The Arithmetic of Gold: Why Its Price Has No Ceiling 78 comments
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What’s the price of the last ticket on the last train out of Paris on the night the Germans march in? Whoever is carrying the most cash will get it, and that will be the price.
Robert Merton, the great finance theorist, showed that in a multi-time-period model, investors hedge against the prospective change in the investment opportunity set. If sufficient hedges are not available the price of such hedges can be arbitrarily high. As I have tried to show in several recent articles, most recently this Sept. 15 essay at Asia Times, gold is a hedge against the collapse of America’s central role in world affairs.
What is the correct price? Central banks alone own about 4.8 million tons of gold. The world produces about 2,200 tons. Suppose that central banks wished to increase their gold holdings by 1 percent. That’s 48,000 tons or so, or more than 20 times annual mining production.
What’s the price elasicity on that sort of thing? How badly do you need that ticket out of Paris?
I’ve been recommending gold since June, for the last $100 or so of the runup, and I continue to hold my own cocktail of gold mining stocks and gold futures.
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This article has 78 comments:
the world only has around 150000 tons of gold ever mined since the big bang.
what if that train conductor who would only accept a crate of ammunition instead of tooth filler or worthless paper?
gold may go to $5K, but only because traders will push it there.
the rest is FUD.
The vaccine for this is a quick read of "Manias, Panics and Crashes" by Kindleberger, an excellent history of central bank thinking.
Gold is CB's"currency of last resort". It will worth what CB's ultimately decide they want it at.
Recall, they can print the paper at no cost to buy it back when they sell.
This article is akin to suggesting that a failure of the wheat crop will send wheat prices to infinity as it is the only kind of food.
I am 52 years old now and I am watching my grandpas vision come to pass. I have consistently converted my earnings into gold and silver and look at the central banks and federal reserve run our country into the ground. The power hungry powers to be will stop at nothing to see who has the biggest balls. Its all about power. I inherited my families fortune as will my children. It's not about power as much as it is the quality of life. Something these guys know nothing about.
Secure your families wealth while you can. Get away from the dollar and into gold and silver now before it's too late. It's not the germans we have to worry about it's the federal reserve and the central bank.
www.runtogold.com/2005.../
On Oct 07 09:21 AM JudeJin wrote:
> whoever comments on gold please get the facts straight. central banks
> only have 30000 tons of gold. the fed has 8000 tons, china's central
> bank has 1000 tons. at today's price, china's fx reserve can buy
> around 60000 tons of gold, that's 30 years of world's production.
>
>
> the world only has around 150000 tons of gold ever mined since the
> big bang.
On Oct 07 09:57 AM Mad Hedge Fund Trader wrote:
> kgs Of course you knew it was going to happen like this. After churning
> around just below the old high, and sucking in as many profit takers
> and short sellers as possible, gold blasted through to a new high
> for the year of $1,038. Never mind that the triggering event is complete
> balderdash, a story in Britain’s Independent newspaper asserting
> that the Middle East is holding secret global talks to price crude
> in the yellow metal or other currencies (click here ). It didn’t
> hurt that Australia cut its interest rates by 0.25%, the first G-20
> country to do so. There probably isn’t enough gold in the world to
> finance more than a few weeks of global oil production. Total gold
> holdings would only fill two Olympic sized swimming pools. But never
> let the truth get in the way of a good trade. The confirming moves
> couldn’t be more ubiquitous, with the Canadian, New Zealand, and
> Australian dollars all up big, commodities strong, and silver also
> going ballistic. Regular readers will all recognize these as old
> friends of mine, core longs that I have been strongly recommending
> since the beginning of the year. I have been trying to get investors
> into gold since it was at $800. If you aren’t in gold by now, I can
> only tear my own clothes and flagellate myself for my abject failure
> to convince you of gold’s merits. US government debt is exploding,
> and with foreigners holding a large part of our paper, the only way
> to get out of this mess is to devalue the dollar. It’s like Obama
> invited China’s president Hu Jintao to dinner at an expensive Upper
> East Side restaurant, fakes a sudden case of food poisoning, leaving
> him with a big fat bill. Next stop $1,200, then $1,500, then the
> old inflation adjusted high of $2,400. If you want me to help you
> get set up to trade futures in any of this stuff, please email me
> at madhedgefundtrader@yah... If you want to know where to buy physical
> gold and silver in size, or coins with the tightest spreads over
> spot, check with the experts at www.millenniummetals.net by
> clicking here.
