Do We Goldbugs Finally Have Your Attention? 44 comments
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The past two weeks have brought two massive paradigm shifts to a Gold market that has been morphing literally on a daily basis for the past few months. During this time, the pundits and purveyors of misinformation and tripe have done their best to ‘student body left’ Gold back into obscurity as an ancient, barbaric relic. They certainly get an ‘A’ for effort. Now that Gold has made its debut above $1100 an ounce, they’ve switched their tactic and are now calling it a bubble. We’ll deal with why this cannot be the case in a bit.
For the past 9 years now, students of history and common sense have been literally shouting from the rooftops that Gold was the place to be as the monetary tradewinds shifted back in 2000 and the fiat inflationary cycle began to go parabolic. While the multi-trillion dollar deficits might be a surprise to many, for those who understand how these things work, it is just a mundane repetition of history and yet another confirmation that man cannot alter the laws of economics or his own intrinsic predilection to ignore events past.
From 2000 up until recently, there was a constant battle going on. Central banks and the IMF would sell off their physical Gold to suppress the price. Between 1999 and 2002, Gordon Brown, then England’s Chancellor of the Exchequer made the extremely wise decision to sell a good chunk of Mother England’s Gold (395 tonnes) in the $275-$300/oz area. The people were so enthralled by this obvious economic genius that they made him the Prime Minister. All sarcasm aside, this was only one prong of the tactic to suppress Gold prices.
The second prong consisted of large New York and London banks mercilessly shorting Gold in the paper futures markets. For most of the last nine years, the bulk of these futures contracts were rolled over or settled in cash; taking delivery wasn’t really en vogue. There have been many people such as Jim Sinclair working hard in the trenches to educate people on the merits of taking delivery and fighting the cartel by taking their playing chips off the table. Gold in your possession cannot be leased out by a central bank to various third parties, nor can it have futures contracts written against it.
Despite even these Herculean suppression efforts, the price of Gold made the journey from $275 to $940 in fairly short order. Surely, there were many gut checks in there; days when the metal lost 5% and the pundits would scream the bubble had burst and it was all over, now please buy some mortgage backed securities. There were some epic struggles like the Battle for $700 shown below.
Through the past nine years the game was played under the rules of central banks and the IMF. In the past two months, countries, large players, and even Gold producers have turned the game on its head. Suddenly everyone wants physical metal, not paper promises. And don’t give us the 90% bars either; we want the good stuff. Suddenly, there are instant buyers for IMF sales that were previously guaranteed to suppress prices. Suddenly an IMF sale sparks a rally to a new all-time high. China tells NY and London banks to take a long stroll off a short pier by issuing a directive to its state banks to walk away from commodity derivatives contracts. And, even more telling, central bank selling has been dropping steadily over the past few years and has been nearly nonexistent in 2009.
And finally, Barrick is closing its infamous hedge book. What was once a 20 million ounce boat anchor on the price of Gold has become a multibillion dollar boat anchor around Barrick’s neck and they’ve finally had enough. The book, now around 3 million ounces will be closed by next year according to Barrick boss Aaron Regent.
Oddly enough, it is not the collapsing US Dollar that is driving this decision, but rather a realization that Gold production likely peaked in 2001 and that even a tripling in exploration budgets across the mining sector has yielded precious little in the way of new discoveries. During this entire time period, demand for Gold has been rising consistently, thanks in no small part to the continual abuse of paper currencies by governments around the globe. The existence of serious supply-demand dislocations immediately rules out the prospect of a speculative bubble. Granted, there are plenty of smaller players who are dabbling in Gold without the slightest bit of understanding as to why they’re doing it. The next correction will undoubtedly send many of them running back to mainstream newsletter writers demanding a refund. After all, they were supposed to be living on the beach in 6 months; the advertisement said so!
The shattering of the old paradigm as it relates to Gold is very similar to a paradigm that was shattered with regard to stock investing nearly a decade ago. In that case, the conventional logic was that the market always went up in the long run. And for 18 years, that had absolutely been the case. Even the crash of 1987 hadn’t done much to derail the bull market. However, when we crossed into the new century, the paper paradigm changed with the major indices going nowhere in the past 9 years and change. Yet many conventional financial professionals are still investing as if it were 1995 then blaming the markets for client losses when they should be blaming their own inability to see that our world has changed dramatically.
