Consider_this

No Gold Bubble

Your theory (taxi driver, hyperbolic curve) is not a necessary component to a bubble -- only that the bubbles have been allowed to grow and involve people on the streets. There are plenty of bubbles that have burst much earlier before growing to "down to mainstreet taxi driver" status.

You want to test for bubble in gold? Go to SA archives and look at any articles that bash gold. Look at the comments. Then go to any articles that praise gold, look at the comments. Put the "agree" and "disagree" comments appropriately and you'll get your indicator.

My non-scientific observation shows a HUGE number of people following gold -- that is your indicator. You want it to grow and grow by a significant percentage, and if it stagnates and shrinks, your gold investment is in trouble. A leaky bucket in following is a bad scenario to try to grow gold demand.

The number of people who go fanatic about gold is increasing; and their conviction is downright scary in the -- "I'm so sure! It can never happen other way". The last time few times saw this psychology:

1. Oil will go to 200, it can't go below 100!!!! There's no production capacity left! Peak oil!
2. Houses only go up! They aren't making anymore land! Rent and throw money away!
3. Nothing matters except eyeballs and clicks!! pets.com has huge amounts of clicks on first day!! You can't lose! Traditional companies are so passe!
4. Fiber optics mania. The orders for fiber cables have tapped out next 30 years of production!!! Nobody can buy fiber optics fast enough! You can't lose investing in fiber!!!

I say... if you're right, good for you. I choose not to play manias. At some point, you're going to have to buy medicines, food, oil and household goods. When that time comes around, you'll need to talk to "my" companies; whether we exchange in gold or not.

Is the GLD ETF Really Worth Its Metal?

"And it’s hard to imagine they didn’t at least send someone to the premises of the Custodian to have a quick peep, though of course in this crazy world of mediocre financial services it is probably unwise to have 100% faith even in that."

This statement reminded me of something...

Didn't that India firm, Satyam, have an famouse auditor, PwC, who for whatever reason didn't actually audit the actual bank deposits and merely trusted signed statements?

What was the amount of cash that was supposed to be there, but wasn't? I believe it was $1 billion in fraudulently claimed cash on its balance sheet.

If PwC didn't "at least send someone to the premise of the bank to have a quick peek" at Satyam's bank balance, how much faith can I put to this case about whether someone actually audited physical Gold in GLD.

Wow, the more I think about this, the scarier it is.

Is the GLD ETF Really Worth Its Metal?

In other words, if you're paranoid enough, the wording in the prospectus does raise some creepy questions about whether GLD is really Gold. In fact, I would carry it one step further that if it's so hard to confirm the Gold while the Fund is still running, imagine at some point, the fund needed to dissolve orderly -- is that even possible with all the questions brought up by the author is a valid concern.

I say "paranoid enough", but flip the coin, and someone could call is "prudent enough".

This is the same due diligence and inquisitive streak that's missing in much of the investment community. This is what allowed Madoff, Stanford to occur.

In that spirit, I applaud the author for bringing up issues to be examined. With Wall street integrity the way it is, We need more inquisitive minds like these.

Gold: The Only Remaining Bubble?

The extreme bi-polar nature of the market; where you get massive deleveraging and deflation of the equities market and fear of a deflationary depression on one hand; and then a simultaneous fear for a hyperinflation tomorrow on the other hand due to massive govt issuance of debt. Can be explained without insulting either deflationists or inflationists.

I think they're both right.

Both deflationist and inflationist believe that some kind of collapse is imminent.

Deflationist believe that everything will collapse in price (and rightly cite all the drop in industrial, oil, retail, jobs, etc) and money in the streets become ever scarcer. This makes anyone who carry debt harder to service that debt; and who is the biggest debtholder in the world? US Govt. So govt will eventually default and we'll have an economic collapse.

Contrast this to an inflationist view:

Inflationist believe that the govt will not stop in it's bailout efforts, and will go so far as to flood the money supply by monetizing debt if need be. Thus, there'll be no technical default, but thru the hyperinflation that ensues, a inflationary default of the US debt.

A deflationist dream is to buy US Treasuries, collect what meager yields it has, and time the final cash out to just before the US Govt defaults, or the market recovers. His favorite flight to safety vehicle is Treasuries.

An inflationist dream is to buy Gold, and wait the imminent inflation of everything due to exploding money supply. Ideal cash out time is when the inflationary pressure is at the greatest. By then Treasuries, in contrast, will be paying pathetically low amount compared to what Gold would run up to.

Gold is an indicator of total global collapse. The ultimate short, if you will.

Similar to Treasuries, it is a flight to safety vehicle; but dissimilar to Treasuries it places no faith in the US Govt. Therefore, a flight to safety person has two choice: you can take the extreme step of parking your money in the treasuries today, as a safe haven (given today's pathetic interest rate); or an even more extreme step to park your money into gold, which is a further bet (compare to ultra liquid treasuries) on some kind of govt default and collapse.

Thus, I agree with the author that the dual climb of Treasuries and Gold need to be observed TOGETHER. As they both indicate the overall level of discomfort and fear in the market. If the dual assets continue to climb without easing, then it will be doomsday for the world, because money will dry up for any other business purpose.

