Trevor Gerszt

Trevor Gerszt has been passionate about gold since childhood. Growing up in South Africa, the world’s second largest gold producer, Gerszt spent his youth collecting gold coins. Surrounded by a family of experienced coin collectors, he gained valuable insight about the precious metal.

What If All the Gold Gurus Are Dead Wrong?

Thursday, 27 September 2012
Published in From The CEO
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You’ve been watching gold for a long time now, and it’s hard to believe this bull market’s going to last.  You’ve also been listening to the buzz from well-respected gold gurus about how the price of gold is headed to the moon.  In fact, just this morning you might have spotted a quote from noted French investment fund manager, Jean-Marie Eveillard who, in an interview with King World News assures us that “$15,000 gold would not be absurd.” 

No, that’s not a misprint.  You read it right -- $15,000 per ounce!  Now Eveillard is nobody’s fool.  He’s received two prestigious awards from Morningstar:  Stock Manager of the Year in 2001, and Fund Manager Lifetime Achievement Award in 2003.  And suddenly this guru, noted for his excellence in choosing stocks, has put forth a possible target price for gold that dwarfs the price quoted by most of the gurus you’ve been reading.

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But what if Eveillard is dead wrong?  And what if the other gold gurus are all wrong too? If you’ve been on the planet long enough, investment experts with egg on their face shouldn’t surprise you.  After all, tomorrow is given to no one; and what goes up in a fury might just as easily fall flat on its face. 

But here’s some sobering news for you.  Gold will probably go down.  Now if that sounds out-and-out contradictory to what you’re used to reading here in The Investor’s Corner, rest easy.  It’s not.  We often discuss the ups AND the downs in the gold market.  But when faced with a market decline, you have to distinguish between a temporary sell off and a market turnaround.

We’ve been advising you to buy physical gold on a long-term basis for asset protection and as a hedge against your paper assets.  It’s important to understand that the world market is replete with professional traders who buy gold opportunistically.  As soon as the market surges (for instance gold at $1,576 per ounce), they buy in large quantity.  When the market reaches a resistance point (say at $1,780 per ounce), they sell off at a profit, and buy back as soon as the market retreats again to a support level.  In trading parlance, this technique is known as “back and fill.”

The point is the bullish story about gold remains the same.  Short-term price retracements don’t change that story.  Gold is on its way up – big time!  Just recently, the yellow metal took out all the major moving-day averages technical analysts closely consider:  the 100, 200 and 400 moving-day averages.  The Fed’s initiative of Quantitative Easing (QE3) remains firmly in place, along with the Eurozone’s and China’s own wide open liquidity programs.  As a result, world currencies are moving into a debasement phase.  Once the general public “gets it,” and starts buying gold with a vengeance, you’ll see the prices soar in bigger increments each day.

We continue to recommend you buy and hold for the long term, and leave intermediate buy-and-sell techniques to the professionals.  It’s not our purpose here to burden you with the technical details of the gold market.  Professionals will rock and roll the market a bit by manipulating those details for short-term gain.  Just keep your eye on gold’s long-term picture and you’ll grow wealthier while you also sleep much better at night.

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Put a Silver Bullet in Your Portfolio

Tuesday, 25 September 2012
Published in From The CEO
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It’s time for another reminder about silver.  At today’s close of $33.995 per ounce, and with a current gold:silver ratio of 51.60, we just can’t ignore the gray metal.  And neither should you.

In the precious metals family, gold is the child that just has to grab all the media and investor attention.  As a result, every once in awhile we feel obliged to put forth a wakeup call about gold’s underestimated sibling – silver.  Silver is more volatile, and exhibits more velocity than gold in a bull market.  And silver is more tied than gold to a very conspicuous industry demand.

In the last four years, silver has soared a whopping 211%, 20% in 2012 alone, whereas gold has spiked 108%.  Recently, silver investment specialist, David Morgan, has observed that there was a great deal of short covering in the silver market.  Professionals in the mining industry short silver over a very long period to hedge production; and when they cover or close out their short positions, it’s a strong indicator that silver is on its way up again. 

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Morgan now feels silver is cleared to go above $35 per ounce, if not $40 per ounce by the end of the year – not an outlandish bet at all when you look at today’s closing price.  Although industrial demand was slightly off in 2011, the year before saw production up 18% due to rising demand.  Silver is being used increasingly in health care, computers, cell phones and solar panels, not to mention clothing, bandages and medical devices.

