Enlightening the Gold Bugs 76 comments
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Every once in while, I try to enlighten the gold bugs. It's a process I relish with as much joy as trying to explain to my daughter there is no Santa Claus, after she learns from her classmates she has been duped. The markets by their nature are full of people with less than perfect or imperfect information. And the beauty of this conundrum, we all assume that it's the other party being duped.
This by no means is scientific or deeply analytical, but the most prevalent opinion about the direction of a market is often wrong. But momentum riding is a very profitable trade, as long as you find a greater fool. It has become the single most popular belief that the dollar will decline in value significantly in 2009. It's absolutely mainstream like peak oil, the new technology paradigm, the great BRIC society, and a host of other supertrends. The problem with the dollar argument is the dollar is rising despite the assumed quantitative easing of the federal reserve. The dollar is gaining strength day by day, and gold bugs continue to trumpet the collapse of the fiat.
The gold bugs continue to forecast runaway inflation, but refuse to notice that EVERYTHING we purchase is falling in dollar terms. Where's the $4 a gallon gas? Where's $4 a pound copper? Or what about $2000+ an ounce platinum? What's the price of your home? Do you think the gold bugs can clean there rose colored glasses long enough to see the FACTS? Gold bugs are the clandestine clan of legend, betting the end of the world's financial systems, while ignoring the falling prices of other hard assets. Relative to other hard assets, gold is 30-50% overvalued.
Gold bugs always say look at history, so let's take a look. From 1833-1931 gold sold for 20 bucks an ounce. In 1932 gold fell to $17 an ounce, this was the middle of the Great Depression. Finally, FDR devalued the currency by fixing gold at $35 an ounce. If FDR had not FIXED the price of gold, who knows if the downtrend started in 1932 would have finished. For thirty plus years gold was fixed at roughly $35 an ounce until Bretton Woods. Since then, gold has exploded, at the pace of 30X your money. So price stability in gold has been the norm until the last 35 years. The gold market is indeed manipulate, but contrary to what the bugs assume, the manipulation is causing a bubble in the price of gold. (See the Hunt Brothers.)
The dollar is beginning a multi-decade run, in my opinion, and I promise I'm the only one that will say that publicly. But the truth is the price of the dollar and most commodities (ex gold) is telling is that the smart money has exited the building. Deflation is on a tear, and I mean an absolute tear. And gold bugs have so much faith in the Fed to create inflation, the same Fed that many believe are incapable of finding the opening of a paper bag. Bernanke (aka Helicopter Ben) has stated he is surprised by the fact deflation exists in a fiat system. Did he say surprised? Yes, and I think a lot of people are going to be surprised.
I'll ask a question: What was the inflation rate during the implementation of the New Deal? What was the inflation rate during WW II? Many pundits believe that the Obama administration will be unleashing hyperinflation, but at least wait until prices increase before you trumpet your hyperinflation paranoia. Cash is king .. there's a reason that phrase exists. Deflation is more the norm than inflation, it's just we ALL are experts on inflation, so we talk our book.
I'll ask a simple question: Is it widely believed we have exited the bubble generation? Is it possible that gold is the last bubble to pop? You can believe central bankers won't allow deflation, but do so at your own peril. Or what if deflation is inevitable despite the actions of the Fed? Treasuries are screaming cash is king, and gold is screaming inflation, one of these two markets is wrong. If you look at commodities, gold is the outlier. Anyone want to buy UUP?
Disclosure: Long cash, looking to short GLD or buy puts on GLD, no position UUP.
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This article has 76 comments:
"This by no means is scientific or deeply analytical"
=> you got that right
"dollar is beginning a multi-decade run"
=> ROFLMAO
"Relative to other hard assets, gold is 30-50% overvalued"
=> so gold should be between $420 and $600 right now, okaaaay! I guess you'll be shorting it then, hmmmmm
"Is it possible that gold is the last bubble to pop?"
