Discount gold bullion may initially sound like a correction in terms to many inexperienced household investors, but the truth is that gold bullion is not unlike any other commodity. Since gold is such a costly item, many of us don’t realize that the more gold bullion that is purchased in a single transaction, the closer it brings the bullion price to the current spot price, which is the cost of a Troy ounce of pure gold. Bullion prices are normally just a bit higher than the current spot price, but local gold dealers are forced to drastically mark up their retail prices to cover their own overhead expenses.

Conversely, large-volume precious metal exchanges make huge gold bullion transactions to supply financial institutions like banks, corporations, and insurance companies with their gold. These exchanges receive what are called “institutional discounts” on their transactions, and the surplus gold bullion from these discounted transactions is available to household investors at the same institutional rate.

Household investors are advised to avoid local gold dealers, and to research the background of a reputable, large-volume gold exchange to assure a safe discount gold bullion transaction. Better Business Bureau recommendations are optimal, so investors can confidently make purchases in bullion bars like Johnson Matthey, or PAMP Suisse, or globally popular bullion coins like 22-Karat, $50, modern American Eagles, which contain a full Troy ounce of pure gold. Investors are encouraged to complete their research, and then to contact one of our friendly specialists, who offer institutional discounts on bullion bars and coins.

Danny Burns

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The Daily Reckoning

Two important items in the news today:

First, Bloomberg reports that retails sales fell 2.1% in September – the biggest decrease this year.

Know what that means? It means the “Age of Thrift” is here…and that consumers really are cutting back – just like we said they would.

And it means that the consumer economy is not going to return to robust growth anytime soon. And it means, too, that people will find it hard to find jobs for a very long time.

Another thing it means is that housing prices are not likely to recover – not in our lifetimes. That was a once-a-century bubble and it has blown up.

Mortgage lenders say they expect the peak in foreclosures to come about a year from now. As for the bottom of price declines, you can expect that in 2013 or beyond. A housing bubble typically takes prices down for six years, says a study by professors Reinhart and Rogoff. But this was not a typical bubble; it was an extraordinary bubble. Seems logical that the correction will be extraordinarily deep and long too.

And it also means that this stock market rally is very vulnerable. The stock market and the economy seem to be reading different newspapers!

The Dow fell 14 points yesterday. It could begin a major drop any day. That’s why our ‘Crash Alert’ flag is flying from our London headquarters.

Yesterday, we reported the curious fact that consumer spending as a percentage of the GDP had increased. But it only increased because the other parts of the GDP – notably business spending and investment – fell off even faster.

With output falling…sales falling…and investment (in new plant and equipment) falling even faster…who’s going to hire new workers? Not many companies. And which companies are going to invest in young workers…who will have to be trained – sometimes over a period of many years – before they are really productive? Not many.

It’s the “Lost Generation,” says BusinessWeek. Unemployment nationwide is officially 9.8%. But for young people the rate is nearly twice that level – at 18%.

Their elders aren’t doing so well either.

“Baby boomers working longer hours, for less,” says a Financial Times headline. What do you expect? Their currency is going down in value. Their customers are disappearing. Their retirement savings disappeared with housing prices. They can’t even borrow money anymore.

David Rosenberg:

“Now that lenders have started to respond to their record-high delinquency rates by rationing credit, a mad scramble for cash is occurring to replace the loans – food stamp usage is up 22% year-over-year, pawn shop business is up nearly 40%, and there is a tidal wave of applications for Social Security disability benefits that are not explained alone by workplace mishaps.”

Boomers have no choice. They need money. So they work harder, and longer. And they get paid less. Why? Because prices are falling. Even the price of labor. It’s a deflationary world.

Meanwhile, The New York Times reports, “China consolidates its lead in global trade.”

This headline is a little like the announcement that consumer spending is a bigger part of the economy. It might lead you to think that global trade is growing – or, at least that the Chinese part of global trade is growing. Not at all! Global trade is still shrinking. Chinese exports too. It’s just that China’s part of the global marketplace is increasing…because America and Europe are losing market share. China is gaining market share because it competes on price. And price competition is what is driving this market.

No discount? No sale!

Power and wealth are shifting east. No doubt about it. The Chinese took over the Hummer this week. And they are even building a ‘big plane’ – the C919 – to compete against Boeing and Airbus.

Is there any business they can’t compete in? We don’t know…but we’re counting on them to stay out of financial publishing at least until we retire!

The other big news is that gold has reached a new high. It rose yesterday to $1065 yesterday – an increase of $7.

“Why so high…so fast?” That was the question in our Daily Reckoning analyst meeting this morning.

