price index, both of which show prices leveling off in the second
half. But hey, there are still 17 days left!
Im sure that the Paulistas will find a way to claim that their man has been right about
everything, even though his predictions have been all wrong. But he really has built his
political career around the notion that hes an expert in a subject about which he actually
understands nothing.
http://blogs.wsj.com/source/2011/12/12/gold-loses-its-shine/
Gold Loses Its Shine

By Francesca Freeman and Rhiannon Hoyle
Bloomberg
December 12, 2011, 10:56 AM GMT
Gold has taken another dramatic tumble, sliding below the key $1,700 a troy ounce level
amid a toxic mix of technical selling, risk aversion and a weaker euro. Indeed, commodities
overall have taken a battering.
At golds lowest point, the yellow metal was languishing at $1,676.56/oz, its lowest level in
two-and-a-half weeks. It was down 4% on the start of the previous week and 2% lower on the
day.
While investors market-wide cast a skeptical eye over the fruits of last weeks European
Union summit, gold received an extra shove to the downside by technical-selling around
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$1,700/oz, as a blanket of automated selling-orders were triggered around the key support
level, according to traders.
The yellow metal now sits precariously above another band of support at $1,680/oz to
$1,660/oz, making it vulnerable to another wave of selling, should this level be broken.
Gold could be in for a grilling, said a London-based trader. The market is going to look as
bearish down here as it was bullish on its way up through $1,650/oz.
Liquidity is also quickly thinning ahead of the year-endwhich tends to make price
movements all the more volatile, as there are fewer buyers left to pick up scoop up the metal
when others decide to sell.
For now, it appears market participants are happy to wind down for the end-of-year holiday
season, UBS analyst Edel Tully said in a daily note.
Couple the thin trading volumes with the muddy outlook for Europe and the environment in
the market at the moment is quite conducive for jerky price movements, Ms. Tully added.
The market from here until the end of December is most probably going to be dominated by
short-term range players. We doubt any of the key market participants would opt to take any
important strategic positions here.
All risk markets have been tumbling Monday as the latest measures by policymakers to
address the euro zones debt crisis are questioned. Economists say that while there were few
surprises from last weeks closely-watched EU summit, there remain some key issues
unresolved; like a credible lender of last resort, the lack of firepower in the European
Financial Stability Facility, and measures to promote growth.
Although gold is traditionally considered a hedge against economic insecurity, its behavior in
recent weeks has been more closely aligned to traditional risk-related assets such as base
metals and equities, as nervous investors seek solace in cash rather than bullion.
While dips below $1,680 an ounce should draw some physical buyersgolds traditionally
more price-sensitive investorsinto the market, so far their response to the decline has been
muted. Still, given a day is a long time in financial markets, particularly at the moment, that
could soon change and help to spur the market back toward the $1,700 an ounce mark.
At 1119 GMT, spot gold was 1.8% lower on the day at $1,680.90
http://markets.on.nytimes.com/research/stocks/news/press_release.asp?docTag=20111209120
7BIZWIRE_USPRX____BW5665&feedID=600&press_symbol=37255
The Rising Price of Gold Boosts GTSOs Outlook for 2012

December 9, 2011
SAN JOSE, Calif.--(BUSINESS WIRE)--Dec. 9, 2011-- The rising price of gold continued to
boost Green Technology Solutions, Inc.s (OTCBB: GTSO) outlook for the new year today
as the results of a European Union summit sent the precious metal into a rally.
Twenty-three European countries agreed to tighter fiscal union this morning, taking big steps
to solve the continents debt crisis. The price of gold is climbing as the market breathes a sigh
of relief. Thats good news for GTSO, which is confident that the price of gold to continue
rising well into 2012. The higher the price of gold rises, the more profitable it becomes for
emerging companies such as GTSO to explore and develop the yellow metal.
2011 has been a tremendous year for gold. The metal gained 22 percent in the past 12 months
and hit a record high of $1,920 per ounce in September. Many market analysts say that 2012
will be an even better year for gold as it continues to be a popular hedge against inflation,
predicting a rise to $2,200 per ounce or more in the next 12 months.
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S3ra Sutan Rajo Ali
With the high price of gold making mining and development more profitable than ever,
GTSO is working feverishly to finalize its partnership with Chery Minerals, LLC, and begin
new development activities in Africa, South America, Alaska and parts of Asia.
GTSO plans to service a fast-growing global appetite for rare and precious metals to compete
in an exciting sector that includes Goldcorp Inc. (NYSE: GG), Newmont Mining Corp.
(NYSE: NEM), SPDR Gold Shares (NYSEArca: GLD) and Barrick Gold Corp. (NYSE:
ABX).
To track golds meteoric rise and learn more about GTSOs resource development initiative,
please visit www.gtsogold.com/investors.
About Green Technology Solutions, Inc.

Green Technology Solutions, Inc. [www.GTSOgold.com] is a growth-oriented company
exploring precious metals production around the world. In addition to gold, GTSO pursues
the acquisition of rare earths and emerging clean technology innovations. To learn more,
please visit our website at www.GTSOgold.com/investors.
http://webcache.googleusercontent.com/search?q=cache:ZXCflUCxF00J:online.wsj.com/arti
cle/SB10001424052970203413304577084192122398370.html+Gold+Gains+Ahead+of+Eur
opean+Meetings&cd=1&hl=id&ct=clnk&gl=id&client=opera
Gold Gains Ahead of European Meetings

By MATT DAY
DECEMBER 7, 2011, 2:55 P.M. ET
NEW YORKGold futures rose as investors bet that this week's meetings of euro-zone
leaders would result in debt crisis-fighting steps likely to increase demand for precious metals
as alternative assets.
The December-delivery contract rose $13, or 0.8%, to settle at $1,740.90 a troy ounce on the
Comex division of the New York Mercantile Exchange.
Futures have been bound in a narrow range this week above $1,700, as investors were
reluctant to place large bets ahead of a series of high-profile euro-zone events. The European
Central Bank is scheduled to announce Thursday the second interest-rate decision of
President Mario Draghi's tenure.
"You have a little uncertainty with the new head of the ECB," said Larry Young, president of
Covenant Trading. "Is he going to take a second opportunity to cut rates?"
Gold climbed in early November after the ECB cut its benchmark interest rate to boost the
euro zone's flagging economy. Lower interest rates make gold, which offers no guaranteed
yield, more attractive compared with interest-bearing investments.
Also Thursday, European Union leaders are set to hold an informal dinner ahead of the
following day's summit.
Traders are "reluctant to sell gold aggressively" before the meeting, Standard Bank analyst
Walter de Wet said in a note. Some investors are hoping that the meeting will result in further
steps to boost liquidity in the cash-strapped currency union, which could increase demand for
gold as a currency alternative.
Gold has been shackled by dour investor sentiment toward the euro zone, as a credit crunch
there could spur a rush to cash that would slam gold. The precious metal as a result has
generally traded in line with commodities and other growth-sensitive assets in recent weeks,
spurning its occasional perceived role as a safe haven from economic turmoil.
Palladium climbed to its highest price since mid-September, as investors who had bet on
price declines reversed those bets amid expectations of rising global auto sales. Demand for
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the metal in auto exhaust filters accounted for more than 60% of global consumption last
year.
March-delivery futures rose 2.2% to $685.45 a troy ounce, an 11-week high.
Gold Retreats as EU Debt Worries Weigh

By TATYANA SHUMSKY
DECEMBER 5, 2011, 3:07 P.M. ET
NEW YORKGold retreated as Germany and France's plan for euro-zone budget reforms
wasn't enough to soothe investor worries about Europe's widespread sovereign-debt
problems.
The contract for December delivery lost $16.30, or 0.9%, to settle at $1,730.70 a troy ounce
on the Comex division of the New York Mercantile Exchange.
Gold prices pared earlier losses but remained subdued throughout Monday trade after
German Chancellor Angela Merkel and French President Nicolas Sarkozy called for treaty
changes to apply stiff sanctions to fiscally wayward euro-zone members.
"Gold is looking for the next piece of news out of Europe," said Dave Meger, director of
metals trading with Vision Financial.
The market is watching a week-long series of Europe-focused meetings finishing with
Friday's European Union summit in Brussels.
European leaders "will once again sit and talk and try to figure out how to steer away from
the mess the region finds itself in at the present time," Jon Nadler, senior metals analyst with
Kitco Metals Inc. North America, said in a note to clients.
Friday's weekly Commodity Futures Trading Commission report showed a decline in bets on
higher prices among managed money funds, adding pressure to gold prices.
"Speculative financial investors are still showing reticence and for the second week running
moderately cut their net long positions in the week to 29 November," said analysts at
Commerzbank.
Silver futures followed gold lower, with December-delivery silver falling 31.5 cents, or 1%,
to settle at $32.306 a troy ounce.
Write to Tatyana Shumsky at tatyana.shumsky@dowjones.com
http://www.nytimes.com/2011/11/23/business/global/in-nervous-market-gold-gains-
respectability.html?pagewanted=all
I.H.T. Special Report: Net Worth

In Nervous Market, Gold Gains Respectability
By Geraldine Fabrikant
November 22, 2011
Byron Wien, the investment strategist, has been forecasting the future for decades. But this is
the first year that he has officially recommended gold in his model portfolio.
And at the beginning of this month, Mr. Wien, vice chairman of Blackstone Advisory
Partners, said he was maintaining his 5 percent allocation to gold for next year.
The metal has become the insurance policy of choice for many sophisticated investors. Even
among those who were never gold bugs, there is now a belief that it has its place in a
portfolio.
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Mr. Wiens view comes despite the fact that gold, which was up 29.5 percent in 2010, was up
an additional 20.7 percent at the end of October of this year, according to Mr. Wiens most
recent report nearly double the increase for real estate, the second-highest increase among
Mr. Wiens recommended asset classes.
His decision to continue recommending gold comes even while some investors feel that after
such a steep run, prices may fall. The returns reflect the hard reality that as governments print
money, thereby debasing the value of their currencies, gold still looks like a sensible option.
The money supply will be expanded in the major currencies in the developed world, and
investors will seek the protection of hard assets: something real, and gold is perceived as
real, Mr. Wien said by telephone.
Is he expecting gold to continue its astonishing ascent? There are reasons to doubt that it will.
For example, the dollar has rallied as fears of problems in the euro zone have grown. Often
that increase forecasts a drop in gold value, since deterioration in currency values suggests
higher gold prices.
That does not change Mr. Wiens view. You dont buy insurance because you think you will
have a fire or a flood, he said. You buy it and you hope you dont collect on it.
Even the Federal Reserve chairman, Ben S. Bernanke, has been watching the price of gold as
an index of investor confidence in the future. I think the reason people hold gold is as a
protection against what we call tail risk really, really bad outcomes, Mr. Bernanke said
at a hearing in July before the U.S. Congress. To the extent that the last few years have
made people more worried abut the potential of a major crisis, then they have gold as a
protection.
Sounds logical, right? And yet gold is a controversial investment.
Gold is even more speculative than real estate, said Fran Kinniry, a principal in Vanguards
Investment Strategy Group. At least with housing, you have the income from rents. With
gold there is no income at all. Gold does not pay dividends or interest, so the only thing you
get is the price differential. It has benefited from many months of flight-to-safety flows that
can crash at any moment.
The fundamental underpinnings are so shaky that I have no confidence whatsoever that any
so-called relationship between the price of gold and anything else is a stable relationship,
Mr. Kinniry said.
Even so, as the Italian and Greek governments fail to resolve their problems, gold looks
particularly attractive because, with the dollar, it is considered a safe harbor in times of such
uncertainty.
Gold is a money that governments dont print, said Charles Stevenson, a private investor
who first bought gold during the inflation of the 1970s and continues to own gold today,
although he has traded in and out along the way.
Its a way to hold value when there is nothing to invest in because it stores value the way
money is supposed to, he said. If you hold your assets in money, inflation now exceeds
interest rates, and the government is draining purchasing power.
The situation is sufficiently volatile that Gary Brinson, a veteran strategist and scholar who
runs the Brinson Foundation, agrees that gold, even at its currently high price, may have a
small place as insurance.
You can get into windows of time where gold will act as a counterweight in an otherwise
asset-based portfolio, he said. The problem is that if you pay too much for it, its ability to
offset the inflationary effect is diminished.
As recently as a month ago, gold fell drastically, surprising and worrying investors. There
are caveats, Mr. Stevenson said. In a bad world, gold wont necessarily maintain its value.
If real estate drops in half and gold drops a quarter, for example, you can sell gold and buy
twice as much real estate.
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What makes the situation particularly complicated today is that the easiest vehicle for average
investors who want to hold gold are gold exchange-traded funds. They are volatile because
you can buy them on margin, and that attracts speculative buyers.
There are wild cards, too. People who need money sell the assets that can be sold. If you
invested in John Corzines MF Global and you needed to sell those assets, you couldnt do
it, Mr. Stevenson said. There is always a bidder for gold, just like there are always bidders
for top-quality real estate, but there might not be bidders for B-quality real estate.
Certainly there were historical periods when gold was a bad bet. It was a disappointing
holding between 1980 and 2000, when other assets were growing in value. As interest rates
declined, any company in which one invested could refinance, making it a benign
environment to use cash for other investments.
But James Grant, who has a newsletter, remains bullish despite the hiccups because he
believes that the central banks north, south east and west have gotten out of the central
banking business and into the central planning business, meaning that they are devoted to
raising up: if they can; economic growth and employment through the dubious means of
suppressing interest rates and printing money. The nice thing about gold is that you cant
print it.
Having said that, Mr. Grant acknowledges that when gold fell 50 percent in 2008, it certainly
tested confidence, he said. But he simply does not believe that, for now, bankers can see into
the future and improve things.
A version of this special report appeared in print on November 25, 2011, on page B3 of the
New York edition with the headline: In a Nervous Market, Gold Finds New Fans.
http://blogs.wsj.com/marketbeat/2011/10/27/gold-should-get-back-to-behaving-like-a-safe-
haven-any-day-now-analysts/
Gold Should Get Back to Behaving Like a Safe Haven Any Day Now: Analysts
By Mark Gongloff
October 27, 2011, 2:43 PM
Commerzbank
Gold in 2008 and 2011.

Weve been wondering for a while now whether gold was really a safe haven any more, with
Old Yeller behaving like a stock or a CDO-squared lately, rather than the anachronistic
doomsday hedge Yahweh decreed it to be.
Commerzbank metals analysts wrote a note today considering the matter and say theyve
figured out whats been going on with gold. And they say its just as much of a safe haven as
ever.
Gold plunged during the recent selloff mainly because gold bulls had to liquidate their
positions to cover margin calls, Commerzbank writes. They did something similar during the
crisis in 2008, when gold prices also briefly stopped behaving like a safe haven:
A look back at the crisis year 2008 helps to explain this unusual behaviour. In October and
November of that year, prices behaved in a similar way: the gold price dropped by an average
of 15% per week in four subsequent weeks, and US stock markets declined by an average of
17% per week during the same period.
Just like then, forced sales on the futures market were probably behind the gold price decline.
Futures investors are only interested in short-term price movements. These (mainly
institutional) investors usually invest money in equities, commodities and other risky assets,
too. In order to offset losses from these asset classes they may be forced to sell gold futures in
times of crisis.
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S3ra Sutan Rajo Ali
Moreover, margin requirements for gold futures at COMEX were drastically raised by the
exchange operator CME this summer. While the initial margin for each futures contract
amounted to US$ 6,075 at the beginning of August, this amount was raised in three steps to
US$ 11,475 by the end of September. The costs for buying and holding gold futures have
therefore almost doubled within weeks, and this development is likely to have caused some
investors to liquidate their positions.
They say they dont think golds pain will last much longer, if its not over already:
For how long will the unusual gold price behaviour continue? Three years ago it took the
gold price about one month to find its bottom; it started to rise again in mid-November. At
the end of the year it had almost returned to the level seen at the beginning of October. At the
beginning of 2009 gold did full justice to its role as a safe haven in times of crisis and this
was reflected by huge inflows into gold ETFs.
They think gold is going to get back to $1800 an ounce by the end of this year and $1900 by
the end of 2012.
It rose today along with risky assets to nearly $1750 an ounce.
http://webcache.googleusercontent.com/search?q=cache:kOTJrLoXtrwJ:online.wsj.com/articl
e/SB10001424052970204138204576598463850410924.html+Gold,+Silver+Topple+as+EU+
Fears+Drain+Optimism&cd=1&hl=id&ct=clnk&gl=id&client=opera
Gold, Silver Topple as EU Fears Drain Optimism

By TATYANA SHUMSKY
SEPTEMBER 28, 2011, 3:01 P.M. ET
NEW YORKGold and silver futures turned sharply lower in the final hour of trading as
fears about the euro zone's financial future overwhelmed hopes of progress in resolving the
region's debt crisis.
Gold prices slid toward $1,600 a troy ounce, with the September-delivery contract settling
$34.30, or 2.1%, lower at $1,616.30 a troy ounce on the Comex division of the New York
Mercantile Exchange.
Silver broke below $30 in after-market trading, though the September contract settled at
$30.085 a troy ounce, down $1.412 or 4.5%.
For much of the day, precious-metals prices were caught in a tug of war between hopes that
Europe would make progress with its debt problems and fears the region's crisis would spin
out of control.
But as the day wore on, investors grew pessimistic and started selling hard assets in favor of
cash, as many worry that a euro-zone default would trigger a liquidity crunch.
"Even though we were higher yesterday, it's what we call a 'dead cat bounce'the disposition
of the market since Friday is to go down," said Ralph Preston, a market analyst with Heritage
West Financial.
Mr. Preston said gold prices may drop as low as $1,575 in electronic trading.
Attention now rests with Greece, which is due to resume talks with officials from the
European Central Bank, the International Monetary Fund and European Commission officials
Thursday. The troika of inspectors will review Athens' progress on austerity measures and
economic reforms. Earlier this month, discussions were cut short when a dispute erupted over
whether Greece was doing enough to meet its budget targets.
Traders are also watching Germany, which is set to vote on proposals to expand Europe's
bailout fund. The measures, which would nearly double the fund's size, must be approved by
all 17 members of the currency union though Germany, as the region's largest economy,
would have to put up the most in additional funding.
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"A lot of traders are just concerned that nobody is going to come up with a good solution [for
Europe's debt problems]," said Rob Kurzatkowski, senior commodity analyst with
optionsXpress. "The recent selloff was excessive, but at the same time we're not seeing a mad
rush of people coming in to buy either."
Silver prices, which declined about 25% this month, are proving particularly sensitive to the
negative sentiment. An economic slowdown in Europe would curb demand for silver, which
is used in everything from chemical production and glass to high-end electronics.
But retail investors are flocking to pick up the grey metal at cheaper prices despite these
fears. Physical silver held by exchange-traded funds has increased by 195 metric tons (215
short tons) over the past two days, which more than offset the 95 metric tons redeemed in the
previous four sessions, said Barclays Capital analyst Suki Cooper.
"Given the silver market remains in a fundamental surplus, the upside continues to rest with
investor interest," Ms. Cooper said in a note to clients.
Nymex platinum for October delivery settled $39.80, or 2.5%, lower at $1,534.20 a troy
ounce.
"Currently, platinum is lagging the recovery of the other precious metals, perhaps weighed
down by concerns over a fall-off in industrial demand should a recession materialize in the
U.S. and/or the euro zone," Marc Ground, a precious-metals analyst with Standard Bank,
wrote in a note to clients.
Platinum is used in everything from car exhaust filters and crude-oil refineries to glass for
flat-panel TV screens, and industrial demand for the metal tends to wane when economic
activity slows down.
Write to Tatyana Shumsky at tatyana.shumsky@dowjones.com
http://www.nytimes.com/2011/09/23/business/economy/after-huge-gains-in-gold-hedge-
funds-sell.html?_r=2
A Gold Rush Wanes as Hedge Funds Sell

By Julie Creswell
September 22, 2011
Is the smart money fleeing gold?

