Is It Time to Buy Gold? 78 comments
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Just a few months ago, the race was on for gold. In March, gold blew past $1,000 an ounce. Commentators were jumping over each other to make a more attention-getting prediction than anyone else was.
$1,500 an ounce…$2,000…$3,000 – they would say.
The gold bulls were getting very aggressive. Some even started adding a time element to their predictions (i.e. “gold will hit $1,500 an ounce within a year” – that really only happens when bullishness is at an extreme high). I even saw a few - back of the envelope - calculations to justify $10,000 an ounce gold…or higher!
At the time, inflation was a top concern, Wall Street was turning to precious metals in a big way, and gold stocks were setting new highs for the decade.
It was euphoric. Even shares of Seabridge Gold (NYSE:SA) – which just owns a lot of property with gold in the ground – were being bid up every day. The company, which has no sales or revenue, was worth more than $1 billion.
With China’s inflation rate at 12%, Vietnam’s at 20%, Russia’s at 8%, and every other emerging economy facing rampant inflation, the future seemed very bright for gold and precious metals. Expectations of future riches in precious metals were growing stronger by the day. And many gold bugs were eagerly anticipating the big payday that some have been waiting on for 30 years. It was finally going to be “their time.”
Needless to say, it was a very exciting time to be a gold investor. Exciting investments, however, rarely turn out to be all that exciting in the end.
Here we are six months later. Gold price is down 20%, silver prices have been cut in half, and gold investors were met with the financial catastrophe they’ve been waiting for. Stock markets around the world went into freefall, banks failed, real estate values spiraled downward, consumers decided to start saving (all at the same time, practically)…a true financial crisis was at hand.
Gold, as a safe haven, would surely soar, right?
Well…it didn’t, and it probably won’t for a while. Here’s why:
Where, Oh Where, Has My Inflation Gone?
Gold has traditionally provided protection against inflation. I’m sure you’ve heard them all, including: gold is a store of value; gold has been a means of exchange for 3,000 years, etc. Gold has many attributes, which make it attractive.
Of course, detractors can make a decent case against gold. Warren Buffett probably summed the case against gold best when back in 1998 he said:
[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.
At the Prosperity Dispatch, we go as far as to say gold is not an investment (it’s one of the most commonly misunderstood market myths). Gold is, however, an insurance policy against hyperinflation or economic catastrophe.
But with gold nearing $800 an ounce, is now the time to be buying gold?
Don’t Worry, Be Happy
The answer is yes and no. If you look at gold as an insurance policy and you don’t own any gold, then the answer is yes. However, if you already have gold, then the answer is a bit more complicated.
At its root, inflation is based on the amount of money supply. If there were more paper currencies floating around in the world chasing the same amount of stuff, then naturally things would get more expensive. That’s inflation. But right now, we’re in a period of deflation. Things are a lot cheaper than they were just a few months ago, and everything is getting a lot cheaper.
Just look at the prices for commodities. Zinc and nickel prices are off more than 75%. Copper, aluminum, and iron ore prices are down more than 50%. Fertilizer prices have practically fallen off a cliff. Oil, natural gas…you get the picture.
Deflation is not just in the markets though, you can see it all over in the real world. As we’ve been anticipating for a while, retailers are slashing the price on anything (you can view the original article on how bad the retail downturn will get here), and they’re only going to keep slashing prices. From their perspective when cash flows are drying up and the bills are piling up, it’s far better to sell a sweater at a loss than have it unsold.
It’s not just prices at the mall though. Gasoline prices have fallen for 77 straight days. The automakers are sponsoring massive discounts (as big as 50% off in some places) just to get their bloated inventories trimmed down. Pretty soon you’ll see the impact of falling oil and energy prices in the form of lower electricity and heating bills.
If anyone is concerned about inflation now, they simply shouldn’t be. As Jeremy Grantham noted a few weeks ago,
Don’t worry at all about inflation. We can all save up our worries there for a couple of years from now and then really worry!
Printing Presses on Hyperspeed
However, I know why many gold buyers are getting frustrated, as they are constantly barraged about how much new fiat currency is being created.
The Fed is printing dollars at an unprecedented rate, and if the economy doesn’t turn around in the next year or so, the U.S. central bank could be on the hook for trillions more. The only way it can pay for it is with more new dollars.
Therefore, it would make sense, on the surface, that inflation is imminent. Frankly, the risk of inflation down the road will be very real (remember, the Fed can reduce money supply as well). For now though, consumers are dealing with one of the greatest periods of paper wealth destruction of the past century.
Real estate prices have tumbled and still haven’t hit rock bottom. On top of that, the overall stock market has been cut in half. That means about $20 trillion in wealth has been eliminated.
Sure, that was all paper wealth and it was never real money that anyone could spend. But it sure had an impact on consumption. The average consumer who watched his house triple in value over the past few years certainly splurged on a few nice things. And the man whose portfolio just doubled certainly spent a few extra bucks on whatever he wanted when the market was setting new highs.
