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  • Ron Paul Has It Totally Backwards, Gold Isn't Going To Explode Higher [View article]
    You make two statements that we can agree on:"Ron Paul isn't an expert in economics" and "I'm not an expert in gold".

    The rest of the article strikes me as very muddled. For instance, you state "If rates are going higher, it will be due to natural market forces attempting to reach a market equilibrium. Those natural forces would be a stronger growing economy and an increase in demand for capital." Is that how you would analyze the record high rates in the early 1980s? I think not.

    Or, "...strict adherence to the gold standard both during the 19th century and Great Depression was most likely a major contributing factor to the depth, length and severity of those depressions." I am not sure how you reached that conclusion, but I would note that one of the important steps that FDR took to address the depression was to devalue the dollar against gold (i.e. raise the price of gold). I would add that that worked pretty well until Nixon took the US off the gold standard in 1971. That left everyone to create currency at will (and at an accelerating rate). I would argue that this will end badly. Right now the US (along with the rest of the developed world) is creating debt faster than they are creating GDP and that ALWAYS ends badly.

    Or,"Ron Paul believes that the Federal Reserve is responsible for destroying 98% of the value of the US Dollar." We can argue as to whether or not the Fed was responsible for the destruction of the value of the dollar or not, but it cannot be said that the cumulative inflation since 1913 (the year the Fed was created) was not 2,260% or that it would take $23.60 dollars to equal $1 in 2013 (based on CPI). Unfortunately, one of the attributes of sound money is its ability to serve as a store of value and the dollar hasn't done so well in that regard and, I would add, far, far less well than gold. In 1971, gold was worth $35 an ounce; 42 years later it is worth $1377, a 3,834% increase. I doubt that you have been so fortunate in your investment results.
    Aug 17, 2013. 05:08 PM | 2 Likes Like |Link to Comment
  • What Do Declining COMEX Inventories Signify? [View article]
    GLD does not own derivatives; rather, they own physical gold in fairly large "baskets". If you own a "basket" you can always take delivery; if you own less than a basket you get cash. All of the gold they hold is stored in ware housed and regularly inventoried and anybody can access the inventory which shows the place of storage and the identification numbers on each bar of gold. That's way beyond anything that the Fed is willing to do with their gold and one may speculate as to why this is the case.
    Aug 8, 2013. 03:34 PM | 1 Like Like |Link to Comment
  • What Do Declining COMEX Inventories Signify? [View article]
    I am surprised to disagree with this author as he, invariably - in my opinion - gets it right. What may be happening and what I believe is happening is that people are becoming increasingly wary of lending their gold in the fear that they may not get it back and do not want cash settlement.
    The big problem with a cash settlement is the determination of the cash amount to be paid, a calculation that does not necessarily (actually is not likely to) provide enough cash to purchase the gold in the spot market. Indeed, were that the case, the exchange would always be able to simply use the cash settlement (that they would have paid to settle the contract) to buy gold in the spot market. The fact that they are unwilling to do so tells us that they are concerned that the cash settlement amount might not be sufficient to purchase as much bullion as the investor "owned" in the futures market. To the extent that the investor, like Kyle Bass, is not indifferent between a cash settlement and a physical settlement, this will push up the spot price of the metal.
    This is why declining quantities of registered gold is significant.
    Aug 8, 2013. 03:29 PM | 1 Like Like |Link to Comment
  • Gold/GWP: Why Gold May Still Have Further To Fall [View article]
    I am left unimpressed by this analysis because it fails to identify what, over the very test of history has been the driver of gold prices or their relation to currency, which is the only way to understand gold.
    Bottom line gold has been widely (and for centuries) recognized as money. It is not a particularly good means of exchange relative to currency - whether in the form of paper notes or bank deposits - but it has always flourished as a store of value when currencies have been debased. Indeed, it is one of the principal methods of measuring the extent of the debasement.
    It is also true that currencies are not being continually debased even though that might seem to be the case currently. During periods of stability (sound money) gold has languished because it has had no role to play, but in periods if instability that has not been the case.
