What Does The Gold/Silver Ratio Tell Us Now? [View article]
Just guessing, tallguyz, but I think his article is referencing the GLD/SLV ratio rather than the gold/silver ratio. If you multiply his values by 10, I'm guessing you'll get something similar to the numbers you're talking about.
What Does The Gold/Silver Ratio Tell Us Now? [View article]
David, that doesn't sound like a very promising bet. Even assuming that they will return to that 16:1 ratio and that were to occur this summer (!), if silver is going to almost double, it is almost inconceivable that gold would halve at the same time. Silver and gold tend to move in the same direction although not to the same degree.
I think you are right about Jastram: his point (looking from the mid-1970s) was that gold had historically fared better in deflationary periods than in inflationary ones. As you point out, since gold was tied to the dollar under the gold standard, that was something of an obvious point to make. That the price of gold was raised during the Depression probably encouraged him to think that gold benefited more from deflation. Also, the price of gold rose during periods the gold standard was suspended but generally not as much as other prices. I thought he over-emphasized this relative weakness in gold, because in those instances, for those who did not want to stockpile sheep or wool or copper or whatever, gold (and silver) would have been the only alternatives.
Jastram wrote his book about silver (which I've not read) in the early 1980s, I think, and I believe that by then he had changed his tune about gold somewhat. If I remember correctly, he gave a lecture or something saying that gold should be remonetized.
The thing I especially appreciated about his book was that he addressed the question of gold in a very objective and thorough manner and drew sound conclusions from the data he had available to him. I believe that forty years later we can say a bit more about precious metals and commodities, but I still think we are only beginning to scratch the surface.
Unless you are measuring the value of the dollar by some yardstick I am unfamiliar with, by almost any other measure of the dollar, gold has always moved independently of it. The only way I could agree with your argument is over a very long period of time. As I said in my previous article, most investors do not have half-century investment horizons. For those who do, diversification, I would think, would be a more prudent option.
You touch on many topics, and I'm afraid I cannot respond satisfactorily. Part of the trouble I am having is putting my finger on the center of your approach to gold and other PMs. You seem to indicate that many use gold as a hedge against catastrophe, 'rightly or wrongly', and therefore it is a hedge against catastrophe. This 'if-it-all-goes-wrong' trade is so ill-defined that I don't know why one shouldn't focus on emigrating or building up a political coalition or joining a gang. My impression is that a collapse of our monetary system would produce so many terrible consequences that I am not sure how an individual could be protected by gold or guns.
As I wrote in my last article, for those who are able to invest for the ultra-long term (let's say centuries), an ounce of gold is not the worst form of investment. If I had to buy an investment for my great, great grandchildren, I am sure gold would be one of the few viable alternatives. That would be a peculiar sort of investor, though. Most would feel uncomfortable enduring the 1980-2000 bear market you somewhat glossed over.
You mention the difficulties our economic system faces, and I don't intend to minimize them, but in 1980, I imagine many thought that inflation would continue to run amok until it brought the whole system down. Maybe this time things will really come undone, but I am not prepared to put my money down on that bet. You might be right that things are unsustainable, but how do you know that I won't have to wait forty years for that outcome?
As for your specific questions at the beginning of your comment, I find them difficult to respond to, partly because I think they attribute a number of opinions to me that I simply don't share. The whole point of my article on gold was that it was not a 'lie', although many gold bugs were happy to jump to the opposite conclusion. I mentioned this a few times in the comment section of my last article.
Also, since I don't rely upon Jastram's interpretation, I am not sure I feel too qualified to represent it. As I understood it, Jastram's point was that, over the long term, the relative price of gold oscillates around an axis. Many people assume that prices for goods under the gold standard was a function of the price of gold. That real commodity prices have always been a function of equity yields while gold/commodity prices have inverted their correlation, it suggests that gold played a very limited or special role under the gold standard.
As I suggested in this article, although I am not prepared to take a definite position, it would appear that the relative price of gold under the gold standard was, just as you seem to be saying, not a fair representative of how gold prices behave. You are taking me to task for failing to make a point that I am, in fact, strongly hinting at, although you have taken an odd route to get there, I think. You seem to be conflating Jastram's point (which relates to the long-term relative price behavior of gold) to mine, which tries to incorporate and modify Jastram's point into a broader framework.