That’s why despite the trillions of new dollars being thrown into the economy, we’re still in a period of deflation. A lack of inflation will certainly put the brakes on any bull market in gold. That is, if we’re really still in a bull market for gold.
I’ve Never Seen a Bull Market Like This
This is what concerns me most right now about gold. There’s a good chance the bull market may be over. Gold is already down 25% from its March highs and a lot of investors are betting it’s just a correction. I’ve got to tell you, I’ve been through quite a few bull markets and I’ve never seen one like this.
A few months ago, gold shot up $70 an ounce in a day. It was gold’s biggest one-day move in history, but the rally was short-lived. Following the big move, gold prices dropped almost 30% before bottoming out just under $700 an ounce. After all those sharp ups and downs, no one was really surprised when gold would drop $40 in one day and then climb $30 the next, and vice versa.
This is what concerns me, because bull markets are usually much steadier. There’s some volatility, but ups and downs are usually pretty small.
The perfect example is the bull market in fertilizer stocks. For years, stocks like Potash Corp (POT) and Mosaic (MOS) would just steadily climb. Then over the summer, all of the fertilizer stocks doubled in price in about two months' time. The bubble started to form and it looked like these stocks would go on forever.
Then in July, fertilizer stocks became precariously volatile. I was watching Mosaic closely (because I had a sizable short position on it), and remember it dropped 20%, rebounded quickly, dropped sharply, and rebounded again, all in a few weeks' time. The bull market in fertilizer stock was showing it wasn’t bulletproof after all.
Whether gold goes up or down will depend on many factors. However, with gold at $770 an ounce and as volatile as ever, it’s definitely not a “sure thing” from here.
Investing and trading is in essence a game of risk and reward - buy low/sell high. The risks of gold falling further are very real. Deflation is the top concern and the price of everything is falling, and gold is not immune.
To win big safely, you have to buy low. Buying low reduces your downside and increases your upside. It’s the only way to get the risk/reward potential in your favor (step one to making a successful investment).
With that in mind, when asked, “Should I be buying gold right now?” The answer, for most of us, is no. Gold, at $770 an ounce, is at a midpoint, and if you’re looking to buy gold, chances are you’ll be able to pick it up a good bit cheaper than you can today.
Disclosure: None
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This article has 78 comments:
But central banks abroad & OPEC countries aren't most of us. Gold mights start to look preferable to Euro- or dollar-denominated bonds. Such a change of sentiment on their part would be a game-changer.
"Have enough cash on hand to live for the next year or two.
Buy safe stocks cautiously."
And remind me, the safe stocks are what?
Like your article says, if it's just put back in the ground(in a vault) and has no value why so much noise about it. Sorry your article is contrarian to what you are trying to prove. I guess the best comment would be that in times of inflation or deflation gold holds its value best.
"I've never seen a bull market like this" No one has seen anything like this, c'mon.
freundinvesting.com/20.../
"At its root, inflation is based on the amount of money supply."
Despite claiming inflation is a measure of money supply the author then continues on to claim that deflation is falling prices instead of a falling money supply. If inflation is an increase in the money supply, then deflation must be a decrease in the money supply, not the fall in prices it would create.
What we are currently experiencing is debt liquidation. People are selling assets for whatever they can get and in great amounts so they can get cash to pay off their debts. As the author noted, the money supply is skyrocketing:
"The Fed is printing dollars at an unprecedented rate"
While the short term effect of the forced liquidation of assets to pay down debt is driving prices down, the monetary base is still inflating like never before:
research.stlouisfed.or...
The author eventually winds up in the right ballpark noting that inflation pressures could be felt in the future, and likely will be.
The article then continues on a common theme for those who question gold's value:
"Investing and trading is in essence a game of risk and reward ... The risks of gold falling further are very real ... With that in mind, ... “Should I be buying gold right now?” "
The only viewpoint considered is whether gold can be sold for more than it costs now. Given the huge increases in the monetary base and the increasing reluctance of foreigners to buy US debt, one has to wonder what the 'value' of the US dollar will be in the future.
Perhaps the question considered above should be recast as follows:
"Will the dollar be worth holding in the future?"
I know that I can trade my gold for something worthwhile, history has shown that to be true. History has also shown that any country which has geometrically debased their fiat currency has eventually suffered economic collapse when the purchasing power of the monetary unit falls to nearly nothing.
If that weren't the case then perhaps the author thinks it might be a good idea to snap up some shares on the Zimbabwe market and catch a quick 300% gains in $Zimbabwe.
Applying some back of the envelope calculations: 2008 - 78 = 1930.
If you were fortunate enough to know your parents or grandparents you met people who bought things with gold back when gold was the official US money.
A follow up question:
If someone from Zimbabwe came to you and offered to buy something from you with a staggeringly huge amount of $Zimbabwe, would you even consider accepting knowing that their currency is losing value at an astonishing rate? Probably not.
Now if he offered you gold instead would you at least consider the offer? Probably, though you might haggle over the amount of gold.
