oldgoldbug

S&P 500 Priced in Gold

Gold and the Dow have traded near equivalency twice - once when the gold price was pushed to $35 in 1933 (not sure about the actual date) and I think the Dow came close 40+/- and again in the 80's when gold hit 875 and the Dow did as well. So with Dow near 10K and Gold at 1.1K theres a lot of room to roam. It is important to keep in mind a mere 50 years separated the two equivalency events.
BTW, I really enjoy all the pundits who keep talking about gold's performance from the high in the 80's and not when it was allowed to float in the 70's. The starting point makes a big difference on the Return on Investment. If they do that they should measure stock returns from the high of 1066 in 1966.


On Nov 04 05:11 PM uss? wrote:

> yeah isn't it the dow gold ratio that goes to 1 over time. The SPX
> is about 10% of the Dow.

Gold Is Not in a Bull Market

Your point on stocks vs gold is well taken. Many stocks have had very nice bull runs vs gold, but they do look like they are beginning to fade. My original thesis was that stocks would drop further and faster than a stagnant/slightly dropping gold price. (W shaped recovery anyone?) The fly in the ointment there is the persistent weakness of TLT. Evidently deflation in terms of lower prices is not really deflation. So instead gold has gone on a nice up move, but not enough yet to turn stock prices significantly down.
Perhaps prices more accurately reflect risk acceptance/risk aversion. Risk aversion sends investors into gold, cash and bonds (there's an interesting grouping!) while risk acceptance is stocks. Even though gold is at a nominal high in terms of dollars, it is far from its high in terms of stocks. And good old TLT is right at its resistance in terms of gold. If TLT falls further vs gold, then the deflation/inflation impasse may be broken and a more traditional inflationary environment similar to the 70's - 80's may occur.


On Nov 02 08:44 AM realitybiter wrote:

> He sounds like the catholic church arguing against Copernicas in
> the 15th century.
>
> Take any stock and measure its price in gold and look at its chart.
> It is a much clearer picture of what is happening. Even challenges
> of highs appear to be much weaker. It is frankly, stunning. Why?
> Because you are seeing the measuring stick of what we call money,
> the dollar, limping towards the trashbin of history. Gold always
> has been a store of value. For all time. It has survived every
> currency man has invented. Without a fundamental change of our government,
> we will end up with New USD soon. Soon as in a couple years, 5
> years...dust off your ancient 20th century history book and see how
> FDR did it. Or geez, even that relic 21st century book and see how
> Argentina did it just 8 years ago. They have a bank holiday (national
> security, of course), freeze assets, and a week later old dollars
> are obsolete and your bank account is now represented in new dollars
> with the new devaluation. Ask an Argentinan. All assets get reset.
> Argentina had VERY little apparent price inflation for almost two
> years prior to the collapse!
>
> Rising interest rates actually are a non issue. Look at the ten
> year in the 70's. It chased the rate of inflation the entire time,
> always behind, always pushing gold higher. Rates rose the entire
> time.
>
> Why would anyone trust current economist? Seriously. How many
> times did we hear big ben discount what was happening, completely
> missing reality? It is all over You tube. Or Greenspan? These
> guys don't know what they are doing. They are patching holes when
> they should be redesigning and rebuilding the dam. This obvious
> crisis started in 2006 when the New Century's of the world started
> their descent.....they had tons of time. They just didn't know what
> to do.
>
> Nadler is incredibly naive in his argument. Paul Tudor Jones, Marc
> Faber, John Paulson or huh, John Nadler. Pick sides.
>
> Finally, most would agree that 10 years of constant price appreciation
> would likely qualify for a bull market, period. No qualifiers.
> Even that Etrade baby in the commercials knows that.
>
> This is a US currency (among others) crisis. Canada and Australia
> are unique in that they have huge resource based economies and their
> fiat money actually gets backed by hard assets via some of their
> economy. There are no currencies in the world backed by hard assets....We
> are paper, backed by paper. It is not a whole lot different than
> AIG running around the world writing insurance without the capital
> to support the probable claims. This stuff moves like a glacier
> towards the bay, very slowly, then it suddenly calves.
>
> In fairness, Nadler has done me a great favor. He has been a great
> voice to create "blue light specials" on all things precious metal.
> I'm all bought up though, now, so if he could, please retire! I'd
> like to enter the mania phase and get Henry "Amazon 800" Blodgett
> on the job!