=> In another decade, maybe
Looks ok to me.... that's the bottom line.....
jjd
1) a nuclear armed Iran on is the way,
2) we already have a nuclear armed Pakistan and an angry nuclear India,
3) gold mine production falling in spite of higher prices,
4) gold bullion demand exploding all over the world and smelting operations unable to keep up with demand,
5) the Fed and all other world central banks promising to use all "tools" meaning it will print whatever cash is needed to restart the credit cycle,
In short, either the unprecedented cash printing works, and we get incredible levels of inflation, or it doesn't work, and we get an economy that is falling apart, where so many dollars, euros and pounds have already been printed that they still won't buy much in a depression-era economy. In either scenario, gold will be the best investment.
The author can keep his money in cash. Better that way. It will help keep the price of gold and silver down for now, so that wiser folks can buy for reasonable prices. By the time folks like this author turn away from the rear view mirror, to see what is happening in front of him, he is likely to crash. But, that is his choice, and, apparently, he is very determined to get that result.
The author seems adept at spotting bubbles. I wonder if he would recognize a dollar bubble if he saw one? Is that even possible? Or maybe dollars are one thing we can create in any quantity we want and without consequences. I would suggest a field trip to Zimbabwe. First thing to do would be to look up the price of gold in Zimbabwe Dollars.
Cash is king for now but goes bananas. Banana republic that is.
Gold is holding strong compared to other asset classes, but eventually will un-tie itself from arguable manipulation efforts.
One day, the rush will come and so much more, you'll be begging to convert your (possible) short position into long gold.
Wake up Mark...
Waiter! Another coffee for this Caffee guy please,
brgds.
A lot of these gold bugs think their shiny bits of metal will allow them to barter for food in some post-apocalyptic Mad Max world.
Gold was NEVER $17 per ounce in 1932. Prior to the gold confiscation in 1934 by the Roosevelt administration, the dollar was "good as gold." You could sell your gold to the government, and they would buy as much gold as you offered them, for $20.67 per troy ounce.
From 1929 - 1932, it is a well known historical fact that Americans were contemptuous of the dollar, and stricken with gold fever. They were feverishly turning in dollars for gold, at the rate of $20.67 per troy ounce, and putting the gold into their basements and safe deposit boxes.
The basic problem by 1933 was that the government had printed far more dollars in the 1920s than it had gold. So, the government had lied to the people. The dollar was never "good as gold". There wasn't enough gold in the federal treasury to meet the conversion demands. So, the first thing the government did was declare a moratorium on conversions to gold.
By 1932, the Treasury was begging to buy gold, but no one was selling to them. Everyone, including foreigners, were simply demanding gold for their dollars. To balance the loss of gold against the number of dollars outstanding, the Federal Reserve tried to reduce the dollar money supply from 1929 to 1933 by 1/3rd. That, according to Fed Chairman Ben Bernanke, was what launched a severe recession into a Great Depression.
By 1933, the U.S. Treasury was severely depleted of gold, and by 1934, the government forcibly confiscated the yellow metal from its citizens. People DID NOT voluntarily sell their gold back to the government. In short, there wouldn't have been a run on the U.S. gold reserves, in the early 1930s, if people were happy with the dollar. Yet, deflation was in full swing, and people were still contemptuous, because they no longer trusted the government, or the banks, just like today. They turned to gold, just like now.
There was tremendous demand for gold in 1932, and had the government not fixed the price at $20.67, it probably would have doubled or tripled or more from 1929 to 1934, in spite of the general condition of deflation in all other things. But, one thing is for sure, the revisionist history that is described in this author's commentary, NEVER HAPPENED. Gold never sold for $17.00 per ounce.
What I've learned from the author of the article, NG magazine is that man has just about stripped all of the GOLD from our earth...therefore within the next 20 years he explains, GOLD will deplete.
The writer here is spot on...take heed all goldbugs.
1. The money supply has grown in the last couple of years by leaps & bounds
2. The Fed has taken in toxic assets which it is shrouding in secrecy
3. The fiscal deficit will be close (or even over) $1 trillion
Given these destabilizing facts, I don't think it's imprudent to place one's wealth in something of REAL value. Historically, gold has been the paramount store of value. Accordingly, I don't think it's imprudent to buy gold and move out of the USD. I may be proven incorrect, but I doubt that anyone could argue that getting into gold is somehow negligent.
Look to the manipulators - support the dollar, keeping gold low, so their dollars can be used to buy gold cheap.
