Doug "Digger" Eberhardt

Precious Metals Funds: A Golden Opportunity?

From the article: "During times of a falling dollar and/or a weak economy, a small amount of precious metal investing in a portfolio, say just one or two percent, can provide diversification."

Yeah, sure... one or two percent protecting the 80% plus U.S. dollar exposure of the typical portfolio would have really helped your portfolio over the last 7 years.

Not so much...

The article said; "These are investments that tend to go up when standard garden-variety stocks head south, the bears are roaring, or the markets are in turmoil for political reasons."

So how does that explain the general stock market and gold stocks going higher together from November to May of this year?

Gold / Euro Connection: Another Nail in the USD Coffin?

When the dollar index breaks below 72, I'd want to be in physical gold.

Until that time, "trading" GLD is ok, but I'd also want to know what else is going on in the economy: Wars: Pakistan, N. Korea, and Iran; more stimulus, bankruptcies and bailouts; FDIC needing more cash; How many more banks will be added to the 50 or so failures at present; China and Japan's rate of unloading U.S. Treasuries; and what the Fed is saying and doing along with the general sentiment of consumers and investors.....to name a few.

As the dollar index heads to 72 however, the premium over spot for physical gold will rise and that's why its good to accumulate now if you believe as I do that 72 and lower is on the horizon.

Everyone's personal situation is going to be different. My objective is to help people understand a little bit more about the situation.
On Jul 15 02:35 PM srfpala wrote:

> "..they are dead wrong and their clients will suffer from their lack
> of understanding about how gold fits into a well diversified portfolio."
>
> then "(although, I personally would only recommend trading with these
> instruments and not include them in one’s long term holdings….but
> that’s another story)."
> So when would you prefer to hold physical gold and not GLD, and is
> there a time when you would prefer GLD over physical gold???
> Curious!
>

Gold / Euro Connection: Another Nail in the USD Coffin?

It all depends on your "trust" in the dollar IMO. Since many view gold as "insurance," its a matter of holding paper insurance that gives you a non-deliverable claim to gold or the holding the real thing. I don't mind utilizing gold ETF's for trading though. But I recommend physical gold for this insurance.

GLD and IAU offer investors a ways to play the gold market, but do not allow the investor to take delivery of the gold. The gold is set aside in a bank depository. You buy shares in the ETF and sell the shares back when you liquidate your position receiving Federal Reserve Notes in return (into your brokerage account).

These ETF’s are a lower cost way to invest in gold, but offer only paper promises if the dollar were to collapse as you do not have actual ownership of gold. What you do have ownership of is multi-level custodian’s including the Bank of New York, and HSBC that are in control of the gold.

Another way of looking at it, is if push comes to shove with the dollar, do you want a bank in control of your gold or do you want the peace of mind knowing you are in control?

That's a big decision to make, but I understand, not one a trader of GLD or IAU cares about.

If you read my article on "What Really Backs the Dollar?" you might get a better perspective on the reasons to own physical gold. You can find it here: fedupbook.com/blog/eco.../

On Jul 15 01:09 PM User 427556 wrote:

> "It’s also true that its easier to invest in gold now than in the
> 1971-1999 era because of the introduction of ETFs like GLD and IAU
> (although, I personally would only recommend trading with these instruments
> and not include them in one’s long term holdings….but that’s another
> story)."
> One can view physical gold as a continuous and fluctuating asset
> class in a portfolio. Why not replace the physical gold with GLD
> ?
> Is the risk of loss that substatial?

Groundbreaking WSJ Story on Gold

Mad Hedge Fun Trader,

You're right about all the reasons. The Fed, Treasury et. al. are all doing all they can to keep gold at bay by trying to stimulate the economy. Short term green shoots won't last.

If a consumer on a fixed income adds more debt to their credit card debt it just gets them further into the red as more income is needed to pay off the debt, not more debt.

With unemployment increasing, our government has a decreasing income (tax base). The only real solutions the government has is higher taxes or inflate the debt away. Of those two, only one will get a congressman elected. More spending is not going to solve anything, but spend they do. There's no "golden handcuffs!"