On Oct 07 11:08 AM mbkelly75 wrote:
> When I was first learning to prospect placer gold, my mentor told
> me that panning gold was one of the very few ways for anyone to create
> true wealth. It is something to keep in mind - Gold is one form of
> true wealth - not any of the many forms of fiat money can actualy
> say that. I moved my portfolio from 6% Gold and Silver (using CEF
> - never GLD or SLV) to 16% last December because of all the printing
> going on all over the world - not just here in the US. I have not
> been sorry.
If your doomsday scenario happenned, and they really needed to use gold that way, the rules of the game will change... financial martial law if you will. So IF the germans come to paris, you sure had better be holding a real PHYSICAL ticket if you want on the train, otherwise you'll be telling the other POWs how you knew it was coming, and had the rights to a ticket but got screwed by the government....
By the way, the argument that gold is a good hedge against inflation is DEAD wrong!
If there is a significant sign of inflation, the FED will definitely raise its interest rate sooner, not later!
Just a small reaction by the FED will kill the current-speculative gold market almost instantly. If there is ever a slight fear of a reverted interest rate cycle, the crash of the gold market will be worse than that of the DJI!
Thanks to Australia, the gold dream is over even before it begins!
Dividend-paying stocks have historically been a wonderful way to beat inflation and they are 50% of my portfolio and are increased with the re-balancing. The PMs are a good tool like any other tool. They hav their uses and when used correctly - they can give you great profits and move your portfolio up in value.
On Oct 07 11:26 AM anarchist wrote:
> There is no profit unless you sell higher than you bought, so what's
> your exit strategy? Are you one of these guys waiting for financial
> Armageddon, collapse of the dollar, riots in the grocery stores as
> people try to pay with their Krugerrands or wheelbarrow of dollars?
>
Remember Warren Buffet's adage; "...buy when everyone else is selling and sell when everyone else is buying..."
On Oct 07 10:59 AM MichaelHam wrote:
> First, Australia did NOT lower their interest rates, they raised
> them in a very surprising move and first of the G20 member countries
> to do so. If you are dead wrong on a key published fact, what else
> might you be dead wrong on as well?
1833-1932: FLAT at about $20/ounce
1932-1934: doubled to $35/ounce
1934-1971: FLAT at about $35/ounce
***enter the big FU to Breat Britain when they tried to trade in 3 billion USD for the equivalent in gold***
1971-1980: increase by a factor of almost 25, to a high of $887.
1980-1982: cools off by half to about $400
1982-2002: FLAT at about 300-400
2002-2009: 400-1000
Key points to take from that summary:
1. When there is a real loss of confidence in the dollar gold has a relatively recent (modern day, post WW2) precedent of moving exponentially.
2. Even if you got in "late" in the 1970's and bought at 3-4 times the price it started at (buying at 100-140) and then sold way after missing the 1980 high, you'd still be doubling or tripling your money at $300/ounce.
3. Excluding the 2002-present run up, prior big gold moves have coincided with extremely high inflation (technically reflation in the 30's).
The ultimate, bottom line conclusion boils down to this: if you think the Fed is somehow going to avoid severe 1970's style or worse inflation, then gold is an overbought, speculative market primed for collapse. If on the other hand you believe that as Friedman said, the real effects of inflation are felt sometimes a year after the monetary policy that creates it and the dollar's reserve currency status will be a resistance to inflation, but not a certain vaccine against it, then gold still has a long way to go.
Four years ago, one of the big guys came to our office (not far from State Street) to present GLD: he cautiously recommended 3% to a roomful of financial advisory employees. imo, that was way to low at the time - I contested, suggesting an 8% minimum - but in the end none of HNW clients bought gold (on the firm's recommendation; not my call.)
I'm curious to know what percentage of financial advisors are actually recommending gold now. Less than 5%? Let's not call that "many," that's misleading.
On Oct 07 12:13 PM Wilky wrote:
> Well, many financial planners and stock market gurus are now advocating
> 20% - 30% in precious metals. I think 10% is more like the norm
> in normal times, which of course, these are not.
This is an early-to-mid stage bull market. There will be a top, but it's far too early to think about that now. Also, the gold market will obey technical indicators. I might trade some of my gold gains for a trip to the Bahamas in January, for example. Everything has parameters.
Nonetheless, I don't know how high this can go. The barbaric relic has served me well since 2003, the point at which I converted.
Re earlier comments: (1) Gold has done $700. That will not be revisited.
(2) Central banks have other fish to fry. Gold is an afterthought. Talk to Gordon Brown, arguably the least fortunate (and/or least wise) central banker of the 20th century.