    Most people worry about currencies being debased by inflation, because that is generally how most debasement occurs. Until 1971 there had always been at least one currency exchangeable for gold at a fixed price and those currencies that could be exchanged for gold were always than those that were not. In addition, the central banks of those nations that did not offer to exchange their currencies for gold held significant amounts of gold. Indeed, until the early 1980s the central banks of the developed world held more than 50% of their assets in gold. Others, like Iran/Persia held valuable jewels in their central bank in addition to gold as backing for their currency.
    Both jewels and gold have three additional and important attributes: they are limited in supply, cannot be created by man and do not represent anyone else's liability. All other financial assets, including cash, represent someone else's (unsecured) liability. For this reason gold is also a hedge in deflation as other people's (and governments') liabilities become suspect.
    If you look across the ocean to Europe, or to Japan, this is what is happening now; the ability of governments to repay what they owe is becoming suspect. The analysis is exceedingly simple: if your borrowings are growing faster than your revenues (GDP in the case of a country) a debt default is an unavoidable consequence. Although small, Cyprus provides the perfect example of how this happens and I can guarantee you that were you a Cypriot you would be happy to have owned gold in one form or another, because the Euros that have not been lost (confiscated) in the failure of your bank cannot be spent (with small exceptions) outside of Cyprus. In fact they are Euros in name only because real Euros can be carried or transferred and spent anywhere.
    We may think that can't happen here, but if it can happen in the European Union, it can happen anywhere. That's why gold - some, at least - makes sense. And if that is true, gold is going much higher.
    Jul 14, 2013. 06:01 PM | 3 Likes Like |Link to Comment
  • Gold Likely Entering A Deflationary Spiral [View article]
    Deflation always last for a long time. Have a look at Japan; we are at 25 years and counting. Look at the Great Depression; the World War impacted the economy, but deflation lasted at least 10 years and arguably until 1947.
    Jul 1, 2013. 08:09 PM | 1 Like Like |Link to Comment
  • Gold Likely Entering A Deflationary Spiral [View article]
    As I have commented previously, everyone understands that gold is a good hedge in inflationary times and as the prospects for inflation are waning, people are selling gold. It has been my view that we have been and are still in a deflationary cycle and that is why I maintain an investment in gold.
    Because historically there are so few deflationary cycles (relative to inflationary cycles), few people understand what happens in a deflationary cycle. The principal outcome of a deflationary cycle is the destruction of debt because with falling prices all debtors get squeezed as the cost of debt service rises. Many do not survive. One can try to guess who the survivors are going to be (and there will be some) but all debt will become suspect and one doesn't want to be holding bad debt when the music stops. In addition, during a deflation debt defaults start as a snowball and turn into an avalanche because of the way in which all credit is connected.
    In this respect it should be noted that even cash money is debt. To survive, it is important not to own an asset that is somebody else's liability. One can think of a number of assets that would qualify - art, high quality gems and the like, but of all of those only gold has a uniform price, is liquid and easy to transact. That is the basic argument for gold.
    The other, and simpler, argument is that invariably a return to sound money (which has always involved the use of gold in past deflations). The most recent example is the world-wide deflation of the '30s which was eventually addressed by devaluing all currencies relative to gold. Were we (the world's central banks) to return to the holding of gold as a significant part of their reserves (which can consist only of gold and foreign currencies) the price would need to be set at around $10,000 per ounce to produce the balance between gold and foreign currencies that existed in the 1980s and '90s.
    Jul 1, 2013. 05:54 PM | 3 Likes Like |Link to Comment
  • Gold: Double Bottom Or Double Trouble? [View article]
    It is pretty clear to me that we are in full "bubble" mode now just like we were in 1999-2000. For those who remember those days, the measure used to evaluate companies was not earnings but "cash burn" and most of the darlings of that era are no longer with us.
    In such an environment the market becomes devoid of all rationality, but eventually the euphoria will wear off - when the supply of "greater fools" dwindles.
    The market top that occurred in early 2000 came much later than might have been expected, but those who believed in the cool-aid paid heavily.
    As we look at the developed world today, there is not a lot to offer comfort. Europe is now officially in a recession, unemployment in Spain is now 27%, Japan appears to have started a program to export its deflation, etc., etc. For my part I cannot find any hard data to support current market valuations and when the bloom is off that rose, I think that we will see a return to gold.
