Fool's Gold (Part 2)

In Part 1, I laid out some common sense explanations why gold is best utilized for short-term trading. Furthermore, I emphasized that gold rarely provides a good hedge against inflation. When it does, it’s most often a short-term phenomenon. In Part 2 of this series I’ll demonstrate this.

Let’s begin by looking at a gold price chart from 1975 to 2009. Note that gold prices in this chart have NOT been adjusted for inflation.

If you bought gold any time between 1980 and 1998 and held it, you lost out—UNLESS you made a short-term trade, or exited after a couple of years.

Depending on when you bought it, you had to wait until anywhere from between 2004 and 2008 in order to make money (these periods have been roughly estimated, but you can get the general idea by studying the price chart below).

Okay so let’s assume you bought gold, held it for several years, and then sold it at a higher price. Did you really make a profit? Chances are, if you held gold for several years, you actually lost money after adjusting for inflation.

Let’s take a look at investors who held gold for 20 years. If you bought gold in 1990 for around $375, you had to wait for the recent gold bubble to make money after adjusting for inflation. But your annual rate of return would have only been around 1 or 2% (rough estimate).

Those who bought gold in 1998 or 2000 have done much better – so far. But they could lose these gains if they fail to cash out before the bubble implodes.

If you bought gold for say $250 in 2000, you’ve done quite well with a buy-and-hold approach, largely because you happened to have bought it just prior to the gold bull market. And because your holding period hasn’t been that long, the effects of inflation are small relative to the price appreciation.

Regardless, the fact is you could have done much better by trading it. Even if you aren’t a great trader there have been a couple of fairly substantial price corrections since the beginning of the gold bull market in 2002. If you were able to recognize these periods, you could have sold high and reentered low.

This would have lowered your cost basis while reducing short-term liquidity risk. These two periods were easy to spot if you understand basic dynamics of asset price movements.

But as you can imagine, even this recent spike in the price of gold hasn’t combated the effects of inflation for those who held it for a longer period. So they did NOT make money. In fact, they may have lost a good deal of money (depending upon how long they held it and what price they paid) due to the effects of inflation. Generally speaking, the longer they held gold, the more they lost.

In the chart below, I demonstrate several scenarios for an investor that bought gold at $400. If this investor happened to buy gold closer to the commencement of the bull market, he or she would have done much better. When you adjust the price of gold bought any time during this twenty-year period with inflation, you would have lost money if you held it.

Therefore, when it comes to investing in gold, TIME isn’t on your side because the effects of compounding inflation add up. It’s much more important to have good TIMING. This means you need to carefully pick your entry and exit points/prices, while making sure to keep your investment horizon short enough so that the effects of inflation don’t neutralize any price appreciation.

You might imagine why gold dealers like Kitco and gold bugs never post charts of gold’s REAL value in today’s dollars. The gold-selling business (at least for investment purposes) wouldn’t do so well.

Instead, they show you charts of gold adjusted for inflation, which has no relevance since we are no longer on the gold standard.

Let’s see why.

Today, the inflation-adjusted price of gold from its previous high of around $900 in 1980 is roughly equal to $2200. That means gold SHOULD be $2200 today, BUT ONLY IF IT WAS LINKED TO INFLATION; but it’s not.

The real value of gold (in today’s dollars) would only be linked to annual inflation if we were still on the gold standard.

So, for those who may have bought gold in 1980 at $900/ounce, the real value is only about $350 in today's dollars (roughly estimated based on a reasonable inflation rate compounded over 30 years).

Why might this be? Because annual inflation caused gold (purchased in 1980) to lose about 60% of its value since it’s not linked to the dollar, and thus does not adjusted for inflation.

You can determine the real value of gold in today’s dollars at any price you paid as long as you know the compounded inflation rate since you bought it.

Interestingly, when you see “inflation-adjusted” price charts for gold, you ALWAYS see the price as IF INFLATION WAS FACTORED into the price of gold. But these assumptions are invalid since gold is in no way linked to inflation, since it’s no longer linked to the dollar.

Instead, you should be shown the REAL VALUE OF GOLD IN TODAY’S DOLLARS; that is, the buying power of gold based on the effects of inflation during your holding period.

Good luck.

You won’t ever see these charts because the gold bugs are trying to sell you gold and/or pump up the price.

Now that the next gold bubble has formed, the gold bugs have everyone focused on the current price of gold, reminding you that it has more than quadrupled in the past 10 years. Rather than a reason to buy gold now, it’s more of a reason to be cautious in my opinion.

Still not convinced that gold does poorly during inflation? Let’s examine a shorter time period. In fact, let’s take a look at the past two years.

As you can see from the chart below, gold began taking off in the fall of 2007. That was the period when problems with Countrywide were brewing. At the same time, while inflation was on the rise, it had not yet taken off.

Gold hit a record high of just over $1000 in mid-March 2008 during the Bear Stearns collapse (heist). Thereafter, gold has traded down, with several volatility spikes along the way. By early 2008, inflation was weighing in on the economy. By the summer, inflation had soared. Meanwhile, gold was still trending downward since its March highs.

A few months after reaching its high in March, we experienced numerous additional shocks to the financial system - Lehman and Washington Mutual went under, Fannie, Freddie and AIG were bailed out, TARP was passed, etc.

As you can see from the chart, gold spiked and corrected many times since reaching its March 2008 highs. But it’s lower now than during the peak inflation period in the summer of 2008.

Ask yourself why…why has the price of gold been lower than highs reached in March 2008? All of the real damage occurred AFTER that period, including a spike in the commodities bubble which caused inflation to go through the roof. Yet, all we have seen are spikes in gold, followed by sell-offs.

Why did gold spike and correct many times over this period? We had many crises.

The reason for the spikes and corrections is that gold is a hedge against crises. And crises are short-term events.

If gold were a hedge against inflation, it would have made new highs throughout the spring and summer of 2008 when inflation was at its highs. Instead it did the opposite.

As you can see, the brief deflationary period in the fall of 2008 (due to the banking crisis) actually caused gold to gain its previous strength.

Finally, by early 2009, inflation was on the rise again, but gold has been trending downward.

This chart further illustrates that gold serves as a hedge against deflation and other crises rather than inflation.