Couple things to note..

1. Gold is in it's seasonal summer doldrums pattern.
2. The Central Bank Sales Agreement (CBSA) ends in September.

Will be interesting to see if there is a 3rd CBSA. I'm sure the Swiss aren't too happy about its Central Bank being forced to sell so much of their gold while each year the yellow metal breaks to a new high. I imagine they're a little "fed up!"


On Jul 15 12:28 AM Mad Hedge Fund Trader wrote:

> Gold? ) I have been a huge bull on gold this year, piling investors
> into the yellow metal at the $800 level in early January (see www.madhedgefundtrader...).
> But after an exciting couple of months, it has tiresomely become
> dead money. This is a commodity that has absolutely everything going
> for it; the Great Depression II, threats of nuclear war with North
> Korea, riots in Iran and China, a government borrowing binge of Weimar
> proportions, and money supply growth that is through the roof. In
> fact the US is doing everything imaginable to debase its own currency.
> Unfortunately, all I see on my screen right now is an ugly smudge
> at $910 an ounce. So what gives? Someone has been leaning heavily
> on gold every time it approached the magic $1,000 level, and they
> have now created a quadruple top on the charts. Gold has become the
> metal that everyone loves, but nobody wants to buy. There have been
> rumors of European Central Bank selling of gold reserves, Russian
> selling to cope with a lower oil price, and traders simply playing
> the range for lack of anything else better to do. The global risk
> reduction that began with a vengeance a few weeks ago is certainly
> having an impact. If demand from the famed Indian wedding season
> doesn’t come through, things could get worse. Gold bugs should expect
> to suffer more short term pain in this great long term core holding.

Gold / Euro Connection: Another Nail in the USD Coffin?

This is an interesting thought Roger, and one I have spent many hours contemplating. I guess this is from playing the game Risk and reading some Sun Tzu.

What got me thinking was the fact that during these last dual wars in Iraq and Afghanistan, our troops were pulling double duty.

Meanwhile, N. Korea was acting up again recently and Obama seems to have an infatuation with what is happening in Pakistan, even before he became President.

Recall his statement during the campaign:

“The first step must be getting off the wrong battlefield in Iraq, and taking the fight to the terrorists in Afghanistan and Pakistan…. If we have actionable intelligence about high-value terrorist targets and President Musharraf won’t act, we will."

And his most recent Pakistan comments after being elected:

Obama: U.S. prepared to pursue targets in Pakistan
www.cnn.com/2009/POLIT.../

Thinking like Sun Tzu, China, if they were keen on conquering the U.S., could take their 200 million man army and walk right across our border with Mexico.

"The opportunity to secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself." Sun Tzu

"There is no instance of a nation benefiting from prolonged warfare." Sun Tzu

The U.S. economy is suffering from this "prolonged warfare" and I just can't see how the U.S. Military can expand into any other country, although we allegedly are counting down the days of coming home from Iraq.

I'm not saying it can happen, but it would make for a good novel (and there's one little spec in my eye that keeps me looking out for how thin the U.S. will spread itself and what China's up to).


On Jul 15 05:42 AM Roger Knights wrote:

>
> I think critics of gold as a long-time investment, at least for US
> citizens (where there's no danger of invasion or revolution), are
> correct.

Groundbreaking WSJ Story on Gold

MDP, which ETF are you referring to that allows one to request physical delivery (not to be confused with ETC's)?

The two gold ETFs are GLD (the largest) and IAU offer a way to invest in gold and profit from its rise in price. The caveat being that you can't take delivery of that gold the ETFs invest in, so you are technically buying "paper" gold.

Source(s):
GLD Prospectus www.spdrgoldshares.com.../p…
IAU Prospectus us.ishares.com/library.../prosp…

I do agree that you can "trade" the ETF's, but wouldn't recommend them as an alternative to physical as a U.S. dollar insurance hedge.

