Gold: The Only Remaining Bubble? 157 comments
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I have had a premature or possibly wrong call on gold. While I generate much criticism from and disagreement with the cult of gold regarding my conclusions, I believe that many of them overlook the fact that we share a lot in common with regard to the underlying basis of our views. I know that I tend to be early, and I maintain, for now, that is the case here as well.
I first wrote about gold in October. It generated so much negative attention that I thought I must have been on to something, as I have noticed that the most vociferous opposition to my ideas has often served as a great contrarian signal. In any event, the price plunged afterwards, and I probably got a little overly encouraged. When it rallied back partially, I followed up in early December. Obviously, since then, the price has not only risen, but it has in fact exceeded the price by 10% or so since I first wrote about it. Gold still remains in a consolidation, with lower lows and lower highs over the past year (click on chart to enlarge):
Today, I want to reiterate my views that gold isn't likely a refuge from this deflationary spiral we are entering. I guess it was easier for me to "pound the table" when my arguments looked like they were correct, but the case remains the exact same if not more so given what has transpired globally.
There are two reasons that one might consider owning gold, and I focused primarily on one, the inflationary hedge potential. I believe that the other rationale is what has been supporting its high valuation: Safety. I read today about a gentleman who stored his gold at Stanford Financial, so be careful if you are pursuing this strategy!
Here are my current observations:
- Gold is in a bubble
- Inflation isn't happening
- Gold longs need to be cautious of poor technicals
It is ironic how many financial commentators refer to the "Treasury bubble". It is very unclear that the safety response in Treasuries is any different from that which has sustained the high price of gold (note sustained, not skyrocketed). I have seen no references to the "bubble" supported by evidence of investors margining to buy Treasuries or futures. Gold, on the other hand, appears to be purchased on margin broadly, at least according to the dealers with whom I have spoken. When I have looked at the trading volumes in the double-long and double-short ETFs, it is pretty clear where the speculators are (similarly for the doubles on bonds). I think the crowd is wrong.
The inflation argument is one in which the inflationists are premature if not just wrong. The fallacy in the argument is in just looking at one action without observing the bigger picture. The analogy I like to use is a bathtub. The water is flowing, and the inflationists are fearing that it will overflow. What they fail to realize is that the drain is running even faster.
In real terms, wealth destruction is deflationary. For folks who seem to (rightly in my opinion) not believe that the government can do much to "fix" the problems, I wonder why they think that their efforts will be more than sufficient to do so. Banks aren't lending because the universe of qualifed borrowers is rapidly diminishing. The multiplier effect of the high-powered money that gold bugs fear is falling faster than its creation. Look to Japan as an example in this regard. I believe that rather than inflation, we will see higher savings and higher taxes for quite some time, both of which will retard our economic growth. Down the road, there is also a possibility for higher interest rates too, another growth impediment.
Finally, as I mentioned above, the technicals are risky. The price of gold bounced hard off of support, but it continues to be unable to take out either the highs from the summer or early 2008.
Given the general correlation to other commodities, which are now at rather extreme relationships (oil/gold, silver/gold) at least in recent history, gold could see some mean reversion. There aren't many gains in the world these days, so just as oil surprised us last year plunging from almost $150 to $100 and now $35, we know that the pendulum can swing. It clearly hasn't started to do so yet, but watch out if it does. The fact that there are so many looking to it as a savior, many on margin, suggests caution when (or if) it does turn. As the chart below indicates (click to enlarge), gold is as expensive today as it has ever been relative to a basket of commodities:
As I said, I share a great deal of my fundamental views of the economy with the cult of gold, I just conclude differently. There aren't many assets that will stand up to this crisis, and I don't believe that gold, absent its momentum appeal and its (ancient) historical tendencies is an exception.
Disclosure: None
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This article has 157 comments:
Yup. I doubt that changes based on this article.
Soon the gold bubble will go pop because there is nothing special about gold. Its just like any other commodity and it obeys the same laws of supply and demand that other commodities do. But I am going to love watching the gold bloodbath that will ensues soon. And I am going to love reading all the crazy claims on these comment boards about how government is manipulating the price of gold. This is going to be fun...
On Feb 18 01:33 PM scottygee wrote:
> It's too hard to accurately predict the future when the government
> can change things at any point in time. The only future I can predict
> is what I'm going to do with the money I've made off of Gold in the
> past 6 months. Need help visualizing? Compare a chart of gold vs.
> Dow index over past six months. I don't care what you call investment
> in gold (inflation hedge, safety play, blah blah blah), I call it
> capital gains.
Enlarging the chart reveals that it is not current, as the latest price reached by the chart-line is 940. As of this moment, gold is 975, decisively breaking the downtrend line and invalidating the statement I quoted above. Also invalidated is the first phrase of the author's later statement below, since the high of the summer has just been taken out:
"The price of gold bounced hard off of support, but it continues to be unable to take out either the highs from the summer or early 2008."
Whoops--gold's now at 977.50. I was going to go back to the author's December article and insert a "toot-toot" when gold passed 1000, but I'll just do it now and save myself the trouble.
“the technicals are risky.”
I hereby nickname the author "Wall of Worry." Anyone who follows the links to "contributed articles" on the Kitco site, or the similar links on the Financial Sense site, can find a strong bullish case being made based on "technicals." (Here's a link to the latter site:
www.financialsense.com... )
The interpretation I like best is that the downtrend channel from March of 2008 through year-end constituted the handle on a monstrous 30-year cup-and-handle pattern, projecting a monstrous increase in gold's price. But there are many other technical considerations in gold's favor.
Where is gold used as a currency? Can I take a gold ring in McDonald's and get a hamburger? I know I can take a a couple (shutter) paper dollars into McDonald's and get a hamburger.
All currencies are fiat in the end. Even gold coins with a silhouette of the king stamped on them. Beyond a kingdom of a few thousand subjects, currency is necessarily authorized and regulated. Thus, fiat. If a new king comes along, you can't melt your old gold and put the new king's face on it (without paying tribute to your monarch) without losing your head for counterfeiting.
People keep confusing Gold, Commodity-indexed fiat currency systems, Floating exchange-based fiat currency systems, and barter. I get the sense what most are hoping for is a total breakdown of currency and a reversion to barter.
Be careful what you wish for.
This was done by Roosevelt during the Great Depression when he devalued Gold from $24 an ounce to $35 an ounce. There is a lot of economic theory that supports inflationary actions like this to counter the current deflation.
If the gold run is being allowed for fiscal reasons, then the price target would be $1400-$2000 per ounce.
I'm currently long silver metal (it a better value than gold) and gold stocks but plan on dumping them sometime before Gold hits the above price range. Above this, as the article correctly points out, there's no real reason to hold them.
If inflation starts up then I'll consider buying back in but it will depend on current Fed policy.
listen mate, i'm no goldbug at all, but you just happen to be the best possible contrarian indicator in the market, you just are completely unable to get the big picture. So if you disregard gold, I will bet on it.
on 21st of april you published an article titled "Fannie Mae may be worth the risk"..., then on 7th of May you called the end of the bear market in another article "bear market is over".
you have been recommending bank stocks and calling the next bull market throught the summer.
no criticism, but why anyone would you take your advice, and most importantly, how can you dare to offer your advice to anyone, is beyond my belief, you just don't get it mate, you are just like most investors, running blindly towards the cliff and only realizing your are in free fall once your face smacks into the ground.
The fear of missing out on gains, and therefore losing out relative to those who play.
What's happening in Treasuries is a Fear-Bubble. That's a whole different animal. It's the fear of losing, period. It's a hell of a lot harder to pop a fear bubble than a Greed-Bubble. The Fed & their international friends are learning that lesson right now.
Scottygee
On Feb 18 01:38 PM Alan Brochstein wrote:
> Congrats on generating capital gains in a tough market, but good
> luck preserving them. I have found that the best bet against the
> economic conditions is to short stocks, especially those of companies
> with significant balance sheet risk.
I think they're both right.
Both deflationist and inflationist believe that some kind of collapse is imminent.
Deflationist believe that everything will collapse in price (and rightly cite all the drop in industrial, oil, retail, jobs, etc) and money in the streets become ever scarcer. This makes anyone who carry debt harder to service that debt; and who is the biggest debtholder in the world? US Govt. So govt will eventually default and we'll have an economic collapse.
Contrast this to an inflationist view:
Inflationist believe that the govt will not stop in it's bailout efforts, and will go so far as to flood the money supply by monetizing debt if need be. Thus, there'll be no technical default, but thru the hyperinflation that ensues, a inflationary default of the US debt.
A deflationist dream is to buy US Treasuries, collect what meager yields it has, and time the final cash out to just before the US Govt defaults, or the market recovers. His favorite flight to safety vehicle is Treasuries.
An inflationist dream is to buy Gold, and wait the imminent inflation of everything due to exploding money supply. Ideal cash out time is when the inflationary pressure is at the greatest. By then Treasuries, in contrast, will be paying pathetically low amount compared to what Gold would run up to.
Gold is an indicator of total global collapse. The ultimate short, if you will.
Similar to Treasuries, it is a flight to safety vehicle; but dissimilar to Treasuries it places no faith in the US Govt. Therefore, a flight to safety person has two choice: you can take the extreme step of parking your money in the treasuries today, as a safe haven (given today's pathetic interest rate); or an even more extreme step to park your money into gold, which is a further bet (compare to ultra liquid treasuries) on some kind of govt default and collapse.
Thus, I agree with the author that the dual climb of Treasuries and Gold need to be observed TOGETHER. As they both indicate the overall level of discomfort and fear in the market. If the dual assets continue to climb without easing, then it will be doomsday for the world, because money will dry up for any other business purpose.
However, if the fear should peak... And things start stabilizing to some extent, so that imminent doom doesn't seem a certainty anymore . That's the interesting angle of how these two will unwind.
What I know for sure is this, if we don't get doomsday, a lot of people who're betting on one one way or another, is going to get hurt.
Such a dysfunctional market.
You can take any gold bullion into a coin dealer and exchange it for the spot price of gold. It's the most liquid commodity in the world, and it IS MONEY. You need a reference check. Gold has been money for 3500 years. It's the U.S. dollar and fiat currencies that come and go.
On Feb 18 01:39 PM Machiavelli999 wrote:
> "Gold is not just another commodity. Gold is HARD CURRENCY."
>
> Where is gold used as a currency? Can I take a gold ring in McDonald's
> and get a hamburger? I know I can take a a couple (shutter) paper
> dollars into McDonald's and get a hamburger.
The debts that the US govenment took on is not sustainable. Current estimate is that such debts will grow substantially to 40 or 50 trillion dollars given all the unfunded obligations. US govenment will have no choice but to devalue the dollar some point in the future. Gold is not expansive when the dollar become worthless.
Current crisis was brought on by the unsubtainable amount of private section debts. We will have a future crisis and a possible continued crisis when lenders to the US Govenment decided that they are not getting any returns to take on more US Government debts. When that happened, interest rates will start going up, commodity price will start going up. That may happen faster that you think and that we may skip inflation and jump right to hyperinflation. That happens when the US government is in the 'bancruptcy court' and some other entitles will claim to be the new authorities wanting to take over the asset of the United States.