Unfortunately, another of the very negative sides of the attack on Gold have been the ad hominem attacks on proponents of Gold-backed currencies and those who promote the reality that Gold is in fact real money. The attackers use the term ‘Gold Bug’ to paint a picture of little men sitting in fallout shelters wearing tinfoil hats with stashes of food, water, and enough weapons to make the debate about Iran seem pretty foolish. That just isn’t the way it is. Simply put, a Gold bug is someone who understands Gold’s historical role as money and seeks to educate others in this regard while protecting their own assets from the abuses heaped on paper currencies by their custodians.
So today I, an admitted Gold bug, ask: Now… do we finally have your attention?
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This article has 44 comments:
Hope all those folks that ridiculed us 'gold bugs' have covered their shorts.
Finally, a wonderfully insightful and accurate definition of what a gold bug means.
Color me gold.
On Nov 12 03:10 PM yellowhoard wrote:
> It's been pretty quiet since the breakout.
>
> Hope all those folks that ridiculed us 'gold bugs' have covered their
> shorts.
It's likely that SOMETHING happened in their shorts anyway...
If you invest in gold you are committing one of the big three investment mistakes - "Track Record" investing.
If you're an investor it's not for you. But it if you like gambling it's better odds than Vegas.
I have always found Gold to have highly attractive properties.
Gold's recent advance has been very strong. My primary question is whether such an advance is sustainable, and what is driving it.
For those interested, here is a recent post I have written with regard to these issues:
www.economicgreenfield.../
On Nov 13 08:27 AM Robert Jung wrote:
> I don't buy it. I recommend one look at the total return of gold
> over different time intervals. Yes, over the past 5 years the performance
> looks great, +20% annualized. But over the past 20 years it's averaged
> roughly 3.5%. Gold may continue to run short-term given the crazy
> governmental spending and Volcker's influence (re-inflation of assets),
> but I am of the opinion it's a "Bigger Fool" play.
>
> If you invest in gold you are committing one of the big three investment
> mistakes - "Track Record" investing.
>
> If you're an investor it's not for you. But it if you like gambling
> it's better odds than Vegas.
Then the move above $1.1K after India took delivery of gold from the IMF.
These two milestones do seem to indicate to me that the wood got snatched out from under the gold shorting cauldron. May be a good time to accumulate silver and more gold shares as the time lag catches up to them.
1980 was 2010, only with a way out. This time, there is no way out at all, not even a painful one.
So even if you did buy on Jan.21,1980 and averaged your out buys the rest of the year ,you still have a good return.
1) Genuine demand - there is none for gold today that hasn't always been there. Things like jewelry and hood ornaments and the like, sure. Anything else? No. Gold creates no income and it has no intrinsic ability to increase in value except for people's perceptions and opinions.
2) Stock markets need to fall - ummm, global stocks are up about 60% since March 2009.
3) The threat of inflation - right now, there is ZERO risk of short or medium term inflation.
4) Gold’s price spike has to be consistent – gold has not increased in value in every currency, just in USD terms. For example, in the last 6 months, gold has actually FALLEN in value in Australian Dollar terms.
As a long term investment, gold is horrible. As a speculative play, it’s great. That means you have to market time and if you could do that with any kind of certainty or consistency, you wouldn’t be posting blog spots at Seeking Alpha. You’d be relaxing on the island you own off of the Spanish coast.
On Nov 13 08:27 AM Robert Jung wrote:
> I don't buy it. I recommend one look at the total return of gold
> over different time intervals. Yes, over the past 5 years the performance
> looks great, +20% annualized. But over the past 20 years it's averaged
> roughly 3.5%. Gold may continue to run short-term given the crazy
> governmental spending and Volcker's influence (re-inflation of assets),
> but I am of the opinion it's a "Bigger Fool" play.
>
> If you invest in gold you are committing one of the big three investment
> mistakes - "Track Record" investing.
>
> If you're an investor it's not for you. But it if you like gambling
> it's better odds than Vegas.
On Nov 13 11:55 AM blacksilver wrote:
> In 1980 the only time gold was over $800. was in January with a high
> of $875. and a January low of $558. The low for the year was $453.
> in march.
> So even if you did buy on Jan.21,1980 and averaged your out buys
> the rest of the year ,you still have a good return.
The idea that there isn't much left to be found is suspect also, Mexico has deposits of at least 16 tons at its Palmarejo mines alone.
The other big difference between the two commodities most detached from actual supply/demand constraints is that oil is destroyed when it is used whereas gold and silver are easily and cost effectively recycled.
