by Addison Wiggin & Ian Mathias
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Two big numbers, and the connection few people see
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Why Treasury’s April deficit figures are a big fat lie
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“Panic buying” of gold in Europe, and the golden ATM in Arabia
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The niche segment of the metals market that could be on the verge of a breakout
Two big numbers made news yesterday as we approached the market close. No one, to our knowledge, made a connection between the two. But to us, the connection is screamingly obvious. And frankly, your financial future hinges on that connection.
Here’s the first number: $82.7 billion. That’s the deficit the U.S. Treasury posted last month. That’s awful for April, which usually records a positive number, thanks to tax receipts flooding in around the 15th. Last year recorded a loss too. But that was only $21 billion. So this year, the bleeding is nearly four times as bad.
For the record, the government hasn’t posted a monthly surplus since that fateful pre-TARP month of September 2008.
That figure of $82.7 billion is merely the BS figure Treasury puts out there when it reports the deficit. The real tell is how much the national debt grew. And in April, that figure was twice the size of the “official” monthly deficit — $175.6 billion.
Don’t look now, but we’re just a couple of weeks away from the national debt breaking $13 trillion. If you must know, the exact number this morning is $12,931,157,737,293.42.
The Congressional Budget Office says we’re liable to rack up another $7.4 trillion between now and 2020. That’s bad enough… but it’s really cringe-worthy when you look at the CBO’s track record.
Our friends at Casey Research cobbled together these charts showing CBO’s estimates of both revenue and spending for the previous decade… along with charts of actual revenue and spending.
A significant problem: The CBO stumbled badly when estimating economic growth. Even after you account for the meltdown of 2008-09, they blew it.
We’re rapidly approaching a point of no return, says our friend Gene Steuerle of the Urban Institute. “Both liberals who want to maintain spending programs and conservatives seeking to keep taxes low seem to think — or, at least, want to think — that economic growth can once again solve our problems.”
No more. “In the past, fiscal imbalance was mainly a temporary, current issue only. Yes, congresses would occasionally spend much more than they collected in taxes, sometimes heedlessly. But as long as revenues over time rose with economic growth and most spending was discretionary, push never came to shove as long as the next congresses weren't too profligate…
“Now so much spending growth is built into law in permanent or mandatory programs that these programs essentially absorb all future revenues.”
You can read all of this and quickly slip into an impotent rage. And it’s true, there’s nothing you can do to change the minds of politicians and bureaucrats who are wedded to the idea that they’re omnipotent. But that doesn’t mean you’re helpless. You can still tend to your own house… and take protective measures. In fact, we believe you must. It’s our raison d’etre.
Which brings us to the other big number that made news yesterday…
Gold reached an all-time high in U.S. dollars of $1,249. The dollar has finally done what the euro, the pound and Swiss franc did already.
So maybe there hasn’t been a direct connection between the budget figures and the gold price. But it’s not hard to put 2 and 2 together at a moment like this.
“With paper currency and stock certificates on the decline,” explains our commodities specialist Alan Knuckman, “gold is a natural alternative. Trying not to sound like the barrage of commercials for coins on TV, it’s safe to say that hard assets hold value in uncertain times.”
And the last 20 days have been, if anything, uncertain.
More and more people are choosing gold to preserve their wealth. We told you on Monday about the torrid sales of U.S. Gold Eagles in the first seven days of this month: If the trend holds, May sales could top the previous record set in those panic-stricken days of December 2008.
Now reports are coming in that this is a worldwide phenomenon…
The Austrian Mint has sold more Philharmonic coins in the last two weeks than it did in the entire first quarter of 2010. The demand is coming exclusively from Europe, and “it represents panic buying,” says marketing director Kerry Tattersall. “We’re facing production problems again and are producing around the clock.”
Still, “Our stock is running out.”
The Swiss gold refinery Argor-Heraeus is also reporting booming business. "It all started after the euro crisis," says the firm’s Bernhard Schnellmann. "We are seeing very, very high demand for smaller products. I would say 10 times more than the first two months of this year. The demand especially for small bars and minted products is extremely high, mainly from Europe."
Gold is always in demand in the Middle East. But never like this:
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The wraps come off a golden ATM…
On the same day gold hit an all-time high, a gold-dispensing ATM made its debut at one of the world’s glitziest hotels.
We first mentioned the gold ATM a year ago, when its German manufacturer launched a test phase at the Frankfurt train station, among other locations. But for its formal rollout, the company chose the Emirates Palace in Abu Dhabi — where a three-room suite can set you back $10,000 a night.
The machine dispenses small gold bars, up to 10 grams. “The changing price of gold will be reflected in the price of gold at the ATM, which updates its rates every 10 minutes,” explains our friend Peter Cooper, stationed in nearby Dubai. “Just like an ATM, an armored truck arrives to refill the machine, but with gold and not cash, although gold is, of course, the only true money. The markup on the gold price is said to be 2%, rather better than the local gold souk.”