For the better part of the last two years, some of the worlds biggest hedge funds have been
piling into gold, betting the precious metal would provide an effective hedge against inflation
or be a safer place to park cash as equity markets around the world stumbled.
But to the surprise of many investors, when equity markets across the globe tumbled once
again on Thursday, gold moved sharply lower as well.
Gold futures for September delivery fell $66.30, or 3.7 percent, to $1,739.20 an ounce in
New York. It was quite a turnabout for the metal, which has been soaring in recent months
amid the turbulent stock markets.
Hedge funds, which have been ratcheting down their positions in gold futures since early
August, were quickly named as the culprits in the latest sell-off.
Some traders said that hedge funds were beginning to unwind, or close out, what has been a
very popular and profitable trade for the last 18 months as they bet the dollar would fall and
that gold would rise. In the last month alone, the euro has fallen nearly 4 percent against the
dollar amid worries about the European debt crisis.
The sell-off in gold was part of a broader move in the markets that had investors shifting
away from perceived riskier assets, like commodities, and into the dollar in reaction to the
Federal Reserves announcement on Wednesday of its new stimulus program.
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In addition, the Fed said that there were significant downside risks to the United States
economy, which sent several commodities, including crude oil and copper, tumbling on
Thursday on fears of a global slowdown in demand.
Other market participants said hedge funds were selling their positions in gold to raise cash to
meet increased capital demands for their borrowings from Wall Street banks as the assets
they have put up as collateral, like other commodities or stocks, have declined sharply in
value.
On the one hand you have a lot of strength in the U.S. dollar, historically gold and the dollar
do trade inversely, said Ryan Detrick, senior technical strategist at Schaeffers Investment
Research. The hedge funds are long gold and they need to raise cash and it looks like they
are definitely selling some gold.
Others say some hedge funds may be selling to meet redemption requests from investors who
have been spooked by the recent market volatility and fear a repeat of the problems of late
2008.
A lot of investors are waking up to the realization that something is off. Weve seen
Goldman Sachs close its flagship fund, legendary hedge funds are down sharply, and I
suspect were going to see significant withdrawals from some hedge funds this year, said
Michael A. Gayed, the chief investment strategist of the investment advisory firm Pension
Partners.
The tendency for individual hedge funds or anybody is to sell winners before they sell
losers. Whats been one of the few winners this year? Its been gold, Mr. Gayed added.
Still, some are not yet ready to call the end of the gold rush. Even with the pullback, gold
remains one of the most profitable investments this year with a gain of 22 percent.
Some strategists have even predicted that gold will reach a record of above $2,300, which it
hit during the early 1980s when adjusted for inflation and translated into current dollars.
Likewise, the worlds largest exchange-traded gold fund, the SPDR Gold Shares, fell 2.6
percent on Thursday, but remains up 22 percent for the year.
Gold, whether through futures contracts or via exchange-traded funds, has been a popular
investment among some of the worlds largest hedge funds. One of the best known gold
bugs is John A. Paulson, whose firm, Paulson & Company, is the biggest shareholder in the
SPDR Gold Shares ETF. But many other hedge funds have embraced the metal as well.
After peaking in early August, hedge funds have been reducing their exposure in the gold
futures market, according to Mary Ann Bartels, the head of United States technical analysis
for Bank of America Merrill Lynch.
A lot of speculators were very long in July, Ms. Bartels said. But theyve been taking it
down ever since.
A version of this article appeared in print on September 23, 2011, on page B1 of the New
York edition with the headline: A Gold Rush Wanes As Hedge Funds Sell.
http://krugman.blogs.nytimes.com/2011/09/10/golden-spikes/
The Conscience of A Liberal: Golden Spikes

By Paul Krugman
September 10, 2011, 12:04 pm
As some readers may have guessed, Im having some fun thinking about gold price
economics nothing like a good intellectual puzzle to keep you occupied while the world
collapses. Anyway, some people have asked about previous gold price fluctuations, and in
particular whether my low-interest-rate story can fit with the last time gold soared.
So, heres the history since the gold peg ended (deflating by the CPI):
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Now, the end of the 70s was a time of high interest rates, whereas the current environment is
one of low rates. But thats a comparison of nominal rates; what about real rates, which are
what the model says should matter?
Bear in mind that what we want are expected real rates looking forward, not ex-post rates
based on past inflation and bond yields. And unfortunately, there werent any inflation-
protected securities three decades ago, so we cant get a direct read on market real interest
rates. But there are other indicators of inflation expectations. Heres one easy comparison
(yes, its one-year inflation expectations versus 10-year bond yields; so sue me):
So the late 70s were a time of high rates but very high inflation expectations, so that real rates
were arguably zero or negative, just as they are today.
And this also suggests that many people misread that 70s experience; because high gold
prices then were associated with high inflation, gold has come to be taken as an inflation
indicator, whereas its actually a low real rates indicator. Last time those low real rates had a
lot to do with inflation, but this time theyre taking place in a deflationary or at least
disinflationary environment.
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One other observation: obviously, people who bought gold at the peak of the last spike got
badly burned. As I pointed out from the beginning, the fact that theres a fundamentals-based
story that could explain high prices doesnt mean that there cant be a bubble too.
Update: I should reiterate that Barsky and Summers basically did this analysis 25 years ago,
in a paper that weirdly never crossed my desk, with differences in modeling strategy that
make no difference to the fundamental insight. And while most of their paper was concerned
with the gold-standard era correlation between interest rates and the price level, they had the
right analysis of the late-70s spike too. DeLong gets it in a nutshell:
On this interpretation gold is and always has been a super Treasury bond: a very long
duration asset that is or at least is perceived to be safe in the sense that its price does not
trade at a discount (due to risk and default premia) from a Treasury bond of the same duration
but instead trades at a premium.
And this means that it is deeply, deeply wrong to think of rising gold prices when bond yields
are low as some kind of symptom of monetary excess.
http://krugman.blogs.nytimes.com/2011/09/06/treasuries-tips-and-gold-wonkish/
The Conscience of A Liberal: Treasuries, TIPS, and Gold (Wonkish)

By Paul Krugman
September 6, 2011, 9:18 pm
Yes, its 4:30 AM where I am. I found myself wide awake, thinking about gold prices. You
got a problem with that?
In assessing economic prospects since the financial crisis of 2008, there have been two kinds
of people: people who divide people into two kinds and people who dont inflationistas and
deflationistas. The inflationistas look at budget deficits and monetary base, and see severe
inflation and soaring interest rates as the obvious outcome; the deflationistas say, hey, were
in a liquidity trap, so monetary base is sterile and budget deficits are just soaking up some but
not all of the worlds excess saving.
I am, of course, a big deflationista, and as I see it record low interest rates strongly vindicate
my position. As I like to point out, if youd believed the inflationistas at the Wall Street
Journal and elsewhere, you would have lost a lot of money.
But what about gold? As some readers and correspondents love to point out, you would have
made a lot of money if youd bought gold early in this mess. So doesnt that vindicate the
inflationistas, to some extent?
My usual response has been that I have no idea what drives the price of gold, to say that its a
market driven by hoarding in Asia, Glenn Beck followers, whatever. But maybe Ive been too
flip here. Why not think about what actually should be driving gold prices? And I mean think
about it, rather than going for slogans about inflation, debased currencies, and all that.
Well, Ive been thinking about it and the answer surprised me: soaring gold prices may be
quite consistent with a deflationista story about the economy.
OK, how do we think about gold prices? Well, my starting point is the old but very fine
analysis by Henderson and Salant (pdf), which was actually the inspiration for my first good
paper, on currency crises. H-S suggested that we start by modeling gold as an exhaustible
resource subject to Hotelling pricing.
Heres how it works. Imagine that theres a fixed stock of gold available right now, and that
over time this stock gradually disappears into real-world uses like dentistry. (Yes, gold gets
mined, and theres a more or less perpetual demand for gold that just sits there; never mind
for now). The rate at which gold disappears into teeth the flow demand for gold, in tons
per year depends on its real price:
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Crucially, at least for tractability, there is a choke price a price at which flow demand
goes to zero. As well see next, this price helps tie down the price path.
So what determines the price of gold at any given point in time? Hotelling models say that
people are willing to hold onto an exhaustible resources because they are rewarded with a
rising price. Abstracting from storage costs, this says that the real price must rise at a rate
equal to the real rate of interest, so you get a price path that looks like this:
Obviously there are many such paths. Which one is correct? Given rational expectations (I
know, I know) the answer is, the path under which cumulative flow demand on that path, up
to the point at which you hit the choke price, is just equal to the initial stock of gold.
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Now ask the question, what has changed recently that should affect this equilibrium path?
And the answer is obvious: there has been a dramatic plunge in real interest rates, as investors
have come to perceive that the Lesser Depression will depress returns on investment for a
long time to come:
What effect should a lower real interest rate have on the Hotelling path? The answer is that it
should get flatter: investors need less price appreciation to have an incentive to hold gold.
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But if the price path is going to be flatter while still leading to consumption of the existing
stock and no more by the time it hits the choke price, its going to have to start from a
higher initial level. So the change in the path should look like this:
And this says that the price of gold should jump in the short run.
The logic, if you think about it, is pretty intuitive: with lower interest rates, it makes more
sense to hoard gold now and push its actual use further into the future, which means higher
prices in the short run and the near future.
But suppose this is the right story, or at least a good part of the story, of gold prices. If so, just
about everything you read about what gold prices mean is wrong.
For this is essentially a real story about gold, in which the price has risen because expected
returns on other investments have fallen; it is not, repeat not, a story about inflation
expectations. Not only are surging gold prices not a sign of severe inflation just around the
corner, theyre actually the result of a persistently depressed economy stuck in a liquidity trap
an economy that basically faces the threat of Japanese-style deflation, not Weimar-style
inflation. So people who bought gold because they believed that inflation was around the
corner were right for the wrong reasons.
And if you view the gold story as being basically about real interest rates, something else
follows namely, that having a gold standard right now would be deeply deflationary. The
real price of gold wants to rise; if you try to peg the nominal price level to gold, that can
only happen through severe deflation.
OK, none of this necessarily rejects other hypotheses about gold; in particular, there could be
a bubble over and above the Hotelling aspect. But the crucial message is, I think, right: If you
believe that gold prices are signaling an inflationary threat, I have to tell you, I do not think
that price means what you think it means.
Update: Larry Summers directs me to a 1988 paper he wrote with Robert Barsky (pdf) with a
similar theme, http://www.gata.org/files/gibson.pdf, although applied to the gold standard era
rather than recent events.
http://www.nytimes.com/2011/08/20/your-money/the-hidden-dangers-in-safe-
havens.html?pagewanted=all
Wealth Matters
The Hidden Dangers In Safe Havens
By Paul Sullivan
August 19, 2011
Alan Zale for The New York Times: Gold doesn't have any intrinsic value, said Larry M.
Elkin, president of the Palisades Hudson Financial Group.
Paul Sullivan writes about strategies that the wealthy use to manage their money and their
overall well-being.
AS Europes debt troubles intensified earlier this month and United States debt was
downgraded, many people rushed into gold and Treasury securities as a safe haven. It was the
latest sign that in uncertain times, investors act in ways that can hurt them in the long run.
They fled the perceived risk of falling stock prices right into the assured risk of overvalued
assets, said G. Scott Clemons, chief investment strategist for the wealth management
division at Brown Brothers Harriman.
What drove those decisions was not logic but fear fear of a repeat of September 2008. And
that fear may only have intensified when markets dropped again late this week, sending
yields on 10-year Treasury notes to record lows and the price of gold above $1,800 an ounce.
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Even if the fear is understandable, however, acting on it may not be the best long-term
strategy.
If you were right about the timing decision to get out, youre going to have to be right again
about when to get back in, said Joseph W. Spada, managing director at Summit Financial
Resources in Parsippany, N.J. Even professionals have trouble doing it. If thats not going to
be your strategy, then dont do it once.
But now that people have done it once, what are the risks of holding on to large positions in
gold and Treasuries?
TREASURIES While the economy may seem bad to many people, it would not take much
improvement for investors to lose money quickly on their investment in Treasury bonds.
A week and a half ago, the 10-year Treasury note was yielding only 2.10 percent, after
Standard & Poors downgraded the United States credit rating. Since the yield of a bond
moves in the opposite direction of its price, this meant demand for 10-year Treasuries was
high.
If over the next six months, the yield were to move up another half of a percentage point to
2.60 percent, however, investors owning those bonds would have a negative 6.25 percent
return, said Barbara Reinhard, chief investment strategist at Credit Suisse Private Banking in
New York. If the yield curve were to move up a full percentage point during that time, the
loss would be 14 percent.
She said such a quick increase could easily happen, as it did from October 2010 to January
2011 when the Federal Reserve began its second round of large-scale purchases of
government debt, the program known as quantitative easing.
Now, plenty of people buy bonds with the intention of holding them until maturity. In doing
that, it would seem that they would earn a return of 2.10 percent. But they would actually lose
1.5 percent, when the most recent inflation rate of 3.6 percent is factored in.
Thats assuming inflation doesnt rise, Ms. Reinhard said. Right now, youre betting
inflation will fall below 2.10 percent. Youre betting against history because inflation has
been around 3 to 4 percent historically.
This is not the brightest picture for people who added to their allocation of Treasury bonds.
But many felt it was the only safe place.
J. D. Montgomery, a managing director at Canterbury Consulting, an investment consulting
firm in Newport Beach, Calif., said he had a client who wrestled with where to put $5 million
that he needed to keep safe. The client chose a three-month Treasury note, even though the
interest was only $1,000.
There was at least some logic behind this. Most people who bought Treasuries were
abandoning their investment strategy, and wealth advisers say that is more troubling than
paltry returns.
The risk of changing your strategy when its being tested as opposed to changing it when its
not being tested is you risk derailing your long-term investment plan, said Gregg Fisher,
president and chief investment officer of Gerstein Fisher, a wealth management firm in New
York.
So what should nervous investors have done? Selling Treasury bonds when everyone else
was buying them would have been a start. But that might have taken too much discipline.
Moving to cash was the top option because at least investors would have money ready when
they felt comfortable returning to the markets.
GOLD Investors in gold are a different breed. They often have a passion for the metal that
goes beyond returns. And they are not going to be swayed by arguments that gold, hovering
around $1,800 an ounce, is overvalued.
When you buy gold youre saying nothing is going to work and everything is going to stay
ridiculous, said Mackin Pulsifer, vice chairman and chief investment officer of Fiduciary
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Trust International in New York. There is a fair cohort who believes this in a theological
sense, but I believe its unreasonable given the history of the United States.
As for the nonbelievers who piled into gold, they need to think practically now. Only about
11 percent of gold has an industrial use. While gold can get lost or buried, it does not get used
up like oil or natural gas. And its actual cost is between a third and half of where it is trading.
Dan Denbow, co-manager of the USAA Precious Metals and Minerals Fund in San Antonio,
said it cost about $600 to produce an ounce of gold, but that rises to about $1,000 when all
the costs of mining are factored in.
Yet a bigger risk may come from exchange-traded funds for gold. While they let small
investors buy gold easily the price of one share of the GLD exchange trade fund is roughly
one-tenth the price of an ounce of gold that same ease of buying means investors can just
as quickly sell their shares in a panic.
No one I spoke to would venture a guess as to how high gold would rise before it hit its peak.
But most stressed that people forgot that golds value was driven by sentiment.
Gold doesnt have any intrinsic value, said Larry M. Elkin, president of the Palisades
Hudson Financial Group in Scarsdale, N.Y. Its this eras wampum. At one point you could
buy Manhattan for beads.
(Mr. Elkin said what bothered him the most about investing in gold was how irrational it was,
unlike buying a blue-chip stock whose value rises and falls based on what the company
produces.)
That said, having gold in a portfolio is still a good buffer against swings in other markets. Mr.
Fisher calculated that over a 43-year period ending in June 2011, the average annual increase
for gold, accounting for inflation, was 3.82 percent compared with 4.92 percent for the
Standard & Poors 500-stock index. Gold, however, was 28 percent more volatile.
The smoother the ride, the more likely the investor is going to stay in his strategy, Mr.
Fisher said. That produces a better result.
He said that from the perspectives of both return and volatility, a better strategy would have
been to put 10 percent in gold and split the rest 60-40 between stocks and five-year Treasury
bonds. Rebalancing the portfolio to maintain those ratios would have meant an average
annual return of 4.66 percent, with more than half of the volatility of gold alone.
For those who fled to gold and Treasuries, the hardest part will be deciding when to get back
into other securities. The best way in uncertain markets may be to go slowly in small chunks
a practice known as dollar-cost averaging.
There are real and psychological benefits to it, because getting someone to take that first
step is the hardest, said Christopher Wolfe, chief investment officer for the private bank and
investment group at Bank of America. With a five-year time horizon, it makes a big
difference. You might get one of those wicked big down days you could benefit from. But if
you have a 30-year time horizon it doesnt matter.
Of course, if people had thought on such a long time horizon they might not have rushed to
buy gold and Treasuries in the first place.
A version of this article appeared in print on August 20, 2011, on page B5 of the New York
edition with the headline: The Hidden Dangers In Safe Havens.
http://www.nytimes.com/2011/08/20/world/americas/20briefs-Guyana.html
Guyana: Crime Wave Near Gold Mines

By The Associated Press
August 19, 2011
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The police in Guyana say record prices for gold have led to killings, robberies and other
crimes across the country. The police commissioner, Henry Greene, said Friday that the 26
killings this year in gold mines near the borders with Venezuela and Brazil are linked to
surging gold prices. The most recent slayings occurred on Thursday. Police said a miner was
shot to death and his son was beaten and buried alive with the help of an excavator. The price
of gold hit a new high of nearly $1,830 an ounce on Thursday.
A version of this brief appeared in print on August 20, 2011, on page A7 of the New York
edition with the headline: Guyana: Crime Wave Near Gold Mines.
http://blogs.wsj.com/source/2011/08/19/gold-shines-on-and-on-and-on/
Gold Shines On and On and On

By Andrea Hotter
Reuters
August 19, 2011, 1:02 PM GMT
Its difficult keeping up with the accelerating strength of gold.