The New Gold Rush: Lots of Risk

Excellent article.
Given the weakness of the US economy, I agree a tightening of monetary policy is unlikely so gold will continue to grind higher. Having been there for the race up in the 70's and 80's I can assure you this time, so far, is different. Back then gold jumped up (and fell back) in huge swings. The run to $875 seemed to happen in a matter of days and after it blew off, rallies were stunted affairs. We haven't seen a blow off yet in gold. It just keeps going up.
I would guess Bernanke has had more than one conversation with Paul Volcker about what it takes to control inflation. Volcker did a masterful job of putting the genie back in the bottle, but at a high price. Long Treasuries were yielding 14% which is not a bad return, if inflation is controlled. If inflation is not controlled, then the Weimar Republic is a few steps away.
If your analysis is accurate, perhaps what the gold market is telling us is that the "zero inflation value" is going to move upward.
In any event, gold's status seems to have moved upward from "barbarous relic" to "mainstream hedge". I don't think it is in everyman's 401k yet so it probably has further to go.

The Mother of All Asset Price Bubbles

The purchase of 200 T of gold by India is perhaps the most visible example what some holders of dollars plan to do. It is reminiscent of France in the 60's getting lots of gold for dollars and forcing the US to abandon dollar convertibility into gold. For those of you keeping track, the 1960's price was $35 so here is India buying "same" gold but exchanging over 1050 dollars. Yikes, that means that "barbarous relic" has climbed a mere 30 times!
Gold and other commodities are the "relief valves" for paper money holders. Their prices still react to supply and demand, but demand is not necessarily for use but as a store of value. Other than gold, and to a certain degree silver and the platinum group, commodities eventually have to be used, so using oil for example, as a store of value is highly questionable. Yet what are the big holders of dollars to do? Jumping into the metals markets in any significant size will push prices to the moon. There is just too much paper money.
Buffett buying BNI is also a good example of moving out of dollars into "hard" assets.
Timing is always uncertain, but I would submit that some pretty sophisticated investors are bailing out and the day of reckoning may not be far away. Interestingly, this may not be all bad as stocks represent "real" assets as we have seen with BNI above. Buffett paid a 30% premium which makes one think he surely wants to gather as many assets as he can with depreciating dollars.

Bond Expert Friday Wrap: Duration Rout

Interestingly TLT has lost a mere 58% to GLD this year in market value though the income to date of about 3% will narrow the loss to a more palatable 55%. It sure looks like bonds would be a decent buy on any decline, but the action the past 6 days is alarming, as TLT has lost 3.9% of its nominal value, closing at 95.81. A drop below the lows of 88-89 would likely signal the long awaited "other shoe" has dropped. If coupled with continued gold advances, it will blast apart the facade that the economic situation is under control.

Investors Ignore Risks, Chase Market Higher

In terms of gold, stocks in general have taken a heck of a beating already, having given up all the gains (except for dividends) from 1994 til now. Just about the time you start closing out positions, stocks will figure out the upcoming inflation tsunami won't be good for most of them and the selling will commence. Good luck.


On Sep 16 12:07 PM buyitcheap wrote:

> All true, and being short, I'm running out of walls to bang my head
> on.

Canary in the Gold Mine

Excellent.
I use my stack of pre 1964 silver dimes to show the kids how a dime is a dollar and change and a dollar and change is a dime. I don't know if they get it or not. The concern about the dollar and indeed the whole situation appears to explode.
Don't know about the "New World Order" - wait a minute - weren't they in the WWF? Actually, there is a lot more of an analogy between fake wrestling and fake economics than we want to admit.


On Sep 13 11:42 AM paxjds wrote:

> Banks are shorting gold while buying a new canary every day, not
> telling the public that the bird just died. Market manipulation continues.
> Meanwhile central banks and many governments are increasing their
> gold holdings. Some governments, ie. China, are encouraging and TV
> advertising for their citizens to purchase gold and silver. Germany
> has vending machines for citizens to purchase gold and silver. <br/>
> You better bet your last bottom dollar buying Gold and Silver,that
> either a new world currency or regional currencies are in the works
> to replace existing and reflate world assets, or to just let existing
> currencies devalue by the continuation of running the printing presses.
> Watch the New G20, the new World Order. Currency Change will come
> as soon as september 20, or no later than 2011 to bail out the world
> governments and central banks.
> Protect yourself with Gold and Silver. Guns and Bullets might be
> a great secondary investment plan. Just dont sit there a stack of
> dollars that will be worth a stack of dimes in five years.