I firmly believe there is an oversupply of treasuries. The US Treasury had a successful auction last week to turn over $60 billion or so of its paper, signaling heathly demand (for now). Guess what? There's another $2 trillion to go. Foreign investors will only have an appetite for a fraction of that amount. So, the buyer of last resort is the Federal Reserve, afterall, they have a mission to buy up the long curve to keep mortgages affordable. So the printing presses will just have to keep churning. End result: Inflation.
I cannot imagine a scenario that can stop inflation. US Treasuries are not the safe haven that investors think they are. Gold is the only way.
Machiavelli999 wrote:
"Soon the gold bubble will go pop because there is nothing special about gold. Its just like any other commodity..."
Gold and cocoa (I think) were the only two commodities showing gains in 2008, so it's not just like any commodity. (And no one's going to buy cocoa if the Euro is on the verge of collapse, because chocolate buyers will be rarer in the aftermath of such an event. Ditto for buyers of oil, etc.)
"But I am going to love watching the gold bloodbath that will ensues soon. And I am going to love reading all the crazy claims on these comment boards ..."
I've bookmarked this page. Meet me here on the summer solstice, at high noon.
Not quite the normal trend of the last 100 years or so.
I work by the hour consulting institutional clients. Why would you think I can't make money favoring or disfavoring ANY investment idea? My clients don't pay me anything except for advice (and on retainer). I am not an investment advisor, I don't sell securities, I run my business as transparently as possible. Instead of spending your time attacking those with whom you disagree, why don't you really seek out the truth as you claim to do?
On Feb 18 01:47 PM bosun.j wrote:
> I'm still of the opinion that Alan doesn't like gold because he can't
> earn fees from trading it. There is one heck of allot less bravo
> sierra that can be generated around bullion than around those "products"
> concocted by Banksters and their hucksters. IMHO.
Alan, I am not the only one to question your statements in articles you have written on SA. Many others have taken you to task. Most rightly so. Often you have said you didn't check this or that or that you hadn't considered this or that.
What I will give you, Alan, is that as a rather prolific negative commenter on "gold bugs" I am to some extent picking on you. Partly for your opinion and mostly for your prickly disposition.
If you are unwilling to have your articles judged in the marketplace of ideas perhaps you shouldn't publish?
Look, I know SA is a great place to generate business and add to your customer base. Polish your articles a little more. Go for quality not quantity. I'm willing to bet you'll earn more clients that way.
You ain't seen nothing yet!
As I continue to say to you, feel free to disagree, but don't be such a jerk about it. I caught you that very first time, and I continue to catch you again and again in your childish ways.
I can have my ideas questioned and appreciate it. I don't like having my integrity questioned, especially when it is so far from the truth.
On Feb 18 02:40 PM bosun.j wrote:
> Alan, slanderous? Puleeze. The word "opinion" disqualifies that sentence
> as slanderous.
>
> Alan, I am not the only one to question your statements in articles
> you have written on SA. Many others have taken you to task. Most
> rightly so. Often you have said you didn't check this or that or
> that you hadn't considered this or that.
>
> What I will give you, Alan, is that as a rather prolific negative
> commenter on "gold bugs" I am to some extent picking on you. Partly
> for your opinion and mostly for your prickly disposition.
>
> If you are unwilling to have your articles judged in the marketplace
> of ideas perhaps you shouldn't publish?
>
> Look, I know SA is a great place to generate business and add to
> your customer base. Polish your articles a little more. Go for quality
> not quantity. I'm willing to bet you'll earn more clients that way.
Who are you kidding? Most of those who haunt Seekingalpha are hardcore goldbugs and natural resources fanatics. THAT's why you got so much negative feedback. It had nothing to do with "sentiment." Although I think you are right on gold. Being a cynic deep down, I firmly believe there is no place to hide except cash. Eventually, anyone who invests in anything more risky that AAA and gov bonds will be burned badly.
Those in the investment/financial game are automatically suspect. Face it, your "industry" has earned the abject contempt of the general public. I hold you in no less nor no greater stead than any other.
Prickly, Alan. Prickly.
On Feb 18 01:33 PM scottygee wrote:
> It's too hard to accurately predict the future when the government
> can change things at any point in time. The only future I can predict
> is what I'm going to do with the money I've made off of Gold in the
> past 6 months. Need help visualizing? Compare a chart of gold vs.
> Dow index over past six months. I don't care what you call investment
> in gold (inflation hedge, safety play, blah blah blah), I call it
> capital gains.
People who own gold based on the fundamentals are a cult? Not really. I held triple tax frees when they were going up and a total stock market fund in the 90s. Now I hold gold and gold stocks. Because that's where the money will be made. A cult? Duh.
Your average Joe the Plumber will be rioting in the streets and overturning those gold delivery trucks.
If you really believe this hyperinflation nonsense, then you better start taking delivery of your gold and burying in that new safe in your basement.
Hyperinflation will means mass riots and no way to get your gold to your house!
I suggest you understand who really controls the money supply. These Oligarch banksters create booms and busts! We are in the bust cycle. The entire master plan is coming apart at the seams beyond their control. They are scared shitless. While that may seem spooky to some. Ron Paul and a crowd of people are awakening to their scheme.
How on earth are we going to pay for all debts we have created? US debt is estimated at 78 trillion including Soc Sec and Medicare liabilities. World GDP is 78 trillion! Do the math we are screwed! so we must print money to inflate it away. That means inflation and the end of money as we know it. Can you say gold!!!!!! what a no brainer
For those of you who want FACTS please go to chrismartenson.com and check out the Crash Course. It will open your eyes.
If I'm holding a half million in gold, but it's in someone else vault, what good does that do me when the inevitable mass riots, power & food outages hit?
That gold delivery truck won't make it to your house and that piece of paper saying you own gold somewhere else will be worth as much as the paper (or hard drive) it's written on.
Buy gold & take delivery if you believe in hyperinflation or your wasting your money
On Feb 18 03:55 PM Goldbug101 wrote:
> What I guess I'm trying to warn about is that holding gold in some
> far off vault will not do you once iota of good once the whole economy
> implodes due to hyperinflation (should you believe the hyperinflation
> will occur)
>
> If I'm holding a half million in gold, but it's in someone else vault,
> what good does that do me when the inevitable mass riots, power &
> food outages hit?
>
> That gold delivery truck won't make it to your house and that piece
> of paper saying you own gold somewhere else will be worth as much
> as the paper (or hard drive) it's written on.
>
> Buy gold & take delivery if you believe in hyperinflation or
> your wasting your money
>
General price level declines are not possible in fiat currency economies as the paper money is not backed by a tangible asset.
I also disagree with your asessment of the Treasury bubble or lkack thereof. This is the current bubble and when it pops, gold will probably become more of a safe haven. Treasuries, and the dollar, are only backed by the "full faith and credit" of the U.S. Government which has no ability or intention of paying off its debt. Here are the "assets" that back the dollar and Treasury Debt Securities:
The U.S. tax revenues, which are decreasing.
The U.S. budget deficit which is increasing-lack of fiscal discipline usually harms borrowers-it will eventually harm the U.S.
The U.S. trade deficit is large and will continue in perpetuity.
Unfunded Social Security and other entitlement liabilities
The now "unknown" assets on the Fed's expanding balance sheet.
Once holders of treasuries realize this, they will begin to liquidate their treasury holdings as their yields are not compensating them for their risk. Moody's created a new AAA rating for the U.S. and the U.K. that states these countries' securities are "AAA with a risk of default." The U.S.'s sovereign rating is now lower than Norway's.
In my college finance courses years ago, the Treasury rate was the "risk free" rate. I suppise things change when a nation goes on a 20 year deficit spending spree. The U.S. is broke and mathematically insovent. Treasury yields will eventually reflect this.
It will be interesting to see how our government addresses these issues as they begin to bubble up.
Secondly, historically gold has risen in times of inflation as well as deflation. The reason gold rises during deflation is that it is the only asset without a corresponding liability. Put simply, gold cannot default. During periods of deflation default of financial instruments accelerates and is the greatest fea. It is this fear, not the fear of infation eroding wealth, that is the current driver of the gold market.
Thirdly, I will not argue with your interpretation of the technicals, but will say that over the last twenty years as the markets have become ever more enamored with technical analysis the chance that they will have any utility greatly diminishes. Whatever edge, if any, they ever provided simply cannot be much anymore as everyone is using the technique. The true contrarian play then would be to completely ignore technicals.
Does anyone want to take on the topic that "money" isn't increasing?
On Feb 18 04:14 PM austrian63 wrote:
> Gold is simply a safe haven. Your arguments against inflation are
> not correct. I challenge you to research and publish the actual year
> over year rate of deflation (reduction in the general price level)
> in Japan during the 1990's. In fact, you must strip out real estate,
> equities and fuel from your rate. Then see if actual daily costs,
> food, insurance, health care, wage rates, commodities, etc. actually
> were in a "deflationary spiral." I bet the rate of general price
> decline in the daily costs of living will surprise you by how small
> it was and that many costs actually increased.
>
> General price level declines are not possible in fiat currency economies
> as the paper money is not backed by a tangible asset.
>
> I also disagree with your asessment of the Treasury bubble or lkack
> thereof. This is the current bubble and when it pops, gold will probably
> become more of a safe haven. Treasuries, and the dollar, are only
> backed by the "full faith and credit" of the U.S. Government which
> has no ability or intention of paying off its debt. Here are the
> "assets" that back the dollar and Treasury Debt Securities:
>
> The U.S. tax revenues, which are decreasing.
> The U.S. budget deficit which is increasing-lack of fiscal discipline
> usually harms borrowers-it will eventually harm the U.S.
> The U.S. trade deficit is large and will continue in perpetuity.
>
> Unfunded Social Security and other entitlement liabilities
> The now "unknown" assets on the Fed's expanding balance sheet. <br/>
>
> Once holders of treasuries realize this, they will begin to liquidate
> their treasury holdings as their yields are not compensating them
> for their risk. Moody's created a new AAA rating for the U.S. and
> the U.K. that states these countries' securities are "AAA with a
> risk of default." The U.S.'s sovereign rating is now lower than Norway's.
>
>
> In my college finance courses years ago, the Treasury rate was the
> "risk free" rate. I suppise things change when a nation goes on a
> 20 year deficit spending spree. The U.S. is broke and mathematically
> insovent. Treasury yields will eventually reflect this.
>
> It will be interesting to see how our government addresses these
> issues as they begin to bubble up.
On Feb 18 05:32 PM SW Richmond wrote:
> Alan waits until gold looks peaky, then shows up and writes an article
> so he has a chance to say "I told you so". The last time he told
> us to sell gold was $200.00 ago.
I sold mine @ 902 after I got @ 760, not too
greedy, lots of fear now, any good news or central
bank sale and see you @ 700
Sometimes I am early, sometimes I am wrong. Frankly, while I like to be right, the fact that my call hasn't worked out isn't really of much of a concern to me. Since my first article, when gold was in the mid-800s, it touched 700 and now has returned to the levels of this summer. In the big picture, it hasn't really been a big change. If I am wrong, it won't be the first time!