You would know for a fact that the value of gold is relatively stable while the $Zimbabwe isn't. If you are certain that you can receive value you will be more likely to exchange at some price. If you are uncertain that what you will receive even HAS value you will be unlikely to exchange at any price.
This is really the only thing you need to know; the rest of your article goes on to muddle and confuse this clear and simple statement of fact. The dollar monetary base has more than doubled in the last year, and most other fiat paper issuers have made similar moves. There's the first half of your statement. For the second half, observe predictions from HSBC and others that 4th quarter US GDP will likely come in at a -6% annualised rate and that 2009 GDP will likely fall from 2008 by anywhere from 0 to 1%, estimates that will probably be cut several more times. All that fiat paper isn't chasing the same amount of stuff, it's chasing less of it. If people are willing to sell things to you at prices that don't reflect that reality because they are desperate to pay their dollar-denominated debts, consider it an opportunity. In the long run those sellers will all bust out or pay off those debts and they WILL demand prices that reflect the quantity of fiat paper available relative to the quantity of goods and services. All you are seeing right now is a short squeeze in fiat paper that, like many market imperfections, has caused price to deviate from value. It's an arbitrage opportunity, and like many more traditional arb plays (look at even the T-bond market) right now, it's not getting any action even though there is literally free money to be had.
How you can get from your correct and succinct explanation of inflation and how it triggers higher prices to "we have deflation now" is mind-boggling. Do you disbelieve the Fed's own figures about its balance sheet? Is there something else out there that suggests that the money supply is in fact shrinking? Do you have data to suggest that output is rising at more than a 100% annualised rate? You haven't presented any, but you have to if you want to state that there is deflation. This failure makes the rest of your arguments crumble.
Should you own gold? Only if you think you can't get a positive real return from something else. If you'll be satisfied with zero change in your assets' purchasing power while you own them, gold is the only game in town. The dollar and other fiat paper is no substitute for gold as a store of value, and doesn't even deliver any nominal returns right now. Therefore there is no reason to own it other than raw speculation - "the trend is your friend". If you're a momentum trader, the dollar and Treasuries probably look great right now, just like oil did in June. If you're nimble enough, you can make money this way. I don't bother because there are risk-free opportunities lying in plain sight.
Otherwise, your choice is between gold and the various capital assets offered by the world's corporations - bonds and equities. Because few if any bonds are denominated in gold, they are much more risky than the fundamentals of the debt itself would suggest. With the money supply increasing at more than 100% per year it's hard to make a case for bonds even if you knew with absolute certainty that a bond yielding 20% and rated B- should really be rated AAA, as it has zero chance of default. Much like a bad poker play, you'll probably make a little money quite often on such a trade, but you'll occasionally lose your whole stack; the trade has an infinite-term expected value well below zero. The law of large numbers is against you here. Equities? Good luck.
As you can see, the question is not really "should I own gold?" but rather "what capital assets are available at prices that offer me a positive expected real return over the time frame of interest?" If there are none, then you should own gold simply because zero is larger than any negative number. Gold is the only meaningful standard of value for long-term investors and the default asset when no attractive investments are available. But it is not itself an investment, nor is it a vehicle for speculation. I would suggest that most people should have most of their assets in gold right now, simply because most corporations have only marginal businesses that require an infinite supply of cheap money to achieve profitability. Until those corporations fail or address the deficiencies of their businesses, it will be a difficult market in which to make money. If you are certain that your information is better than the market's, a modest investment in superior businesses is always a good move. And the numerous arbitrage opportunities available today demand at least some attention from any but the most casual trader: a glaringly ragged yield curve for fixed-income arbs, or perhaps the simple fact that the dollar is overvalued on the short squeeze. If you have trading capital, are willing to accept small but certain gains, and can hang onto your positions indefinitely, these opportunities are too good to ignore. But you always have to price your gains in gold, and you should never be without a healthy holding of it. It's your capital base and it gives you the strength to stick with good trades even when the market moves against you.
Not Zimbabwe.
On Dec 05 11:32 AM Smarty_Pants wrote:
> "In my 78 years I've heard of gold for safety. But I've yet to meet
> anyone who ever bought anything with it." - Dr. Jackpot
>
> Applying some back of the envelope calculations: 2008 - 78 = 1930.
>
>
> If you were fortunate enough to know your parents or grandparents
> you met people who bought things with gold back when gold was the
> official US money.
>
> A follow up question:
>
> If someone from Zimbabwe came to you and offered to buy something
> from you with a staggeringly huge amount of $Zimbabwe, would you
> even consider accepting knowing that their currency is losing value
> at an astonishing rate? Probably not.
>
> Now if he offered you gold instead would you at least consider the
> offer? Probably, though you might haggle over the amount of gold.
>
>
> You would know for a fact that the value of gold is relatively stable
> while the $Zimbabwe isn't. If you are certain that you can receive
> value you will be more likely to exchange at some price. If you are
> uncertain that what you will receive even HAS value you will be unlikely
> to exchange at any price.