On Oct 07 03:27 PM mb2 wrote:
> I'd say it was the "bugs" that got sucked in. I, too, like gold.
> However, the panic buying that is taking place above $1,000 will
> turn into panic selling when the dollar finds its floor (and it surely
> will). Talk about the mother of all short squeezes - the dollar snap
> back is going to be violent. All it takes is one geopolitical event
> to trigger a flight to the greenback.
>
> Remember Warren Buffet's adage; "...buy when everyone else is selling
> and sell when everyone else is buying..."
Also, adjusted for inflation we're nowhere near the highs for gold. Gold is nearly guaranteed to run once a fiat currency reaches high levels of perceived inflation. The problem (as shown in the 80's) is that herd mentalities change quicker than your head can turn and it takes a long time to get back to peaks.
Gold will inevitably become the new asset bubble. The problem with gold in today's world is that it is no longer a useful medium of exchange for the masses thanks to the global acceptance of central banking and fiat currency. It is only a useful hedge against global or regional hyperinflation because the negative carry is enough to outweigh the gains during periods of mild inflation.
On Oct 07 03:38 PM Josh Dowlut wrote:
> Just some key historical points on gold, summarized from the following
> graph www.nma.org/pdf/gold/h...:
>
> 1833-1932: FLAT at about $20/ounce
> 1932-1934: doubled to $35/ounce
> 1934-1971: FLAT at about $35/ounce
> ***enter the big FU to Breat Britain when they tried to trade in
> 3 billion USD for the equivalent in gold***
> 1971-1980: increase by a factor of almost 25, to a high of $887.
>
> 1980-1982: cools off by half to about $400
> 1982-2002: FLAT at about 300-400
> 2002-2009: 400-1000
>
> Key points to take from that summary:
> 1. When there is a real loss of confidence in the dollar gold has
> a relatively recent (modern day, post WW2) precedent of moving exponentially.
>
> 2. Even if you got in "late" in the 1970's and bought at 3-4 times
> the price it started at (buying at 100-140) and then sold way after
> missing the 1980 high, you'd still be doubling or tripling your money
> at $300/ounce.
> 3. Excluding the 2002-present run up, prior big gold moves have
> coincided with extremely high inflation (technically reflation in
> the 30's).
>
> The ultimate, bottom line conclusion boils down to this: if you
> think the Fed is somehow going to avoid severe 1970's style or worse
> inflation, then gold is an overbought, speculative market primed
> for collapse. If on the other hand you believe that as Friedman
> said, the real effects of inflation are felt sometimes a year after
> the monetary policy that creates it and the dollar's reserve currency
> status will be a resistance to inflation, but not a certain vaccine
> against it, then gold still has a long way to go.
For what it's worth, I think this market is nuts.
My point is yes it was pegged, but that pegging kept the money supply growth in check which kept the market fundamentals in check. When the money supply growth came unhinged the market fundamentals ran over the $35/ounce Bretton Woods decree.
On Oct 07 11:23 PM HomeEconomics wrote:
> Gold was pegged pre-1971 in one way or another, so it's nearly useless
> to quote prices before then.
>
> Also, adjusted for inflation we're nowhere near the highs for gold.
> Gold is nearly guaranteed to run once a fiat currency reaches high
> levels of perceived inflation. The problem (as shown in the 80's)
> is that herd mentalities change quicker than your head can turn and
> it takes a long time to get back to peaks.
>
> Gold will inevitably become the new asset bubble. The problem with
> gold in today's world is that it is no longer a useful medium of
> exchange for the masses thanks to the global acceptance of central
> banking and fiat currency. It is only a useful hedge against global
> or regional hyperinflation because the negative carry is enough to
> outweigh the gains during periods of mild inflation.
And that simply makes the case for Gold!
To give you some background information, at the end of the Cold War in 1990 it was recognized by some policy advisors that there was not enough money in circulation to support the recovery of Russia and Eastern Europe to avert a major crisis. At that time, the central bankers refused to print money to avert the impending crisis. Consequently, it was decided to price and allow derivatives to create electronic money. This resulted in the creation of trillions of dollars of new electronic money that was used to help the world avert a crisis and to grow the world's economy.
Unfortunately for all of us, derivatives have been abused. They should be tightly regulated.
Thus, the Federal Reserve is printing money to cover the losses of electronic money by financial institutions. This will not result in massive inflation if derivatives are regulated and controlled.
