Why Aren't Gold and Silver Even Higher? 51 comments
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In less than twenty-four hours, the price of gold climbed $65 and the price of silver $1.20. Considering the announcement by the Fed, one has to wonder why the moves were not bigger. The Fed stated it is going to “increase the size” of its balance sheet, that means it is going to put the printing presses on full octane, maximum performance. What this really means that in approximately 6 months or so, there will be an additional $1,050,000,000 in circulation.
The ABCs of economics are that when this happens, inflation raises its ugly head. Combine this announcement with all the other spending associated with the ongoing bailouts and already committed to fiscal “stimulus plans”, one word comes to mind: INFLATION. Lets us hope this is the only word we receive…and not HYPERINFLATION.
The US is not alone, as other central banks are following the Fed’s lead. The Central Banks of England, Japan and Switzerland are doing their part to prop up their economies. Seems all are trying to devalue their currencies.
Have the world’s central banks just taken the leap towards hyperinflation?
With these thoughts mentioned …wouldn’t one expect gold and silver to be much higher? What do you think?
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This article has 51 comments:
Once these controls lose their grip or get their hands severed by the explosive forces of the inflation they have created, the price of gold and silver will suddenly and violently shoot upward.
Anything can happen... Gold can go to $5000 or even $500.00
As well be diversified... no more than 5% of your net worth in any idea or asset... too many people made that mistake with Madoff..
When's the last time you had a gold tooth put in your mouth?
The only other demand for gold is for jewelery, because it doesn't tarnish.
Less people getting married, less people getting gold teeth, less demand for high-end electronics.
Less demand for gold.
Why is this hard to figure out?
>7:02 AM mauijeff wrote:
> Gold should rise quicker but I believe most people will not realize
> gold is real money until it's too late for them. If you are interested
> in gold I suggest CEF or GTU. GLD and SLV are dervatives created
> by J P Morgan to create the illusion of metal ownership without having
> the metals unencombered. That is at any one given time the metals
> in GLD or SLV can be leased to or from GLD or SLV. No problem unless
> everone needs thier metals at once.
1) They already factor in a decent amount of inflation
2) Non-investment demand is down
3) Some profit taking from people who bought gold when it was extremely low and then moved into oil when it was extremely low
On Mar 20 10:17 AM Andy Abraham wrote:
> All I can say is.. Have a plan... know exactly where you are buying...what
> is the signal... know exactly where the trade does not work... and
> exit with a loss...or contrarily ...know where to exit with a profit...
>
>
> Anything can happen... Gold can go to $5000 or even $500.00
> As well be diversified... no more than 5% of your net worth in any
> idea or asset... too many people made that mistake with Madoff..
- Central bank intervention in price and supply
- Preception management from the media
- General lack of public understanding as to what money is
- Casino mentality in markets instead of understanding investing
- On a technical basis, the failure to take out the March 08 high in Feb 09
Gold is dollar-denominated so if the dollar devalues sure gold goes up. But if all currencies are simultaneously being diluted, then this effect will be muted until the dust settles.
However, I am not sure that the rally in gold is long-sustaining. The rally has been fuelled by financial investors seeking refuge in troubled times. My experience with commodities has been that some time after a sharp rally investors get tired as happened in oil. That time for gold may not be now and $1200 or even $1500 does not seem impossible. However, in the future, when the current turmoil in the financial markets subside, some of the money locked in gold may start to return to financial markets. As that happens one will see gold drop down.
Also, at current levels demand from actual buyers is neglgible with most jewellery buyers in large markets such as India preferring to trade in old ornaments for new or even sell old ornaments for cash. Hence, either other currencies will have to appreciate sharply against the USD OR gold prices in USD will have to drop so that gold in local currency terms becomes attractive enough for consumers to return. Until then there is a good chance that a investor over the long-run could burn his\her hands by investing in gold.
On Mar 20 12:18 PM Just Say Whoa! wrote:
> Gold is used in Dentistry and Electronics.
>
> When's the last time you had a gold tooth put in your mouth?