Don't forget, no culture, civilization, or society has ever lasted more than a few hundred years without cataclysmic change. So cheer-up and realize everything is impermanent and nothing remains for long. Except gold.
We are still in the process of unwinding all the excessive debt and leverage. Hurts like hell.
I'll hold. These are extreme times where unexpected and frightening events may unfold without warning. Deflation will lead to unrest, war, and no fiat currency-based government will let it happen.
Strangely enough, gold is a safe asset attm precisely because it does nothing, has no counterparty risk, and is expensive to find.
I think it is very appropriate when BearFund noted how "bubbles" form and keep going for a long time defying logic. All the time you are scratching your head and saying "This can't be!" Examples of recent bubbles that went for a long time are Housing, Oil and Commodities. And now we have a bubble in Dollars and Treasuries. Again you are scratching your head and saying "This can't be!" After a while you have a tendency to join with the crowd and start making up logic why the bubble is not a bubble and there is sound rationale behind it. It is sort of like the Goldman analyst who called for $200 oil in the middle of a poor economy. A lot of people listened to him and got burnt.
If you are part of the dollar and treasury bubble GET OUT NOW! This is a great opportunity to get into Gold which will have incredible price appreciation and eventually will form its own bubble. Besides the "Safe haven" and the "Inflationary Hedge" arguments as currencies of the world crumble one other good reason is what I call "event risk". If tomorrow terrorists get off the shore and attack New York, Chicago and Boston what then? What if tomorrow you wake up and see Indian troops massed on Pakistani border and Indian navy blockading Karachi? These kinds of events are a real possibility as the misery index rises around the world and give even more compelling reasons to own Gold.
But people should still watch the market carefully and see when the falling prices will be enough to increase consumer, not necessary in USA, but all over the world.
For about 6 month producers will have a huge material cost included into their fabrication products, because of the heights reached by commodities in the summer, but when this will end prices to final products will start to drop fast and help consumer a lot. Then will see commodities start rising again, especially gold. That's my view.
The way commodities increased and dropped this year was like a fireworks and monetary policy might be too severe for what is to come.
On Dec 05 08:27 AM CLH wrote:
> The best article I have read on "should I buy gold". We are in the
> worst deflation since 1930s and the dollar is soaring, however most
> think gold will save them. Dumb dumb. Keep your money in dollars
> not gold.
Am not a gold bug, in fact have started studying the market recently but tell me something, even if inflation doesn't show up sometime soon, all the measures that the gov is taking to tackle the deflation are directly/indirectly going to cause the devaluation of the dollar (even the gov would like a gradual devaluation since that would work against deflation) and hence will be good for gold. Hence I think the conventional wisdom that gold would do well 'only' in an inflationary environment is flawed, a deflationary environment has been really good for gold.
Name any commodity on the planet for which the demand is a constant.
Now, explain clearly why money can have its value fluctuate only in response to supply, without reference to demand.
It is nonsense start to finish. We are in a deflation, the demand for safe money and dollars in particular is soaring and for excellent and sustained reasons, gold is already in a bear market and it will capitulate soon enough. Oil is down by 2/3rds and still dropping without pause, and has a better claim in the fiat hyperinflation silly thought scenario. Houses are down 1/3, 1/2 in some places, ditto. Gold isn't special, and there is no hyperinflation.
The Fed didn't let M1 move an inch between March 2005 and March 2008. That was enough to break all the bubbles, because *spendable* money simply did not increase to justify all the inflation bets the whole world crowded into making, with borrowed dollars (and yen). MZM stopped moving in May 2008, and the commodity markets rolled over immediately.
None of the central bank actions since then have even come close to matching the spike on the demand side, for money and against everything else. That is why prices of commodities and assets have continued to fall. Heck, they have barely exceed the rate of money destruction and haven't remotely match the rate of wealth destruction in longer dated claims.
www.321gold.com/editor...
Real interest rates are currently around -2% for 1 year treasury debt. Once the panic induced flight into treasury 'quality' abates, the guys with really sharp pencils will realize that they are losing purchasing power in US debt and start looking for other assets to hold which maintain that purchasing power better. Some might choose gold.
Anyway, I found it interesting. Thought some others here might find it so as well. Enjoy.
ceotalk.blogspot.com/2...
news.goldseek.com/Gold...
seekingalpha.com/artic...
Thats forty years. Yes buy gold and wait 40 years for inflation. I hope you are young.
"
Haha! Gotta love the internet! Some people here probably in their mid 20s or 30s trying to teach a 78 year old lessons about the Great Depression! Sorry Pop, looks like the young shots here think if they would have lived in the GD, they would have done way better than everybody, right? heh.
Keep it up!
We are in a unique period of history--this global crisis is occurring everywhere and governments everywhere are responding the same--increasing moeny supply, and decreasing rates.
Nothing is certain in this life. There is no doubt we are headed for some deflation. But throguout history goverments have used inflation to monetize debt and keep their hold on power.