The point of these two articles is that gold and silver behave like commodities once they are freely traded. The history of gold trading is very short, but silver's is much longer and suggests a similar sort of dynamic although one that has been curiously amplified since the 1960s.
Your argument seems to be that we cannot rely on the relative price of gold under the gold standard to indicate how gold behaves and because there are so many economic problems, we cannot really look to how gold has behaved since the end of the gold standard. That leaves us with nowhere to turn except conjectures about how the future will look, which seems a quite risky approach.
Thanks for the comment. I'll try to respond to your points as best I can.
First, as for the current demand for physical, I was under the impression that this was what happened in 1980, as well. Lines down the street as Ma and Pa loaded up on metal at the peak. Has 'demand for physical' ever been an especially reliable guide for future price behavior?
As for the divergence btwn metal and paper, I can't say that I know how to interpret that on its own. Is that a historically reliable indicator, or is that the theoretical endpoint for the current system?
As for the final half of your criticism, that I lack "historical understanding", of course, one can always do better. But, I have clearly distinguished the difference in monetary regimes and the effect that has had on prices (of all assets and goods) throughout my work since November. In fact, that is the foundation of nearly everything I do. If you would like to read my previous treatment of the history of gold and prices, you might want to read the five-part series, "The Evolution of Gibson's Paradox and the Revolution in Prices", which deals with nearly every category (except housing) back to 1730. More briefly and more specifically directed at the history of gold, you can read (http://seekingalpha.co...).
You insist that I am unaware of this history, but you are not directly linking how my lack of 'understanding' relates to a specific problem with my analysis. My whole point about gold is that once it was traded on the market in 1971, it began to trade just like commodities have for the last 300 years; in fact, even more so. One could make a case that the market's relationship with gold had already changed by the 1960s, as you can see from the linked article.
Elsewhere I have noted that 1960 saw the emergence of a completely new yield/inflation equilibrium (http://seekingalpha.co...) that seemed to start emerging from Bretton Woods and has survived up until today.
Without a more specific criticism of my historical analysis, it is difficult for me to accept that I am simply unaware of the change in the way gold relates to the rest of the market.
It doesn't appear you understood the article. I wasn't arguing that there was or should be either a positive or negative correlation between real interest rates and the real price of gold. That was Barsky/Summers' argument, which I've addressed before. This article was a summary/review of previous research I've done on Seeking Alpha, so I didn't provide any correlation coefficients. I certainly would not argue that equity prices as such have anything to do with the price of gold, either statistically or in actuality, now or ever.
Monsterboy, I might be the worst currency trader in the world, so all I can say is that we have seen gold and the dollar rise and fall (relative to other currencies) in tandem before. Over the last decade, the dollar index and gold have usually been inversely correlated, but I don't think there's necessarily a relationship there.
Robert, I wrote a long comment, and now it's lost, and I'm afraid I've lost the heart to write it out again, so I'll try to do the quick and dirty version.
First, commodities have always been correlated with equity yields, going back 300 years. Or, so I hold. Ever since gold and silver have been traded, so have they. And, gold and silver's relationship with other commodities has been pretty consistent for the last forty years, rising faster than other commodities when they rise, and falling faster when they fall. Adding the different variants of the 'manipulation' theme just doesn't seem to add anything to our understanding of commodity behavior.
I am exaggerating, but if you explained to me that it is hotter in the middle of the day than the middle of the night, because more people were running their cars at that time, I would be hard pressed to think how to dissuade you. It seems to me a very short-term explanation for a very ancient phenomenon.
In my opinion, IF one were to assume that the monetary system were to completely unravel BUT it were not to result in absolute chaos, guns and gold might be a worthwhile investment. I tend to think that if one happens, so would the other, and gold would not be of much use to individuals, although it would be highly desirable to armed organizations. A state or a gang would pull it out of your cold, dead hands pretty fast. The only other way I could justify this 'safety' type of investment were if one thought it could be passed through to future generations.