However, if the fear should peak... And things start stabilizing to some extent, so that imminent doom doesn't seem a certainty anymore . That's the interesting angle of how these two will unwind.

What I know for sure is this, if we don't get doomsday, a lot of people who're betting on one one way or another, is going to get hurt.

Such a dysfunctional market.

12 Reasons to Short Gold

How about this as another thought exercise in gold:

I buy a unit gram of gold from you, $20. You then buy it from me, $40. I then buy it from you $80. Repeat Ad nauseam.

Keep trading this gold back and forth. Pretty soon, it'll be like:

I buy a unit from you $2000; you buy from me $4000; I buy from you $8000.

This draws two polar opposite conclusions from people who observe this:

1. Gold bugs:
Since money can be printed ad nauseam, this trade can go on forever! Soon I'll trade that unit for 1 trillion, u can trade it back to be for $2 trillion!

2. Everyone else:
How come this sequence of action sounds like a Ponzy Scheme or bubble? What if there's no more desire (aka demand) in the market to buy that last unit of gold? Then won't I be the stupid bag holder then?

Notice this:
In order for the price to keep going up, there has to be more and more desire, ability and demand to want to pay for that unit of gold at every increasing cash levels.

Today:
Desire == pretty high due to crisis, in fact, as pointed out by the author, you can say it's the highest it's ever been.

Ability == pretty badly being destroyed. Everyone's losing income and jobs. Soon we can't even afford necessities anymore, let alone gold. This is also cited above as the Indian Bride problem. When food and gold has to be prioritized, food wins always!

demand == Mixed bag; As jewelry or luxury bling, it's going down. As coinage, it's on backorder. (always baffles me: But doesn't that just highlight a backlog in the coining process as opposed to physical shortage? Are the coin issuers PURPOSELY not making enough coins despite physical jewelers not cutting as many bracelets, rings, etc?)

12 Reasons to Short Gold

What's the exit criteria for gold?

So I buy gold, you buy gold, everyone buys gold.

What can gold do? Nothing. It was 100 grams, it'll be 100 grams in a million years. It doesn't add to our food supply, our technology, or healthcare or improve anything in our lives.

Compare this to say:

I buy company X stock, you buy company X stock, everyone buy company X stock.

If company X is really well managed, it can issue more stock, take all that excess money and GROW. Make more profits in the future. While doing is, It could add to our food supply, our technology, or healthcare or improve something in our lives.

...

There's no need for an exit criteria in stocks, because the company could keep growing as long as there's demand to be sated, technology to be explored, lives to be improved. Live can go on indefinitely.

Gold, will be 100 grams until the universe goes pfft. So you *HAVE TO* define an exit criteria. Somewhere in time where you sell the grams to someone else, and then take out the profit to do something else (buy food, improve your health, upgrade your technology, etc).

How's gold not a bubble then?

De-Leveraging Is Not Deflation

Let me try to explain how the fed's attempt at inflation isn't catching on at this point.

Imagine a very large (tm) balloon. Think size of Texas large.

This balloon was empty, and over the years, we've slowly filled it with water, using a conventional tap. As you can see, the tap will take a LONG TIME to fill the balloon.

Now, suppose the balloon has gotten to a very large (tm) size. Because it has exceeded the structural stress limit, some holes start forming near it's edges. Small holes, mind you, each one no bigger than a typical finger width.

In terms of numbers, however, more and more holes are forming and water is leaking out.

To compensate, the central tap controller massively turn ON the tap, in fact upgrades the tap so that it looks humongous, even disgustingly so, compared to any period of time in history.

But compared to the size of the balloon, or the collective loss from the holes, whether this tap is doing anything or not to the amount of water in the balloon is debatable.

That's why it looks scary when looking at fed's money creation, govt debt creation in isolation. (Since the tap looks huge! Never have it been this big in history! OMG!) But in the big picture, whether it helps keep the global supply of money constant -- the verdict now is "no".

Back to the analogy: Maybe at some future point, the small holes will each get patched or healed, and when enough of them heals, the "fed" will have to massivly turn off water (money) to prevent over inflation. But *WHEN* is that? Or will we lose all the pressure in the balloon altogether?

None of that is sure, so don't be so sure to take a fixed position in this market. I wouldn't bet my fortune one way or another, the key in this market is to be either crazy nimble, or incredibly still and calm.

Jeffrey Christian: Gold and Silver Could Spike

Absolute garbage piece of pump and dump.

It doesn't provide any good info on *WHY* commodities should raise, just a whole lot of momentum based reasons:

1. There's a lot of money, if it goes up, then it'll continue to raise!
2. There's a lot of people selling it, when it stops selling, it'll go up!
3. Everything has to happen (read: black swan event) even for gold to fall.

Don't get me wrong, I think gold has a place in investment; but articles like these do not help the actual discussion of fundamentals.

This is like a daytrader / pattern trader's pipe dream analysis.

Defining a Depression

Wow! One of the best written articles on this topic! Very good analysis.

I would submit to add to this analysis a global angle.