A bet on long term, sustained deflation is a bet that governments will act in ways that don't serve their interests.
Market forces are not determining stock market and precious metals prices. Financial engineering is going on behind the scenes, hence the lack of transparency concerning where all the money under the "tarps" is going.
Precious metals bets in the paper markets are little better than chips on the craps table in Vegas; it is pure gambling, not investing because you do not know how the wheel is rigged or when the pit boss will push the button for "00", red, or black.
Buying the physical metal is different. It is not investing either in times like these; it is capital preservation. If you cannot predict how the dollar will be destroyed - it IS being destroyed by out-of-control deflation or by hyperinflation to come - your only recourse is to shelter some of your capital in the form of a physical asset such as gold, silver, platinum, or palladium.
In really bad deflation, when money is extremely hard to come by, precious metals are still money. In really bad inflation, when money is abundance but nearly worthless, precious metals still have value. You might not get rich, but whatever happens, the value of precious metals does not go to zero as the value of paper money can and has done repeatedly in the past.
So, the debate about when to "invest" in gold is misguided. Gold is a lifeboat should the economy really go down the tubes, not an RV.
Finally, I'm concerned about bank failures. It may be unrealistic to assume that all bank deposits, bonds, commercial paper, swaps, annuities and pensions can be guaranteed by government.
Your first question is a canard. Did you mean it to be?
I'll take your second question. Fiat money's value is determined in part by its scarcity. When it is perceived to be less scarce, as it was in Weimar Germany, its value falls irrespective of demand.
There is no hyperinflation, yet. There IS sustained dilution of capital via printing, and there is a lot more dilution to come. When the scarcity of unbacked / unredeemable currency is in doubt, inflation results.
Look for an article by me on this exact subject coming very soon (I hope).
On Dec 05 03:35 PM JasonC wrote:
>
> Name any commodity on the planet for which the demand is a constant.
>
>
> Now, explain clearly why money can have its value fluctuate only
> in response to supply, without reference to demand.
>
> It is nonsense start to finish. We are in a deflation, the demand
> for safe money and dollars in particular is soaring and for excellent
> and sustained reasons, gold is already in a bear market and it will
> capitulate soon enough. Oil is down by 2/3rds and still dropping
> without pause, and has a better claim in the fiat hyperinflation
> silly thought scenario. Houses are down 1/3, 1/2 in some places,
> ditto. Gold isn't special, and there is no hyperinflation.
>
> The Fed didn't let M1 move an inch between March 2005 and March 2008.
> That was enough to break all the bubbles, because *spendable* money
> simply did not increase to justify all the inflation bets the whole
> world crowded into making, with borrowed dollars (and yen). MZM
> stopped moving in May 2008, and the commodity markets rolled over
> immediately.
>
> None of the central bank actions since then have even come close
> to matching the spike on the demand side, for money and against everything
> else. That is why prices of commodities and assets have continued
> to fall. Heck, they have barely exceed the rate of money destruction
> and haven't remotely match the rate of wealth destruction in longer
> dated claims.
andrew Mickey, go to gata.org and read the articles with J.P.
Morgan and Citibank all buying huge amount of silver and gold shorts
to manipulate the gold prices, with them admitting it all on record.
PLEASE somebody with alittle clout bring this stinking mess out.
The govt is in a bad spot now and might be the best time to get it out
in open. Go to gata.org read 5 articles on it google more, go
What gold really is, is a protection against crisis. In that sense it is the ultimate store of wealth (provided that you keep it by yourself and in a safe place). This is also the reason why the gold bull is differently from others (and I am not referring here to the manipulation of the gold price). As a crisis usually does not unfold in a continuous and linear way (or at least this is not perceived so by market participants) the bull in gold is necessarily not smooth but reflects the bear market volatility of the other asset classes under these conditions.
stockcharts.com/def/se...=$WTIC,PRTLWANRBO[PB13...
GOLD $1500 to double OIL to $80 to double. Hedgefunds picked oil over gold as the inflation hedge
Not a single chart, don`t even talk about the strongly recent physical demand in COMEX which the AUTHOR COMPLETELY IGNORES by the words being said in his analysis.
His analysis goes:
"maybe yes, maybe no. buy if you don`t have. complicated if you already have gold". Come on?!!?!! Editor pick?!?!?!
Always remember that monetary policies have a delay of 6 months.
Best wishes
On Dec 05 11:28 AM AlexR wrote:
> Gold has utility as jewelry, tooth fillings, electrodes, and a few
> other places; and this gives it a natural price floor and ceiling:
> at some price point it's a bargain, but if it moves too high there
> is just a lot of other stuff the average person would rather buy
> with that money. This little bit of utility combined with non-perishable
> composition and ease of transportation justifies a certain secondary
> utility: as a means to store value in the very long-term at very
> low cost (inflation protection, no fees and no taxes, wow!). But
> to extrapolate that into some sort of miracle investment that can
> only go up (especially in a recession) is really stretching the facts
> too far.