I don't think it is strictly speculative, however, and I believe that its 'super-commodity' behavior suggests a monetary component, although I don't have a very good reason for feeling that way. It's just very strange that both gold and silver should consistently outperform industrial and agricultural commodities in this way.
Sprott Asset's John Embry: Don't Sell Your Metals [View article]
Thanks, Abegaz,
That's the question I had on my mind. If relative performance (where metals overperformed on the way up and underperformed on the way down) were an especially reliable relationship, it would be odd for someone to be bullish the metal and yet switching to miners. If it's not a stable relationship, then Sprott's position would seem to be more consistent than it appears when placing these different stories side by side. Thanks for addressing that point.
Sprott Asset's John Embry: Don't Sell Your Metals [View article]
That's an interesting Zero Hedge link. I don't know if his positions are unethical or even contradictory, but it's confusing to read the links you posted alongside this interview. I guess he's saying that 'the carnage' caused by 'manipulation' isn't over yet, but it will end sooner rather than later, so don't try to predict the bottom; and I'm a pro, so do as I say, not as I do?
I can see that the ratios were not so boring that they didn't spill your morning Joe.
I also take it that you cannot see the contradiction in your positions. You say that gold is manipulated. You also say that it is correlated to 'government BS and corruption'. Well, which is it?
Gold rises with corruption, but falls with lack of corruption, but it also falls because of corrupt manipulation?
I also have to ask, since the question of my title keeps on coming up and being misquoted, is it only my version of Seeking Alpha that displays a question mark in the title?
Finally, your evidence for corruption is that gold went down more than the Dow and oil in recent weeks? I would have to see that idea elaborated on more before I could draw the monumental conclusions you appear to draw from it.
You are an SA contributor. Please publish a refutation explaining how the price of gold is determined and prove me wrong! I won't quarrel with you about the extent of my smugness, but it is great enough that I don't like being too wrong for too long, as it does nothing to soothe my ego. I would be happy to be convinced that there is a better way of going about this. I certainly don't see that I have to parry every (or any) assertion glibly dropped in a comment, even if the commenter is so passionate about their position that they have to engage in name-calling.
Really, though, why not use your platform on Seeking Alpha to prove my opinion wrong?
What Does The Gold/Silver Ratio Tell Us Now? [View article]
What Does The Gold/Silver Ratio Tell Us Now? [View article]
Silver: A Mere Metal? [View article]
I think you are right about Jastram: his point (looking from the mid-1970s) was that gold had historically fared better in deflationary periods than in inflationary ones. As you point out, since gold was tied to the dollar under the gold standard, that was something of an obvious point to make. That the price of gold was raised during the Depression probably encouraged him to think that gold benefited more from deflation. Also, the price of gold rose during periods the gold standard was suspended but generally not as much as other prices. I thought he over-emphasized this relative weakness in gold, because in those instances, for those who did not want to stockpile sheep or wool or copper or whatever, gold (and silver) would have been the only alternatives.
Jastram wrote his book about silver (which I've not read) in the early 1980s, I think, and I believe that by then he had changed his tune about gold somewhat. If I remember correctly, he gave a lecture or something saying that gold should be remonetized.
The thing I especially appreciated about his book was that he addressed the question of gold in a very objective and thorough manner and drew sound conclusions from the data he had available to him. I believe that forty years later we can say a bit more about precious metals and commodities, but I still think we are only beginning to scratch the surface.
Thanks again for your comments.
Silver: A Mere Metal? [View article]
Unless you are measuring the value of the dollar by some yardstick I am unfamiliar with, by almost any other measure of the dollar, gold has always moved independently of it. The only way I could agree with your argument is over a very long period of time. As I said in my previous article, most investors do not have half-century investment horizons. For those who do, diversification, I would think, would be a more prudent option.
Silver: A Mere Metal? [View article]
You touch on many topics, and I'm afraid I cannot respond satisfactorily. Part of the trouble I am having is putting my finger on the center of your approach to gold and other PMs. You seem to indicate that many use gold as a hedge against catastrophe, 'rightly or wrongly', and therefore it is a hedge against catastrophe. This 'if-it-all-goes-wrong' trade is so ill-defined that I don't know why one shouldn't focus on emigrating or building up a political coalition or joining a gang. My impression is that a collapse of our monetary system would produce so many terrible consequences that I am not sure how an individual could be protected by gold or guns.
