Maximus

Don't Kick Yourself Later for Not Buying Gold and Silver Now

CLH,

I empathize with you and definitely see your point. But I think the inflation issue is a medium-term one. If it doesn't show up in 1-2 years and deflation is pronounced then people might sell in a hurry.

Right now, people are buying gold out of fear (and greed) and this could continue for some time.

In the short run, I agree with the bugs although the one thing that could precipitate an immediate gold price decline is Central Bank selling in concert with other large banks shorting.

I'm an American that lives in Spain and people are getting really worried about the banking system and the euro. I plan on getting my savings out of euros and into bullion very soon.

I don't think Spain is solvent and I don't think the euro is sustainable. And I certainly don't want to hold pesetas.




On Feb 17 03:05 PM CLH wrote:

> CLH back. Sold gold in March of 2008 and rode it down with DZZ until
> Fall. As the double top forms I will ride it down again. Gold is
> now topping again. No inflation and dollar still strong so gold
> makes no sense.

Gold: Now Demonstrating Trust in Obama

Atlasman,

Don't worry, we are all out of our league and no one knows where this is all going.

People who are buying gold are doing so because they think the Obama administration in conjunction with the Bernake-led Fed will "do what it takes" to keep the economy from collapsing (deflation with high unemployment and waves of bankruptcies).

The only way out of this collapse, as the author alludes, is to reinflate the economy through the printing of money. With more money in circulation and fewer goods, inflation will go up. This is the theory that current gold buyers believe in.

There is another theory that says that the government is not currently "doing what it takes." Paul Krugman just published an Op-Ed in the NY Times saying as much. He claims that we need fiscal stimuli in the trillions and not just billions.

If the government doesn't in fact "do enough" (i.e. print money), then deflation will take hold and the economy will continue to grind to a halt. Gold would likely go down in that scenario and the cash would remain king.

One other thing you should be aware of, there are also those who talk about manipulation in the gold market: that governments will begin shorting gold soon (March) in the hopes of causing a fall and later being able to repurchase at a cheaper price.

This later scenario is also possible. Tread into the market carefully. If you buy now, make sure you have stop loss orders in place.

If gold falls significantly in the next few months, I would then ramp up my purchases. I think the author is right, Obama and Bernake have no politically palatable choice other than to create inflation.

12 Reasons to Short Gold

The contarian in me says gold will stay at its current level either way. Sell gold calls and puts...

Today's Commodity Prices Forecast Tomorrow's Inflation

I don't purport to be an economist but I have taken the standard MBA curriculum in finance in economics. Therefore I have been pretty on the fence as to my own view on inflation or deflation.

I do lean toward the coming inflation argument. The most interesting refusal of this argument that I have read is even with all the new money pumping and approved bailouts, the public sector debt to GDP ratio of the US will still be below that of other OECD countries.

If this is true, then it does not necessarily portend the end of the dollar and hyperinflation. If Italy can live with 150% debt/GDP ratio then why can't the US?

Anyway, I have no idea if these numbers are correct and am too lazy to do a Google search.

And I was hoping that someone with an understanding of this issue might address it...

Is Gold A Sucker's Bet?

wow...

Gold's Finest Hour: How to Buy Now

This is much needed article and this issue needs to be addressed more by economists and analysts as it is the key issues for investors at the moment.

I agree that central banks the world over will inflate away the debt-finance spending binge in developed economies. It is too expedient for politicians to inflate economies and economists seem to agree that deflation is worse than inflation.

This is good for gold. Even though one cannot consume gold as critics point out, the yellow metal as historically served as a store of value.

I also believe that the euro is not sustainable and this is good for gold since it means that there is not alternative reserve currency. For example, I live in Spain and believe the country is heading toward a protracted recession that includes deflating asset prices (housing, stocks) and an inflationary consumer prices given rising energy and food prices. The country will be akin to Argentina of the late 1990s: too much spending by the public sector crowding out the private sector, and with a currency tied to a then stronger dollar that dampened export-led growth. Without a depreciating currency, Spain simply will not be able to keep the economic chugging (even if in reality it is only running in place) and I wouldn't be suprised to see a return to 20+ unemployment in the next few years.

