oldgoldbug

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.

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.

Woodbine's Different Take on Gold

I can see why these guys are managing $2.5 billion - they are pretty sharp. The low premium for gold puts fits nicely into the "gold is a crowded trade" theory. Up until recently, anyone who ever bought gold had a profit. A rising dollar gave lots of holders a reason to book some of those profits, pushing the "barbarous relic" down from $1220 to $1100.
You know, having been watching the gold market on and off for awhile now (40 years - damn am I that old?), and looking at Woodbine's excellent (although not necessarily correct) analysis, I am left with the thought that gold right now is a major hedge against uncertainty. Perhaps the biggest uncertainty is the future of the US and its currency and perhaps by extrapolation uncertainty about the future of most developed, consumer nations and their currencies. Even the mighty Swiss franc, which has quadrupled in value against the dollar since the 70's, has seen gold go to new highs in terms of francs.
I've been expecting a major shakeout in gold, which seems to be starting, but once it is over, I do believe the long term trend is up. The long term bond market, which I measure looking at TLT (92.79) appears to be starting a long term downtrend. This might provide the correlation Woodbine is saying is missing. Gold and bonds might go down together for awhile, but once they separate, gold is likely to rise while TLT falls. As much as we gold bugs might think the world turns on the gold price, the bond market runs the show. And the bond market is starting to look mighty nervous to me. The bond market has been incredibly accommodating for a long while now, given the high likelihood of deflation. Now there seems to be a nervousness which in bond world is assuaged by higher interest rates. What that might mean to other markets I do not pretend to know.
One last thought about gold's correlations with other markets - Gold and stocks both moved up substantially in the early 80's with gold easily outperforming stocks. But when it became clear Volcker was serious about fighting inflation, stocks continued up significantly while gold fell back and stagnated for many years. However, for 3 years it was more than a little confusing, so I would urge everyone to diversify because none of us really knows what the future will bring.

The Next Leg of the Crisis: Unavoidable Catastrophe

Absolutely correct, but in 1975 gold was at $40 and the Dow was coming off the low at 587 in 1974 so it was what, 625?. So gold goes to $600 and the Dow goes to 1000; which was the better investment? Changing the starting point makes all the difference. The right trade in 1983 was out of gold and into stocks or even out of stocks and into discounted Treasuries with a yield to maturity of 15% +/-. Either would have been preferable to watching gold go to $300 and sit stagnant for what seemed an eternity. But remember,Volcker was making the economy take some pretty strong medicine - short term rates pushing 20%.
The real question is "where are we now?". Is this the time to sell gold and buy stocks for another 10 fold increase (Dow 100,000??) or is gold on its way to meet stocks at 5000? If you look at stocks in terms of gold, we are pretty much back to 1993. All the gains have been wiped out.
The only other straw in the wind is that bonds are starting to look green around the gills. If that market starts cracking watch out - the whole house of cards is coming down!
BTW, stopped by the local coin shop today and the physical gold "shortage" is no more. He was awash in coins. Is the little guy right in unloading or is this a great opportunity to load up for the next up leg? Yuz pays your money and yuz takes your chances.


On Dec 16 11:22 PM Gene45 wrote:

> You need a history lesson---in 1980 an ounce of gold was over $600
> for most of the year and the DOW was less than 1,000. The Dow is
> up 10X and gold is up 2X. I'm 64 and have seen this gold deal touted
> more than once and each time it ends with people who have went all
> out for gold loosing ground. There is always two sides to the story-----and
> then there is the truth!!

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.

The Shallowest Generation

Wow - author sure hit a lot of hot buttons!
A few random thoughts -
Back in the late 60's, the guys at the gas co. told me they felt sorry for me because "all those women going to work - you're gonna need 2 incomes to live on" - I guess they foresaw the inflation coming. Mrs oldGoldBug thinks a lot of Gen xers and Yers grew up on their own cause Mom and Dad were too busy working to spend much time parenting.

Its all pretty much bull**** from the "Nifty Fifty" to the "TARP". The biggest companies are WMT, XOM, MCD, KO, PEP, GE. Only XOM and GE make anything we really need and GE getting pounded as it is at least half bank. Can we live without chips and Pepsi - I sure think so. What do we really make that the rest of the world wants???? Movies and TV shows? Airplanes? We need to get relevant - solar, garbage recycling, water conservation, etc etc etc

XOM could buy GM with net income from 1 month last quarter.

Mom - member of the Greatest Generation - still going strong at 86+ - (no good genetics for me unfortunately) - has been calling for the Greater Depression for years. If someone in your life is in their 80's or older and still able to communicate - LISTEN - Hear about walking to the milk store at age 9 to buy gallon of milk for 10 cents and loaf of bread for 5 cents and having milk and bread and sugar for dessert at night. Dad working 1 day a week to feed 7. Hear about having 3 dresses for 3 girls and washing them each night so other sister could wear it the next day.
I watched Youngstown OH, Steeltown USA, crash and burn because the companies refused to reinvest in new plant and equipment, unions got unbelievably greedy, and lots of workers thought working meant a 3 hour nap after coming to work stoned, drunk or hung over. The managers who oversaw the devitalization of America were part of the Greatest Generation. Unless you were a white Anglo Saxon Protestant, you "weren't capable of running a steel mill", and they ran it right into the ground. Whenever you cut out huge amounts of talent due to gender, race, ethnicity etc., you are going to lose.

