Roubini Hates Gold: Is He Wrong Again? 94 comments
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I was a huge fan of Professor Roubini until on 14th March he declared that the rally was a dead cat sucker bounce. At that point I realised that, alas, everyone is human. On reflection perhaps he was also wrong about the current account deficit “causing” the crunch, my view is that was just a sideshow. But that’s history, and big picture he got to the right answer in Technicolor before anyone else.
Anyway I saw this the other day and my spirits started to lift – classic “Old Coke” doing the “train-a-left-the-station” routine.
This is what he said:
I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being.
The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.
My view:
I don’t exactly agree with Roubini, although I agree with him on deflation, just I don’t buy the idea that it’s inflation (in particular) that drives gold prices; but I agree with his conclusion, and it’s good to know that there is at least one other person in the world who doesn’t buy the idea of gold breaking out and heading towards heaven (I was getting pretty lonely actually).
I think that gold is a bubble fuelled by excess liquidity and wonky valuations that you tend to get at the top of every bubble (remember the weird explanations of how to value a dot.com stock at the top of that bubble).
The latest I heard is that it’s all about lack of confidence in government. Well, the peak of that “lack of confidence” was February/March 2009; and what happened to gold then? It dropped.
The best predictor of the gold price since 1971 was the price of oil (74% R-Squared on an annual basis), and by that measure at $75 a barrel the price of gold should be $750, which means now it’s a bubble, which means if it comes down and oil doesn’t go up, then it could drop to $600.
This is oil against gold (annual averages):
So if that argument works then what’s going to happen to oil? This is what Professor Roubini had to say in June:
Speaking at the Reuters Investment Outlook Summit on Tuesday, Roubini painted an economic backdrop of deflationary risks and warned that if oil keeps climbing toward the US$100 level it would deal an "economic shock" similar to the one last seen in 2008.
He said crude oil prices rose "too high too soon," from below US$32 a barrel in December to US$73 last week.
Well I don’t agree with him on that, I think the fundamental is $75 and I’ve been saying that since June.
But I think he’s right to be concerned that the “wall of liquidity” (i.e. the 78% of Goldman Sachs profits in the past nine months thanks to cheap money from the Fed), could easily create another bubble in oil.
If oil goes up to $100 (and if that’s what the Fed plus the “stimulus” caused then someone should be shot), then the “right” price for gold will be $950.
But I think if that happens the US Government should start selling oil from the Strategic Petroleum Reserve, because that will be a pure act of war (by Goldman Sachs and their cronies), waged against USA, straight up terrorism, there is no other word for it.
Positions: Long Oil, No Gold
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This article has 94 comments:
A flight to the perceived 'safety' of the dollar also explains gold and oil's decline back in the spring.
With 10%+ 'official' unemployment, what are the chances this fed has the guts to raise rates to protect the dollar? Answer: 0.
This is not investment, but insurance against loss of values and to protect me against old age
i dont see a bubble ... most commercials is sell your gold..CNBC hates gold
gold in way underowned
i own two small gold/silver stocks...simply they represent value...fortuna silver and dynasty mines DMM...both growth stories and most small cap producers are being valued at discounts to NAV ...whereas both stocks wer valued in 2007 at mult to future cashflow like 10/14...if they receive those valuations (as they are now producing cashflow) they will be triples...so much for bubble in the smaller stocks
i think gold is another currency (secular) and from a cyclical basis with negative or zero real rates always cause gold to go higher
seasonality - gold does well in sept and from middle nov to feb
Roubini has made some good calls and some not so good calls.
I would think, on balance, Gold is likely to go higher and the US economy & stocks will go lower, quite a bit lower.
This economic downturn has a few down legs left, as does the UD$.
I suspect Energy (Oil) Production & Pricing will have quite some say about where the real economy heads over the next 2-5 years and there won't be much fertile ground there for any "green shoots"!
Sign me up!
Now he is a cheerleader like the others... Much of what he says does not make practical sense, even from a economic fundamentals point of view.
All I know is that one day "Dr. Doom" (and his scenarios were mild vis-a-vis others) became "Dr. Not So Bad."
Sorry, I don't trust a single thing this guy has said since April of this year.
In March 2009, gold was $1,000.
Seven months later gold is $1,050.00
This does not look like a bubble - but a stabilization before the next leg up.
I agree with the comment that eventually all currencies will be seen as inexhaustible paper and so unreliable as a store of value. The only way out of the financial crisis is trust in a stable currency and thus a return to the gold standard. Until then currencies will continue to be inflated as needed.
BK
there is a lot of gold in nevada, it is in dilute concentrations in rock formations, and requires a lot of energy to get it out. it takes 10 yrs to get a new mine into production.
see that mountain over there? it's going to get chewed up into tiny little pieces.
> jack
Note that Roubini doesn't rule out gold going much higher; he just doesn't think it'll happen in the next few years. But timing the market is a bitch, so I'm holding a core position of bullion and mining stocks because the fundamentals tell me I'm right and to therefore sit tight.
I accept that one reason gold is "up" is that the dollar is down, but I think that gold is above it's fundamental, the reasons are obvious, everyone is confused.
I agree that the chances of the Fed raising the base rate are low, I think that spells a lot of trouble, one of which is likely to be a bubble in oil (which will ironically affect ordinary Americans), and is currently mainly benefiting gamblers on Wall Street and foreigners seekingalpha.com/artic...
On Oct 25 08:17 AM D. McHattie wrote:
> I agree with Manya: the author doesn't even acknowledge that gold
> and oil are not really going up so much as the dollar is going down.
>
>
> A flight to the perceived 'safety' of the dollar also explains gold
> and oil's decline back in the spring.
>
> With 10%+ 'official' unemployment, what are the chances this fed
> has the guts to raise rates to protect the dollar? Answer: 0.
On Oct 25 09:43 AM User 196234 wrote:
> let's see, roubini and butter...sounds like a bad pasta dish to me.