It also serves to highlight another important point. Investors who intend to take a buy-and-hold approach with gold should ONLY be concerned with the long-term moving average, which sets the price trend. And if that trend isn’t going up, they should consider selling their position during the next spike. Otherwise, they could get stuck when the bubble pops.

As a caveat, investors who buy gold during the early- to mid-stages of a bull market or bubble can afford to be longer term investors, while the late arrivals need to focus on short-term trading or a short investment horizon.

In contrast, those who elect to trade the volatility swings in gold don’t care so much about the price trend. As the gold bubble approaches its final stages, you can see why it’s best to adapt a shorter-term mentality; that is if you want to avoid getting stuck with gold after the bubble pops.

So the main question becomes…where along the bubble is gold?

It’s impossible for anyone to determine, but if I had to make a guess, I’d say it’s in the middle stages. If that is the case, it’s likely that this bubble still has a few more years left. And I’d expect gold to go higher from these levels. I have no reason to alter my gold price forecast made in 2006.

Although there are many variables involved, generally speaking, you’re not likely to do particularly well investing in gold unless you bought it at for under $600, you trade it regularly, or your holding period is only a couple of years (depending on when you bought it).

For any period beyond this, you face the risk of holding the empty bag when gold corrects, much like those who bought it in 1980. If that happens, you’ll have the added effects of inflation eating away at your principal. The modified chart below illustrates this.

No one knows where gold is headed or when the bubble will burst. The gold bugs are unwilling to even acknowledge that there is a gold bubble forming. Just remember this - the higher it goes, the harder it will fall. This is how all asset bubbles play out. And if you get stuck holding gold when the bubble bursts, you could end up losing a lot of money, especially since gold fails to keep up with inflation over long periods; periods that typify post-bubble corrections. While you’re waiting years to break even before you sell, inflation will gradually eat away at your principal.

The lesson is—buy-and-hold doesn’t work. It never did; not for stocks, not for oil, and certainly NOT for gold.

Timing DOES matter, but so does valuation. If you’re good at one and not the other, you can still do pretty good. If you’re good at both, you’ll join a very elite group of investors whose names you probably don’t know.

Now if you still doubt what I say, check back with me in say 15 or 20 years. By then, gold will likely have come down (from whatever high it makes) to $400, and maybe $300 per ounce. I’m willing to bet on it.

Until then, gold is likely to go higher. But unless you really understand the dynamics of gold price movements, or unless you trade the volatility, you’ll most likely get burned if you buy gold at current levels.

Remember, the higher price you pay, the more risk you add because this bubble WILL eventually burst. Only by understanding the realities about gold can you plan for a profitable exit.

In Part 3, I’m going to show you the real value of gold as an asset class.

http://www.avaresearch.com/article_details-299.html

Disclosures: none

Comments

[DONE_SONZ:]

This is bogus.If this article says anything it says gold is underpriced.What are you a currency trader?Good luck.

Jul 10 12:12 PM

[nmelendez:]

Gold is a commodity, nothing more. Between India and China you have 2.5 billion new customers. There may be some defalation presently but in the long run inflation wins. Or do you think you will ever again buy a coke for a nickel?

Jul 10 02:32 PM

[yellowhoard:]

Gold skeptics always trot out the 1980 peak to rationalize their arguments.

Anyone who has all of their money in gold is a fool.

Anyone who has no gold at all is a greater fool.

Jul 10 03:22 PM

[Boxed Merlot:]

The lesson is—buy-and-hold doesn’t work. It never did; not for stocks, not for oil, and certainly NOT for gold.
Timing DOES matter, but so does valuation.


I can see some truth in your lesson, “buy and hold doesn’t work”. But I tend to think of it in terms of seed corn. At the end of the growing season, the harvest is divided, traded, consumed and the best is saved to be used as the following years seed. That to me this is what gold most aptly represents. And I can see how timing matters, are we planting, tending, harvesting or evaluating the values of our efforts? I don’t think it’s a coincidence that our major financial institutions began as lowly assay offices, charged with coining / minting currencies for the governments they were chartered under and / or had direct connections with gold / silver mining operations.

Jul 10 04:10 PM

[doubleguns:]

Gold is in your portfolio for when everything goes to hell. Oh say kinda like last year and stiil counting. We may yet be left with nothing but our gold and a pile of paper woth pennies on the dollar.

Gold is not a stock so do not expect it to perfom as one.

As I said in my previous post all of your stocks, bonds and fiat money become worthless over time. 5000 yr old gold is still here and if found on the bottom of the ocean it still has its value. All the stocks, bonds and paper money don't hold a candle to that. Quit thinking trade and think wealth for the ages.

Now as pointed out by yellow hoard having only gold or no gold is not very smart. We have to have something to trade, BUT IT IS NOT THE INSURANCE POLICY GOLD. My life insurance policy would get sold first.

Jul 10 05:09 PM

[Vuke:]

Mike, the following quote is a clip from your profile:

"As one of the few who predicted the financial apocalypse in detail, Mike has been particularly active helping hedge funds navigate the real estate and banking crisis."

Presumably you advised all your clients into gold and silver at $260 and $4.50 short years ago, way ahead of those somewhat slow and dim-witted goldbugs. As for your caution on the bubble "imploding" maybe its best to wait until Christmas or early next year to decide. You never know exactly what's coming down the pipeline.

Jul 10 05:17 PM

[Mike Stathis:]

I don't trade currencies. It's gambling. I have no bias either way for gold. I only deal with helping others make money, regardless whether that means gold/stock market will go up or down.

Gold a commodity? Not exactly. Gold is as much of a commodity as crude oil. Neither exactly fits the bill as say wheat or copper because the later two are driven primarily by supply-demand dynamics. Gold and crude are often driven by geopolitical variables and extensive market manipulation in addition to supply-demand.

I owned gold last year but I don't now, nor have I recommended it to my clients (nor am I recommending a short position).

I think you need to read part 3. "Holding up against a declining market" only matters if you must stay in the market. The best way to protect yourself against a delcining market is to stay out of the market. The best use of gold as an investment is to hedge against declines in the broad market, but even these are short-term hedging positions. www.avaresearch.com/ar...

