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  • The Time To Hedge Is Now! Just Do Not Rely On Gold To Help  [View article]
    You are absolutely right. In addition to the 1930s there is the panic of 1873 to examine among others. Also, there are myriad examples of monetary instability worldwide. Let's not forget that the world includes more than just the US and the dollar. Nobody is on a gold standard now and that is just an experiment that started in 1971 and is not likely to last forever. Prior to that the two monetary anchors were the British pound and the US dollar. Those currencies not on a gold standard have all been devalued many many times. Those who held gold (instead of fiat currencies) fared very well indeed in both inflation and in deflation.
    Dec 21, 2015. 09:45 AM | 3 Likes Like |Link to Comment
  • Rate Hike Spells Doom For Precious Metals Investors  [View article]
    Your assumptions and conclusions could use some more rigorous analysis. As a starter, a review of interest rates and gold prices suggest that there is very little correlation between the two. Second, you mention the strong - and likely to strengthen further - dollar. While I agree with this conclusion, you need to consider the impact of a strong dollar. As you may or may not know, approximately $9 trillion have been borrowed by non dollar entities and invested in local currency investments. As the dollar rises, the cost of these borrowings skyrockets. That suggests that we are looking at a significant level of defaults and bankruptcies if we are right about a strong dollar. Even a small percentage of defaults will wreak havoc with the dollar lenders and could bring down the banking system. Just remember comparatively tiny Lehman Brothers whose bankruptcy nearly brought down the US financial system.
    Lastly, I would argue that we are in a deflation, and the dramatic decline in commodities is Exhibit A, with Exhibits B, C, etc. to come. This will produce an environment where gold will perform as it is not someone else's liability.
    Dec 19, 2015. 09:40 AM | 6 Likes Like |Link to Comment
  • Dollar turns lower after Fed hikes rates; gold and oil as they were  [View news story]
    Buy the rumor, sell the news. That's all that's happening here.
    Dec 16, 2015. 02:59 PM | 1 Like Like |Link to Comment
  • Will GLD Keep Losing Its Shine?  [View article]
    There is no such thing as a Petro dollar, other than in some peoples minds. When someone sells us oil, they get dollars in a deposit account at a US bank. Those dollars are no different from the dollars Volkswagen gets when they sell cars to the US.
    The foreign owner(s) of US dollar deposits may invest them in the US, may sell them for US goods and services, may sell them for foreign currency or may "transfer" them to a foreign bank. In the latter case, the dollar deposit stays with the US bank and the foreign bank gets an "IOU" from the US bank.
    The IOU is called a Eurodollar and the foreign bank may lend these Eurodollars, all of which are backed up by deposits with US banks. The point is that dollars don't leave the US and they are all similar and indistinguishable from each other.
    Unlike paper money - which does not move - gold is a form of money that does move and, most importantly, unlike the IOU described above, it is not someone else's liability.
    When and if other people's liabilities begin to look iffy, that's when there will be meaningful demand for gold - regardless of where interest rates are. In Weimar Germany in the 1920's interest rates reached 50% a day and I can assure you that gold became very valuable.
    Dec 8, 2015. 05:49 PM | 2 Likes Like |Link to Comment
  • Oil Contango Points To Higher Oil Prices  [View article]
    In a purely theoretical market contango should equal the spot price plus interest to the future date in a commodity that is always available in large quantities. The important point is that the contango tells you nothing about futures prices. That is because it is easy to arbitrage the difference between the pot and the futures price.

    When the contango exceeds the interest rate, one must question why. In this case, storage for crude sells at a high price because these is presently so little storage available, but you can be sure that the arbitrageurs have done the trade you suggested, but they are only making very small margins.

    In this case, I would argue that the significant (and rising) contango is telling us about the glut of crude and signalling the likelihood of lower spot price.