On Jul 13 03:34 PM MDP wrote:

> As a RIA myself I cannot comprehend the absurdity of owning physical
> gold, let alone what is most often pushed, rare coins.
>
> Are we forgetting that there have been times where our own government
> set the price of gold, at levels below prevailing markets? (Great
> Depression) Have we forgotten there have been times when the use
> of gold for payment of U.S. Debts was prohibited via gold?
>
> Most importantly to me though is the inabilty to trade the stuff
> which in my estimation is it's only real value. At least with and
> ETF you can buy and sell the stuff for a profit and actually request
> physical delivery if you choose. (Who would?
>
> As for an inflation hedge the stuff may make a great hedge but to
> do so, it needs to be liquid which physical gold is not. I do not
> trust theis Government today and certainly do not trust that they
> will not repeat the Great Depression and set a limit as to golds
> value and preclude it's use as currency if the great armaghedon actually
> arrives.
>

Groundbreaking WSJ Story on Gold

Quote from Tim Iacano; "Aside from gold stocks, gold bullion has been about the best investment of this decade, a fact that still seems to be beyond the grasp of most financial advisers."

Indeed! I've been trying to get financial advisor's to respond to this issue, even to a few here on Seeking Alpha, but I don't get any responses from them.

I was a financial advisor for over 20 years and have decided to set out and write about the industry (and other things) as I feel it's more important and I can reach more individuals with my understanding of what really is going on.

My articles written in the past week or so....

"Gold: Why Doesn't Your Financial Advisor Recommend It?"
fedupbook.com/blog/inv.../

"Challenging Financial Advisors On the Need to Diversify Into Gold"
fedupbook.com/blog/inf.../

"Gold Investment Bashers Won't Respond to Critique"
fedupbook.com/blog/inv.../

I had replied to the WSJ online article over the weekend that Tim's article references and true to form, received no replies: online.wsj.com/article...

If a financial advisor wants to stop by my blog and debate the issue, feel free....unless of course you have to get SEC permission.

A Golden Hedge Against the Dreaded Dollar

Pier,

> But historically they are far higher, the div yield only needs > to be ~3.2% to equal gold's current (and very inflated)
> performance. In fact, historical div yields are about this
> number.

Yes, I realize this. But in this case, history is one thing, but the recent trend is lower dividends as I pointed out. Until stocks return to their 6% historic rate, investment advisor's should stop saying that "stocks return 10% on average in the long run," that most still spout. Most of that 10% return came from dividends and it's just not happening as to obtain that 10% return it has to come from capital growth, of which there isn't much to speak of today.

> Great, that is *YOUR* definition. YOUR definition
> excludes increases due to wages (decreases due to
> productivity), increases due to other imput variables (such
> as oil, remember when people said the raise in oil was
> solely because of the dollar?), what about destruction of
> wealth? Less dollars on the market.

Well this is where we differ. The definition of inflation I gave you is from the Austrian School of thought and not printed in any college textbook (or CFP study materials which I have the entire collection).

Oil priced in gold you never saw any inflation. Oil priced in U.S. dollars you did.

"Destruction of wealth?"

If I own a home and it goes up $500k in value and then loses that value, have I really lost wealth that I didn't possess to begin with? The mistake is in not recognizing the opportunity to take advantage of the aberration in housing prices by selling and locking in that wealth (same could be said for some stocks). There was asset inflation and now asset deflation.

The problem lies in the fact that many Americans took some of that newly created "wealth" and spent it on depreciating assets like home improvement, vacations or even the stock market (which at first rose and now is seeing the effects of lower demand and closer to real value, but not yet).

> Yes, but what if the goods increased? What if then they > suddenly decreased and the leverage decreased
> accordingly?

"What if?" is the appropriate question. As explained above, if the goods aren't sold to lock in wealth, and all of a sudden the demand decreases and the wealth that once was there is lost, it's just a matter of reigning in the boom caused by Fed intervention in the free market. As Mises says, the "bust" is upon us. Those who saw this coming, and understood ABCT (Austrian Business Cycle Theory) invested or dis-invested accordingly.