"Wealth for the ages"? As data shows, gold does not hold up anywhere close to inflation. Long-term holders of a gold face significant reduction in their principal. I have shown that conclusively. I showed it for 1980-1998. I even showed it over the past two years. Use any chart you want. The result will be the same.

I do not feel the gold bubble will burst anytime soon. I would be surprised if it did begin its downward cycle before 2014. I would be very surprised if the gold bull market ended by next year. In the meantime, I feel gold will go significantly higher, but that is not the point. The point is that investors need to understand that:

(1) Gold is NOT a hedge against inflation, so buy-and-HOARD mentality is not recommended. You need to prepare in advance for the downward cycle.

(2) The higher the price goes, the more cautious you should be. At current prices, you should not be buying more gold as it climbs higher. You should be managing your position. If you are not trading the volatility, you are really missing out on much of gold's investment value.

These are the facts.

Those who fail to understand my message are likely the same ones who get stuck when markets turn from bull to bear. Remember, everything pumped out by the financial media is designed to make sure you get stuck in a bear market. That is one reason why almost everyone does.

If you bother to critically analyze what these extremist marketing guys say about gold, one who understands the realities I present can easily make them look like the fools/liars/manipulators they are.

Once again, I have no bias, I do not sell securities or gold. I sell investment intelligence. All others are simply marketers. They don't need to be right and they rarely are. All they need to do is convince you they know what they are talking about. That is how they make money. I need to be right and I frequently am. That is how I make money.

Jul 10 06:32 PM

[Mike Stathis:]

By the way, if you are looking for something that holds up against inflation, I would look to oil; specifically oil trusts. When gold became decoupled from the dollar in the '70s, oil took its place. If something is linked to the dollar, it stands a much better chance of hedging against inflation. But oil can also be very volatile so it too is best traded or at least the positions should be managed. I do own some oil trusts and I will be looking to buy more as crude prices continue to fall back in line with supply-demand.

Jul 10 06:39 PM

[psig:]

I'll break it down and simplify it for everyone. Gold is nothing more than a preserver of wealth. But isn't that enough. One oz. of gold has always bought approx. 600 loaves of bread. It was true 2000 yrs ago and today. Everything else is just high tech gambling where some win and some lose.

Jul 10 06:43 PM

[Gold Barron:]

Mr. Stathis,

You said

"Wealth for the ages? As data shows, gold does not hold up anywhere close to inflation. Long-term holders of a gold face significant reduction in their principal. I have shown that conclusively. I showed it for 1980-1998. I even showed it over the past two years. Use any chart you want. The result will be the same."


Let me correct you by saying that in 1975 one ounce of gold averaged about $160/ounce. $160 adjusted for inflation to 2009 is $635. Looks like gold beat inflation in this scenario.

Jul 10 06:49 PM

[Mike Stathis:]

Gold as a "preserver of wealth" implies that it keeps up with inflation, which (other than for short periods depending on when you bought it), this is not true.

As far as the "One oz of gold has always bought approx. 600 loaves of bread," where I live, a standard loaf costs around $2.89 and has for a couple of years. Prior to that, over the past 8 years, bread was around $1.80 - $2.30 (where I live) while gold was ~$230-$650. So this is about 100-300 loaves. Gold has outpaced inflation during the past decade, but only because the bull market began right around that time. If you go back into the 1990s, 1 oz of gold bought even fewer "loaves of bread."

All of this talk of gold being a long-term "safe haven" is not true. It is a short-term safe haven. Timing matters unless you live forever. Otherwise, you face liquidity risk.

Jul 10 07:02 PM

[Mike Stathis:]

Gold Barron, as you know, anyone can make a case by selecting specific data points. My illustration was over an extended period and I looked at several data points because doing so mimicks a "no" or "poor" market timing scenario. Even in my analysis, I showed periods whereby you could make money, but timing or random luck was involved.

The points you picked were just prior to the previous gold bubble (hence a low entry point) and in the midst of the current gold bubble (hence high exit point). You have reinforced my argument that timing matters.

Jul 10 07:09 PM

[Swashbuckler:]

I believe gold will do well over the next few years relative to other investments, not because of any recent historical precedent in gold prices, but because of the increasing likelihood of an economic meltdown brought about by irresponsible and criminal actions originating primarily in the government and banking sectors. In an economic crisis, most people would find it easier and safer to buy gold than, say, to evaluate the stability of currencies or to bottom guess a plunging stock market. I am not saying a meltdown is a mortal lock. I am saying that I think the odds are better for one than there have been in 70 odd years. On the other hand, it is my opinion that many of the postings of the gold-bugs on the internet blogs are a tad extreme.

Jul 10 08:20 PM

[Doug "Digge...:]

What the author of this piece fails to realize is that when gold first went to $850 there was still some faith in the U.S. dollar a a store of value as Volcker raised interest rates high enough to attract people away from gold.

Gold is in a different situation today. There are trillions of dollars of more debt backing (ha) the U.S. dollar and there is much more competition including the Euro which didn't exist in 1980. This faith in the dollar lasted for 20 years, all the way through the S&L crisis as there was no competition to the almighty dollar.

Since 2000, the faith turned to stocks, then to real estate and both have since faltered. But what's worse is the fact that those who invested in the stock market and lost 50% or more, also lost 20% plus (so far) on the purchasing power of what is left in their portfolio because of the dollar slide.

When the stock market goes up 10% and the dollar falls 10% an investor hasn't gained any true wealth (purchasing power).

Lastly, there is more faith today in commodity countries like the Australia than there was in the late 70's. Being that they are fiat as well is noted, but there is no denying where gold stands today..., alone as "insurance" and alone as honest money.

The world knows this. They have a little more history understanding this than 233 years of American education propaganda (minus a few good years of Founding Father influence!).

Jul 10 08:40 PM

[psig:]

Mike, I can get a 16 oz loaf of unsliced french bread for 1.29. Now Sarah Lee runs around $2.89 a loaf. Also obviously prices will vary by location to a degree and gold does not. I am not old enough to remember this but I recall my mother stating bread was around a nickel a loaf or a little lower in the great depression and I don't think it was sliced then and gold was $35 oz. Pick any 5 or 10 year period in history and you can get variations higher or lower but a careful shopper could find bread approximating the ratio at any time time period. Preserving your wealth also requires careful shopping which in turn requires time. If your yearly income is 150,000 then is it worth your time to shop for the lowest bread price. Probably not until bread hits ten bucks a loaf.

