It is said by many, including me after doing a lot of research and giving a lot of thought to it, that gold is a store of wealth in the context of purchasing power.  I have been thinking hard about that over the past several weeks as:

• I see what I think is a deterioration in the Eurozone Sovereign debt issues;

• many of the world’s largest banks headquartered in Europe and the U.S. are ever more appearing to me (for the reasons that I have discussed in previous commentaries) to be large ‘vibrating dominoes’ lined up on a gymnasium floor – any one of which could topple and ‘bring the house down’;

• the U.S. Super-Committee deliberations failed;

• Washington appears to me not only to be more polarized than ever, but also ‘out of constructive ideas’ where the U.S. economic horse just might be too far out of the barn to be found, tethered, and brought back home; and,

• I see what I think might be possible escalated societal unrest just around the next street corner in some European countries, the U.S., and some of the developing countries in particular.

So, I ask myself, why has the gold price stagnated in a U.S.$1,620 – $1,800 range since September 15, with it most often trading toward the lower end of that range in that period?

I have concluded that one important reason is that it is highly likely (based on my reading and thinking) that the financial markets continue to see the U.S.$ as a ‘safe haven’.  Said in a different way, I think the financial markets broadly see the U.S.$ the best of a bad lot, and are not as yet ready to ‘give up on the fiat currency’ system.

If I am right in this I have reached four conclusions:

• I continue to think of physical gold as a safe haven in the context of long-term purchasing power.

• I think it less likely than I thought three months ago that the price of physical gold is going to be heavily influenced in the short term (next few months) by escalated and escalating concerns over a post-2008 financial crisis.

• I think it will take the actual fact of clear resolution to the European (including the United Kingdom’s) and America’s economic and financial woes (a highly unlikely outcome in my view) or a post-2008 financial crisis (a likely outcome in my view) to cause the price of gold to change dramatically below in the event of the former, or above in the event of the latter, a trading range of U.S.$1,500 – $2,000.

• I currently think that for the price of physical gold to escalate beyond U.S.$2,000 the financial markets will have to seriously lose confidence in the U.S.$ as a safe haven.

Those are my thoughts as I see things today.  Because of what I think to be an ever broadening interest in the current and prospective physical price of physical gold, I am including a ‘Gold Price, Hold and Possession Survey with this commentary.  Please complete that Survey – completion time 6 minutes – by clicking on the following link.

If you hold, or are considering holding physical gold, I think you will find both the Survey Questions and subsequent Survey Results interesting.  I will report the Survey Results on or about Thursday, December 8.

Take Survey

Visit Stock Research Portal for stock market data, analysis, and research on over 1,600 Mining, Oil and Gas Companies listed on the Toronto and Venture Exchanges. See our Legal Disclaimer.

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I strongly suggest you read a recent Economic Collapse Blog article titled ’35 Facts About The Gutting Of America’s Industrial Might That Should Make You Very Angry’ – reading time 7 minutes.

You likely will have read, in a high-level way, much of what the article says – including several references to the U.S. very large and continuing net trade deficits.  I have written about U.S. net trade deficits and my perception of the importance of them in these e-mails on several occasions, the most recent being on November 9 (see Update on US Net Trade Deficits – reading time 2 minutes).  However, you might be taken aback – as to some degree I was – when you read the detail of U.S. job losses, number of factory closings, and some of the other ‘manufacturing related specifics’ set out in the article.  To give but one example, did you know (assuming the article has it right) that the Martin Luther King Memorial unveiled last month on Washington’s National Mall was made in China?

As you read the article, you might want to reflect on my views related to what it says.  These are:

• broadly speaking (I haven’t checked the specific statistics quoted in the article), I believe the author has the numbers ‘generally correct’.  Notably, he provides links to each statistic he quotes;

• the statistics convey a picture of serious, in my view never to be repatriated, deterioration in ‘the great American experiment and dream’.  I have said many times in these e-mails that I believe ‘manufacturing jobs’ are the heart and soul of an economy, and that service jobs (including financial sector and service jobs) are not.  I don’t think I am wrong in this;

• unless American manufacturing workers are prepared to work for hour wage rates equal to developing country (including China) hourly wage rates plus product transportation and handling cost differentials, repatriation of American jobs pursuant to trade protectionist practices simply can’t happen as I see things.  I believe this principally because:

• I don’t believe American manufacturing workers will work for the ‘hourly wage rate equivalents’ they would have to work for to compete with developing country manufacturing worker’s wage rates and related transportation costs,

• if American manufacturing workers did agree to work for significantly lower hourly wages, non-durable and durable goods prices wouldn’t drop, the re-employed American manufacturing workers would be able to buy less, and those workers would face a further reduced standard of living, and

• assuming I am right about what American manufacturing workers won’t do by way of accepting lower ‘equivalent wages’, if America repatriated its jobs through legally enforced trade protectionist practices and ‘buy America’ policies U.S. inflation rates for both non-durable and durable goods (particularly the latter) would go ‘off the charts’.  An economically struggling Main Street America would be devastated in such a scenario – or so I think.  Accordingly, if I am right in concept, America can’t afford to introduce meaningful trade protectionist policies and serious ‘buy America’ policies; and,

• I think this leaves America and American politicians with ‘no where to go’, much like a gambler who has run out of chips, credit, and money in his/her bank account.  This could go some way to explaining the polarization in Washington.  Is it possible Washington politicians have concluded they simply can’t develop meaningful policies that can be made to work to restore the American economy such that a balanced Federal annual budget can be achieved?  This seems to me to be something worth seriously thinking about.