The precious metals stellar gains make it the best performing commodity market of 2011,
rising nearly 44% since the start of the year and a whopping 17% this month alone. At this
rate, calls for spot prices of $2,000 a troy ounce by year-end appear at best conservative, and
at worst, plain silly.
The market peaked this morning above $1,878/oz, ratcheting up new highs as the financial
markets remain mired in fear, of which gold is the currency. The precious metal is passing
milestones at an alarming pace, having whizzed past $1,500/oz, $1,600/oz and $1,700/oz
before taking out $1,800 with apparent ease. Astounding for a market that seemed stuck
around $1,200 a year-ago and only moved above $1,000/oz for the first time two years ago.
The $1,900/oz mark isnt far away.
Yet while the macro-economic outlook stays gloomy, golds bull-run looks set to continue
unabated. Investors globally are growing progressively more convinced that the monetary and
fiscal authorities can get nothing right and everything wrong in their attempts to fix the fiscal
problems in the euro-zone and U.S. economies.
That spells a rush by skittish investors into safer assets like gold, probably at an intensifying
pace.
But, beware. The term parabolic is being used to describe golds gains with increasing
frequencyand if history has taught us any lessons, one of them is that a parabolic rise
typically culminates in a crash. The question is, when?
http://blogs.wsj.com/source/2011/08/18/gold-at-record-prices-yet-demand-has-slumped/
Gold at Record Prices, Yet Demand Has Slumped

By Rhiannon Hoyle
Bloomberg
August 18, 2011, 1:03 PM GMT
Global demand for gold, that darling of the investor world, slumped 17% last quarter.
Yes, despite all the hype around the glittery, golden metal, the total tonnage purchased
around the world slid to 919.8 metric tons, from 1,107.0 tons for the same period a year
earlier.
Andmaybe surprisinglyits not all down to the sky high prices.
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There was one key factor that drove down the tonnage of gold bought when compared with
the same months of last year ETPs, or exchange-traded products.
Demand for ETPs was down a massive 82% when compared with second quarter 2010 levels.
Part of this was down to heavy liquidation across these sorts of financial products earlier in
the year as investors cashed in on the metals record-breaking runwith gold having rallied
more than 10% on the start of the year to several all-time bests by the start of May.
But largely it was an inability for these funds to match the kind of levels of investment
recorded in the second quarter of 2010, when the second highest quarterly inflows on record
were posted.
ETP demand was a huge 291.6 tons in that quarter of last year as fears over the growing euro
zone debt crisis sparked a flurry of fresh investment in the yellow metal, pushing it to what
were fresh record highs at the time.
Last quarter demand was just 51.7 tons. While much, much lower, this was still very sizeable,
though, when compared with the 22.3 tons of purchases in 4Q 2010 and the 62.1 tons of sales
in 1Q of this year.
Ultimately the fall [in total global demand] was a function of ETP tonnages, which were
quite volatile last quarter, said WGC managing director of investment Marcus Grubb.
Outside of ETPs, other sectors of demand are looking very healthy indeed says the World
Gold Councildespite the near-record high prices.
Overall, the quarter wasnt a bad one, Mr. Grubb said.
Second-quarter jewelry demand was up 6%, technology demand rose 2%, and bar and coin
demand increased by 9%.
Central bank gold buying quadrupled as officials in emerging markets scrambled to diversify
their reserve holdings.
All quite reasonable figures given the metals price broke $1,500 an ounce in the quarter, just
a year after trading closer to $1,100 an ounce.
As long as those sectors hold up, there could be some quite strong figures posted in the
second half of the year, with the trajectory of ETF demand so far this quarter looking very
promising, Mr. Grubb says.
In the worlds largest gold-backed fund, SPDR Gold Trust, holdings are now at 1,272 tons,
up from just 1,208 tons at the end of June.
So far in 3Q we have seen the second great European credit crisis, and the U.S. credit
downgrade, so we will expect to see some strong demand when the next figures come out,
he says.
http://www.nytimes.com/2011/08/16/business/global/gold-rush-beckons-in-australian-
outback.html?pagewanted=all
Gold Fever Gripping the Australian Outback

By Matt Siegel
August 15, 2011
SYDNEY, Australia Four years ago, Marco Nero was on top of the world. He was earning
more than $1 million working as a film effects designer for some of the worlds most
prestigious digital animation houses.
His mind, however, was elsewhere.
Mr. Nero, 40, was increasingly spending his office hours poring over Web sites for anything
he could find about an unlikely subject: gold. Like Humphrey Bogarts character in the
classic 1948 film The Treasure of the Sierra Madre, he realizes now, he was developing a
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full-blown case of gold fever, a condition whose genesis he traces to a trip to a prospecting
supply shop in the Sydney area.
I happened to talk to the gentleman that was behind the counter, and he showed me a 2-
ounce gold nugget he had and it was a beautiful piece. I held that in my hand, he said. I was
probably hooked at that point.
Shortly thereafter, despite protests from friends and family, he quit his job to hunt for gold.
Last week, as concerns about the health of the global economy widened, gold hit a nominal
high of $1,813 an ounce after a steady three-year climb. (Adjusting for inflation, gold prices
would have to reach $2,300 an ounce to set a record.)
Gold prices are up 23 percent since the beginning of this year alone. As a result, more and
more people are giving up lucrative jobs in cities in Australia for a chance at the quick riches
and adventure offered by old-fashioned prospecting.
Australia is the worlds second-biggest producer of gold, after China. Domestic mines
produced 266 tons at a value of 12 billion Australian dollars ($12.42 billion) in 2010, the
consulting firm Surbiton Associates said in its latest survey of the Australian gold mining
industry. By comparison, the United States produced 240 tons in 2010.
An influx of out-of-towners to prospect in Australia has been a boon for small-business
owners in former gold rush towns, many of which have fallen on hard times in recent years.
Take, for example, the tiny outback hamlet of Mudgee, about 170 miles northwest of Sydney.
In 1851 it had a population of just 200, before ballooning to 20,000 after the discovery of
gold in nearby Hargraves, which was ground zero for the first gold rush in the history of New
South Wales.
But the fortunes of Mudgee flagged along with gold prices in the last century. Young people
moved to the cities in search of steady work, while punishing droughts drove away farmers.
Today, there are just 8,000 people spread sparsely along lonely streets built for more than
twice that many inhabitants.
Slowly but surely that has begun to change, said Kim Ellis, 47. She and her partner, Lincoln
Parsons, are the proprietors of Nuggets From Down Under, a prospecting supply shop in
Mudgee. Ms. Ellis says that she has seen more new arrivals walk through her shop in the last
six months than in the previous five years and that is without counting the huge number of
weekend warriors and hobbyists.
As gold prices are increasing, thats increasing the interest in gold because of the monetary
value but also because of the lifestyle, she said. In the last six months Ive seen probably
four people thats just involved with my store four people that are quitting their jobs,
selling up and going prospecting full time.
Four may not sound like a lot, but for a town like Mudgee, every new addition is noticed
and welcome.
People have never been really game enough to let go of their security of having their job and
their home, Ms. Ellis said. But what Im seeing is lifestyle change and that this is
something where you can actually make money. It can be a life-changing event. All you need
is a nugget, and its a life-changing event.
For some, the look and feel of prospecting has changed little since the great gold rushes of the
19th century: stick a corrugated pan in a shallow creek, sift and hope.
But for the more discerning prospector, high-technology metal detectors like the Minelab
GPX 4800 about $6,000 provide that extra advantage when hunting for the gold that
may be just below the surface of the rough soil in the outback.
The global financial crisis and a general rise in commodity prices oil and food, in
particular are the major factors propping up gold prices, analysts say. Recently, the dispute
in the United States over the deficit ceiling and the downgrading of the debt rating by
Standard & Poors have prompted an increase in the price of gold as investors have sought
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out an investment that is a traditional haven. Volatile stock markets and the debt crisis in
Europe are also giving a lift to the metal.
The bull market is still very much intact, said James Steel, chief commodities analyst for
HSBC in New York.
One defining feature of the current gold rush, many say, is the age of those joining up.
Whereas prospecting for gold has traditionally been a hobby associated with the elderly,
many of those moving out to the country are well below retirement age.
It used to be mostly old folks at the club, but these days Ive noticed theres quite a few
younger fellows showing up, and I think thats mainly because of the price of gold, said
Dean Eisler, vice president of the Prospectors Home Prospecting Club in Sydney, which
runs package tours to prospect for gold.
Brian Dumesny, a 46-year-old military contractor from the city of Townsville, Queensland,
in the northern Australian tropics, certainly fits that bill. A breakup with a partner helped him
decide on a change of scenery, but it was the price of gold that gave him the confidence to
change professions as well.
Ive always liked it, he said. Even since I was a young boy I did a little bit of panning and
such, just messing around, but I guess now that in the last few years the price of gold has
increased so much that its become so much more viable.
Mr. Dumesny said the last nugget he had found weighed 0.3 ounce.
Four or five years ago that was worth only a hundred bucks, and now its worth a bit over
three hundred dollars, he said. So you dont have to find a lot to be comfortable, if you
know what I mean.
That logic appeals to Mr. Steel, the HSBC analyst. Is he surprised to hear that ordinary
people in Australia have been throwing in the towel on city life to prospect full time? Not at
all, he says. It is a phenomenon he has seen across the world, in places like Brazil, the United
States and Australia.
What Id like to do is go to Australia and open up my own outback saloon, he said with a
laugh.
A version of this article appeared in print on August 16, 2011, on page B4 of the New York
edition with the headline: As Price Climbs, an Old-Fashioned Gold Rush Grips the Australian
Outback.
http://webcache.googleusercontent.com/search?q=cache:gAMO1R8FL-
IJ:online.wsj.com/article/BT-CO-20110808-
712235.html+UPDATE:+Gold+Price+Hits+Parity+With+Platinum+For+First+Time+Since+
2008&cd=1&hl=id&ct=clnk&gl=id&client=opera
UPDATE: Gold Price Hits Parity With Platinum For First Time Since 2008
By Rhiannon Hoyle and Francesca Freeman
AUGUST 8, 2011, 11:07 A.M. ET
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--The price of gold Monday soared to new record highs and reached
parity with sister metal platinum for the first time since the end of 2008.
Spot gold leveled with the complex's most expensive metal as it rallied to an all-time best of
$1,715.29 a troy ounce on Standard & Poor's downgrade of the U.S. government's debt
rating, which amplified investor jitters over the global economic outlook. Spot platinum, for
its part, briefly fell as low as $1,703/oz, as fears over demand for the industry-linked metal
kept the market under pressure.
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The gold-to-platinum ratio, which measures how many gold ounces are needed to buy an
ounce of platinum, has been sliding sharply as the price of gold benefits from economic
turmoil, particularly in the U.S. and the euro zone. At the start of July the ratio stood at
1.15:1, compared with 1.24:1 at the start of the year.
While a ratio at or near 1:1 is seen as a good buying opportunity for platinum--demand for
which could potentially drive the price higher and widen the ratio once again--analysts say
the metals are likely to hold near parity in the near term as gold continues to benefit from
global economic uncertainty.
"I can't see any reason for a reversal of this situation while Italy and Spain are vulnerable and
there is the chance that other agencies will downgrade the U.S. Everybody is selling out of
risk and the macro issues that are supporting gold remain," said Societe Generale metals
analyst David Wilson.
Platinum and gold, both used widely by the jewelry industry, are the two most expensive
traded precious metals, and are significantly more expensive than sister metals palladium and,
in particular, silver.
Investors closely watch ratios between the precious metals, often examining shifts before
deciding which metal represents the better investment. Some traders also play the fluctuating
price differentials between the pair.
"On a historical basis, the ratio looks cheap, [and] if we were prepared to buy the ratio now
and hold it for a year or two, it would probably be a good trade, given that platinum's
fundamentals signal a lot more tightness over the medium term. But as investors struggle to
make money in the short term, positioning for the medium term is in short supply," UBS
analyst Edel Tully said in a recent research note.
Over the past 20 years, the spot price of gold has rarely overtaken platinum. The lowest the
ratio has fallen during that period was 0.93:1 in October 1992.
The last time the metals reached parity was in December 2008 as the price of platinum sunk
amid the global financial crisis and a collapse in auto demand.
Mitsui analyst David Jollie said the closer price levels now held by the pair will "be
interesting for the jewelry industry in particular, where there is some competition between
gold and platinum."
"We could, in China for example, see strong demand for platinum--often perceived as the
more valuable metal--in the short term in response."
-By Rhiannon Hoyle and Francesca Freeman, Dow Jones Newswires; +44 (0)20 7842 9405;
rhiannon.hoyle@dowjones.com
http://www.nytimes.com/roomfordebate/2011/08/02/should-central-banks-buy-gold/gold-
fever-is-a-symptom-of-inflation-fears
Gold Fever Is a Symptom

Allan H. Meltzer
August 2, 2011
Gold was money through most of our history, although after 1934 it was restricted to
settlements between central banks. Its role in international payment settlements was further
restricted in 1968, and it ended in 1971 when President Richard M. Nixon embargoed gold
sales and floated the dollar exchange rate. After 1971, several central banks sold some of
their gold stocks because the only revenue from holding gold is the speculative return if the
gold price rises. After all, gold is no longer money, and holding it earns no interest.
Gold is a commodity with a unique history. It allows individuals to readily transport large
monetary values, so it has long been favored by refugees. People who fear inflation or
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confiscation of wealth buy gold, expecting it will be stable or rise enough to protect the
holder. That was true for European refugees in the 1930s, and French and Indian citizens
have long been famous for holding gold.
Today, uncertainty about the future financing of large U.S. budget deficits and inflationary
Federal Reserve policy are increasing the demand for gold. People in China and other nations
with inflationary policies are also stocking up on it. Saudi Arabian sheiks protect part of their
wealth by holding gold.
The modern frenzy for gold is a symptom of a fundamental concern: inflation. The world
would benefit from an agreement by major central banks in Europe, Japan and the United
States to maintain zero inflation. China could join after it removed its exchange controls. That
agreement would allow other countries to fix their exchange rates and import low inflation.
The world would have both more stable prices and more stable exchange rates.
The unrestrained U.S. monetary policy since we abandoned gold has not provided stability.
The modern hunger for gold shows investors' deep fears about inflation.
Ballesteros/EFE, via European Pressphoto Agency
Small investors' appetite for gold has never before been so easily sated: vending machines
now dispense gold coins in airports, shopping malls and hotels in Madrid and elsewhere.
http://www.nytimes.com/2011/07/24/your-money/in-golds-popularity-shades-of-1980-
strategies.html
In a Gold Lovefest, Shades of 1980

By JEFF SOMMER
July 23, 2011
THE worse things get, the better it looks for gold. Thats been the pattern this summer.
Worried about Greece, the future of the euro, the debt ceiling in the United States, or maybe
even about the entire global economy? Buy gold bullion.
Plenty of investors, at least, have been thinking that way, driving the price of gold to nominal,
if not inflation-adjusted, highs.
Last week, as separate teams of high-level negotiators sought solutions to the Greek debt
crisis and to the debt-ceiling morass in Washington, gold crossed $1,600 an ounce for the
first time ever.
While the price fell on signs of progress on these nettlesome issues, gold ended the week at
$1,602.60. (Thats well below its 1980 inflation-adjusted peak of $2,516, said Edward
Yardeni, an independent economist.) Gold hasnt been flying this high since the halcyon days
of supply-side economics early in the Reagan administration.
Ben S. Bernanke, the chairman of the Federal Reserve, is hardly a gold bug, but he has taken
notice. In response to brisk questioning by Representative Ron Paul the Texas Republican
who is running for president for the third time, and has advocated a return to the gold
standard Mr. Bernanke acknowledged that he is paying attention to gold prices.
I think the reason people hold gold is as protection against what we call tail risk really,
really bad outcomes, Mr. Bernanke said at a Congressional hearing this month. To the
extent that the last few years have made people more worried about the potential of a major
crisis, then they have gold as a protection.
In a recent column, I noted that some experts dont consider gold an appropriate asset in a
typical diversified investment portfolio, partly because it generates no earnings, yet holding it
entails cost. Gold is, however, certainly a financial asset, held by many central banks and
prized by many private investors around the world.
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Jeffrey Sica, for example, president of SICA Wealth Management in Morristown, N.J., is
bullish about gold and other commodities and bearish about nearly every other asset class.
Right now, I think gold looks better than ever, he said. His reasoning mirrors Mr.
Bernankes, at least in this way: Mr. Sica say that he sees a painfully high probability of
unfortunate events occurring in the months ahead, and that he believes gold will provide
some shelter.
He departs sharply from the central bankers views, though, in saying that the Feds
expansionary policy known as quantitative easing just hasnt worked. Furthermore, he
expects the economy to weaken further, and the European sovereign debt crisis to be with us
for some time, regardless of whatever is arranged short term, and it will end up hurting many
banks.
While there may be what he calls a relief rally if the immediate crises seem to be resolved,
he says that there has been a general loss of confidence in the ability of central banks and
governments to manage the economy.
That will continue to give gold and other precious metals a boost, he adds.
Even at central banks, golds standing has risen in some respects lately. In June, UBS held a
gathering of managers of central bank reserves, multilateral institutions and sovereign wealth
funds, and found that a plurality believed gold would be the best-performing asset class
through the end of 2011.
WHATS more, said Larry Hatheway, chief economist for UBS Investment Bank, a majority
said they expected that the dollar would no longer be the most important reserve currency in
the world in 25 years. Instead, they expected that a portfolio of currencies would replace it.
Less than 10 percent envisioned gold ascending to that role.
Still, the World Gold Council, which tracks gold stocks, says the worlds central banks
already hold roughly 29,000 tons of gold. Only about 166,000 tons have been mined
throughout world history, the council says, so the central banks hold a significant portion of
it.
Why? Most of it is a legacy of the time when major currencies were pegged to gold in the
days before Aug. 15, 1971, when President Richard M. Nixon took the United States off the
gold standard. With more than 8,000 tons, the United States has more official gold stocks
than any other country, the council says.
The United States ought to use that hoard to return the dollar to a gold standard, says Jeffrey
Bell, who is trying to make this an issue in the 2012 presidential campaign. Mr. Bell has
advocated the gold standard for years and did so as the Republican senatorial candidate in
New Jersey in 1978.
He was defeated by Bill Bradley, sometimes known as Dollar Bill because of his solid
performance as a basketball player for the New York Knicks.
Mr. Bell recalls ruefully: I used to hold up a dollar bill at campaign rallies and say, theres
nothing behind this now, we have to put something solid behind it. History shows that I lost.
Lewis E. Lehrman, a friend and ally of Mr. Bells, says a gold standard would require the
government to balance its budget and its current account. He says that, among other things, it
would have made it impossible to accumulate the enormous private-sector debt load that led
to the financial crisis of 2007.
Mr. Lehrman, once the president of the Rite Aid Corporation and now a philanthropist and
historian, ran for governor of New York in 1982 but was defeated in the general election by
Mario Cuomo. In a telephone interview last week, Mr. Lehrman said, The debts in the
American banking system that were amassed simply would not have been feasible if you had
direct convertibility of currency into gold.
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He acknowledges that returning to a gold standard wont happen overnight. But, he says, it
will happen, because the failure of all of the other approaches will become evident to the
American people.
The last apex of the back-to-gold movement was perhaps in 1980. It may have been a signal
that the price of gold was about to peak. Could we be approaching a turning point now? You
could make that argument, Mr. Bell says. The big question is whether the government and
the Federal Reserve will be able to get the economy under control without a return to gold.
A version of this article appeared in print on July 24, 2011, on page BU4 of the New York
edition with the headline: In a Gold Lovefest, Shades of 1980.
http://krugman.blogs.nytimes.com/2011/07/19/the-glenn-beck-debeers-connection/
The Conscience of A Liberal: The Glenn Beck / DeBeers Connection