On Jul 10 07:02 PM Mike Stathis wrote:

> Gold as a "preserver of wealth" implies that it keeps up with inflation,
> which (other than for short periods depending on when you bought
> it), this is not true.
>
> As far as the "One oz of gold has always bought approx. 600 loaves
> of bread," where I live, a standard loaf costs around $2.89 and has
> for a couple of years. Prior to that, over the past 8 years, bread
> was around $1.80 - $2.30 (where I live) while gold was ~$230-$650.
> So this is about 100-300 loaves. Gold has outpaced inflation during
> the past decade, but only because the bull market began right around
> that time. If you go back into the 1990s, 1 oz of gold bought even
> fewer "loaves of bread."
>
> All of this talk of gold being a long-term "safe haven" is not true.
> It is a short-term safe haven. Timing matters unless you live forever.
> Otherwise, you face liquidity risk.

Jul 10 09:35 PM

[tmosley:]

First, you should understand WHY the price of gold went so high in 1980. It was due to a loss of faith in the dollar, as it stood close to collapse due to stagflation. Volcker took the radical, unexpected step of raising interest rates, which restored confidence, and that confidence has remained for almost thirty years. Realize that had he not raised those rates, the US dollar would have become worthless, just the same as it surely will now, as we now have so much debt that higher interest rates are unworkable (ie we would need an income tax of 200% to pay the interest on the national debt).

If you bought any time after the "bubble" collapsed, and sold any time recently, you beat inflation by quite a bit. If you bought any time before the "bubble", you still beat inflation by quite a bit (a $20 piece of gold from 1910 would be an inflation adjusted $400 today--your purchasing power has increase by 2.5x during that time). Your example was moronic, as you would have had to have bought within a time window of a few months to lose money. That's like buying a car and driving it off the lot and having an accident, then declaring that no-one should buy cars since they are just going to be destroyed by an accident as you drive them off the lot.

The only people who lost out were the ones betting against the dollar during a brief period of the run-up. The Fed doesn't have the ability to make those betting against the dollar losers now. We will have hyperinflation (short of a repudiation of debt), and gold and silver will increase their purchasing power moreso than would be indicated by the numerical inflation from the currency collapse, as sound money will trade at a premium (those who bought in before the collapse will have made the trade of the millennium).

The other issue I have with your article is that you claim that gold does well in deflation, but you didn't really provide any evidence of this, save for some vague hand waving and a lot of rhetoric. We have only had a couple of periods of deflation since the Fed has been in existence, and we haven't had ANY since the US abandoned Bretton Woods, we have only had periods of less inflation that usual. I can't really understand how you would judge the performance of gold during a period of deflation, since there aren't any examples of it when priced in fiat money. You also don't seem to understand the difference between monetary inflation, which we are experiencing now, and price inflation, which hasn't hit to the extent that it is going to by any means. The money supply has expanded 19-fold (maybe more, it's hard to keep track) since last September. This has yet to register with prices, as it coincided with the collapse of the credit bubble. Once the money is spent into the economy (and it is being spent--by government), then we will see an increase in deposits, and from that we will eventually see the fractional reserve banking process restart (with government guarantees, of course), until we start seeing double-digit inflation each month. If you aren't ready, you're going to be in big trouble. Owning gold IS a good hedge, and a good first step to being prepared for dealing with a half a century of inflation flooding back to our shores.

Jul 10 10:15 PM

[paxjds:]

Take your pick Mike from two treasure chest 110 years old:
One treasure chest filled with $bills, the other equally filled with gold coins. One chest has had its buying power devalued app. 97 %
the other has had its buying power go up 4500%.
Was it Barnum and Bailey who said "a sucker is born everyday"
Anyone who does not store in a "hide-a way" physical gold is the real long term sucker. You can keep your economic analasis on gold, and I shall keep mine.

Jul 11 10:25 AM

[Linc:]

It's a little misleading that you write about how gold bugs talk about gold as if it's indexed to inflation when it's not, but at the same time you write about how gold has gone up 4x while ignoring inflation. If an investor's primary concern is return as measured by increase in purchasing power I'd think gold's rise has been much more muted than 4x would indicate due, of course, to inflation. I actually agree with your position on gold overall but I just thought I'd point out that the "run up" has not been nearly as pronounced as nominal prices would indicate.

Jul 11 10:41 AM

[KBowen7736:]

The author seems to ignore the basic mechanics of a gold/silver backed currency system. The concept is simple. Any paper currency to be issued is backed by a set amount of gold/silver and therefore excess fiat cannot be produced. Fast forward to where we are now with hoards of fiat being produced with no backing. It is pretty simple thinking in my book to correlate the amount of fiat to the amount of gold backing. What gives the author the right to disregard thousands of years of various civilizations and their respective monetary systems. The only reason why the US has been able to abuse this age old system is because it's credit rating and it ablility to repay was never in question. That is now not the case hence the recent rise in golds price. The same thing happened in the late 70's under the Carter administration. The world lost faith in the US dollar and abandoned it in mass. Only the raising of interest rates and a righting of the federal budget avoided a further dollar decline.
Attempting to detach this basic mechanism from what is happening today is foolishness. The author produced no relavent proof and, in fact, drew many unsubstantiated conclusions. Besides a restatement of the obvious investors goal of buy low....sell high. I am not quite sure why I just wasted the last 15 minutes reading this rubbish. I am glad I am not paying his advisory fees!

Jul 11 10:57 AM

[MGA_1:]

I think I disagree with some of the assumption in this article:
* I don't agree with the premise that gold doesn't track well with inflation/deflation. It did terrific in the 70's and crashed in value in Japan's deflation in the 90's. It's also done quite well this decade. I wouldn't take the 1930's as an example because the US was on the gold standard, but it actually appreciated midway through the decade.
* The underpinnings of inflation/deflation are monetary. If the govt prints money or it's supports easy credit (the fed) then you may have an inflationary boom which we seem to have had in the last decade. Gold has gone up 4x in the past decade... not bad for an investment.
* I don't see hyperinflation as guaranteed, but also not impossible. I wouldn't doubt if we see a doubling or tripling of commodity prices in the next couple years with current monetary policy. If the govt continues to try and "save the day", then yes, I definitely expect to see serious inflation. Remember, we are no longer on the gold standard and unemployment will continue to go up.
* If you want to *trade* gold, that's fine, but then why not other commodities or equities? If you traded the right stocks over the past year you would have made a tremendous amount of money with market volatility. If you have special insights into gold's up and down's then that's terrific.