I also believe however that the world economy is heading for a long recession and a period of deflation, especially in the aging US and Europe, since peak oil and energy inflation will eventually destroy demand and slow down growth.

I don't think that gold is necessarily an attractive asset in a deflationary environment and would prefer to own zero coupon bonds as well as real estate or land (assuming this is not Armageddon, then all bets are off).

The more I think about it, the less pessimistic I become. The US has survived periods of rampant inflation as during the civil war and the 1970s oil shocks and periods of deflation and high unemployment as during the great depression. On the political side, it defeated both fascism and ultimately communism albeit at a great loss of human life.

The challenges of the future are no different and the US can overcome them as well. There is no reason US-based energy companies cannot lead the transition to the US of alternative energies in the face of peak oil. There is no reason that Silicon Valley cannot continue to be at the forefront of new information technologies. There is no reason, American automobile manufactures cannot make attractive, efficient vehicles that consumers want to buy (they do so in all other parts of the world except North America).

At the moment I am not long the dollar but once the current dust settles I will be because I believe the American political system offers and will continue to offer the best environment for motivated economic agents.

I recently wondered why Warren Buffett traveled to Germany, Spain, and Italy of all places to look for new investments. What happened to Asia? I suspect that he is believes demonstrated democratic states are more friendly to long term investors and maybe yet dubious as to China's commitment to human and property rights.

Historic Financial Collapse Underway?

I agree that we could be heading for deflation, an argument that Stephen Leeb makes, if the price of energy heads rise too high, too quickly (which he says is 80% year over year).

He recommends zero coupon bonds as 50% of a portfolio under that scenario.

He also recommends a 20% weighting in energy stocks (oil services and alternative energy companies mostly) in case that opposite happens -- high inflation.

The more I read, the less I seem to know about the biggest questions out there that will impact our collective future:

1. Inflation or deflation?

2. The US as world economic engine still or decoupling? Can the world economy (Asia, Europe, Latin American, Africa and the Middle East) operate normally with a vastly devalued US dollar and enfeebled US economy? I suspect not but am not sure, the Chinese know how to make a lot of things now...

3. How much can we really expect in additional losses from US financial institutions?

I am natural inclined to be pessimism about the economy but even I am beginning to feel like that pessimism is overshooting.

The most likely scenario for the world economy is that we all muddle through as we adjust to a difficult period of deleveraging and a decline in aggregate demand in developed countries (due to lower birth rates) and an increase in aggregate demand in developing countries (due to higher birth rates and a increase in total factor productivity).

Headwinds for Gold?

I like this article and agree that monetary tightening would be bearish for gold.

Apart from the ECB's stance duly noted on Thursday by the press, I have also read that Brazil and several other emerging markets will begin tightening.

A recent article in The Economist noted that emerging markets with dollar pegs will have a hard time tightening however if the US does not. They are averse to allowing exchange rates to rise since this might exacerbate inflation in the short run (from higher capital inflows). The Economist argued that so long as emerging markets failed to raise interest rates or depeg and allow exchange rates to appreciate, they would experience double digit inflation and commodity prices would remain high.

If this is true, does not the case for gold rests less with the European Union's monetary policy and more with the dollar and other currencies pegged to the dollar? As long as real interest rates are negative in the US and emerging markets then gold will go higher.

The key to commodity prices and when to sell seems to be real interest rate levels in the US and emerging markets.

Incidentally, I wouldn't mind being in euros either if the EU lifts rates. However, the ECB is going to have hard time acting alone. The ECB is in a bind: it needs a coordinated policy with other central banks to raise rates and fight inflation, but it also does not want to exacerbate economic conditions in some of its weaker countries, notably Spain, Portugal and Italy. There is already social unrest in Spain with several strikes by fishermen and truckers scheduled this week to protest the high price of oil. Higher interest rates will exacerbate the average Spanish household's ability to meet its monthly mortgage payment.