But investment demand also drives silver.  In January and February of 2011 sold as many dollars of silver as they did gold.  Back then, the U.S. Mint advised prospective investors that it was unable to strike more Silver American Eagles.  It announced “The United States Mint will resume production of American Eagle Silver Uncirculated Coins once sufficient inventories of silver bullion blanks can be acquired to meet market demand for all three American Eagle Silver Coin products.” 

Though not recently, the gold:silver ratio has averaged 16 to 1.  As I’ve often stressed, markets have memory.  If industrial demand for silver increases and that ratio took hold once more, the price of silver would surge to over $125 per ounce, over double its all-time high of $52 per ounce price during the infamous Hunt brothers run up in 1979.

You might ask if that’s realistic, or even possible.  Keep in mind, with unlimited quantitative easing in force, assets inflate.  As an industrial asset, silver can inflate along with all others.  And once small investors get involved with precious metals in a big way, many in dire economic straits will opt for the metal with the lower-per-ounce price for asset protection.

What silver can ultimately be faced with, then, is a simultaneous pull from the investment and industrial sectors with gold giving it a push up in price along the way.  When it comes time to diversify your own portfolio, make sure you put a silver bullet in your portfolio.

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Will Gold Deliver An Encore Performance?

Sunday, 23 September 2012
Published in From The CEO
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If you embrace a conventional investment outlook, you’ll want to beware of the gold market.  The price seems so high right now.  Besides, everyone knows what goes up just has to go down.

The problem with this argument arises when you attempt to define the word “up” in a commodity, especially in a precious metal.  Andreally, just how high is high?  If you’ve been attending gold concerts for the last twelve years, well of course!  The yellow metal just has to be exhausted.  And any continued performance or encore coming from gold justhas to be impossible.  Right?

Well, not quite.

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An investor who thinks this way about the gold market almost always approaches it with the mindset of a stock market investor. Because, even in this day and age, the stock market is what most investors know – or think they know.  A particular stock is tied to a company’s performance, its earnings per share ratio, its balance sheet or the public’s belief in its new product offering.  If a very talented CEO takes the helm of a public company, that company’s stock can soar.  Accordingly, if an inadequate CEO stays too long at the fair, that same company’s stock can plummet.

Gold, on the other hand, has a much more direct relationship with the global economy at large.  Asking how high gold can go is tantamount to asking how much paper currency is afloat in the world.  According to the publication Resource Investor, it’s perfectly reasonable to conclude that the latest Fed stimulus round (QE3) will enlarge its balance sheet from $2.7 trillion to $5 trillion during the next two years.  Keep in mind this activity is up from only $800 billion in 2008. 

While the money supply doubled since 2008, so did the price of gold.  If the doubling of the Fed balance sheet to $5 trillion is a reliable indicator of gold’s climb, the yellow metal certainly does have an encore left in its repertoire.  If one uses the $1,720 gold price as the base level just before the Fed’s announcement, the next leg up for gold is plausibly $3,440 during the next two years.

Resource Investor further points out that gold, more often than not, “front runs” an aggressive growth in money supply.  This makes consummate sense, since once inflation kicks in and the public panics, the price of gold can rapidly go beyond the $3,500 – 4,000 level as soon as the public begins moving from paper currency to gold as a safe haven. 

So as you asses the possibilities of gold for your portfolio, don’t compare the price climb of gold to that of stocks.  Look to the Fed money supply and the exhaustion of the dollar for a true measure of gold’s possibilities.  And don’t be fooled by periodic drops in price, such as gold’s September 24 descent to $1,768 per ounce.  With a new support of $1,757 per ounce in place, gold is an excellent buy right now.  And with the Fed pumping in $40 billion into the economy until some unspecified time down the road, the yellow metal has plenty of encore performances left in the not-too-distant future.

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How Should We Thank Ben Bernanke?

Thursday, 20 September 2012
Published in From The CEO

What can we say to Fed Chairman Ben Bernanke after his announcement that, along with Q3, comes an assumed open license to keep the printing presses rolling?  Should we express rage or frustration?  Should we barrage the Fed with our phone calls or emails? After all, His Majesty has decided to make mincemeat of our retirement and savings.  The least we can do is to let him know we’re not at all pleased.