We looked like we were going into a pretty serious deflationary downturn starting last fall/winter. Everything crashed, including gold. The govt stepped in with bailouts left and right attempting to stabalize/reinflate the system. What was it, $800 billion in fannie/freddie bond purchases - $300 billion in long T Bills purchased in March? I think this govt is willing to try and spend it way out of this...

Jul 11 10:59 AM

[wg:]

Anybody who claims we have not been in an inflationary period during the past decade is nuts. Ten years ago I bought my mother in law a Mazda that cost a little over $10,000. Today that same car cost a little over $20,000. Just go to the grocery store and buy a tomato or a bell pepper. If you had a single producing tomato or bell pepper bush today you could make $400-500 a season. Gold price rose with this inflation. Say anything you want, but the price of gold tracked this up, and only fools say things have gotten cheaper over the past decade. Try anything--cost of private schools, gas, health care, houses (till recently) Hell, the same necktie that cost you $10 a decade ago cost $50 today. I'm not a gold fool, but I sure own some.

Jul 11 11:33 AM

[jarco:]

Many in the important emerging markets continue to horde Gold in preference to their own currency and this practice will accelerate. That's been a rule in India for eons. Indians in the US have followed suit. This and gold industrial consumption heavily skew this published academic analysis.

With the pending dollar collapse, it won't take much to see gold and other hard assets prevail world wide

Jul 11 11:54 AM

[Suncatcher:]

Thanks Mike, I appreciate the article. I think the only way to stir people up more than knocking gold on this forum is to knock SiriusXM. I think this discussion is realitively simple: If you think the future will roughly repeat the past; gold isn't really a great investment. If you think we have stepped off an economic cliff; gold makes more sense. If this is simply a severe recession/ mild depression then precious metals are a security blanket (mostly physcological). If you think this is the mother of all financial blowups you'd be crazy not to own precious metals. I am wandering between the two camps. I must admit I will probably sell most of my gold and silver at the next price spike. Meanwhile all the arguing won't solve anything until the fat lady sings. For what it's worth the folks at EWI are predicting gold in the 600 range and silver in the 6 dollar range. Not sure the time frame but they aren't ruling it out during this price correction.

Jul 11 12:38 PM

[sbfeibish:]

I wonder how you feel about silver ? Since silver is consumed and may be in short supply at some point in the future, e-t-c. Steve F.

Jul 11 01:26 PM

[stan2001:]

Gold like any investment you try to buy low and sell high. There is no magic about it. If you traded stocks over the past year you would have made a tremendous amount of money , more than with gold. #1 point when all are telling investors to buy IT'S TIME TO SELL!!!

Jul 11 03:53 PM

[Doug "Digge...:]

If you traded gold mining stocks from November to May you would have made a lot of money, even more so than most stocks. Who can say it was more or less than your generalization of "stocks" as a group?.

Where is the low for gold? I'll make sure and load up.

Too many generalizations in your comment there Stan...


On Jul 11 03:53 PM stan2001 wrote:

> Gold like any investment you try to buy low and sell high. There
> is no magic about it. If you traded stocks over the past year you
> would have made a tremendous amount of money , more than with gold.
> #1 point when all are telling investors to buy IT'S TIME TO SELL!!!

Jul 11 05:04 PM

[nmelendez:]

As i said gold is like any other commodity. It's governments, like US and China, that give it reserve status. And please do not say that's false because why then is the US hoarding 8000 tons of gold? Please do not insult the intellect. What is said and what is being done are two different items.
I do agree with your statement regarding the gold as a trade. In my book, everything is a trade. However, it's a choice to buy physical gold just like many people collect stamps. Same thing.

Jul 11 09:10 PM

[FDNY RET:]

So what's the alternative?? The author says oil.

And that may be fine in the short term, but there was a guy awhile back that stuck with his saddle factory and went long horses. The wheels rolled over him.

But let's not be cruel if he chooses to discount future--(?? how long ??)-- that's his right, but we evolve. Trains don't burn wood and we won't burn oil.

As for gold--Our founding fathers believed in it, and to date they've left the second guessers in the dust. I think I'll stick with them just a wee bit longer. You say compare notes in 15-20 years??? Get real!!, you'll be forgotten in 15-20 months.

And don't sell Shiff short, just cause they let you put pen to paper--he's still the "Big Leagues" --with--the batting average!!.

Jul 11 10:42 PM

[goldrealmny:]

This author is a complete NUMBSKULL.

Who is going to listen to this d-bag tell them that GOLD, the most fantastic investment from 1970-1980 and the most fantastic asset from 2000-? is not good.

Let me ask you this hypothetical question: Would you rather have owned equities and be down roughly 50% from 2000 or owned gold which has tripled to quadrupled?

With the outlook for the economy and the US dollar bleak (err, make that PATHETIC) do you think gold will start underperforming?

Since stocks are indeed MORE RISKY today than gold, is it feasible to hold Federal Reserve Notes at pathetic interest rates? Especially considering that the Federal Reserve has a PERFECT TRACK RECORD of destroying the purchasing power of Fed Reserve Notes over the last century?!?!

GOLD AND SILVER BULLION IS THE ONLY REAL MONEY - PERIOD.

We should all rise up against our corrupt paper masters who swindle our wealth and tax us into oblivion and CHOOSE GOLD AND SILVER BULLION TO PROTECT OUR WEALTH. PERIOD.

The banksters and the govt are the root of all evil. They are the cause of all our problems. They all need to choke on a big D and die!

Jul 12 01:01 AM

[Roger Knights:]

""Wealth for the ages"? As data shows, gold does not hold up anywhere close to inflation. Long-term holders of a gold face significant reduction in their principal. I have shown that conclusively. I showed it for 1980-1998. I even showed it over the past two years. Use any chart you want. The result will be the same."