On Feb 18 05:32 PM SW Richmond wrote:
> Alan waits until gold looks peaky, then shows up and writes an article
> so he has a chance to say "I told you so". The last time he told
> us to sell gold was $200.00 ago.
Let's have some civil discussions. Right or wrong you do not deserve to receive personal attacks. But I do feel you need some education on matters of money. This is not putting you down as 99.9% of people truely don't understand what is money and why a funny piece of color paper can be used as money, even though they use money every day.
It's like the earth's gravity force is so obvious in daily experience but it took a genious like Issac Newton to figure out such an obvious thing.
You are right in pointing out that big crowds are most often collectively wrong. That's the market place.
But are you aware what is the biggest crowd in today's market, and hence the biggest DEATH TRAP. Must read:
seekingalpha.com/artic...
It's the US treasury's market. Buying US treasury bonds is effectively lending money to Uncle Sam, knowing full well Uncle Sam is broke and can not pay you back. So how could any T Bond Buyer expect any investment return, or even return of the original principal in real purchase power term? You do get the investment return because the NEXT T bond investor who comes in will pay you money to take over your T Bonds, in hope that there is a bigger fool lined up afterwards.
THIS, my friend, is the description of a PONZI SCHEME. The later comer investors pays off the first batch of investors. The Ponzi Game continues on, until there is no more new comers, and the whole thing collapses. That's what happened to the good ond Madoff. The US Treasury Bonds is the BIGGEST Ponzi Scheme in human history, because our government simply have no deasible way to pay back the debts in real purchase power term.
Massive printing of money always leads to hyperinflation. There is no exception in the history. Right now hyper inflation hasn't happen yet because the money printed is injected into banks who then hoard them away instead of lending out.
But think about it, this will NOT last. Why? The government purchases a ton of paper and ink and printed the paper money in one room. And some one carry the batch of paper money to another room and just put them away collecting dust.
That sounds like a very boring game. Why bother even printing of the paper money is to be stashed away. They might as well just move the original stack of paper and ink to the bank's vault and call it money. What difference dies it make if they are just sitting there collecting dust?
It also defied the very reason why government prints money. The government is recking up trillion dollars of deficit spending. It can not collect th money through tax, and can not borrow the money, leaving printing the only way of obtaining the money the government needs to spend. When goverment spend money, every dollar has the same purchase power like the dollar in your wallet. And that trillion dollar deficit spending, is a gigantic demand on physical goods and services, driving prices up. That's hyper inflation caused by money printing.
It's coming, IMMINENTLY. Read the article again:
seekingalpha.com/artic...
On Feb 18 05:52 PM Roger Knights wrote:
> There's another problem with the chart (besides its being out of
> date and not showing gold's price rise at the close yesterday to
> about 970): The trendline from the March high down to the summer
> high doesn't actually touch the summer high. There's a gap below
> it, because the line was drawn to gold's price as of last week (940).
> That incorrectly makes it look as though the trendline hadn't been
> broken by gold's price last week, at 940. If the line had been drawn
> correctly, anything above about 920 would have broken it.
On Feb 18 06:23 PM Mark Anthony wrote:
> Alan:
>
> Let's have some civil discussions. Right or wrong you do not deserve
> to receive personal attacks. But I do feel you need some education
> on matters of money. This is not putting you down as 99.9% of people
> truely don't understand what is money and why a funny piece of color
> paper can be used as money, even though they use money every day.
>
>
> It's like the earth's gravity force is so obvious in daily experience
> but it took a genious like Issac Newton to figure out such an obvious
> thing.
>
> You are right in pointing out that big crowds are most often collectively
> wrong. That's the market place.
>
> But are you aware what is the biggest crowd in today's market, and
> hence the biggest DEATH TRAP. Must read:
> seekingalpha.com/artic...
>
>
> It's the US treasury's market. Buying US treasury bonds is effectively
> lending money to Uncle Sam, knowing full well Uncle Sam is broke
> and can not pay you back. So how could any T Bond Buyer expect any
> investment return, or even return of the original principal in real
> purchase power term? You do get the investment return because the
> NEXT T bond investor who comes in will pay you money to take over
> your T Bonds, in hope that there is a bigger fool lined up afterwards.
>
>
> THIS, my friend, is the description of a PONZI SCHEME. The later
> comer investors pays off the first batch of investors. The Ponzi
> Game continues on, until there is no more new comers, and the whole
> thing collapses. That's what happened to the good ond Madoff. The
> US Treasury Bonds is the BIGGEST Ponzi Scheme in human history, because
> our government simply have no deasible way to pay back the debts
> in real purchase power term.
>
> Massive printing of money always leads to hyperinflation. There is
> no exception in the history. Right now hyper inflation hasn't happen
> yet because the money printed is injected into banks who then hoard
> them away instead of lending out.
>
> But think about it, this will NOT last. Why? The government purchases
> a ton of paper and ink and printed the paper money in one room. And
> some one carry the batch of paper money to another room and just
> put them away collecting dust.
>
> That sounds like a very boring game. Why bother even printing of
> the paper money is to be stashed away. They might as well just move
> the original stack of paper and ink to the bank's vault and call
> it money. What difference dies it make if they are just sitting there
> collecting dust?
>
> It also defied the very reason why government prints money. The government
> is recking up trillion dollars of deficit spending. It can not collect
> th money through tax, and can not borrow the money, leaving printing
> the only way of obtaining the money the government needs to spend.
> When goverment spend money, every dollar has the same purchase power
> like the dollar in your wallet. And that trillion dollar deficit
> spending, is a gigantic demand on physical goods and services, driving
> prices up. That's hyper inflation caused by money printing.
>
> It's coming, IMMINENTLY. Read the article again:
> seekingalpha.com/artic...
>
>
Gold is a monetary metal for many reasons--it's rare, but plentiful enough, and it's standardized. An ounce of fine gold is an ounce anywhere in the world. People understand gold. And it's useful in certain instances--though that isn't the reason for the price in fiat terms. It doesn't oxidize and maintains its good looks forever--and that really is a reason why, I think.
If you are willing to read my article and then further the discussion, that means you are an intelligent man who is willing to use your brain to think and who are willing to have constructive discussions. You are not those brain-less talking heads. I encourage you to come up with another article further discuss the issue of gold vs dollar, deflation vs inflation.
Few people ever give it a deep thought why paper assets has value. What those values are based on, and why physical assets has value, and what those physical values are based on. Why people intuitively turn to gold whenever there is a crisis. I have thought it hard and here are my shares on valuations:
Sequel 1 Today's True Safe Haven Investments
seekingalpha.com/artic...
Sequel 2 Some True Safe Havens Are Still (Surprisingly) Undervalued
seekingalpha.com/artic...
Sequel 3 Are Safe Haven Investments Really Immune From Current Crisis?
seekingalpha.com/artic...
Sequel 4 Survival of the Fittest: Save Haven Investments
seekingalpha.com/artic...
Sequel 5 Safe Haven Investments: Imminent Danger and Opportunities
seekingalpha.com/artic...
Those constitutes my thoughts on what's the true value people should be pursueing, in this time of crisis, and my whole investment thesis to mitigate through the market place. Enjoy!
Merchants may not accept gold, but that is a technical reason. They cannot evaluate the product onsite.
On Feb 18 01:41 PM Randy_H wrote:
> Gold is not a "hard currency". It is a store of value, of sorts,
> but not a currency.
I appreciate the graph of Gold as a percentage of CRB. Looks like the late 70's all over again.
I think I understand your point, but I wonder how the Treasury exodus happens. Even the Chinese admit that they are stuck. The way I look at things, as our savings rate goes up and as our confidence in all things less than the best perceived risk remains low (Stanford yet another example of the masses getting up their molasses, though these are again the wealthier contingent for the most part compared to the common investor who just gets ripped of in high fee main-line investments), bonds will be well bid despite the risk. I sense that gold benefits as well from that - I admit it is the part of the story to which I neglected to pay full attention. I focused instead on the illogic behind expecting imminent inflation. Perhaps my efforts would have been more productive had I focused less on gold and more on just that aspect of the argument.
In any event, if you take the time to read my work, you will see that I am all about loss avoidance, certainly lately. I sure erred last year stepping away from my very bearish stance that I shared publicly on Seeking Alpha in the summer of 2007, but make no mistake that I remain very negative and concerned about further wealth destruction.
While I don't characterize the Treasury market as a bubble, I don't find it to offer much value. I run a model portfolio as well as a real one and have underweighted bonds in general. There are some tremendous values in corporate bonds, convertible bonds and preferred stocks. Still, I would expect Treasuries to improve somewhat as the year progresses, but probably not enough to offset yield pick-ups in some areas of the other parts of the market.
I will backtrack to the 5 sequels - thanks again for the dialogue.
On Feb 18 06:53 PM Mark Anthony wrote:
> Alan:
>
> If you are willing to read my article and then further the discussion,
> that means you are an intelligent man who is willing to use your
> brain to think and who are willing to have constructive discussions.
> You are not those brain-less talking heads. I encourage you to come
> up with another article further discuss the issue of gold vs dollar,
> deflation vs inflation.
>
> Few people ever give it a deep thought why paper assets has value.
> What those values are based on, and why physical assets has value,
> and what those physical values are based on. Why people intuitively
> turn to gold whenever there is a crisis. I have thought it hard and
> here are my shares on valuations:
>
> Sequel 1 Today's True Safe Haven Investments
> seekingalpha.com/artic...
>
>
> Sequel 2 Some True Safe Havens Are Still (Surprisingly) Undervalued
>
> seekingalpha.com/artic...
>
>
> Sequel 3 Are Safe Haven Investments Really Immune From Current Crisis?
>
> seekingalpha.com/artic...
>
>
> Sequel 4 Survival of the Fittest: Save Haven Investments
> seekingalpha.com/artic...
>
>
> Sequel 5 Safe Haven Investments: Imminent Danger and Opportunities
>
> seekingalpha.com/artic...
>
>
> Those constitutes my thoughts on what's the true value people should
> be pursueing, in this time of crisis, and my whole investment thesis
> to mitigate through the market place. Enjoy!
On Feb 18 07:18 PM JoelA wrote:
> Gold is a safe haven until central banks get greedy and start dumping
> because the price is right. Good luck staying long that trade when
> the supply starts flooding the market.
>
> I appreciate the graph of Gold as a percentage of CRB. Looks like
> the late 70's all over again.
> I think I understand your point, but I wonder how the Treasury exodus
> happens. Even the Chinese admit that they are stuck. The way I look
> at things, as our savings rate goes up and as our confidence in all
> things less than the best perceived risk remains low
China is stuck with too big a position in US T Bonds that it understands it can not sell. But smaller players CAN and WILL sell. Basically it's the game of who blinks first. The situation now is it is now a very crowded market place. Every one holds T Bonds for perceived safety. When you have every body on one side of the trade it has to go the other way.