By Paul Krugman
July 19, 2011, 7:44 pm
Kash, at the Street Light, has a very good post on the price of gold and its relationship or lack
thereof to inflation fears. He points out that the market for gold is surprisingly small, so that it
would take only a relatively small number of extra buyers to push the price way up, even
when other, more direct measures of expected inflation remain low. And he draws a parallel
with diamonds:
Its also conceivable that a good advertising campaign by gold producers could be enough to
move the price of gold. Imagine that an effective, sustained advertising campaign, targeted at
wealthy, conservative individuals in the US, is able to persuade 25,000 of them per month to
switch a portion of their financial assets into gold. (Note that the target audience would be
those roughly 3 million US households that have over $1 million in financial assets.) Suppose
for the sake of argument that each of them is persuaded to shift just 5%, or $50,000, of their
portfolio into gold. Such an advertising campaign would have the effect of pushing $15 bn
per year into the market for investment gold very possibly enough to have a significant
impact on the price of gold, given how small the overall market for gold is.
Note that a very similar thing happened to the market for diamonds in the middle of the 20th
century. The DeBeers diamond cartel used an incredibly successful advertising campaign in
the 1950s to cement the idea of the diamond as the premier gemstone, and in so doing
permanently changed the value of diamonds.
Surprisingly, though, Kash doesnt say explicitly that this parallel is not at all hypothetical.
Glenn Beck was financially intertwined with Goldline, and therefore had a financial stake in
pushing fears of hyperinflation. And he had many, many viewers. So there was a direct
channel through which conservative Americans were being pushed into buying gold.
Market prices almost always tell you something useful. But sometimes what they tell you is
that theres a marketing scam in progress.
http://blogs.wsj.com/source/2011/07/15/is-gold-a-compelling-trade-or-long-term-investment/
Is Gold a Compelling Trade or Long Term Investment?

By Francesca Freeman and Rhiannon Hoyle
July 15, 2011, 1:46 PM GMT
Dont be fooled by golds slick ascent to fresh record highsthis isnt a market for the
fainthearted.
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The yellow metals recent winning streak, which culminated in a new all-time high of
$1,594.29 a troy ounce Thursday, isnt as straightforward as it may look.
Persistent concerns over debt contagion in the euro zone and fading confidence in the U.S.
economic recovery have certainly attracted fresh interest in gold as a traditional hedge against
insecurity, laying the foundations for the metals run-up to new highs. But without a fresh
catalyst to entice more long-term buyers in, golds price action at the dizzying heights of
around $1,600/oz is likely to be driven by short-term speculators concerned less about a flight
to safety and more about good, old fashioned money-making, say industry players.
If you are not long in gold already, I dont think youd want to buy gold right now, said
Standard Bank analyst Walter de Wet. If youre buying at these levels, you are probably
buying for speculative reasons, he added.
Since flirting with $1,600/oz Thursday, gold prices have softened somewhat, suggesting that
longer-term interest is lacking at these levels. Spot gold now trades at around $1,580/ozstill
high, by anybodys standards, but noticeably lower than Thursdays record.
Earlier this month, Goldman Sachs reiterated that it continues to view gold at current prices
not as a long-term investment but as a compelling trade.
Heres what GS said:
While higher inflation or monetary demand would present upside risk to our bullish gold
price forecasts over the next 12 months, we continue to expect gold prices to peak in 2012 as
US real interest rates rise with the ongoing economic recovery, and the potential for US real
interest rates to rise more quickly than we anticipate presents a downside risk to gold prices.
Net, we continue to believe that gold at current price levels is a compelling trade, not a long-
term investment.
What this means for the metal going forward is unclear.
The price of gold, at its record high Thursday, was up more than 12% on the start of the year,
and more than 30% higher than this time last year. So most investors taking a medium-term
viewwith expectations of holding the metal for at least a couple of monthswill be looking
for much better entry points to purchase.
Despite broad expectations that the market will ultimately break the key $1,600/oz level and
rally higher, any participants buying metal at these prices would have more to lose should the
market sharply correct amid any reversal in sentiment.
Whether that entry-pointtipped by some traders to be $50-$60 below current levelswill
materialize soon is anyones guess. A third round of monetary easing by the U.S. Federal
Reserve has been a favorite scenario for gold bugs in recent weeks, but with Fed Chairman
Ben Bernanke quashing QE3 speculation Thursday, a fresh injection of liquidity into the U.S.
financial markets is looking less and less likely.
Can gold rally 10% in the second half of this year? Of course it can, said UBS analyst Edel
Tully. But for that to happen, gold needs a lot more supporters on board. And so far those
supporters have been hanging back, waiting presumably for external market conditions to
worsen or for a better entry levelor both.
http://krugman.blogs.nytimes.com/2011/06/28/the-old-superstition/?ref=goldstandard
The Old Superstition

June 28, 2011, 7:05 am
I picked up a copy of Lionel Robbinss 1934 book The Great Depression in a used book shop
in Norwich. Its quite revealing: judicious in tone, full of tables and facts, clearly meant to be
seen as the work of a wise observer indeed, a Very Serious Person.
And utterly, utterly wrongheaded
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The first essential of any recovery from the position in which the world now finds itself is a
return of business confidence, declares Robbins. But how is confidence to be restored? He
comes out against expansionary monetary policy, even to reverse the deflation of 1929-33
he doesnt really have any logical explanation, but having decided that the problem is
confidence, he declares that monetary expansion would create uncertainty and therefore
hurt confidence. He condemns exchange rate flexibility, again because it creates uncertainty
and undermines confidence.
And after surveying the wreckage all around him, he declares that the cause of the depression
was excessive government intervention, and the remedy, the thing needed to restore that all-
essential confidence was drum roll .. a return to the gold standard.
You can sort of see how this kind of policy analysis based on superstition might have seemed
plausible in 1934, although even pre-General Theory Keynes could have explained just how
wrong Robbins was (and did). But one would have hoped that we were past this sort of thing
today.
The point, of course, is that we arent. The new BIS report is very much in the same vein as
Robbins 1934, with much less excuse. Robbins suffered from the lack of a framework to
make sense of events; the BIS, like so many economists, faced with exactly the economic
syndrome Keynes analyzed, and for that matter even Milton Friedman would have seen as
demanding strong action, has chosen to ignore that framework and play monetary Calvinball
instead.
I was originally going to end this post by saying something about stupidity, but thats not
right: the people at the BIS arent stupid. Whats going on here is something different and
worse: were seeing the desire for conventional respectability outweighing the lessons of
history; were seeing vague prejudice (prejudice that just so happens to serve the interests of
rentiers) trumping analysis.
History will not forgive these people.
http://bucks.blogs.nytimes.com/2011/05/23/gold-is-not-an-investment/
Gold is Not an Investment

By Carl Richards
May 23, 2011, 12:53 pm
Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived
here on the Bucks blog and on his personal Web site, BehaviorGap.com.
Gold is not an investment. Its a speculation.
Investments are made by evaluating underlying value. Speculative bets are made by looking
at the price of something and simply hoping the price goes up. Investing is about value;
gambling is about price.
Gold has no real underlying value. I know there is a market for it. I know it is real, just like
real estate was real in 2007.
But what is the value of a bar of gold?
It has no value except the one assigned by a herd of speculators. This is true for most
commodities. They dont actually produce anything. They are raw material. No value. No
dividend. No cash flow.
Investing in gold is a very dangerous game right now. Whenever the price of something rises
as much, and as quickly, as gold has, we need to stop and consider the end game. While in
Florida last week, I was surprised to see guys standing on the street waving We Buy Gold
signs. They looked exactly like the guys I used to see all over Las Vegas with the signs
announcing open houses and touting real estate as a sure bet.
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Remember when your brother-in-law told you that you had to invest in real estate because
they werent making any more of it? Or the common justification people used that at least
with real estate you could see, touch and feel it? It was real! And how did that work out?
Now I hear people using the same argument for gold. Its real. Tangible. And you can enjoy it
because its pretty. But what does that have to do with investing?
Keep in mind that there are huge institutional players in the gold market right now. When
they decide that the run is over, there wont be time for you to run to your safe in the
basement, pack up all your coins and gold bars, run to the local pawn shop and get rid of the
stuff.
I have no idea where the price of gold is going, but for me it doesnt matter. But if George
Soros is selling while your grandmother is buying, you have to wonder whos more likely to
get hurt. The point here is that it (literally) pays to consider that the time to bet on gold was
2007. At this point if you are counting on the gold under your bed to fund your retirement,
things could get very ugly.
http://www.nytimes.com/2011/05/15/your-money/15stra.html
Suddenly, Gold Isnt Looking So Solid

By JEFF SOMMER
May 14, 2011
A RICH man carrying a heavy bag of gold coins set sail on a voyage, but his ship ran into
stormy weather. Before it capsized, he attached the bag of gold to his waist and jumped
overboard. He sank with his fortune, never to be seen again.
Now, as he was sinking, had he the gold? Or had the gold him?
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The English critic John Ruskin wrote this parable more than a century ago, but it raises a
question that investors may wisely ask today. Many people have tied their portfolios, if not
their very lives, to gold. Yet after the wrenching sell-off and burst of unusually high volatility
in the commodity markets this month, should gold and other commodities even be a part of a
typical investment portfolio?
Although gold is certainly alluring, the answer isnt simple.
That gold has been wildly popular at least until commodity markets plunged is
indisputable, and not just because of its gleaming beauty. It served, after all, as the immutable
standard of the global monetary system until the 1970s, a status that has helped give it a
certain appeal in an era of wildly fluctuating financial values.
As a measure of golds acceptance as a mainstream investment, a gold exchange-traded fund
SPDR Gold Shares, offered by State Street Global Advisors was the second-most-
popular E.T.F. in the United States on April 30, trailing only State Streets flagship, the
SPDR S.& P. 500 fund.
But despite the yellow metals sometimes mythic appeal well documented in Peter L.
Bernsteins classic, The Power of Gold, which recounts the Ruskin parable it is in many
ways now just another commodity, like oil, silver, wheat or pork bellies, subject to the
vagaries of the markets and, recently, to an extraordinary level of volatility.
It has been behaving much more sedately than its sister metal, silver, which has lost more
than a quarter of its value this month, after rising nearly 400 percent since October 2008. But
gold has not been a paragon of stable value. It has dropped more than 4 percent this month
after more than doubling in value since October 2008.
Which brings us back to the question: Does it make sense for a long-term investor to join in
this jolting race?
Leading asset management firms provide very different answers. T. Rowe Price and Fidelity,
for example, include allocations of gold and other commodities in their target-date mutual
funds standard portfolios that are intended to be all an investor needs until retirement or
later. We think that in moderation, in a well-diversified portfolio, getting exposure to what
we call real assets is useful, said Richard Fullmer, an asset allocation strategist at T. Rowe
Price.
But Vanguard does not include gold or any other commodity in its target-date retirement
funds or any other core funds. For a basic portfolio, it considers them superfluous and highly
volatile.
We recognize that some people may want an exposure to gold for their own reasons, and
thats fine if they do, said Fran Kinniry, principal at Vanguards Investment Strategy Group.
But weve found that for the typical investor, you can get all the diversification you need
without including any commodities at all.
In a strict sense, commodities may not even be an investment asset class , because they dont
produce any cash flow or earnings or dividends. Thats the view of Gary P. Brinson, a scholar
and veteran strategist based in Chicago.
A bar of gold is just a bar of gold, he said in a telephone interview last week. It doesnt do
anything. Theres a market for it, sure, just as there is for, say, a work of fine art, and if you
buy and sell at the right price, youll make a profit. But if theres no cash flow, no dividend,
no earnings, how do you calculate its intrinsic worth? Answer: You cant. Its not that kind
of an asset.
In the 1980s and 90s, Mr. Brinson did path-breaking research on the effects of asset
allocation on portfolios. In two papers in the Financial Analysts Journal, he and several
colleagues found that broad decisions about asset classes which to hold and in which
proportions accounted for more than 90 percent of a portfolios performance.
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He concluded that eight asset classes none of them gold or any other commodity were
all that an investor needed. For a model moderate risk portfolio under normal market
conditions, he said in the interview, those eight and their allocations are: stocks from
developed markets, 49 percent; emerging-market stocks, 6 percent; investment-grade bonds
from developed markets, 25 percent; emerging-market bonds, 2 percent; high-yield bonds, 3
percent; commercial real estate, 10 percent; and private equity and venture capital combined,
5 percent.
All but the private equity and venture capital portions can be bought through low-cost index
mutual funds or E.T.F.s.
Is there any use for gold and other commodities in a diversified portfolio? There might be, he
said, if you view them as a form of insurance against a specific risk and if the price is
reasonable. Gold might be seen as a hedge against inflation, he said although it has
underperformed since 1980. It might also be viewed as a hedge against a decline in the value
of the dollar, but at golds current level, he said, youre paying a very high price for it.
Mr. Kinniry of Vanguard pointed out that stocks and gold had both been negatively
correlated with the dollar meaning they have tended to rise when the dollar has fallen. But
since 1985, the negative correlation of stocks has been greater, and stocks have also provided
a greater return. In short, an allocation to international stocks would have hedged better
against a dollar decline, with much lower volatility.
ONE argument for putting up with the volatility of commodities like gold is that their long-
term price trend is upward. Thats the case made by Joe Wickwire, who manages the Fidelity
Global Commodity Stock fund and the Fidelity Select Gold Portfolio.
Commodities and gold, from an asset-class standpoint, are in secular bull markets because
of the growth of resource-intensive emerging-market economies, he said. (Mr. Wickwire also
said that over the long haul, exposure to commodities was worthwhile for portfolio
diversification, regardless of price trends.)
Of course, its much easier to discern trends after the fact, and on that score the picture for
gold isnt entirely attractive. It peaked in price in 1980 at $850 a troy ounce. Factor in
inflation, and that comes to more than $2,400. After more than 30 years, in other words, an
investor in gold would still be operating at a loss, without even counting the cost of storing
and protecting the gold.
Its a beautiful metal, certainly. Is it worth holding? Maybe, but dont bet your life on it.
A version of this article appeared in print on May 15, 2011, on page BU4 of the New York
edition with the headline: Suddenly, Gold Isnt Looking So Solid.
http://www.nytimes.com/2011/05/03/business/03markets.html
Stocks and Bonds