I've read that 100 years ago an ounce of gold (at $20) could buy a top-quality men's suit (with all the extras) and still can do so today. Try to do that with $20 today. I've also seen a chart comparing gold's purchasing power to that of stocks and bonds going back over 200 years in the US, that showed gold holding up OK.

Gold's price fall from its peak in 1980 was partly due to a couple of one-time factors: three subsequent decades of gold sales by central banks, and the discovery of the heap-leaching technique of gold extraction, which brought much new supply onto the market. Those two factors are now fading. Gold mining production worldwide is declining, as are central bank sales. (However, those sales may rise again if we enter a depression and countries must sell their heirlooms to stimulate their economies.)

Over the next three (say) years, huge deficits in the US are going to continue, states are going to go bankrupt, unfunded pension and medical liabilities are going to come home to roost, the recession will deepen, etc. This puts stocks, Treasuries, and the dollar at grave risk. Long-term investors, like China's central bank, can easily see this risk and realize that it is prudent to park more of their reserves than gold. In addition, having more gold backing for the Yuan gives China more international clout. In light of that, I think it's reasonable to expect the current decade's upward trend in the POG to not only continue, but accelerate to maybe 15% per year.

Jul 12 04:20 AM

[Roger Knights:]

Oops: "than gold" above should be "in gold" in the third paragraph.

Jul 12 04:22 AM

[Mike10613:]

I live in the Black Country in England, where the Industrial revolution started. Employers used to pay wages with brass tokens. I can see that coming back if paper money becomes worthless. I can see shops taking silver coins in exchange for food and farmers taking gold for food in bulk. I hope it doesn't happen, but enough quantitive easing and we may get to a situation like that and the price of all commodities will rocket. Gold, silver, oil, brass farthings and we may be cutting down trees to stay warm in winter. Queueing at soup kitchens. Growing our own food. Personally, I shall stock up on sugar as well as gold. It converts to alcohol so easily! lol

Jul 12 05:56 AM

[Mike Stathis:]

As expected, when sheep hear the truth from an unbiased expert who is not involved in selling securities or gold (i.e. someone without a financial interest in spreading propaganda), they're unable to see the light. They will state any amount of nonsense in order to help fuel their denial. All they end up doing is demonstrating how clueless they really are.

As such, I will respond only to someone who evidently is the only commenter who "gets it;" suncatcher. Suncatcher has summed up the audience of SA quite well, while putting much of his bias for gold aside.

As someone who obviously has a financial stake in rising gold, Suncatcher is still able to use reason. This demonstrates he is a wise investor. Many of you could learn from him, rather than crying when you don't read things that reinforce what you have been told by those who stand to profit from spreading myths and disinformation about gold.

"Thanks Mike, I appreciate the article. I think the only way to stir people up more than knocking gold on this forum is to knock SiriusXM. I think this discussion is realitively simple: If you think the future will roughly repeat the past; gold isn't really a great investment. If you think we have stepped off an economic cliff; gold makes more sense. If this is simply a severe recession/ mild depression then precious metals are a security blanket (mostly physcological). If you think this is the mother of all financial blowups you'd be crazy not to own precious metals. I am wandering between the two camps. I must admit I will probably sell most of my gold and silver at the next price spike. Meanwhile all the arguing won't solve anything until the fat lady sings. For what it's worth the folks at EWI are predicting gold in the 600 range and silver in the 6 dollar range. Not sure the time frame but they aren't ruling it out during this price correction."

Suncatcher, as far as I'm concerned the EWI guys are clueless. And yes, this has already shown to be the "mother of all financial blowups," with more to come. However, I still would not cling onto gold so tightly.

REMEMBER, it was I who wrote a book (America's Financial Apocalypse: How to Profit from the Next Great Depression)predicting a depression. It was I who predicted Fannie and Freddie would collpase and be baild out by taxpayers in this book. NO ONE else made such predictions.

REMEMBER, in my book I discussed the next NEW DEAL.

REMEMBER, in my book, I predicted gold to soar to $1400-$1600 by 2012-2014 and possibly $2000 a few years later.

Yet, I still see the facts.

I stand by my conclusions regarding gold. I am right. This is a fact. And I challenge any of the so-called "experts" who pump gold using groundless claims such as Peter Schiff, Marc Faber and the other perpetual doomers who have 0 credibility to enter a live debate with me. Don't hold your breath. They will not surface because they realize the best way to deal with someone they cannot defeat is to retreat. Perhaps some of you might learn from this common sense strategy. Good luck kids.

There’s a very good reason why I am paid to provide investment intelligence to those who only get paid if they are right.

There is also a very good reason why these so-called "experts" pitch their sales lines to the financial media - because the audience is primarily sheep. They win either way. They don't have to be right because they take your money after you have bought into their delusions. Peter Schiff is a prime example of this. Despite the fact that he has no idea what he is talking about, despite the fact that his clients did quite poorly, Peter made money.

If you people don't wake up and start realizing how the game is played, you will keep getting played over and over again.

Jul 12 09:40 PM

[Mike Stathis:]

You kids should note that CNBC has specifically sent an invitation to all SA contributors to appear on their show. The reason is simple. CNBC realizes SA is read primarily by sheep. They also realize that 99% of the contributors are either clueless or they're sheepherders.

As a caveat, you might want to ask Jim Cramer, Larry Kudlow, Pete Najarian, CNBC producers (all had my book) and the rest of the crooks why they refused to interview me in 2007 and thereafter. I was trying to warn everyone about this depression. My book (published in 2006) predicted Dow 6000 as well.

The reason is because my conclusions were too painful for the financial sponsors of CNBC (Wall Street) to accept. You people are being lied to by the financial media and i am the only expert qualified and committed to speaking the truth. This is why the media has black-balled me. You've all been fooled. The financial media and Wall Street did it to you again, just like they did during the dotcom collapse.

The sheep don't know about me or my books but the best performing hedge funds do.

