Speaking of Gold...

You know, I always seek to tune out the noise when 'Mr. Gold' is putting inflammatory battle cries in my inbox: the CoT speculators are rampaging, the irrepressible silver bugs are making their case about silver's value compared to gold, and a spammy email blurb shows up (courtesy of my friend Otto) with a picture of a noted commodity and resource guru sipping a cocktail, smoking a stogie and expounding upon the government's unbridled inflationary policies.

I especially find the need for calm in the face of the Seattle Times indicator while the dollar - being micromanaged lower by the entire world that would seek to feel good about its demise - remains above the support level I have seen as critical.

It is actually a good time for me. I am saving money and stress by not trading much and thus not churning commissions. Meanwhile, the inverted H&S that was dreamed up on the weekly gold chart has yet to either express itself or be proved a sucker's play. But its promoters have quieted down, which is not bearish.

Anyway, here is a busy monthly chart showing mixed signals but overall an asset - the asset really in a world where almost everything is someone else's liability - that is going to make a lot of people happy one day.

They will be doubly happy because they will have survived some terrible actions along the way, all the while standing firm in their beliefs about what is and what is not money. It is the players and sheep, with no core understanding that it is important to get contrary to the still ongoing racket we call a modern financial system, that will be victimized.

The goldbugs will be right one day. They are right now. But many also tend to be strident and angry, and the goal is to get where we are going without embedded anger and long term mental injuries like post-traumatic stress.

Goldbugs use the word 'sheeple' a lot. Don't be a sheeple. Realize that coordinated government actions have solved nothing. Sure, it is possible they can engineer a cyclical bull market that the mainstream financial media can celebrate, but they have fixed nothing, only done more of what has been causing and growing the problem for decades.

Except each time the policy is put on stronger and stronger steroids. Anybody see the movie The Wrestler? That poor Randy the Ram kept bulling his way forward until... well, I don't want to give it away for anyone who plans to see it. But our financial system is doing what the Ram did, only in a much less lovable fashion.

Okay, I simply wanted to update the big picture chart of gold and what ends up happening? Out comes the tin foil hat and stream of consciousness ensues.

Disclosure: Long gold.

Comments

[MarvinMBA:]

Gold and Silver is better than the US Dollar...it was there before and will be there after...MarvinMBA

Jul 30 08:21 AM

[Maxe Paul:]

All the sheeples are in gold now that's for sure, believe what you will. Another gold bug induced rant, trying to tell me how superior you are because you know something i don't. Whatever.

Jul 30 08:50 AM

[sdavid0419:]

Inflation began when oil prices soared post Katrina. Then in what I call the pre-election collapse of oil prices actually caused deflation. Now oil is once again on its trek up as the oil companies spend millions to keep Congress from acting on T Boone Pickens alternative energy plan. At the same time the banks are paying off their government loans as fast as possible so they can get back into the poker game since the government has failed to take action to put an end to the risky behavior. Oh did I mention the banks are spending millions to keep congress from doing that.

I had some significant gains in gold's run up. I'm the type that takes a short profit and runs at the first sign of a sell off which is how I was able to get some gains. Somehow, I have resisted selling off my current position through several cycles as I am so sure that Mr. Bernakes printing of money will cause hyper inflation and that the gold I'm holding is only an insurance policy. I don't expect it to be worth a gazillion dollars like most gold bugs but I do feel it will be worth more than the dollar once inflation sets in and that is a fact I'm relatively certain of. I vividly remember the Regan years when I was not market savy and I don't want to go there again.

Jul 30 10:01 AM

[sorgmot:]

Thank you for the very clear chart showing the upswing in US$ gold prices per once from 2000 to 2009. This is the period following the decline in US$ gold prices from 1980 to 2000 which was induced by US President Ronald Reagan starting in 1981.

He was guided and assisted in his endeavor to reduce $USA price inflation which had started in the 1960's by Milton Freidman and Paul Volker, respectively.

Those days ended in 2000 and their practices discarded by current USA politicians of all parties and stripes.

Consequently, the USA future in 2009 holds the post Reagan trend of money and debt explosion started under Clinton and continued under Bush II.

The next upswing in USA money supply will occupy in the years 2009 through 2014, As was true from 2000 to 2008, the US$ will fall against foreign currencies and gold. The USA economy will continue to stagnate and USA Government debt will increase greatly as in 4 or 5 times.