USA is not the only one in trouble. Add in the debt/gdp ratio analysis to other countries; and add in those hidden liabilities like you said (include the hidden bailout liability that could wipe out foreign governments if they ever had to fulfill even 1% of their guarentee/insurance) and it's easy to see that we're not in this on our own.

This is a global problem.

Another thing that spells out is that: there is nowhere for money to run.

This is a nightmare for anyone with wealth and money that they want to store.

The real issue is a major "sins of the fathers" type fight between old-capital (that has already evaporated, but refuses to let go and face reality), and new-capital that is not allowed to grow/deploy without first used to deflate, repay or compensate for prior capital loss. Thus, we end up old money strangling new money.

Major actions would be needed to clear this up. Wipe off the old corpses of capital-claims aka Debt; Realign the imbalance of currency and world order; respect the value of whatever remaining currency still in the system, and not pass laws and motions to continue to debase and punish it by trying to save the old economic structures.

Sadly, we're not doing any of that.

First Fuel, Now Metals - Forecasts Lowered

I'm sure we'll get GoldBugs who'll tell us how it's difficult to get coins on the street, even while jewelry demand reduces net gold consumption in the world.

Look for that posting a few lines down. :)

Why Oil and Gold Are Headed Much Higher

The market determines how much ammo the Fed have.

The interest rate available to buy treasuries is the signal the world uses to determine how much it believes the US can sustain in future debt load.

When that belief ends, interest rate will be forced up, and the FED runs out of ammo.

If the economy is still not in job-gains, income gains mode by then, this will reset interest rates on ARMS just when the populace can least afford it. The mother of all default will be here. GD here we come.

Why Oil and Gold Are Headed Much Higher

SWRichmond,
"You can try to be academically clever about it and say "we're just printing enough to replace that which was destroyed" but that doesn't change the fact that you can't print value."

We were at 1USD=1CAD; *THAT* was when there was too much money in the system. That's the old story.

Now we're at the stage that there's not enough money in the system to repay the debts being settled. That's today's story.

When the debts are settled, it's not that someone "hold"s the cash, ready to spend and dilute your "value" -- we just went from negative to less negative. At least the system still runs. That's next year's story.

At some point all the debts/loans/excess liquidity provided by the Fed will have to be vacuumed back, but only when the economy resumes it's upward climb. That's the story in 5-10 years. The acts of Fed today will act as a drag in future.

That's assume the Fed succeeds. Else, it'll exhaust it's ability to buffer the debt's damage, and we'll end up with GD.

How is this inflationary? How is this printing value? This is smoothing out the curve. The "value" is already spent. The "saving power" is coming from future gains. Fed isn't creating or destroying anything.

Once the Fed exceeds the market's perception of future gains, it effectively runs out of ammunition to save us. Interest rates on treasuries will climb. If by then we're not out of the woods with deflation yet, god help us.

Why Oil and Gold Are Headed Much Higher

silkarsie:

No doubt there is some manipulation the the oil and gas, but you can only use that argument so far. Not the dramatic falls we've seen.

The real story to Oil/Gas has been the decline in DEMAND as the global economy slowed down. Go look at any oil/gas demand chart or the miles driven by car owners. That's your main driver for the price declines. Demand is dropping, like a rock.

Supply will take some time to come down, in the meantime, because it's not that quick for supply to react, and demand is still *falling*, price has to fall.

Changing margin requirements will only tie up more capital in the oil markets. It will actually make hedging and price discover more expensive (as you need to put more money in, money that have interest rates cost to it) and make it less liquid.

Notice during all the climb UP or DOWN, we don't have rationing or refinery halting production -- that's precisely because of the extra liquidity provided by the oil market itself.

Is it perfect? No. Can it be manipulated? Yes. Look at some days when it can go 10% in a day and that's someone big doing some trade; but over time, it does discover the real price.

Can houses be made artificially high? Yes, but not over the long run.

Why Oil and Gold Are Headed Much Higher

I meant

"Now imagine what's "draining" the money from the economy *WASN'T* a prior interest-rate mistake, but actually what's happening today"

in my reply to Iknoknot.

Why Oil and Gold Are Headed Much Higher

SWRichmond,

Another way of saying this in case you didn't understand:
"Trying to print capital debases all the money that currently exists and dilutes capital."

Capital was already destroyed during the bubble years. Money is in the process of vanishing because the debts have to be settled/recognized.

Fed did not destroy these. It's trying to spread out the pain so that it's not acutely on a few companies and instantaneous. It will not be able to remove all pain, but if it can spread it out over years, and leave a system in pain but still functioning, then we have hope of recovering eventually.

The alternative is systemic failure and say bye bye to all your precious capital anyway.

"You are the one who posted this gem earlier in this thread: "When someone borrows $100 and spends it, that $100 is no different that if someone earns $100 and spends it.""

As far as the economy is concerned, it doesn't care. How much of the salary that was paid to you borrowed? Did you know? Does it even matter to you? How much of Walmart's INCOME is due to borrowed sources? Does it even matter at checkout cashier to Walmart?

Debts and leverage affect FUTURE money availability, not when they're being created.