>
> The only other demand for gold is for jewelery, because it doesn't
> tarnish.
>
> Less people getting married, less people getting gold teeth, less
> demand for high-end electronics.
>
> Less demand for gold.
>
> Why is this hard to figure out?
On Mar 20 12:51 PM Allan Frain wrote:
> Comparing (risk of) exposure to Gold vs. Madoff is difficult to fathom.
>
i blieve gold and silver will continue up. pretty safe guess.
when i bought gold and silver in the nineties i always hoped it was a bad move because if i needed my insurance it did not bode well for my country or my fellow citizens.
This comment reminds me of the quote from Amadeus:
Emperor Joseph II: My dear young man, don't take it too hard. Your work is ingenious. It's quality work. And there are simply too many notes, that's all. Just cut a few and it will be perfect.
Mozart: Which few did you have in mind, Majesty?
Simply substitute the word "facts" for "notes", and there you have it?
To which, I must reply:
"Which fact did you have in mind?"
We all talk about the impending hyperinflation to come but until the stats tell us it's here gold will remain range bound.
"Over the years, gold has not been a good investment. Actually over the past 200 years, its returns have barely kept up with inflation. Its dismal returns negate any benefit the portfolio receives from so-called reduced volatility. Furthermore, if one holds gold physicals, they would incur an additional cost which would lower returns even further."
seekingalpha.com/artic...
I think this practice is questionable at best. As soon as the fear in the market subsides, gold could go through the floor. It could well go down to a level more reflective of its demand for use in jewelry, etc. This price level is far below the current price level. I think the investor leaves himself or herself to open to a huge downturn by investing in gold at this time. Of course, you can use stops, but there is a problem even with these when the day to day movement in gold is often huge.
I think there are probably other vehicles, which are better to use as hedges against inflation. Oil is one, but it has had big swings lately also. Grains are more likely a good steady one. People are not likely to want to stop eating. The demand can go down minorly, but it is unlikely to evaporate the way gold demand is (for jewelry). Grains seem to have put in a bottom. They should be a steady play to the upside as a hedge against inflation. When you hear about China having a drought this year, you really start to think this may be a good idea. DBA is one way to play this. The MOO ETF may be another. I think both of these are likely much better plays against inflation than gold.
For those of you who think precious metals are the only way to go, I would suggest you read some of Mark Anthony's articles on precious metals. There are precious metals other than gold that are actually still in high demand for actual, physical use (use other than speculation). In my mind these metals would be a better metals to use as a hedge against inflation. They do not have the risk of the huge downside due to the difference in the speculative demand vs. the actual "physical use" demand.
good observation. i do own a few platinum coins. i guess what i like best about gold and silver is they have a history of being recognized as money. haven't been watching platinum lately.
sober
hoping to go by my dad's old saying. hope for the best, prepare for the worst and expect something in between. if things go that far i guess bullits, nails, tools, seeds, salt, sugar, would be pretty good currency? kinda hopin' things don't go that far.
I like your article. I agree with the 5% cap on gold.
but I dont understand how can you limit yourself to 5% on all asset classes?
certain asset classes like stocks demand a higher allocation dont you think ?
On Mar 20 10:17 AM Andy Abraham wrote:
> All I can say is.. Have a plan... know exactly where you are buying...what
> is the signal... know exactly where the trade does not work... and
> exit with a loss...or contrarily ...know where to exit with a profit...
>
>
> Anything can happen... Gold can go to $5000 or even $500.00
> As well be diversified... no more than 5% of your net worth in any
> idea or asset... too many people made that mistake with Madoff..
The more I read and research, the question still remains how this whole thing is going to turn out. The fiscal cost of this meltdown is still not completely clear. In some countries, it may result in failed states.
"The Asian Development Bank (ADB) estimates that global asset losses sit at approximately $50trillion. 2008 global asset losses exceeded 2008 total global product. $50 trillion in asset deflation amounts to losses of nearly $7,150 for every person on living earth."