Well, duh, that says it all!!!
Supply and demand. 1.4 billion chinese, 1.1 billion Indians and 1 billion middle easterners now moving into the middle class. What's their favored metal for jewels again?
Let's keep adding. Gold is counted in dollars in world reserves. Any other metal do that?
In conclusion, what other item, besides healthcare, is really in such a good position today.
I've been buying physical gold and USO (oil)-
it looks like oil might be headed to $28 by the way it is acting- that means gold is way ahead of itself in traditional ratios to oil- that raises a flag for me.Low oil means serious deflation and any asset
should be being pulled down including gold.
So for me, I want to see a bounce back in oil
to justify any more gold- just common sense.
I have a simple formula- gold should not trade for much more that 25 times a barrel of oil for any length of time, and even that is stretching long term. $30 barrel x 25-30 = $750-$900 max, so I'm getting uncomfortablewith everything dropping except gold- nothing is immunefrom this retraction. Go look at the charts. The longer this drags out the more I question hyper-inflation-paper is paper and the bottom line is people are not doing the things that create inflation- spending or going into debt-
takes to tango. If people don't buy homes, take trips,spend at malls- then governments earn less, corporations earn less, bankers earn less, housing drops, salaries drop- deflation is here until people go out and decide to spend.
Just my opinion- nobody really knows how this whole thing plays out, and don't sit around counting on a currency collapse-that's a gamble also. You could be a lot worse off than having serious cash in a safe box- don't count on the banks either.
> LOL. Love it. So the dollar was 'devalued' in the 30's by fixing
> it to gold at $35? Good thing we did that....otherwise gold may have
> gone to zero!
I might be wrong, but your attitude implies you think this is not devaluing?
If you can take $21 in "paper" and buy an once of gold, but the next day the government says it will cost you $35, you HAVE DEVALUED the paper money because it now takes more of it to buy gold.
The reason the government does this is because, typically, it has a lot of "paper" debt. If the paper is devalued, the debt is devalued. What is the government doing now? Issuing a lot of paper debt!
MORE IMPORTANTLY, the author is essentially saying "we're having deflation" so why is gold going to go up. Here's an excellent "deflation 101" article that will educate him (is short, gvt tries to stop deflation by printing money, which makes people lose confidence in paper money so they rapidly spend it buying hard assets):
How Deflation Creates Hyperinflation
By Eric deCarbonnel...
www.dollardaze.org/blo...
> Time. Unless you give me a time frame, I cannot assess your argument.
> I think gold and the dollar could rally for several months and even
> years, but once the economy recovers, inflation will return and gold
> will pull away.
FYI:
from John Murphy, the "one who wrote the books on technical analysis":
(p. 419m "TA of Fin Mkts" 1999 and elsewhere)
"... the prices of gold and the U.S. dollar usually trend in opposite directions."
vs
Archetypal gold, silver as money with inherent value...
Hmmmm, let me think....still thinking.....nope, I 'll stick with gold and silver, and balanced budgets and government funding solely out of taxes the people are willing to pay and investing out of savings and strict enforcement of laws against FRAUD and limitations on the powers of governments (which is the real reason politicians don't like gold).
This article really is about the hubris of a man who is unknowingly walking toward a cliff in the dark. Under our glorious paper money, fractional-reserve monetary policies we now have more bureaucrats and financiers than people actually making useful products. It is unsustainable. Gold bugs are simply people who aren't clever enough to be derivatizing wealth from nothing and prefer solid accomplishment over flim-flam.
You see, France finished this huge, underground vault in Paris. They thought the Germans would never get this gold. Ahem. Herr Hitler did, incidentally.
Anyway, the manipulations of the gold markets by FDR were to protect what remained of our gold at Ft. Knox. And more importantly, at the secret Federal Reserve vaults in NYC.
Gold was so important, FDR, like Hitler and the British Crown and nearly everyone, made gold hoarding ILLEGAL. If you tried to use gold to do business, it was confiscated! And you were jailed. The $35 gold price was to flush out all the gold held by individuals and above all, businesses. They were then FORCED to use paper no matter what.
