As gold scams pop up around the country and world we are providing you information in order to help you avoid becoming a victim of the scams. This time around it’s not the precious metal dealer that is scamming you. It’s the one rating the deceitful precious metal dealer.
Peter Schiff talked this month on his show on SchiffRadio.com about a suspicion he had about the Better Business Bureau (BBB) and their rating system. The gold scam of the year was undoubtedly the GoldLine fiasco, and with their trial taking place this month in Santa Monica, Peter decided to check and see what happened to their BBB rating. They were originally listed as an A+, now no rating existed at all. No F’s, not even a C! This wasn’t because they were disqualified all together from the site for their obvious fraudulent activity…the site’s reason for no rating was that there was “not enough information” to rate this company. HA!
This isn’t the first time an Irish passport has been used to forge a company and/or person’s existence. This time around it is believed that a group from Nigeria put together a massive gold scam that almost amounted to over €100 mil in gold from US investors. They told the investors that the unprocessed gold coming from African mines would be shipped into Europe and avoid fees, taxes, etc. Turned out that the gold didn’t exist with the company and neither did the head of the company, John Recketts. His passport number was linked to an elderly woman in Dublin whose passport was stolen.
Recent U.S. economic data, such as the modest drop in the unemployment rate and the massive expansion of consumer credit, have suggested that the American economy is finally recovering. Opposite conclusions are being thrown at Europe, where many are convinced that recession is returning. Not surprisingly then, the dollar is currently hitting a multi-year high against the euro. The strength of the dollar itself is often held up as one of the major proof points that the U.S. economy is “improving.” But the data points that I believe really matter continue to suggest an economy on life support. I believe that the dollar is rising for reasons that have nothing to do with America’s economic health.
The ongoing sovereign debt crisis in Europe is unquestionably the center ring in the current economic circus. Given the difficulty of setting policy across borders and national interests, the negotiations in Europe have been messy, acrimonious, inconclusive, and conducted under the glaring lights of global media scrutiny. The action has diverted attention away from America’s problems, which in many ways are even greater than those in Europe. In contrast, America’s ability to print the world’s currency at will, and the nearly seamless agreement of policy between the Administration and the Federal Reserve, means that the United States has been able to virtually ignore the issues that Europe has been forced to confront. This relative calm has been mistaken for strength, and the dollar has beckoned as the ultimate safe haven currency.
The fact that the dollar is perceived as a safe haven acts as a self–fulfilling prophesy. Investors flee the euro and pile into dollars. The dollar then rises to reflect the demand. The increase validates the decision to buy in the first place, and the rising dollar then attracts even more buyers looking to profit from its appreciation. It’s a nice ride while it lasts.
Most “safe haven” dollar purchases are directed toward U.S. Treasuries. As a result U.S. interest rates are far lower than they would otherwise be without this inflow of spooked liquidity. But objectively speaking, the U.S. and Italy, for instance, have very similar national debt profiles. Yet interest rates in Washington are currently 600 basis points lower than they are in Rome. This means that Americans can borrow and spend much more. The result of all this extra debt financed consumption is a boost in employment and GDP. The positive economic impact makes the dollar even more attractive, thereby perpetuating the cycle.
If rates in Italy (or Spain for that matter) were as low now as they were two years ago, those countries would not be experiencing the problems they are today. Their borrowing costs would never have risen and their budgets would still be manageable. Similarly, higher interest rates in the U.S. would completely take the shine out of our economy. Imagine what would happen here if rates were just 200 basis points higher, let alone 600? U.S. consumers, homeowners, corporations, and governments are particularly dependent on cheap financing. As bad as things are in Europe, they would be even worse here.
In other words, contrary to popular belief, the problems in Europe are helping, not hindering, the U.S economy – at least in the short-term. Over the long term, borrowing and spending more money to finance consumption and government red ink will not help the U.S. economy achieve a sustainable balance. If safe haven flows were to reverse (which could result from an improvement in Europe), the dollar would fall, interest rates and consumer prices would rise, and the U.S. economy would be right back in recession. The only “good news” is that such a positive development in Europe appears unlikely in the short-run.
All self-perpetuating virtuous cycles are vulnerable to a sudden break in the positive feedback loop. When reality rears its ugly head, and the spell breaks, the reverses can be vicious. It happened with dot com stocks, it happened with real estate, and I believe it will happen with the dollar and Treasuries. Even if Europe does not resolve its problems, the day of reckoning will still eventually arrive. The unfortunate truth is that the longer it takes, the worse it will be, as we will have that much more debt to reckon with.
By Peter Schiff
For such a wonderful year for precious metals investors, the final calendar quarter left little to celebrate. Just as people now take for granted that their phones will also take pictures, play music, and surf the internet, many investors have come to expect gold and silver to move up in a straight line.
In fact, in a recent CNBC interview one analyst claimed that gold’s recent correction proves that it is not really a safe haven. In truth, such a statement merely proves how little some analysts know about markets.