Our current "downturn" continues to destroy wealth, sap happiness and crush old certainties. More significantly, increasing poverty is a grave threat to world stability and democracy. Revolutions are born from food riots and stagnant economies. Let's hope we turn this thing around by year's end.
And I also agree that as the economy picks up, gold will be under serious pressure. Jewelery demand will not pick back up quickly enough to cover the slack.
But here's the thing. As the economy starts to pick back up and velocity increases, severe inflation will arrive MUCH faster than people expect. That nasty surprise could have a further destabilizing effect, causing a panicked rush back into gold.
I'm not making this up, just dusting off the 1970s playbook. Just remember to sell on the way up.
"In a post fiat-money-system world, people will revert to bartering: a life-sustaining service or good in exchange for another. The farmer won't want your gold. Gold is only worth something as long as the current economic structure stays intact."
That's not the way it's worked out in Zimbabwe or Argentina.
Oh but that is how it has worked out in Zimbabwe and Argentina:
Many Zimbabweans are resorting to bartering. "I traded some soap for two buckets of maize meal [Zimbabwe's staple food]. It was far much better than trying to buy it in the shops," said worker Richard Mukondo. "People in the rural areas are even worse off. You can see they are hungry and their clothes are in tatters. They trade in whatever they can produce: tomatoes, onions, chickens and eggs."
www.guardian.co.uk/mon...
Barter only hope for survival in Zimbabwe - Poverty - NZ Herald News
www.nzherald.co.nz/pov...
Nov 2008
"Their country was once the breadbasket of southern Africa, but now more and more Zimbabweans are forced to hunt for sustenance and barter essential commodities in exchange for food."
www.npr.org/templates/...
Aug 7, 2008
Petrol coupons the new currency in Zimbabwe - Mail & Guardian
www.mg.co.za/article/2...
Jan 22, 2009 ... Unemployment is 90 per cent, prices are doubling every day and barter has replaced a worthless currency.
www.aei.org/publicatio...
All meaningful trade in Zimbabwe is done by barter or in foreign currency amid inflation higher than 230 million per cent.
"Turning to foreign exchange or barter is what you would expect in countries that have had inflation of more than a few hundred per cent a year."
www.economist.com/worl...
Bartering in Argentina:
"Street protests have toppled four presidents in two weeks, but Argentina's 21st-century Great Depression is deepening. And it's driving tens of thousands of people to the "National Barter Network," centered at Bernalesa. Last month alone, the network expanded from a half-million to 640,000 families. Here, and at 600 other markets, they're trading goods and services for creditos, which can then be used to purchase other goods and services. "If you don't have any money, this is the only way to survive," says Irma Gonzalez, 46, a who lost her legal secretary job three months ago and is planning a barter-market clothing business. ... Some municipal governments, including the town of Gonzales Chaves in Buenos Aires province, are accepting eggs and chickens as tax payments, using them to feed poor families. The future? "Argentina can become one big barter club," says chemist Horacio Covas, a barter network co-founder. Indeed, the only economy that's growing in Argentina right now is the prehistoric one."
Business; For Wary Argentines, The Crops Are Cash
By LESLIE MOORE
Published: Sunday, December 1, 2002
"City dwellers have also discovered grain as an alternative currency. Ana MarÃa Berardozzi, an advertising executive in Buenos Aires, sold her country home for grains. ''It was something of a shock -- my mind is still in pesos or dollars, not sunflowers and wheat,'' she said.
www.nytimes.com/2002/1...
Argentina had to revert back to the barter system in order to rebound.
BARTERING IS THE FUTURE.
I'll remove your diseased GB if you promise to put a new roof on my house.
Bartering booms during economic tough times
Updated 2/26/2009
www.usatoday.com/tech/...
Permanent Home Swap Market Growing
Feb 20, 2008
www.mortgagenewsdaily....
and in Spain:
Swapping homes
02.03.09
With so much economic uncertainty and a housing market in the throes of a slow death, home owners are becoming more and more desperate as the months go by. They have no option but to revert to the age-old practice of barter.
www.surinenglish.com/2...
