Gold & Interest Rates Climb
Research for Online Investors

by John Dalt

5/27/09

In 2006, gold accounted for just 0.2% of the world’s investable wealth. By the end of 2008, gold represented 0.6% of world wealth. Going back to 1968, gold represented about 4.75% of world wealth, according to Jeffrey Christian of the CPM Consultancy, so we still have a long way to go.

The holdings of gold are increasing. Gold investments increased 248% in the first quarter of 2009 over the same period in 2008. Gold ETF’s purchased 465 tonnes of gold; the previous record was 149 tonnes in the third quarter of 2008. For an insight on what can happen please read our special report in Investor Resources titled “Who will send Gold over $2000”, George Kengott at First National Bullion submited this article.

There are two ways to increase the percentage of wealth held in gold and other precious metals. Investors can buy more, OR what they own increases in value faster than other assets. Both go hand in hand, the more gold investors buy, the higher the price goes. If we look at the price increase in gold as the slope on a very tall mountain, we are barely out of the valley. We will sell when the air gets thin!

The U.S. Treasury auctioned $40 billion in two-year notes yesterday and $35 billion in five-year today. $26 billion in seven-year notes are planned for tomorrow, with three, ten, and thirty-year bonds for sale next week. Over $100 billion this week! The borrowing never ends, our SwingTrader interest rate play is up 13% in less than two weeks. You can join us to make money, or not. Late note: The five-year treasury auction did not go well today, interest rates bounced; we picked up another 3% against interest rates!

Banks that have received TARP funds want to take advantage of the Public Private Investment Program (PPIP), buying toxic assets from other banks. The bad dream continues. I predicted this would happen on April 3 in a MarketToday article titled “Public-Private Ponzi”. Sometimes, you might think my musings and predictions are bordering on paranoid, but repeatedly, the government and those that collude with the world improvers do not disappoint.

On April Third I wrote, “The government Ponzi scheme is almost impossible for us to comprehend. The more we learn, we find out the whole enterprise of “saving the financial system” is manipulated to line the pockets of a few politically connected individuals….What if the whole idea is to let the insiders buy each other’s toxic assets, with a Fed backstop of 95%? Bank of America buys Goldman’s for 86 cents on the dollar, Citi buys Bank of America’s for 88 cents on the dollar, and Goldman buys Citi’s for 87 cents on the dollar. Each trach is for $10 billion in face value. $26.1 billion dollars just changed hands, but now $24.795 billion is backed by the Fed! The securities that were trading for 20 cents on the dollar are now worth 82.65 cents on the dollar in Fed guarantees! Here is the math:

Face Value:                                      $10,000,000,000,000
Avg Auction Price @ $0.87             $ 8,700,000,000,000
Fed guarantee @ 95%                     $ 8,265,000,000,000
Previous value @ $0.20                   $ 2,000,000,000,000
Gain to banks:                                    $ 6,265,000,000,000
Or to put it in a percentage:                    313%

AMOUNT DUMPED ON TAXPAYERS:   $ 8,265,000,000,000

How many of these transactions will take place?  Multiply by ten or one hundred times. The result is the same, the gains for banks get larger, and the losses for taxpayers grow larger.  Everybody makes money and government takes the loss. These auctions can take place, all participants will declare a success, and the risk is transferred to the government.

If you do not think this can happen, you have not been paying attention for the last six months. If you do not think this will happen, you have not been paying attention for the last 70 days!”

We close today with the same quote and picture from April 3rd.

”I believe that banking institutions are more dangerous to our liberties than standing armies.”
                                                            Thomas Jefferson

Did Jefferson know something we do not?

Big Al only wishes he was a banker!
or government bureaucrat.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions. It may contain errors and you should not make investment decisions based solely on what you believe you have read here. Do your own research, it is your money. If you lose it, it is your responsibility, not ours or your grandmothers! The editor may or may not have a position in any securities discussed. The editor may have held a position in a security earlier, or in the future

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