> But seriously, who to believe, roubini and butter have the combined
> net worth of one of John Paulson's custodian accounts...hmmm who
> to follow???
www.fofoa.blogspot.com/
...
So we have cheap TVs and iPods. How many do you buy? On the other hand how much food do you buy? Do you buy health insurance? Had a Dr visit lately? Pay taxes? Fill you car up with gas? Put a kid through college? In those items you can see that price inflation is here.
He ignores that the value of an ounce of gold is an ounce of gold. It is only folly to talk about the value of gold measured by the price of gold in fiat that is created by the trillions in an instant. Au is up for a reason and despite what the government or the banks say, it is because the fundamentals are getting stronger by the day.
So we have cheap TVs and iPods. How many do you buy? On the other hand how much food do you buy? Do you buy health insurance? Had a Dr visit lately? Pay taxes? Fill you car up with gas? Put a kid through college? In those items you can see that price inflation is here.
He ignores that the value of an ounce of gold is an ounce of gold. It is only folly to talk about the value of gold measured by the price of gold in fiat that is created by the trillions in an instant. Au is up for a reason and despite what the government or the banks say, it is because the fundamentals are getting stronger by the day.
This isn't even about gold -
It's about the fact that every freakin time there's a historic bull market move , someone's always there trying to convince you to "get out".
Dont take the bait. I bought silver at 4 bucks and gold at 300's and have been listening to that stuff for years now.
Did the naysayers buy at 4 and 300's and hold?
correlation because they are both priced in USD and thus are both affected by the currency movements. The tight correlation should be used as a gauge of how the two move together rather than an equation of fair value. Given that they move together and you are long oil, it's logically and statistically inconsistent not to long gold. Plus you use annual data to run the regression and thus ignore lots of trading opportunities. For instance, what is your forecast error and confidence interval? I bet it's huge.
If the Armageddon happens, for the common man, bread is more important than gold because you can eat bread but not gold. So gold will be worth less. Better stack up on bread and butter then!
$32.51/oz gold with fresh printed money.Just like --buy art,it will go up in value.Most folks don't realize it's a scam and they own the art garbage.
Be very careful on gold. Remember,when Russia dumped it's gold reserves? Noticed alot of scammers selling gold paper notes--they take the worry out of it being stolen.
Deflation?-- Come to Canad and try buying some groceries ufool :^/
I'm consistently buying bullion as a safe haven. I want it to go up, but.....more, I want to be protected. I'm not seeing institutions (Banks, governments that are protecting banks) doing much in my best interest.
Are there a lot of people similar to me that are buying some PMs every month or so....just to be protected?
On Oct 25 07:34 AM manya05 wrote:
> Roubini gives two scenarios in which gold can move up and discounts
> them both, and maybe he is right. But he forgot a third possible
> reason giving force to a move up in gold. Most central banks around
> the world (big and small) are trying to figure out how to "de-dollarize"
> their reserves. They are diversifying as best they can, I am sure
> they are converting dollars to other currencies, but ultimately they
> realize that holding reserves on the currency of another government
> is not a wise idea...whatever the currency. So, what are they going
> to keep as reserves? amphorae of olive oil and bags of grain like
> in the old days? I don't think so, if gold worked as a good store
> of value for 1000s of years, for the short term, it is the obvious
> route for central banks to take. So I think Roubini is wrong, gold
> is disappearing from the streets and going back to the vaults, and
> that will keep the price supported, and possibly even drive it higher.
> Until central banks regain confidence in a currency, any currency,
> gold is not going down.
Human behavior is based on conditional probabilities, Beyes, not Fisher.
Why do I post this here? Perhaps there is a statistician lurking about. We, as a group, could be part of a project to determine the conditions and set some preliminary probabilities. I'd be part of it, but I'm too busy to run it. Any takers.
If you want to use statistics to predict what people will do, use the statistics that mirror how the mind works.
On Oct 25 10:36 AM agnostic wrote:
> Pseudoscience. Of course oil and gold have tight
> correlation because they are both priced in USD and thus are both
> affected by the currency movements. The tight correlation should
> be used as a gauge of how the two move together rather than an equation
> of fair value. Given that they move together and you are long oil,
> it's logically and statistically inconsistent not to long gold. Plus
> you use annual data to run the regression and thus ignore lots of
> trading opportunities. For instance, what is your forecast error
> and confidence interval? I bet it's huge.
The need to print more money to pay for a steady diet of increasing debt would surely be inflationary at some point in the near future. On another note, gold is very undervalued if you consider where it was 25 years ago and where it is now --- which would price it at around $2000.
I like Roubini and respect him a great deal. This time, however, he may be wrong.
That's the key point, which I also have been stressing here on SA. If China & Japan want to rebalance their reserve holdings away from the dollar, and if the recent scare has shaken the faith of other central banks in paper reserves and given the lie to gold's "barbarous relic" stigma, gold will be sold less, and bought more (if only on dips) by the gorillas in the game, making it both safe and potentially profitable. Other considerations, like its price relative to oil, or its being a "crowded trade," are comparatively trivial. It's not so much gold going up, as the dollar (and euro, etc.) going down.
Certainly SOME gold in a portfolio is a good idea.
There are no such statistics. The human mind is much too unpredictable, otherwise there would be a lot of statisticians cleaning up in every conceivable market.
Mises, not Beyes or Fisher.
This was part of my weekly article published at place like GATA and The Trading Doctor entitled REVENUE BREAKDOWN. I also disagree with Roubini but for reasons that have nothing to do with the price of anything, but instead for pure "counterparty liability" issues. Of all the trades in the World "liabilities" are the most crowded.
READ ON:
Roubini is yet another one dimensional economist who misses the bigger picture of monetary risk. It has nothing to do with inflation/deflation, mere symptoms of the disease; it has a great deal more to do with debt "liabilities" and the C WORD of monetary risk.