If no one buys and no one sells, the T Bond market may stay in an unstable equilibrium for a while. But the US government is recking up trillion dollars of deficit spending. So the government MUST sell a lot of new bonds. When no one comes forward to buy, or there is not enough buyers show up, then it will collapse and the exodus will start.
Who could buy the trillion dollars expected new issue of bonds? No one can. China desperately want to support the market. But it is simply BEYOND China's ability to support it. Besides China needs to spend money on its own domestic needs. China is tapped out and can not lend to Uncle Sam any more. That is the truth. Uncle Sam is just too big for any one to bail him out.
my prediction for you americans is when gold peaks this time around, average US salary will buy less than one ounce of gold because you guys are jobless!
the total market cap of all of gold mines listed in the US is around 150 billion dollars. they almost control all of the gold resources in the world. 150billion dollars is a drop in the bucket.
This post will begin with a preface, that being that we are by no means "gold bugs". Gold should not be viewed through the same lens that one uses to evaluate traditional asset classes i.e. stocks, bonds, commodities, etc. The yellow metal does not pay a dividend, you can not rent it out to others, and it serves no fundamental human need. Warren Buffett once commented on the probable confusion that would be felt by aliens from Mars, if they were able to look down and observe our actions with regards to gold. The observation being that we expend great effort to dig gold out of a hole in the ground, only to sell it to someone else who promptly places it in a separate hole in the ground. Nonetheless, our confidence in gold is based primarily upon the following factual observation: The Government completely and utterly lacks the ability to print, debase, devalue or desecrate gold in any way. Governments/Central Banks/Monetary Institutions do have the ability to sell their holdings of physical gold, however, widescale conversion to the fiat currency system has largely reduced the influence that these entities may wield over the gold markets. Going forward, there appears no end in sight to the amount of money that the governments of the developed world will spend to support their economies. These "bailouts" will, of course, be financed by borrowing from the developing world, furthering the status of the United States et.al. as debtor nations. Once the appetite for Western Government debt has receded, the printing press will remain the only viable source of financing for subsequent Government rescue efforts. Additionally, the dilution of the dollar will allow the US Government to satisfy its geometrically increasing obligations with greater ease. Given this scenario, gold should remain a bastion of safety and a store of wealth. Of course, you may believe that this Recession is nearing an end. Officially, we would beg to differ.
Rockefeller was believed to have 1 billion dollars, which was 1600 tons of gold in his time.
buffett's wealth in year 2000 could buy around 3000 tons of gold, but now only around 1000 tons.
i wish rockefeller preserved his wealth through gold, so he could beat buffett even today!
This statement, which you made a few posts above, is all anyone needs to know when they read what you write about gold:
"I fail to appreciate the unique characteristics that so many others believe merit special consideration."
On Feb 18 02:16 PM Russell Upsomgrubb wrote:
> The chart sure looks like the parabolic one of oil at its high.
China ? Doubtful they have massive unemployment tidal wave commin on.
Japan -no the pump is going on there too! With everyone priming thier own economies who will the buyer be for our trillions of debt?
Maybe the Saudis will buy American Treasuries. Trillions and Trillions worth of paper on a promise.
We've entered the Twilight Zone
every article about the government spending trillions it does not currently have to bail out the insovent banks, homeowners, and automakers makes me want to get rid of the paper money and buy gold and silver.
It looks like alot of others feel the same way...
It was the "inflation" increase in the money supply, that caused the inflated prices in real estate, equities, etc. from 2002 - 2006. The Fed is inflating the money supply now at an even greater rate. All of this new money represents cash balances in some one's possession. The increase in the money supply debases the currency over time. As a result, assets with intrinsic value will increase in value as measured by inflated/debased currencies. Inflation does not impact all goods at the same rate or time. For example, the CPI, which is merely a measure of the general price level, as defined by the Fed, and does not measure monetary growth. The CPI is also a metric developed by the goverment which also grows/inflates the money supply. Like grading your own tests in high school.
Growth in the money supply is inflation and is the proximate cause of increases in the general price level over time.
Even though real estate prices are still falling due to their inflated levels, most other prices in dollar terms are not falling. Creating money out of thin air defies the economics of scarecity and devalues all existing dollars in circulation as they were not created from capital investment or labor but by government "fiat." This leads to another Keynesian myth of the nutrality of money. As the domestic and international markets begin to realize the debasement that is occurring and the increased credit risk of the U.S., interest rates and prices, in dollars, will rise. This is a natural economic law and cannot be prevented by Ben Bernancke, the President, Congress or any of the economically illiterate expert economists that most politicians listen to. Low growth does not preclude currency debasement and rising prices. Low growth and higher prices can and will exist together if our current monetary and fiscal policies are continued.
On Feb 18 05:26 PM Alan Brochstein wrote:
> You raise a good point. I wasn't trying to cite Japan as an example
> of deflation but rather that inflation never came despite years and
> years of stimulus, low interest rates and monetary expansion. I don't
> think that our situation is quite the same as Japan's, unfortunately,
> in that as many of the gold proponents point out, we are externally
> financed. Our consumption for years above and beyond our means at
> all levels (government, consumer and business) helped to keep the
> economy going and prices rising. We now have asset prices of all
> sorts (except gold) declining dramatically and credit constricting.
> These conditions will keep a lid on prices no matter what the Fed
> and the Treasury try to do in my opinion. The higher savings rate
> ahead for individuals and the conscious efforts of companies to constrain
> their own debt will lead to low levels of consumption. Additionally,
> as governments face pressure on their fiscal fronts, they will be
> forced to raise taxes, another impediment for growth.
I am almost 44. I read Hayek, von Mises, etc beginning 30 years ago and keep the texts within 5 feet of me. I understand the arguments, especially in the context of the time at which they came to be promoted by the Austrian School. Much of what I get from the economic view lies outside of their beliefs about gold. If we lived in a world where anyone else had non-fiat monetary systems, I might think differently.
On Feb 18 10:39 PM austrian63 wrote:
> Alan,
>
> It was the "inflation" increase in the money supply, that caused
> the inflated prices in real estate, equities, etc. from 2002 - 2006.
> The Fed is inflating the money supply now at an even greater rate.
> All of this new money represents cash balances in some one's possession.
> The increase in the money supply debases the currency over time.
> As a result, assets with intrinsic value will increase in value as
> measured by inflated/debased currencies. Inflation does not impact
> all goods at the same rate or time. For example, the CPI, which is
> merely a measure of the general price level, as defined by the Fed,
> and does not measure monetary growth. The CPI is also a metric developed
> by the goverment which also grows/inflates the money supply. Like
> grading your own tests in high school.
>
> Growth in the money supply is inflation and is the proximate cause
> of increases in the general price level over time.
>
> Even though real estate prices are still falling due to their inflated
> levels, most other prices in dollar terms are not falling. Creating
> money out of thin air defies the economics of scarecity and devalues
> all existing dollars in circulation as they were not created from
> capital investment or labor but by government "fiat." This leads
> to another Keynesian myth of the nutrality of money. As the domestic
> and international markets begin to realize the debasement that is
> occurring and the increased credit risk of the U.S., interest rates
> and prices, in dollars, will rise. This is a natural economic law
> and cannot be prevented by Ben Bernancke, the President, Congress
> or any of the economically illiterate expert economists that most
> politicians listen to. Low growth does not preclude currency debasement
> and rising prices. Low growth and higher prices can and will exist
> together if our current monetary and fiscal policies are continued.
>
On Feb 18 01:41 PM Randy_H wrote:
> Gold is not a "hard currency". It is a store of value, of sorts,
> but not a currency. It's also a commodity with commercial and industrial
> application. It's also a vehicle for speculation and hedging.<br/>
>
> All currencies are fiat in the end. Even gold coins with a silhouette
> of the king stamped on them. Beyond a kingdom of a few thousand
> subjects, currency is necessarily authorized and regulated. Thus,
> fiat. If a new king comes along, you can't melt your old gold and
> put the new king's face on it (without paying tribute to your monarch)
> without losing your head for counterfeiting.
>
> People keep confusing Gold, Commodity-indexed fiat currency systems,
> Floating exchange-based fiat currency systems, and barter. I get
> the sense what most are hoping for is a total breakdown of currency
> and a reversion to barter.
>
> Be careful what you wish for.
Can someone explain to me please, what would it mean US government to "devalue" the USD? As far as I know counties devalue their national currencies against other countries foreign currencies, right? These counties which devalue their currencies usually have financial problems, like threat to default on their sovereign debt. These countries' foreign debt is usually denominated in foreign currency, hence inability to raise enough foreign currency to serve their debt?
With US debt denominated in USD, and USD being a fiat currency I do not see a problem for USA to "print" as much as necessary USD to pay off any obligations it has. By doing so USA may rebuff anyone willing to loan it in the future, but as far as present debt, consider it paid off with stroke of a keyboard. So, technically speaking even if USA is broke it will not default on its debt. Now under such circumstances the forex market may effectively devalue the USD towards other foreign currencies, it won't need a decree from the US government, though I doubt this will happen since all world currencies are fiat and are pretty much in the same boat - their purchaing power may be diluted simultaneously…
Bosun: something must be wrong, you have received the most positives on a single aricle that I have ever seen.
With the reaming that the UK received from one of their own about Selling Gold around 10 years ago, I doubt the Central Bankers will be eager to sell this time around.
Alan is being "Prudent". Very, Very Prudent. Besides, some profit taking will occur, everyone knows this.
There is nothing in the Article that tells you to SELL all of your Gold. And all of you also know how hard it is for someone to admit making a mistake. I mean, when Platinum was around $2,400, Mr. Anthony was pushing the heck out of SWC, PAL etc. but he never came out with anything resembling a Mea Culpa.
Gold serves 3 areas: Inflation Hedge, as a Currency, And as a Refuge in times of Chaos.
Inflation Is In the World, Big Time...all of those currencies which have gone Down 25% or more against the USD certainly will feel its effects.
As a Currency remains to be seen.
But Chaos!, There is enough Uncertainty to keep Gold going Up a long time. Of course, there will be drops.
But will the Fear of another cockroach or more ever go away for the Foreseeable Future, Not In My Humble Opinion.
When the dollar rises so often does gold do well correspondingly vs. other foreign currencies and assets.
Fools never learn !
As another commenter astutely noted, my article resonates to this crowd like a cheer for the Red Sox would go over in Yankee Stadium. Consider the crowd...
Still, I speak to my clients (one of whom is actually long gold stocks to a small degree) and to others quite frequently. It is my observation that most of the bulls I speak to (and they are not the die-hard long-time devotees to hard money) aren't really thinking through the issues but rather responding to the side of the story that is quite visible to them: increased deficit spending and a rising monetary base and money supply. I maintain that folks are missing the wealth destruction component and the fact that multiplier is falling faster than the increase in money.
On Feb 18 11:10 PM CLH wrote:
> All these comments which are almost all gold positive tell me that
> gold is a bubble ready to crash.
But hey, only money historians know that, right? Or you rather prefer them to be Goldbugs? Fine by me.
Alan Attention Getter!