When demands isn't driven by real human needs then supply isn't relevant, so emotional involvement becomes the driver.
As in homes and tech stocks this always ends badly, especially for those that hop on after a 500% increase in less than a decade. To you early buyers, congratulations and enjoy your success.
-AS
On Nov 12 10:14 PM Gaucho wrote:
> Didn't you guys just love the way Kitco based the price of gold about
> 2 weeks ago. It is astounding that the historically largest pumper
> of gold would be its biggest basher. I smelled a rat and gold exploded.
> They must have bet the wrong way and this subsequent rally cost them
> a bundle. I have heard of gold sellers who are trying to manipulate
> their clients away from taking possession of the actual metal. They
> are in essence saying TRUST ME the gold is safer with us. One firm
> after the client agreed to buy backed out after the client demanded
> delivery claiming the delivery charges would be exorbitant. If this
> rally holds a lot of firms are going to go under. Do not forget
> the a German bank and an American bank recently had to rely on their
> governments to bail them out after they could not deliver on their
> short gold contracts.
Your article is spot on and leaves little to be said. May I only add that the recent decisive breakdown/defeat of the central bank Cartel has apparently (hopefully permanently) removed a constraint against upward movement of gold prices by the fair market. That this must be factored in to one's decision whether to invest in gold bullion cannot be overemphasized. Thanks again for the great article. I also read your comments at financial newshour.
On Nov 13 08:27 AM Robert Jung wrote:
> I don't buy it. I recommend one look at the total return of gold
> over different time intervals. Yes, over the past 5 years the performance
> looks great, +20% annualized. But over the past 20 years it's averaged
> roughly 3.5%. Gold may continue to run short-term given the crazy
> governmental spending and Volcker's influence (re-inflation of assets),
> but I am of the opinion it's a "Bigger Fool" play.
>
> If you invest in gold you are committing one of the big three investment
> mistakes - "Track Record" investing.
>
> If you're an investor it's not for you. But it if you like gambling
> it's better odds than Vegas.
Hedging agianst a weak dollar is better done by buying a well priced large cap multinational
20 years ago KO hada pe of 16,just liek it does and gold was 400 per ounce more than 50% off the all time highs
Today you would have about 175% on your money but no dividends
KO would be paying a 32% annual dividend 20 years later and in the past 7 years more dividend income than you would have received if you sold the gold
And the stock appreciated 1125 % in the same time span
Make sense?
as person who has achieved financial securitysolely from investing I hope you find this significant.peace
However w
On Nov 13 11:51 AM hanumanhojo wrote:
> Gold definitively broke above $1K after Hong Kong took delivery of
> their gold from England.
>
> Then the move above $1.1K after India took delivery of gold from
> the IMF.
>
> These two milestones do seem to indicate to me that the wood got
> snatched out from under the gold shorting cauldron. May be a good
> time to accumulate silver and more gold shares as the time lag catches
> up to them.
I believe that gold is the only case where the most enthusiastic bulls believe the market is rigged against them and the price is manipulated - yet they continue to buy!
10 year treasuries are under 3.5% and gold is over $1100. The inflationary expectations of these two markets are obviously vastly different. One of these markets must be wrong about inflation (ie. a bubble)
Which do you think it is? The market where buyers seek stability of returns as part of a diversified portfolio; or the market where the asset allocation decision is based mainly on conspiracy theories.
Does ANYONE out there have PROOF that the US Government (I'm standing at attention as I wrote that) has 8.333 bazillion tonnes of gold in reserve as some of the Obamaites are claiming??????
I have to know, because I want to buy some more, and well, I would hate them to think I was COMPETING with them! You KNOW how sensitive OBAMA can be sometimes....
Hell, I bought a bunch around 800 and I'm quite happy with my returns. I'm already laughing at you.
On Nov 13 12:17 PM Go Lakers wrote:
> Robert is spot on. For gold to be in a genuine bull market, you need
> 4 things:
> 3) The threat of inflation - right now, there is ZERO risk of short
> or medium term inflation.
>
Those are smart people.
Gold not a currency and you can't sell it?
Try telling that to your Latino landscaper, your Egyptian or Israeli Jeweler, some boyz in the hood, or the guys at the bar or the country club. They would all value and take your gold in exchange for cash, labor, or goods and commodities. It is a medium of exchange just like tobacco, sex, liquor, and food. If my neighbor needed cash I'd give him $900 for a 1 ounce Krugerand or Eagle, I can drive downtown and get $1,000 for it tomorrow.