But wait! Just maybe none of that aggressive behavior is warranted.  Maybe we really ought to look at the bright side.  And just maybe we ought to go out to our local drug store or card shop and buy Mr. Bernanke a very nice gift card.  And inside that card, perhaps we should write a very sweet thank-you note. In a recent article, Eric McWhinnie, chief commodities analyst at Wall St. Cheat Sheet reminds us that since Ben Bernanke assumed the throne in early 2006, the price of gold has increased from $570 per ounce to just about $1,780 per ounce.  During the same period, silver has surged from $9.70 per ounce to over $34.00 per ounce.  According to Mr. McWhinnie, Ben Bernanke “has been very kind to precious metals.”

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Ah, you say you’re not yet an investor in gold or silver?  What can we tell you then?  Try to curtail your temper.  A sweet note to Ben Bernanke only makes sense if you’re a precious metals investor.  But don’t despair.  You still have time.  The membership rolls in the Bernanke Fan Club haven’t closed down yet.

Perhaps the biggest thank-you(s) to the Fed Chief may be forthcoming from as diverse places as London and Colorado.  In a keynote speech, Ross Norman of London gold dealer Sharps Pixley, discussed the relationship between the Dow and Gold.  He commented on an observation made the previous week by Pierre Lassonde during The Denver Gold Forum.  Lassonde suggested that an examination of the Dow-gold ratio over time suggests that the ratio often pans out to 1 to 1; and gold, therefore, could well end up climbing to at least $13,000 per ounce.  Norman, on the other hand, feels that a more conservative 2.5-1 ratio makes more sense, in which case gold will rise to $4,000 as the Dow plummets to $10,000.

Another point made at the Colorado Forum meeting is that, since gold currently accounts for less than 1% of global assets, the yellow metal is “under-owned,” meaning that its price level has plenty of upside potential.  It is indeed possible for gold to soar to $10,000 per ounce should the global economy grow much worse.

These observations are important to note when considering a gold investment.  The ordinary investor sometimes looks too closely at price movement from day to day, rather than take the macro view of professionals like Norman and Lassonde.  It’s the old story of the man who stands too close to an elephant and perceives only a tail here, a trunk and tail there, instead of realizing that he really confronts an elephant.

So in keeping with these plausible future price levels of gold put forth by professionals, give careful thought to how the yellow metal fits in your own portfolio.  And don’t forget that silver moves in concert with gold. You might also want to re-think that angry note you were going to send to Ben Bernanke.  Once you own a few ounces of gold and silver, you’ll want to cut His Majesty some slack.

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After last week’s Easy Money (Q3) announcement by the Fed, gold is looking very fine today indeed at $1,773 per ounce.  Still, it has some work cut out for it.  Next stop is $1,920 per ounce.  But why $1,920?  Why not simply $2,000.  After all, isn’t $2,000 what the precious metals pundits have been targeting?  Isn’t that where the market is headed?  Why split hairs for the extra $80.00 per ounce.

Well, as it happens, $1,920 per ounce is a key number for the yellow metal.  On September 6th of 2011, gold hit that benchmark after a spectacular surge, day after day, once it had reached $1,540 in July.  From there, it was a straight flight to the $1,920 mark – and then, wham!  Gold backtracked to $1,540 per ounce a week later.  What in Sam Hill was going on?  In retrospect, what  we make of this?

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Markets have memory.  The numbers in this particular case are simply memory markers for the gold market.The $1,920 figure represents the all-time high for gold, and is now labeled gold’s new “resistance” – the highest number world traders at the time felt it made sense to execute a buy order.  Once the market fell back, $1,540 became the new “support,” the number a consensus of buyers felt was the most attractive low price – a new “bottom,” if you will.

And as for that $1,920 resistance, can gold now take that number out?Absolutely! Gold now has more fire power than it’s had in a very long time.  As you’re painfully aware, gold now has the help of monetary easing – our Fed’s license to print paper money with virtually no end in sight.  It has a very similar mandate from the European Central Bank.  And, just this morning, The Bank of Japan threw its hat in the ring with an asset purchase of $10 Trillion ($126 billion).  In so doing, the BOJ took analysts completely by surprise.  While they were anticipating such a move, they didn’t expect it until next month.

The kicker in all this is summed up eloquently by financial specialist Chris Martenson in his current article in Resource Investor:

‘In order to believe that the Fed or any other central bank can get us back to “normal,” you have to believe that it is normal for borrowing to exceed income and (here's the kicker) that it can do so forever.’

Getting back then to what is going to drive gold past its $1,920 resistance then, we should ask ourselves how long can “borrowing exceed income?”  With interest rates near zero, and the dollar plummeting on the announcement of Q3, how long will investors remain in dollars before they move over to the world’s most reliable safe haven?

