Going LongFinding Elusive Gold in This Market

by the editors of BIG GOLD, Casey Research

At this writing, gold is still 15% off its peak, at least in U.S. dollars. Yet at the same time, the metal is cruising at or near all-time highs against a host of other currencies, including the Swiss franc, British pound, Canadian dollar, Australian dollar, and Indian rupee.

That currency disparity means buyers around the world are prepared to pay much more for gold, relative to their own currencies, than is reflected in the New York spot market, which prices gold in dollars.

Demand for gold coins in particular is running so high that there were severe shortages in 2008. Dealers' shelves emptied, mints either rationed their output or stopped producing entirely, and premiums over the spot price rose dramatically. All of which implies that the metal's bull market is far from over. Yet taking advantage of the trend becomes problematic if you can't get what you want.

Sure, you can buy as much paper gold as you like, through the SPDR Gold Trust ETF (NYSE.GLD), which is bullion-backed and will be sensitive to an advancing price. But what if you simply want physical metal and want it in quantity - say, a hundred ounces?

Well, you could buy 100 coins. If you could find them. Or you could buy a single 100-ounce bar.

Take heed: if you are buying in 100-ounce, 400-ounce or 1-kilo sizes, you want a good delivery bar, one that carries a hallmark from a recognized refiner. And buy only from a source you have a good reason to trust. The gold trade has been replete with con artists since ancient metalworkers began hammering on the shiny stuff and found they could increase their profit margins by adding in a little silver, copper, or even lead. With 100 ounces going for upwards of US$85,000, caution is in order.

Once you're ready to commit to a 100-ounce buy, the next logical question is: Is there any way to avoid the big premiums and acquire what you want at spot? The answer, fortunately, is yes. You can elect to play with the big boys and get your 100-ounce bar on the COMEX, where the bullion banks and giant funds do their trading.

Playin' the COMEX

The COMEX is primarily a paper market, with speculators going long or short on contracts for future delivery. 99.9% of those contracts get settled in cash and are closed out before the delivery date arrives, with participants pocketing profits or taking their lumps. Very little physical gold changes hands through COMEX trading.

But some does, because every participant who goes long has the right to pay in full and insist on actual delivery. And every participant who goes short has the right to deliver the goods and get paid. Those trades represent the other 0.1% of the contracts.

The Casey COMEX User's Manual

First, get a little more acquainted with the topic. Log on to the COMEX gold section at (www.nymex.com/gol_pre_agree.aspx) and have a look around.
Pay close attention to the Current Session Overview. It gives you a real-time picture of trading, with the various delivery months displayed, along with the price per ounce being bid. (With gold, the months further out nearly always have higher prices, a situation known in the commodities trade as contango. The opposite, when near-term prices exceed those down the road, is called backwardation, and for gold it's extremely rare.)
If you decide to proceed with the idea of buying on the COMEX, you have to open an account with a futures broker. To do that, you'll need to answer some questions about your financial status and then make a deposit. We spoke with an agent at Lind-Waldock in Chicago, one of the oldest and most active futures brokers, to learn about their requirements.

First, at Lind-Waldock, you must have a yearly income and net worth of at least $25,000 and $50,000, respectively; anyone who can afford a hundred ounces of gold will surely qualify. Then you must deposit a minimum of $5,000 with the broker. Finally, you choose from among several levels of service, which affects the amount of commission you'll pay.
Once the futures account is in place, you're set to go.

Let's say the bid price three months out is $850/oz., and you like gold at that price. You call your broker and place an order at $850, for one gold contract (which represents a single 100-oz. bar of good delivery metal). As with bidding on a stock, you may not get what you want if the market is heading up and runs away from your price. The alternative is to place a market order, trusting that it gets filled at close to your target price, but that can be risky in a fast-moving market.

Let's assume you get your contract and lock up what you'll pay for the gold, most of which will be due at expiration. What next? There are two possibilities. You can just deposit the full cost of the gold, sit back, and enjoy the wait for your prize. Or you can deposit the minimum amount required (the minimum "margin"), which varies and is set at the exchange's discretion. For a single gold contract at the moment, it's $5,800, or about 7% of the contract's value.

That's how the speculators play the market, putting up as little front money as possible. For you, that won't be a problem if the price of gold rises, since the broker will be crediting a matching amount of cash to your account on a daily basis. But you have to be careful if the price of gold falls, because the broker will then charge your account for a matching amount of money day by day - and to keep the balance from going below the minimum margin requirement, he'll send you a margin call, insisting that you deposit more cash. If you fail to do so, the broker will enter a sale order for you, and you'll be out of the market.

Changes in the value of a futures contract, with their attendant shifting cash requirements, are of critical importance to traders who are simply playing with paper. Since you're only interested in acquiring a physical gold bar, the fluctuations shouldn't affect you. Just make sure you have enough money in your account that you're not inadvertently sold out.