Those of us who posted frequently on the Richard Russell bulletin board (Dow Theory Letters) saw this coming a mile away. It's not rocket science.

We do find ourselves in a crossroads of waiting to see who is right. Time will take care of this and as I said, I am still doing my own research on the deflation/inflation issue. Robert Murphy, an adjunct scholar of the Mises Institute and a faculty member of the Mises University, has thrown his hat into the ring today on the Mish/North discussion: mises.org/story/3541

Bottom line; the jury's still out. As I said, I can definitely see validity in both camps, but you never answered the question relating to examples in history of deflation winning out and the currency getting stronger when the monetary system is being flooded with more money. There is none.

> Again, you make claims that there is such a strong
> relationship between the value of the dollar, or inflation,
> and gold. You have yet to provide ONE SINGLE
> SOURCE for this claim. Yet, you can simply go to
> google, put in "correlation between gold and inflation",
> and you find the same magic number, -0.28. Refute it or > stop parroting it.

I gave you an answer right away to which you did not comment but repeat the same request for proof in subsequent posts. I'm not sure what else you want from me, but I do expanded on this below. Here is what I wrote:

Jul 12 10:03 PM (PST) I said the following:

"...before 1971 the price of gold was fixed by the U.S. government. When Nixon took us off the gold "backed" standard in August of that year, the price of gold averaged $43.71 an ounce. Subsequently, Americans could start purchasing more than $100 an ounce in 1975.

So gold was $43.71 (avg) on August 15th, 1971.
Gold is $914.00 bid as we speak.
The S&P 500 was 98.76 on August 15th, 1971.
S&P last close was 879.13.

Gold has outperformed stocks. Now to the dollar and inflation...

$1 in 1971 would require the purchasing power of $5.31 utilizing the government's CPI data that you know has changed over the years.

Gold is higher because it is a true indication of inflation.

There is at present a decoupling of gold from the dollar. I wrote an article on this here: fedupbook.com/blog/inf... "

Further proof:

First, know that I am only analyzing things after the decoupling as that is when the rules changed, as well as the introduction of the Euro giving the world an alternative to the dollar....

What were the cost of goods after Nixon took us off the gold (backed) standard? What are the costs of goods of those items today? Why are they more expensive? Have the prices increased relative to the price of gold? Why haven't they?

In a world where the medium of exchange is constant, prices should deflate because of innovation and technological advancements. Wages would not need to rise as the individual's purchasing power goods would increase due to falling prices.

This simply is not the case today. So gold rises in "U.S. dollar price" because the dollar, the medium of exchange, increases thus making the goods, more expensive. How else can the producer of the goods maintain the same wealth if they don't increase prices? They're not going to keep prices low and stay in business.

Having a sound medium of exchange would resolve this issue.

I'd really like for you to tell me how the trillions of dollars of future needs of our country, that I outlined in a previous post are going to be paid for. Furthermore, if most of the wealth destruction has already occurred, then that resolution can be discredited. But I do think there is more wealth destruction to come in real estate and the stock market and of course, the dollar (and gold will benefit from this).

And yes, it is true that gold also acts as a safe haven investment. It has dual benefits as such, a U.S. dollar hedge and a fear hedge. But we're not in "Tulip" territory by a long shot. We're still in the elongated 2nd stage of the gold bull.

As to your ratios, I see now where you are getting them from...Mish: globaleconomicanalysis...

First off, I'd like to see Mish update this to today's numbers. Second, he utilizes, via the authors who he quoted, Roy Jastram's work from the Golden Constant which I analyzed in a post here on Seeking Alpha, interestingly enough titled: "Inflation with Gary North or Deflation with Mish?" you can read here:
seekingalpha.com/artic...

As I said, I'm more interested in the numbers from 1971 forward, and especially since 1999.

> Great, you think it's a decoupling. Yes, it is a decoupling, > but your reasons for the decoupling are wrong.
> Temporary decoupling of the dollar to gold have occured > many times in the past, mainly because of flight to safety > vs all other asset classes. The data backs that up.