Deflation Looms

The article and the comments are, for the most part, about as good as it gets in terms of intelligent and thoughtful commentary.

The velocity of money stands out to me as the biggest uncontrollable variable. If it stays down, then the scenario presented by the author appears likely to occur. The recent rise of TLT from 88 to 97 tells us that investors continue to consider deflation a decent possibility- is another economic shoe about to drop? But 97 is still a long way from the 122 high much as 9600 is a long way from the 6500 low, especially when the amount of bond buying from the FED is taken account.

Will the velocity of money skyrocket if holders of dollars panic? There is already some evidence of this in the "hammering" (thank you Peter Schiff) of gold at the $1000 level. $1000 folks - that is a long long long way from $35! (Sometimes I think we are like the proverbial frog in the pan of slowly heated water - we don't get it until it is too late) Add to that the way silver is perking up and my interpretation is that real concern about the value of the dollar is beginning to reach very significant proportions.

Perhaps deflationists take comfort in the belief that should inflation really ignite, all that is needed is a Volckeresque stand and all will be well. But do Helicopter Ben and the government have the fortitude to actually do it?

Canary in the Gold Mine

I learned a lot listening to Harry Browne including when he backed off of precious metals and recommended a balanced portfolio. I believe you are the one to continue his tradition of making common sense evaluations based on the facts and not on market hype or government disinformation. I applaud you for sticking to your guns based on your interpretation of the facts.

Are Risk Assets on the Verge of Melting Up?

If the dollar tanks further, cash may well be committed to the equities and commodities markets and even the real estate markets , as the risk of devaluation overcomes risk avoidance. "Melt up" is a good choice of phrases, and as several readers have commented, the fundamentals for a rising equities market make little sense. But fear is a great motivator, and the fear of losing a significant portion of one's buying power may push cash holders to "buy something - buy anything">

Gold Is Still the Opportunity of a Lifetime

When Nixon eliminated the US gold standard, gold was trading at around $40 in the international market. Today, about 35 years later, gold is trading at $990. It has returned a 9.6% compounded annual growth rate. Granted, the returns through 1983 were in the 40% annual range, so there has been a far amount of famine after the "feast". I think the author is making the point that accelerated returns approaching those of the late 70's early 80's are possible given the confluence of: 1 - growing BRIC populations with wealth, 2 - massive currency printing around the world 3 - need to prop up banking systems around the world at who knows what cost. Gold, at these prices, is a reasonable speculation and should be, without question part of a balanced portfolio, and a rather large part (20-35%) at that.
BTW, there is every possibility that the actual rise in gold will be "hidden" if investors start grabbing for every asset they can, including stocks of every type and real estate, with rapidly devaluing dollars.
For you younger readers, back in the 70's Mexico devalued the peso. Car and Driver magazine wrote an article about a Mexican businessman who ordered 3 AMG Mercedes for $100000 each (big bucks in the day). Not long afterward the peso went from 8 to the dollar to 12 to over 100 to who knows. My point is the guy still had his Mercedes and they were worth something. His pesos, on the other hand, weren't worth much.
Can it happen here? Sure, why not. I keep an eye on TLT, the long government bond ETF. It peaked out at 122 when deflation "Armageddon" was only days away, crashed to the high 80's when risk appetites increased, and is now trading 95. Gold and silver going up a lot, bonds going down a lot tells us things not going so good.
Successful investing to all.

Precious Metals: Breakout, Fakeout or Shakeout?