Now let’s get back to last year’s $1,540 support level.  What does that actually mean?  Well, it represented a consolidation, or a time for gold to suck up momentum.  Picture a SWAT team with orders to break down a heavy steel door on a drug bust.  And say the team consists of six strong men who take a battering ram to the door.  The door doesn’t budge.  So what does the team do?  They move back further for more momentum so they can move forward faster and harder to knock down the door.

And this is why the market price of gold fell last year.  The market had to step back to find a point of momentum.  Now with the momentum of monetary easing around the world, and with the BOJ grabbing hold of the battering ram, can there be any question that gold will soon push past its new $1,920 resistance?

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Where Do We Go From Here?

Sunday, 16 September 2012
Published in From The CEO
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Last Thursday, Ben Bernanke sang, and the global economy danced to his tune.  After the Fed’s announced the guarantee of monetary easing for -- let’s face it -- as long as it now pleases, gold futures surged to a high of almost seven months.

Then today, the yellow metal decided to rest down $14.70 for a close of $1758.50 per ounce.  Markets go up; markets go down.  Without a close look at what’s happening at a particular stock or commodity, it’s easy for the ordinary investor to become over-optimistic when that stock or commodity flies up, or over-pessimistic when it retreats. 

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But we know what’s happening with gold.  A printing press without a slow gear sports a built-in invitation to debased currency and, ultimately, inflation.  It’s only natural, therefore, for investors to move cash from paper assets to hard assets.  Commodities will be reaping the rewards of this move for months and years to come.  And gold, the perennial safe haven of choice when central bankers become promiscuous at the presses, will lead the commodities pack on the way up.

How should we react then when gold closes down by almost $15.00?  Clearly this is not the time for precious-metals pessimism or groaning.  You should view such an event the way a market technician views it – as a period of profit taking and consolidation.  Even though you want to accumulate gold for the long haul, you should realize that professional traders are being opportunistic and looking for short-term profits.  In the most aggressive bull market, there are always breathers, just as in an auto race there are always pit stops.

The professional gold buyerknows this, looks at the fundamentals and then takes advantage of the pit stops on the way up.  The lay gold buyer sweats the small stuff, and tries to time the market or nab the perfect price.  What’s a “perfect price” though -- $34 per ounce just after President Franklin Roosevelt’s executive order to buy all gold from US citizens? Or are youlooking for $287 per ounce – the price of gold a few days after Y2K? 

The point is that it’s naïve or simply stubborn to leave money on the table because you yearn for an opportunity that could have been, and so choose not to act at all.   Do you really need a ticket with a clearly market destination (say $3,500 per ounce) – or, in this case, the guarantee of a particular profit at the end of the line? 

If you wanted that sort of financial arrangement, you would have bought a bond.  But just the other day you were privy to a startling revelation from the world’s king of bonds, Bill Gross of PMCO in Newport Beach.  Gross is now counseling investors to buy gold instead of bonds.

So where do we go from here when we buy gold?  Well, with the Fed manning the presses, a $2,000-per-ounce price for the yellow metal looks pretty good from where we now sit in the market.  And many are predicting it to head to $3,500 from there.

But if you buy gold now, you’ll have its fundamentals on your side.  And you’ll also have its history on your side.  Or, you could choose not to buy gold at all right now.  But if gold goes to $2,000 per ounce and beyond, maybe it’s time to remind yourself of the meaning of the phrase, “opportunity cost.”  Here’s a hint:  “opportunity cost” is the economist’s definition of the road not taken.  You chose not invest in gold so that you could invest in something else, or not invest in anything at all.  Good luck with that one.

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In the global business section of The New York Times a few days ago, there appeared a story about a thirty-eight-year-old executive from Spain who abruptly removed all his funds from  Spanish banks, packed his bags, and with his family in tow, expatriated to Cambridge, England.  Many in Spain who can are now doing the same thing.  Read more...

Gold Prices Jump as Quantitative Easing Announced

Thursday, 13 September 2012
Published in United States Economy
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Another round of quantitative easing was announced earlier today, and with that news gold prices jumped again. It seems as though the yellow metal can’t be stopped right now. As speculated, the Federal Open Market Committee finally decided it was time to roll out more easing measures.

In order to improve the struggling labor market, the Federal Reserve said it will buy $40 billion of mortgage-backed securities in an open-ended program and continue with its “Operation Twist,” where it swaps out short-dated securities for longer-term securities, as well as reinvesting the proceeds of maturing securities. In addition, the Fed extended its outlook for where it will hold interest rate to mid-2015, saying it will keep its ultra-loose monetary policy. This outlook is called forward guidance. Could this also mean we may see the current interest rates stay this low for quite some time? It does look that way.