GOLD IS IN A DOWNTREND.
YUP. IT REALLY IS THAT SIMPLE.
YOU BUY WHEN THE TREND BECOMES BULLISH AGAIN.
This time is no exception. I thank my lucky stars that Smarty Pants, jt, bearfund, SWRichmond, et al, (mark mchugh, too) are providing their expertise on the subject, and strive to keep the record straight on what is real versus BS in the articles presented.
I feel this way because I have gone through one horrific period 2000-2001 where I lost everything (mid-6 figures) and the only thing that rekindled the spark that I have financial security AGAIN is the decision to stock up (since 2003) on PHYSICAL gold and silver.
After the mess created by our governmental leaders and elitist greedy bastards (EGB's) these past few months, I'm CONVINCED financial success going forward (3-5 years) will in large part result in one's accumulation of silver and gold! Buy it where you can find it, NOW!
It is always dangerous to call other people dumb it could possibly be that you are overlooking something and maybe the other people aren't the dumb ones.
On Dec 05 08:27 AM CLH wrote:
> The best article I have read on "should I buy gold". We are in the
> worst deflation since 1930s and the dollar is soaring, however most
> think gold will save them. Dumb dumb. Keep your money in dollars
> not gold.
"Paper is poverty" - Thomas Jefferson
"Paper is poverty" - Thomas Jefferson
In a year he will be writing how he promoted gold while you can still buy it.
On Dec 05 09:34 AM cruiser9805 wrote:
> I guess that's why china is looking to up it's gold RESERVES by 300%!!
> If gold is not that important why does the US have over 260 million
> ounces guarded by such extreme security measures? Matter of fact,
> why is it even called a RESERVE? I mean, i don't hear about copper
> reserves or zinc reserves...or even silver reserves being guarded
> in Fort Knox or the Federal Reserve.
> Like your article says, if it's just put back in the ground(in a
> vault) and has no value why so much noise about it. Sorry your article
> is contrarian to what you are trying to prove. I guess the best comment
> would be that in times of inflation or deflation gold holds its value
> best.
On Dec 06 03:02 PM HBWOW wrote:
> We can all speculate about what is gold going to do but in the real
> world of mass manipulation of ALL the markets, gold prices have,
> are, and will be controlled by the big dollar holders, China and
> Japan. They keep the dollar propped up to continue to pull trade
> dollars from our economy and with dollar propped up, gold will stay
> down and cheap so they can continue to hourly, daily, weekly increase
> their gold/gold mining stocks holdings. They realize that their gold
> reserve ratios to their fiat currencies are too low particularly
> in light of the whole world's ever increasing supply of fiat currencies.
> There is your nut shell on gold.
Andrew has his facts spot on this time.
For the loudscreaming commenters below Mickey, I would say;
There are basically two types of deflation;
Monetary deflation, and asset deflation.
What we saw from 2007 till now, is asset deflation. The outflow of credit from assets like housing, stockmarkets, investments vehicles etc.
What were facing today, is starting to behave like monetary deflation. The contraction of the money supply which is accompanied with lower prices for commodities, lower retail prices, differred investments etc.
The money supply also contracts with toxic assets that are 'worthless' in mark-to-market accounting. Although this toxic asset still is a liability, it consumes money be it as debt.
The FEDs printing of money, is merely 'on the books'. The actual moneysupply only increased about 10 percent, I read recently. The FED balance sheet, increase by 1500% almost. This money doesn't enter the real economy yet. But is used to prop up banks and buy maturing Treasury bonds. Its also being used for currency swaps with ECB and other Central banks.
If you know something about inflation, thats fine.
But go read a bit more about deflation also guys. Some comments are truly selffulfilling. Especially the guy who lost 6-figures in the tech bubble. He's gonna need a few years to make money on gold investments at the top.
Good article Andrew. Keep it up.
The inflation/deflation debate can go on and on. Personally I think inflation will win in the end, but the deflationary environment right now is very real and serious. In the grand scheme of things however, its almost meaningless.
Lets take the paper gold trade. If you wanted to take control of the gold market fast, wouldn't it be easier to hold positions and take possession when these expire? Better and faster than mining. But wait suppose the US is also buying these notes. All of a sudden you have two equal forces wanting possession.
Now who moves first. If China moves first the value of the US dollar would be destroyed but in doing so, Global economy would totally collapse. Who would trade with China under this scenario?
Now lets say the US prints all the money to pay off all it's debt, dollar would devalue, global collapse, same problem but with US.
So now both countries are stuck in a MAD scenario. The good thing about this is gold will maintain a better value for the next 10 years, so i can afterwards buy other stocks cheap.
I am sorry, but i see no way out of this mess except a large deflation, coupled with a dollar devaluation in the short and moderate inflation long term.
sorry MAD=Mutual Assured Destruction
On Dec 06 08:28 PM cruiser9806 wrote:
> I am surprised how no one has written that gold is a MAD (Mutual
> Assured Proposition) between US and China.
