Dan Perkins

Gold and Oil Price Limits

Will somebody please explain how the fed it going to continue to inflate after years of massive money printing turbo-charged by derivatives. Relatively speaking, who is left to borrow? We are deflating: Gold, Bonds, Stocks and Real estate are falling!
Granted, the federal govt just handed every tax payer a couple hundred bucks, but that cannot be the norm and the fed is watching money be destroyed by deleveraging much faster than they are creating it. Holding gold during deflation spells broke!

Gold’s 'Grand' Illusion

Mark McHugh, Very much appreciate the compliment. I remember your input earlier on my comments to another article. What a wonderful means of exchange this is to be able throw ideas out there and see what comes back. I certainly do not claim to have any lock on the truth, and I really hope nothing I say dampens anyones day. I'm just like everyone else, just trying to figure out where to go from here, in spite of all this uncertainty. Have been thinking (too much) about inflation and gold, and decided to put some thoughts on paper and then test with you all. Goucho is probably correct about me reasoning myself into a corner, that's hilarious.
Publishing on here, provides a real education with the great variety of responses from some really smart folks. I enjoy and learn from the negative replies as much as those who tend to agree. Remarkably, they have all been very good spirited about it. I hope you all get rich and live happily!!

R, Dan Perkins

The Start of a Run for Gold

Ok, all of us who posted above are on a desert island, I own all the food and you guy's collectively own all the gold. I have no gold. Who wins? The way I see it, I own you and your gold!

The Start of a Run for Gold

"BEARFUND"- No agenda (or emotion) here whatsoever. I am just your regular John Q Citizen considering hedge options and throwing some ideas out in cyberspace to see what comes back. Lots of folks peddling gold these days and I see no harm in a good cyber debate to bring the truth to the surface.
One glaring flaw in your truth though is that gold would might become a medium of exchange: Doubtful, with the minimal amount of "circulating" gold. Anything might, and has historically become that medium. If at the end of the day, as the pendulum begins to swing and food becomes the critical element, why not fill a room of the house with dry goods, canned goods and peanut butter etc, then once the new currency becomes known, trade for it, with the added benefit of having plenty to eat, and thereby eliminating all uncertainty?
Sounds ridiculous doesn't it? Well, that is exactly what is happening with rice in Asia at the moment. My point is that if the trend continues exponentially and people are starving, the guy with the most rice would be best positioned to buy gold and not the other way around, particularly as gold would be relatively worthless!

The Start of a Run for Gold

A different view:
Gold is typically a scarce metal versus jewelry demand and has relatively limited industrial uses. At the height of the internet boom when we were creating a millionaire a minute (think jewelry purchasers) and what small uses gold has industrially (think conductants), gold was selling from $250-$450 an ounce. Somewhere therein is where gold's combined value as jewelry and industrial uses were perceived then.
Occasionally, as now, gold is viewed as a hedge against inflation or a hedge against uncertainty: On inflation, Gold is up about 42% per year since 2001 with US inflation somewhere between 5 and 9%, making gold light years ahead itself as an inflation hedge. If one is buying gold as a hedge against inflation, then one is buying an asset that has appreciated 300% since 2001 to hedge against 5-9% inflation annually. Strictly odds wise, it would appear better to buy the dollar as a hedge against gold price deflation.
Per gold as a hedge against uncertainty, if things get really bad, gold is virtually useless. Both Hyper-inflation and Hyper-deflation suggest major economic turmoil. In both events, jewelry just does not spring to the forefront. Hard assets in hyper inflation, yes, gold no! Hard assets in times of deflation spells broke.
Additionally, what if, at the moment, real estate, stocks, commodities and soon bond prices (as rates must rise) are falling. Oh, wait a minute, they are! Assume for a moment that food prices are rising at a micro level, but that is simply a lag effect of past increases in the money supply. What if at the macro level they are falling, which will filter down as all commodoties continue to drop, as world economies slow dramatically. What if we have already had inflation and things are now deflating. Perhaps wealth is and will will be destroyed faster than money is created. Relatively speaking, who is left to borrow following years of free money turbo charged by derivatives?
What if Gold mania like tulip mania is all imaginary and fueled by collective energies. After all, gold has no real use! It is simply ornamental because we have collectively agreed that it either looks cool or implies status. Gold mania, plain and simply, feeds upon itself. Folks jump on the gold train as it begins to move and more more folks pile in until it can no longer budge. The problem is that nobody really knows how much steam the engine has because the steam is all in out heads. The steam is pure illusion making gold's movements even more transparent than with most other investments. However, the known entity at the moment is that the track got real steep and/or the train got real heavy at around the 1000 foot mark, in the face of massive incertainty (Bear Stearns potentially taking down the entire global financial system), and is now around the 900 foot mark, metaphorically speaking. It looks to me at least that something around $1000 an ounce is the max folks were willing to pay as a risk premium for virtually unlimited uncertainty. Knowing that, folks are now jumping off the train, with a few of you trying to persuade them to stay aboard. Curiously, the IMF is evidently npw considering selling vast quantities of gold.
In this sense, trying to convince folks to remain on board a train heading down the mountain in hopes of eventually getting them to the top, when the very real threat of an implosion of the entire world financial system could not get it above the $1000 mark would not seem logical.
Furthermore, assume someone rings your doorbell today and offers to sell you a one ounce gold nugget the size of a gumball for a thousand dollars, would write the check?
Just points to ponder, I could be wrong!