However much the fundamentals may be on your side, there are always mitigating factors that affect price movement. In the case of gold and silver, the temporary resurgence of the dollar versus other fiat currencies alternatives has been the dominant factor – but even that isn’t the whole story.
Casey Research’s Gold Commentary
2011 was remarkable in many ways for the precious metals markets. Gold soared to new highs in early September, hitting at an intraday record of $1,920/ounce on the 5th. Silver screamed to within a hair of $50 on April 28. Corrections ensued, and the metals ended the year on a disappointing note for silver and an underwhelming note for gold. Equities for the sector were down, to way down for junior ventures, logging their worst annual return since 2008.
Here’s a table of 2011 returns from most major asset classes:
Gold registered its eleventh consecutive annual gain, extending the bull market that began in 2001. The yellow metal gained 10.1% – a solid return, though moderate when compared to previous years.
Silver lost almost 10% year-over-year, due primarily to its dual nature as a monetary and industrial metal. Currency concerns lit a match under the price early in the year, while global economic concerns forced it to give it all back later.
Gold mining stocks couldn’t shake the need for antidepressants most of the year, and another correction in gold in December dragged them further down.
Meanwhile, those who sat in US government debt in 2011 were handsomely rewarded, with Treasury bonds recording one of their biggest annual gains. In spite of the unparalleled downgrade of the country’s AAA credit rating, Treasuries were one of the best-performing asset classes of the year. The driving force there seems to be expanding fear about the sovereign debt crisis in Europe.
But perhaps it would be more accurate to look at 2011 in a larger context. How did these investments perform over the past three years?
There’s a lot to be said about the chart above, but we’ll cut to the chase: despite the higher volatility, we’d much rather be investing in the assets on the left side of the chart than those on the right.
2011 is now part of the history books. The important question before us is: is gold still one of the best places for your savings going forward? Let’s take a look at what we might expect in 2012 based on what we just left behind…
The fundamental case for gold remains rock solid
Gold demand from investment and central banks grew tremendously last year. Further, the geography of gold buying was widespread, with big purchases coming from Europe during the initial bouts of their crisis and Japan after the Fukushima accident. Small investors and monetary authorities alike purchased gold due to economic, financial, monetary, and political concerns. Quite frankly, we see none of these factors changing anytime soon.
Further, many countries continue to debase their currencies at phenomenal rates. While US Treasuries may be a good temporary parking spot for cash, don’t kid yourself about what’s behind it all: nothing. The dollar is a fiat currency, that’s all. A true safe haven is something that cannot be debased, devalued, or destroyed by any government. After accounting for inflation, your dollars are worth less every year.
The reasons for gold’s bull market aren’t going away anytime soon. Make sure you have enough exposure to make a material difference to your portfolio.
Don’t be deceived by promises of economic growth
The US economy ended the year on a high note – the job market is improving, gas is cheaper, consumer confidence grew, real estate showed signs of recovery, and the holiday shopping season turned out better than most economists expected. So, can the US grow its way out of the debt burden? Can we forget about further money-printing schemes that are bullish for gold?
We think there’s little chance that growth will be sustainable in 2012. First, the biggest chunk of GDP growth in 2011 came from personal consumption – savings cuts and income growth in particular.
Strong GDP growth comes from production, not consumption. As Doug Casey has stated many times, it’s also the secret to personal wealth: “Produce more than you consume, and save and invest the difference.”
Second, according to a recent Time Magazine article, “The government says that once you adjust for inflation, weekly earnings dropped 1.8% from November 2010 to last month” [November 2011]. As a result, “Consumers have used savings or credit cards to finance their purchases.” This is hardly a sign of a strong economy.
Combining these facts with surging government debt and ongoing deficit spending means the “growth” in GDP is largely supported by… debt. US debt surpassed GDP last year for the first time since 1947, and if the Keynesians get their way, the cure for our massive debt overhang will be… more debt. Any such scheme, regardless of its name, is very bullish for gold.
The gold price will continue to be volatile
The average annual gold price in 2011 was $1,571.50/ounce, which was 28% higher than the prior year’s average. As we outlined in our last article about gold corrections, the average retreat in gold since 2001 (of those greater than 5%) is 12.5%. Declines of this degree are normal. They will happen again. Thus, expected price behavior leads us to get excited when gold and related stocks go on sale, not depressed about the dips.
If you buy gold during corrections, your gain by the end of the year will be higher than the annual advance.
It’s not just the U.S. that is plagued with the cheesy gold-buying commercials and ridiculously priced gold coins. Canada also deals with their fair share of gold scams. With the Cambridge House Resource Investment Conference around the corner in Vancouver, BC, it’s important that BC’s Better Business Bureau has created a Top 10 Scam List for 2012. And surprise, surprise…guess what made the top of the list? Gold scams.
As a con artist, you’ve come along way to take the cake in a contest that most businesses would like to come in last place for. Since gold’s stellar performance over the past couple of decades, criminal activity within the business is moving relatively higher. A correlation no one can ignore. With big money, comes the bigger scams.