Some people protested this by using spare change to buy and sell. A thousand silver half-dollars, for example. The government squelched this, too. The harsh truth isn't 'is gold worth something' but 'how will governments grab it no matter what?'
And this is where gold bugs go off the cliff: they imagine the government will come, hat in hand, to beg for the gold and pay top price. This will not happen.
When money evolves to zero worth, governments always shift to open confiscations. I wonder why so many people never mention this? HAHAHA. Never.
Gold, unlike oil, is utterly useless for anything. A recession/depression does not in itself destroy demand of gold. It seems OK to put gold into a basket labelled `commodities' together with oil, but in fact, why should it? Gold has utterly no industrial use!
The use of gold as jewelry is relatively small. But the desire for gold exists, obviously, as the massive majority of the world looks upon gold as a desirable luxury, whether as ornament or a valuable material. Luckily, gold is also easy to apportion, and its purity easily determined. There's something about the colour of gold, perhaps, which makes one's pupils dilate with desire. That - is enough - to justify a price for gold.
So as long as humanity exists, the desire for gold exists, and what the author implies insidiously - that gold has no true value - seems very wrong to me. Human desire, for the sake of desire itself, makes gold the purest form of value store.
One of us is right!
Not bad for a few days....
On Dec 24 02:52 PM Chubbs wrote:
> All concepts and arguments aside, I bought some gold coins in 2004
> at $380. Not bad gains for 4 years. However, should there be dramatic
> future gains, not only is confiscation an issue, at the very least
> so are whopper windfall capital gains taxes.
The world is losing faith in the U.S. dollar and U.S. government's ability to repay debt. We have borrowed or printed TRILLIONS in new debt this year alone. You think that is going to support the dollar? Come on man. I can't take this author seriously.
with gold/PMs, the tendency is to trust that having *something* other than paper is somehow more secure. i agree. worst case, my wife or kids might find more value in the beauty of metal coins than of any madoff investment confirmation letters. neither would feed my family directly, but history does show metals generally have a better track-record than any government, let alone its paper.
i have virtually no faith in anyone else holding my money right now. why would i, when the likes of madoff - with credentials, trust/social strength, industry smarts, etc. are out there? and my faith in the government looking out for my better interest is even less. TARP? god help us and the next generation.
i have much more trust that *any* of my neighbors would look upon a bag of silver/gold coins in *any* context and appreciate that i had something of value. how much - only the situation would tell, but too many pirate treasure movies have taught us to respond thus. i'm also sure that my IBM stock certificates wouldn't garner much more than bemused looks if presented to a hungry enough crowd...
but gold (with its bugs) is interesting on the global scale - much like a group of technical traders that look at the same graph with the same reference manual... if they all buy on the same signal, the price goes up. does the possibility that the graph was random up to that point matter? no, not at all. even if they self-fulfill, they are still 'correct' and therefore successful. although i still don't buy it, the results are not a judgment, they are quite auditable.
it's when such systems lose their confidence/trust (e.g. real-estate always goes up) that things get interesting.
Mark, i hope you had fun stirring up the hive (it amuses me as well), and i hope your dollars hold their value, as that means we're all still doing OK. in the interim, i'll keep some of the shiny yellow metal around to make *me* feel better about *my* standing in this mess, and if enough of us do this (if for not other reason than to 'feel better' - like the graph watching traders), we won't be wrong in having done so.
cheers,
--ikk
What were the expectations during that period?
To those who have done so , might I suggest that it is more persuasive to ridicule "gold bugs" at a point when gold has not been the best performing asset for the past 7 or so years , and one of the few not showing an 08 loss? I'm just saying , those little things tend to dilute the argument against em.
How you can print endless trillions of dollars and go , as a result , into a multi year uptrend confounds me.
I guess , as has been the case in the recent short term , anything can happen ( in the short term) ,
But I'd
1) Bet on gold , not the buck , and
2) At minimum , reserve judgement until the charts confirm that the recent drop does not represent a downtrend resumption with the more recent spike up not just a correction , before concluding that the endless printing of a currency has no effect on its value over time.