As I wrote in my last article, for those who are able to invest for the ultra-long term (let's say centuries), an ounce of gold is not the worst form of investment. If I had to buy an investment for my great, great grandchildren, I am sure gold would be one of the few viable alternatives. That would be a peculiar sort of investor, though. Most would feel uncomfortable enduring the 1980-2000 bear market you somewhat glossed over.
You mention the difficulties our economic system faces, and I don't intend to minimize them, but in 1980, I imagine many thought that inflation would continue to run amok until it brought the whole system down. Maybe this time things will really come undone, but I am not prepared to put my money down on that bet. You might be right that things are unsustainable, but how do you know that I won't have to wait forty years for that outcome?
As for your specific questions at the beginning of your comment, I find them difficult to respond to, partly because I think they attribute a number of opinions to me that I simply don't share. The whole point of my article on gold was that it was not a 'lie', although many gold bugs were happy to jump to the opposite conclusion. I mentioned this a few times in the comment section of my last article.
Also, since I don't rely upon Jastram's interpretation, I am not sure I feel too qualified to represent it. As I understood it, Jastram's point was that, over the long term, the relative price of gold oscillates around an axis. Many people assume that prices for goods under the gold standard was a function of the price of gold. That real commodity prices have always been a function of equity yields while gold/commodity prices have inverted their correlation, it suggests that gold played a very limited or special role under the gold standard.
As I suggested in this article, although I am not prepared to take a definite position, it would appear that the relative price of gold under the gold standard was, just as you seem to be saying, not a fair representative of how gold prices behave. You are taking me to task for failing to make a point that I am, in fact, strongly hinting at, although you have taken an odd route to get there, I think. You seem to be conflating Jastram's point (which relates to the long-term relative price behavior of gold) to mine, which tries to incorporate and modify Jastram's point into a broader framework.
The point of these two articles is that gold and silver behave like commodities once they are freely traded. The history of gold trading is very short, but silver's is much longer and suggests a similar sort of dynamic although one that has been curiously amplified since the 1960s.
Your argument seems to be that we cannot rely on the relative price of gold under the gold standard to indicate how gold behaves and because there are so many economic problems, we cannot really look to how gold has behaved since the end of the gold standard. That leaves us with nowhere to turn except conjectures about how the future will look, which seems a quite risky approach.
Gold: A Bright Shining Lie? [View article]
Thanks for the comment. I'll try to respond to your points as best I can.
First, as for the current demand for physical, I was under the impression that this was what happened in 1980, as well. Lines down the street as Ma and Pa loaded up on metal at the peak. Has 'demand for physical' ever been an especially reliable guide for future price behavior?
As for the divergence btwn metal and paper, I can't say that I know how to interpret that on its own. Is that a historically reliable indicator, or is that the theoretical endpoint for the current system?
As for the final half of your criticism, that I lack "historical understanding", of course, one can always do better. But, I have clearly distinguished the difference in monetary regimes and the effect that has had on prices (of all assets and goods) throughout my work since November. In fact, that is the foundation of nearly everything I do. If you would like to read my previous treatment of the history of gold and prices, you might want to read the five-part series, "The Evolution of Gibson's Paradox and the Revolution in Prices", which deals with nearly every category (except housing) back to 1730. More briefly and more specifically directed at the history of gold, you can read (http://seekingalpha.co...).
You insist that I am unaware of this history, but you are not directly linking how my lack of 'understanding' relates to a specific problem with my analysis. My whole point about gold is that once it was traded on the market in 1971, it began to trade just like commodities have for the last 300 years; in fact, even more so. One could make a case that the market's relationship with gold had already changed by the 1960s, as you can see from the linked article.
Elsewhere I have noted that 1960 saw the emergence of a completely new yield/inflation equilibrium (http://seekingalpha.co...) that seemed to start emerging from Bretton Woods and has survived up until today.
Without a more specific criticism of my historical analysis, it is difficult for me to accept that I am simply unaware of the change in the way gold relates to the rest of the market.