First-Strike

December gold futures on the Comex division of the New York Mercantile Exchange were $1,761.70 an ounce right after the announcement. That was around a $44 dollar bump in a matter of minutes, as gold was trading at around $1,727.40 about five minutes prior to the announcement by the Federal Reserve’s monetary-policy setting arm.

The Feds held out as long as they could. I didn’t think they would announce this type of stimulus unless they thought it absolutely necessary. It seemed as though they were hoping the economy would recover more quickly. While the U.S. economy is recovering, it is doing so at a snails pace. The Feds had waited as long as they could, stating they were worried that without stimulus, “economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.”

Right now is the time to be in gold. If you aren’t, then hop aboard. Those of you who were able to purchase the yellow metal a couple of months ago when it was low are now reaping the benefits. Many investors agree that the $1,800 per ounce price mark may be achievable by the end of November.

"There's been a lot of money made in gold recently. People will take their profits on the move. There will be a pullback at some point. It's always hard to say exactly when that happens, but it will happen,” said Frank Lesh, a broker and futures analyst with FuturePath Trading.

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The Fall Move Up In Gold Begins

Wednesday, 05 September 2012
Published in From The CEO
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It could have been a fluke.  After all, we’ve seen it happen before.  Even precious metals experts had begun despairing.  Market pundits were announcing that gold was experiencing its last, valiant hurrah! Last week we saw gold move up over $30.00 in a single trading day.  Then we heard the warnings from the usual suspects.  This is a momentary spike.  This is fool’s gold.  This is the time to be careful, not foolhardy. 

Gold’s days are numbered. 

First-Strike

But leave it to Fed Chairman Ben Bernanke to put the world back on track.  Once he announced(albeit vaguely) last Friday that an additional monetary stimulus round willremain in the cards, gold kissed the $1,700 per ounce mark. We will of course know more about a possible third round of monetary easing when the FED FOMC meets on September 12.  For now though, Gold is in a good position to move to the $2,000 per ounce level by January, 2013.

For one thing, December gold futures surpassed $1,700 per ounce for the first time in over five months.  For another, on Friday the yellow metal bounced off the 200-day moving average of $1,642.68 per ounce.  While the ordinary investor should not be obsessive about technical indicators, you should be aware that these are very positive signs.

Meanwhile, data suggesting a continued flimsy economy continues to buttress the gold price.  The institute for Supply Management announced its manufacturing index declined from its respective June and July readings of 49.7 and 49.8 to 49.6 in August.  Reuters had anticipated an August reading of 50.  These readings haven’t been this low since July of 2009.  Also, according to US Department of Commerce figures, construction spending again defied Reuters expectations, and made a notable decline in July.

Keep in mind too that, although the US traditionally leads the pack, monetary easing from other countries has a strong effect on the price of gold.  The head of the European Central Bank, Mario Draghi is scheduled to make his own announcement tomorrow about whether ECB will kick in additional liquidity.  Expectations abound that, since he had made a previous announcement that ECB will do what it takes to support weaker Eurozone members, Draghi will offer no surprises to the contrary tomorrow.  This kind of easy money announcement from Europe will be bullish for gold.

By the end of this week, we will also be presented with revised employment figures from The Bureau of Labor Statistics.  While consumer spending has accelerated to some degree, the rate of unemployment in the United States has been dismal.  And there is little reason to expect a turnaround when the figures for August are announced.  Keep in mind the Fed has a dual mandate:  price stability and full employment.  While many (particularly conservatives) feel that the latter goal is inappropriate and too difficult for The Fed to handle, the central bank will look closely at US employment figures to arrive at a decision for initiating a third stimulus round.

It is this decision that will be the key influence on the price of gold in the weeks and months to come.  And it should be this decision as well that should persuade you to add gold to your portfolio.

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An Important Reminder About Silver

Thursday, 30 August 2012
Published in From The CEO
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Friday, August 31, was a significant day for Gold.  The yellow metal spiked $34.60 in one day to wind up at $1,692 per ounce on the tail of Fed Chairman Ben Bernanke’s speech at Jackson Hole, Wyoming.   The precious metals market clearly reacted strongly to his announcement that the Fed will continue to monitor the economy closely, and remain open to a third round of quantitative easing (QE3).  Read more...