I am amazed he has yet viewed a US TREASURY DAILY STATEMENT. When I first saw a US Treasury Daily Statement I said to myself ... "SELF, LOOK AT ALL THOSE STACKED LIABILITIES ... EVEN THE ASSETS ARE LIABILITIES"! The liability side is HUGE; the asset side is tiny, if you look past the combined "marketable" and "non-marketable" US DEBT, which boils down to income/payroll tax revenues and excise tax revenues. In actuality a true accountant would look at NET tax revenues, which is even a much smaller number than actual gross tax revenues. Gross tax revenues is all that is ever broadcast in the mainstream, but everyone always forgets that the US government has to issue something we US taxpayers are very fond of ... "tax refunds"!
Who among us when we do our budgets counts credit card "available credit" as "income"? The US Treasury does as they place DEBT ISSUES on the asset(receipts) side of the Balance Sheet ledger, which is what a US TREASURY DAILY STATEMENT is. The US Treasury commingles debt and tax revenues as one, as receipts ... as assets.
Let me just say that if the US Treasury were forced to live just on NET tax revenues we would have to cut Social Security checks and Medicare benefits by 70%(recall the US Treasury Daily Statement calculations I did for October 20th). In fact the entire US government would have to shrink 70% so we would have to quit policing the entire World by 70%! Close 70% of our foreign military bases and shrink our troop size by 70%. That is a hell of a lot of “shrinkage”. That is 7 out of every 10 Federal Employees and Military personnel jobless. Imagine what that would do to the unemployment rate.
Where Roubini’s stance on unending US DEBT? The US TOTAL DEBT is one huge liability that makes the AIG derivative counterparty liability look tiny. Last year (FY 2009) the US DEBT liability ended over $54TRIL USD. Right now the FY 2010 US DEBT liability is already over $3.3TRIL USD.
Further ... on THE DEBT CEILING ... It first started in 1940 with $45BIL. That was 70 years ago and now it is $12.1TRIL USD! Guess what? They need to raise the debt ceiling again and soon since US PUBLIC DEBT is at $11.9TRIL right now. What have we learned from 70 years of Congressional DEBT CEILINGS? Roubini?
So what is gold? In my view it is the only financial entity in the World without liabilities. Gold cannot file bankruptcy or default on its DEBT payments. Gold has no US TREASURY DAILY STATEMENT since gold, unlike the US Dollar is not a "debt derivative". Speak to that Roubini ... as Dan Akroyd of the old Saturday Night Live POINT/COUNTERPOINT used to say ... "ROUBINI YOU IGNORANT SLUT!" I believe Akroyd went on to include such other delectable "points" as "rapacious swamp sow" and "... when you're on you back Jane, the meter is running!" Who is paying Roubini to be one dimensional? Certainly his paying subscribers, which pay quite a bit for his wisdom, should be entitled to a multi-dimensional view of gold and monetary liabilities and not just the same old crud about inflation/deflation that is easily obtained anywhere on the WWW for free!
The missing link: Since our dollar (money) is based on DEBT(faith and credit) then a DEBT crisis is a "monetary crisis".
You're a troll. [And you love it...]
A few articles back you were using a 15/1 oil/gold ratio to make your usual gold-bashing point. Now you use 10/1 as it more conveniently fits this latest dig.
OS has put it in a nutshell; the only thing that values gold is itself - can you think of any equivalent? Gold is driven by two conflicting emotions - fear and greed. In normal times, the price of gold reflects the ever-changing balance of that see-saw.
These are far from "normal times." These are historic times.
If greed and fear ever align on the same side of that see-saw; then you will see what a bubble really looks like. Like the metal itself; there is nothing that even gets close to gold-fever. If it ever occurs; expect increases of hundreds of dollars/pounds/euros a day as trillions of fast-dying fiat currency units chase an even faster-disappearing pool of gold.
....And in the end, the fiat value will become irrelevant - as it has against so many thousand failed fiat currencies throughout history; one ounce of gold will still be worth what one ounce of gold will buy.
If Roubini is as prescient as some seem to believe he would be quietly making a huge fortune in investing instead of being a professor and making speeches.
Most of these financial soothsayers fade from view as some other genius makes the next great call and attracts the spotlight.
Roubini, I suspect, will be no different.
Roubini is not the only one predicting the fall of the market. You need to read Robert McHugh
'Cost' is the operative word to my way of thinking.
If they do not save the system I want Gold, for obvious reasons.
If they do save the system the cost is almost certainly going to be the drastic devaluation of the dollar and most if not all other fiat currencies.
QED (I haven't used that term since NYU.)
On Oct 25 10:02 AM frdm45 wrote:
> Here is an EXCELLENT article on the power of gold without resorting
> to inflation/deflation arguments:
>
> www.fofoa.blogspot.com/
>
>
> ...
On Oct 25 10:52 AM rennert wrote:
> Now tell me haw we are going to eat gold? We need to learn how to
> be a farmer. Nixon sold us to the Chinese, no manufacturing here
> now any more. But our Great Country has much, much land. We need
> to learn to work together again and be each others friends . Not
> look over our shoulders and worry that our neighbor has a bigger
> car or TV than we have. We need to be strong in the face of those
> Lobbyist scare mongers that want us to think and feel the way the
> super rich wants us to feel. Obamma gut in because he is a very nice
> man. He is much to nice to take on the super rich . That knew it,
> Hillary and Ralph Nader all were discredited.
I entered the market in precious metal mining shares when gold was at $330 in 2003 - and wish now that I had been there at $250, whether in 1999 or 2001. I have made a mix of good and bad short-term calls, but my long-term perspective on the gold market has never proven wrong.
The gold price is driven by increases in the money supply, a phenomenon which is pervading every major global currency - including the good ones, such as the Yuan. I wish it were more complicated than that, but that is what causes the rising gold price. That trend has much longer to run, particularly when one considers John Williams' consistently calculated inflation numbers, which place briefly peaking 1980 gold at the $6000 US level.
By no indicator of which I am aware is gold anywhere near a bubble, though of course as a contrarian I shouldn't be letting that cat out of the bag! In fact, every metric and leading indicator that I follow telegraphs that the current gold price breakout is in its infancy.