Gold: A Bright Shining Lie? [View article]
Thanks for the comment.
It doesn't appear you understood the article. I wasn't arguing that there was or should be either a positive or negative correlation between real interest rates and the real price of gold. That was Barsky/Summers' argument, which I've addressed before. This article was a summary/review of previous research I've done on Seeking Alpha, so I didn't provide any correlation coefficients. I certainly would not argue that equity prices as such have anything to do with the price of gold, either statistically or in actuality, now or ever.
Gold: A Bright Shining Lie? [View article]
I might be the worst currency trader in the world, so all I can say is that we have seen gold and the dollar rise and fall (relative to other currencies) in tandem before. Over the last decade, the dollar index and gold have usually been inversely correlated, but I don't think there's necessarily a relationship there.
Gold: A Bright Shining Lie? [View article]
Yes, I remember your article. Best of luck with your further research. I don't intend to argue this any further. Thanks.
Gold: A Bright Shining Lie? [View article]
First, commodities have always been correlated with equity yields, going back 300 years. Or, so I hold. Ever since gold and silver have been traded, so have they. And, gold and silver's relationship with other commodities has been pretty consistent for the last forty years, rising faster than other commodities when they rise, and falling faster when they fall. Adding the different variants of the 'manipulation' theme just doesn't seem to add anything to our understanding of commodity behavior.
I am exaggerating, but if you explained to me that it is hotter in the middle of the day than the middle of the night, because more people were running their cars at that time, I would be hard pressed to think how to dissuade you. It seems to me a very short-term explanation for a very ancient phenomenon.
Gold: A Bright Shining Lie? [View article]
In my opinion, IF one were to assume that the monetary system were to completely unravel BUT it were not to result in absolute chaos, guns and gold might be a worthwhile investment. I tend to think that if one happens, so would the other, and gold would not be of much use to individuals, although it would be highly desirable to armed organizations. A state or a gang would pull it out of your cold, dead hands pretty fast. The only other way I could justify this 'safety' type of investment were if one thought it could be passed through to future generations.
I don't think it is strictly speculative, however, and I believe that its 'super-commodity' behavior suggests a monetary component, although I don't have a very good reason for feeling that way. It's just very strange that both gold and silver should consistently outperform industrial and agricultural commodities in this way.
Sprott Asset's John Embry: Don't Sell Your Metals [View article]
That's the question I had on my mind. If relative performance (where metals overperformed on the way up and underperformed on the way down) were an especially reliable relationship, it would be odd for someone to be bullish the metal and yet switching to miners. If it's not a stable relationship, then Sprott's position would seem to be more consistent than it appears when placing these different stories side by side. Thanks for addressing that point.
Sprott Asset's John Embry: Don't Sell Your Metals [View article]
Is There A Silver Lining To The Gold Price Plunge? [View article]
Perhaps this is similar to the reason Sprott is moving from silver to miners?
http://bit.ly/174JOOB
Gold: A Bright Shining Lie? [View article]
I can see that the ratios were not so boring that they didn't spill your morning Joe.
I also take it that you cannot see the contradiction in your positions. You say that gold is manipulated. You also say that it is correlated to 'government BS and corruption'. Well, which is it?
Gold rises with corruption, but falls with lack of corruption, but it also falls because of corrupt manipulation?
I also have to ask, since the question of my title keeps on coming up and being misquoted, is it only my version of Seeking Alpha that displays a question mark in the title?
Finally, your evidence for corruption is that gold went down more than the Dow and oil in recent weeks? I would have to see that idea elaborated on more before I could draw the monumental conclusions you appear to draw from it.
You are an SA contributor. Please publish a refutation explaining how the price of gold is determined and prove me wrong! I won't quarrel with you about the extent of my smugness, but it is great enough that I don't like being too wrong for too long, as it does nothing to soothe my ego. I would be happy to be convinced that there is a better way of going about this. I certainly don't see that I have to parry every (or any) assertion glibly dropped in a comment, even if the commenter is so passionate about their position that they have to engage in name-calling.
Really, though, why not use your platform on Seeking Alpha to prove my opinion wrong?