September 24, 2010 – Peak Gold Is Upon Us

Featured Trades: (GLD), (SLV), (PPLT), (CU)
SPDR Gold Shares Trust ETF
iShares Silver Trust ETF
ETFS Physical Platinum Trust ETF
First Trust Global ISE Copper Trust ETF



1) Peak Gold Is Upon Us. If you had any doubt about what the driver has been for gold's meteoric rise to $1,300, take a look at the chart below showing the spike right at the Fed's announcement that QEII was in the cards. With the speed of a mainframe running the latest algorithm, this bid spread to the other precious metals and commodities as well.

Last week, gold ETF's purchased a staggering 16 tonnes of the yellow metal worth $582 million. The 800 pound gorilla, the (GLD) now owns $38.5 billion of the barbarous relic, making it the sixth largest owner in the world, ahead of Switzerland and China.

These are heady inflows into such a small space. All of the gold mined in human history, from King Solomon's mines to the bars still in Swiss bank vaults bearing Nazi eagles (I've seen them) would only fill 2.5 Olympic sized swimming pools. That amounts to 5.3 billion ounces, about $6.3 trillion at today's prices. For you trivia freaks out there, that is a cube with 65.5 feet on an edge.

Peak gold may well be upon us. Production has been falling for a decade, although it popped up to 83 million ounces last year worth $108 billion. That would rank gold 17th as a Fortune 500 company, along with Wells Fargo Bank (WFC), IBM (IBM), and drug store CVS Caremark (CVS). It is also only 2.8% of global public debt markets worth $39 trillion (click here for The Economist magazine's global public debt clock).

That is not much when you have the entire world bidding for it, governments and individuals alike. Talk about getting a camel through the eye of a needle! We may well see the bull market end only when those two asset classes, government bonds and gold, see outstanding values reach parity, implying a sixfold increase in gold prices from here to $7,800 an ounce.

No wonder buying is spilling out into the other precious metals, silver (SLV), platinum (PPLT), and palladium (PALL), as well as copper (CU) and other hard assets. As much as I love the gold inlays in my teeth, and sometimes leave waitresses quarter ounce gold eagles as tips at restaurants, this is the reason I have been stampeding readers into the yellow metal for the past 18 months.

This is not a riskless trade here. Obviously, there is a lot more downside potential at $1,300 than there was at $800, or $34. So if you get involved at this late date, better to play with near money calls spreads.

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World Annual Gold Production 1970-2009


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Can Your Fit Through the Eye of a Needle?