tsx, tsx-v, goldtsx, silver, junior resource

Auguries Fool's Gold


November 16, 2012


Bullion: A bar in the hand is easier said than done.

Gold was down (at press time) $12.20 (-0.7%) for the week to $1,713.80, and silver was up $0.43 (+1.4%) to $32.67. Gold fell $16.30 Thursday; the Associated Press attributed this to “growing worries about global economic growth with pending US budget issues and Europe’s recession.”

According to George Gero, vice president at RBC Global Futures, “Gold has a reputation as a relatively safe asset to hold during economic turmoil, but investors are ‘in a quandary and conserving cash.’”

Or they’re cashing out. CNBC’s Robert Frank reports that investors are “worried about the ‘fiscal cliff,’ which is when [US] tax cuts expire and spending cuts are set to go into effect at the end of the year…. Wealth advisors say that with capital-gains taxes potentially going to 25% from 15% and other possible increases in the dividend tax, estate tax and other taxes, many clients are selling now to save millions in taxes.”

To posit that gold is a “safe asset” raises the question of what “owning” gold actually means. In the New York Times November 14, Paul Sullivan relates the experience of Dan Tapiero, who wanted to own “gold in the form of bullion that he could hold in his palms, smudge with his thumbs.” He “realized quite quickly that it was harder to fulfill his desire than he had thought.” He learned that banks will sell you gold, if you buy a small fortune’s worth, but it stays in the bank. Tapiero didn’t consider that real ownership, so he cofounded Gold Bullion International, which “allows people to buy bullion but also to have access to it and, if they want, have it delivered to their home or anywhere else.”

Bullion is a real thing, a physical asset. But what of ETFs? At Seeking Alpha November 15, Doug Eberhardt argues that they “should be viewed as trading vehicles and not counted as real wealth ownership.” He explains, “ETFs offer only paper promises if the dollar were to collapse, as the investor does not have actual ownership of gold whereby they can take delivery by turning in their shares. What investors do have ownership of is multilevel custodians, including the Bank of New York, HSBC and JP Morgan, who are in control of the gold. Please note these are banks. If push comes to shove with the dollar, do you want a bank in control of your gold?”

Eberhardt notes that “the Prospectus of GLD…is full of loopholes for the Sponsor and Trustee.” That’s one way to put it. Another would be that you do not have the right to redeem your gold, assuming it still exists. Your gold or a fractional reserve thereof? Two years ago, GATA reported the admission of “Jeffrey Christian of CPM Group, who has always been staunchly against GATA,” that the London Bullion Market Association “trades more than 100 times the gold it has to back the trades.”

The question of gold ownership is a timebomb set to detonate when and if sufficient investors decide, like Tapiero, they need bullion in their palms. But the question of whether Canadian mining companies actually own their properties is a bomb that’s already exploded, Barbara Yaffe declares in the Vancouver Sun November 12. She assets, in the irritatingly triumphalist manner so typical of our elite, “Governments and corporate Canada remain in denial about a new reality: aboriginal groups hold veto power over resource development.”

Yaffe cites Bill Gallagher, author of Resource Rulers: Fortune and Folly on Canada’s Road to Resources, who concludes, “It’s no longer enough for companies to merely consult on resource projects, they need to invite aboriginals to become partners and co-managers in proposed developments.”

Gallagher has “personally has counted up ‘well over’ 150 legal wins for native groups, all based on provisions outlined in Canada’s Constitution.” Ha, bloody ha. There are no such provisions in our Constitution. Readers who doubt this definitive statement are advised to search the document at the Department of Justice website for the terms “Indians,” “aboriginals” and “First Nations.” No, our courts have “read into” the Constitution this seizure of property rights. Manufactured it of whole cloth, to coin a phrase.

Anyone who talks to mining company CEOs will testify that many are bemused and infuriated by the lack of certainty of title in Canada, particularly in British Columbia. And most of them would sooner slit their tongues with razor blades than talk about this on the record. Perhaps Christy Clark and Stephen Harper should tell us what they think.

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