So Brochstein, Lets see what your posts look like after inflation and hyper-inflation catch a hold of the USD THEN we will see how much of a 'bubble' gold is...
(I personally buy silver) I think the ratio is better and it has more room to grow...
check out: PrepareForAndGainFrom....
Why will gold continue to go upwards? Supply and demand. It's that simple. You can talk about deflation until you're blue in the face, but you're missing the real reason why gold prices are going upwards --- there is an extremely limited supply of it worldwide and there is high demand.
So why is there high demand if we're locked in a "deflationary spiral" as you suggest. Well, first off, I don't agree with your conclusion and think we'll start seeing inflation again in 2010, but let's say you're right --- so what? You're ignoring the fact that just because the US is in a "deflationary spiral", that does not mean every country in the world is in one. In fact, others are experiencing inflation right now and various currencies look extremely weak and vulnerable. This means there is high demand for gold in certain parts of the world --- particularly places like Russia and India.
Do I think gold is going to $10,000/oz like some people? Not really. Gold is a safety investment; a store of value --- people will quit buying it so heavily once things settle down, but that could easily take a few years. By then, gold could pretty easily hit $1,200 and might even go as high as $2,000. From a production perspective, once you take into account all costs associated with gold extraction, average gold production costs are probably over $700/oz and they will rise if oil rises again and as the resource becomes more depleted - so prices aren't really that outlandish right now and not indicative of a boom phase yet.
The problem with simply relying on technical analysis is that it fails to look at the actual fundamentals behind gold and the fundamentals are pretty good right now. You can't look at a chart and say "gold is in a bubble" without actually looking at what is going on in the marketplace. Whether deflation persists in the US or not, demand for gold is very strong right now and will continue to be strong until stability is returned to the global economic landscape.
In noway there is inflation right now !!!
Stop being contrarian stating there is some :
Trust officials from stats bureaus, Trust your officials they know best,
There is no inflation now, nor in sight.
Proof 1: oil is down, crude is down, but the pump remains the same.
And Opep will cut production.
Proof 2 : Tides still makes 34 washes, cost the same. But the bottle is
twice less than it was. Javel water, the jug is smaller, and it is
not because of my lens.
Proof 3: My pasta pack is 2 twice the lastyear price, and the pack is 25
% less.
Proof 4: meat price are declining; they will eliminate beast to keep the
price up. My 10 lb. potato bag cost the price of a 20 lb.
Proof 5: DO some grocery shopping and compare with last year price.
Proof 6 : 42 '' Plasma tv set are cheaper now. Iwho buys tv each week,
and like any other electronics, price are falling as new tech
comes in the market.
I do suggest that M. Paulson et al. know what they are talking about when
they make satement about their non-inflation. But I don't think we have the same concept.
I don't mind that Bentley's new model is cheaper than the last one.
So I Expect gold to hold and rise. And I hope it, because what else's left ?
They can't get their coins now...
On Feb 19 09:03 AM The Mad Hedge Fund Trader wrote:
> GOLD! GOLD! GOLD! This is the cry being heard worldwide by investors
> in the Great Gold rush of 2009, looking for a generic “short America”
> trade. Where in the past gold seekers used sluices, shovels, and
> jackhammers to extract the glittery stuff in California’s Sierras,
> Alaska’s Klondike, and South Africa’s Rand, today the instrument
> of choice is the mouse. Online traders are unleashing clicks by the
> millions to buy ETF’s, American Eagles, mining shares, and futures
> contracts. With stock traders sitting on their haunches, wondering
> if the Dow will hold 7,000, this is the only thing that is working
> right now. Traders are buying gold more for what it isn’t, than what
> it is. It isn’t made of paper, made in the US, or held in custody
> by Bernie Madoff or Stanford Financial. The yellow metal hit a new
> high for the year of $887 overnight, and the risk of a “melt up”
> is increasing. The Street Tracks Gold Trust ETF (seekingalpha.com/symbo...)
> is now the seventh largest holder of the barbaric relic in the world.
> For the newly aggressive, look at the DB Gold Double Long ETF (seekingalpha.com/symbo...),
> which gives you a 200% long exposure to gold.
I am not sure how you define a "bubble". While it is necessary but not sufficient, leverage is part of the equation. Ancecdotally, I try not to watch CNBC or television in general too much, but I sure see lots of ads pushing gold and forex trading to the masses. I also think that the price of gold should be considered relative to somewhat similar or adjacent commodities. The chart I included would say extremely the opposite. Bonds, on the other hand, seem in line with bond prices around the world. I believe that characterizing bonds as a "bubble" makes little sense, but they sure don't look attractive to me. Not sure why anyone would feel the need as a capital preservationist to go any longer. By the way, when you say 25 years, I urge you to look at the 1986 bond experience. I was working on the floor in the bond pits when the Japanese cornered the market. That was a bubble!
On Feb 19 09:25 AM Tony Daltorio wrote:
> I am not a gold bug but the author is clearly under the influence
> of some illegal substance. The author has completely swallowed the
> biggest Wall Street scam of all time - deflation. In an economy with
> a fiat currency, deflation can NEVER be more than a short-term phenomena.
> Also the author is missing two of the biggest bubbles I have seen
> in my over 25 yrs in the business- the US Treasury market and the
> US dollar.
Gold is in both a long-term structural and secular bull phase, due precisely because inflation is rampant. Important here to distinguish between price inflation and monetary inflation. To deny the existence of monetary inflation in view of the planned printing of $2 trillion this year is to have one's head anchored deeply into the dunes. Price inflation, however has not yet set in, because what armchair economists call "deflation" which is merely the adjustment of prices downward in an effort to induce buying, is a result of economic contraction brought on by monetary inflation.
Gold is not a bubble. Its the standard by which all other currencies are measured. Always has been. Always will be.
Its price rise is not so much a reflection of increased value as of the fact that the U.S. dollar is being devalued through monetary inflation. Investors who understand this will whether the storm just fine. The rest will be cannon fodder.
I base my conclusion that gold is in a bubble on several factors. First, it is at an extreme relative to other commodities not seen since the last gold bubble. Second, media and advertising sentiment suggest the common man is being sucked in. Third, my discussions with bullion dealers suggest that they are seeing a shift towards more leverage among their retail clients. Fourth, the high volume and interest in UGL, the double-long (daily) ETF supports my view.
On Feb 19 10:06 AM James West wrote:
> The armchair analyst who is the author of this piece clearly takes
> his cues from the media. Now everything that rises in price is a
> bubble? Thats the mentality that creates bubbles.
>
> Gold is in both a long-term structural and secular bull phase, due
> precisely because inflation is rampant. Important here to distinguish
> between price inflation and monetary inflation. To deny the existence
> of monetary inflation in view of the planned printing of $2 trillion
> this year is to have one's head anchored deeply into the dunes. Price
> inflation, however has not yet set in, because what armchair economists
> call "deflation" which is merely the adjustment of prices downward
> in an effort to induce buying, is a result of economic contraction
> brought on by monetary inflation.
>
> Gold is not a bubble. Its the standard by which all other currencies
> are measured. Always has been. Always will be.
>
> Its price rise is not so much a reflection of increased value as
> of the fact that the U.S. dollar is being devalued through monetary
> inflation. Investors who understand this will whether the storm just
> fine. The rest will be cannon fodder.
1) The US dollar is a safe haven and always will be
2) Deflation is the concern, not inflation
3) Gold is a cult and as such it will create a bubble on false fundamentals and hence will fail.
1) There have been numerous articles in the past few weeks quoting ECB officials, Chinese officials, and Gulf Sovereign wealth fund officials on their growing concern with the US fiscal position. They have gone so far as to question the wisdom of holding treasuries and the stability of the dollar. You can see some of the articles on my site for specifics and analysis. These are not guys on the street, they are people representing 100's of billions of dollars. Maybe this all blows away suddenly and everyone becomes happy with the dollar and other fiat currencies. - Time will tell. You may want to note as well that gold is making new highs with respect to every currency, not just the dollar. That is, with respect to other major currencies gold has broken out.
2) Deflation or inflation? Jury is still out. PPI in the US today was up and Britain's numbers were up this week as well. Both were surprises. That doesn't mean anything as every number seems to be a surprise. What is interesting is that I am seeing more fund managers raising inflation concerns lately. Deflation seems to be primarily talked about by the US government now and, well they didn't do so hot seeing the problem coming.
3) Yes there are those who have a fascination with gold. I am not one. Gold aficionados have not been able to predict the big crisis they fear to better than "planet Earth sometime plus or minus a millennium". That said use of phrases like "cult" is a propagandist term designed to immediately paint anyone who disagrees with you as obviously of low intelligence. No matter, what should be clear is that the small, and largely poor, gold followers are not sufficient enough in number or influential enough to drive the price to the levels it has gone. The Russian Central Bank is not upping its gold reserves because some guys in the US are finally seeing their longed-for crisis coming. Most people are buying gold because it is one of the only things moving in the market. Others who have thought about it more are deeply concerned about the US fiscal position and see it as unsustainable.
So is gold a bubble? Perhaps. The dotcoms were as well. Will gold come down hard eventually when the buying stops and some sense of normalcy returns to global economics? Sure. Same thing happens to stock markets all the time. Prices are set on the margin in all markets.
This crisis is global and the fiscal positions of many major nations are at ridiculously extended levels. That creates a dynamic that has not existed in the past. That is why your are seeing global buying.
I wrote a small blog post about gold nearly a month ago, available at:
aprioritrader.blogspot...
You can use the gold continuous contract for any technical analysis you want to do, GLD is not a good proxy for analysis but is a way to trade.
Gold is nothing more than a long-term store of value, so in times like these its probably a good bet but in a longer-term perspective (10 yrs) you are better off buying good businesses at reasonable valuations.
-KaranZ
On Feb 18 06:29 PM Alan Brochstein wrote:
> Thanks for your comment. I will read the article and comment further
> if necessary. I have always maintained that we have a ponzi society
> (social security, for instance). Still, though, do you actually
> believe that the system collapses? While this is certainly the mother
> of all economic challenges, I don't think we will be "Icelanded".
> Our resources as a country are great. The type of scenario you point
> to would most likely take decades to play out. Well, I will read
> the article. Thanks again.
>
>
> On Feb 18 06:23 PM Mark Anthony wrote:
Austrian,
You have slandered George HW Bush and Bill Clinton unwittingly and unjustly. The US government went on a THIRTY year deficit spending spree when Ronald Reagan cut taxes so dramatically in 1981. It is true that he rectified some of the shrinkage in the next two years with partially compensatory increases, but he set the stage for thirty nearly uninterrupted years of spiraling debt. Bush 41 made an attempt to right the ship and lost his second term, and then Clinton pumped more water out and lost Congress. By the end of Clinton's term -- partially because of the DotCom boom but mostly because of the 1993 tax increases -- the government was running an overall surplus. No, it hadn't gotten back to a full operating surplus as it should have, but it was a lot better than anything since Kennedy's term.