“In the last big boom in gold – in the late ’70s – gold followed inflation…and the central bank. Investors saw inflation increasing. And they saw the central bank failing to react fast enough. They bought gold to protect themselves.

“But now…there is no inflation. And central banks are alert to the problem. They haven’t raised rates…but they don’t need to. There’s no need to protect against a problem that doesn’t exist. So what are investors trying to protect against?”

No one at the table had a good answer.

“They’re just looking ahead to when all that money the feds put in the system finally shows up in inflation. If you believe there’s a real recovery you might think it is coming soon…” said one analyst.

“They’re worried about a crash of the dollar…they’re just buying gold because it’s the anti-dollar…” said another.

“Maybe the Chinese are switching their reserves to gold…just like they said they would. And maybe instead of buying at below $1,000 they’re buying quietly below $1,100…” offered another.

“Gold is being re-monetized,” says MoneyWeek editor Simone Wapler. “All the world’s paper monies are losing value – and credibility. There’s a race to the bottom as they try to devalue their currencies.”

All countries are fighting for market share. In a price-sensitive world, they increase exports by cutting prices. And the fastest – sometimes, the only – way to do that is by devaluing the currency. But when one nation devalues – say, by printing extra money – other nations must devalue too in order to stay competitive.

What can they all devalue against?

“Gold is rediscovering its old role,” says Simone. “Once again, it is the way we preserve wealth and keep track of what things are worth.”

Your editor had his say too.

“Most people are buying gold only because gold is going up. Maybe they realize that the world’s financial system is in a period of crisis. They see the central banks are being derelict in their duty. Instead of protecting the value of their paper money the bankers are intentionally undermining it. They figure that if the central banks aren’t doing their jobs – that is, if they aren’t maintaining a reserve of real money – they’ll have to do it themselves. Each person now needs to be his own central bank, with his own reserve of real wealth – gold.

“Or maybe investors don’t see that all. Maybe they just see the price going up and they want to hitch a ride. What else can they buy that has been going up for the last 10 years? Gold is up $150 – about 17% – in the last 6 months. It’s up 27% in the last year. It’s up 300% since 1999.”

Gold is in a bull market. How far it will go and how long it takes it to get where it is going, no one knows. No one knows, either, how many scrapes and setbacks it will suffer before it finally reaches its destination.

But it is a bull market. And you don’t ask questions in a bull market. You get on board and ride it to the end.

Then, you wished you had asked some questions.

Until tomorrow,

Bill Bonner
The Daily Reckoning

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets. Follow the Daily Reckoning on Twitter.

Boomers Have Their Backs Against the Wall

More articles from The Daily Reckoning….

A month ago our US Mint sales report headline said "Presidential Dollar Sets Pass 600K." Today that picture reverses as the proof dollars withdraw to fall back below the milestone. Several other products fell as well in a week where demand for collector coins trended mostly lower.

There were several exceptions, especially for coins of yellow complexion. Bullion American Gold Eagles passed 1 million, Ultra High Relief’s picked up slightly and seven out of ten First Spouse Gold Coins improved over the prior week. These and other highlights follow:

• Whether it was a US Mint accounting correction or massive cancellation(s)/return(s), Presidential Dollar Proof Sets plummeted by 33,038 to fall to 576,211.

• Other proof sets also disappointed. 2009 Proof Set sales increased by 6,406 compared to the previous 27,856. 2009 Silver Proof Sets actually declined by 1,001.

• Braille products moved weakly. The newly released Braille Education set came in at 2,719 during the first four days of availability. The standalone uncirculated silver dollar picked up by just 343, and those within the easy-open capsule fell by 109.

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Read the rest of US Mint Sales: Gold Eagles Top 1M, Proof Presidential Dollars Plunge (1,247 words)

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Mark O’Byrne submits:

Gold: Gold closed Friday night trading at $1,048/oz and is currently trading $3 higher at $1,051/oz. In euro and GBP terms, gold is trading at €713/oz and £666/oz and has risen sharply in these currencies in recent days. Support for gold is currently seen at $1,040/oz and resistance at $1,062/oz. The record weekly close was bullish from a technical perspective but gold may need a correction and consolidation prior to challenging the next psychological level of $1,100/oz.

Contrary to the popular perception that gold’s rally has been purely a function of dollar weakness is the fact that in the last 3 weeks the dollar has actually strengthened against the euro and other major currencies (EUR/USD was above 1.48 on September 22nd and is at 1.4727 today).