Wall Street Shrugs Off Death of Bin Laden and Turns Attention to Earnings
By Christine Hauser
May 2, 2011
Wall Street dipped slightly on Monday as investors gave a muted response to news of the
death of Osama bin Laden, instead focusing on corporate results and mergers.
The three main indexes initially rose as investors tried to assess the future of global security.
But shares lost their momentum as the session wore on.
The Osama bin Laden situation really had a nice impact at the open, said Douglas S.
Roberts, the chief investment strategist for the Channel Capital Research Institute. It looks
like a lot of that might have been short-covering.
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Jeffrey Kleintop, the chief market strategist for LPL Financial, called the early rise a knee-
jerk reaction.
Then a thoughtful process comes out, he said, that maybe the risks have shifted.
At the close, the Dow Jones industrial average was 3.18 points lower, at 12,807.36, while the
broader Standard & Poors 500-stock index lost 2.39 points, or 0.18 percent, to 1,361.22. The
technology-heavy Nasdaq lost 9.46 points, or 0.33, percent, at 2,864.08.
The S.& P. health care index was up more than 1 percent after Teva Pharmaceutical
Industries said it had agreed to buy the biopharmaceutical company Cephalon for $6.8
billion, a deal unanimously approved by the boards of the two companies.
Teva shares rose more than 3 percent, to $47.27, while Cephalon was up more than 4 percent
at $80.11.
The dollar was mixed. The euro rose to $1.4846 from $1.4806 late Friday, while the British
pound slipped to $1.6683 from $1.6706. The dollar rose to 81.30 yen, from 81.20 yen.
The dollar has been weak across the board, with United States interest rates low and some
central banks beginning to lift rates. Debt limit negotiations in Congress are not helping, said
Brian Dolan, the chief currency strategist at Forex.com.
The Treasury Department said it would initiate emergency measures on Friday to keep the
federal governments total borrowing under the maximum allowed by law, as Congress
continues to debate the terms of any increase in the debt ceiling.
It is still a weak dollar environment, Mr. Dolan said. That is the significant takeaway: the
dollar downtrend is very much intact.
The Japanese and South Korean markets were already 1 percent higher before President
Obama announced late Sunday that American forces had killed Bin Laden in Pakistan.
By the close, the Nikkei 225 index had gained 1.6 percent, to 10,004.20 points, the first time
the index closed above 10,000 since the devastating earthquake and tsunami struck the
country on March 11.
In Europe, the Euro Stoxx 50 index, a barometer of euro zone blue chips, slipped 0.1 percent.
The CAC 40 in Paris rose 1.85 points and the DAX in Frankfurt rose 0.18 percent. London
markets were closed for a bank holiday.
On the economic front, the Institute for Supply Management, a trade group of purchasing
executives, said its index of manufacturing activity dipped to 60.4 in April but remained
above 60 for a fourth month. That was down from 61.2 in March and 61.4 in February, the
fastest expansion in nearly seven years. A reading above 50 signals growth.
In addition, construction spending rose 1.4 percent in March, helped by an increase in
spending on home-improvement projects.
In other corporate news, Arch Coal said it would buy the International Coal Group in a cash
deal worth $3.4 billion that will create one of the worlds largest coal producers. Arch shares
fell 2.2 percent to $33.53, while International Coal rose more than 30 percent to $14.43.
Dish Network and the EchoStar Corporation have agreed to pay TiVo $500 million to settle a
patent infringement lawsuit involving TiVos video recording technology, putting an end to a
long and costly legal battle. Stock in TiVo rose more than 3 percent to close at $9.86.
Many analysts cautioned, however, that Bin Ladens death could stoke, rather than ease,
worries about oil supplies and global security in the longer run if it led to retaliatory attacks.
Energy stocks were lower. Crude oil slipped 41 cents to settle at $113.52 a barrel in volatile
trading in New York.
Spot gold fell $18.35, to $1,545.35 an ounce.
Silver prices dropped more than 5 percent on Monday, a decline attributed to a decision by
the CME Group, which is the parent of the Chicago Board of Trade, to increase the margins
for futures trading on silver.
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In the bond market, the benchmark 10-year bond gained 2/32, while the yield fell to 3.28
percent, from 3.29 percent late Friday.
David Jolly and Bettina Wassener contributed reporting.
A version of this article appeared in print on May 3, 2011, on page B8 of the New York
edition with the headline: Wall Street Shrugs Off Death of Bin Laden and Turns Attention to
Earnings.
http://topics.nytimes.com/top/reference/timestopics/subjects/g/gold_standard/index.html
Gold Standard
Updated: Feb. 15, 2011
Gold's appeal is enduring. Its value as an investment, however, has a long history of ups and
downs.
At the moment, it holds a particular attraction, given Americans worries in the wake of the
meltdown of global financial markets and the falling value of the dollar. Trading and owning
gold have also never been easier or more frantic, thanks to the Internet.
The usual argument against retaining gold is that its day is past. Once it was useful as a hedge
against inflation that would hold its value when paper currencies did not. Now financial
markets have their own sophisticated ways, using exotic derivative securities, to hedge
against inflation.
Gold's supporters argue that tying the dollar to gold provides discipline for central bankers
and other officials who are otherwise too often inclined, they say, to permit lax government
spending policies and high money supply growth, both inflationary factors.
Gold's recent historic highs were underpinned by a rush of mainstream investors, including
hedge funds, commodity-based mutual funds and exchange-traded funds. After reaching a
nominal record of $1,420 a troy ounce in December, gold prices fell nearly 6 percent in
January 2011.
The extent to which the new wave of capital remains invested in gold will determine if the
recent spike is just another anomaly or the onset of the second coming of the great gold bull
market that the true believers have been calling for since the price of gold crashed a quarter-
century ago.
http://dealbook.nytimes.com/2011/02/03/newmont-mining-strikes-2-billion-gold-deal/
Newmont Mining Strikes $2 Billion Gold Deal

By DEALBOOK
February 3, 2011, 10:29 am Mergers & Acquisitions
Newmont Mining, the biggest gold producer in the United States, said on Thursday that it had
agreed to acquire Fronteer Gold of Vancouver, British Columbia, in a deal valued at more
than $2 billion.
The acquisition will enable Newmont to expand its mining operations in Nevada. Fronteer is
developing a gold mine about 100 miles from Newmonts operations in that state.
The deal comes as gold prices have retreated a bit in recent weeks, after climbing to a
nominal record of $1,415.30 a troy ounce in December.
Under the terms of the deal, Fronteer shareholders will get 14 Canadian dollars in cash and
one common share in a new company that will own certain exploration assets of Fronteer, for
every one of their shares.
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The cash element of the offer represents a premium of 37 percent to Fronteers closing price
on the Toronto Stock Exchange on Wednesday, the companies said. The deal is valued at 2.3
billion Canadian dollars ($2.3 billion).
The new company being created as part of the deal, Pilot Gold, will own Fronteer exploration
properties in Nevada, Turkey and Peru. It will be capitalized with 10 billion Canadian dollars.
Fronteer shareholders will own 80.1 percent of Pilot Gold and Newmont will own the rest.
BMO Capital Markets and the law firms of Goodmans and Wachtell, Lipton, Rosen & Katz
advised Newmont. Fronteers financial adviser is RBC Capital Markets, and its legal counsel
is Davies Ward Phillips & Vineberg.
http://blogs.wsj.com/source/2010/09/03/paying-through-the-nose-for-insurance/
Paying Through The Nose For Insurance

By Alen Mattich
September 3, 2010, 12:58 PM GMT
AFP/Getty Images
In Ben Bernankes view, the state of the U.S. economy is unusually uncertain.
Setting aside the question of how you might define usual uncertainty, whats particularly
unusual is the rise in the probability of extreme outcomes from either end of the spectrum.
Specifically, that policy errors result in either very high rates of inflation or outright deflation.
The distribution of likely outcomes could be a barbell shape. In other words, either one or the
other will happen with the chances of something in-between, such as economic recovery with
moderate inflation, the most improbable result. Or it could be the usual bell-curve shape,
albeit with unusually high probabilities of things happening at the ends, or fat tails as theyre
widely known.
Whatever the actual shape of the probability curve, investors are no longer happy to
downplay or ignore outright the prospect of being hit by extreme events as they often seemed
to be before they were run over by the 2008 financial crisis.
In statistics, infrequent but very large and very extreme outcomes increase variance. And
higher variance leads to higher optionsor insuranceprices. In which case you might
reasonably expect to pay more for instruments that are considered insurance against extreme
events.
Which could be why the prices of both U.S. Treasury bonds and gold have been soaring.
Treasury bonds might be considered insurance against the U.S. suffering a Japanese-style lost
decade of persistent low growth and deflation if, as Keynesian economists argue, the U.S.
government has failed to provide enough fiscal stimulus and the central bank cant do
anything against a liquidity trap.
On the other hand, those with a more monetary bent worry about the huge accumulation of
reserves in the U.S. banking system following the Feds program of quantitative easing and
the unparalleled (in peacetime) deficits the government is running. They figure inflation is a
certainty and, against this, theyre holding physical assets, including commodities. And the
commodity considered closest to money is gold.
Until it becomes clear that the outcome is one or the otheritll probably require a clear swing
to one or the other or a very long period of mild deflation or higher than comfortable but not
extreme inflationhistory suggests both assets will remain overpriced.
The history here, by the way, is the pricing of far out of the money put options on equities.
Before the 1987 stock market crash, the right to sell shares at a predetermined level, well
away from where the market was trading, was generally under-priced.
Following Black Monday, these out of the money puts have been very expensive.
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http://www.nytimes.com/2005/10/24/international/24GOLD.html
The Cost of Gold | 30 Tons an Ounce

Behind Gold's Glitter: Torn Lands and Pointed Questions
June 14, 2010
There has always been an element of madness to gold's allure.

For thousands of years, something in the eternally lustrous metal has driven people to the
outer edges of desire - to have it and hoard it, to kill or conquer for it, to possess it like a
lover.
In the early 1500's, King Ferdinand of Spain laid down the priorities as his conquistadors set
out for the New World. "Get gold," he told them, "Humanely if possible, but at all costs, get
gold."
In that long and tortuous history, gold has now arrived at a new moment of opportunity and
peril.
The price of gold is higher than it has been in 17 years - pushing $500 an ounce. But much of
the gold left to be mined is microscopic and is being wrung from the earth at enormous
environmental cost, often in some of the poorest corners of the world.
And unlike past gold manias, from the time of the pharoahs to the forty-niners, this one has
little to do with girding empires, economies or currencies. It is almost all about the soaring
demand for jewelry, which consumes 80 percent or more of the gold mined today.
The extravagance of the moment is provoking a storm among environmental groups and
communities near the mines, and forcing even some at Tiffany & Company and the world's
largest mining companies to confront uncomfortable questions about the real costs of mining
gold.
"The biggest challenge we face is the absence of a set of clearly defined, broadly accepted
standards for environmentally and socially responsible mining," said Tiffany's chairman,
Michael Kowalski. He took out a full-page advertisement last year urging miners to make
"urgently needed" reforms.
Consider a ring. For that one ounce of gold, miners dig up and haul away 30 tons of rock and
sprinkle it with diluted cyanide, which separates the gold from the rock. Before they are
through, miners at some of the largest mines move a half million tons of earth a day, pile it in
mounds that can rival the Great Pyramids, and drizzle the ore with the poisonous solution for
years.
The scars of open-pit mining on this scale endure.

A months-long examination by The New York Times, including tours of gold mines in the
American West, Latin America, Africa and Europe, provided a rare look inside an insular
industry with a troubled environmental legacy and an uncertain future.
Some metal mines, including gold mines, have become the near-equivalent of nuclear waste
dumps that must be tended in perpetuity. Hard-rock mining generates more toxic waste than
any other industry in the United States, according to the Environmental Protection Agency.
The agency estimated last year that the cost of cleaning up metal mines could reach $54
billion.
A recent report from the Government Accountability Office chastised the agency and said
legal loopholes, corporate shells and weak federal oversight had compounded the costs and
increased the chances that mining companies could walk away without paying for cleanups
and pass the bill to taxpayers.
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"Mining problems weren't considered a very high priority" in past decades, Thomas P.
Dunne, the agency's acting assistant administrator for solid waste and emergency response,
said in an interview. "But they are a concern now."
With the costs and scrutiny of mining on the rise in rich countries, where the best ores have
been depleted, 70 percent of gold is now mined in developing countries like Guatemala and
Ghana. It is there, miners and critics agree, that the real battle over gold's future is being
waged.
Gold companies say they are bringing good jobs, tighter environmental rules and time-tested
technologies to their new frontiers. With the help of the World Bank, they have opened huge
mines promising development. Governments have welcomed the investment.
But environmental groups say companies are mining in ways that would never be tolerated in
wealthier nations, such as dumping tons of waste into rivers, bays and oceans. People who
live closest to the mines say they see too few of mining's benefits and bear too much of its
burden. In Guatemala and Peru, people have mounted protests to push miners out. Other
communities are taking companies to court.
This month a Philippine province sued the world's fifth-largest gold company, Canada-based
Placer Dome, charging that it had ruined a river, bay and coral reef by dumping enough waste
to fill a convoy of trucks that would circle the globe three times.
Placer Dome, which also runs three major mines in Nevada, answered by saying that it had
"contained the problem" and already spent $70 million in remediation and another $1.5
million in compensation.
Some in the industry have paused to consider whether it is worth the cost - to the
environment, their bottom line or their reputations - to mine gold, which generates more
waste per ounce than any other metal and yet has few industrial uses.
The world's biggest mining company, Australia-based BHP Billiton, sold its profitable Ok
Tedi mine in Papua New Guinea in 2001 after having destroyed more than 2,400 acres of
rainforest. Upon leaving, the company said the mine was "not compatible with our
environmental values."
After tough lessons, other companies, like Newmont Mining, the world's largest gold
producer, are paying for more schools and housing, trying harder to ease social problems
around its mines.
http://www.nytimes.com/2005/10/24/international/24GOLD.html?pagewanted=2
"I don't think any of our members want to be associated with a bad operation -
notwithstanding it would hurt their ability to open new facilities," said Carol L. Raulston,
spokeswoman for the National Mining Association. "News goes around the world quickly
now and there is no place to hide."
Critics say corporate miners have been cloistered from scrutiny because of their anonymity to
consumers, unlike, say, oil companies, which also extract resources but hang their name over
the pump.
Last year the mine watchdog group Earthworks began a "No Dirty Gold" campaign,
marching protesters in front of fashionable Fifth Avenue storefronts, trying to change gold
mining by lobbying gold consumers.
"They just said to ask where the gold was coming from and whether it caused social or
environmental damage," said Michael E. Conroy, senior lecturer and research scholar at the
Yale University School of Forestry and Environmental Studies. "The repercussions in the
mining media were huge - some said it was all lies, but retailers began to realize what their
vulnerability was."
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Mr. Kowalski, Tiffany's chairman, has tried to stay ahead of the controversy. He has broken
new ground by buying Tiffany's gold from a mine in Utah that does not use cyanide.
But the largest sellers of gold are not luxury outlets like his, but rather Wal-Mart stores, and
even Mr. Kowalski, a trustee of the Wildlife Conservation Society, hesitated to call any gold
entirely "clean."
Asia's Insatiable Appetite

Amrita Raj, a 25-year-old bride, was shopping for her wedding trousseau on a recent
Saturday in New Delhi. There was a "wedding set" to be bought that day, with its requisite
gold necklace, matching earrings and two sets of bangles.
For the sake of family honor, the new in-laws would have to receive gold gifts as well - a
"light set" for the mother-in-law, plus a gold ring or a watch for the bridegroom, and earrings
for a sister-in-law.
"Without gold, it's not a wedding - at least not for Indians," Ms. Raj said.
For thousands of years, gold has lent itself to ceremony and celebration. But now old ways
have met new prosperity. The newly moneyed consumers who line the malls of Shanghai and
the bazaars of Mumbai sent jewelry sales shooting to a record $38 billion this year, according
to the World Gold Council, the industry trade group.
Over the last year, sales surged 11 percent in China and 47 percent in India, a country of a
billion people whose seemingly insatiable appetite for gold - for jewelry, temples and dowries
- has traditionally made it gold's largest consumer.
That kind of demand leads many in and out of the industry to argue that gold's value is
cultural and should not be questioned. The desire to hoard gold is not limited to households in
India or the Middle East, either.
The United States, the world's second-largest consumer of gold, is also the world's largest
holder of gold reserves. The government has 8,134 tons secured in vaults, about $122 billion
worth. The Federal Reserve and other major central banks renewed an agreement last year to
severely restrict sales from their reserves, offering, in effect, a price support to gold.
That price is not simply a matter of supply and demand, but of market psychology. Gold is
bought by anxious investors when the dollar is weak and the economy uncertain. That is a big
reason for gold's high price today.
For miners that price determines virtually everything - where gold is mined, how much is
mined, and how tiny are the flecks worth going after.
"You can mine gold ore at a lower grade than any other metal," said Mike Wireman, a mine
specialist at the Denver office of the E.P.A. "That means big open pits. But it must also be
easy and cheap to be profitable, and that means cyanide."
That kind of massive operation can be seen at Yanacocha, a sprawling mine in northern Peru
run by Newmont. In a region of pastures and peasants, the rolling green hills have been
carved into sandy-colored mesas, looking more like the American West than the Andean
highlands.
Mountains have been systematically blasted, carted off by groaning trucks the size of houses
and restacked into ziggurats of chunky ore. These new man-made mountains are lined with
irrigation hoses that silently trickle millions of gallons of cyanide solution over the rock for
years. The cyanide dissolves the gold so it can be separated and smelted.
At sites like Yanacocha, one ounce of gold is sprinkled in 30 tons of ore. But to get at that
ore, many more tons of earth have to be moved, then left as waste. At some mines in Nevada,
100 tons or more of earth have to be excavated for a single ounce of gold, said Ann Maest, a
geochemist who consults on mining issues.
Mining companies say they are meeting a demand and that this kind of gold mining, called
cyanide heap leaching, is as good a use of the land as any, or better.
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Cyanide is not the only option. But it is considered the most cost-effective way to retrieve
microscopic bits of "invisible gold." Profit margins are too thin, miners say, and the gold left
in the world too scarce to mine it any other way.
"The heap is cheaper," said Shannon W. Dunlap, an environmental manager with Placer
Dome. "Our ore wouldn't work without the heap."
But much of those masses of disturbed rock, exposed to the rain and air for the first time, are
also the source of mining's multibillion-dollar environmental time bomb. Sulfides in that rock
will react with oxygen, making sulfuric acid.
That acid pollutes and it also frees heavy metals like cadmium, lead and mercury, which are
harmful to people and fish even at low concentrations. The chain reaction can go on for
centuries.
Many industry officials, reluctant to utter the word pollution, protest that much of what they
leave behind is not waste at all but ground-up rock. The best-run mines reclaim land along
the way, they say, "capping" the rock piles with soil and using lime to try to forestall acid
generation.
But stopping pollution forever is difficult. Even rock piles that are capped, in an attempt to
keep out air and rain, can release pollutants, particularly in wet climates.
Cyanide can present long-term problems, too. Most scientists agree that cyanide decomposes
in sunlight and is not dangerous if greatly diluted. But a study by the United States
Geological Survey in 2000 said that cyanide can convert to other toxic forms and persist,
particularly in cold climates.
And just as cyanide dissolves gold out of the rock, it releases harmful metals, too.
There have also been significant accidents involving cyanide. From 1985 to 2000, more than
a dozen reservoirs containing cyanide-laden mine waste collapsed, the United Nations
Environment Program reported.
The most severe disaster occurred in Romania in 2000, when mine waste spilled into a
tributary of the Danube River, killing more than a thousand tons of fish and issuing a plume
of cyanide that reached 1,600 miles to the Black Sea.
That spill led to calls for the gold industry to improve its handling of cyanide. After five years
of discussion, the industry unveiled a new code this month. It sets standards for transporting
and storing cyanide and calls on companies to submit to inspections by a new industry body.
But the cyanide code is voluntary and not enforced by government. And Glenn Miller, a
professor of environmental science at the University of Nevada, says it does not adequately
deal with one of mining's most important, unattended questions: What happens when the
mine closes?
A Rocky Mountain Disaster