Jul 12 09:51 PM

[Swashbuckler:]

"CNBC realizes SA is read primarily by sheep. They also realize that 99% of the contributors are either clueless or they're sheepherders". Mike---You've done some terrific work and I enjoy reading your articles. But I'm not sure it serves any (worthwhile) purpose to denigrate the SA readership at large or the other contributors to SA. You are not the only original thinker that brings a lot to the table. I enjoy articles by Geoff Considine, Tyler Durden, Steven Hansen, Andrew Left, John Lounsbury, Sean Maher, Reggie Middleton, Jeff Miller, Thomas Ryan, Rakesh Saxena Graham Summers, and Greg Weston. And there are many other fine posters I have not mentioned. I respectfully suggest that FAR LESS than 99% of the contributors to SA are either clueless or sheepherders. Your comment that you are the only expert qualified and committed to speaking the truth is on it's face absurd.


On Jul 12 09:51 PM Mike Stathis wrote:

> You kids should note that CNBC has specifically sent an invitation
> to all SA contributors to appear on their show. The reason is simple.
> CNBC realizes SA is read primarily by sheep. They also realize that
> 99% of the contributors are either clueless or they're sheepherders.
>
>
> As a caveat, you might want to ask Jim Cramer, Larry Kudlow, Pete
> Najarian, CNBC producers (all had my book) and the rest of the crooks
> why they refused to interview me in 2007 and thereafter. I was trying
> to warn everyone about this depression. My book (published in 2006)
> predicted Dow 6000 as well.
>
> The reason is because my conclusions were too painful for the financial
> sponsors of CNBC (Wall Street) to accept. You people are being lied
> to by the financial media and i am the only expert qualified and
> committed to speaking the truth. This is why the media has black-balled
> me. You've all been fooled. The financial media and Wall Street
> did it to you again, just like they did during the dotcom collapse.
>
>
> The sheep don't know about me or my books but the best performing
> hedge funds do.
>
>

Jul 12 11:29 PM

[semperpax:]

Mike, do you have to call everybody who disagrees with you fools? That simply transforms your argument from a thoughtful, logical statement to an emotional attack. You must watch too many politicians on TV. One of the reasons we can no longer compromise on issues is that everyone is engaged in personal attacks. It cheapens the debate.

Jul 13 09:24 AM

[Lawrence:]

Yet another (gold) article that fails to recognise that we are entering a new economic paradigm. One which renders your facts and statistics, no matter how well researched and true, not inaccurate but merely irrelevant.

Jul 14 12:37 AM

[tmosley:]

Wow, Mike. Let's act like grown-ups rather than insulting people who disagree with us, yes?

Did you forget that what drove gold back down was the increase in interest rates to 20%. Did you ask yourself what would happen to the national debt if they were to take such a move again (hint: total tax revenues would have to increase 2-5 fold)? Absent that option, I don't see any other possible end to this. Do you?

If you don't, then you must accept the fact that gold, over the term of the next several years, can go nowhere but up, absent some sort of magical recovery, which I think we all agree is not in the cards.

Jul 15 01:10 PM

[Celcius:]

Long-term charting of gold in the reserve currency is of no analytical value. However, as the USD has been decoupling as a reserve currency, and loosing global economic prominence, gold has been performing very well.

Jul 16 08:58 PM

[Celcius:]

"i am the only expert qualified and committed to speaking the truth." Wow... What arrogance! No wonder no one will let you play with them.... : (

I can understand why your book doesn't sell. You are just a bitter person!


On Jul 12 09:51 PM Mike Stathis wrote:

> You kids should note that CNBC has specifically sent an invitation
> to all SA contributors to appear on their show. The reason is simple.
> CNBC realizes SA is read primarily by sheep. They also realize that
> 99% of the contributors are either clueless or they're sheepherders.
>
>
> As a caveat, you might want to ask Jim Cramer, Larry Kudlow, Pete
> Najarian, CNBC producers (all had my book) and the rest of the crooks
> why they refused to interview me in 2007 and thereafter. I was trying
> to warn everyone about this depression. My book (published in 2006)
> predicted Dow 6000 as well.
>
> The reason is because my conclusions were too painful for the financial
> sponsors of CNBC (Wall Street) to accept. You people are being lied
> to by the financial media and i am the only expert qualified and
> committed to speaking the truth. This is why the media has black-balled
> me. You've all been fooled. The financial media and Wall Street
> did it to you again, just like they did during the dotcom collapse.
>
>
> The sheep don't know about me or my books but the best performing
> hedge funds do.
>
>

Jul 16 09:09 PM

[growser7:]

Agree with Celcius and the others. Mr Stathis, your infatuation with yourself is breathtaking. You aren't some Old Testament prophet stumbling out of the desert with a vision---a lot of people have made the same predicitions you have. You bum Peter Schiff a lot as a shill. But you wrote a book too, right? You aren't planning to just give that away now are you?

As far as gold goes, most would agree that as a tradeable asset, at times it has performed relatively lousily and at times it has been great. But now... with the government struggling to reflate and "stimulate" the economy and at the same time embrace visions of a green utopia and expanded social programs, with deficits already hitting record levels even as a tsunami of unfunded liabilities is bearing down on us, with California being just a preview of coming attractions from the epic that Washington is preparing....this would be one of those times when gold will do very very well.

For my part, I respect the opinion of Felix Zulauf, and he makes a good argument for gold. With no ego involved.

Jul 17 03:39 AM

[Mike Stathis:]

Yes, but of course. I "fail to recognize" this and that. And I "fail to understand" this and that.

Do yourselves a big favor. Research the person before making critisms about them.

You mean in-FACT-uation? I'm stating facts that can be verified. Call it what you like. By speaking without knowing all of the facts and understanding all perspectives, you're demonstrating why you have been fooled by the vultures, liars and hacks in the media. By failing to look more closely into the facts, you are assuring your destiny as failed investors.

Posting personal insults confirms one of two things: ignorance or defeat; sometimes both.


YOUR BIGGEST ENEMY: THE FINANCIAL MEDIA AND THOSE THEIR AIR

The fact is that the media will not air anyone who speaks the truth and who is accurate. The ONLY time a real expert is interviewed like Buffett or Rogers, they are there to manipulate investor sentiment for their own benefit. BTW, Buffett and Rogers missed this collapse, so the media doesn't air any real experts who have a clue.


WHO PAYS THE BILLS OF THE MEDIA?

Who do you think pays all the bills at CNBC? The financial industry. This also includes companies that stand to benefit from the views of perma-doomers (i.e. gold companies, insurance companies/annuities, etc.). The media only serves the interests of their financial sponsors (and sometimes their political allies). If you don't realize this, you are doomed.