Only once has decoupling occurred since 1971 when there was no real competition to the U.S. dollar. Now there is plenty of competition and the world knows this.

> Comparing Iceland or Zimbabwe, or South America to
> the US is simply ridiculous. They are hyperbolic
> cheerleading headlines intended to get people scared,
> but in reality, there are massive differences between our > current situation and those situations. First off, we still
> have the world's largest economy and, as a ratio of total > leverage to GDP, we are far better off than almost any
> major economy in the world. Second, there was nothing > to Iceland, Iceland WAS the banks. This is quite different > than the US since we also have manufacturing, Ag, IT,
> Drugs, and a plethora of other industries.

> You can compare numbers all you want (garbage in,
> garbage out), but without rudementary contextual inputs, > your conclusions will be wrong.

Didn't compare to Zimbabwe as that would be foolish. I chose Iceland as it was a current example(2008) and yes, I realize it's not a perfect apples to apples comparison, but what is? Iceland did however have better economic numbers than the U.S.

But Iceland didn't have a Fed that could bailout their banks (and other entities) before the crisis hit. In the end, they did get IMF funds that also helped the Argentina get out of their mess.

There is no entity besides the Fed that can help the U.S. situation and instead of cutting back on spending, our government spends even more. Meanwhile, the 53rd bank failed this year. Don't hear too much press about that.

I'm still waiting to see the insurance companies accounting for this commercial real estate debacle that is occurring. No one is writing on that yet.

But I agree. We're not Iceland. I didn't imply that, just giving an example of the economic numbers behind the two countries.

Our GDP though is primarily government spending these days. How long can that last? You can read my analysis of GDP here: fedupbook.com/blog/eco.../

>Mish was right on about Schiff, who happens to be yet >another person who talks a big talk about US economy >decoupling, dollar crashes, and gold skyrocketing. >However, when it came to actual application of his >"knowledge", he fell flat on his face and should be called >out. While I don't agree with Mish on a lot, I happen to >think that if more so-called "brokers" and "investment >advisors" were called out, publicly, and very harshly, we'd >avoid this type of economic trap.

IMO, Schiff's mistake is in his buy and hold mentality, which I personally am not a believer in, unless it is physical gold (for obvious reasons I have outlined above). I had an exchange with Mish on this about Peter. My complaint with him was the public attacks on what would be considered a timing issue for Schiff's clients. Those that got in early with Schiff would have done fine, but those who got in say in late 2007 and early 2008, got burned. They have since recovered some and are now probably losing again. Of course most financial advisor's in the United States had their clients losing money with the most recent stock market crash from it's highs in November of 2007, so Schiff is not alone as others deserve criticism as well. It is this buy and hold mentality I have a problem with. I think Mish even did a recent article on it, so we are in agreement there.

Mish did tell me that Peter had clients take equity from their homes and use it to put it in the market. I don't know the truth of the matter as he didn't give me a url to look at of the allegations, but that is something that makes no sense, especially in a declining real estate market.

As I said, I read them all...and then do my own analysis. My crystal ball hasn't let me down too much. But how many investors have their own crystal ball? How many even go as far as you and I have in this exchange in analyzing things? Not many eh?

Appreciate the toned down conversation. I don't claim to have all the answers, but we can agree to disagree about the inflation scenario relating to gold. I'll be putting my money where my brain takes me though.

I'll let you have the last word as I have to get on to research and writing....

A Golden Hedge Against the Dreaded Dollar

pier,

Try to have a discussion with me and forget the personal attacks calling me "delusional," "obviously what you suffer from," and my words "drivel" as it does nothing for your character and I just won't reply to it any longer.

Point by point (added to the points above that I have answered):

Dividends on the S&P have been averaging 1.7% of late and are being cut even more by companies: economictimes.indiatim...

The rest of what you bicker about is related to inflation. My definition of inflation is "an increase in the money supply via fiat printing and credit."

As the government prints and produces more money, it devalues the dollar (you know...that thing that gold is priced in).

