THIS WEEK IN COINS; In the past five Trading Days, Precious Metals came off their 1130-2007 lows closing near their five-Day Highs. Gold traded in the range of $785 to $811.50, closing on 12-7-2007 at $795.10. Silver traded from $13.98 to $14.69 closing on 12-7-2007 at $14.39. Platinum traded from $1441 to $1472 closing at $1460.20. Light Crude on the New York Mercantile fluctuated from $87.15/ BBL to a high of $91.05, closing Thursday 12-6-2007 at $90.23/BBL. Petrol traded as low as $2.21/gal and Closed Thursday 12-6-2007 at its High of $2.30/gal. Gold was higher as the European Central Bank left interest rates unchanged, and the continued liquidity and housing crises lead to record number of houses entering the foreclosure process in the USA. Also helping Gold was the anticipated eventual higher interest rate in the EEC, and another Discount Rate Cut by the Fed in the USA when the FOMC meets Tuesday 12-11-2007. We do not have a mortgage crisis in this country, Sub-Prime or otherwise. What we have is a housing crisis- specifically a lack of affordable housing. The monetary policy of Greenspan and friends exploded the money supply with low interest rates resulting in an over supply of cheap dollars driving up the price of assets. Houses once were primarily a shelter for a family with the secondary benefits of being an appreciating asset keeping pace with inflation. IRS laws provided a tax benefit to home ownership, and there were social goals of increasing the nation’s wealth and providing employment across a board range of manufacturing jobs. Skilled and semi-skilled workers also found employment in the nations housing industry. As a result of Greenspan’s “cheap money policy”, suddenly houses became cash cows. The rapidly increasing money supply and low interest rates created a “wealth effect” whereby anyone with a job became a perspective home buyer, and existing home owners found willing buyers as housing prices went higher by the day. When the Dot Com Bubble burst in late 1999 and the equity markets fell in value the economy in all probability should have experienced a cyclical correction. 9/11 came along and Greenspan pushed interest rates to historically low levels relying upon the housing and defense sectors to keep the good times rolling. Flush with the Feds infusion of capital- banks were encouraged to make loans to anyone above room temperature. Lending rules went out the window along with income verification and down payment guidelines. No-doc mortgages and no-income verification loans became common place as mortgages were issued based upon rising appraised property values and not a borrowers ability to re-pay. What ordinarily would be a certain formula for disaster was
ignored as lenders began packaging and selling mortgages to third parties passing the risk on to unsuspecting investors. The BBC reported HSBC bad debt exposure from Sub-Prime loans in the USA totaled $3.4B in the third quarter. $1.4B greater than that extrapolated from the first six months performance. The UK Financial Services Authority [FSA] said a tougher global financial situation could affect the whole UK mortgage market; rising defaults and access to cash could become more difficult. FSA warned that arrears and repossessions have increased significantly with the real possibility conditions will worsen further in terms of liquidity and credit risks in 2008. FSA is encouraging businesses to assess their funding and liquidity positions and test whether or not their business models could withstand severe market problems and volatility. They were encouraged to review and assess their strategies and the options open to them as well as contingency plans against the worse outcome. FSA estimates 1.4M borrowers on fixed low rate short-term mortgages are due to come off their favorable terms in 2008. Many borrowers will either have to pay higher interest rates or go back to the market to find new deals. New negotiated deals at higher rates will “reduce consumer spending sharply”, or in worse cases lead to repossession of property. FSA states many borrowers are on high loan-to-value rates or income multiples and would find it difficult if not impossible to refinance mortgages on favorable terms. At the bottom of the market, Sub-Prime borrowers may find access to the market impossible at any price. The nations number one homebuilder, Lennar, is selling 11,000 properties for only 40% of their previously-stated value. Luxury homebuilder Toll Brothers reported its first loss as a public company. Recently, there has been much hoopla over government confiscation of certain Gold products. This is as old as the “black helicopter” voodoo talk. First of all, it would be an incredible huge undertaking to attempt knocking on every door in America to collect Gold. Who would do it? Military- they are for the most part in the Middle East or dozens of other countries. The UN? We are the UN. Local law enforcement? I doubt they have the manpower, desire, or intestinal fortitude. If the government had reason to end Gold trading they would simply pass legislation banning the Sale, Ownership, or Transfer of the yellow stuff. With respect to exemption, don’t get caught up in that hoopla about pre 1934 Gold would still be legal or exempt from confiscation “because that is the way it was in 1934”. Any new regulations would be whatever the government
wanted it to be. Previous laws and exemptions are not an accurate indicator of any potential unknown legislation. The decision to purchase Gold or any Precious Metals is a personal decision based upon several factors: an individuals current holdings, if any; funds available for investment; age; goals; risk tolerance; the direction and strength of the USD; prognosis for US economy; world economy; preservation of purchasing power; pricing; world demand; economic and political uncertainty. Least of all should be concern whether Congress may or may not pass unknown legislation when no bill has yet to be introduced. In the 1930’s Gold was an integral part of our monetary system and was seized to add to our nations monetary reserves. Today, the Federal Reserve simply prints Fiat paper money backed only by words of faith and credit. Besides, today Gold ownership covers every ethnic and socio-economic class and the idea of confiscation would create massive headaches and political alienation. On Tuesday 12-11-2007 the FOMC meets for the last time this year to discuss the direction of interest rates, and how much Basis Point change, if any. Alan Greenspan retired leaving the Fed between a rock and a hard place. Not only did he orchestrate the current liquidity crises, but also did so endangering the USD. Any attempt to bring about pricing stability and credit availability in the housing market will directly and adversely have a negative effect on the USD and place additional upward pressure on prices of imported goods. Recall it was only 10-312007 when the Fed last met lowering the Discount Rate 50 Basis Points and issuing a statement that no further rate cuts were necessary. I believe the Fed will unwisely choose another 50 Basis Point cut in the Discount Rate hoping to make money available to member banks who in turn will create mortgages at lower more affordable rates to borrowers in trouble all in an attempt to stabilize the housing market. Gold has shown its recent ability to run up $20-$30 in a day as it did a few weeks ago on the way to $840. With a good base in the $780-$820 area it is only a matter of time before it runs to $1000. If you are not in the market now is the time to pick up your Precious Metals and Numismatic Coins while they are still affordable, and available. With no sign of the housing market even beginning to hit bottom for at least another 12 months, any overly corrective measures by the Fed, or the government, run the risk of free falling the Dollar and sending Precious Metals prices spiraling upward. For all you Precious Meals needs call 1-800-375-4188.
The pull back in gold prices is an opportunity to either begin your precious metal portfolio or add to your existing by diversifying. When it comes to 90% silver, purchase the VG+ condition coins. Stay away from the certified half dollars, quarter, and dimes. There is no need to spend the extra money on these coins as 90% silver bags can be purchase for as little as 25 cents over spot. It is time to preserve your wealth with gold and silver coins. If you care about your financial future, your family’s well being, and survival itself – today is the day to begin a disciplined plan of diversified Precious Metals tailored to your specific situation. Discount Gold & Silver Trading Co. provides all forms of precious metals including gold, silver platinum and palladium whether you are buying or selling. Our inventory includes but not limited to the American Gold, Silver, Platinum Eagle and numismatic products including rare, investment and circulated coins. Silver dollars, silver bars, rounds are on hand for the silver investor. Foreign gold is also available. Don’t forget your self directed IRA. Visit our website: discountgoldandsilvertrading.net or email: discountgoldandsilver@yahoo.com 1 800 375 4188