Does Roubini understand inflation and deflation? I don't think so.
At this time, the big banks (who by the way are the primary shorts in COMEX gold - and thus again wasting taxpayer dollars to bet against the barbaric relic) are playing Fed loans against the treasury market for modest gains on their federally-donated, taxpayer-funded, dollar handouts, rather than taking on additional risk in consumer or commercial loans. Thus our newly-minted electronic Federal Reserve Notes are not being leveraged into the broader economy - at this point.
It is exactly true that necessities are escalating in price, while discretionary items (let's include the overbuilt real estate market in the latter category) are languishing on the shelves. But that phenomenon is only for here and now. Our present economy is inflationary, plain and simple. The money supply dam is bursting, and the new dollars will inevitably wend their way through the cracks in the dams of our economic institutions, creating inflation in places that we do and do not expect.
Now, could the entire house of cards collapse in the face of such unprecedented international money printing? I suppose that is still possible. That is, printed Greenspan-Bernanke dollars can be neutralized by being mismanaged, as has already been proven. It's just that the Fed would rather create a new Zimbabwe than see that happen.
As to the correlation of the nominal prices of gold and oil, as I was taught in statistics 101, correlations do not demonstrate cause and effect relationships. That is, both the gold and oil price are derivative phenomena, of which the primary drivers are (1) the unprecedented increase in the global money supply (pick a currency - any currency), (2) the finite nature of gold and oil supplies, and (3) the utility of both gold and oil.
I have intentionally referred to the utility of gold, as this obvious fact is so often misunderstood in various articles and commentaries. What the heck is gold good for? It holds one heck of a lot of value in irreproducible form in a very small space. It is a combination of protons, neutrons and electrons that is rare in nature, appealing to the eye, physically dense and compact, industrially useful (just expensive for its most obvious applications), and, above all, historically validated over millennia in diverse human cultures spanning the globe.
That is, currencies have always served as media of exchange, and gold has the most desirable combination of characteristics of any currency on the planet, has been the case from the dawn of human civilization.
As manya05 stated, "gold is disappearing from the streets and going back to the vaults, and that will keep the price supported, and possibly even drive it higher."
I had not previously meditated on the notion that gold is likely to "disappear" from the streets. Manya05 may have a point here. I'm not sure what will happen to the jewellery stores, but of this I am certain - it is gold in the vaults that is driving the current gold bull market. I guess perhaps gold could disappear from the streets - and perhaps it will soon enough grow dangerous to carry it visibly on the streets as well (let's not forget what happened to copper pipes in 2007-08!). The demand for gold will be stronger than that for copper, this is certain.
To conclude, is Roubini wrong to despise gold, at least at this time? I'd say that at a minimum, he has not yet captured the timing of the gold market. Gold's day is not 3-4 years away. It is today.
Is Mr. Butter correct that gold is "a bubble fuelled by excess valuations?" At some future point this statement will inevitably prove accurate - yes, the gold bull market will end in a bubble.
But there is not a single indicator that gold is in a bubble today. No, not one.
So as to Mr. Butter's and Mr. Roubini's primary points, both will at some future point be proven correct, but neither has accurately perceived today's gold market.
On Oct 25 10:52 AM rennert wrote:
> Now tell me haw we are going to eat gold? We need to learn how to
> be a farmer. Nixon sold us to the Chinese, no manufacturing here
> now any more. But our Great Country has much, much land. We need
> to learn to work together again and be each others friends . Not
> look over our shoulders and worry that our neighbor has a bigger
> car or TV than we have. We need to be strong in the face of those
> Lobbyist scare mongers that want us to think and feel the way the
> super rich wants us to feel. Obamma gut in because he is a very nice
> man. He is much to nice to take on the super rich . That knew it,
> Hillary and Ralph Nader all were discredited.
On Oct 25 10:02 AM frdm45 wrote:
> Here is an EXCELLENT article on the power of gold without resorting
> to inflation/deflation arguments:
>
> www.fofoa.blogspot.com/
>
>
> ...
Ok, and that's great for you. So you have basically made 300-400% on your investments since you purchased them whenever that was. And they will increase (or decrease) more in the future. However if you compare that to say Berkshire Hathaway or Google or any number of investments purchased many years ago, just like your Gold and Silver, they are up way more than 300-400% and even more so if one considers dividend paying investments. For example Berkshire Hathaway is up thousands of percent, depending upon when you purchased it. And the same for many other investments as well.
Just quickly looked at historical Gold and Silver. Silver was at averages of $4/oz at various times such as 1985 and 1992. Gold was at $300 at various times such as 1950, 1982, 1988, and 2000.
So it just depends on when you purchased your gold and silver. And there certainly are many investments that have outperformed gold and silver, no matter when you purchased them. Certainly there are also many investments that have underperformed gold and silver as well, also. That is if one views gold and silver as investments.
Investments are always relative to the return they produce over time in comparison to other investments. As an example Berkshire Hathaway - A shares were in the $7,000-8000 range back in 1990 and are at about $100,000 today. They have far outperformed your gold and silver investments and a Berkshire investor could buy far more gold and silver by selling their Berkshire shares and buying gold and silver today if they choose to do that. Google was at about $100 back in 2004 and now is about $550. Clearly it has far outperformed your gold and silver investments and in a far shorter time period.
On Oct 25 10:23 AM waldipup wrote:
> Just hold your gold , or at least most of it if you want to take
> some profits to average yourself in the event of a drop.
>
> This isn't even about gold -
>
> It's about the fact that every freakin time there's a historic bull
> market move , someone's always there trying to convince you to "get
> out".
>
> Dont take the bait. I bought silver at 4 bucks and gold at 300's
> and have been listening to that stuff for years now.
>
> Did the naysayers buy at 4 and 300's and hold?
I would suggest there is a 3rd scenario: more buyers than sellers, irrelevant of fundamentals.
www.elliottwave.com/r....
"What do you think?" she asked.
I said "If the person talking was buying it himself why is he on the radio asking you to buy it?"