Say you live in a country where gold was a winner. Do you sell your gold and buy US Treasuries that yield 2% on the ten year note? Where will the US dollar be in 10 years??? OUT OF BUSINESS. Will gold be out of business? It has been around for 6,000 years and it ain't going anywhere at this point but higher in terms of fiat money. That is my view.
I neglected to mention how gold ties in with the whole mess as I described above. So... Gold comes in at the point in time when the "reset" button is pushed, at that moment the holders of gold are immune to the "reset", as their earned value carries through to the next sham system that the banksters can dream up. But make no mistake gold holders will need to weather the storm like everyone else (gold won't likely help much during the "generated crisis" period)
I wish that the gold market was open now so I could sell what I bought at $275 so I can put it into the stocks that you recommend.
Globally, the money supply is falling much faster than it was created. This is the deflation threat (or maybe just stagflation at the moment.) There is no way the Fed can print money fast enough to keep pace with the losses, despite all those programs and acronyms.
It is possible, and very dependent on the timing, we may not see inflation at all. If deleveraging takes a good while, then our net money supply will be at lower levels than currently. If credit markets begin flowing soon, then (hyper?) inflation is very likely.
What about peak gold? We have hit peak oil, apparently. Certainly we're past peak gold. I guess that means higher prices as folks hedge against whatever awaits us: hyperinflation? Deflation? Stagflation? Depression? So, a gold rally is likely, but it may not hurt the dollar, really. (Where is that article on commodity decoupling?)
Deflation is our friend, for a while, while the credit bubble continues to deflate and money unwinds back to whence it came. Deleveraging, you know. As someone said above, I believe we might see the end of big asset bubbles. I suspect we'll find ourselves in period of tighter credit and slower, more sustainable growth and spending.
Anyway, as someone else also mentioned above, it's all in our best guess based on what we see and what we understand. The future is hard to predict, especially in the uncertain and volatile times like these...which are likely to persist well into next year.
I am a certified gold bug, but I just want to warn you; I think you will see gold trade much lower, before it trades much higher (which it will). You should create a strategy now for a big drop in gold. I'll try to list a few factors that I think will come into play very shortly:
1) The new year will most likely start a new wave of hedge fund redemptions (thanks to Madoff). Hedgies will liquidate gold to meet redemptions.
2)One point I agree with the author on is that something is way wrong with the Gold/Oil ratio right now. There is a glut of visible supply in oil and I don't think that's likely to change real soon. I don't think the OPEC members are going to stick to the production cuts they just agreed to. They're all hoping the other guys will cut (so they won't have to). They'll just keep cutting each others throats until a war breaks out.
3)The Gold chart looks toppy right now. Nothing goes straight up for very long, and while gold is the talk of the town, some players are going to take profits.
4) When any or all of the above start to happen, gold will get a additional push down by central banks sales or market manipulation (same difference). Investors panic, and you've got a full-fledged rout on your hands.
None of this changes the fact that the US dollar will end up in the fiat currency graveyard (3,800 failed attempts to make paper "money" and counting), but the gold road may have more bumps than you think. These guys who bash gold will have a moment in the sun, I think, make sure you are prepared.
My comments are based upon my personal experiences, when in 1978, I began my career as a Stock and Commodities Broker, with a BA Psychology. BFD, you might say...and I would agree with you. The only reason I point this out, is that I have lived and died a few times at the hands of Mr. Market and I hope I can shed some light that may save some of you from making mistakes that I have made in the past.
1. Stop trying to outsmart the Market..It can't be done, with any consistency !!
2. The Trend is your Friend...all you have to do is recognize it
3. Buy on Fear and Sell on Greed...easily said..hard to do...you need a disciplined approach
4. Never put all your eggs in one basket...you'll miss too many other opportunities !!
5. BS baffles brains !! We all have a tendency to get lost in the "noise" and forget about the first 4 rules.
Observations
In my humble opinion, this is a Traders market..its not time to make any long term committments...since Nov 5th to Dec.19th, I've made 19 trades making over 92%.....Here's the good part, are you ready Mark ???
Currently, I only have 2 positions on..SHORT $US/ LONG GOLD !!!
Enough for now...Merry Christmas !!
Good Luck to All !!