02.03.09
step1. stocks going up
step 2 then gold going up
buy first stocks, april until may, sell they next year and buy gold
In a few words, this may affect how high the price of gold can go. Yes quantitative easing can be inflationary only if one nation undertakes it. If it is done in a concerted fashion, as the major economies of the world seem to be moving to do, or have already partially done, it is quite likely that the price of commodities will rise moderately. So gold might not really go that high. Although, I am of the opinion that it will, primarily because of the initial mass fear factor.
To contradict some of what I have said, let me add that even when the Japanese were engaged in aggressive quantitative easing, their currency did not display severe behavioral pathology, but traded at the same relative level to the US dollar it had done so in the past. In fact, its value actually went up to see this check the linked
pic.
Look at what happened between 2000 and 2001. The price of the yen relative to the dollar actually went up. Graph here: tinyurl.com/d8myqw
Not entirely. Gold is the only currency accepted in some areas of Zimbabwe. See the following video for evidence. I'm sure bartering occurs where mutually beneficial, but that doesn't mean there isn't a value placed on gold too.
www.youtube.com/watch?...
When the 'economic structure' collapses around you, terms of trade are no longer assumed to be viable due to immense counterparty risk. People tend to verify any exchange when the possibility of complete loss is likely. Barter certainly reduces risk of exchange if you get something you need. If things you need aren't available, gold has nearly always been an acceptable substitute.
Watch the video. People's lives have been turned into a search for gold to exchange for survival. Legal tender currency has become ink on paper and nothing more.
It is precisely because it has little industrial use it always has and always will remain a stable store of value.
The notion that the USA is in a deflationary environment is a myth: housing prices are down due to a huge oversupply but cost of everything is up including agriculture, medical care, services, etc.
As for oil, it prices in the last few weeks went from $33 to above $50.
Until recently, US inflation was somewhat controlled since financial institutions used the paper money flood to improve their bottom line keeping them from insolvency. Now, this money are moving to circulation.
So, fasten your seatbelts and "enjoy" degeneration of US$. Like it or not, any economy need a viable & stable currency to accurately value its products and services. Again, like it or not, gold has these properties.
Consequently, it is very doubtful the world will go to a gold-standard but it will be "shining" there.
just a few reasons why people own gold/silver...
On Mar 20 07:08 PM Living ON Dividends wrote:
>
> I like your article. I agree with the 5% cap on gold.
>
> but I dont understand how can you limit yourself to 5% on all asset
> classes?
>
> certain asset classes like stocks demand a higher allocation dont
> you think ?
>
> On Mar 20 10:17 AM Andy Abraham wrote:
I think the key is diversify.. not put all your assets into anything..spread them around...and I personally I only invest 5% max per idea...
On Mar 22 02:42 AM dollar bull**** wrote:
> all you bartering people...first of all...i do agree that other commodities
> will perform better than gold...where the hell am i going to store
> enough wheat, water, oil and lumber to barter? most people dont
> offer any type of service that they can use to barter with.
>
> just a few reasons why people own gold/silver...
bonds-nobody wants to buy...cant raise the interest rates...cant pay it back at a higher rate, unless we tax ppl more; which will cause less tax revenue with higher unemployment....
we have to keep rates low and continue to print...which causes banks not to lend because they would have little/no profits when inflation kicks in...
my guess, hyperinflation with a depression at the same time.
This conspiracy is orchestrated by whom, and for what purpose?
It must be 'the Man' trying to hold us back.
Trend Followers should stand a good chance of making money in this enviroment... In the late 1970s...this is what happened...
On Mar 22 02:48 AM dollar bull**** wrote:
> wow, potential inflation andy? inflation is coming, you think the
> fed is going to allow another great depression?
>
> bonds-nobody wants to buy...cant raise the interest rates...cant
> pay it back at a higher rate, unless we tax ppl more; which will
> cause less tax revenue with higher unemployment....
>
> we have to keep rates low and continue to print...which causes banks
> not to lend because they would have little/no profits when inflation
> kicks in...
>
> my guess, hyperinflation with a depression at the same time.