People will argue forever about the proper proportion of GDP to devote to government activities, but one thing is not debatable: the only long-term (greater than 10 years' duration) debt that the government should accrue is for genuinely productive infrastructure investments and the cost of wars of defense. It's fine for it to run temporary (3 to 5 year) deficits during the low part of business cycles, but it has to liquidate the debt in the high part of the cycle.
The problem is that selfish people say "we have to give the people their money back" in the high part of the cycle, so the debt has only rarely been liquidated.
On Feb 18 04:14 PM austrian63 wrote:
> Gold is simply a safe haven. Your arguments against inflation are
> not correct. I challenge you to research and publish the actual
> year over year rate of deflation (reduction in the general price
> level) in Japan during the 1990's. In fact, you must strip out real
> estate, equities and fuel from your rate. Then see if actual daily
> costs, food, insurance, health care, wage rates, commodities, etc.
> actually were in a "deflationary spiral." I bet the rate of general
> price decline in the daily costs of living will surprise you by how
> small it was and that many costs actually increased.
>
> General price level declines are not possible in fiat currency economies
> as the paper money is not backed by a tangible asset.
>
> I also disagree with your asessment of the Treasury bubble or lkack
> thereof. This is the current bubble and when it pops, gold will
> probably become more of a safe haven. Treasuries, and the dollar,
> are only backed by the "full faith and credit" of the U.S. Government
> which has no ability or intention of paying off its debt. Here are
> the "assets" that back the dollar and Treasury Debt Securities:
>
>
> The U.S. tax revenues, which are decreasing.
> The U.S. budget deficit which is increasing-lack of fiscal discipline
> usually harms borrowers-it will eventually harm the U.S.
> The U.S. trade deficit is large and will continue in perpetuity.
>
> Unfunded Social Security and other entitlement liabilities
> The now "unknown" assets on the Fed's expanding balance sheet.
>
>
> Once holders of treasuries realize this, they will begin to liquidate
> their treasury holdings as their yields are not compensating them
> for their risk. Moody's created a new AAA rating for the U.S. and
> the U.K. that states these countries' securities are "AAA with a
> risk of default." The U.S.'s sovereign rating is now lower than
> Norway's.
>
> In my college finance courses years ago, the Treasury rate was the
> "risk free" rate. I suppise things change when a nation goes on
> a 20 year deficit spending spree. The U.S. is broke and mathematically
> insovent. Treasury yields will eventually reflect this.
>
> It will be interesting to see how our government addresses these
> issues as they begin to bubble up.
On Feb 18 02:05 PM lark wrote:
> yeap, Gold is money.
To the contrary, gold technicals are bullish as the 2008 trendline is broken.
Bottom line is you are wrong to date on the overall picture, and so I'd be happy to be on the opposite side of your shorts.
1: formal religious veneration : worship
2: a system of religious beliefs and ritual ; also : its body of adherents
3: a religion regarded as unorthodox or spurious ; also : its body of adherents
4: a system for the cure of disease based on dogma set forth by its promulgator <health cults>
5 a: great devotion to a person, idea, object, movement, or work (as a film or book) ; especially : such devotion regarded as a literary or intellectual fad b: the object of such devotion c: a usually small group of people characterized by such devotion
It is this fifth definitiion that really captures the essence of this group. As I have repeatedly tried to convey, I share a lot philosophically with the group. I was a card-carrying contributor to the Libertarian party 28 years ago (as a minor), I have read the works of Ayn Rand as well as most of the Austrian economists, Bastiat and many others. I have a huge deal of respect for the ideasl to which I imagine many of the gold cult shares. I have my "Case for Gold " by Ron Paul (published in 1982 by Cato Institute right beside me. While I won't vouch for some of these folks, many of the comments here are from exceptionally articulate and thoughtful individuals. I therefore have to address your claim that I am somehow labeling them as "of low intelligence". I certainly don't believe that any of my comments have suggested such either. I just happen to have a different view about the price of gold in the future.
So, if anyone believes that I am belittling you for having such a strong devotion to your beliefs about gold, I apologize, as that is certainly not my intent. I do believe, though, that how one views the world can certainly bias one's outlook and expectations.
On Feb 19 11:12 AM kelm wrote:
> Your argument rests on the following:
> 1) The US dollar is a safe haven and always will be
> 2) Deflation is the concern, not inflation
> 3) Gold is a cult and as such it will create a bubble on false fundamentals
> and hence will fail.
>
> 1) There have been numerous articles in the past few weeks quoting
> ECB officials, Chinese officials, and Gulf Sovereign wealth fund
> officials on their growing concern with the US fiscal position. They
> have gone so far as to question the wisdom of holding treasuries
> and the stability of the dollar. You can see some of the articles
> on my site for specifics and analysis. These are not guys on the
> street, they are people representing 100's of billions of dollars.
> Maybe this all blows away suddenly and everyone becomes happy with
> the dollar and other fiat currencies. - Time will tell. You may want
> to note as well that gold is making new highs with respect to every
> currency, not just the dollar. That is, with respect to other major
> currencies gold has broken out.
>
> 2) Deflation or inflation? Jury is still out. PPI in the US today
> was up and Britain's numbers were up this week as well. Both were
> surprises. That doesn't mean anything as every number seems to be
> a surprise. What is interesting is that I am seeing more fund managers
> raising inflation concerns lately. Deflation seems to be primarily
> talked about by the US government now and, well they didn't do so
> hot seeing the problem coming.
>
> 3) Yes there are those who have a fascination with gold. I am not
> one. Gold aficionados have not been able to predict the big crisis
> they fear to better than "planet Earth sometime plus or minus a millennium".
> That said use of phrases like "cult" is a propagandist term designed
> to immediately paint anyone who disagrees with you as obviously of
> low intelligence. No matter, what should be clear is that the small,
> and largely poor, gold followers are not sufficient enough in number
> or influential enough to drive the price to the levels it has gone.
> The Russian Central Bank is not upping its gold reserves because
> some guys in the US are finally seeing their longed-for crisis coming.
> Most people are buying gold because it is one of the only things
> moving in the market. Others who have thought about it more are deeply
> concerned about the US fiscal position and see it as unsustainable.
>
>
> So is gold a bubble? Perhaps. The dotcoms were as well. Will gold
> come down hard eventually when the buying stops and some sense of
> normalcy returns to global economics? Sure. Same thing happens to
> stock markets all the time. Prices are set on the margin in all markets.
>
>
> This crisis is global and the fiscal positions of many major nations
> are at ridiculously extended levels. That creates a dynamic that
> has not existed in the past. That is why your are seeing global buying.
1. YOUR TAXES equal what government spends. No more no less. The taxes may be deferred a bit when government borrows, but you will pay in either inflation or direct transfers. The Regan and Bush 'tax cuts' are a lie because they did not cut spending. The idea that deficits aren't important is wrong simply because government spending detracts from the private sector's freedom to allocate funds where the opportunities are.
2. The remaining argument is how big you want government to be. The correct measure of the size of government is how much government spends. Starting with Reagan Republicans have grown government just as fast as Democrats.
3. Don't neglect the effect of the end of the cold war on Clinton's results.
On Feb 19 11:55 AM Anandakos wrote:
>
> Austrian,
>
> You have slandered George HW Bush and Bill Clinton unwittingly and
> unjustly. The US government went on a THIRTY year deficit spending
> spree when Ronald Reagan cut taxes so dramatically in 1981. It is
> true that he rectified some of the shrinkage in the next two years
> with partially compensatory increases, but he set the stage for thirty
> nearly uninterrupted years of spiraling debt. Bush 41 made an attempt
> to right the ship and lost his second term, and then Clinton pumped
> more water out and lost Congress. By the end of Clinton's term --
> partially because of the DotCom boom but mostly because of the 1993
> tax increases -- the government was running an overall surplus.
> No, it hadn't gotten back to a full operating surplus as it should
> have, but it was a lot better than anything since Kennedy's term.
>
>
> People will argue forever about the proper proportion of GDP to devote
> to government activities, but one thing is not debatable: the only
> long-term (greater than 10 years' duration) debt that the government
> should accrue is for genuinely productive infrastructure investments
> and the cost of wars of defense. It's fine for it to run temporary
> (3 to 5 year) deficits during the low part of business cycles, but
> it has to liquidate the debt in the high part of the cycle.
>
> The problem is that selfish people say "we have to give the people
> their money back" in the high part of the cycle, so the debt has
> only rarely been liquidated.
>
> On Feb 18 04:14 PM austrian63 wrote:
"Roubini Says a ‘Sovereign Bank May Crack’ as Crisis Worsens"
All you guys that want to get caught offside, be my guest.
And how should we rate your, The Bear Market is Over article that you wrote in May 2008? Seems to me, you are good at being most bearish at a bottom and bullish before a real collapse.
-Organizer, New York Investing meetup
* Inflation isn't happening
* Gold longs need to be cautious of poor technicals
Spot on. Very good article.
Inflation = Too much money chasing too few goods.
Well theres plenty of goods to buy and very little money chasing it.
Many gold speculators seem to forget it is also a commodity. High prices will reduce demand in the jewellry industry. Causing demand destruction that will burst the bubble the same way the oil price did in 2008.
I stand by my record of contributions to the public. I was very bearish in mid-2007 for all the right reasons. I screwed up my call last year no doubt, but I believe that I got back on track. I suggest you review my posts from the past several months. You have caught me on a particularly gratifying day. HRL (seekingalpha.com/artic...) has now appreciated 20+% in a tough market, while GE (seekingalpha.com/artic...) has fallen 35% since I panned it at year-end. Anyway, I do make mistakes no doubt. Shouldn't be too hard to find several.
On Feb 19 02:36 PM User 360293 wrote:
> Let's see, you were wrong about gold in October 2008, you were wrong
> about gold in December 2008, but now that gold is going back to 1000
> instead of the 600 you predicted (and I believe if people research
> your record, they will find that you predicted 400 before that) people
> should believe you're right? Since nothing has happened as you have
> predicted, it looks like your thinking is full of holes.
> And how should we rate your, The Bear Market is Over article that
> you wrote in May 2008? Seems to me, you are good at being most bearish
> at a bottom and bullish before a real collapse.
> -Organizer, New York Investing meetup
Lots of dangerous exponential curves to look into even though some are not currently seen as critical, it only takes one wrench in the clock to break lots of gears.
World population
World food production when considering methods
Reduction in arable land
Global fresh water supply/demand
Oil supply/demand
Division of wealth
Polls on citizen opinion of governments globally
I dont think so.
Is it a commodity?
I dont think it is a commodity like all other commodities either (even silver).
Gold can have two uses - either as currency (which it currently does not anywhere in the world) or as commddity - mostly in form of jewelery.
The value of gold depends crucially on the first use of it. If gold was becoming currency, it's value will shoot up to the moon, because there is so much less gold than the paper money flowing around the world. If gold merly stays as a fancy, odl-fashioned welath and inflation protection tool, then it's value will go up for some time to come, but then it will crash down again. This would not be bad in itself, but of course the timing would be impossible to guess - just like with all other speculations.
Now - the question is "will gold become a currency"? Will it take on its traditional role of money?