I have drawn the analogy between America and Humpty Dumpty in prior e-mails.  I don’t think it a stupid one.  America doesn’t have a king, per se, so the verse might now be written:  ‘All the President’s horses, and all the President’s men, couldn’t put Humpty together again’.  Time will tell whether Humpty falls off the wall, but I have little doubt Humpty’s existing cracks get longer and wider every day, and that each day new cracks appear.

Visit Stock Research Portal for stock market data, analysis, and research on over 1,600 Mining, Oil and Gas Companies listed on the Toronto and Venture Exchanges. See our Legal Disclaimer.

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I think you ought to watch and listen to a short (3 minute) Financial Times video produced on November 24 titled ‘Banks play war games’.  The lead-in to the video asks the question: “What if the eurozone were to collapse? As the debt crisis intensifies, banks are working out strategies for battle scenarios. Daniel Garrahan reports on how banks are thinking the unthinkable”.

You might also want to listen to a 6 minute interview with Nouriel Roubini titled ‘Roubini: Europe’s Contagion Has Now Gone Viral … and Global’.  In the interview Roubini says that the International Monetary Fund does not have enough resources to solve the Eurozone’s problems, and “Money alone can’t solve Europe’s problems”.  Roubini also says the Europe is a slow motion train wreck with contagion spreading.  He thinks Spain, Portugal or Italy may leave the Eurozone in 1 -3 years.  He also says he thinks there is a 50% risk of the Eurozone breaking up, and that Eurozone contagion is now spreading ‘across the Atlantic’ – with ‘tax spreads’ and ‘swap spreads’ widening in the U.S.

Visit Stock Research Portal for stock market data, analysis, and research on over 1,600 Mining, Oil and Gas Companies listed on the Toronto and Venture Exchanges. See our Legal Disclaimer.

Possibly Related Posts:

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If you invest in mining and oil & gas equities, or equities in any financial or industrial sector for that matter, I suggest you pay attention to the issue of country risk in your investment analysis.  Not everyone will tell you this.

The reason I think comparatively few people – be they company executives, investment bankers, newsletter commentators, etc. – will ‘red flag’ country risk is two-fold:

• First – not everyone views things from 10,000+ feet, thinks conceptually about things, and hence it is likely that not everyone that ought to see the possibility and practicality of prospective escalated country risk has these risks on their radar screen; and,

• Second – many of the direct and peripheral players in the resource industries have strong, vested interests in investors and traders of resource company shares not focusing on country risk.  Hence they either don’t talk about it, or if they do they ‘sugar coat it’.

A ‘credibility statement’ with respect to my comments on Country Risk (and my commentaries generally!):

Think about this.  Over the past four years I have spent a very significant amount of personal capital and time developing StockResearchPortal.com.

Stock Research Portal’s Company Universe includes many companies who operate in developing countries.  Accordingly, one might conclude that, by commenting on company and financial markets risks, I am ‘shooting myself in the proverbial foot’.  I believe independence and objectivity prospectively will be given increasing credit by investors and traders as they separate and rely on independent, objective commentary/analysis from ‘vested interest’ content.  I don’t claim the views and opinions I express in these commentaries are always right.  I do claim that I write them from an objective, independent viewpoint.  I suggest you consider whether you think if I do that, and if you do, consider how valuable that is (or may be) to you going forward.

In recent months I have written, more than once, on newly elected Peruvian President Humala (who took office in late July), and what has been happening in Peru to some of its resident foreign mining companies.  Social unrest in a mining community in Peru was reported November 25 in Aspermont’s Mining Journal.  Titled ‘Peru protests targeting Newmont’s Conga test Humal’ – reading time 2 minutes – the article reports that:

• Protesters, for a second time in a month, ‘attacked’ Newmont Mining Corp’s Conga project, having earlier destroyed U.S.$2 million of equipment; and,

• This second November 24 protest apparently blocked roads and shut down schools, businesses and public transport in the city of Cajamarca (560 kilometers northwest of Lima, Peru’s largest city).

The article concludes by quoting President Humala as saying, at a Lima based Conference on November 24, “Mining hasn’t complied with its social role of attending communities, and that abuse has generated a climate of distrust.  That climate divides us between gold or water, and we need to solve that.”  I suggest you read those words carefully.  As developing countries go, from my perspective Peru is far ahead of many of them.

As I see things, developing countries will move continuously forward in, at least, the areas of:

• local worker safety and working conditions generally;

• accruing overall economic benefits to their citizens through such things as increased taxation of foreign owned companies and insistence on low-cost or no-cost ownership interests in foreign owned resource projects; and,

• Enhancement of environmental and climate controls.

If I prove to be right, all these things will increase resource company costs at the expense of the shareholders of those companies – all of which will have to be reflected in lower company share prices than would otherwise be the case.

One of the things I find interesting about the Congo project situation is that, as I understand things, the mine that has been targeted is being jointly developed by Newmont (a Canadian company) and Minera Buenaventura (company website), Peru’s largest (according to Aspermont) publicly traded precious metals company.  To me, this is a sign that segments of Peru’s population are not necessarily targeting just foreign companies.  Rather, at least in this case, they are targeting companies operating in their specific geographic areas generally.  To me, this enforces the importance of Country Risk to both foreign and local country companies. I think this based on reasoning that local residents must be acting out of concern over their personal well-being as they perceive things in a very broad way, as contrasted to acting because they see ‘foreigners’ taking from them, or not adequately compensating them for what is being taken.  Acting on ‘broad principles’ strikes me as being more meaningful than acting on ‘narrow principles’.

Something to think about – but I strongly recommend you do think about Country Risk in the context of your investments and trades now, and increasingly going forward.

Visit Stock Research Portal for stock market data, analysis, and research on over 1,600 Mining, Oil and Gas Companies listed on the Toronto and Venture Exchanges. See our Legal Disclaimer.

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