The person saying that inflation, its going up, etc. etc. is the reason to buy so why is he on the radio? He is SELLING it!
So when you hear all the ads on CNBC, the radio and the newspaper to buy gold - that is probably the time to sell it.
BTW - none of the people who produce gold - the miners and refiners are among those who are advertising to buy it.
When making an investment its best to use some common sense. Don't make financial decisions out of fear. The person you give your money to is making a profit
seekingalpha.com/artic...
Have you included in your valuation equation the distortion of the fed utilizing banana republic market fundamentals of buying us gov't 30 yr bonds, instead of what the natural free market would valuate those bonds? also, are you using "official gov't #s" or independent #s like shadowstats.com? Of course gov't has no reason to lie about any stats, it has no vested interests.... sarcasm intended on the last sentence.
On Oct 25 09:58 AM Andrew Butter wrote:
> My model for the price of oil is driven by nominal US GDP divided
> by the 30-Year, I could be wrong, these are "interesting times" but
> historically those two drove what I call the equilibrium price. So
> according to that dollar going down does not affect the price of
> oil, at least directly (seekingalpha.com/artic...)
>
>
> I accept that one reason gold is "up" is that the dollar is down,
> but I think that gold is above it's fundamental, the reasons are
> obvious, everyone is confused.
>
> I agree that the chances of the Fed raising the base rate are low,
> I think that spells a lot of trouble, one of which is likely to be
> a bubble in oil (which will ironically affect ordinary Americans),
> and is currently mainly benefiting gamblers on Wall Street and foreigners
> seekingalpha.com/artic...
>
He is the stevie wonder of driving school instructors
Have a look at seekingalpha.com/artic...
On Oct 25 05:03 PM bobbybutte wrote:
> No offense but when you said you werea big fan of "no nothing" rouibini
> you discredited yourself
>
> He is the stevie wonder of driving school instructors
I'd buy a donkey too.
On Oct 25 05:52 PM Gold Barron wrote:
> I wonder what the inevitable military action against Iran by Israel
> will do to oil prices? The writing is on the wall....and it says
> BUY GOLD!!
"If Bernake doesn't raise interest rates soon there will be BIG Trouble": www.marketoracle.co.uk...
"Are US treasuries a Bubble ready To pop: www.marketoracle.co.uk...
(SA decided not to publish those two though - probably thought I was wrong)
seekingalpha.com/artic...
On Oct 25 10:22 AM Tony Daltorio wrote:
> I continue to be amazed by people who see gold as in a bubble, but
> somehow don't see the biggest bubble in financial markets history
> - the US Treasury market.......
Confidence? - on this low - didn't figure out how to forecast when a pop will happen in fact timing is not by best suit, but I reckon you can forecast what happens next - not the timing but the bottom of the trough.
Example the same approach forecast the bottom of the S&P 500 @ 675 in January 2009 so that's +/- 1.2% if you are talking intra-day, although on both 6th & 9th March it ended higher so that's +/- 0% on a daily score,
Good enough?
Have look at:
seekingalpha.com/artic...
And: www.marketoracle.co.uk...
Gold is a lot harder to read though, and where it goes will depend of course on what happens with the government, whether they get this crisis under control or not, and that's new so it's harder to predict from history, perhaps impossible.
On Oct 25 10:36 AM agnostic wrote:
> Pseudoscience. Of course oil and gold have tight
> correlation because they are both priced in USD and thus are both
> affected by the currency movements. The tight correlation should
> be used as a gauge of how the two move together rather than an equation
> of fair value. Given that they move together and you are long oil,
> it's logically and statistically inconsistent not to long gold. Plus
> you use annual data to run the regression and thus ignore lots of
> trading opportunities. For instance, what is your forecast error
> and confidence interval? I bet it's huge.
The question I'm asking myself is how much oil will one ounce of gold buy?
On Oct 25 11:51 AM Screwloose wrote:
> Andrew
>
> You're a troll. [And you love it...]
>
> A few articles back you were using a 15/1 oil/gold ratio to make
> your usual gold-bashing point. Now you use 10/1 as it more conveniently
> fits this latest dig.
>
> OS has put it in a nutshell; the only thing that values gold is itself
> - can you think of any equivalent? Gold is driven by two conflicting
> emotions - fear and greed. In normal times, the price of gold reflects
> the ever-changing balance of that see-saw.
>
> These are far from "normal times." These are historic times.
>
> If greed and fear ever align on the same side of that see-saw; then
> you will see what a bubble really looks like. Like the metal itself;
> there is nothing that even gets close to gold-fever. If it ever
> occurs; expect increases of hundreds of dollars/pounds/euros a day
> as trillions of fast-dying fiat currency units chase an even faster-disappearing
> pool of gold.
>
> ....And in the end, the fiat value will become irrelevant - as it
> has against so many thousand failed fiat currencies throughout history;
> one ounce of gold will still be worth what one ounce of gold will
> buy.
If that Armegeddon does happen to come along, although it is highly doubtful, gold will barter for a whole lot more than dollars will and won't spoil like hoarded bread and butter.
(you don't necessarily need inflation for rates to rise and we seem close to a turn in rates, with the dollar supply shooting skyward and the accumulated effect of near zero rates); supply/contango situation of oil; economy now turning up; politics of the dollar (cheap dollar policy), politics of oil (terrorist activity on the pipelines, Iran, and the Chinese buying up future supply), and which direction the speculators are in or not.
But I have no clue where it goes, am looking at you guys to tell me, I am blind without a chart.
I've been doing researc in this area for 30 years.
Look forward to talking to you,
G
On Oct 25 11:41 AM Glen L. wrote:
> @thotdoc: "If you want to use statistics to predict what people
> will do, use the statistics that mirror how the mind works. "
>
> There are no such statistics. The human mind is much too unpredictable,
> otherwise there would be a lot of statisticians cleaning up in every
> conceivable market.
>
> Mises, not Beyes or Fisher.