It will look like the one from 2002 through 2007. There will be a correction in 2015.

The 2002 upswing traversed from $300's to $900's per ounce and the one coming next could traverse from the $900's to $2700's

President Reagan is gone as is Milton Freidman and only Paul Volker remains. In their absence Democrats and Rupublicans alike have built faulty government structures on borrowing while destroying the US$ values of USA real estate, USA stocks,, USA bonds and USA private sector wages asset as the USA debt load explodes.

There is a good possibility the USA government will once again confiscate gold in the next 5 years.

Some things in the USA are so powerfully destructive to the well being of its citizens as to guarantee its collapse.

Good luck

Jul 30 11:58 AM

[ScroogeMcduck:]

Gotta love that chart, even the skeptics. Scarred money doesnt make money. Dip your toes in with some stops if your worried. I see further weakening in the $, gold is a safer play then any other.

Jul 30 12:30 PM

[Living4Divi...:]

In days of old, money used to be in the form of Gold or Silver. These metals had universal value among the various peoples of the world and rarely changed in purchasing power over the centuries.

The nations of the world have substituted paper currency (fiat currency) in the place of gold. The word fiat means by decree. Hence fiat currency is worth what a government says it is, by decree. The value of fiat currency is subject to manipulation by decree, it tends to be debased over time. Because it changes in value over time, fiat currency is not a store of value, and therefore is not proper money.

Since the dollar is in danger of falling, this would lead to the natural conclusion: "Sell dollars, buy gold." The problem with this conclusion is that you don't know if the 1000 dollars you spend on gold today will return 500 or 2000 dollars in the future. The world now runs on fiat. A US citizen's financial commitments (rent, insurance, mortgage, car payment) are denominated in dollars, not in gold. In essence, there is an inherent dollar trap.

Fiat currencies are like dog poop - they stink, but they stick to the bottom of your shoe and are hard to get rid of.

Jul 30 02:19 PM

[Living4Divi...:]

Correction to my post above: delete the phrase "or silver" - silver has lost its value in pre-modern times. Only gold seems to have kept its value.

Jul 30 02:21 PM

[nmelendez:]

The issue with Gold is not whether it goes up or down, it's in gold's buying capacity. If you have inflation gold goes up while in deflation it goes down with everything else but it's buying power doubles. That's gold's real power.

Jul 30 09:30 PM

[Bundee:]

Maybe the conclusion should be: "Exchange dollars, buy gold, exchange gold for dollars later on."

Yes, our daily expenses are calculated in dollars, but you do not fault the investor who exchanges their US Dollars today for stocks, bonds or another nation's currency and then sells said stocks/bonds/currency for more next month or next year, why fault those who do the same who buy gold?
I can't pay my daily living expenses in stocks or bonds or non US Currencies, but I can exchange my stocks/bonds/currency for US Dollars and use my newly aquired US Dollars to pay for expenses and hopefully make more US Dollars in the rise in resale value of my stocks/bonds/currency in the process. Gold works the same way.

While no one can predict that gold will return 2000 dollars in the future, it is unwise to predict, as so many anti-gold bugs have predicted, that gold will go back down to four hundred dollars in the future. (The anti-gold bugs predicted gold would go down to $400 in 2008, 2007, and 2006. Much like the gold bugs predict a rise in gold prices the anti-gold bugs will be right someday, but today doesn't look like the day it will happen, nor tomorrow, nor next year.)

On Jul 30 02:19 PM Living4Dividends wrote:

>.... Since the dollar is in danger of falling, this would lead to the
> natural conclusion: "Sell dollars, buy gold." The problem with this
> conclusion is that you don't know if the 1000 dollars you spend on
> gold today will return 500 or 2000 dollars in the future. The world
> now runs on fiat.

A US citizen's financial commitments (rent, insurance,
> mortgage, car payment) are denominated in dollars, not in gold. In
> essence, there is an inherent dollar trap.
>
> Fiat currencies are like dog poop - they stink, but they stick to
> the bottom of your shoe and are hard to get rid of.

Jul 30 09:41 PM

[Diogenes of...:]

When I was younger, I never thought much about what a US Dollar was, or what it was worth relative to other currencies, or what kind of store of value it was. I assumed that that the cash in my bank account was the ultimate store of value.