I dont know the answer, but I think that it has a much greater chance of doing so than ever since the 1971, when it's last use as money was abandoned by Nixon. Whyere is this chance coming from? Well - countries are realizing that keeping their hard-earned reserves in paper is perhaps not the best idea. Russia announced recently it will start buying gold; China said some time ago it will start diversyfying reserves. This will mean also gold purchases.
Even more importantly - people start realizing that government has too much freedom with the printing press and that in the past it has abused it. People like investors are also realizing that gold while it may be old-fashioned is a much surer thing than any paper - be it in form of treasuries or notes. It is absolutely sure that if the market was allowed to decide what they want as a currency, they would chose gold. Gold was the money of choice for the market suring thousands of years of modern economy - it would be the money of choice now as too, had the government not interfered. There is even infrastructure being built for this purpose - go to e.g. goldmoney.com.
Of course governments will never do such legislation but I dont think such legislation is necessary. What is necessary is the freedom of market participants to choose what they want to use as money. I don't think the critical mass has developed yet to start getting back to gold-based money, but as the crisis develops and people suffer from unpredictable currency exchange rates and from dilution of savings by the printed money, this idea will gain traction and later on the pressure to have this possibility will grow.
One last word about inflatin vs deflation - we may not perceive price decreases now, even huge amounts of money are printed. But people who have saved, especially those who have saved in assets thwt would not disappear had the banks gone bust, have witnessed already a huge dilution of their savings. In a situation of uncertaing brought by recession the demand for liquitidy is huge. People want to get back to the most liquid asset until the dust settles and they are able to discover the real value. With the pumping of money by the Fed, the dust does not settle, the real value is not discovered and noone knows what will happen in the future. This increases uncertainty and the huge, unnormal demand for liquidity remains. This keeps the prices down despite the monetary inflation. Of course - I also agree that debt deflation is happening. The availability of loans has plummeted, because the banking system is broke and they dont want any more risk. But monetary inflation is going on, just that it doesnt show up because the demand is outpacing it. As soon as the dust settles the demand for liquidity will change into demand for returns. This will release all the inflation that is happening now into the price increases. This will be the time when gold will rais big time.
Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.
If China and other creditor nations no longer believe in the US service economy, the money supply in the US economy is going to grow so fast (as the dollar debt comes home to roost) that hyperinflation is the only path. Don't throw the China can't live without the US argument cause it's completely false, China is currently burdened by the US consumer debt.
Gold is the only alternative and the only thing that is left when fiat currencies get undermined by politics.
Please provide us with a list of your assets that have risen in the last year. Did you notice that gold has?
BTW my double long gold is up 69% since I bought it around the time you were trumpeting your call on how bad gold was. Guys like you were MY contrarian signal to buy more. Thank you, as you guys have made it possible to accumulate gold at relatively cheap prices for years as you've brayed about how it's no good.
I could sit in bank CD's for the next decade and still beat the stock market from here on out.
PS. learn the definition of "bubble" before you cast it around.
"Sorry you seem to be so hung up on the chart."
In the comment of mine to which you responded, I pointed out that your chart contained an erroneously drawn trendline. I didn't get "hung up" about it by berating you or making a fuss about its importance. I performed a public service--one you should be grateful for. Your remark is defensive and unworthy.
"My system updates only weekly, so the date is the most current one available. It's a 10yr chart - I would be very careful trying to be extremely precise."
But your article is dated (on SA) Feb. 18 (Wednesday) (although my recollection is that it was posted late Tuesday). In either case this was after gold had risen considerably from Friday's close and thereby invalidated the pattern of "lower highs" and being unable to take out resistance that were the keystones of your argument that "the technicals are weak." You should have contacted SA before they posted your article and revised it once you saw that the trendline was broken and the summer high was exceeded--or at least should have inserted an "update" at the end of it, as authors are allowed to do. (I suggest you do so now.) Here, for the record, are the incorrect statements that you should have removed or repudiated:
"The price of gold bounced hard off of support, but it continues to be unable to take out either the highs from the summer or early 2008."
AND:
"Gold still remains in a consolidation, with lower lows and lower highs over the past year (click on chart to enlarge)"
"The bigger picture is that gold has been consolidating now for a year."
That's better.
"A new high would change the pattern, ..."
Yes--and we've just had one (which has broken gold’s summer high and its downtrend line).
"... but this is a downward wedge for now."
That's a new one--and you should explicitly concede that it is a fallback position, even though it is a little awkward to make a retreat when under fire. You MAY be correct about it's being a wedge. But there are many ways of reading the technical tea leaves, as you are aware, and they can conflict. And even when they don't conflict, the technicals may be wrong.
I agree with--and have for months in my comments on SA & Kitco--the comment by H.J. Huneycutt, above, that the deep-seated demand for a safe haven from huge money pools abroad is the "fundamental" driver in gold's price rise, which is driven by basic facts about systemic risk to the global financial system, outweighing your intra-Titanic factors decisively.
"I stand by my interpretation and surely hope that we get another test of $700, as I wouldn't expect it to hold if that were the case."
Suppose the old high a bit above $1000 is breached next month--what effect would that have on your interpretation?
On Feb 18 04:36 PM brewtul wrote:
> To take your points in order; firstly, to demonstrate a bubble you
> need to demonstrate a complete detachment from fundamentals. The
> degree of margin used in buying an asset is not in and of itself
> sufficient to identify bubbles. Robert Shiller's excellent book
> Irrational Exuberance defines bubbles as a psychological phenomenon
> in which rising prices and belief in a new paradigm, rather than
> underlying fundamentals, sustain a price advance. While those conditionas
> may or may not exist in the gold market I think you have fallen well
> short of proving that they do.
>
> Secondly, historically gold has risen in times of inflation as well
> as deflation. The reason gold rises during deflation is that it
> is the only asset without a corresponding liability. Put simply,
> gold cannot default. During periods of deflation default of financial
> instruments accelerates and is the greatest fea. It is this fear,
> not the fear of infation eroding wealth, that is the current driver
> of the gold market.
>
> Thirdly, I will not argue with your interpretation of the technicals,
> but will say that over the last twenty years as the markets have
> become ever more enamored with technical analysis the chance that
> they will have any utility greatly diminishes. Whatever edge, if
> any, they ever provided simply cannot be much anymore as everyone
> is using the technique. The true contrarian play then would be to
> completely ignore technicals.
Maybe the author should first get his facts straight before making any such false claims, based on no evidence.
"The inflation argument is one in which the inflationists are premature if not just plain wrong. The fallacy in the argument is in just looking at one action without observing the bigger picture. The analogy I like to use is a bathtub. The water is flowing, and the inflationists are fearing that it will overflow. What they fail to realize is that the drain is running even faster."
This is, in fact, a good way to think about the economy, money supply, and inflation. But the full picture can only be seen if you connect the drain back into the pump/supply circuit.
The water that is always flowing into the drain is thought of as "wealth destruction". But the investment markets don't really destroy wealth; they transfer it. For every loser in the markets, there is an equal and opposite winner. All that investment money is still out there, it has just changed hands many times since stocks were sold years ago, money was spent to build stuff, and so on. The "deflation" problem is that the money VELOCITY has suddenly been slowed way down.
That's why you have a pump, surge tank, and a complete circuit and an army of government analysts armed with rooms full of computers - to regulate this complex flow and keep the tub level (inflation) rising at the safe, optimal level of 2% a year lest we all get swept down the drain.
Investors don't destroy money. Banks do. You had money destruction in the Depression when most banks went out of business. Today, you don't have massive money destruction with FDIC. On the contrary, as a glance at any money supply chart now plainly shows, you have rabid money creation.
What has happened with the bathtub is this. We had a stable, smoothly running flow with our beloved 2% goldilocks inflation. Then along came the housing bust that created a violent surge down the drain. All the powers that be are now slamming open all the valves in the pump system and are even adding new pumps. Unless most of the banks go out of business, we will likely be facing some very tricky and dangerous tsunami waves of inflation. It's been pointed out that we are following a very similar sequence of events that Germany did in the 20's hyperinflation. Let's hope it all winds up being more stable than that.
As all this relates to the price of gold, we could get slammed with some deflation followed by inflation and then who knows what. What gold seems to respond to more than anything is monetary instability. And I think we've got plenty of that coming for some time. Splish splash.
Eventually, a bubble in gold will occur. However, it would appear that situation will not present itself for some time..at least many months...because as our, er, leaders continue to print money without any appearances of an end in sight, we as a nation surely will face extraordinary inflation going forward.
Please enlighten me as to how rampant inflation, hyperinflation, et al, will be avoided and arrest gold from going ballistic?
I have read numerous articles by economists, financial gurus and the like that collectively speak to gold's imminent rise to four digits. They are unanimous that the only uncertainty is what will be the FIRST digit will be?
Comment, please?
I suppose if gold takes out $1003 or whatever the high was, it will run further. How much, who knows.
On Feb 19 04:55 PM Roger Knights wrote:
> AB wrote:
> "Sorry you seem to be so hung up on the chart."
>
> In the comment of mine to which you responded, I pointed out that
> your chart contained an erroneously drawn trendline. I didn't get
> "hung up" about it by berating you or making a fuss about its importance.
> I performed a public service--one you should be grateful for. Your
> remark is defensive and unworthy.
>
> "My system updates only weekly, so the date is the most current one
> available. It's a 10yr chart - I would be very careful trying to
> be extremely precise."
>
> But your article is dated (on SA) Feb. 18 (Wednesday) (although my
> recollection is that it was posted late Tuesday). In either case
> this was after gold had risen considerably from Friday's close and
> thereby invalidated the pattern of "lower highs" and being unable
> to take out resistance that were the keystones of your argument that
> "the technicals are weak." You should have contacted SA before they
> posted your article and revised it once you saw that the trendline
> was broken and the summer high was exceeded--or at least should have
> inserted an "update" at the end of it, as authors are allowed to
> do. (I suggest you do so now.) Here, for the record, are the incorrect
> statements that you should have removed or repudiated:
>
> "The price of gold bounced hard off of support, but it continues
> to be unable to take out either the highs from the summer or early
> 2008."
> AND:
> "Gold still remains in a consolidation, with lower lows and lower
> highs over the past year (click on chart to enlarge)"
>
> "The bigger picture is that gold has been consolidating now for a
> year."
>
> That's better.
>
> "A new high would change the pattern, ..."
>
> Yes--and we've just had one (which has broken gold’s summer high
> and its downtrend line).
>
> "... but this is a downward wedge for now."
>
> That's a new one--and you should explicitly concede that it is a
> fallback position, even though it is a little awkward to make a retreat
> when under fire. You MAY be correct about it's being a wedge. But
> there are many ways of reading the technical tea leaves, as you are
> aware, and they can conflict. And even when they don't conflict,
> the technicals may be wrong.
>
> I agree with--and have for months in my comments on SA & Kitco--the
> comment by H.J. Huneycutt, above, that the deep-seated demand for
> a safe haven from huge money pools abroad is the "fundamental" driver
> in gold's price rise, which is driven by basic facts about systemic
> risk to the global financial system, outweighing your intra-Titanic
> factors decisively.