A non-profit investment company? Ha ha, thanks for the honesty. Any investment by definition should be profit seeking, and his guy's investment company is not looking for profit, but looking for non-profit?
His articles should not be posted on "Seeking Alpha". They should be posted on the "Seeking Loser" web site.
Why there is imminent danger in the US dollar and how do you find a true Safe Haven:
seekingalpha.com/artic...
This is not the case now, is it?
The Government printing presses can churn out Trillions but inflationary pressure will NOT ensue unless demand accelerates. With Unemployment rising, demand is shrinking and will not rise anytime soon.
Deflation is the contraction of the economy with falling prices. We have this in Spades. Increasing the Money supply is meaningless to the average consumer especially if stiffer Credit conditions are applied.
Credit is much harder to get and Credit Card rates are exponentially higher, so the consumer is even more reluctant to carry debt.
Good luck on the inflation front, ain't here and won't be unless standards approach those which created the Housing Bubble. And even then, some consumers will still be wary.
I hope that some external calamity like the closure of the Strait of Hormuz occurs which will stoke immediate inflationary activity. But Barring this type of scenario, I see nothing on the Inflationary Front to be concerned about.
But "all of this money being created... yadda yadda." Being Created and being Used are two entirely different animals.
Tighter Credit Standards are not conducive to greater spending.
IMO
I say we all just buy a gun and ammo for self defense, pay down our mortgages so we own our properties, buy some gold (10-15%)and have some cash stashed away just in case. I had a bad feeling after reading articles about the subprime losses back in 2007. I can remember telling my golfing buddies this in the summer of 2007 and getting looks from them like I was from another planet. I pulled all of my mutual funds out in the first week of Jan 08 ( My financial planner talked me out of selling individual stocks he picked, so I still have some stocks with huge losses)but I have been sitting in Money market for all of 2008 except for some profit in gold stocks which i am recently sold out of now. I do hold about 10% of my money in gold coins. (This is a long term hold for safety) Problem for me is...I have no gut feeling about 2009 except that it is going to be a year of extreme suprises where you can make yourself wealthy or lose you shirt...even more than 2008. I am a contrarian, so all the "gold bug" talk makes me nervous, yet it makes sense. Perhaps we will see an early drop in Gold prices to scare off the gold bugs, but I think by end of year gold will be $1,000 plus. In Canada, our dollar has dropped, so buying gold now has an added currency factor for considering future gold purchases. I honestly think the Fed is flying by the seat of their pants, making it up as they go, and printing more money is all that they can do. Lowering interest rates has no more room to manuever. Will they try to confiscate all the gold or create a new monitary value so we all start out at zero? (as one article suggests) Will GM or Chrysler be let to be bankrupt so the gov. can come in and buy it cheap?
The U.S. technically could almost be bankrupt from what I am reading. We dont truly know what is going on behind closed doors, and so putting all your eggs in one basket is not a good idea. ie. long gold, short U.S. dollars. (but long term, may be a good strategy, or wait for that strategy till Jan or Feb when Dollar rises more or gold drops) True, you cant go to your grocery store with gold coins in hand to buy groceries, but as one person suggests, you also cant buy groceries with your IBM stock certificates either. The people on this site making comments have money. If you didnt have any free funds/stocks/gold coins/gold stocks, etc., why comment? I look forward to all future comments and wish everbody a Merry Christmas and prosperous 2009 New Year!
My advise is: Pay down your mortgage. Own your properties. Have at least 15% of your "free" funds in gold coins, bars etc. It is your hedge against disaster. Have another 15% in cash. It is your hedge to buy those assets that may become bargains. (But be ready to pull the trigger fast, if cash becomes worthless...esp if you are holding U.S.$)
Well, next time you are on the beach and the water suddenly goes out and your daughter warns you of a tsunami, you'd better listen to her.
Santa Claus says $60T (now $68T) worth of unpayable future promises says you're wrong.
But good luck with those gold shorts. Just please send your daughter to live with relatives and don't make her share the homeless shelter with you.
Well I thank the author for bringing out all these interesting ideas so let me add a couple.
-The reason there are so many goldbugs is because people are awakening to the fraud of paper money being perpetrated upon them. They are looking long term as the only way out of paper money is eventual collapse of confidence in it.