    May 20, 2013. 10:08 AM | Likes Like |Link to Comment
  • Short Gold For The Long Haul [View article]
    You are right that any point in time an asset is worth no more than someone will pay for it. You are wrong when you say it is not a currency; when I go to Europe, I must change my dollars for Euros before I can buy something. So too with gold, I must change it to the currency in which the goods are priced so as to buy something and that has never been a problem.
    I would suggest that a large number of purchasers of gold have been motivated by the belief that gold protects against inflation (which indeed it does). However, now that the threat of inflation appears to be receding, those who bought to protect against inflation are selling.
    It is my view that the threat has never been inflation, but rather deflation. Indeed the Fed and the ECB and the Bank of Japan are doing everything they can to create a bit of inflation and they are failing because the forces of deflation are so strong.
    Eventually, people will come to understand gold's role in a deflation and that in a deflation all debts become suspect and many do not pay as expected. They will then look for assets that are not someone else's debt and discover that gold is one of those.
    May 7, 2013. 08:26 PM | 12 Likes Like |Link to Comment
  • The Fed Didn't Cause The Gold Bubble - Or Any Other Bubble [View article]
    I think that we need to understand that the Fed is very limited in the actions that it can take. First, they may buy securities (typically, but not always as it turns out) in the marketplace. Most, if not all, of these purchases come from financial institutions, principally banks. What the banks do with this money is critical: they can lend it (and indeed they can lend up to 10 times the amount of money that they receive from the Fed) or they can do nothing and keep the money in reserves, earning interest from the Fed. When they do the latter, it is not inflationary (it may even be deflationary) and has no impact on the demand for goods and services. It does, however, do a couple of other things, the most important of which is to increase the value of financial assets and housing. This is because it keeps interest rates low, encouraging people to take more risk with their financial assets (so as to get a better yield) and by decreasing interest rates, mortgage rates decrease thereby increasing the price that people are able to pay for housing - which will cause home prices to rise.
    In addition to purchasing securities from the market, the Fed may also buy securities directly from the Treasury - which provides the government with financing and does not drive up interest rates; indeed, the money that the Fed lends the government is effectively interest free as the Fed is required to pay the interest back to the Treasury.
    Unlike open market purchases, this is inflationary as this money flows into the economy as government expenditures.
    Apr 22, 2013. 10:41 AM | 1 Like Like |Link to Comment
  • The Gold Emperor Has No Clothes [View article]
    The simplest and most direct road to collateralizing debt in most Western nations is through a revaluation of existing gold hoards.

    You are absolutely right about that. That is a principal reason to own gold. I would rather it be confiscated that losing my wealth in other assets and there is a reasonable chance that it might not be confiscated and if it is confiscated it will not be without payment of some sort.
    Apr 17, 2013. 06:19 PM | Likes Like |Link to Comment
  • The Gold Emperor Has No Clothes [View article]
    Actually gold performed quite well during the 70's and early '80s when we experienced runaway inflation. When Volker came in and put a stop to that and sound money prevailed and lost its luster. The real point is that there are times when it is prudent and profitable to own gold, times when it is profitable to own stocks and times when it is profitable to own bonds. No investment class performs well all the time and that's particularly true when you discount the value of your investments for inflation - which everybody should do.
    I continue to be surprised at those who report with excitement that the averages are making new highs; those folks don't seem to realize that, when adjusted for (CPI) inflation the markets are worth less than they were in 2000 and that they must increase by nearly 30% to get back to were in 2000. Even with the recent fall, those who have owned gold since the market's high in 2000 have done exceedingly well for the period and vastly better than either the stock or bond markets. I think that there is no question that 2000 to the present was a great time to be in gold.
    The question is when to get out? Here the answer is simple, when we get back to promote sound money policies. So long as officials at the Treasury are talking about things such as paying off our debt with a $ 3 trillion platinum coin and other goofy ideas and the Europeans have run out of ideas for dealing with their debt - other than the equally goofy idea that they can simply confiscate money from the wealthy, we are a long way from sound money.
    I would keep your gold and if you have none you should buy some - unless, of course you actually believe some of the goofy ideas might work.