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The Daily Reckoning

As predicted, both the European Central Bank and the Bank of England kept their benchmark interest rates at record lows in an effort to keep stimulating their economies. Trichet signaled that the ECB has no plans to raise rates in the near future, stating that the current level is ‘appropriate’ for the current economic environment. “The recovery is expected to be rather uneven,” Trichet said. “It will be supported in the short term by temporary factors but will be hampered in the medium term by balance sheet issues at financial and non-financial institutions.”

When asked about the recent fall of the US dollar, and the possibility of currency intervention, Trichet repeated the standard line saying, “excess volatility and disorderly movements” hurt growth; and policy makers “will continue to monitor the exchange markets closely and cooperate as appropriate”. Trichet also stated that he trusts his US counterparts (big mistake!) as to their statement on the strong-dollar policy. “When the Secretary of the Treasury and our friend Ben Bernanke say that a strong dollar is in the interests of the US economy and that they are pushing a strong dollar policy, this is a judgment that is obviously very important for us and the global economy.” NOTE TO TRICHET: YOU CAN’T TRUST A CHEATER!!

The current administration may say they support a strong dollar, but their actions sure don’t show it. Quantitative easing efforts have pumped a record amount of liquidity into the markets, and Washington has the printing presses working overtime. Unless the laws of supply and demand have changed, all of these US dollars that have been created will cause the value of the dollar to drop. We have seen a 15% drop in the value of the dollar index in the past six months. The current administration has no reason to support a strong dollar, and realize there is no way they are going to be able to protect the value of the dollar while pursuing their ‘quantitative easing’ policies. In order to protect the dollar, Geithner and Bernanke would need to shut off the printing presses, and actually put them in reverse, pulling liquidity out of the markets. There is absolutely no way this will occur anytime soon.

The Bank of England also left rates unchanged and announced that they would continue to push money directly into the economy through purchases of government and corporate bonds. At least one of the policy makers in England seems to understand what is going on. Conservative leader David Cameron stated today that the policy will lead to inflation, signaling to his party’s annual conference that it would stop the government’s main economic stimulus program if it wins the next election. “Sometime soon that will have to stop because in the end printing money leads to inflation”, Cameron said. But others remain trapped in their own twisted reality with former BOE officials calling Cameron’s remarks ‘dangerous’.

The dollar moved up a bit versus the euro (EUR) and pound (GBP) after the announcement, but fell again overnight. Overall, the greenback is up compared with yesterday morning, with the biggest moves coming against the New Zealand dollar (NZD) and Japanese yen (JPY). Asian central banks intervened heavily in the currency markets on Thursday to help support the US dollar. With China keeping the renminbi (CNY) stable versus the US dollar, other Asian currencies not pegged to the falling dollar have risen. Governments in Japan, Thailand, Hong Kong, and Singapore were big buyers of US dollar yesterday and continued with their purchases overnight. And while their efforts may work to slow the dollar’s decent, it won’t change the direction. These central banks just don’t have the financial power to change the inevitable fall of the US dollar.

Data released yesterday showed that initial jobless claims in the US fell slightly to 521K, and that continuing claims also drifted lower. Both are still near historic levels, and don’t support the claims that the US economy is pulling itself out of the recession/depression.

In other news, chain store sales managed to eke out a small increase in September. While the news caused a rally on Wall Street, the YOY increase was mainly because the stores had absolutely abysmal sales one year ago. The largest industry group is cautioning against reading too much into the increase, and to continue to predict a decline in sales for November and December.

In another report, the Commerce Department said wholesale inventories fell 1.3% in August, worse than the 1% drop economists had expected. This follows a 1.6% drop in July, as businesses continue to reduce inventories.

Today we only have one piece of data, the trade balance, which is expected to show a deficit of $33 billion for August. This deficit comes in spite of a falling US dollar, which should eventually make our exports more competitive, and force a narrowing of this balance. The continued deficit forces the US to have to attract foreign capital as imports continue to outpace exports.

Canada got a good piece of news yesterday as Canadian employers added jobs for the second straight month in September. The unemployment rate fell to 8.4% as employment rose by 30,600. The report will increase pressure on the Bank of Canada to raise interest rates from record lows, and could lead to strength in the Canadian dollar (CAD). We have been supporters of commodity based currencies, and Canada certainly has an abundance of raw materials. Their proximity to the US has caused some concern, as the US is still their largest trading partner, but Canada has worked to strengthen ties to China and is now enjoying an increase in exports to Asia as the recovery takes hold in the Far East.