-Oil, black gold has become a geopolitical tool. We are seeing the last vestige of US$ hegemony flexing it muscle on the (NYMEX) rigged paper oil pricing mechanism exchange. This will end badly.
For millennium gold was the medium of exchange. Gold was money.
Why? Well because it could not be forged and it was rare. But more than this in the common conscience it was equatable to money. Which is why although valuable it did not appreciate and depreciate wildly as today. Todays wild fluctuation only demonstrate how broken that psychological link now is.
In todays more analytical World, there needs to be a bit more hard evidence as to its intrinsic worth for people to regard it as an immutable asset.
So the dollar is going to tank. No rational person can seriously doubt that. However, that does not mean that safe haven is going to be gold. Indeed, the currency markets are already steering us towards the Euro and Yen. Soon just about every currency on the planet will harden against the dollar. And why? Well most of the cash Bernanke is pumping into the US economy will end up being invested in overseas markets, and that will require dollars to be sold in order to obtain the necessary medium of exchange, which with very few exceptions won't be gold.
This ain't any fantazy. This story will probably become reality. There is one important factor however which hasn't been touched. At a certain point - and this scenario repeats itself in history - "we the people" get hungry and wake up and stop playing this sickening game. As a result, we have revolutions, Kings and Queens are beheaded; countries break free (the Boston Tea party - or taxation - was the origin of the USA) and start with a fresh sound constitution.
Since gold is priced in dollars, Dave Wrixon, as the dollar goes down, yes gold will go up.
And other times, the dollar will be flat and gold will go up 2.6 % (like today).
Is it a safe haven? Gold is up for the year. Stocks are way way down. Enough said.
Did you put your money where your mouth is and short gold before it shot straight up today? Good luck with that, bro.
Midas
All money is by "faith", including gold. Can't anyone see this? "Intrinsic" value of gold? What's that? Gold is worth x$ only because the buyer has "faith" that a future buyer will engage in the same belief system as the original buyer, and pay the same price or higher. It's the same thing as a fiat system expect the supply is supposely quasi-fixed.
Why gold bugs get so excited about what is supposed to be a neutral investment s beyond me. With supply fixed, only demand should affect gold.
In a depression, gold will lose its value like everything else as demand decreases.
In an inflation scare, gold will gain value, yet all things will increase in value, including stocks whose cost inputs are very low or fixed.
You do believe that there are scams in the world, no?
Savings converted to gold drops the value of the dollar, straight exchange. It gets more complicated after that you have to sell some other asset class to raise cash (USD) in order to buy gold. This conversion will raise the value of the dollar at the same time drops the value of the asset you sold. If gold is really to run to the sun then you should sell all stocks, commodities other than gold and your home, cottage to raise cash to buy gold. That would collapse the value of all asset classes and lift the USD prior to your gold purchase. But that would deflate everything people need in the economy and raise the buying power of the dollar compared to other currencies. Inflation would disappear the dollar would be in demand defeating the need for gold protection. Others with dollars would flood in and buy every asset class you just sold. Gold and the dollar are not singlular black and white issues. Nothing wrong with 2 to 5 % gold holding in diversified investment porfolio. If the world tanks the 95% will pull you down and the 5% will help against loss. Betting large on any single asset is always risk unwise.
Mark
editor of Digital Gold Currency Magazine
The dollar index was at 87 at the beginning of the month. Now it's at 80...in what way is that gaining strength?
"The gold bugs continue to forecast runaway inflation"
"And gold bugs have so much faith in the Fed to create inflation"
I don't think Mr. Caffee knows what inflation is. The Fed can absolutely create inflation. They have been doing a very good job of it for months. Inflation of course being an expansion of the money supply. Rising or falling prices...well that results from the expansion and contraction of the money supply. Can the Fed increase prices? Not per se, but they can certainly create inflation.
So Mr. Caffee, what is your advice during this turbulent time? Buy 10yr Treasury Bonds at 2%?
On Dec 27 01:48 PM Alexander Rainwater wrote:
> I cannot find anyone that can compute the correct interest rate on
> $11,500,000,000,000.01 of the National debt.
>
> Midas