The Start of a Run for Gold

A different view:
Gold is typically a scarce metal versus jewelry demand and has relatively limited industrial uses. At the height of the internet boom when we were creating a millionaire a minute (think jewelry purchasers) and what small uses gold has industrially (think conductants), gold was selling from $250-$450 an ounce. Somewhere therein is where gold's combined value as jewelry and industrial uses were perceived then.
Occasionally, as now, gold is viewed as a hedge against inflation or a hedge against uncertainty: On inflation, Gold is up about 42% per year since 2001 with US inflation somewhere between 5 and 9%, making gold light years ahead itself as an inflation hedge. If one is buying gold as a hedge against inflation, then one is buying an asset that has appreciated 300% since 2001 to hedge against 5-9% inflation annually. Strictly odds wise, it would appear better to buy the dollar as a hedge against gold price deflation.
Per gold as a hedge against uncertainty, if things get really bad, gold is virtually useless. Both Hyper-inflation and Hyper-deflation suggest major economic turmoil. In both events, jewelry just does not spring to the forefront. Hard assets in hyper inflation, yes, gold no! Hard assets in times of deflation spells broke.
Additionally, what if, at the moment, real estate, stocks, commodities and soon bond prices (as rates must rise) are falling. Oh, wait a minute, they are! Assume for a moment that food prices are rising at a micro level, but that is simply a lag effect of past increases in the money supply. What if at the macro level they are falling, which will filter down as all commodoties continue to drop, as world economies slow dramatically. What if we have already had inflation and assets are now deflating. Perhaps wealth is and will will be destroyed faster than money is created. Relatively speaking, who is left to borrow following years of free money turbo charged by derivatives?
What if Gold mania like tulip mania is all imaginary and fueled by collective energies. After all, gold has no real use! It is simply ornamental because we have collectively agreed that it either looks cool or implies status. Gold mania, plain and simply, feeds upon itself. Folks jump on the gold train as it begins to move and more more folks pile in until it can no longer budge. The problem is that nobody really knows how much steam the engine has because the steam is all in our heads. The steam is pure illusion making gold's movements even more transparent than with most other investments. However, the known entity at the moment is that the track got real steep and/or the train got real heavy at around the 1000 foot mark, in the face of massive incertainty (Bear Stearns potentially taking down the entire global financial system), and is now around the 900 foot mark, metaphorically speaking. It looks to me at least that something around $1000 an ounce is the max folks were willing to pay as a risk premium for virtually unlimited uncertainty. Knowing that, folks are now jumping off the train, with a few of you trying to persuade them to stay aboard. Curiously, the IMF is evidently npw considering selling vast quantities of gold.
In this sense, trying to convince folks to remain on board a train heading down the mountain in hopes of eventually getting them to the top, when the very real threat of an implosion of the entire world financial system could not get it above the $1000 mark would not seem logical.
Furthermore, assume someone rings your doorbell today and offers to sell you a one ounce gold nugget the size of a gumball for a thousand dollars, would write the check?
Just points to ponder, I could be wrong!

Why Gold is Likely to Keep Moving Higher

Enough with the charts and all the fancy analysis where gold is concerned: How about a common sense approach!
Gold has no fundamentals and practical no industrial use. So, gold is either one of two things; a hedge against inflation or a hedge against uncertainty: On inflation, Gold is up about 42% per year since 2001 with US inflation somewhere between 5 and 9%, so gold is light years ahead itself in this respect. Historically though, gold has not been a sound inflation hedge.
As a hedge against uncertainty, if things get really bad, gold is virtually useless. One certainly cannot eat gold and jewelry is probably not going to be foremost in most folks minds, except to sell!
Gold mania like tulip mania is all perception and hype and fueled by articles like yours. Gold mania, plain and simply, feeds upon itself. Folks jump on the gold train as it begins to move and more more folks pile in until runs out of steam. The problem is that nobody really knows where the gold train is going. It's all imaginary. The train starts up the hill until it runs out of steam and then rolls back down. The steam is purely imagination based, making gold's movements even more transparent than with most other investments. However, the known entity at the moment is that the gold train never made it much past the 1000 foot mark in the face of massive incertainty (Bear Stearns potentially taking down the entire global financial system), and is now around the 900 foot mark, metaphorically speaking. It looks to me at least that something around $1000 an ounce is the max folks were willing to pay as a risk premium for virtually unlimited uncertainty. Knowing that, folks are now jumping off the train, with a few of you trying to persuade them to stay aboard.
In this sense, you are trying to convince folks to remain on board a train heading down the mountain in hopes of eventually getting them to the top, when the very real threat of an implosion of the entire world financial system could not get it above the $1000 mark. The question then becomes, what will?