One answer can be found in a rural, rugged area of northeastern Montana called the Little
Rocky Mountains.
There, Dale Ployhar often comes to the high bare slopes around the abandoned Zortman-
Landusky gold mine to plant pine seedlings on a silent hillside that has been reclaimed by
little more than grasses.
"I bring lodgepole seeds and scatter them around, hoping they'll come back," he said, looking
out over the tiny town of Zortman, population 50.
Zortman-Landusky was the first large-scale, open-pit cyanide operation in the United States
when it opened in 1979. The imprint it left on the environment, psyche and politics of
Montana continues today.
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What happened there - a cacophonous, multilayered disaster involving bankruptcy, bad

science, environmental havoc and regulatory gaps - foreshadowed the risky road that gold has
taken in the years since, mining experts, government regulators and environmentalists say.
"There's a lot of bitterness left," said Mr. Ployhar, 65, a heavy equipment operator, whose son
bought some of the mine lands at a bankruptcy auction four years ago.
Some mining experts say that Zortman-Landusky - a combination of two open pits near
Zortman and the neighboring village of Landusky - offered a steep learning curve on how
chemical mining worked, and didn't.
Others say that overly ambitious production schedules by the mine's owner, Pegasus Gold,
based in Canada, were to blame. A bonus package of more than $5 million for top executives,
announced after the company filed for bankruptcy protection in 1998, did not help.
Mining with cyanide can be tricky even in the best conditions. At Zortman, the company
made the mistake of building their cyanide heaps atop rock that turned acidic. The cyanide
and the acid mixed in a toxic cocktail that seeped from the mounds.
Mining stopped in 1996, and company officials insisted in their public comments over the
next year that they wanted to be responsible corporate citizens and stay to clean up the
property. But the price of gold was falling, then below $280 an ounce, and Pegasus closed its
doors.
"This became one of the worst cases in Montana," said Wayne E. Jepson, manager of the
Zortman project at the Montana Department of Environmental Quality. "But even as late as
1990, one of the last studies for Landusky predicted no acid in any significant amounts."
Environmental risks from hard-rock mines often turn out to be understated and
underreported, according to two recent studies.
Robert Repetto, an economist at the University of Colorado, examined 10 mines in the United
States and abroad run by publicly traded companies. All but one, he wrote in a June report,
had failed to fully disclose "risks and liabilities" to investors.
The environmental group Earthworks examined 22 mines for a report it will publish in
November. Almost all of them had water problems, leading it to conclude that "water quality
impacts are almost always underestimated" before mining begins.
"The combination of the regulatory approach and the science is what creates inaccurate
predictions," said James R. Kuipers, a consultant and former mining engineer, one of the
authors of the study.
At Zortman-Landusky, the state wrote the environmental impact study itself, based primarily
on information from the company, Mr. Kuipers said.
Montana and other big mining states still often depend on mining companies for much of the
scientific data about environmental impact, or the money to pay for the studies, state and
federal regulators say, mainly because government agencies generally lack the resources to
do expensive, in-depth research themselves.
Some mine regulators defend the practice, saying that having scientific data supplied by
companies with a financial interest in the outcome is not necessarily bad if the review is
stringent.
"What is important to make the system work is that state and federal agencies have the
wherewithal and expertise to look at the information," said Mr. Wireman of the Denver
E.P.A. office.
But one lesson of Zortman is that good information is sometimes ignored.
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In the early 1990's, an E.P.A. consultant and former mining engineer, Orville Kiehn, warned
in a memo to his bosses that not enough money was being set aside by the mine for water
treatment.
Mr. Kiehn's opinion, vindicated today, went nowhere. The environmental agency had little
legal authority then - and no more today - to protect the public from an operating mine except
by filing a lawsuit, as it did in 1995 after Pegasus had already violated federal clean water
standards.
The company settled the suit in 1996 and agreed to pay $32.3 million mostly to upgrade and
expand water treatment.
At the time, state officials rejected the idea of squeezing Pegasus to put up more money. This
spring, Montana's legislature created a special fund for water treatment to make up for it, for
the next 120 years, at a cost of more than $19 million.
Washington is also coming to grips with the failure to plan for the cost of mining. The
Government Accountability Office, the investigative arm of Congress, sharply criticized the
E.P.A. in August for not requiring metal mines to provide assurances that they can pay for
cleanups, a failure that it said had exposed taxpayers to potentially billions of dollars in
liabilities.
For Montana, the Zortman experience was chilling. In 1998, as the catastrophe was making
headlines across the state, voters approved the nation's first statewide ban on cyanide mining,
halting any new gold projects. They renewed the ban last year.
Profit and Poverty

Today gold companies are striking out to remote corners of the globe led by a powerful
guide: the World Bank.
The bank, the pre-eminent institution for alleviating world poverty, has argued that
multinational mining companies would bring investment, as well as roads, schools and jobs,
to countries with little else to offer than their natural resources. For the bank, which tries to
draw private investment to underdeveloped lands, the logic was simple.
"We invest to help reduce poverty and help improve people's lives," said Rashad-Rudolf
Kaldany, head of oil, gas and mining at the bank's profit-making arm, the International
Finance Corporation.
The bank has worked both ends of the equation. At its urging, more than 100 cash-strapped
governments have agreed to cut taxes and royalties to lure big mining companies, said James
Otto, an adjunct professor at the University of Denver law school.
At the same time, the bank put up money for or insured more than 30 gold-mining projects,
looking for profits.
Though mining was a small part of the bank's portfolio, it was not without controversy as
accidents mounted. In one of the worst disasters, in 1995, a mine in Guyana insured by the
bank spilled more than 790,000 gallons of cyanide-laced mine waste into a tributary of the
Essequibo River, the country's main water source.
By 2001, the World Bank president, James D. Wolfensohn, imposed a two-year moratorium
on mining investments and ordered a review of its involvement in the industry.
Emil Salim, a former minister of environment of Indonesia, led the study. "I said, up to now
the International Finance Corporation was only listening to business," he said in an interview
in Jakarta. "I said, so now let's give some voice to civil society."
Mr. Salim recommended reducing the use of cyanide, banning the disposal of waste in rivers
and oceans, and giving communities veto power over mining company plans.
But the industry complained. And developing country governments said they liked the bank's
loans to gold mines. In the end, the bank settled on more modest goals.
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S3ra Sutan Rajo Ali
It pledged to make environmental impact statements understandable to villagers and to back

only projects with broad community support. It also urged governments to spend mining
companies' taxes and royalties in the communities near the mines.
But critics and environmental groups say the bank demands little from the mining companies
in return for its money and its seal of approval.
The bank's guidelines for arsenic in drinking water are less stringent than those of the World
Health Organization, and mercury contamination levels are more lenient than those permitted
by the E.P.A., said Andrea Durbin, a consultant to nongovernmental groups pressing for
tougher standards.
The International Finance Corporation is drafting new guidelines that will clarify what it
expects from miners, said Rachel Kyte, its director of environment and social development.
But the draft rules give mining companies even more latitude, said Manish Bapna, the
executive director of the Bank Information Center, a group that monitors the bank. They will
make it easier for companies to evict indigenous people and to mine in some of the globe's
most treasured habitats, he said.
Despite the World Bank's two-year review, little has changed, said Robert Goodland, a
former director of environment at the bank who was an adviser on the study. "The bank
insists on business as usual," he said.
Resistance in Guatemala
The first piece of new mining business the bank invested in after its review can be found
today in the humid, green hills of western Guatemala.
Bishop Alvaro Ramazzini, a big burly man who mixes politics and religion with ease, doesn't
understand why the World Bank lent $45 million to a rich multinational company for a gold
mine in his impoverished region of Mayan farmers.
"Why not spend the money directly to help the people?" he asked.
Sprawled across a deep wooded valley, a new mine built by Glamis Gold, a Canadian
company, was chosen by the World Bank last year as a new model for how gold mining
could help poor people.
But the mine has faced protest at every turn.

At the June 2004 board meeting of the International Finance Corporation, there was
considerable skepticism about its $45 million loan to Glamis.
Members questioned why a $261 million project was creating only 160 long-term jobs and
giving money to a "well capitalized" company like Glamis at all, according to minutes of the
meeting provided to The Times by a nongovernmental group opposed to the project.
Others were worried that the I.F.C. was relying too heavily on information from Glamis
about the potential for pollution.
The World Bank had pledged to back only mines with broad local support. But on the ground
in Guatemala, opposition boiled over last December.
Angry farmers set up a roadblock to stop trailers carrying huge grinding machines for the
mine. After 40 days, and battles between police and protesters, the equipment had to be
escorted by soldiers.
To persuade the villagers of the mine's benefits, Glamis flew 19 planeloads of farmers to a
mine it runs in Honduras.
But the villagers of Sipicapa still wanted their voices heard. On a cool Saturday morning in
June, more than 2,600 men and women dressed in their weekend best, with children in tow,
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crowded into the community's yards, churches and verandas to vote in a nonbinding
referendum.
"We are already regretting that our forefathers allowed the Spaniards to buy our land for
trinkets and mirrors," said Fructuoso Lpez Prez, a local mayor. "So we should vote so our
children will thank us for doing right."
At that, a church full of local people raised their hands in a unanimous show of opposition to
the mine.
Much of the peasants' fury was informed by Robert E. Moran, an American hydrogeologist,
who was asked by Madre Selva, a Guatemalan nongovernmental organization, to visit the
mine and review its environmental impact statement.
Mr. Moran, who was on the advisory board of the bank's mining study, found it badly
lacking. It did not address the "very large quantities of water" the mine would use, or give
basic information on the "massive volumes" of waste the mine would produce, he said.
Tim Miller, vice president of Central American operations for Glamis, said the environmental
impact statement had been a "working document."
In Guatemala City, the Vice Minister of Mining, Jorge Antonio Garca Chiu, defended
approval of the mine, saying it followed four months of consultation.
Mr. Kaldany, the I.F.C. official, said the investment and the environmental impact statement
were both sound. "We are a bank," he said. "We go on the basis of a business development
project. Then, as well, the bank asks: Are we needed? Are we adding any value?"
Glamis had already spent $1.3 million on social programs in the villages as part of the bank's
requirements, Mr. Kaldany said.
At the mine, the grinding and churning of new machinery being tested already echoes across
the valley. Production could begin as early as November.
Mr. Miller, of Glamis, said the mine was a winner for the people, and his company. In fact,
he said, Glamis didn't need the bank, the bank came to Glamis.
Bank officials "were anxious to make some investments" in the region, he said. The company
is expecting to gross $1 billion over the life of the mine, with profits of $200 to $300 million.
"That's a return of about 25 to 30 percent," he said.
Ghana: The Social Costs
The men of Binsre on Ghana's ancient Gold Coast carry on their own hunt for gold. Nearly
naked, their arms and legs slathered in gray ooze, they sift through the muck in a large pit,
using buckets and hard hats, looking for any last scrap.
So far industrial mining has not lived up to its promise for these men and their families. They
are illegal miners who find work not inside the highly mechanized mines of Ghana's first-
world investors, but on the fringes, scavenging the waste left behind by AngloGold Ashanti,
the world's second-largest gold company, based in South Africa.
Six miners have died in the last several years, most of them overcome by fumes when waste
from the mine gushed into the pit, said Hannah Owusu-Koranteng, an advocate for the illegal
miners. The mine tried to keep the men out.
"We used to use dogs," said AngloGold Ashanti's chief financial officer, Kwaku Akosah-
Bempah. "Then they said we were using dogs to bite them." So the mine stopped using the
dogs and the men returned.
In the nearby village of Sanso, a few men said they had lost their land to the mine. Now they
carve shafts into a mountain of waste rock, where they haul, hammer, chip and sift.
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"You wake up one day and you realize your farm is destroyed," said Assemblyman Benjamin
Annan, a local politician. "They say they will compensate but it takes one or two years. So
people are compelled to go to illegal mining, the way our ancestors did."
Industrial-size shaft mining has existed in Ghana for 100 years, but with the price of gold
soaring, more companies are arriving now, this time bringing open-pit cyanide mines. The
investment has been greeted warmly by the government.
Newmont is set to spend a billion dollars on a new mine next year and on a second mine - in
one of the badly deforested country's last remaining forest preserves - in 2007.
The World Bank is here, too, preparing to lend the company $75 million. Together, the bank
and Newmont say, they aim to show how social development and gold mining can be
married.
Newmont compensated the farmers who were moved off their land. It is offering training for
new jobs, like growing edible snails and making soap. It built new concrete and tin-roofed
houses to replace homes made of mud.
But the mine will create just 450 full-time jobs. More than 8,000 people will be displaced.
"The house is O.K.," said Gyinabu Ali, 35, a divorced mother of five children, who recently
moved into her gaily painted two-room house, with a toilet out back, that overlooks several
dozen similar units resembling a poor man's Levittown. "I miss my land where I could grow
my own food."
Near the mine of Newmont's competitor, AngloGold Ashanti, in Obuasi, only half of the
homes have an indoor bathroom, and 20 percent have running water. With the exception of
the brick villas of the company executives, Obuasi today looks like a vast and squalid shanty
town.
The chief financial officer, Mr. Akosah-Bempah, said he was offended by the poor
conditions. Most of the company's taxes and royalties had stayed in the capital, he said,
leaving the ramshackle town bereft of the benefits of gold mining.
"Sometimes we feel embarrassed by going to Obuasi," he said. "Not enough has gone back
into the community."
http://www.nytimes.com/2010/05/14/business/economy/14views.html
Reuters Breakingviews
A Case for Gold at $5,000 an Ounce
By Martin Hutchinson and Christopher Hughes
May 13, 2010
It sounds like a gold bugs dream. But looking back to the last inflation-adjusted peak price in
1980, its far from impossible that the gold price could soon go above $5,000 an ounce.
The potential level of a new high can be estimated in several ways. Based on consumer price
inflation, the peak of $875 an ounce in 1980 is equivalent to about $2,300 today, almost twice
the current gold price. But theres a case for taking account of economic expansion as well as
price inflation. The worlds economic output has increased about sixfold since 1980. Scale up
the peak 30 years ago by that multiple, and the gold price could top out at around $5,300.
Gold can also be regarded as an alternative to money. Broad global money supply, known as
M3, is now in dollar terms about 10 times what it was in 1980. The total gold supply has also
increased to some 170,000 metric tons, from 110,000 tons over the same period, as more has
been mined. Scaling up by money supply and deflating by the gold supply, the 1980 peak
price would be equivalent to about $5,700 an ounce today.
Looking at money supply another way, todays potential gold price would be a bit lower than
that. A narrower measure of global money, M1, is currently estimated at about $17 trillion. If
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the 170,000 tons of gold mined through history were to substitute for this, the gold would be
worth about $3,100 an ounce. But that wouldnt account for the tendency of the thinly traded
gold market to overshoot sometimes to the upside, as it did in 1980, and sometimes to the
downside.
Of course, there is a considerable chance that gold and other commodity prices will peak at a
lower level. But if a fourfold increase over a couple of years from todays gold price to more
than $5,000 an ounce seems impossibly extreme, that was the trajectory in 1978-80. If
governments continue to print money, whether for economic stimulus or to stave off defaults
by themselves or others, fear of widespread currency debasement and the consequent
inflation could create the conditions for just such a spike.
BPs Promise
BPs efforts to focus global attention on its all-out response to the Gulf of Mexico oil spill are
flagging. Congressional hearings have raised tricky questions about the companys conduct
before the explosion on the rig last month. With the well still leaking, the credibility of BPs
chief executive, Tony Hayward, is being tested.
It would be wrong to draw premature conclusions from smatterings of evidence raised at
highly charged hearings so soon after the disaster, when any formal investigation is far from
being concluded.
But there is no dispute that it was only after the accident that BP became aware that the wells
blow-out preventer, the supposedly fail-safe device that malfunctioned and allowed the leak,
had been modified. We also know now that the well failed certain operational tests on the day
of the explosion.
BP has long maintained it was not directly responsible for the accident, since the rig and the
drilling had been outsourced to Transocean. But that defense would be undermined if it
became clear BP sanctioned drilling on a rig known to have had problems.
Moreover, it would reflect badly on BPs response effort if it turned out the companys
engineers did not realize they were working on a modified blow-out preventer.
Having tried to argue that BP should be judged only on the clean-up effort and its success in
stopping the leak, Mr. Hayward would be in big trouble if it turned out that BP procedures
were implicated in the accident itself. After all, Mr. Hayward got the top job at BP precisely
because he was seen as the best person to address its poor safety record.
Mr. Hayward has said the spill will be stopped within 90 days of when BP started to drill on
relief wells, to ease the pressure from the main well. That means the beginning of August. He
had better deliver on that promise. If he doesnt, someone else may end up defending BP
against any other attacks that emerge.
MARTIN HUTCHINSON and CHRISTOPHER HUGHES

A version of this article appeared in print on May 14, 2010, on page B2 of the New York
edition.
http://blogs.wsj.com/source/2010/05/12/gold-a-low-risk-bet-in-a-high-risk-environment/
Gold: A Low Risk Bet in a High Risk Environment