Central Bank Gold Purchases Surge in Q3
Wall Street Journal – Central banks have purchased 7X as much gold in the 3rd quarter of this year than the same period last year, the latest World Gold Council quarterly report reveals. The combined purchases amount to a whopping 148.8 metric tons of gold. By comparison, in the third quarter of 2010, central banks purchased only 22.6 metric tons. Although a significant number of the buyers from 2011 remain anonymous, Marcus Grubb, managing director of investment at the Council, hints the answer may lie in central banks from surplus countries in East Asia, Central Asia, and Latin America.
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US Federal Debt Now Exceeds $15 Trillion
Washington Times – In case you were looking for one more reason to stockpile precious metals to hedge against coming inflation, history’s greatest debtor nation passed a new milestone this month: Washington’s debt load now tops $15 trillion! The achievement comes as a result of a one-day, $56 billion (no, not million) increase to the nation’s bar tab. Bottoms up as the politicians dither and squabble, and extend the after-, after-party for just a few hours longer. Will we reach the $16 billion mark before the tab comes due?
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Swiss National Bank Returns to Profit
Financial Times – It has been a challenging year for chairman Phillip Hildebrand and the Swiss National Bank; the man and the institution paradoxically charged with stemming the stratospheric rise of a fiat currency managed too well. The first and second quarters of 2011 saw the central bank report combined loses of SFr10.8 billion. The third quarter, however, was starkly different. Thanks to the bank’s gold holdings and foreign exchange reserve positions, investments that both saw gains, Mr. Hildebrand posted a redeeming SFr16.6 billion, or US$19 billion, profit. It remains unknown precisely how much the bank has spent to cap the swissie to the euro at the 1.20:1 level.
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Salvation Army Receives Golden Donation
Press Citizen, Iowa City – Some Iowan out there really knows how to do a good deed. A Salvation Army red kettle outside the Coralville Walmart this year received a gold coin worth almost $200 from an anonymous donor, continuing what has become a now four-year-old tradition in Johnson County. Given the donation was made in the form of an appreciating gold coin, it is really a gift that’ll keep on giving. And to round it off, Salvation Army red kettles do not dispense receipts; so we can be pretty sure this donor will not be writing off the act of kindness on his or her taxes.
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Words spoken by Robert White, an appraiser, who checked out the inventory Nola Cronk had just acquired from Capital Gold Group. Cronk approached an appraiser after having a hellish battle with what she thought was a move to protect her retirement.
Nola Cronk’s husband had passed away, and unfortunately he was the one who took care of finances, so she was soon left to her own to find the right place for the wealth she had left. She expressed interest in Capital Gold Group who quickly took advantage of this vulnerable client. They first asked for her financial records, assuring her after viewing that she need to act quick and move over $300K into gold. Then the broker who spoke with her over the phone, soon received a signed contract and a done deal through persuasive tactics that left Cronk seemingly helpless. Even when her buyer’s remorse kicked in and she asked to lessen the investment amount, she was met with, “You’ll either buy it or we’ll take you to court and we’ll get everything you have.”
This holiday season, I came up with a not-so-original idea to buy (or give from stock) silver* as my trademark gift. Not only is it an educational tool that brings up questions about investing and the future of the dollar-based system, but it’s also worth a nice chunk of change. As we speak I’m packing for a family get together where I’ll be presenting my father with a nice 1 oz. bar of silver. It’s worth cash if he wants to cash it in, possibly even more cash if he wants to hold on to it for a while, and is a great collector’s item if he chooses to see it that way. I’m sure he will be thrilled!
The average spending habits of individuals, around Christmas, add up to about $650. If you take today’s silver prices and divide that up, you’ve got a gift for over 20 people on that list. Just think, people are getting gift cards, scarves, new socks, and toys (all wonderful and thoughtful, of course) but when they open your gift, even if they don’t appreciate it in the moment they’ll hopefully realize soon enough that you’ve given them something to learn from.
Now I usually do my dealing face to face with a local bullion shop, but just as Christmas shopping isn’t always done in a store anymore, neither are all precious metal purchases. Many friends and associates have mentioned the gold and silver buying options on eBay, Craigslist, and Amazon. Turns out it serves the same purpose as shopping for clothes online: it’s convenient. You don’t have to leave your chair. However, when factoring in the shipping, you are most almost always going to get a better deal buying direct from a dealer.
Another thing to note when shopping online for your bullion, aside from the convenience charge, is the fine print. The kind bullion buyer from www.targetrichenvironment.com shared a worthy scam you all should be aware of. On eBay beware of a silver bullion item with a vague description and a good price. That seller is hoping you skip the fine print and miss the fact that it is not the .999 you are looking for.
There are listings of supposed .999 silver accompanied by the words “100 Mills”. This isn’t pure silver. It is a copper bar or round plated in silver. The seller may tag the item as “1 Troy Oz. 100 Mills .999 Silver”.