I find the Republicans disingenuous at best. Who has had the power for 6 of the last 8 years?? Nobody was watching the store, performing the duties of the Executive Branch. My gosh, you got so many scandals it boggles the mind - and those are only the ones we know about.

What do you expect from a loser coke head alkie and a couple of 70's retreads? The fact that poor John McCain is even in this race is a testament to the racist, provincial attitudes that still are maintained by almost half of the population. You Republicans probably did far more harm than good by giving us W as a choice instead of McCain back in 2000. How could you fall for the fighting gay marriage crap and the racist rumor campaigns against McCain, especially in South Carolina?

Why not give Obama a chance? At least the world will see that you don't have to have generations of Senators in your family to be President. That didn't get us too far. Maybe he will be a disaster, and maybe he'll be a new Harry Truman - wouldn't that be refreshing???

The Coming Dollar Deflation

The market is always right. Fight it at your peril.
The strength of gold vs these other commodities is remarkable.
Gold's trend depends on your time horizon. I would disagree that gold is in a long term (since 2002) bear trend. But that is what makes markets and horse races.

Financial Times' 'Person of the Year': Lloyd Blankfein?

Most interesting. Just had a few minutes to look at the GS 163.97 chart and it looks like it could become mighty bearish. I would guess a close below 160 might be uncomfortable for bulls.
Could making the FT cover become the equivalent of the Sports Ilustrated "cover curse"? It sure would be epic if the FT cover and "Person of the Year" coincide with a GS plunge. Can't wait to see.

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.

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">

A Simple Post on Gold

chisltetoe - I have been thinking the same thing: way too many dollars, lots more coming, FED beginning to buy all kinds of bond assets with newly created money, 2.5 Trillion of debt sales in 2009 to finance the big mess, government "saving" the economy,- making value judgments as to who stays and who goes - it just goes on and on.
The upper price of gold is unknowable at this point - your calculation is as good as anyone's. The markets are sure acting like no impediment stands in the way of higher prices. Silver and oil may be the real sleepers as there is just not enough liquidity in the gold market should any significant amount of the cash on the sidelines decide to pile in.
The recent action of the Treasury market certainly gives one reason for pause. One thing we can guess - with TARP and coming children of TARP, the banks will certainly want to "help" the government meet its debt challenges. It looks like they will do it with newly created FED dollars. Yikes!

Last Thursday Was the Bottom - It's Time to Get Back in

It takes guts to call a bottom, especially when things look so grim.
The point about not reacting to bad news is well taken.
Only time will tell.

Dropping the Bomb on Healthcare

Peter,
I wholeheartedly agree with the idea that "regulatory bans of insurance competition" are at the heart of the current mess. Allowing individuals to join any group simply for the purpose of buying insurance would make competition far more intense and start market forces self regulating much of what is going on.
As for "out of control medical malpractice industry" let me tell you that my personal experience for both myself and Mrs. has been that it is extremely difficult (and costly) to sue a doctor as you must get an expert in the field to testify and there is a lot of covering for each other going on. It is not perfect but it needs to be there. Think of the damages you would have if you could not continue in your current (and I assume very lucrative) career due to a doctor's malpractice. Do you really want that right arbitrarily limited? As my old friend Mike used to say "it all depends on whose ox is being gored".
As far as federal subsidies let me say that I am alive because of them and until you face that kind of life changing moment you can't appreciate the magnitude of that generosity. In fact, I am sad in a lot of ways that I "picked the right disease" and am covered while others, equally deserving if not more so, are not.
Having seen the debacle of deregulation in the financial industry, let me say that regulation in health care is imperative. Otherwise insurance companies take even more actions to make sure their policyholders are either healthy or dead.
I agree these bills and plans are not perfect by any stretch of the imagination, but the fact that an attempt is being made is commendable. As Mom says "we should spend some money taking care of our own people". It is refreshing to have a President who seems to share that point of view.

An Alternative View on the Rising Price of Gold

People like Mr. Pauly will certainly be crowing when gold has its long overdue correction. The appreciation of the barbarous relic from $250 to near $1200 in 9 years is nicely ignored though it has returned 19.04% compounded annually. I suppose Mr. Pauly is not able to sell to recognize a profit. The shear ignorance is wondrous to behold. And for sure you will hear about any meaningful decline from Mr. Pauly, Mr Neff and pleny of "I told you sos". It looks likhere might be a decent opportunity to add to long term positions in the near future as the market has yet to really shake out recent buyers. As for Mr. Neff, since the dollar has lost about half its value vs other currencies since its high, he has to double his dollar holdings just to stay even with other funny money let alone maintain his purchasing power in gold.

The Truth Behind China's Currency Peg

After reading this article I finally have an idea why the $1.5 Trillion+/- in China's foreign currency reserves are in dollars and why less than 1% (so far) is in gold. Should they consider taking India's approach the phrase "a tsunami of dollars hitting the gold market" might be appropriate.