By Matthew Walls
May 12, 2010, 11:46 AM GMT
The skepticism thats greeted the European Unions 750 billion shock and awe rescue
package has driven gold to a new record high above $1,240 a troy ounce, much as many
predicted at the start of the year.
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That the gold price has soared for different reasons than predicted is a sign that, in the
uncertain times of today, gold is nearly a fail-safe asset. Unlike some industry watchers
forecast, inflation hasnt arrived. China hasnt significantly reduced its purchases of U.S.
Treasuries. Ratings agencies havent downgraded U.S. debt. Asian central banks havent
made big bets on gold, at least publicly.
Instead, the euro is struggling under the strains of a sovereign debt crisis few imagined would
reach todays proportions, and investors are flocking to gold for its stability. The trends
noticeable in Europe, and particularly Germany, the country on the hook to fund the biggest
chunk of the E.U. bailout.
Gold coin and bar demand in Europe is as high as it was in 2008 during the start of the
financial crisis. The joint E.U. and IMF rescue package did quash speculation of a breakup of
the monetary union and government defaults. But it hasnt dispelled doubts that member-
states lack the political will to enact austerity measures, or will grow their way out of debt.
Gold in euros is making record highs as a result, as has gold in sterling, since investors fear
the U.K.s hung parliament will prevent the government from grappling with the countrys
heavy debts. Gold in dollars has been an impressive, though not outstanding performer. Gold
and the dollar are both safe havens at times of crisis, and the dollars strength has slowed
golds advance. The yellow metal has gained 9% since mid-April, compared to the 17% gain
in gold in euros and 12% in gold in sterling.
Analysts expect the uncertain road ahead for the European Union could keep the euro volatile
and keep gold, in euro-terms, outperforming gold in dollar-terms in the near-term. But gold in
dollars is less vulnerable to the sharp correction that gold in euros may experience if the
E.U.s rescue efforts manage to calm markets in coming weeks.
Meanwhile, gold in dollars could benefit even if the euro recovers, since the worries of
inflation and currency devaluation will reassert themselves especially if the European
Central Bank resorts to buying debt owned by Greece and other southern E.U. states as a way
out of the impasse.
In a sense, gold cant lose, said Philip Klapwijk, a precious metal analyst at U.K.-based
consultancy GFMS.
Klapwijk expects gold will rally to $1,250/oz, but he rules out a rise to the $1,300/oz mark
for the first half of the year, as he thinks scrap selling will surge and jewelry demand collapse
near that price.
But neither of those two factors would stop a gold rally if the E.U. cant get to grips with the
debt crisis, he added. If we were to see the crisis spread to Spain, Portugal and the U.K.
now with a hung parliament we may see sufficient investment funds come into the market
to drive gold to the $1,300 level.
Right now, the chances of that kind of fat tail or extreme event occurring are higher, making
gold a low risk, blue sky asset.
The tail risk is getting bigger every day, said JP Morgan analyst Michael Jansen, who
expects gold in euro- and sterling-terms to perform well. Gold is reflective of that tail risk. I
cant see that stopping.
Investors and speculators worried about sovereign debt levels may force governments to live
within their means faster than they like, leading to higher taxes, austerity measures and
slower growth, Jansen said.
If governments are forced into that uncomfortable territory witness the violent protests in
Greece financial markets may relapse into a liquidity crunch many thought wed escaped.
http://blogs.wsj.com/source/2010/02/26/whats-the-best-way-to-move-a-market-spread-a-
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Whats The Best Way To Move A Market? Spread A Rumor

By Devon Maylie
February 26, 2010, 3:12 PM GMT
A rumor that China is in talks to buy 191.3 metric tons of the auriferous metal from the
International Monetary Fund sent gold climbing $10 late Thursday and the price of gold is up
again today, helped by higher commodities in general and a weaker dollar.
Sadly for the bulls, the rumor was a fake.
Central bank interest in gold played a large role in golds rally late last year when Indias
bank bought 200 tons of the precious metal from the IMF, followed by smaller purchases by
Sri Lanka and Mauritius.
Speculation that China will also be a buyer of some of the 403.3 tons the IMF earmarked for
sale regularly pops up in the market.
This one came from a little known Russia-based Web site called Rough & Polished.
It might all have gone unnoticed if it hadnt been picked up by the Russian FinMarket news
agency and then sent around by gold consultants Goldessential.com in a note.
FinMarket took the story down by the afternoon and the China-based reporterwho shadows
as a tour guidelater confirmed she had no sources to prove it, and was surprised that the
market moved on her report.
Astonishing.
Goldessential said it was baffled by the situation. Yet it played a part in kick-starting the
chain of eventsthough to be fair it did say in its note that the rumor hadnt been confirmed as
fact. Even so, its note proved pretty successful in whetting the appetite of those looking for a
reason to buy.
By the time Asian markets opened, Chinas apparent interest in buying gold from the IMF
was appearing in analyst reports and cited as a sign that sovereign interest for gold remains
strong.
The story doesnt prove any such thing, but instead shows just how much the market wants to
believe its true and how quick a false report can get around.
Thats not to say China or another central bank wont buy gold as a means to diversify
reserves. But this particular rumor is a dud.
For now, the IMF is sticking with what it said at the start of the month: that it will begin
open-market gold sales for the remaining 191.3 tons of gold because another central bank
buyer hadnt yet emerged.
http://www.nytimes.com/2007/12/08/business/yourmoney/08money.html?adxnnl=1&ref=gol
dstandard&adxnnlx=1328927261-RwX5jzBvqd0DNBb90WoNUg
Your Money
Golds Quirk: Its Volatile, but Holders Feel Secure
By JANE BIRNBAUM
December 8, 2007
Monica Almeida/The New York Times

When you buy gold as an insurance policy against inflation and currency devaluation, you
dont sell unless you have to, Kenneth J. Gerbino said.
On Nov. 7, the market price of a troy ounce of gold bullion briefly touched $845.50, the top
so far in golds current eight-year bull market and a 28-year high in New York trading. The
news made headlines and became a hot topic on radio talk shows.
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At Lexington Coin, a shop in affluent Lexington, Mass., the number of customers seeking to
do business in gold coins spiked, the owner, Eric Carlson, said. Some customers were there to
lock in profits, selling bullion coins containing an ounce of gold that they had bought five
years earlier when gold traded under $350. Some were selling just one coin, telling Mr.
Carlson they needed money to pay property taxes or car repair bills.
And some were buying, saying that they thought golds price would continue to climb. The
ones purchasing 10 coins at a time told me they were taking the money out of stocks and
bank accounts, Mr. Carlson said. A woman buying three American Eagles told me she was
buying them as a hedge against the price of her home heating oil shooting up this winter.
Gold has a long history of waxing and waning in allure. At the moment, it holds a particular
attraction, given Americans worries about inflation, the risks in the financial market and the
falling value of the dollar.
People understand golds intrinsic value, said Katherine M. Porter, an associate professor
of law and a bankruptcy specialist at the University of Iowa. But because its beautiful and
they can hold it in their hands, they may not perceive how volatile, like all traded
commodities, gold is.
It closed yesterday at $800.20, down $6.90.
Trading and owning gold have never been easier, thanks to the Internet.
Theres been a democratization of gold ownership and new ways to acquire it, said Jon
Nadler, a senior analyst for Kitco Inc., a bullion dealer based in Montreal. (Kitco makes
money when consumers buy or sell gold, and the profit of its scrap operation is tied to the
price of gold.)
While gold coins or bars remain popular, investors no longer have to worry about storing
their gold when they can buy gold certificates or digital ounces, Mr. Nadler said. And with
exchange-traded funds, the metal can be traded much like shares of stock.
Gold investors tend to buy on bad financial news. Rich Checkan, vice president of Asset
Strategies International Inc., a precious metals and currency broker in Rockville, Md., said
purchases at his company started picking up substantially after the subprime mortgage
turmoil began in August. Most of his buyers were acquiring Perth Mint Certificates entitling
them to gold held in a government-owned vault in Australia.
James K. Galbraith, an economist and public policy professor at the University of Texas,
however, cautioned that investors who are considering a gold purchase now, either to hold or
trade, should be prepared to take a bath. They should know, he said, what happened to
those who waited in long lines outside shops on Jan. 21, 1980, eager to pay more than $900
apiece for coins containing an ounce of gold.
While gold is a hot commodity now, the demand by average investors is still far from what it
was then. That was the top of the previous gold bull market, which had begun in January
1975, after President Gerald R. Ford signed a bill legalizing private ownership of gold coins,
bars and certificates.
Gold ownership had been illegal since 1933, when, to forestall Americans from demanding
that banks give them gold for their dollars, President Franklin D. Roosevelt issued an
executive order prohibiting it. (In the early 1970s, President Richard M. Nixon severed the
last remaining links of the so-called gold standard that had made currency redeemable for
actual gold.)
The early gold buyers in 1975 included Kenneth J. Gerbino, 62, who now manages private
accounts and a hedge fund of gold mining stocks and who profits when buyers push up golds
price.
I could see that when the federal government prints money to pay its bills, inflation always
results, and buying gold was the best way to keep up with it, recalled Mr. Gerbino, whose
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business is based in Beverly Hills, Calif. Id go to a coin shop, give a guy $1,000 and get
some coins.
Gold started climbing strongly in 1978. In January 1980, with inflation nearly 14 percent,
average investors afflicted by gold fever jumped into the market. So did experienced sellers
like Anthony Calcagno, who was dealing rare coins in San Francisco. Less than six months
earlier, he had purchased many South African Krugerrands for around $300 apiece.
On Jan. 17, the so-called second London fix the price of gold that the London market, the
worlds largest for physical gold, establishes each afternoon as the New York market opens
was $750. The next day, it was $830.
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It was wild on the 18th, buyers and sellers all coming in, bulls and bears battling it out,
recalled Mr. Calcagno, who today deals the card game 21 in a casino in Reno, Nev. Most
dealers were not paying even near spot, so I felt lucky selling for around $800 a coin.
Mr. Gerbino, however, sat tight. I wasnt into trading, he said. When you buy gold as an
insurance policy against inflation and currency devaluation, you dont sell unless you have
to.
On Jan. 21, gold hit a historic $850 and buyers lined up outside shops in the cold, frantic for
coins and bars. Then suddenly, the herd turned. The next day, sellers suddenly outnumbered
buyers and gold tumbled to $737.50 an ounce. It continued falling and then traded sideways
from $300 to $400 for nearly two decades.
When gold bottomed at about $250 in the summer of 1999, seasoned investors made their
first forays back into buying. Robert Moriarty who describes himself as probably on the
very fringe of gold aficionados and owns a precious metals Web site partly sponsored by
gold mining companies was tipped to a Sothebys London auction of Middle Eastern
commemorative gold bullion coins.
They were selling below spot, recalled Mr. Moriarty, 61, who lives in the Cayman Islands.
They were so cheap I couldnt afford not to buy them.
Other buyers agreed, and the current gold bull market commenced, this time with the Internet
giving average investors constant access to 24-hour global gold prices.
Thomas Trottier, a glass artist who lives in Hawaii, had lost $20,000 day-trading stocks when
he decided to trade gold four years ago. Using Kitco.com, Mr. Trottier first ordered delivery
of gold bars. After selling those to buy Perth Mint Certificates, he discovered trading digital
ounces of gold online through Kitcos pool account.
Trading gold Ive doubled my money, said Mr. Trottier, 54. Declining to specify gains, he
disclosed he had taken some profits to buy California rental property.
Alongside virtual gold ownership, physical gold remains popular. Jeffrey Osborn, 48, a
retired computer entrepreneur and private investor who lives in Maine and Florida, has about
5 percent of his liquid assets in American Eagles purchased in 1997. Mr. Osborn keeps the
coins in the vault of a very large banks branch, which he occasionally visits to hold
them.
When I tell people to buy American Eagles, theyre usually skeptical and tell me about some
midcap stock their broker suggested, he wrote in an e-mail message. But I question holding
assets denominated in a depreciating dollar. For now, I am not selling my coins. They are a
good hedge against the unforeseen.
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Finding Comfort (and New Friends) in Gold

By LANDON THOMAS Jr.
May 7, 2006
James E. Sinclair says he loves gold. And with gold prices on the rise, Wall Street is taking
notice, too. Photo by Alan S. Orling for The New York Times
Sharon, Conn.
IT'S a splendid spring day in Connecticut's horse country and James E. Sinclair, perhaps the
best-known gold speculator of his era, is sitting before his trading terminal, contemplating the
upward thrust of gold on his trader's chart.
The sun, bursting through the bay windows, catches the glint of gold that is everywhere in
Mr. Sinclair's home office: on the coins near his computer, on his chunky Rolex watch, on the
rings on three of his fingers, on the cuff links on his monogrammed shirt, and could it be?
a hint of it in his one working eye.
"I love gold, O.K.?" he said, his voice rising in excitement. "Gold has made me wealthy. It
feels nice. It's exchangeable. It's money."
On his television set, which is tuned to CNBC, news breaks of a terrorist attack in Egypt, the
price of oil pushes higher and traders continue to sell the dollar, which is approaching a one-
year low against the euro.
With gold trading at $683.80 an ounce, a 25-year high, it's a good time to be a gold bug like
Mr. Sinclair, especially if, like him, you own a gold exploration company (his is in Tanzania)
and were a buyer when the metal sank as low as $250 an ounce in 2001. Now Wall Street,
traditionally a laggard when it comes to making the investment case for gold, has jumped on
Mr. Sinclair's bandwagon.
Investment banks like J. P. Morgan and Goldman Sachs are putting out bullish research
notes, retail investors are heavy buyers through exchange-traded funds and hedge funds; and
the trading desks of investment banks have been piling into the market, especially in the last
week.
For Mr. Sinclair, who rode the last bull market in gold to its peak, in 1980, the surging price
of his beloved metal is sending out clear signals that take him back to the 1970's, when
inflation, a weak dollar and an oil spike driven by turmoil in the Middle East propelled gold
to a high of $875 an ounce, or more than $1,800 in current dollars after adjusting for
inflation. His ultimate price target now is not far from that: $1,650 an ounce, assuming that
things become really bad.
"Gold is a barometer of the common stock of a country, and right now gold is sniffing out
weakness in the management of the United States as a business," said Mr. Sinclair, 65, a
lifelong Republican who twice voted for President Bush. "Iran is becoming a nuclear power.
The chairman of the Federal Reserve is on a puppet string controlled by the White House,
and there is no such thing as a strong-dollar policy when the dollar is heading south."
For more than two decades, the apocalyptic lament of Mr. Sinclair and other gold bugs has
been largely dismissed as the United States has experienced aside from a few hiccups a
25-year bull market in a range of assets, from stocks and bonds to real estate and art.
Sustained by a continuing flood of liquidity, these assets have continued their mighty climb,
even as crucial gauges of economic health in the United States the budget and current
account deficits have continued to worsen. But now, with gold making a run for $700,
dedicated gold investors are getting a wider hearing.
THEIR passion notwithstanding, gold bugs tend to be small-time investors. Gold's recent
surge has instead been underpinned by a rush of mainstream investors, including hedge
funds, commodity-based mutual funds and exchange-traded funds.
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For these investors, gold is less a way of life than it is hedge against inflation and a prudent
measure of diversification during an increasingly worrisome time. The extent to which this
new wave of capital remains invested in gold will determine if the recent spike is just another
anomaly or the onset of the second coming of the great gold bull market that the true
believers have been calling for since the price of gold crashed a quarter-century ago.
Of course, many investors say that given gold's sharp recent climb, a correction would not be
surprising. It's another asset bubble, they say, the latest investment fad. But for Mr. Sinclair
and a small clutch of other self-exiled Wall Streeters, the metal's recent climb is just deserts
for their unwavering, if not mystical, devotion to gold as an investment, an adornment, a
means of exchange and, more than anything else, a moral bulwark in a corrupting sea of
paper money, credit and what they see as insidious financial instruments.
Mr. Sinclair, who in the 1970's ran his own trading firm, achieved his renown by selling
900,000 ounces of gold at an average price 0f $810 in early 1980. That was when the metal
was capping a decade-long bull market that commenced in 1971, when President Richard M.
Nixon severed once and for all the dollar's link to gold.
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In addition to selling his hoard, Mr. Sinclair sold his trading business, took his total net gain
of $18 million and retreated here to the Connecticut countryside where he built his own
private Shangri-La. It is indeed, as Mr. Sinclair likes to call it, "the house that gold built."
On the outskirts of Sharon, a village at the foot of the Berkshires, the sprawling 38-acre estate
includes an indoor swimming pool and pistol range, horse stables and a specially equipped
garage that once housed his collection of racing cars. It's a lot of property for a solitary man
his wife of 40 years died in a car crash in India two years ago. Now, he uses his Web site
(jsmineset.com), books, DVD lectures and cartoons that he commissions to proselytize about
the virtues of gold and the depredations of central bankers.
"This will be my last great ride," he said of the current spike in gold prices. "Everybody loves
to be right."
In Spain, they call the obsession of some people to dig large holes in the ground to search for
the elusive ounce of gold "mal de piedra," or the sickness of rocks one way, perhaps, to
describe the condition that affects Mr. Sinclair and his coterie of gold investors.
With their missionary zeal and weakness for conspiracy theories, gold lovers can seem a
touch afflicted. They also collect and pass around offbeat, brain-teasing findings. One is that
the dollar has lost 98 percent of its value since 1913, when the Federal Reserve System was
established. Another is an assertion by the American Institute for Economic Research, an
obscure research outfit in Great Barrington, Mass., that since 1945, inflation has eroded $15.8
trillion from the savings accounts of United States citizens.
Both findings underscore their benchmark precept: that a currency not tied to gold becomes
debased when central banks print money and governments spend freely. Perhaps Alan
Greenspan, who before his run as chairman of the Federal Reserve was highly regarded in
gold-bug circles, captured this point best. "In the absence of the gold standard, there is no
way to protect savings from confiscation through inflation," he wrote in 1966, when he was
an economic consultant. "Gold stands in the way of this insidious process."
The great liquidity explosion that occurred under Mr. Greenspan has made him a turncoat in
the eyes of the gold-bug crowd. But his successor, Ben S. Bernanke, or "Helicopter Ben" as
they call him, inflames its passions all the more. To this group, Mr. Bernanke's passing
allusion before he became Fed chairman to a helicopter dropping money over a
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recession-bound economy confirmed its deepest fears that a monetary system not anchored
by gold was essentially inflationary if not downright immoral.
All the same, most mainstream economists accept that a return to the gold standard and its
restrictive covenants would be not only unfeasible but also deflationary. Gold bugs may cry,
and be correct, about the creeping impact of inflation, but it is also true that the same climb in
prices, aided by the great liquidity boom, has made some of them millionaires, as houses they
bought for less than $100,000 in the 1960's are now worth millions.
Like Mr. Sinclair, William J. Murphy III is also a Wall Street refugee. After a one-year stint
in 1968 as a wide receiver for the New England Patriots, he began a career as a commodities
trader, working for a number of firms, including Shearson and Drexel Burnham. Convinced
that the price of gold was being suppressed by an unholy alliance between the central banks
and major investment banks, he formed the Gold Anti-Trust Action Committee, known as
GATA, that seeks to publicize facts and assertions that support his point, namely that the gold
reserves in central banks are significantly overstated.
GATA for the most part is a one-man show Mr. Murphy, dressed in his sweatsuit, perched
in front of the computer in his home in suburban Dallas. With his excitable manner and his
outr theories about gold, he is generally thought to exist on the outer fringe of the gold-bug
movement.
Indeed, his central thesis that Goldman Sachs and other banks have conspired to keep a
cap on the price via short sales to back the government's strong-dollar policy, especially
while a former Goldman senior partner, Robert E. Rubin, was Treasury secretary in the late
1990's is far-fetched.
With the price of gold surging, Mr. Murphy is convinced that Goldman Sachs, J. P. Morgan
and others are frantically buying now to cover for the gold they sold short over the years.
Goldman Sachs and J. P. Morgan declined to comment about their gold trading positions or
strategies.
"What a day," Mr. Murphy said one day last week as gold broke through $670. Goldman
Sachs and J. P. Morgan were big buyers that day on Comex, the division of the New York
Mercantile Exchange where gold contracts trade. Sputtering at the joy of it all, Mr. Murphy
could well have been a prospector hitting the Mother Lode. "These guys are short, and they
are panicking to get out of their positions," he said. "They are sweating bullets, and it couldn't
happen to a nicer bunch of guys."
There is a kernel of truth to what Mr. Murphy says. Central banks have been aggressive
sellers of gold, especially in the late 1990's, when gold was touching record lows. But most
economists say that there was no grand design involved, just a badly timed attempt to shift
into higher-yielding assets like bonds.
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As for investment banks, they are sellers and buyers of any given asset at any given time. But
it is also true that they have hardly been enthusiastic advocates for gold as an investment,
especially when the stock market was king. Even now, as they have issued positive reports
about the metal, their price targets seem oddly out of sync with its relentless rise.
Goldman's forecast for a year-end price is $625 an ounce; J. P. Morgan's target, which is
currently under review, is $560, and Morgan Stanley's is $550.
Compared with Mr. Murphy and his boylike excitability, James Turk speaks with an assured
gravity consistent with his background as a commercial banker at Chase Manhattan. But his
views about gold as the ultimate store of value in a financial world on the verge of collapse
are no less doctrinaire.
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Indeed, Mr. Turk has established his own online payment system, GoldMoney.com, through
which he and his fellow gold bugs may enjoy the thrill of buying goods and services via gold,
not cash.
IN some ways, it is a symbolic exercise. While the payment system is supported by $100
million worth of gold, no merchants have agreed to take bullion as payment, although Mr.
Turk hopes that day may come. More than anything else, the site demonstrates his disdain for
the dollar and all other forms of paper money a view that he often heard from his parents,
who experienced the ravages of hyperinflation in Austria in the 1920's.
"It's not gold going up; it's the dollar going down," Mr. Turk said by phone from Australia,
where he was speaking at an investment conference. Gold has held its value much better than
the dollar against commodities like oil, he said.
With oil hitting new highs it has hovered around $70 a barrel for weeks Mr. Turk
foresees a return to the 1970's, when high inflation and a volatile Middle East drove gold to
its peak. "If we get close to $850 this year, it's most probable that we will see a four-digit
gold price in 2007," he said. Four-digit gold an ounce of bullion selling for $1,000 or more
is the gold bugs' equivalent of a visit from the Messiah.
But for the growing number of hedge funds that are piling into the commodity, gold is less a
virtuous investment than it is a mercenary one.
China and India are buying more gold. Iran is becoming more bellicose in its stand toward
the West. And, most important, liquidity is making a broad shift to commodities and out of
stocks.
"Do I think that gold is God? No," said Monty Guild, who runs Guild Investment
Management, a hedge fund in Malibu, Calif. "I'm a gold opportunist. When it's good, we like
it; when it's not, we stay away. Gold does well during wars, and we believe there will be
more wars."
And for those not in gold, or any other highflying commodity, for that matter, the feeling can
be lonely. William H. Miller III, portfolio manager of the $19 billion Legg Mason Value
Trust, which has beaten the Standard & Poor's 500-stock index for 15 consecutive years, has
no gold in the fund. His view is that inflationary expectations, if not prices themselves,
remain quiescent, and that gold like oil, emerging markets and small-cap stocks before it
has become the latest investment craze, propelled upward by a wave of hot money, a term
for speculative short-term capital.
"Gold certainly looks extended from here," said Mr. Miller, whose fund is currently trailing
the S.& P. 500 for the year. "It's easy to make money when you are trend-following," he
added. "But if you are worried that the end is near, the last thing I want is gold because of all
the hot money."
http://www.nytimes.com/2000/10/22/business/business-how-gold-has-burdened-
economies.html
Business; How Gold Has Burdened Economies