Then, on the settlement date, your account will be charged for an amount equal to the settlement price multiplied by the exact weight of the particular bar that's been assigned to you (a "100-oz." COMEX good delivery bar can actually vary in weight between 95 and 105 ounces). This is when everything gets squared up.

Taking Delivery

If you keep your position open until delivery, the COMEX will hand your broker a warehouse receipt with the details of your specific bar (hallmark, serial number, and weight to one-thousandth of an ounce). The broker can either hold the receipt in your account or mail it to you. (If you take possession of a warehouse receipt, be aware that it's an irreplaceable bearer instrument. Don't lose it!)

Your bar will be sitting in the vault of one of the four designated COMEX depositories, all of which are in or near New York City. If you want to bring the bar home, you'll have to pick it up at the depository or arrange for third-party delivery. If you intend to hold it until gold reaches a certain price and then sell, your best bet is probably to leave the bar in the COMEX depository and leave the receipt with your broker.

We called Scotia Mocatta, which operates one of the COMEX-designated vaults, and were quoted a storage fee of $15/month per bar. If, however, you want the bar in your hands, you'll have to pay a $150 delivery fee to get the bar released by the depository. Then you're responsible for retrieving it, which could be a problem.

Unless you want to put the bar in your suitcase and fly home with it, you'll have to have it delivered. You can't ship a gold bar via the U.S. mail, FedEx or UPS; you have to hire an armored car service, such as Brinks.
Shipping costs depend, of course, on how far your gold will travel from the City. VIA MAT International (USA) gave us a ballpark figure of $150 to transport one gold bar from New York to California - a heckuva lot cheaper than airfare, and you get to keep your shoes on.

One final note: armored carriers won't deliver to a house address. You would have to arrange to receive the shipment at a business, which could be an additional worry if neither you nor a trusted friend owns one. Or you could have it delivered to your bank and slide it into a safe deposit box, provided you don't mind the bank's employees knowing what you're doing.
Will You Need an Assay?

If you leave your gold bar in the COMEX depository, it will be easier to sell. You just go through the above procedure in reverse, going short a contract instead of buying one.

However, if you take physical delivery and later wish to sell through the COMEX (or through a private dealer), you will need to have the bar reassayed. A prospective buyer of such a costly item must be certain that it was genuine to begin with and hasn't been tampered with while in your possession.

The COMEX provides a list of approved assayers on its website. The one we contacted, Ledoux and Co., quoted us $300 per bar for the service.
And that's all you need to know to get gold wholesale.

When it comes to anything gold, the BIG GOLD experts have the inside scoop on it… an invaluable service, especially in times like these, with gold serving as a crisis hedge. For just 22 cents a day, you'll learn everything you need to know about gold, the physical metal, as well as the safest stocks of major gold producers, royalty companies, the best gold ETFs, and much more. Learn more about our 3-month, risk-free trial subscription with 100% money-back guarantee.

Also by David Galland

THE AMERICAN DREAM,An Obituary

Darryl Robert Schoon December 22, 2008

The American Revolution was an extraordinary event. The idea that freedom was an inherent right, that tyranny could be successfully opposed, that government could serve the people, not the few, was truly revolutionary in 1776-as it is today.

The American Revolution, however, has run its course; and unless resuscitated and given new life, the American dream and the dreams of America's founding fathers will soon be only a memory. Dreams rarely come to pass and those that do rarely last. The American dream is no exception.

What happened in 1776 has been subverted by the passage of time and the inconstancy of later generations. Those who rule America today have subverted the principles enumerated in the US Constitution; principles the Founding Father hoped would guide those who followed them through the crises yet to come.

The principles were not many, e.g. fiscal prudence, sound money, separation of church and state and a limited military and limited government. But even those few and clearly stated principles succumbed over the years to the imposition of policies that had given rise to the need to revolt in 1776.

Now, in 2008, tyranny and government excesses are again upon America, but this time it is by America's own hand. The policies of King George III were no more egregious than the policies of President George Bush II.- taxation without real representation, e.g. TARP (80 % Americans opposed), the imposition of policies contrary to the will of the people, e.g. US presence in Iraq and Afghanistan (70 % opposed), and the loss of individual freedoms under the Patriot Act (60 % opposed).

The difference between 1776 and 2008 is that America is now tyrannized not by the King of England but by its own government. Today, the US government does not represent the will of the people. It represents instead the special interests that control the US government through the buying of votes-America is not for sale only because it has already been sold.
The difference between 1776 and 2008 is not only 232 years. It is the difference between the dream of the Founding Fathers and the shadow of that dream in whose increasing darkness Americans now exist.

THE FEDERAL RESERVE BANK IS THE REASON FOR AMERICA'SFALL FROM POWER AND THE SOURCE OF ITS INCREASING PROBLEMS
Thomas Jefferson warned 200 hundred years ago that if private bankers were allowed to issue America's money, indebtedness, foreclosure and suffering would follow. Yet, in 1913, private bankers gained control over America's money by the passage of the Federal Reserve Act.