I think it is a tautology that gold miners sell gold, it's what they produce. Goldcorp for one has had a policy of keeping its "cash" in gold. Those who deal with banks are required to hold cash, though it now looks as though the new bankers are such as Silver Wheaton and Franco Nevada.
I'll suspect a top in gold when I see the ads touting "gold for cash." I haven't yet had a taxi driver advise me to buy gold.....
On Oct 25 02:06 PM MexCom wrote:
> While driving with my wife on the car radio were hear an Advertisment
> "now is the time to buy gold!"
> "What do you think?" she asked.
> I said "If the person talking was buying it himself why is he on
> the radio asking you to buy it?"
>
> The person saying that inflation, its going up, etc. etc. is the
> reason to buy so why is he on the radio? He is SELLING it!
>
> So when you hear all the ads on CNBC, the radio and the newspaper
> to buy gold - that is probably the time to sell it.
>
> BTW - none of the people who produce gold - the miners and refiners
> are among those who are advertising to buy it.
>
> When making an investment its best to use some common sense. Don't
> make financial decisions out of fear. The person you give your money
> to is making a profit
Here's what I know about gold. It's useless, for the most part, and has no intrinsic value. Many Picasso paintings look no different than the kindergarden art that is hanging on thousands of refrigerators. For either gold or a Picasso, they only have value because people say so and are willing to jack out $1000 an ounce for gold or $25 million for a Picasso canvas that looks like a Crayola drawing.
Given the reality that millions of people hoard gold for jewelry or because they fear Armageddon, and the fact that the Chinese government is telling their folks, all billion or so of them, to buy the stuff, I figure it might be a good idea to hold a little bit of the stuff myself too, as I do have a moderate understanding of the concept of supply and demand.
While I didn't dive in head first with Beany Babies (another valueless item that was hoarded for a while), given the documented interest that humans have had with gold throughout history, I'm willing to take a bit of a chance that gold will have value going forward. I think any prudent hedger would come to that conclusion. And I didn't even need a bunch of charts touting standard deviations, candlesticks, or heads and shoulders to figure it out. Common sense and a historical sense of an admittedly illogical trend was all it took...
Don't overanalyze it. Look at the 1000 year megatrend.
On Oct 25 07:34 AM manya05 wrote:
> Roubini gives two scenarios in which gold can move up and discounts
> them both, and maybe he is right. But he forgot a third possible
> reason giving force to a move up in gold. Most central banks around
> the world (big and small) are trying to figure out how to "de-dollarize"
> their reserves. They are diversifying as best they can, I am sure
> they are converting dollars to other currencies, but ultimately they
> realize that holding reserves on the currency of another government
> is not a wise idea...whatever the currency. So, what are they going
> to keep as reserves? amphorae of olive oil and bags of grain like
> in the old days? I don't think so, if gold worked as a good store
> of value for 1000s of years, for the short term, it is the obvious
> route for central banks to take. So I think Roubini is wrong, gold
> is disappearing from the streets and going back to the vaults, and
> that will keep the price supported, and possibly even drive it higher.
> Until central banks regain confidence in a currency, any currency,
> gold is not going down.
The driving force here is not fear or greed, it is purely a monetarty issue which forms from the outrageous money creation at the Fed and for all of you that are not aware, the government cannot pay it's debts with deficit now reaching the magic level of over forty percent of budget and scheduled to get worse. In short, the dollar is now absolutely doomed; it cannot, it will not be saved, period.
Roubini may be totally correct in short term and I for one don't care because I know that as time goes by gold has to revert to it's true role as money, just how this comes to pass in terms of execution we are all left to ponder, however, it will happen unless we get the New World Order situation where all bets are off.
My motto is: don't trade gold...hold.
My economics prof taught that: "All the real wealth that has ever been made was made with real things." Conversely, if one decides to exchange a real value item for fiat paper, which transaction resulted in the spending of real money?? If and when the "fit really hits the shan", would you rather have been weeks, months, or years too early, rather than one day too late? This whole thing could conceivably happen rather quickly when people collectively begin to realize the true state of financial affairs, what with massive bank bailouts, massive ongoing and accumulated deficits, extreme loss of faith in our paper currency around the globe resulting in the US dollar likely being replaced as the world reserve currency, etc., etc. Even if we could magically put the nation back to work and triple previous production, the simple fact is that the dollar amounts owed by our government are unsustainable without a serious devaluation of the currency.
People have been wrongly taught that paper is money and that gold and silver are commodities or investments. When gold reaches and exceeds its historic previous inflation adjusted highs of $7000 plus and silver adjusts to its normal ratio of 1:16 and adjusts to $500 plus per ounce, it will take a whole lot of fiat paper to exchange for real money. (see more on silver below). By then it will be too late for most to try to preserve any sort of value or wealth. Some say that inflation adjustments only increase gold to around $2300, but they fail to remember that the original formulas for calculating inflation and cost of living were changed by the government in order to facilitate the financial crisis of the 1980's.
When you couple together all of the other variables such as potential world uprisings, political maneuverings, current and future devaluations and revaluations, not to mention natural disasters, it is near impossible to predict with any certainty when particular valuations will go up or down. The trend is your friend, however, and that trend is in play. Ignore the short or even medium term ups and downs and fifteen years from now it is pretty clear that the precious metals trend will be starting to peak, assuming we still have a semblance of relative society that it can be compared to. An ounce of nearly anything real will still be an ounce, whereas the paper that the real ounce will purchase or exchange for, will be more or less depending upon ensuing inflation or deflation during the interim.
By then, we will know that silver had been historically and mistakenly thought of as an inferior precious metal. Its uses for cleansing and purifying the earth's drinking water will then be legend. Its uses for medical breakthroughs via nano-tech developments will have likely solved numerous viral and bacterial challenges. The electronic world would not have been able to grow and exist without it. Solar and other green-tech uses will flourish with silver. Some uses will have nearly disappeared such as for photographic and maybe even dental, but will have been replaced by uses we cannot even imagine today. The earth's crust typically contained most of the silver so except for minute amounts of by-product production from deep mining of other elements, most of the silver to ever be mined will have been either located or mined. It's exchange value will by then have exceeded gold since we are already consuming nearly all of the silver mined year by year, and in the future, all of the above ground supplies remaining will be thought of as rare and valuable similar to what rhodium and iridium are today.