To explain; If all the goods in the world cost 1 million dollars and you doubled (inflated) the money supply to 2 million dollars, then it would now cost twice as much money (dollars) to purchase all the goods in the world. This is what's occurring since the Reagan administration.

Gold is priced in dollars and thus will have the same price increase in dollars when the money supply is doubled (again, despite the Fed, U.S. Treasury, Central Banks, etc. who try and discourage people to invest in gold rather than dollars) - yes there are supply and demand issues to. Unlike U.S. dollars though, the supply of gold is limited (by the way, you keep addressing other issues that aren't related to the issue we are discussing, but I must point out your misunderstanding of what a true gold standard its. It's not a "gold backed" currency.

Your comment that gold is a measurement of risk is right. Risk of holding U.S. dollars, the more of which are created results in (my definition of) inflation.

I like Mish. I read him to get some good perspective on things. I also like Gary North. I enjoy the back and forth between Mish, Schiff and North.

As I pointed out in my blog piece, this is just the beginning of the decoupling and it will get worse. I'm presently doing my own research on the inflation/deflation and will post it in the near future. I can see valid points in both sides of the debate and that's why I am doing the research myself.

To your last question though....which kind of hints at my research...

You said; "I do like how you don't even address my points, point by point. Such as, why would government spending cause inflation if the amount of wealth (and currency) eliminated form the system offsets such spending?"

So, I answered your questions to the history of gold, inflation and the dollar since 1971 and proved my point, but I see you are stuck on analyzing recent wealth destruction. I'll make a comment and end the discussion till I have completed my analysis, but this will give you a hint.

You are commenting on "asset deflation" which can occur at the same time as "monetary inflation."

Bernanke is on record in his 2002 speech that he will utilize Friedman's helicopter if he has to in battling (asset) deflation. Naturally you'll agree this is what is occurring in record figures with the stimulus, bailouts etc. that are happening. As I have mentioned, one needs to add to this all of the other issues of the day that are occurring (healthcare expenditures, cap trade, other environmental mandates, pension guaranty assoc. close to needing a bailout, FDIC already inquiring about funds, future obligations to Fannie and Freddie, result of the 2nd round of ARMS expiring, the coming Insurance company crisis with bad real commercial real estate, state (California) funds needed, infrastructure crisis fedupbook.com/blog/bud.../ etc etc., and that's just what we know of today. And did I mention the military needs? Lastly, future obligations to medicare and social security.

So that is what is on the horizon.

But I ask you...and I got this from an article I came across in my research written by a CFA:

Where is that example of “a modern, major nation where the domestic purchasing power (as measured by CPI) of its purely symbolic & independent currency uncontrollably grew in value at a rapid rate over a sustained period, despite the best efforts of the nation to stop this rapid deflation?

If actual history is what matters to you rather than theoretical discussions, unfortunately, we have a long history of what happens with nations in severe economic distress, when they have a symbolic, independent currency (not explicitly tied to another currency). That history isn’t one of those fiat currencies soaring in purchasing power, despite the best efforts of the economically wounded nation to keep that from happening. No, the very well established pattern is that the currency collapses in value (price inflation), even as the purchasing power of assets is collapsing (asset deflation), much like what is happening with Iceland today."

Just so happens I wrote an article comparing the U.S. Economic numbers to that of Iceland before Iceland's blow up last year: fedupbook.com/blog/bud.../

Lastly, you have not offered any statistics at all in your replies.

Somehow I don't expect you to change in your responses though. People like you try to draw people like me into the game of trash talking. I wrote to Mish and told him he shouldn't have gone after Schiff the way he did as in the end, we all like the study of Austrian economics and are bullish on gold long term (Mish whether it is inflation or deflation and Schiff and North because of inflation, including me). He didn't agree. I won't go to the level of personal attacks and don't care to continue this conversation with you.