> Lets take the paper gold trade. If you wanted to take control of
> the gold market fast, wouldn't it be easier to hold positions and
> take possession when these expire? Better and faster than mining.
> But wait suppose the US is also buying these notes. All of a sudden
> you have two equal forces wanting possession.
> Now who moves first. If China moves first the value of the US dollar
> would be destroyed but in doing so, Global economy would totally
> collapse. Who would trade with China under this scenario?
> Now lets say the US prints all the money to pay off all it's debt,
> dollar would devalue, global collapse, same problem but with US.
>
> So now both countries are stuck in a MAD scenario. The good thing
> about this is gold will maintain a better value for the next 10 years,
> so i can afterwards buy other stocks cheap.
> I am sorry, but i see no way out of this mess except a large deflation,
> coupled with a dollar devaluation in the short and moderate inflation
> long term.
What the heck?
The number of investors that are taking delivery on the gold & silver behind their long futures contracts is increasing because COMEX prices are unrealisticly low compared to the real world.
Dollars are being printed in mass but are being tied up in bonds keeping them out of the market. Treasury bubble in the making? Ya think. Lots more dollars but we cant use them right now.
The government simply does not understand they can not manipulate this financial market. It simply got to far ahead of them in both size and scope. It is like squeezing on a baloon. The bubble simply moves to another location. They are chasing the bubble around and trying to bleed off a little each time to get this thing under control but they just keep making a different problem and someone keeps loosing a lot of money each time there is a bleed off.
This is a steroid pumped nightmare of financial "wac-o-mole" for all the feds men and all the feds horses.
Deflation seems to be from panic liquidation and the consumer electing ALL STOP on unnecessary purchases including stocks. If prices stay below the cost of production---productio... will slow and a lot will cease. Lets hear someone argue this point.
Lower sale price = lower production.
Now the government wants to inject a butt load of more money into this market directly to the consummer. You should be scared. They are!! And no this is not scare tactics.
Obviously there is more deflating (bleeding off the bubbles) to be done that we dont know about. That would tell me that a lot more dollar printing is going to happen. As a side note to this dollar printing where is the social security checks coming from right now and tomorrow. More printing and that demand is increasing. Wait till inflation kicks in and the dollar amount of those checks goes up.
More deflating will require more dollar and every other fiat currency printing. But there will also be more production losses at these lower prices. Oil production, metal production, corn etc.... will decrease. This is happening now. Especially in oil. Does anyone out there think oil will stay cheap if supply drops off? I would be interested in hearing your theory.
So production continues to decrease for some time into the future but at some time in the future- My crystal ball cant see it- things will stop deflating and a bottom will be in. But remember production will be low. At that point everyone in bonds will begin to see oportunities with real returns, expanding production possibilites and inflation concerns. On that day, week, month, year whatever--- the bond bubble will pop with a loud bang heard round the world and everyone will rush for the door. Since they all cant fit through the door at the same time and more importantly at the same price, another slaughter will begin and fiat money will get trashed, especially the dollar since there are so many US treasury bonds.
Govt. bonds have a guaranteed buyer, unlike stocks, since the government has to cash out everyone cashing in thier bonds. Unbelievable panic worse than Lehman would ensue if they quit cashing them out. As redemptions increase the price of bonds will begin dropping and redemptions will accelerate as everyone tries to get out early. If you are in bonds and expecially if you got there late when the return was puny you had better pay attention.
Inflation will surge simply because paper money will be everywhere looking to buy something besides bonds. Production being low means so many dollars and not enough product. Hyperinflation will happen until production can get back to a balance. Gold will be king and probably will become a bubble, a very big bubble.
The counter argument:
The other side to this story is we fall into a second great depression because we simply could not inflate out of it. But in this situation we will have been dropping money by helicopter, c-130's, F-18", B-1", rebates, tax holidays, give ways, and any other way that the government could use to deliver it and it will still have failed to inflate us. Fiat money would be everywhere AND IT WOULD BE WORTHLESS. Use it to burn as fire wood like the germans did. BUT--gold would still be worth something more than firewood.
What do you buy your vegtables with when it takes a wheel burrow full of fiat to buy them.
No investment is perfect, no crystal ball is present, take your best shot but I think gold will have value in either direction. If we dont move in either direction I can play with it, polish it, make paper weights ect, and it will hold up better than my stock certificates which would get ratty and torn after a while. I just dont see the powers that be giving up until one of the first two examples occur. They want thier power, prestige, reputations or some other ego boosting need satisfied and wont quit until its over one way or the other.
Got gold!!!
The money supply *has* been inflated whether this is yet realized or not, public debt is on its way to doubling (even as gdp and tax revenues face shrinkage), and any basis for confidence in the value and backing of the US dollar - or any other currency - is deteriorating.
Observed deflation is simply the result of other valuations - those of bubbling asset classes - being even more grossly distorted. Home prices aren't just falling against the dollar, they're falling against gold, against eggs, against the price of blenders. Falling prices do not make the dollar, or any other currency, strong. It's true that in a year, a dollar will buy more real estate than it would now - but this is a factor of overvalued real estate, not an undervalued dollar. Necessary items will hold their value; luxuries bought on credit will revert to a truer price range.