People who don't believe gold is valuable have lived in the digital world too long and don't realize that their "money" or "investments" can vaporize overnight in a cloud of binary data from burning server warehouses, hacking pillagers from Eastern Russia or China, punitive taxation, confiscation, or a manipulated market.
blunt truth.
not only could you get 1000 for it, but if you are friends with your local coin dealer, you could get 1100 for it right now. he knows that next week he will still make a good bit on it ... whether it is $1,110 or $1,150 ... either way he won't care unless he has to drive around to sell it ... which he won't.
On Nov 14 10:53 PM ebworthen wrote:
> Didn't India just buy $200 billion in gold?
>
> Those are smart people.
>
> Gold not a currency and you can't sell it?
>
> Try telling that to your Latino landscaper, your Egyptian or Israeli
> Jeweler, some boyz in the hood, or the guys at the bar or the country
> club. They would all value and take your gold in exchange for cash,
> labor, or goods and commodities. It is a medium of exchange just
> like tobacco, sex, liquor, and food. If my neighbor needed cash
> I'd give him $900 for a 1 ounce Krugerand or Eagle, I can drive downtown
> and get $1,000 for it tomorrow.
>
> People who don't believe gold is valuable have lived in the digital
> world too long and don't realize that their "money" or "investments"
> can vaporize overnight in a cloud of binary data from burning server
> warehouses, hacking pillagers from Eastern Russia or China, punitive
> taxation, confiscation, or a manipulated market.
At this moment in history, and for the foreseeable future, there is a fiat money crisis in this world which is quite extraordinary. The world's "reserve currency" is in real danger. It (along with other currencies) is undergoing a very risky experiment, based solely on theory. Many-- perhaps most-- observers seem to think the experiment is not going all that well. Some believe the caretakers of the world's reserve currency have lost their minds.
Gold comes to the forefront during times of financial instability. It is the ultimate reserve currency, having passed the test of time. Nobody ever tosses gold into the trash bin, as with so many worthless currencies of history.
If and when the world's financial crisis is viewed as having been resolved, fear and gold will fade into the background until the next crisis. The longer the crisis goes on, the more people will fear that the grand experiment might fail....and then what ? It is the "and then what ?" that is driving the price of gold.
Take a look at the chart above and the Dow Jones/Gold ratio. It corresponds almost perfectly to our Day-Cycle, Night-Cycle theory.
For more: wealth-ed.com/2009/11/.../
On Nov 15 03:43 AM Mr. Ed, Jr. wrote:
> I have noticed that one thing humans do quite a lot is take a simple
> matter and complicate it to no end.....
>
> At this moment in history, and for the foreseeable future, there
> is a fiat money crisis in this world which is quite extraordinary.
> The world's "reserve currency" is in real danger. It (along with
> other currencies) is undergoing a very risky experiment, based solely
> on theory. Many-- perhaps most-- observers seem to think the experiment
> is not going all that well. Some believe the caretakers of the world's
> reserve currency have lost their minds.
>
> Gold comes to the forefront during times of financial instability.
> It is the ultimate reserve currency, having passed the test of time.
> Nobody ever tosses gold into the trash bin, as with so many worthless
> currencies of history.
>
> If and when the world's financial crisis is viewed as having been
> resolved, fear and gold will fade into the background until the next
> crisis. The longer the crisis goes on, the more people will fear
> that the grand experiment might fail....and then what ? It is the
> "and then what ?" that is driving the price of gold.
If we are so bad how come everyone wants to invest in america?
Gold is best purchased like most assets near their all time lows
Remember what wise people do in the beginning( those bought gold under 500) fools do in the end
> ...This sort of hubris comes before a fall!...
That's kinda the point of the article. The USFRN has enjoyed reserve currency status as a result of the hubris you speak of and the current move in Au valuations in proportion/relation to the USFRN is the response to the pride in believing fiat expansion can occur without consequence. Au is once again fulfilling it's historical role in proving your assertion. imo
On Nov 13 11:51 AM hanumanhojo wrote:
> Gold definitively broke above $1K after Hong Kong took delivery of
> their gold from England.
>
> Then the move above $1.1K after India took delivery of gold from
> the IMF.
>
> These two milestones do seem to indicate to me that the wood got
> snatched out from under the gold shorting cauldron. May be a good
> time to accumulate silver and more gold shares as the time lag catches
> up to them.