On Jul 12 10:29 PM pier0188 wrote:

> Derr...forgot to address one final subject.
>
> "
> Comparing gold to Tulip Mania isn't realistic. Gold was never mentioned
> in the book, "Extraordinary Popular Delusions and the Madness of
> Crowds," but John Law's "paper money" was. "
>
> So, because it was mentioned in a book you happen to agree with,
> that means that it is actually applicable? Wow, great one. Why
> not pick and choose all sources, excluding the remainder of knowledge.
> That's a great way to diversify your intellect and avoid tunnel vision,
> which is obviously what you suffer from.
>
> I do like how you don't even address my points, point by point.
> Such as, why would government spending cause inflation if the amount
> of wealth (and currency) eliminated form the system offsets such
> spending?

A Golden Hedge Against the Dreaded Dollar

The above was in reply to the post below:


On Jul 12 08:17 PM pier0188 wrote:

> That's great and all, but it still doesn't answer the question why
> you think gold is a good inflation hedge. It simply isn't statistically
> speaking. You ignore the data and make up all sorts of drivel in
> return, it is actually pretty amusing. Show me ACTUAL numbers that
> shows how gold has increased with inflation and is a good "hedge".
> You can't because there simply is no data to back up your assertion.
>
>
> Then you go on to counter with increased government spending. Wow,
> good analysis, what 4th grader hasn't gone that far?
>
> Why don't you finish the equation rather than leaving it half built?
>
>
> The increased government spending is countered by the trillions of
> dollars in assets that have been written off. It is countered by
> the immense amount of RE "wealth" that has vanished. It is countered
> by the fact that R/CMBS bonds are valued far less, as are many securitized
> assets. Those assets "vanishing" is a counter to your inflationary
> vision, as is most other assets depreciating.
>
>
> So, in summary, you parrot the same old gold-bug shtick that was
> parroted back in the early 80s. Why don't you look at stocks from
> there compared to gold and the dollar? Which one wins? Certainly
> not gold.
>
> Gold mania is a bubble driven by financial innovation (double leveraged
> future funds), just like tulip bulbs, tech stocks, and RE.

A Golden Hedge Against the Dreaded Dollar

Look, before 1971 the price of gold was fixed by the U.S. government. When Nixon took us off the gold "backed" standard in August of that year, the price of gold averaged $43.71 an ounce. Subsequently, Americans could start purchasing more than $100 an ounce in 1975.

So gold was $43.71 (avg) on August 15th, 1971.
Gold is $914.00 bid as we speak.
The S&P 500 was 98.76 on August 15th, 1971.
S&P last close was 879.13.

Gold has outperformed stocks. Now to the dollar and inflation...

$1 in 1971 would require the purchasing power of $5.31 utilizing the government's CPI data that you know has changed over the years.

Gold is higher because it is a true indication of inflation.

There is at present a decoupling of gold from the dollar. I wrote an article on this here: fedupbook.com/blog/inf.../

I'll disregard your comment about what I wrote as "drivel" now.

All I'm professing is a diversification into gold as a hedge against the falling dollar. Naturally, anyone who has studied the facts would agree.

Comparing gold to Tulip Mania isn't realistic. Gold was never mentioned in the book, "Extraordinary Popular Delusions and the Madness of Crowds," but John Law's "paper money" was.

Ludwig Von Mises wrote about what is happening today in 1981: “The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Ludwig von Mises, Human Action p. 572.

Sound familiar?

See you on the other side of what our Government has done and is doing to our money.

A Golden Hedge Against the Dreaded Dollar

Things have changed since 2000. Read my reply to American in Paris above.

The real point is that inflation is on the horizon because of the government spending that is occurring. How is this spending going to be accounted for when our government doesn't live within its taxable means? Answer: Inflation and/or higher taxes. We're getting both in the years to come. But higher taxes doesn't get a politician elected (think Mondale here). So inflation is the only viable solution and the price of gold will rise with it.

On Jul 12 03:27 AM pier0188 wrote:

> Not sure why everybody parrots the "gold is an inflation hedge" hyperbole.
> Gold's relationship to inflation, M3, the USD Index, is very weak,
> at best.
>
> The last time gold was at these prices was in the early 1980s and
> every shoe-shine boy in the street was parroting the same advice.
> When you see that you know to run away from gold.