I believe the author hits all the salient points. I might add the action of TLT recently adds weight to the deflation scenario. Bond guys have gotten it right for a few years now so some caution/hedging is appropriate.
If gold is in an inverse H&S, then the count is somewhere around 1200. Might drag silver past the old high of $50.75. Lots of room to grow even from here.
SLV is acting like a rabbit with its tail afire. If annual production is indeed 700 million oz +/-, it doesn't take many devalued dollars to push the market big time. Look what the hedge funds did to the much more massive oil market. A couple committed buyers (Soros, Ackman, Paulson etc) plus little guys could make silver the play of the 12 months.
As someone who has watched these markets on and off for 35 years (geez has it been that long?!!!) it sure looked like wings were flapping. It looked like serious panic buying across the board - gold, silver, AEM, ABX etc etc. In fact buying in the big miners indicates expectation of significantly higher prices for a fairly extended period of time and purchases by bigger institutional entities. The action on Friday was a tiny bit "reassuring" that collapse was not imminent that day as I am not as "ready" as I would like to be. As someone who was "right too early" i.e. wrong, it is interesting to note that 1 of the many investors I put in gold in the 80's are still there. (Thanks Sis). BTW, her new "investment advisor" has absolutely no use for PMs. The gold trade may be overcrowded but not with anybody I know.
I do think there is a fairly successful manipulation of the gold price as so many governments would be in a panic if their currencies were to plunge in terms of gold. The public does eventually catch on. And, the high prices encourage exploration and production by miners, some of whom have to hedge to lock in profits if they want to stay in business.
Having said all that I think the near term as well as the longer terms may continue to be up as this is the fourth shot at 100 on GLD, (sooner or later it is going to give) silver is acting like Bunkie Hunt is back in the biz, and "everything is looking better", "the worst is behind us" "we've turned the corner", "the FED has an exit strategy", "there will be no problem pulling liquidity from the system" etc.
Finally, our trading partners really may be diversifying out of dollars. As we have seen with copper, they can keep buying for extended periods of time.
Good luck to all.

Don't Ignore Bernanke's Bell

The different and often opposing posts to this article parallel the actions of the markets. Massive amounts of money move into gold (see increases in holdings of GLD, now #6 in the world) yet gold price is falling. For all the buying there is huge selling. Who? and why? Silver and platinum strengthening vs gold - nascent economic recovery coming? Treasury market seems to be holding its own (barely) as Fed starts buying. Big rush into the stock market since March 12 may be stalling. Profit taking for sure, but ...... Huge amounts of money on the sidelines waiting to see which way to go. All in all not an easy time to get a handle on, and any misstep, including keeping assets in cash for too long, could have far reaching negative consequences.

Citigroup: The Death of Buy-and-Hold Investing?

I first heard about Sandy Weill back in the 70's when he was moving up the Shearson ladder. Back in those days Shearson had the reputation of playing fast and loose and getting into lots of trouble. Sandy led the pack of thieves nicely. I suppose not much changed. So Sandy and friends put together the behemoth of Citi which IMO was just a way to continually cash out more and more money. This was all about Sandy and friends making lots of money - if employees and shareholders got hurt well then too bad. It all sounded really good and the regulators (and BOD's) went along with everything - I wonder how much money had to change hands and in what form to get such a hands off approach from the government. In fact, the "bailouts" could be viewed as belated attempts by the government to fulfill the regulatory function abdicated in the past. Unfortunately the cost to society appears to be extraordinary and all so a few could make an extra billion or two.

Is the Stage Being Set for a Multi-Month Rally?

Looks to me like a good shakeout is due in the PMs. Will set up talk of a double top in gold and be the final straw on the backs of "disillusioned" investors. Ensuing rally in PMs may be unfathomable because longer term (in a month or two??) I have to think the Fed will be the buyer of last resort of the $1.5 Trillion in new Treasury debt to be issued this year and as the money gets circulated, prices of just about everything including beaten down equities, houses and (used Volvos) are likely to respond. Of course, savers get screwed again but there seems to be no reluctance to do that. Besides, bond holders have done well over the last 10 years so it makes sense they are about to get theirs.
How high can gold go? Who knows? How much money is going to be made up out of thin air? Pick a price.
BTW, at the local coin shop a few days ago and not a lot of action. In fact, old school guy like myself selling some walking Liberty halves at $14+ spot. I don't think even the smallest fraction of the public has any idea what might be coming in the future or what to do about it.
It seems to me the only way out is a big inflation, but I've sure been wrong before.
Good luck all.


On Mar 04 11:40 AM paultaut wrote:

> Kelm: I do not believe that it is just a matter of aversion to risk,
> I think a lot of the aversion lies in not knowing what and where
> the risks actually are.
>
> Everyday something new seems to surface, if its not some sort of
> Bailout then its another Crook(Madeoff, Blaggo, Daschell, Sanford)
> in politics and out.
>
> I mean, I have difficulties and I have been at it for over 3 decades.
>
>
> I hope and pray that Gold pans out. Otherwise investors will be totally
> disillusioned for decades. IMO