Economically speaking, the elasticity of demand for silver is such that for nearly all of its applications, only very small amounts are required, such that the price per ounce only affects the ultimate application microscopically. If you use only a very small amount, you are going to still use it whether or not the price is $10 or $1000 per ounce. Combined multiple worldwide applications, however, even for small per application usage, are now matching or exceeding worldwide production even with advance mining technologies. If ever there was something to buy and hold, this might be it, assuming one can store and protect it. It is my understanding that George Soros, Bill Gates, and Warren Buffet all have silver in their portfolios -- have not read any stories about them buying gold. We read an article back in the late 1990's where Mr. Buffet purchased around 130 million ounces of silver and took delivery -- think it was around $4.00 or $5.00 per ounce at the time.
The jury is still out as to whether or not Chairman Bernanke will be able to re-inflate our currency. If we do go into a tailspin of deflation, then the above referenced quote by Roubini may certainly have some merit and we cannot totally rule this out. Conversely, all present indications are that we will head for a period of high inflation instead. For those who think the Fed should increase interest rates now, you really need to ask yourself if you would prefer a 1930's style deflationary crash or something closer to a step by step re-kindling of economic prosperity even though your paper will be worth much less, unit for unit.
Gold and other real things have at least some value because of all of the investment and sweat that were exerted in or to produce it. Today, many people are realizing that they have more faith in real things than they do in paper money. So, yes, the value of gold and other real things can go up even in a paper monetary deflation period because of the collective faith that exudes real or perceived value by the general populace. That plus many of the real things including gold and silver are actually at their adjusted historic lows. If oil goes much over $100 per barrel during the current economic questionable recovery, we could set the stage to revisit the lows and beyond of the last twelve to fifteen months -- then one needs to begin to ask what other rabbits can be pulled from the hat or are there any left?
How about putting some teeth into forcing financial institutions into actually investing all the bailout funds back into the framework economy, instead of reinvesting them back to the issuing Federal Reserve Bank where they get a fixed, comfortable, guaranteed, non-risky rate of return that is higher than the amount they pay to borrow the funds in the first place? How about negative interest rates to spur economic development and re-employment of the masses? How about converting the fiat paper reserve notes back to readily exchangeable "real stuff" certificates so that people the world over will again have faith in our currency? There still are some magic rabbits, but they are getting scarcer and more expensive as time goes on. People in general are already way over stressed by what has transpired during the past year. And yet, the worst may be yet to come if we are not careful or even if we get hit with other non-predictable events. Each needs to do what they can within their own situation and then pray and do even more and then even pray some more because things can get downright scary in short order. Seeking out gold and other real things is a natural and perhaps even stable thing to do. For poor people, silver is still cheap and although more volatile in the short term, may ultimately outperform in the long run. GLTA!
Actually inflation, even hyperinflation, can and does occur when these usually limiting factors are present. Just look at Zimbabwe, Argentina or Wiemar Germany. When inflation is a monetary phenomenon it is usually accompanied by poor economic fundamentals. I
Do you have faith in banks? NO (over 100 belly up)
Do you have faith in the market? NO (where's the growth?)
Do you have faith in government? NO (you are kidding right?)
Do you have faith in Obama? NO (ditto)
Did your neighbor find a new job yet? NO (he's quit looking)
Are employment figures accurate? NO
Is gold still gold? YES
The only ones wanting you to believe gold is heading down are the ones who want in at a lower price. Personally, I hope they convince you as I want to buy more.
Bob
Also known as... INFLATION.
I mean, in what world is Fed-driven "excess liquidity" not inflation? Oh, yeah - In the world of Phillips Curve believers, Keynesians, socialists, statists and apparently Roubini.
WHAT IT IS ABOUT GOLD?
After all, you can’t calculate a P/E. There is no dividend discount model. There is no interest rate or income stream. No — gold is a store of value and one that has been durable and reliable for thousands of years. No fiat currency system has outlived gold. The question is what is so sacred about fiat paper money? A backing of the government printing press, is that the alluring factor? The Fed has been pumping money into the system at an unprecedented fashion and even if it is sitting idle on commercial bank balance sheets as excess reserves, that money is still in the system.
So what about gold? How much of that is in the system? How about the fact that global gold production, after doubling from 1980 to 1999, has completely stagnated over the past decade? Has fiat currency done that? And, how long does it normally take for a gold mine to yield production? Answer -- five years or so? Do you think it takes Bernanke et al that long to print greenbacks? At least we know with some degree of confidence about the supply of gold; there are reserves equivalent to about 40% of the total amount of gold above the ground (and half of that is in South Africa).
As we said, it takes time, usually five years, and plenty of financial resources to bring gold mines into production. In this sense the supply side of the gold equation is relatively constant — in economic parlance. Fiat government-issued currency is not — especially in the context of a U.S. monetary and fiscal authority that will stop at nothing to revive a cycle of overspending and overborrowing.
In the current sense, the pullback in consumer spending is being replaced either by government spending or incentives to prevent households from modifying their spending behaviour away from frugality; and the pullback in credit demand by the consumer sector is being offset by the Fed’s involvement in the mortgage market to ensure that borrowing costs remain very low, and by the FHA to ensure that down-payment requirements are as close to zero as possible. The supply of gold is reasonably easy to figure out — the supply of fiat currency is less easy to figure out. The behaviour of not just the U.S. government but governments everywhere seems to be that reflationary policies will ultimately be the key towards redressing the ongoing private sector deleveraging cycle.