DOOMERS AREN'T EXPERTS, THEY ARE SALEMEN

Doomers who have been preaching the same song and dance for 20 years have no credibility. They are simply salesmen to sheep.

You people have been fooled by these doomers who have been preaching the same lines since the 1990s. They are the same guys who want no government regulation despitethe fact that it was the lack or proper regulation that caused this collpase. You need to start asking yourselves why.

I'll tell you why. Because at the end of the day, no matter how low they say the stock market is headed, they are STILL part of Wall Street. And regulation would spoil their party. You guys need to start realizing this.


YOU WILL ONLY SELL BOOKS IF YOU ARE A HACK FOR THE MEDIA

What many of you fail to realize is that those who are truly committed to marketing only write books as marketing tools, while mentioning their company in it dozens of times (do I need to mention any names?).

You also fail to realize that those who want to sell lots of books will play by the rules of the media so they will be invited as frequent guests. That enables your book to reach a huge market.

Part of these rules of the media mean you sugarcoat things and never insist that say the banking executives should be indicted on securities fraud (hint).

Part of these rules mean you are not to point to free trade as America's #1 problem (hint)

I care less about selling books. If I did, I would have sold-out to the media. If I had, based on the accuracy of my forecasts, I would have made millions from book sales alone.


THE STORY YOU DON'T KNOW ABOUT

None of you know the real story. The fact is that my books were written NOT for marketing. You won't see the name of my company plastered throughout. You won't see my website plastered throughout. And you won't see me selling securities.

My ONLY purpose in spending over 2 years writing these books was to warn you all about what I saw as an inevitable depression because I still felt for investors after they were screwed during the dotcom collapse.

You people have NO idea the efforts I made to warn every single real estate investment group and city council across the nation. I did this while asking for NO speaking fees, only to help them avert massive losses and to prepare for huge budget deficits.

I even contacted the AAII (the sheep organization for individual investors) to try and warn them and they did not want to listen because they are so deep into the pocket of the mutual fund industry while local chapter heads are often financial advisers.

I tried to warn everyone. And I had no securities or gold to sell. The decision makers of various real estate investment groups and investment associations like the AAII did not want me to communicate these warnings to their members because they all have monetary motives tied into the bull market mentality. As for city councils, they're brainless and they could care less.


FACTS SPEAK LOUDER THAN ANYTHING

All of this aside, the fact is that No author made the forecasts I did. Can you name any other book that.....

Predicted and proved irrefutable evidence there would be a depression

There would be a New Deal

Advised readers to short LEND, FRE, FMN, FRE, banks and homebuilders

Stated the that FMN and FRE would be bailed out by taxpayers

Stated real estate prices would decline by 35% on average (50-60% in regions of CA, FL, etc)

Detailed how the government manipulates economic data

Predicted the possibility of Dow 5500-6000, showing compelling evidence

Predicted the collapse of the commodities bubble in in 2008/2009 (with a resurgence thereafter)

Addressed healthcare as the second biggest long-term problem faced by America

100s of other forecasts many which have materialized; others on the way

PUBLISHED IN 2006

If you can show me anyone else who made these predictions in a book around that time, I'll kiss your feet.

Since that time, I have successfully caled every major market move (up and down)

in-FACT-uation

You might want to ask yourself why these media clowns never make timely market forecasts.

You might want to ask why you don't see equity analysis when these "experts" write articles.

You might want to ask why these "experts" keep repeating the same story over and over.

All they keep saying is down down down, gold up up up. Seriously, you guys need to wake up.

I'll tell you why. Because they are nothing more than salesmen to the sheep.

You guys need to get up to speed instead of being fooled by the financial media and the guys in their club; otherwise, you'll stand no chance.

As far as gold, think what you like. I merely presented unbiased facts. No one knows what will happen. But by failing to consider all of the facts, you stand to lose. I suggest some of you reread ALL 3 parts of the article on gold because some of you have clearly missed the big points.

One thing I am certain of. Those who follow the media clowns have never and never will make any real money to speak of. And when the next collapse is on the horizon, you can bet I won't be there to warn you agains since you trust the sheepherders. Let me know how much money you've made in 10 years.


THE TRUTH ABOUT THE FINANCIAL MEDIA

www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...
www.avaresearch.com/ar...


The media clowns and salesmen fear me because I threaten to expose the facts which would not bode well for their sheepherding.

They have used widespread censorship, knowing that if you don't know about me, you won't know the truth. This is precisely why these stock market scams will continue. Ultimately, investors are to blame due to their ignorance.

These guys refuse to answer my challenges in a live debate because they know they will be thrashed and people will wake up to their bogus claims and salespitches. They realize that when you are outmanned, your best strategy is to never enter battle.

www.avaresearch.com/ar...
www.avaresearch.com/ar...

Feel free to let me know if you ever wake up. Already several people have confessed they were fooled and now see the light.

Jul 22 11:32 PM

[Lawrence:]

so roll on part 3 Mike. lets hope you come to some meaningful conclusions. If you offer any advice please remember to specify valid timeframes.

Jul 23 06:14 AM

[tmosley:]

Mike, I'm afraid no one knows about you because you're a nobody. Nobody listens to you because you refuse to listen to them, or address any of their concerns over your stances. Why should anyone have to "do research" on someone before pointing out that an argument is invalid? I, and most others, were attacking your arguments, which is only possible because they have big gaping holes in them.

I doubt you will ever answer this, but I'll ask again anyways: How can the Fed possibly drive rates back up to the high teens without destroying the tax base? Why don't you admit that the "gold bubble" burst due to that same increase in interest rates, which restored faith in the dollar?

Jul 23 03:15 PM

[Lawrence:]

"destroying the tax base"

the tax rates are one of many factor. The FED is in a box because if they raise interest rates all those interest sensitive derivatives will go boom which is what does and rightly should scare them stiff.

they are sitting on multiple tipping points. they are in a box and they know it. USA is broke but in denial. this denial cant last much longer and the fragile state of the economy is set to come unhinged sooner or later.

The US empire has had its day in the sun and now the sun is setting on the western financial powers. Wealth and power are destined to move east. this is already happening.

Jul 27 03:15 AM