>
> "I stand by my interpretation and surely hope that we get another
> test of $700, as I wouldn't expect it to hold if that were the case."
>
>
> Suppose the old high a bit above $1000 is breached next month--what
> effect would that have on your interpretation?
>
To put things in perspective, the money supply as measured by M-2 has increased since the beginning of 2008 $825 billion to $8.3 trillion. I submitted an article to Seeking Alpha late last year regarding debt outstanding, and the data has yet to be updated but will be shortly. seekingalpha.com/artic... You can see the article for a more complete picture, but in Q3, household debt started to decline. I am quite certain that we will see a remarkable decline when Q4 is reported. I also expect corporate debt to quite possibly be negative to the spike in bankruptcies. So, we will see federal debt (our future tax burden) rise, but it should be more than offset by reductions in other areas (household and commercial).
When one takes into account the destruction in assets (homes, stocks, other assets) and the lower multiplier effect on money, the rise in government debt and the increase in the money supply don't seem to be the risk to inflation that just considering them outside of their context suggests.
On Feb 19 07:48 PM 5142152-337 wrote:
> Alan, I have read your articles today and in the past. You have given
> situations that are plausible.
>
> Eventually, a bubble in gold will occur. However, it would appear
> that situation will not present itself for some time..at least many
> months...because as our, er, leaders continue to print money without
> any appearances of an end in sight, we as a nation surely will face
> extraordinary inflation going forward.
>
> Please enlighten me as to how rampant inflation, hyperinflation,
> et al, will be avoided and arrest gold from going ballistic?
>
> I have read numerous articles by economists, financial gurus and
> the like that collectively speak to gold's imminent rise to four
> digits. They are unanimous that the only uncertainty is what will
> be the FIRST digit will be?
>
> Comment, please?
Eventually dollar fundamentals will return and the dollar will resume its decline. This will accelerate the ascent of gold. Its not magic or gold bug wishful thinking its pretty mundane economics.
Ive been investing in gold each year since 1997, and every year I hear the same arguments. It wont matter how high gold goes, you will hear the same arguments against owning it. Very respected economists have been wrong for the last 8 years. look for more of the same.
But if you are buying Gold in the hope of becoming very rich, your hope will come true only when all the hell breaks loose: the 'end' of the world, breakdown in law and order, barter trade, wars, riots, etc., in which case you should also buy a tank and machine gun.
cheers,
--ikk
On Feb 20 02:10 AM Chickenpookie wrote:
> So back up your words and tell us you're short gold. I suggest DZZ...
"I believe that folks are focused on one part of a much larger picture, the money supply. They ignore the fact that the multiplier effect is being eradicated even faster. The lack of available credit to individuals and to companies means lower prices ahead until our excess capacity is reduced."
"Velocity" doesn't matter when the currency is being debased so rapidly. Your B school monetarist indoctrination is going to fly you right into the ground.
On Feb 20 07:21 AM SW Richmond wrote:
> Alan,
>
> "I believe that folks are focused on one part of a much larger picture,
> the money supply. They ignore the fact that the multiplier effect
> is being eradicated even faster. The lack of available credit to
> individuals and to companies means lower prices ahead until our excess
> capacity is reduced."
>
> "Velocity" doesn't matter when the currency is being debased so rapidly.
> Your B school monetarist indoctrination is going to fly you right
> into the ground.
still think we see 3500-4000 dow before this cycle is over...
by the way Alan's comments are always welcome..
whether one agrees or disagrees.. all informed opinions count.
trend is your friend.. gold is still bullish
not suggesting to buy at these levels..
still, why sell.. we are witnessing history here..
who knows where this trail leads us.. scary times
it can't hurt to have some gold as insurance.. physical gold..
gold could get to a 2-1 dow ratio, $1800-$2000..
could also crash to $600.. I'm sitting tight.. for the moment.
OK - Forget Switzerland and Russia and India - Let's just consider China. If I was China in amongst my various scenarios for the future I'd be trying to figure out how to at least potentially write off the US Treasuries thing as a mistake to be learned from. Make sure I'm militarily strong enough I can stand up for myself, salvage what I can from a bad deal and plow it back in back home to kickstart the game on friendlier terms on home ground.
Not saying that they would mind. But such possibilitries should be considered shouldn't they - Maybe with a bullion backed currency and maybe not. I'm just asking.
I'm definitely not a gold bug (see below) but would love to be converted - As 22 and 24 carat gold products really are VERY easy on the eye - Mind you plated ones look just the same.
Except I have a suspicion that it's all a matter of here we go again - Another bubble.
Full disclosure as they say: I hold very little gold. I see minimal inherent value in gold for the following reasons: I can't eat it; Indians who love to wear it when they get married seem to think it is REALLY overpriced; the leveraged speculators would seem to be piling in(?); there is SO MUCH of it already stashed away as a carry over from Bretton Woods days; it's not expensive to produce relative to current production costs and prices; China IS becoming a major producer anyway.
Three dollars more to beat the old high (as measure by the London fix.)
Just checked the chart--Done! 1004.00.
On Feb 19 07:39 PM BrucePile wrote:
> Let's think about the bathtub thing:
>
> "The inflation argument is one in which the inflationists are premature
> if not just plain wrong. The fallacy in the argument is in just
> looking at one action without observing the bigger picture. The
> analogy I like to use is a bathtub. The water is flowing, and the
> inflationists are fearing that it will overflow. What they fail
> to realize is that the drain is running even faster."
>
> This is, in fact, a good way to think about the economy, money supply,
> and inflation. But the full picture can only be seen if you connect
> the drain back into the pump/supply circuit.
>
> The water that is always flowing into the drain is thought of as
> "wealth destruction". But the investment markets don't really destroy
> wealth; they transfer it. For every loser in the markets, there is
> an equal and opposite winner. All that investment money is still
> out there, it has just changed hands many times since stocks were
> sold years ago, money was spent to build stuff, and so on. The "deflation"
> problem is that the money VELOCITY has suddenly been slowed way down.
>
>
> That's why you have a pump, surge tank, and a complete circuit and
> an army of government analysts armed with rooms full of computers
> - to regulate this complex flow and keep the tub level (inflation)
> rising at the safe, optimal level of 2% a year lest we all get swept
> down the drain.
>
> Investors don't destroy money. Banks do. You had money destruction
> in the Depression when most banks went out of business. Today, you
> don't have massive money destruction with FDIC. On the contrary,
> as a glance at any money supply chart now plainly shows, you have
> rabid money creation.
>
> What has happened with the bathtub is this. We had a stable, smoothly
> running flow with our beloved 2% goldilocks inflation. Then along
> came the housing bust that created a violent surge down the drain.
> All the powers that be are now slamming open all the valves in the
> pump system and are even adding new pumps. Unless most of the banks
> go out of business, we will likely be facing some very tricky and
> dangerous tsunami waves of inflation. It's been pointed out that
> we are following a very similar sequence of events that Germany did
> in the 20's hyperinflation. Let's hope it all winds up being more
> stable than that.
>
> As all this relates to the price of gold, we could get slammed with
> some deflation followed by inflation and then who knows what. What
> gold seems to respond to more than anything is monetary instability.
> And I think we've got plenty of that coming for some time. Splish
> splash.
On Feb 20 12:57 PM Roger Knights wrote:
> $1000.10 (Nymex bid / spot price). Toot-toot.
>
> Three dollars more to beat the old high (as measure by the London
> fix.)
>
> Just checked the chart--Done! 1004.00.
On Feb 20 12:57 PM Roger Knights wrote:
> $1000.10 (Nymex bid / spot price). Toot-toot.
>
> Three dollars more to beat the old high (as measure by the London
> fix.)
>
> Just checked the chart--Done! 1004.00.
"I don't believe that the London Fix (as the chart is titled - bottom center) was violated by the way."
You're correct--I was wrong to claim that the "summer high" had been exceeded. What I wanted to say was that the October/November high had been exceeded. That was sufficient to break the pattern of lower highs.
your bearish case on gold rests on 3 arguments:
1, Gold is in a bubble
2, Inflation isn't happening
3, Gold longs need to be cautious of poor technicals
Now, bearly 3 days after your article was published, 2 of those 3 arguments have been wiped out: 3, technicals don't look poor anymore and 2, inflation is already back on the rise as yesterday's report showed. One can count on Ben Bernanke for that part!
As for 1, this is highly debatable as gold has bearly doubled versus where it was 25 years ago! Is that what you call a bubble???
So far for trying to be right 60% - 80% of the time. Better luck next time!
Be very careful looking at data month-to-month. It is subject to random variations, revisions, sampling error, seasonal adjustments and just the fact that it is government bean-counters. Lots of prices aren't being adjusted down to reflect current economics due to the presence of higher-cost inventory, but watch out later this year as the locked-in costs at food producers roll out. Everyone complains about not seeing the drops yet - check out hog, poultry, etc. though. The prices will be dropping at the grocery stores.
I consider Mr. Brochstein correct in that the fundamentals are not correct to invest in Gold at the moment. This isnt` to say that gold won`t do well in the short term as i am sure it will for the above reason.
But beware of jewellry demand destruction and the realisation that gold does`nt pay a dividend in a low inflation environment.
I fully agree Friday's inflation report doesn't mean anything either way. I was just cutting corners there to keep my post short.
But let me explain why inflation will be back soon:
The current close to 0 inflation levels are caused by inventory liquidation in combination with a shopped out consumer. It is not caused by the classis deflation syndrome, i.e. monetary contraction. Broad money is actually growing at 10%+ in the US.
US authorities will never allow the money supply to contract as the whole system will collapse under the huge debt loads in deflation. This is not Japan with massive savings in the household sector. The US NEEDS inflation and will do what it takes to get it.
In the mean time the manufacturing base wordwide is shrinking rapidly caused by mass bankrupcies.
The combination of both factors is highly inflationary (within 2 years max.) and the market starts to anticipate on that by buying gold.
You clearly have no clue of what's going on and I hope to have helped you a bit in the right direction. If you think gold is in a bubble, you're dead wrong, and are missing out on one of the greatest investment opportunities for the next 5 years and more.
Your advise is equivalent as someone saying in 1984 US stock markets are in a bubble. You would have missed out on the best part of the ride!
Best of luck.
My buddy has a stop on GLD at $79.0. So you can probably buy there or somewhere near for the trading bottom.
I'm sure you WISH we were in a deflation. You probably even believe it, poor thing. Go check last quarters food prices. Up at a 5% annualized rate. How is that deflation? Wanna bet gas prices are lower this summer than now? ASSET prices are dropping as we all get poorer, that's all. It's not the same as deflation.
And the proper term is "libel", not "slander". You might want to brush up on that kind of thing before your big institutional clients figure out you don't know something that basic.
Finally, you might want to rethink that whole "I'll insult people to make a point" tactic. Calling them cultists and implying that they are so stupid they've become your best contrarian indicators isn't likely to win you any following. Because it sure sounds like you can't take it when they toss your own monkey poo back in your direction.