An associate from headquarters down in Jacksonville emailed me last night to ask my opinion on recent events in Latvia. Now I certainly try to stay informed on all of the countries around the globe, but had to be honest and tell him I haven’t really ever looked at what is going on in Latvia. But after doing a bit of research, I realized what had sparked the question. Economic troubles in the Baltic state led to concern over the future health of Swedish banks. Plunging property values in Latvia have left borrowers ‘upside down’ on their mortgage loans, which are mainly provided by Swedish banks. The Latvian government had announced a plan to protect homeowners from foreclosure, angering Sweden. But overnight, Latvia has announced it is pulling away from its earlier plan, and would come to an agreement with its international lenders. It looks as if the ‘Latvian’ crisis will be resolved, and Swedish banks will avoid the possible losses that could have occurred. The Swedish krona (SEK) is unchanged on the month, and has increased over 12% in the past three months. With the Latvian crisis avoided, the krona will likely resume its move higher versus the US dollar.

After hitting an all-time high yesterday, gold slipped back slightly overnight. This was the first drop in the gold price this week, after the biggest weekly advance since April. We had expected a pause in the rapid ascent for gold, and a small move higher by the US dollar has pushed gold lower. Many traders are now calling for a near-term correction in the price as investors take profits from the rapid move. According to an analyst at HSBC: “The likelihood that long-term dollar weakness will support gold does not obviate the fact that the near-relentless increase in bullion prices recently has raised the possibility that gold is due for a pullback,” HSBC Securities analyst James Steel said in a report emailed today. “A dollar rally, even if only temporary, could provide a reason for gold longs to take profits.”

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets. Follow the Daily Reckoning on Twitter.

Don’t Trust the Dollar Strength

More articles from The Daily Reckoning….

For the third straight week, the United States Mint is set to adjust its collector gold coin prices in response to London gold weekly price changes.

Expect UHR Gold Double Eagles and First Spouse Gold Coins to rise Wednesday, Oct. 7, around noon ET by $50 and $25, respectively. These coin prices were just lowered last Wednesday, Sept. 30.

Although there is still one day left in the Mint’s gold coin calculation to consider, gold has shot healthily above the $1,000 an ounce trigger point during the last several days. The current four day average is at $1,010 an ounce. Prices would have to tumble below $960 an ounce by early Wednesday morning for no correction to occur. That seems most unlikely since spot gold is sitting at $1,038.30 an ounce (plus $21.10 on the day) as of this writing.

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Read the rest of US Mint Gold Coin Prices Set to Increase Again (134 words)

Spot gold inched up on Tuesday to trade above $990 as the euro gained against the dollar, although investors were somewhat cautious, saying bullion may be due for a small correction.

The precious metal rose towards $1 000 on Monday, but gave up some gains after the dollar accelerated its advance versus the euro, causing commodities to become less attractive to non-US investors.

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But, any correction below $1,000 will draw good buying

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Invest With An Edge submits:

Precious metals are making news again. A combination of factors have pushed metals into the spotlight – especially gold. India’s wedding season is approaching along with hopes for a holiday buying spree. More important, fear of a falling dollar has caused the yellow metal to climb the charts yet again.

With gold consolidating in the 900’s for the past few months, we think the yellow metal has a strong chance of staying near the $1,000 barrier. Last week it broke above its June highs and is fast approaching the March 2008 all-time highs. That rally was sharp and almost unmitigated by corrections. This time, the gains have been steady with ample consolidation.

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Bullion Vault

As the US fights deflation, credit inflation is alive and well in China…

The INVESTMENT COMMUNITY is divided at present as to whether the world economy faces hyperinflation or deflation, writes Puru Saxena of Money Matters and Puru Saxena Limited in Hong Kong.

Some observers are convinced that the central banks’ printing press will take the world towards hyperinflation whereas others believe that the ongoing contraction in American private-sector debt will result in outright deflation.

But what will the future bring? It is my contention that we will get neither hyperinflation nor deflation.

What is more likely is that, over the coming months, we will get another deflationary scare. Any sell-off in the markets later this year will be met by an even larger stimulus from the policymakers and this will ultimately result in high inflation.

So I maintain my view that due to the unprecedented policy responses around the globe, the world’s economy will face high inflation over the medium to long-term. And the general price level will double over the coming decade.

In the near-term however, we will probably get another period when the market will (once again) become concerned about the prospects of a lengthy economic contraction. It is conceivable that the ‘green shoots’ hype currently doing the rounds will soon be replaced by more economic worries as a second wave of foreclosures hits America later this year.

It is therefore possible that before year-end we will witness large corrections in stocks and commodities. Conversely, we are likely to see big rallies in US government bonds, the US Dollar and Japanese Yen.

Read more….