If derivatives are not brought under control, then additional losses may result, and the world's financial house of cards will fall. We seem to have very strong indications that the giant Ponzi game is failing. Printing money actually only treats the symptom and not the cause. The root cause is the abuse of derivatives.
As a result, I am also a buyer of gold, silver, and mining stocks.
On Oct 07 03:27 PM mb2 wrote:
> I'd say it was the "bugs" that got sucked in. I, too, like gold.
> However, the panic buying that is taking place above $1,000 will
> turn into panic selling when the dollar finds its floor (and it surely
> will). Talk about the mother of all short squeezes - the dollar snap
> back is going to be violent. All it takes is one geopolitical event
> to trigger a flight to the greenback.
>
> Remember Warren Buffet's adage; "...buy when everyone else is selling
> and sell when everyone else is buying..."
The last time Gold was running around $1,000 an ounce (around 1980) many were jumping into Kruggerands thinking they were going to ride them up to $2,000 and $3,000 an ounce. GOLD - got them in a frenzy. (As well as the "experts")
It never happened and those who have held on to them for all these years might be able to sell out of them and break a little more than even. Great investment to those that bought into the hype of 1980 at $1,000 an ounce (plus the surcharge) --- NOT.
These are different times BUT it's funny how everyone tries to tie things back to other times when it suits their pitch.
Remember the 1990s tech bubble? When it burst, the experts were telling you - you should have been into Blue Chips. After you shifted your money - BANG - the market collapsed with ENRON, WORLDCOM and the others then Sarbanes-Oxley was enacted and the experts declared that you should have diversified and had some money into the "fourth asset class" - real estate.
Many cashed out whatever was left in mutual funds and bought "investment condos" thinking they were going to "flip and buy" which was a strategy that lasted for a bit then they got caught up in the real estate crash. They got wiped out and some cannot fathom how all that upward spiraling equity evaporated into ghost equity.
Now, the battle cry is "GOLD". Be cautious. And don't wait too long to cash out if you buy now. Take a 50% profit at $1,500 - if it goes that high - but don't be a hog and wait for double your money. That might not happen.
The number of 4.8 million tons of gold held by the world central banks may be wrong by a factor of 100. According to the CIA the world banks posses about 55,000 tonnes (1 tonne=2200 pounds)with the US having about 8,200 tonnes. These numbers are also shown on Wikipedia. A miss calculation of that magnitude by a pilot flying by IFR accross a mountain range at night would be really bad.
From parity in 1860 (prior to Ft. Sumter and Lincoln's election), gold peaked at roughly 500% ($5 greenbacks to buy $1 face US gold coin), after Gettysburg but before Sherman's sack of Atlanta. By early 1865, gold was clearly heading down, and was practically back to parity by the early 1870's. Stocks were priced in greenbacks, so stock prices during the Civil War paralleled gold.
The current debacle is not worse for big US banks and the US Treasury than was the US Civil War. But assuming that it is, then gold's best-case ceiling is about $1500 per ounce. More likely the ceiling is lower.
On Oct 07 11:26 AM anarchist wrote:
> There is no profit unless you sell higher than you bought, so what's
> your exit strategy? Are you one of these guys waiting for financial
> Armageddon, collapse of the dollar, riots in the grocery stores as
> people try to pay with their Krugerrands or wheelbarrow of dollars?
>
On Oct 07 10:48 AM Macro_Man wrote:
> It has no ceiling only if there is an infinite amount of buyers and
> an infinite amount of money. Unfortunately, that ain't the case and
> lets see if Gold can hold here for a few weeks. If it does not,
> we will be seeing 700 sooner or later
[I’ve been recommending gold since June, for the last $100 or so of the run up]
Don't get taken,buy lake,ocean property
and make sure that the area is not packed with welfare bums.
Before you buy,check how easy to get welfare--then decide :^/
Russia dumped their gold back in the 70s and looked what happened to gold.
Ask yourselves--what is gold used for and how much of it do you wear
Cheers :^)
I sleep better at night having an out-of-the-way paid-up house rather than an equal value of gold.
I just took my gold exposure down to 2.5% of my portfolio. It had peaked just above 10% and my allocation is for 5-7%.
Mania never ends well. Oh well, I will be OK either way.
If you are bailing out of gold now, you are bailing when downside risk is minimal and upside is potentially huge.
As Yogi Berra said, "Predictions are hard, especially about the future".
And a momentum play is a momentum play. But there is a big difference between making a play and getting the "fever" yourself.
www.marketfolly.com/20...