    In describing the "theoretical market", I have only eliminated the other "noise" that stems from other costs, such as collateral, creditworthiness of the counterparties, etc. to focus on the key economic drivers in the futures market
    Dec 8, 2015. 11:32 AM | Likes Like |Link to Comment
  • Best session for gold in two months  [View news story]
    I would like to point out that (a) short sellers need to provide collateral for their short positions (b) contracts may be settled in cash if there is insufficient registered gold for delivery and (c) that the Comex is but one of a great many places around the world that transact in gold.
    Dec 5, 2015. 10:41 AM | Likes Like |Link to Comment
  • Best session for gold in two months  [View news story]
    Registered gold is available for delivery against maturing futures contracts; eligible is gold that is stored and not available to be delivered. It is not particularly relevant as such.
    Dec 4, 2015. 04:34 PM | Likes Like |Link to Comment
  • Will GLD Get A Second Wind?  [View article]
    Leaving possible short-term market reactions aside, any increase in rates by the Fed will be so minuscule that it will be economically inconsequential to gold or any other asset class.
    The simple reality is that the world economies are in the grip of deflation, which the Fed, the ECB and the Japanese Central Bank are fighting as vigorously as possible, but without notable success so far. Who would have thought that it would be so difficult to create some inflation?
    While some may enjoy trading gold (and perhaps profit from its short-term moves) the real reason to own gold is as insurance against the catastrophes that are wreaked by deflation and - should it be the case - any subsequent inflation.
    Most understand why and how gold protects against periods of significant inflation, but few understand how gold protects against deflation. Perhaps that's because these two phenomena are not the reverse of each other. Yes, inflation is about rising prices and deflation is about falling prices. Inflation is really about depreciating the currency - which also serves to reduce the real cost of debt, while deflation increases the cost of debt. In the case of inflation the value of debt erodes, while in the case of deflation it explodes. That is because payment failures cause defaults and when that happens it's game over. Gold, however, is not a debt and cannot default and why it is the ultimate safe haven in a deflation.
    Nov 9, 2015. 11:06 AM | 5 Likes Like |Link to Comment
  • Gold Is In A Long-Term Downtrend Driven By Fed Monetary Policy  [View article]
    It certainly was convenient that Venezuela had some gold, particularly since nobody was offering to take a couple of billion of any other commodity as collateral. As you may (or may not) know, collateralized loans are always over collateralized to account for possible market movements. I suppose that they could have borrowed against oil, but then where would you store a couple of billion dollars of oil?
    Nov 6, 2015. 08:59 AM | Likes Like |Link to Comment
  • How Will The Fed Impact GLD This Time?  [View article]
    It's fine for traders to buy and sell gold on the basis of what the Fed does or doesn't do, but ultimately that is not the issue. The issue is debt - in particular excessive debt - and there is nothing that the Fed can do about that. Indeed, only the market can do something about that and that is what the Fed fears most.
    The Fed knows that we are in a deflation and (like other central banks) are fighting a desperate battle to overcome it because deflation bankrupts debtors. It is my view that their battle has been lost and that the die is cast: the excessive debt will be removed by bankruptcies and a depression will ensue.
    That will cause gold to soar - not by tens or hundreds but by thousands of dollars. That is the reason to buy and hold gold.
    Oct 26, 2015. 08:42 PM | 2 Likes Like |Link to Comment
  • Gold Is In A Long-Term Downtrend Driven By Fed Monetary Policy  [View article]
    Mr. Lerner appears not to believe that the US is part of a global economy and that Fed policy will determine the fate of the gold market. That is not my view. Gold is traded in a great many currencies and in many of them it is doing quite well. If you were a Brazilian, gold would be looking pretty good as compared to the real. Indeed it is looking pretty good in any emerging country market.
    What we are seeing is a fraying of the global economy and, not unsurprisingly, it is starting at the edges and will work towards the center. The issue to worry about, however, is deflation. If you are in the commodities business, deflation has already arrived; the key industrial commodities like copper, iron ore, coal, crude, etc. are selling for less than 50% of what they were selling for a year or so ago. One might think that would be good for those that consume those commodities, but the problem is that demand is down and that's why the prices are down.
    What's the connection with gold? The answer is that deflation bankrupts debtors (check out Glencore) and in that environment, people look for assets that are not someone else's debt and gold is one such asset. Unlike real estate or art or jewelry, it is highly liquid and easily converted to cash in both small and large amounts.
    Or just look at Venezuela; in April they were able to borrow $1 billion from Citibank, but only because they collateralized their loan with gold. Had they not had gold, they wouldn't have gotten the money. I think they now understand the value of gold if they did not previously.
    I think we will find - sooner rather than later - a significantly greater appreciation for the value of gold than is now the case.
    Oct 20, 2015. 05:16 PM | 3 Likes Like |Link to Comment
  • Will The Labor Market Bring Down GLD?  [View article]
    As the equity and commodity markets around the world tumble, a lot of seemingly counter-intuitive things are happening. The weakness in gold is but one of them. Others would include strength in both the Euro and the Yen and in the bond markets.
    When a host of counter-intuitive things happen, it is not because we have gone through the looking glass and landed in Alice's Wonderland, but rather that other forces are at work. One of them is leverage: great on the upside, horrible on the downside.
    Right now a vast number of leveraged positions have investors scrambling for liquidity (e.g., margin calls) and are in the process of covering and/or exiting their bets and raising cash. The Euro, the Yen and the bond markets have huge short positions some of which are now being reversed creating demand for those assets.
    On the other hand, there is not a huge short position in gold, so no pressure to buy it and some pressure to sell it to raise cash and deleverage. That is what I think is going on right now.
    The problem is that the exit window is too small for everyone to get out at once and when (or if) that becomes apparent, the creditors will increase the pressure to get repaid and that's when we will see the real fireworks.
    And, not incidentally, that is when investors will realize that gold is money (and not somebody else's liability). The Central Banks have already figured this out and that is why so many of them are buying gold. As adage suggests, watch what they do and not what they say.
    Sep 29, 2015. 03:24 PM | 4 Likes Like |Link to Comment
  • Buy Gold While You Still Can  [View article]
    I would recommend that you read "Extraordinary Popular Delusions and the Madness of Crowds" by Charles MacKay. It will tell you all you need to know about money and depressions and it may change your views. It was first published in 1841, but is still in print.
    Sep 28, 2015. 09:26 AM | 1 Like Like |Link to Comment
  • Buy Gold While You Still Can  [View article]
    I don't think that international trade deficits and surpluses payments can be settled at any jewelry store, pawn shop, eBay or coin collector's shop. Nixon's decree did not apply to private transactions.
    Sep 28, 2015. 09:17 AM | Likes Like |Link to Comment
  • Buy Gold While You Still Can  [View article]
    A most interesting article, but the comments are equally interesting. Gold and fiat currencies have been around for a very long time. I think that a look at history will demonstrate that gold has always come out ahead. The real question is how long this period of fiat currencies will last. So far it has lasted 44 years (since Nixon decreed that the US dollar would no longer be unchangeable for gold).
    Sep 27, 2015. 09:35 AM | 4 Likes Like |Link to Comment