Back to the gold market. There is an estimated 120,000-140,000 tons of gold above ground. That would equate to roughly $4 trillion. The total amount of U.S. dollars in circulation globally is estimated at $8 trillion, and the total size of the global money supply would thereby be closer to $30 trillion. The size of the world stock market is around $40 trillion. At last count, the total size of the global bond market was north of $80 trillion. The total world derivatives market has been estimated at about $800 trillion, face or nominal value. Hopefully all this places the total value of gold above ground into a certain perspective.
So, here is what makes gold so attractive, beyond the fact that it is a hedge against irresponsible fiscal, monetary policies and reckless trade policies, is that relative to fiat currency, bonds and equities, it is scarce. We can also get into geopolitical uncertainties and reckless trade policies, but they are just the proverbial cherry on the ice cream.
Scarcity. That is the answer to the question "why gold?" End of story. Just to back the amount of currency that is out there right now, gold has the potential to triple from here, never mind merely double. Sounds outlandish, to be sure, but when gold was carving out its bottom at $255/oz in September 1999 (when the S&P 500 was flirting near 1,300 — sorry to have to add that one in), was anyone calling for it to rise four-fold in the next decade? Secular bull markets usually last 16 to 18 years and this one is just in year 10, so let’s say that we are barely past the halfway point in both duration and magnitude in this gold cycle
Greenspan had many expert opinions also.
One test is worth a thousand expert opinions.
Test every expert opinion you hear--write it down and watch what happens.
On Oct 25 07:34 AM manya05 wrote:
> Roubini gives two scenarios in which gold can move up and discounts
> them both, and maybe he is right. But he forgot a third possible
> reason giving force to a move up in gold. Most central banks around
> the world (big and small) are trying to figure out how to "de-dollarize"
> their reserves. They are diversifying as best they can, I am sure
> they are converting dollars to other currencies, but ultimately they
> realize that holding reserves on the currency of another government
> is not a wise idea...whatever the currency. So, what are they going
> to keep as reserves? amphorae of olive oil and bags of grain like
> in the old days? I don't think so, if gold worked as a good store
> of value for 1000s of years, for the short term, it is the obvious
> route for central banks to take. So I think Roubini is wrong, gold
> is disappearing from the streets and going back to the vaults, and
> that will keep the price supported, and possibly even drive it higher.
> Until central banks regain confidence in a currency, any currency,
> gold is not going down.
On Oct 25 08:30 AM skwestorange wrote:
> Don't forget that in the last couple of years Gold ETF GLD has been
> the culprit for rising metal prices. I recall reading that GLD has
> more physical gold than many (if not all) of the central governments'
> storage put together
On Oct 25 11:04 AM einstein p fleet wrote:
> Our paper money used to be backed by gold --- “Will pay to the bearer
> on demand”. Now it it backed by the Fed and nothing more.
>
> The need to print more money to pay for a steady diet of increasing
> debt would surely be inflationary at some point in the near future.
> On another note, gold is very undervalued if you consider where it
> was 25 years ago and where it is now --- which would price it at
> around $2000.
>
> I like Roubini and respect him a great deal. This time, however,
> he may be wrong.
My view on CPI is at seekingalpha.com/artic...
On Oct 25 04:40 PM john connor wrote:
> AUTHOR:
> Have you included in your valuation equation the distortion of the
> fed utilizing banana republic market fundamentals of buying us gov't
> 30 yr bonds, instead of what the natural free market would valuate
> those bonds? also, are you using "official gov't #s" or independent
> #s like shadowstats.com? Of course gov't has no reason to lie about
> any stats, it has no vested interests.... sarcasm intended on the
> last sentence.
>
> On Oct 25 09:58 AM Andrew Butter wrote:
That's valuation, specifically an other-than-market valuation, not economics, what matters is the base line, that model says nothing about deviations from the base line, which is something else completely.
On Oct 25 10:04 AM FormerRubin Admirer wrote:
> Your regression of gold against oil is known as a "spurious regression"
> because it uses price levels instead of price changes. The levels
> are nonstationary and that causes the R^2 to be misestimated and
> unreliable. (See en.wikipedia.org/wiki/... ). If the
> regression was done correctly (with price changes) it would still
> show that oil is important for the price of gold, but that the relationship
> is far weaker than 74%.
On Oct 25 11:13 AM auto44 wrote:
> As long as a large group of people remain afraid of fiat currencies
> and that group includes the Chinese gov't and many of their citizens
> commodities of all types will be rising against the dollar, water
> included. The Chinese are unloading a lot of their American dollars
> by buying large segments of oil, miners, and agriculture in the
> commidity rich countries of Brazil, Austrilia, and Canada. It seems
> wise to me to follow the Chinese example. Thier political leaders
> unlike ours are very finace savy and aware.
On Oct 25 02:06 PM MexCom wrote:
> While driving with my wife on the car radio were hear an Advertisment
> "now is the time to buy gold!"
> "What do you think?" she asked.
> I said "If the person talking was buying it himself why is he on
> the radio asking you to buy it?"
>
> The person saying that inflation, its going up, etc. etc. is the
> reason to buy so why is he on the radio? He is SELLING it!
>
> So when you hear all the ads on CNBC, the radio and the newspaper
> to buy gold - that is probably the time to sell it.
>
> BTW - none of the people who produce gold - the miners and refiners
> are among those who are advertising to buy it.
>
> When making an investment its best to use some common sense. Don't
> make financial decisions out of fear. The person you give your money
> to is making a profit
Needless to say, 2X happened in July/1932 and 1X happened quickly for an hour in Jan/1980. Here are some gold price targets from different people: $2000(Rodgers), $3000(Tice),$5000(Schi... and $10000-1X(Dr.Petrov). You probably do better with gold with an objective price target of Dow-Gold ratio of 2 to 1; no matter where is will be? Can anyone say for certain where Dow is going to be with all the interventions by WS and The Powers that be(Dow maintenance)? Watch Oct close on Dow and Gold to decide for yourself: Is this a 1975 or 2007 Redux? Go back to your charts and strategy drawing board.
seekingalpha.com/artic...
I haven't seen Q3 data yet...anyone have an update?
www.planbeconomics.com.../