There have been two hyperinflationary fiat currency systems in US History that not one talks about: the Continental Dollar collapse which made the Founders put only gold/silver legal tender, and the Confederate Dollar. What most ppl don't understand that hyperinflation is not a demand/pull event - meaning that ppl's demand pushes the price higher. It is a currency event that happens in a deflationary depression (Great Depression), which led to the devaluation of the USD and pegged at $35/oz. If you held gold/silver your purchasing power remained, but if not you were screwed. We are seeing a massive devaluation of the USD and is the reason for a call by even the UN to remove the USD as the world's currency, why? The con-game is up and creditors (BRIC, middle east) are seeing their borrowers (US gov't) start to failing to pay their bills. The gov't is buying their own bonds, that is only done in Banana Republics. Ppl buying gold for insurance against a currrency devaluation/debasement... which we are seeing - not for inflation. Hyperinflation happens almost always in the crappy economic times, not when it overheats, hence a currency event/black swan. This is where we are headed. BTW: it is Asian culture to deny to save face and to keep your friends close but your enemies closer (Tsen Tsu - Art of War). So the intent is leaked, but need to save face. Remember hyperinflation is a currency event, not like high inflation caused by demand/pull events.
On Oct 08 08:26 AM turtle1663 wrote:
> Actually I carry a $100 monopoly bill in my wallet for when I discuss
> monetary issues with people, I would argue that it is actually more
> valuable than the "Federal" Reserve Note because Parker Bros does
> not have 11 Trillion in debt looming over them!
> And that simply makes the case for Gold!
On Oct 08 09:28 AM thkalinke wrote:
> The US Civil War might provide some insight on the future of gold
> and stocks.
>
> From parity in 1860 (prior to Ft. Sumter and Lincoln's election),
> gold peaked at roughly 500% ($5 greenbacks to buy $1 face US gold
> coin), after Gettysburg but before Sherman's sack of Atlanta. By
> early 1865, gold was clearly heading down, and was practically back
> to parity by the early 1870's. Stocks were priced in greenbacks,
> so stock prices during the Civil War paralleled gold.
>
> The current debacle is not worse for big US banks and the US Treasury
> than was the US Civil War. But assuming that it is, then gold's best-case
> ceiling is about $1500 per ounce. More likely the ceiling is lower.
On Oct 08 08:44 AM MichaelJ007 wrote:
> Sorry Goldman and Goldbugs, you can trade your gold back and forth
> these days and make some extra dollars, but if and when the sh!t
> hits the fan (the author referenced hostile Nazi takeovers) the true
> cost of storing gold will bite you in the ass. The remaining GOV
> or Militiary will confiscate all of your holdings or you will be
> forced to trade all of your gold for protection/security for you
> and your family or it will be taken from you at gunpoint by a broke
> young fellow like me :) So keep talking up the end of modern society,
> as if anyone would benefit from such an event, b/c when that day
> comes you'll learn that Guns always beat Gold. Until then enjoy
> making 5%-10% while the price is still going up.
Gold is not and Island, it is part of the mix.
If Gold hits $1500-$2000 or more, in 2010 or the near future, it will have had reasons that influenced events to make that leap!
Most of the reasons behind Gold making such a large jump in price, in a short period of time, would have adverse effects, which is one of the main mover of Gold.
For that sort of price jump, there would likely have been one or more of the following -
1) A large DEVALUATION of the US$.
2) A Massive shift OUT OF THE US$ AS THE WORLD CURRENCY.
3) Another large FALL ON GLOBAL SHARE MARKETS.
4) Confirmation that OIL PRODUCTION HAS PEAKED.
5) Confirmation that there will be NO RECOVERY FROM THE CURRENT ECONOMIC SLOWDOWN.
6) Confirmation that DEBT HAS SPIRALLED OUT OF CONTROL.
7) Confirmation that INFLATION HAS SPIRALLED OUT OF CONTROL.
8) Another 9/11 type event takes place, with longer term consequences.
9) A more serious form of Global Pandemic has come along.
10) Some other serious factor has intervened?
So, perhaps the Gold price will go up, but we may not like all that comes with that?
On Oct 07 10:48 AM Macro_Man wrote:
> It has no ceiling only if there is an infinite amount of buyers and
> an infinite amount of money. Unfortunately, that ain't the case and
> lets see if Gold can hold here for a few weeks. If it does not, we
> will be seeing 700 sooner or later
Why do you think they refuse real audits, and have for centuries??? Why does Nymex have to change the settlement rules in a mad panic, with gold still at a low, low $1,000 per ounce?? There are so many wankers betting the other way, and trying to talk it down, but yet, strangely, it is now OK to deliver phony paper money against a contract that absolutely GUARANTEED the delivery of the actual physical metal, come Hell or high water.