I came of age in the 80s, and didn't see inflation per se in my adult lifetime. I saw periodic bubbles in stocks, housing, oil, etc. But as I have gotten older, and have more than a few dollars in the bank, I started to do a little reading, and have noticed what others have noticed.

My dollars in the bank have lost 40% of their value in the past 10 years relative to the Euro. My dollars have lost about 50% of their value relative to the Swiss Franc. My dollars have lost 60% of their value relative to an ounce of gold. My dollars have lost about 60% of their value relative to a barrel of oil.

My dollars still buy as much stock as they did 10 years ago, and almost as much house, but that's not much consolation.

Jul 30 10:20 PM

[Andy1234:]

Inflation is a function of how much money is in the system. Someone posted that oil caused inflation and that is not correct.


Deflation happens when the money supply is contracted. everyone points to the money supply created by the fed reserve....but thats not the total money supply.....the money supply gets expanded by the banks when giving loans. this is the fractional reserve banking system we have today. Now these banks were leveraged many times...20-30 to 1 for most. These loans have been destroyed....or are being paid down in todays environment. Hence...we have a shrinking money supply. We have fewer dollars chasing goods/services. This is why we have deflation....the destruction of debt...or credit. Credit is not being extended either....so while the fed reserve may inject money into the system of banks....they are not lending it out....and this is how the money comes into creation and into the money supply...through loans. If all debt were paid off...no dollars would be in criculation.

In order for inflation to really kick in.....people need to spend it...and loans need to be given out. It will eventually happen....just not sure when. It is unknown if the leverage will ever get as high as it was in the peak housing bubble years....but they sure have a lot larger money base to make loans off of now.

Jul 31 08:42 AM

[MGA_1:]

We WERE on a deflationary downtrend the later part of '08... then the fed stepped in with TARP, asset purchases, long bond purchases, etc. I don't think the govt has the stomach for a deflationary crash so I think they're gonna print and continue to print...

Jul 31 11:41 AM

[Andy1234:]

I agree that they will continue to create money....and continue to do stimulous packages....the problem is.

How much debt is going to be destroyed over the next couple of years from Option ARM and Alt-A loans resetting? (the same amount as the subprime mortgage market....and they peak in 2011).

Money created from the fed has to reach people to spend. The money that gets injected or borrowed from the banks are not reaching consumers. I am not advicating that banks should loan more money out...far from it. But in order for the money supply to grow....we need spending of money and loans.

What we see right now...and will probably see till 2012 or so is credit destruction....and debt being paid off. This decreases the money supply in the short term. I also don't think people will spend...and banks are being more stringent on who they loan to...which makes sense IMO.

We are coming off a HUGE bubble in housing and according to the interest reset rates....I see more pressure in house prices to fall or stay at depressed levels for some time.

This will lead to more and more stimulous from our government....and more and more money into the system to make loans off of. I don't know how leveraged the banks will get in the future......but at some point inflation will be in full effect again...I agree...I just think it will be difficult for them to do this in the near term.

I think commodities are a great place to be.....regardless of deflation or inflation....as price levels are below replacement cost for most....and you have increasing money from the fed to make loans with. Its just a matter of time...accumulate things when they look the worst. For example, NG looks horrible...huge supply glut.....and I would definitely take a look now at buying in this area.

Jul 31 01:58 PM

[Andy1234:]

One more thing.....1700-1800's were the most prosporus times for the united states....we have deflation during these times.......deflation is NOT bad. In fact one could argue that inflation is bad.


Wealth is created by production of goods or services......people don't want jobs....they want materialistic items. If all items could be attained and one didn't have to work for them....would anyone work?

So if wealth is created by production...and most production comes from delayed purchases or savings....and investment.....How does inflation or deflation have any effect on wealth creation? In reality it doesn't.

We need to reduce the drag on the economy.....which is the government. They create nothing.....they create no wealth...they only slow the process of wealth creation. Inflation decreases the purchasing power of the currency.....and in essence is a tax on society....they steal purchasing power from normal people and make everyone turn into speculators in order to increase purchasing power for future consumption. Our whole tax policy, monetary policy, etc is a joke and rewards those who take on debt, etc. We need to revamp our country....and get someone who follows our constituton to protect our rights and freedom.

Jul 31 02:05 PM