History, too, says some interesting things about the price of gold during deflationary economic crises.
If you really believe this buy ammo (so you can shoot people holding gold and melt their bullion down for more ammo) and long storage food.
As far as ammo I agree with you. It would be a great trade good also, if food is a scarcity. Protect your food, protect your home, protect your garden and protect your self from those that dont have any plans. Sheeple will be looking to loot you out of house and home. They have not prepared for next week let alone something bigger than that. Just look how many sheeple cant take care of themselves for one week after a natural disaster like a fire, flood, hurricane etc..... If the supermarkets dont have what they want and the government doesnt provide it they probably are going to try and take it from whomever or where ever they can. Ammos good if you have a gun for it. Many have guns but no ammo, foolish I know but its true. Get ammo but gold will be really great if we dont get to the point that we need the ammo. I prefer to have options not an all or nothing bet. Think about that.
I got ammo but I got gold too!!!
1. You can grow food on it.
2. Unlike gold they aren't making any more of it.
3. If we are smart we will go back to the idea that only landowners can vote.
4. Lack of portability makes it harder to steal.
These are better attributes than gold.
I find there to be way too little consideration of the foregoing. A recent breakthrough>report... in the journal Nature<points to an upcoming utilization of gold, replacing not only platinum as the catalyst of choice but opening the potential for a fast array of applications, making the metal much more of a "utilization commodity" then heretofore possible.
On Dec 05 11:28 AM AlexR wrote:
> Gold has utility as jewelry, tooth fillings, electrodes, and a few
> other places; and this gives it a natural price floor and ceiling:
> at some price point it's a bargain, but if it moves too high there
> is just a lot of other stuff the average person would rather buy
> with that money. This little bit of utility combined with non-perishable
> composition and ease of transportation justifies a certain secondary
> utility: as a means to store value in the very long-term at very
> low cost (inflation protection, no fees and no taxes, wow!). But
> to extrapolate that into some sort of miracle investment that can
> only go up (especially in a recession) is really stretching the facts
> too far.
Recent reports of scientist having found utility for gold as a highly efficient catalyst>published in the journal Nature<point to the use of gold as a commodity and replacing platinum almost entirely. Would like to see price tracking of these two metals to verify this possibility.
On Dec 05 11:28 AM AlexR wrote:
> Gold has utility as jewelry, tooth fillings, electrodes, and a few
> other places; and this gives it a natural price floor and ceiling:
> at some price point it's a bargain, but if it moves too high there
> is just a lot of other stuff the average person would rather buy
> with that money. This little bit of utility combined with non-perishable
> composition and ease of transportation justifies a certain secondary
> utility: as a means to store value in the very long-term at very
> low cost (inflation protection, no fees and no taxes, wow!). But
> to extrapolate that into some sort of miracle investment that can
> only go up (especially in a recession) is really stretching the facts
> too far.
Have you tried buying a restaurant meal in New York with a currency other than a dollar?
The taxi drive does not want to make ONE special trip to the bank to exchange your dollar. The gas cost is to high and time is to valuable.
OTBRICKI said realestate is good to plant food but if you dont have a supply of seed you plant what dandelions? Gardens are a lot of work and you had better start practicing now. In your back yard so you can succeed at this endevor. Food just does not pop out of the ground. Bugs, disease, fertilizer problems, water etc..... have to be right for you to eat.
Disclosure--I have a stinking garden and damn its a lot of work. It is not profitable but it is a learning lession. Yes I spelled that right.
rah rah rah sis boom bah we're number one. NOT!
On Dec 05 12:36 PM patio wrote:
> Zimbabwe? C'mon get serious. The good 'ol US of A is in deep doo-doo,
> but we are still better off than most of the world, and are still
> the sole true military superpower. And still have the current best
> currency, all problems notwithstanding.
> Not Zimbabwe.
>
>
> On Dec 05 11:32 AM Smarty_Pants wrote:
If you feel better on your knees before some Bankster then by all means by his, umm, er, instruments - yeah instruments. That word gives you confidence, doesn't it?
At the end of the day, it's really up to everyone's personal objective and their "investment" (or holding) time frame. Deflation is definitely winning right now and it is not a surprise that every single hard assets are being liquidiated like as if they are all toxic.
So in conclusion...
If you are a long term player, then forget about trying to pick the bottom.
If you are a short term player, then make sure you follow your own trading system and be disciplined to your position sizing strategies and forget about the fundamentals.
if no one lends hte fed reserve will print overtime. gold has one way to go and that is up!! if inmarch gold was 1,000 dollars per ounce without the trilion dollars bailout then with the bail outs it will shoot up.
On Dec 05 12:11 PM bearfund wrote:
The dollar monetary base has more than doubled in the last year, and most other fiat paper issuers have made similar moves.