We are now suffering for ignoring Jefferson's warnings. Jefferson was right in predicting our problems but his words were overridden by those who had other plans for America, plans that would increase their profits at the expense of the nation.

It is no accident America is now an empty shell of the great economic power it once was. Bled dry by debt imposed by those whose sole intent was to profit, the US is now bankrupt at a time it desperately needs the resources it no longer has.

The US Treasury is now empty except for IOUs and only if others continue to buy America's debts can America continue to go forward. Once we were creditors, now we are debtors. America cannot escape the consequences of what has been done but we can limit our problems if we undo their cause.
The Federal Reserve Act was enacted by Congress and signed into law by President Woodrow Wilson who later bitterly regretted what he had done to America.

I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.Woodrow Wilson, US President

The power of the Federal Reserve System-a system controlled by a small group of dominant men-derives solely from is power to issue debt-based money in the form of US dollars and to charge interest on their issuance. We are paying our jailors for our enslavement and are fools for so doing. Who would have thought-except Jefferson.

FRANCE AND AMERICA'S FIGHT FOR FREEDOM

This article is being posted from Paris, France; a city and nation that supported America's War of Independence against England. Over time, Americans have forgotten this important fact.

Following the Declaration of Independence of the thirteen colonies, the American Revolution had been well received in France, both by the population and the enlightened elites. The Revolution was perceived as the incarnation of the Enlightenment Spirit against the "English tyranny". Benjamin Franklin, dispatched to France in December of 1776 to rally her support, was welcomed with enthusiasm, and numerous Frenchmen embarked for the Americas to help the war, motivated by the prospect of valor in battle or animated by the sincere ideal of liberty and republicanism, like Pierre Charles L'Enfant, and La Fayette, who enlisted in 1776.http://en.wikipedia.org/wiki/France_in_the_American_Revolutionary_War
In the last two centuries, Americans have come to identify more with England (perhaps a cultural variant of the Stockhausen syndrome) than with its first ally, France-the lure of a good Burburry overcoming its love for the great cloak of freedom. Unfortunately, Americans have forgotten their history and what they haven't forgotten they have now reinvented.
Freedom is always fragile and is always under attack from those who would enslave others for their own ends, including profit; and, the present crisis is as threatening to America as was the crisis of 1776.
Now, as then, the cause of America's problem is English in origin. But this time the cause is England's central banking system, recreated on our own shores as the Federal Reserve Bank, a private central bank masquerading as a US Federal government institution.

But America does not own or control the Federal Reserve Bank. The Federal Reserve Bank is owned and controlled by a small group of dominant men- private bankers who through their control of the Federal Reserve now control America.

GOLD IS FREEDOMTHE 5 % SOLUTION

Gold is freedom because gold is the antidote to the debt-based money of private bankers issued by central banks such as the Federal Reserve, debt-based money that has been destroying America's wealth, savings, and productivity for almost one hundred years.

Since the Federal Reserve began issuing debt-based US dollars 95 years ago, the US dollar has lost 95 % of its value. The whiff of the dollar's demise is now in the air and unless something is done quickly, its end is imminent. There is only 5 % left to go.

Only if America returns to the principle of sound money enumerated in its Constitution, will the abomination of unsound money and unsound governance end. If the Federal Reserve is allowed to continue, so too will our problems and the now 95 year downward spiral of America.
The choice is clear: End the Federal Reserve or the American dream will end. End of story.

Five….four.…three....two….fini
PROFESSOR FEKETE & THE END GAME
Professor Antal E. Fekete's recent writing on the backwardation of gold has created a firestorm of controversy regarding its significance, as well it should. This is an area in which Professor Fekete is the resident expert. The professor's words of warning about gold's backwardation should not be taken lightly-nor should any of his words.
I consider myself fortunate to have made the professor's acquaintance when I first began my inquiry into matters of economics. Grounded in academic inquiry, Professor Fekete's concern for economic truths is equaled by his concern for his fellow man, attributes not commonly shared by the "economists" responsible for our current problems.
On March 27th, 28th and 29th, I will be attending and speaking at Professor Fekete's event in Szombathely, Hungary, on the subject of the coming depression, an event that will dwarf the disaster of the Great Depression of the 1930s.
If you are able to attend, I strongly suggest that you do. I have stated before that in my opinion Professor Fekete is a giant in a time of small men. I stand by that statement today. Opportunities to listen to persons of such stature are rare as they are invaluable.
Information about the March event is available at www.professorfekete.com.

The meaning and significance of gold's backwardation will be discussed as will the Professor's observations regarding the accelerating economic crisis-the resolution of the end game.

Darryl Robert Schoonwww.survivethecrisis.comwww.drschoon.comblog www.posdev.net/pdn/index.php?option=com_myblog&blogger=drs&Itemid=81