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  • Another Curious (And Pretty Bullish) Inflow For The Gold ETF [View article]
    You are so right. For some reason, there seems to be a large number of people who seem unaware that both US securities, as well as Gold (and other commodities), are priced in a world wide market.
    Mar 25 11:52 AM | Likes Like |Link to Comment
  • A Brief History Of Gold And Why It's Overvalued By A Factor Of 2 [View article]
    Short-term predictions are the hardest to make, but that is less the case with the longer term. Imbalances tend to get corrected over time and being able to to identify such imbalances significantly improves one's overall success, even though the timing may be wrong. I would also argue that avoiding large losses is more important than making small gains.
    I would also note that no investment or investment strategy works all the time. There are times to own particular investments and times not to. That is the case with gold.
    Feb 18 11:19 AM | 1 Like Like |Link to Comment
  • A Brief History Of Gold And Why It's Overvalued By A Factor Of 2 [View article]
    That's my point. You need to think of gold as a currency. That's how it is priced.
    So far, you are only thinking about inflation and I think you now agree that its "value" is relative to the currency that it is priced in. Step two is to recognize that if say, the Argentinians are buying gold, then there will be lees of it available for others to buy and that will raise its value in other currencies. Step three is to recognize that it will also have value in a deflation.
    Feb 17 09:14 AM | 1 Like Like |Link to Comment
  • A Brief History Of Gold And Why It's Overvalued By A Factor Of 2 [View article]
    No. We are talking about gold in various currencies. You will want to note that gold's performance is different in every currency.
    Feb 16 06:06 PM | 1 Like Like |Link to Comment
  • A Brief History Of Gold And Why It's Overvalued By A Factor Of 2 [View article]
    You might want to have a look at Argentina, Brazil, Venezuela, and Turkey for starters. In Argentina in the late '80s a $100 million investment in Argentina Government bonds in local currency was worth approx. $16,000 a little less than three years later. I will let you do the math with respect to gold.
    Feb 15 09:34 AM | 2 Likes Like |Link to Comment
  • A Brief History Of Gold And Why It's Overvalued By A Factor Of 2 [View article]
    Not to be picky, but we went off the Gold Standard on August 15, 1971 - a decision taken by Nixon.
    Less picky is the fact that lots of currencies adhered to a gold standard (or a gold exchange standard) and what interests you is not the currencies per se, but rather the price of gold in those currencies. That will help you develop and understanding of the factors that influences the price of gold. You might also consider the value of gold in the case of currencies that were not on a gold standard. I can assure you that gold always comes out on top.That may or may not change your mind about the present, but it will educate you on the factors that make gold valuable (relative to currencies) from time to time. In this regard, I would note that there are times to own gold and times no to - but not for any of the reasons you suggest in your article.
    Feb 13 05:44 PM | 1 Like Like |Link to Comment
  • A Brief History Of Gold And Why It's Overvalued By A Factor Of 2 [View article]
    My, my, one hardly knows where to begin. First and perhaps most important your analysis assumes that the US is the only country in the world and that the dollar is the only currency in the world. I hate to say so, but that is not the case. Were you in Germany in the 1920's you sure would have been happy if you held a bit of gold. That was a time when the stamp on the envelope with your life insurance check exceeded the value of the check itself.
    Second, when you compare the price of gold to say. the CPI, you fail to note that from 1900 until 1975 the price of gold was fixed by the Treasury, first at $20.67 an ounce and then at $35 an ounce. Those were the prices at which the Treasury was prepared to either buy or sell gold in any amount. It was, therefore, not surprising that the price of gold did not change. Were you in any other country that was on a gold standard (e.g., the UK), you would have found that the price of gold varied a bit more as devaluations occurred. You might also have noted that were you around for the deflationary depression in the US in the '30s you would have seen the value of your gold holdings rise by almost 70% when FDR devalued the dollar.
    Lastly, as you point out, gold is not like a bond or a stock (or a commodity) and that is why it cannot be analyzed like a bond or a stock (or a commodity). It has also been around a lot longer than the dollar and indeed any currency that exists today. In addition, the data extends back into periods BC, but you need not go back that far for your analysis; a couple of centuries and less than a dozen currencies will tell you the story and if you do that you may both gain a better understanding of what influences the market value of gold and want to amend your analysis.