If you can't read between those lines, go back to your dreams and totally phony govt. stats from corrupt and clueless bureaucrats. It will be quite a day in the "financial" markets, that revolve around fraud and illusion, and paper money of rapidly declining value, when people try to finally get back to the hard, physical reality of owning something that others desire, and demand payment in - the real, physical metal (that doesn't exist, never did, and yet had been "sold" to any number of suckers through the larcenous and totally fraudulent ETFs and so on.)
I believe we will turn on our TVs and see politicians, WS bankers, and ETF managers staring down the barrels of guns, held by an outraged citizenry that realizes, too late but unmistakably, that it has been had, and is simply not going to accept anything but delivery of the gold it has been (fraudulently) promised.
This is the world's, and history's, greatest deception, by far. I would guess that the CBs could produce no more than 300,000 tons of actual gold, no matter how they twisted and turned. Not "press release gold" or "Ben Bernanke's testimony" gold, or "JP Morgan's certified statement of ownership" gold, audited by some thoroughly corrupt 'Big 4' accounting firm, but real GOLD. The real deal, that they no longer have.
The rest has been leased out, stolen by corrupt governments, or quite likely, never existed in the first place. The lies surrounding CB gold are gargantuan and beyond the average person's imagination. You will see gold over $10,000 USD in less than fifteen years, and possibly in less than five. Mark my word, the fraud will be blown away very soon, and the physical metal will be as scarce as hen's teeth, and politicians will be hiding out in mountain cabins rather than face the music.
On Oct 08 11:30 AM TimothyI wrote:
> I agree with george archers: buy property for the long haul, but
> make it rental property (especially if you have children--give them
> a future source of passive income and they will toast you at every
> birthday). I have about 10% in gold and silver, but the rest I've
> put into oceanfront/oceanview property that's rentable. $400k will
> still get you an ocean view cottage in many parts of the US that
> you can rent for $1000/week. Half of that will get you the same on
> one of the less-touristy Caribbean islands or in Central America,
> and will provide you with an escape pod in case things really go
> off the rails here. Do your homework--some countries are much more
> welcoming of foreign owners than others.
>
> I sleep better at night having an out-of-the-way paid-up house rather
> than an equal value of gold.
gold like everything else goes up and down. but this decade, gold has performed better than any other investment.
unless an unexpected event occurs, gold's long term trend is up against the dollar (you do realize it is falling against the euro).
somebody needs to educate me on why anyone believes the dollar will start trending back up - i see no economic event short of the world sliding into a depression to strengthen the dollar.
the only thing stupid right now is not investing in a stock or commodity. Your wealth is in play whether you like it or not.
ed
So who is spending the massive amounts necessary to finance the US debt? Someone is wildly wrong.
My theory is that people see the dollar at a much higher level next year than at present. There will begin to be a cut back in military commitments. There will be a modest raise in interest rates and tax rates because economic activity will pick up. There will be capital inflows back to the US, simply because the EURO is hardly worth its present price and US assets are on sale. The government will also be restricted in discretionary spending due to its assuming so many of the problems of the last bubble.
I'm not down on gold, but it is just one of many commoditis, and they are all having a good run during fearful times. With a return to normalcy, which the bond buyers anticipate, I don't see it behaving better than its asset class.
Apart from jewelery and a few conductive components (which uses are covered several times over by the current annual production), it has no intrinsic value to humanity other than what custom (or fear or greed) attributes to it - unlike a house for example - which fulfills a basic human need for shelter - and accordingly the components which make up a new house (eg copper, timber etc).
Hence the wild fluctuations in price since 1971.
If you can make money out of holding or trading gold (or tulips) by good timing then good luck to you.
I am more interested in rare metals (or their producers) where sound reasoning indicates that demand will rise faster than supply - eg because it is necessary to produce an item which will be manufactured in increasing quantities over the next x number of years, due to changing world demographics and income levels.
'Central banks carry gold in the vault and gold out on loan as the same line item; in effect they report cash and accounts receivables as the same thing. As a result, central banks have only 1/2 to 1/3 of the physical gold as reported on their balance sheets. This means they hold not 30,000 tons but more like 8-15,000 tons of physical metal. All of this has been thoroughly documented by publicly available documents.'
I'm really intrigued by this statement, can you provide any links to articles expounding this idea.
