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An old trading adage states the following: markets can remain irrational longer than investors can remain solvent.

Owning Gold

A gold sentiment indicator that we have helped to make popular is the premium/discount for Central Fund of Canada (CEF), a closed-end mutual fund that owns gold and silver; however, the environment for these shares has changed radically, and it is time for us to make major adjustments in the way we use this indicator.

Central Fund of Canada (CEF) is a closed-end mutual fund, which means that it trades like a stock on the NYSE. The fund owns gold and silver exclusively -- the metals, not stocks. Closed-end funds trade based upon the bid and ask, without regard to their net asset value (NAV). Because of this they can trade at a price that is at a premium or discount to their NAV.

ETFs

Gold ETFs (Exchange Traded Funds) began trading. There are now two of these ETFs , GLD and IAU.

There are also many mutual funds with exposure to gold markets, but they don't deal purely with the commodity itself. The funds invest in gold miners and manufacturers, and depending on their goals, may hold the commodity itself. "Most gold funds are plays on stocks, not plays on metal itself," said Clark.

Karen Wallace, a fund analyst at Morningstar, says that the two such mutual funds with lowest fees and most experienced managers are the Vanguard Precious Metals and Mining (Research) and the American Century Global Gold (Research). However, the Vanguard fund attracted so many investment dollars that managers decided to close it to new investment, she said.

1971. Gold is selling for $35. But Nixon breaks it from ties to the dollar and prices start climbing. By 1975, it's hit $196. And by 1980, we're talking $850.

In today's dollars, 1975 gold rockets to $750. 1980 gold, the peak year at $850, clocks in closer to $2,176. And this is only what you get using the Fed's own conservative numbers.

America has 8,180 tons - or nearly 261.7 million ounces - of gold in reserve.

How many dollars does that buy?

Well, in 1980, for every ounce of gold in America, the financial system carried $6,966. That's $1.8 trillion total. At the end of 2005, the total real money supply shot to over $10 trillion.

That's $38,349 in circulation for every ounce of gold in reserve!

Of course, you'll never see that price for gold.

Just like you'll never again - after March 23, 2006 - hear anyone at the Federal Reserve disclose the real size of America's money supply. The number is so embarrassing; the Fed has announced they're "retiring" it from future reporting.