A Golden Hedge Against the Dreaded Dollar

The price of gold goes up when there is demand sure. Simple economics. I'm not denying that.

But what you call "silly" would have hedged investors portfolios over the last 10 years. If the stock market goes up 10% and the dollar falls 10%, how much wealth have you created? Zero!

Look, the dollar has 38 short years without gold backing. What in investor's portfolio can counteract the fall of the dollar outside of possibly foreign stocks? Most financial advisor's are not addressing this issue, and you call those that don't address by hedging, "silly?"

Gold has a history as a store of value. To not include it in a properly diversified portfolio is silly.

I don't have to go back 100 years as the dollar was "backed by gold" most of that time. The dollar also didn't have any competition really until the Euro was introduced. What has the U.S. dollar price of gold done since the Euro was introduced? It's gone up every year since the first. You don't see a pattern here?

Now the almighty dollar has trillions of debt backing it and the U.S. government isn't doing anything to "change" that pattern.

To not plan for the coming inflation as a result of this spending is "silly." Times have certainly changed and you don't have to be a gold bug to understand this. Look at the economics as I have. What really backs the dollar today? Read my article I wrote to find out: fedupbook.com/blog/eco.../




On Jul 12 09:35 AM American in Paris wrote:

> I think you're being silly. Gold is driven by supply and demand.
> It is just one more commodity among others and doesn't deserve any
> special importance in a diversified outside of fanciful hyperinflation
> scenarios.
>
> Compare gold with American stocks over the last hundred years. Compute
> the rate of return. Bottom line. The data does not suggest gold is
> a good long term investment.

Fool's Gold (Part 2)

If you traded gold mining stocks from November to May you would have made a lot of money, even more so than most stocks. Who can say it was more or less than your generalization of "stocks" as a group?.

Where is the low for gold? I'll make sure and load up.

Too many generalizations in your comment there Stan...


On Jul 11 03:53 PM stan2001 wrote:

> Gold like any investment you try to buy low and sell high. There
> is no magic about it. If you traded stocks over the past year you
> would have made a tremendous amount of money , more than with gold.
> #1 point when all are telling investors to buy IT'S TIME TO SELL!!!

Taming Inflation with ETFs

Retired....

1933/1934
Unemployment rate over 20%
Inflation over 10% in 1933, and then in 1934 Roosevelt devalued the dollar by 60%. We've had nothing but "dollar" inflation ever since, exasperated by the 1971 decoupling. That's 38 short years of "history" without gold backing and now with more competition to the dollar (primarily the Euro and of course gold with the introduction of ETF's), the dollar has many strikes against it and the trillions of debt that backs it.

My future answer to this question will be:
Shadow Government Statistics has the current unemployment rate at 20% when you include those no longer looking for work and those who are working part time (not counted in current unemployment figures)
And as far as inflation goes: 2010/2011/2012 - pick one, it's coming. You don't think Helicopter Ben will let us down do you? His 2002 speech is the road map. But remember, in that same speech he also hinted that what Roosevelt did in devaluing the dollar by 40% was a good thing.

Here's what he said, and my last comment below that:

"Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation."

Notice that Bernanke said "enforced by a program of gold purchases?" Why didn't he mention that it was confiscation of the People's gold to bailout the bankers? The dollars given to the People for their gold were devalued by "40%" according to Bernanke. To these folks the People don't matter. The system must be maintained at all costs when in fact it is the system itself that causes the busts to begin with.

With the bailout of all of these integral parts of the system and what is to come, it is obvious to me Bernanke is practicing what he is preaching. Add GW's policies and Obama's and the writing is on the wall as to what will happen next.

Hope you're not on a fixed income.


On Jul 05 12:56 PM Retired wrote:

> 1982 inflation = 6.16%
> 1982 unemployment= 9.7%
> 1983 inflation = 3.22%
> Note that in the year AFTER high unemployment, inflation FELL
> The point I was trying make was as long as we have high unemployment
> inflation is not a concern.
> Guess I should have been more specific. Please name a year when there
> was HIGH inflation coupled with HIGH unemployment.