PS thanks for the excellent comment.
Perfect analogy- except the collapse of the US$ isn't as smooth an operation as German troops movements. There could be many perceived "last trains" before the real "last train" leaves the station.
On Oct 07 09:47 AM Gold Miner wrote:
> My Grandpa told me that buying and collecting gold coins is the best
> way to establish myself and that it was a great hobby as well. He
> told me about how the government confiscated the United States Citizens
> holdings of gold back in 1933. That the only legal way to possess
> gold was in rare coins. He and his buddies converted all their greenbacks
> into gold liberties and St Gaudens coins. My dad also got the gold
> bug at an early age and he too had put 30% of his savings into gold.
> Coin collecting was always a part of my upbringing so when Gerald
> Ford passed a bill in 1974 allowing us to possess gold and the mint
> started minting the gold eagles in 1986 I bought as much as I could.
>
> I am 52 years old now and I am watching my grandpas vision come to
> pass. I have consistently converted my earnings into gold and silver
> and look at the central banks and federal reserve run our country
> into the ground. The power hungry powers to be will stop at nothing
> to see who has the biggest balls. Its all about power. I inherited
> my families fortune as will my children. It's not about power as
> much as it is the quality of life. Something these guys know nothing
> about.
> Secure your families wealth while you can. Get away from the dollar
> and into gold and silver now before it's too late. It's not the germans
> we have to worry about it's the federal reserve and the central bank.
My grandmother who is a Hungarian immagrant (lived thru both the Nazis and Communists) taught me only one thing has true VALUE in the world: KNOWLEDGE. All else can be taken away at the whim of a corrupt political environment.
To that end, my advice to anyone who would listen is this: Learn to grow your own food, build your own shelter and defend yourself(guns, knifes or fists.)
For those who deny chaos is ensuing take a drive through Mexico and try to trade your gold for something. You'll be lucky to get out alive! If you do, repeat this process in an African Banana Republic(Somalia), you won't survive. In a society of great security(US), you can trade assets all day long. In a society of great unsecurity(you pick the country), people wait for you to make trades and TAKE everything.
BTW for those who are not worried about chaos - Making a 50% - 100% return is quite laughable in the current market environment. I made double that high end on F in 6 months. And I did cash out as I'm not too stupid. My point is this: Gold is a static asset that has limited applications(Jewerly and Electronics). Innovation, which is monetized through stock markets, is what will truly hedge you in a volitile fiat currency debasement, imao.
Take care all!
As Mr. Buffet has said "Gold has no utility."
You can make electronics and jewelry out of it, but beyond that its only costs $80 an ounce to extract out of the ground on average (and silver makes a better conductor anyways).
Society needs food, technology, and energy to sustain its quality of life. If it had to do without, it could do without gold.
Even if mild economic disparity happens, people would switch to Euro or the RMB for their reserve and we'll simply trade in that.
If arnarchy does come like the gold bugs seem to claim and you are in desperate straights, you'd rather have bottled water, gas, shelter, food, and a gun ;)
> I'm thinking more along the lines of personal
> food, shelter and physical security.
>
> My grandmother who is a Hungarian immagrant (lived thru both >the
> Nazis and Communists) taught me only one thing has true >VALUE in
> the world: KNOWLEDGE. All else can be taken away at the >whim of
> a corrupt political environment.
>
> To that end, my advice to anyone who would listen is this: Learn
> to grow your own food, build your own shelter and defend >yourself(guns,
> knifes or fists.)
May I suggest a magazine named "The Mother Earth News?" They decided that oil would be short in a few decades - and started in 1970. Articles from them have helped me do much for myself. At present, we are living on my wife's Social security, and splitting mine 50-50 between investing and giving. Return from former investments are being split with a larger bias toward reinvestment. This is one source of good knowledge. They also sell CDs of the articles from their first 3 decades at one decade/CD. Psalm 126: 5-6 applies here, as in all investing.
On Oct 08 09:19 AM benevolent dictator wrote:
> Hi Goldman,
> The number of 4.8 million tons of gold held by the world central
> banks may be wrong by a factor of 100. According to the CIA the world
> banks posses about 55,000 tonnes (1 tonne=2200 pounds)with the US
> having about 8,200 tonnes. These numbers are also shown on Wikipedia.
> A miss calculation of that magnitude by a pilot flying by IFR accross
> a mountain range at night would be really bad.
On Oct 08 10:34 AM george archers wrote:
> My advice--- buy prime land.
> Don't get taken,buy lake,ocean property
> and make sure that the area is not packed with welfare bums.