    Apr 16, 2013. 04:47 PM | Likes Like |Link to Comment
  • Gold Is Worth $370 An Ounce [View article]
    I am afraid that is quite a simplistic analysis. One of the things is (for better or for worse) is a component of International Reserves, which are the reserves held by Central Banks. These reserves consist of convertible currencies, gold and Special Drawing Rights (SDRs), which can be ignored as holdings of SDRs are exceedingly small. These are called International Monetary Reserves and are at the bottom of an upside down pyramid as the basis for the creation of what we call money. In this refined world local currencies are not assets, but rather liabilities - as in US dollars for the Fed.
    In times past, gold has been a significant portion of these IMRs, but the proportion of gold has fallen from well over 75% to under 10% currently. In the process Gold has been vilified as a barbaric relic and worse. The other reality is that gold is very inconvenient to those who believe that the best way to prosperity is through the creation of additional debt - which is what the Fed, the European Central Bank and the Japan are doing presently.
    Unfortunately, history is replete with schemes to create wealth without actually working for it. Equally unfortunate is the fact that so far all of these schemes have failed ending mostly in massive inflation and, sometimes in massive deflation. During these periods there are massive wealth transfers and when the music stops, there is a lot less for everyone. Should you fear such a period, you might want to think about what you can do to avoid it and how you can keep some of what you have.
    Believing that things are worth what someone will pay for them it is clear that at this instant in time there is significantly less demand for gold than there was a month or a year ago. That tells me that there are a lot of people who now believe that the debt for growth and gain is not - as they once thought - nearing a crisis level, but rather, the "new normal". That, of course does not mean that they are right.
    There may also be more sinister reasons for what is happening because high gold prices and the belief that, perhaps gold is a better currency than say, the Dollar, the Euro or the Yen is antithetical to those Central Banks that are counting on fiat currencies as the way out. Indeed, the unprecedented magnitude of gold's fall in a very short period can only trigger suspicions that this move may have been orchestrated. One might also wonder who is buying for, as we all know, for every seller there must be a buyer.
    Apr 15, 2013. 04:47 PM | 4 Likes Like |Link to Comment
  • Gold miners (GDX -4.5%) are getting destroyed as gold prices cross into bear territory. Capitulation, if it’s here, would mean a true bottom in price, and Tocqueville Gold Fund's John Hathaway says that's what we’re approaching; he sees strong macro fundamentals for gold, investor sentiment at a negative extreme and compelling valuations in mining shares - "a contrarian's dream scenario." [View news story]
    It is very hard to discern what is going on here; the Cyprus announcement certainly triggered some sales as did the technical analysis and the fear that more countries (Portugal? Spain? Italy?) will be forced to sell gold as well as the buoyant stock market and the reduced fear of inflation. Quite a lot for a single day.Bottom line, we haven't really solved any of the economic problems that loomed large yesterday, last week, last month and last year and until we do we still face inflation, deflation or both and if that is what lies ahead, then gold is the right hedge.
    Apr 12, 2013. 02:45 PM | Likes Like |Link to Comment
  • Gold Takes Out Major Support: Next Stop $1,350 [View article]
    I am sorry that 196 years is beyond my investment horizon and even a long term investor would seem to be a trader in that time horizon. The simple fact is that over shorter periods, like my lifetime (I was born in 1942) there has been times when equities provided good returns and times when they did not. That has been true of gold as well.
    I accept that one cannot generally buy at the bottom and sell at the top, but those who get the major trends approximately right do well.
    We will see what happens with the current short term trend that has US equities outperforming gold. Some of us have doubled our money in gold over the last decade and nobody has done that in equities.
    Apr 3, 2013. 08:47 PM | 3 Likes Like |Link to Comment
  • More on SocGen's bearish gold (GLD) call: The price is in "bubble territory," say the authors - driven there by fears aggressive QE would spur inflation. Instead, consumer prices have actually been trending lower for the last 2 years, and now economic conditions have improved to the point where the Fed can begin thinking about QE's end. "It seems unlikely that investors would want to add much to their long gold postions." [View news story]
    I continue to believe that the real danger continues to be deflation. That, of course, is the opposite of inflation - which is why most people have been buying gold. To those who ignore history, gold has always risen during periods of deflation. We are perhaps now at a transition point where people no longer fear inflation, but do not yet fear deflation.
    Apr 2, 2013. 03:40 PM | 1 Like Like |Link to Comment