By FRED ANDREWS
October 22, 2000
IN 1940, directly out of Harvard, Peter L. Bernstein joined the Federal Reserve Bank of New
York as a researcher. He was given a tour of the gold vaults five stories underground. The
sight of 100,000 gold bars, stacked floor to ceiling, gleaming in the light, was unforgettable
and chilling, Mr. Bernstein recalled.
Six decades later, Mr. Bernstein, author of ''The Power of Gold,'' has a distaste for hoards of
the metal. In his view, gold should be used to buy goods. Last week, he talked about his book
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in an interview, then provided the following e-mail responses to questions. FRED

ANDREWS
Q. -- You say you turned with skepticism to the topic of gold, but then got hooked. Why the
skepticism, and what hooked you?
A. -- The skepticism reflected my profound distaste for the gold bugs of the 1960's and
1970's, whose greed for accumulating gold -- the stateless currency -- was an expression of
distrust of government and all it stands for. And then, from a longer perspective, what hooked
me was the extraordinary influence of this crazy stuff on the history of the world, on all five
continents.
Q. -- What's so bad about the gold standard? It protects the currency, doesn't it?
A. -- It protects the currency only if you follow the rules of pushing an economy into
deflation if gold is flowing out. There is no choice, no flexibility, unless you can obtain credit
to tide you over, but credit depends on rectitude as well. At the same time, gold is a guardian
of the value of money only when gold is scarce. Worldwide inflation followed the South
African discoveries at the end of the 19th century, right up to 1914.
Q. -- What is the point of all that bullion at Fort Knox?
A. -- Not much. They do not even value it at market prices: the official value is $42.22 an
ounce, the price set in 1973. At $275 an ounce, it is worth only $72 billion, a penny in today's
economy. It is nevertheless a hedge against the unknown, and against total international
monetary chaos in particular. I doubt if any central bank or national treasury would have the
gumption to sell off its entire gold stock.
Q. -- It appears that gold has been cherished by every society in history in which it has been
present. Why?
A. -- No one knows for sure, but gold does have a kind of magic. It is scarce and
extraordinarily difficult to mine. It never loses its luster and never decays. It glistens like
sunshine. It is malleable, so that great works of art can be made with it, even by primitive
peoples. It suggests eternity, which is why we use it for wedding rings. It is The Best, which
is why we use it for first prizes. It implies purity, which is why we talk of the Golden Rule. It
signifies boundless wealth, which is why there was a movie about ''The Solid Gold Cadillac.''
Photo: Peter L. Bernstein has six decades of experience in finance.
http://www.nytimes.com/1999/05/04/opinion/editorial-observer-who-needs-gold-when-we-
have-greenspan.html
Editorial Observer; Who Needs Gold When We Have Greenspan?

By FLOYD NORRIS
May 4, 1999
Is gold on its way to becoming just another commodity? The people who run the world's
financial system are doing their best to secure that fate for the metal that once was viewed as
the only ''real'' money.
The process of removing the glitter from gold has been a gradual but inexorable one, and is
one of the most telling counters to the argument that national governments are less important
in this era of globalization. Much of the world is now quite happy to accept the idea that a
greenback backed by Alan Greenspan is just as good as one backed by gold.
Certainly gold's reputation as a store of value has eroded. At the peak of the gold frenzy in
1980, an ounce of gold cost $873, precisely that day's level of the Dow Jones industrial
average. Now the Dow is at 11,014.69, about 38 times higher than the $287.60 price of gold.
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Actually, that measurement understates the amount by which stocks have outperformed gold.
If you had owned stocks all those years, you would have received substantial dividends. If
you owned a lot of gold, you got no dividends but did have to pay storage fees for the stuff.
That is, in fact, how the central bankers of the world look at gold these days. Michel
Camdessus, the managing director of the International Monetary Fund, said last week he
expected the fund to sell gold for the first time in two decades. The Clinton Administration is
pushing for such sales by the I.M.F. to help finance a laudable program to forgive debts owed
by very poor countries.
The money received from the gold sales is to be invested in Government securities that will
provide income, and that income will pay off the loans. The implicit assumption is that gold,
which does not pay interest, is a lousy investment.
A couple of weeks ago, the Swiss electorate voted to begin untying the Swiss franc from its
gold backing. The Swiss central bank could begin selling gold as early as next year. Once
again, the argument was that selling gold was a way to find easy money for good deeds. To
those who still view gold as the only real money, having the Swiss defect is a bit like
discovering that Rome is embracing Protestantism. It is the last place that should happen.
But it is happening, and it seems likely that more central banks -- like the Australian and
Dutch banks -- will join those that have already begun selling gold.
The argument against retaining gold is that its day is past. Once it was useful as a hedge
against inflation that would hold its value when paper currencies did not. Now financial
markets have their own sophisticated ways, using exotic derivative securities, to hedge
against inflation.
Once gold served as protection for investors against governments that debased their
currencies. Now there is plenty of debasing going on -- the Brazilian real is down 27 percent
this year -- but the lesson people have drawn is to believe in the dollar. There is growing
support for the idea that all of Latin America should adopt the dollar as a currency.
Dollarization, as that idea is called, amounts to a sort of a gold standard without gold. There
would be a universal money whose value was based not on gold in the vaults, but on the
wisdom of Mr. Greenspan and his successors at the Federal Reserve. Few fear that one of
those successors might resemble G. William Miller, the Fed chairman in the late 1970's who
seemed to have no idea how to slow inflation.
If the demonetization of gold continues, the price is likely to keep falling as central-bank
sales more than offset any increase in demand from jewelers or industrial users. That could
change if it turns out that central bankers are not the geniuses they are now deemed to be. But
for now, the world believes in Mr. Greenspan and sees little need for gold.
http://econ161.berkeley.edu/Politics/whynotthegoldstandard.html
Why Not the Gold Standard?

Talking Points on the Likely Consequences of Re-Establishment of a Gold Standard:
Brad DeLong, U.C. Berkeley
Created 8/10/1996
Consequences for the Magnitude of Business Cycles:

Loss of control over economic policy. If the U.S. and a substantial number of other industrial
economies adopted a gold standard, the U.S. would lose the ability to tune its economic
policies to fit domestic conditions.
For example, in the spring of 1995 the dollar weakened against the yen. Under a gold
standard, such a decline in the dollar would not have been allowed: instead the Federal
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S3ra Sutan Rajo Ali
Reserve would have raised interest rates considerably in order to keep the value of the dollar
fixed at its gold parity, and a recession would probably have followed.
Recessionary bias. Under a gold standard, the burden of adjustment is always placed on the
"weak currency" country.
Countries seeing downward market pressure on the values of their currencies are forced to
contract their economies and raise unemployment.
The gold standard imposes no equivalent adjustment burden on countries seeing upward
market pressure on currency values.
Hence a deflationary bias which makes it likely that a gold standard regime will see a higher
average unemployment rate than an alternative managed regime.
The gold standard and the Great Depression. The current judgment of economic historians
(see, for example, Barry J. Eichengreen, Golden Fetters) is that attachment to the gold
standard played a major part in keeping governments from fighting the Great Depression, and
was a major factor turning the recession of 1929-1931 into the Great Depression of 1931-
1941.
Countries that were not on the gold standard in 1929--or that quickly abandoned the gold
standard--by and large escaped the Great Depression
Countries that abandoned the gold standard in 1930 and 1931 suffered from the Great
Depression, but escaped its worst ravages.
Countries that held to the gold standard through 1933 (like the United States) or 1936 (like
France) suffered the worst from the Great Depression
Commitment to the gold standard prevented Federal Reserve action to expand the money
supply in 1930 and 1931--and forced President Hoover into destructive attempts at budget-
balancing in order to avoid a gold standard-generated run on the dollar.
Commitment to the gold standard left countries vulnerable to "runs" on their currencies--
Mexico in January of 1995 writ very, very large. Such a run, and even the fear that there
might be a future run, boosted unemployment and amplified business cycles during the gold
standard era.
The standard interpretation of the Depression, dating back to Milton Friedman and Anna
Schwartz's Monetary History of the United States, is that the Federal Reserve could have but
for some mysterious reason did not boost the money supply to cure the Depression; but
Friedman and Schwartz do not stress the role played by the gold standard in tieing the Federal
Reserve's hands--the "golden fetters" of Eichengreen.
Friedman was and is aware of the role played by the gold standard--hence his long time
advocacy of floating exchange rates, the antithesis of the gold standard.
Consequences for the Long-Run Average Rate of Inflation:

Average inflation determined by gold mining. Under a gold standard, the long-run trajectory
of the price level is determined by the pace at which gold is mined in South Africa and
Russia.
For example, the discovery and exploitation of large gold reserves near present-day
Johannesburg at the end of the nineteenth century was responsible for a four percentage point
per year shift in the worldwide rate of inflation--from a deflation of roughly two percent per
year before 1896 to an inflation of roughly two percent per year after 1896.
In the election of 1896, William Jennings Bryan's Democrats called for free coinage of silver
as a way to end the then-current deflation and stop the transfer of wealth away from indebted
farmers. The concurrent gold discoveries in South Africa changed the rate of drift of the price
level, and accomplished more than the writers of the Democratic platform could have
dreamed, without any change in the U.S. coinage.
62 of 64
Thus any political factors that interrupted the pace of gold mining would have major effects
on the long-run trend of the price level--send us into an era of slow deflation, with high
unemployment. Conversely, significant advances in gold mining technology could provide a
significant boost to the average rate of inflation over decades.
Under the gold standard, the average rate of inflation or deflation over decades ceases to be
under the control of the government or the central bank, and becomes the result of the
balance between growing world production and the pace of gold mining.
Why Do Some Still Advocate a Gold Standard?

A belief that governments and central banks should not control the average rate of inflation
over decades, and that the world will be better off if the long-run drift of the price level is
determined "automatically."
A belief that bondholders and investors will be reassured by a government committed to a
gold standard, will be confident that inflation rates will be low, and so will bid down nominal
interest rates.
Of course, if you do not trust a central bank to keep inflation low, why should you trust it to
remain on the gold standard for generations? This large hole in the supposed case for a gold
standard is not addressed.
Failure to recognize the role played by the gold standard in amplifying and propagating the
Great Depression.
Failure to recognize that the international monetary system functions best when the burden-
of-adjustment is spread between balance-of-payments "surplus" and "deficit" countries, rather
than being loaded exclusively onto "deficit" countries.
Failure to recognize how gold convertibility increases the likelihood of a run on the currency,
and thus amplifies recessions.
http://www.nytimes.com/1994/05/01/weekinreview/the-world-a-nixon-legacy-devalued-by-a-
cold-war-standard.html
The World; A Nixon Legacy Devalued By a Cold War Standard

By THOMAS L. FRIEDMAN
May 1, 1994
WASHINGTON IN most of the obituaries and retrospectives about the life and times of
President Richard M. Nixon, his foreign policy achievements were hailed as the centerpiece
of his Presidency. But oddly, all of these eulogies either ignored, or mentioned only in
passing, what may have been one of the most enduring of Mr. Nixon's foreign policy
initiatives: his decision in 1971 to take the dollar off the gold standard and demolish the
Bretton Woods monetary system -- bidding both farewell with that memorable line about the
Italian currency: "I don't give a (bleep) about the lira."
Bretton Woods was the town in New Hampshire where, in July of 1944, American and
British officials gathered to set up a monetary system that would restore global trade and
economics after the war. The Bretton Woods system was based on the conviction that the
world should not return to the laissez-faire chaos of the 1930's, when exchange rates were
allowed to float and fluctuate wildly. The Bretton Woods agreement established that the
dollar would be the fixed center of a new economic solar system. Each country would declare
a value of its currency against the dollar, and it would be allowed to float only 1 percent up or
down. The dollar would be linked to gold at a rate of $35 an ounce. Any country that piled up
dollars could come to the teller window at Fort Knox and redeem them for gold at that fixed
rate.
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S3ra Sutan Rajo Ali
For about 25 years the system worked fine, until the Vietnam War and Great Society
programs triggered serious inflation in the United States. As America's trade deficits with
Europe and Japan grew, and dollars started piling up abroad, the Western allies rushed to
redeem their dollars for gold before they were eroded by American inflation. President Nixon
imposed wage and price controls to dampen inflation, but he also decided that he would
devalue the dollar to make American exports cheaper and stimulate export-led growth. Since
Bretton Woods barred such a devaluation, Mr. Nixon devalued Bretton Woods. He
unilaterally abrogated the treaty, closed the gold window, and soon thereafter let the dollar
float. In Japan, they called it the "Nixon Shocku."
"It fell to Nixon to seal the fate of the Bretton Woods system," said Richard N. Gardner,
author of the standard history of Bretton Woods and now the American Ambassador to Spain.
"While this may have been inevitable, to ignore its long-term impact would be a major
historical oversight. Nixon moved us into a very different monetary universe of floating
exchange rates, something we are still coping with today. That is a world of greatvolatility of
currencies, which complicates international trade and investment and encourages
speculation."
One major positive to come out of Nixon's move was that it forced the key industrial
democracies to work together in a "Group of Seven" to coordinate interest rates, monetary
and fiscal policies -- and even diplomacy -- to maintain a modicum of currency stability.
The reason this Nixon initiative gets short shrift is because news and history tend to be
written in the context of a Super Story -- a large narrative drama that sets the broad context in
which events are judged. The international Super Story of the Nixon era was the cold war;
news was deemed significant or insignificant in relation to where it fit in that East-West
drama. The opening to China and detente naturally assumed a high profile; economics was
secondary. Most journalists and editors, having been suckled on the cold war, naturally
gravitate to news about national security, not economic security.
"For the last 45 years we were in a war -- the cold war -- and everything was subordinated to
the requirements of waging that war," said Michael Mandelbaum, an expert on cold war
history at Johns Hopkins University. "In that context, the sorts of things that Richard Nixon
cared about -- national security issues -- were defined as high politics, and the proper
preoccupation of Presidents and journalists, while international economics was defined as
low politics, and the proper preoccupation of faceless bureaucrats. People write histories
about wars, not bookkeeping, and they run for President to be warlords, not accountants."
Now that the cold war is over, though, the Super Story may be changing. Regional crises --
like Bosnia and Haiti -- still grab headlines, but they must now compete with a new Super
Story -- the one about a world that is becoming more and more economically intertwined. In
that world, the President is as much Merchant in Chief as Commander in Chief. President
Clinton's efforts to secure a global trade agreement -- known as the General Agreement on
Tariffs and Trade -- and the North American Free Trade Agreement with Mexico and Canada
have loomed very large in this new dollar drama, and it is a safe bet that neither will be
overlooked in his obituary.
Photo: Henry Morgenthau Jr., left, Secretary of the Treasury, and John Maynard Keynes,
adviser to the British treasury, during the Bretton Woods conference in 1944. (Alfred
Eisenstaedt/Life Magazine, Time-Warner, Inc.)
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