> Before you buy,check how easy to get welfare--then decide :^/
> Russia dumped their gold back in the 70s and looked what happened
> to gold.
> Ask yourselves--what is gold used for and how much of it do you wear
I am with you on buying land. But buy land that you can grow food on. Because if all else fails if you have some food to sell they will give you their gold & be happy they have something to eat. Then not having any real need for the gold. you can trade it for what ever you like.
Have no fear those that play with money will not let the systems truly fail. The system is their life blood. When there isn't much blood to suck up from the masses they ease up & let the system
heal a bit before they start to suck it all out again.
On Oct 07 12:39 PM Arthur Hau wrote:
> There is something very wrong with the article! We are not in the
> Gold Standard any more (and will never go back). In fact, most countries
> avoid holding too much gold because of its storage cost. Holding
> a good diversified basket of foreign currencies in the form of foreign
> government bonds is always a superior strategy than holding unproductive
> (negative-yield) gold!
>
> By the way, the argument that gold is a good hedge against inflation
> is DEAD wrong!
>
> If there is a significant sign of inflation, the FED will definitely
> raise its interest rate sooner, not later!
>
> Just a small reaction by the FED will kill the current-speculative
> gold market almost instantly. If there is ever a slight fear of a
> reverted interest rate cycle, the crash of the gold market will be
> worse than that of the DJI!
>
> Thanks to Australia, the gold dream is over even before it begins!
> ... What perplexes me is that there continues to be such demand for the dollar. The interest rate at the last 10 year auction went down.
So who is spending the massive amounts necessary to finance the US debt? Someone is wildly wrong.
My theory is that people see the dollar at a much higher level next year than at present. ...>
---
I think a lot of that is demand from central banks (likely, including our own):
seekingalpha.com/artic...
"At this point, it is worth taking a look at changes in recent central bank currency reserve data. Indeed, nothing more readily highlights the strength of forces now at play in the foreign exchange market than the sheer scale of USD reserve accumulation by central banks resolute in their will to avert any decline in their export competitiveness in a world short of demand.
Dollars Under The MatressChina’s reserves grew by $42 billion in June. ... Brazil’s reserves are now growing at double the average monthly pace year-to-date. South Korea, Taiwan, Hong Kong and India’s reserves are also growing significantly. ..."
---
I wonder how long this can keep up. It's almost a game of wills. The U.S. seems to want to devalue its currency while other countries are fighting them by buying up mountains of our debt to try and prop up the value of the Federal Reserve Notes, to in effect subsidize their own exports.
Gold is a the same level it was in Mar 2008 if you were to take out the depreciation of the US dollar. The financial panic took money out of gold in a hurry and now the panic has subsided it has reversed.
tinyurl.com/yg4h4gm
> The current debacle is not worse for big US banks and the US Treasury than was the US Civil War. But assuming that it is, then gold's best-case ceiling is about $1500 per ounce. More likely the ceiling is lower. >
---
The civil war was a crisis with horrific costs for humanity, but I don't think we can use it to set a ceiling on the financial repercussions for a financial crisis. At least not from the perspective of the U.S. Treasury. The real "worst case" ceiling might be along the lines of the Confederate Notes, if Helicopter Ben carries through with his hyperbole.
With that said, real assets in general have been the place to be since 2000. In gold-terms, the S&P 500 was down -83% from its peak. The entire 'bull market' from 2003-2007 was a money illusion. In real terms, the market fell.
www.planbeconomics.com.../
...nor am I unmindful of the horror of the reality that even when presented with the facts of the matter, most of our Congressmen would not know what to do.
Then again, none of this would be happening if the CBs were actually trying to carry out their claimed roles instead of bailing out their buttbuddies.
Seems to me that gold, silver, copper, and farmland are the safest places to be right now until we see what these freaks in power do.
I do not pretend to have an definitive answer, despite having lots of faith in Ron Paul and the idea of competing currencies. I do know that metal is never worth zero, and the farmers tended to make out all right in the Depression, relatively speaking.
On Oct 07 09:29 AM Vuke wrote:
> Mr.Goldman appears to have gold fever, an epidemic that periodically
> appears in economic history.
>
> The vaccine for this is a quick read of "Manias, Panics and Crashes"
> by Kindleberger, an excellent history of central bank thinking.<br/>
>
> Gold is CB's"currency of last resort". It will worth what CB's ultimately
> decide they want it at.
>
> Recall, they can print the paper at no cost to buy it back when they
> sell.