asleeper

Gold Poised to Move Higher

Correction: [Keep in mind that a paper dollar DEFLATION is highly unlikely. ...

Gold Poised to Move Higher

Otbricki and others, CLH for example, are not just confused about gold; they are confused about money and “investing” in general. Otbricki wrote, “There is a reason that the value of gold drops in a famine…”. CLH criticized gold, “… gold never goes up. It bought a suit of clothes in 1500 and it still does”, and “Gold is overpriced in a deflation”.

All money drops in value in a famine: gold, silver, paper; it doesn’t matter. The ratio of money to food increases dramatically in a famine, so each unit of money buys less food, and prices rise. But, printing more money doesn’t produce more food; it just increases food prices even more.

Likewise, in times of plenty, all money increases in value, and prices would drop, except for interference with the money supply by the banking sector. The bankers expand credit at such times and instead of the average person reaping the advantages of the plentiful harvest, the increased credit jacks up prices. The average Joe not only pays more for goods than he should but goes deeper into debt.

The strength of gold as money is that it cannot be easily inflated like paper. That is why an ounce of gold could buy a top notch suit before the Depression, during the Depression, and can still buy one today, but the $21 it took to buy a suit in 1929 will only buy a mediocre tie or belt in 2009.

Gold does not necessarily go down in value in a deflation either. In an actual money supply deflation, money becomes dear, and precious metals are money too, so they also become dear. [Keep in mind that a paper dollar inflation is highly unlikely. What we are seeing now is a deflation of prices in select areas: real estate, gas, publicly traded commodities, etc, due to the credit freeze, but the actual money supply is not dropping. The Government and Fed are pulling out the stops to prevent that. In the short term, anything can happen, but in the long term, we are likely to see a lower or flat stock market and higher precious metals and commodities prices.]

Anything can be an investment whether it provides a return on investment or not. In fact, even a money loser can be an investment, if the alternatives result in even greater losses. How else is it possible to explain the huge amounts of money flowing into Treasuries that provide a negative real rate of return? Simply preserving wealth by buying gold and silver was an effective investment strategy, as many Germans learned during their experience with hyperinflation.

Hamilton and many others lost a big chunk of money on gold and gold stocks in the recent market market crash, but he has been in gold for quite a while, so I’m sure he is still doing quite well. He is a great researcher, but like many investors and speculators, he has not put the same amount of research into the structure and politics of the U.S. monetary system as he did into his target markets. It is an indicator of risk for all paper assets, that stocks dropped the most, paper gold such as GLD and others dropped less, and physical gold and silver in private hands dropped the least in the market crash.

Is It Time to Buy Gold?

No one knows what Monday holds, let alone the next month or year. Even analogies to the Depression do not hold. The amount of debt-liquidity being provided by the Fed to member banks is completely without precedent.

Market forces are not determining stock market and precious metals prices. Financial engineering is going on behind the scenes, hence the lack of transparency concerning where all the money under the "tarps" is going.

Precious metals bets in the paper markets are little better than chips on the craps table in Vegas; it is pure gambling, not investing because you do not know how the wheel is rigged or when the pit boss will push the button for "00", red, or black.

Buying the physical metal is different. It is not investing either in times like these; it is capital preservation. If you cannot predict how the dollar will be destroyed - it IS being destroyed by out-of-control deflation or by hyperinflation to come - your only recourse is to shelter some of your capital in the form of a physical asset such as gold, silver, platinum, or palladium.

In really bad deflation, when money is extremely hard to come by, precious metals are still money. In really bad inflation, when money is abundance but nearly worthless, precious metals still have value. You might not get rich, but whatever happens, the value of precious metals does not go to zero as the value of paper money can and has done repeatedly in the past.

So, the debate about when to "invest" in gold is misguided. Gold is a lifeboat should the economy really go down the tubes, not an RV.