"There is nothing more powerful than an idea whose time has come,” says Richard Russell, the octogenarian dean of newsletter writers. “The idea — gold is the only money that's safe from the world's clueless governments, and their obsession to escape a recession or a depression."
"Do not trade your gold or gold shares,” he urges. “The third phase for gold lies ahead. The central banks do not want to see a new high in the price of gold, and they will do anything they can to keep the price of gold down. But the primary trend of gold is more powerful than all the world's central banks taken together."
That “third phase” Russell refers to is the one James Turk told us about in these pages six months ago: “Gold has moved from apathy and neglect — stage-one characteristics — to growing attention.” In this second stage, gold grabs headlines, but skeptics abound.
Stage three is the mania, the most explosive upward phase, and “we will know it has arrived when commentators who have been consistently wrong about gold will be telling everyone willing to listen to buy gold.”
We’re not there yet. There’s still time to get on board. But you don’t want to wait long.
When U.S. Gold Eagle sales reached a record back in December of ’08, the U.S. Mint had to put its distributors “on allocation.” That is, the Mint imposed rationing. Other mints around the world experienced the same phenomenon.
Gold (and silver) buyers found themselves waiting weeks — if not months — for delivery of their orders. Sure, if you were ordering 400-ounce gold bars, you didn’t have much of a wait. But anything smaller than that, you went on a list. Heck, the U.S. Mint stopped making the fractional Eagles under 1 ounce for a while.
Now… if that’s the direction things are going right now, what’s the most likely result? Well, for one thing, someone who wants precious metals in his hands right away is likely going to be out of luck.
And when that happens, where will those people turn?
During the widespread panic of late 2008, demand spilled over into certain types of collectible coins. In the United States, proof and uncirculated U.S. Gold Buffaloes sold out. In South Africa, Mandela commemoratives flew off the shelves. When plain ol’ bullion isn’t available, people naturally transition into the numismatic, or collector, market.
Now we’re seeing rapidly developing demand for collectible coins in China (of course) as the country’s growing middle class seeks to diversify their own stashes.
Given the tone of e-mails we’ve received about this market, we understand the reticence over collector coins. It’s true you shouldn’t jump into this market if you don’t know what you’re doing. That’s why we released our second web broadcast on this untapped opportunity in the “gold” market.
To further help you make sense of the market’s ins and outs, we recruited two more experts for our latest online event. They hail from the two leading coin-grading firms. Scott Schechter is vice president of sales and marketing at NGC. And Miles Standish is senior grader at PCGS.
You couldn’t ask for more impartial commentators. It’s their role in the coin market to remain impartial and help you determine what are the best high-grade coins to invest in. The interview explains how they go about their business and what an important role the grading companies play in establishing and maintaining the credibility of the collectibles market.
So far, 4,280 people have already signed up to view this video. Many of whom took advantage of the rare coin offer we included with the event. Because of our ongoing business relationship with First Federal, we may receive a commission if you decide to take us up on the offer too. But we wouldn't get behind it if we didn't think it’s a good deal. That offer is still available right now. The video itself is free. We urge you to register right away.
“I was curious and went ahead a figured out how much gold is 1,185 tons,” writes a reader who saw our item yesterday about how much gold the biggest gold ETF has accumulated. “If it were a solid cube of gold, it would occupy a space about 12.53 feet on each side. Dense stuff, isn't it? ”
The 5: We love these kinds of estimates. Another says if you gathered up all the gold that’s ever been mined, it would stack only as high as about one-third of the Washington Monument. Or alternately, it would fill just over two Olympic-size swimming pools.
We’re not sure how accurate those are, but the point is the stuff is rare. That’s part of what gives it value in a time of uncertainty.
“He who has the gold, makes the rules.”
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. “Gold futures backed off from all-time record highs Thursday, although the yellow metal hasn't exhausted its allure as a safe-haven investment,” reads a report just in from Dow Jones Newswires.
No markets go straight up. Or straight down. But as we told our friend Steve Cordasco, on The Big Money Show in Philly and Boston yesterday, we’re holding firm to our decade-long conviction. Gold as insurance against calamity is a trend in place until the debt picture in Europe and in the U.S. gets resolved. We don’t think that’s going to be anytime soon.
And if gold continues to go in the direction we think it is — as Richard Russell alluded to above — the collectible coin market could take off right alongside it. We’ve identified one segment of that market with nearly unlimited potential. You can learn all about it in the video we described moments ago.
For good reason, it’s called The Untapped Gold Market No One’s Talking About. It’s ready for streaming to your computer right now. Please be sure to let us know what you think of it as well.