    Feb 13 03:37 PM | 5 Likes Like |Link to Comment
  • Gold- Buffett And Morgan Stanley Agree [View article]
    If indeed the world economy picks up steam gold will do poorly; all we know right now is that the market sentiment favors that analysis. The other things that we also know now is that we and the rest of the world have accumulated mountains of debt that cannot be paid off and that when debt rises faster than income it eventually becomes bankrupt. Where we are in that process is hard to discern - principally because the process of debt creation depends on liquidity - something that disappears very rapidly when confidence wanes. And that, to paraphrase Warren Buffet, is when we see who is not wearing bathing suits. Then, those who own some gold will be seen to be wearing scuba gear.
    Jan 31 11:07 AM | 1 Like Like |Link to Comment
  • The SPDR Gold Trust Vs. The Sprott Physical Gold Trust [View article]
    The point on taxation tells everything: with GLD you have a direct interest in gold and are taxed on that basis; with Sprott you have an indirect interest in the underlying gold because you own shares in a corporate entity. In return you get a better tax deal when you sell.
    Nov 26 09:30 AM | 1 Like Like |Link to Comment
  • Gold Trust ETF Falling As Expected [View article]
    I agree, but the issue is at what rate. It doesn't take a (historically) very high rate to absorb virtually all of the government's tax revenues.
    Nov 6 09:34 AM | Likes Like |Link to Comment
  • Gold Trust ETF Falling As Expected [View article]
    I am not a trader and do not buy and sell on the basis of short term moves. The only reason to hold gold today is because there is a high probability that the developed world is not able to repay the debt that it has incurred in the last decade. Not only is it unable to repay existing debt, but must incur additional debt to function. We are thus hostage to the market and the interest rates it charges for the refinancing of existing debt and the funding of new debt.
    If you believe in the tooth fairy, then you will believe that the developed world's central banks will be able to fund both the new debt and the refinancing of the existing debt at low interest rates. In that case you must also believe that taxation is no longer needed as the governments only need to fund themselves through their central banks at low interest rates. I would like to think that you would find the latter statement to be absurd.
    Plan A, of course is to approach the debt problem by trying to inflate it away. Unfortunately, this is not working anywhere in spite of Herculean efforts to do so; in fact the growth of debt has outpaced the rate of inflation since the last crisis, so we are actually going backward in out attempt to inflate debt away.
    Plan B, unfortunately, is not discussed (other than behind closed doors among the central banks because that plan used deflation to extinguish debt and does so with bankruptcy (both corporate and sovereign).
    Unless you have a Plan C, those are the only two choices and both cases are deleterious to your financial health. In a deflation, not all debt will default, but all debt (corporate and sovereign) will become suspect and fall in value. In an inflation, debt will lose value in real terms and in nominal terms with rising interest rates; and in both cases equity values will suffer because neither environment is friendly. In a deflation, prices will fall and in inflation costs will rise, potting profits at risk in both cases.
    Both cases, however, are beneficial to gold. Gold has always been a good hedge in inflationary times and in deflationary times it will offer a safe haven because it is not someone else's liability.
    Nov 5 02:00 PM | 6 Likes Like |Link to Comment
  • Which Side Of Goldman Sachs Is Right About Gold? [View article]
    There may be too many comments already for another to have any impact. That being said, there are umpteen approaches to analyze gold as an investment and none of them make sense. There are only two conditions under which gold will be a good investment and that is runaway inflation (such as we had in the early 1980's and in deflation in which falling prices cause massive debt defaults. Neither of these phenomena are subject to traditional analysis, value or otherwise. Those who think we are in the midst of a temporary hiccup and that things will return to normal should not invest in gold. Those are circumstances under which gold will fall in value and that is well demonstrated in the history of money. Those who think that all is not well and that deflation or runaway inflation is a risk should invest in gold in amounts that reflect how concerned they are about that risk.
    Oct 10 08:23 PM | Likes 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 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 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 05:54 PM | 3 Likes Like |Link to Comment
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