asleeper

Resurgent Dollar Leaves Gold in the Dust

"The irony is that just about every goldbug was also a convinced dollar bear a year ago, and their emotionally charged analysis has proved utterly misconceived in a deleveraging global economy."

HIndsight is always 20/20. If the author was aware in advance that the dollar might be the best investment possible from 10/08 to now, was he advocating dumping all stocks and commodities at the time? I did, even my gold and silver ETFs.

In reality, just about about every goldbug knows that precious metals are volitile, and the "structural" matters in the market that lead to volatility are difficult to understand.

That is why even goldbugs pay particular attention to events that do not fit their conception of where markets and gold price are going. Practically every goldbug I now was all over the structural "deleveraging" idea in short order as the market crashed, gold went down, and the dollar rallied. This is NOT new news.

As a consequence, I got out of gold and silver very quickly, caught the first first bounce and recovered my initial loss, got out again, and waited for the carnage to end.

This business of knocking goldbugs cracks me up. They are like the stock pusher's bogeyman who cannot be mocked enough. Take it all with a grain of salt folks. The person you want to pay attention to is the person who KNOWS what is coming next. Good luck finding him.

Let's Just Say It: Print More Money

The author is badly mistaken in his advice as most commentors have noted by saying that more of the same that got us into this mess will not get us out. That is, given the existing monetary system remains intact. However, I am perpetually amazed at how few commentors are willing to go beyond that realization to say that a wholly new monetary system is needed.

When the banks deny credit, our system falters because our system is based on dollars being created by banks in response to people and organizations being willing to take on debt. If new credit (equal to the debt principle) is not continually added to the system in response to such willingness to take on debt, then paydown of debt by existing debtors extinguishes the money supply causing other debtors to find it even more difficult to earn the funds needed to pay down their debts, principle plus interest.

The author is therefore correct in saying the essence of the problem in a crisis such as this, a credit crunch, is not enough money in the system. He is incorrect in saying that the Government and the Fed are capable of supplying that money in a way that will help, given our debt-based origination mechanism for creating new money.

I understand that this is an investment web site, and very few who post here consider it likely that our monetary system will be redesigned in the next year, so any mention of what is needed to REALLY solve the financial crisis is not likely to help make investment decisions in the next six months. However, if the dollar truly does self-destruct in a hyperinflationary scenario at some point down the road, because of Government and Fed efforts to pump cash into the economy, a rare opportunity to re-design the monetary system might present itself.

We would all be better off if some way could be found to transition to a better monetary system without a collapse of the existing system, but as the existing system is a private, for profit system, the Fed and its supporters are not likely to look favorably on any proposal for a new system. For the present, we remain desperately searching for ways not to be screwed by the financial machinations at the highest levels in Washington and Wall Street.

Gold Breakdown

Anarchist wrote:
"But never the less the majority of the world no longer sees gold as a hedge against anything."

You might want to read Adam Hamilton's piece, "Global Gold 5"
www.321gold.com/editor...

"But to understand how gold really did during late 2008's devastating stock panic, you really need to consider all these currencies concurrently. The takeaway is gold's panic performance ranged from excellent to spectacular in 7/10ths of these currencies which include the very important euro and British pound. Only the US, Japan, and China saw local-currency gold charts that looked weaker than investors hoped during the panic episode."

In much of the world, gold not only held all of its value, it hit all time highs at the end of 2008.

What Is Going On With Gold?

Oops, correction. Re: backwardation, the price of gold for immediate delivery exceeded future prices.

What Is Going On With Gold?

The “goldbug” club has been advocating an investment with the following track record in nine currencies.

GOLD ANNUAL CHANGE
USD AUD CAD CNY EUR INR JPY CHF GBF
2001 2.5% 11.3% 8.8% 2.5% 8.1% 5.8% 17.4% 5.0% 5.4%
2002 24.7% 13.5% 23.7% 24.8% 5.9% 24.0% 13.0% 3.9% 12.7%
2003 19.6% -10.5% -2.2% 19.5% -0.5% 13.5% 7.9% 7.0% 7.9%
2004 5.2% 1.4% -2.0% 5.2% -2.1% 0.0% 0.9% -3.0% -2.0%
2005 18.2% 25.6% 14.5% 15.2% 35.1% 22.8% 35.7% 36.2% 31.8%
2006 22.8% 14.4% 22.8% 18.8% 10.2% 20.5% 24.0% 13.9% 7.8%
2007 31.4% 18.6% 10.4% 23.0% 17.9% 17.5% 24.7% 21.5% 29.2%
2008 5.8% 32.5% 32.4% -1.1% 11.9% 30.4% -14.9% 0.2% 44.3%
AVG 16.3% 13.3% 13.6% 13.5% 10.8% 16.8% 13.6% 10.6% 17.1%

Any investment still returning an average of 10% – 17% percent after this past eight years is a winner in my book.

Regarding backwardation, it isn’t a theory, it is a fact due to a drawing down of physical inventory. So many people were taking delivery in December that the price of gold for immediate delivery dropped below the future prices.

“If you had told me in December of 2007 that the global stock market would fall 40% in 2008 I would have told you to buy gold and nothing else because of its safe haven characteristics.”

Any investment including gold requires attention be paid to the dynamics of: money, markets, and the economy. Broad trends are one thing; timing is another. The Nasdaq crashed in March, 2000, and the Fed did what it always does. It lowered interest rates and increased the money supply. But, gold did not jump right away. Gold was only up 2.5% in 2001. It takes a while for increases in the base money supply to manifest in broader measures of money supply, price inflation, and the price of gold. Don’t expect immediate results in 2009 until the credit freeze begins to thaw or foreign governments begin to dump dollar reserves.

”[Gold fell, and the dollar rose.] Why did this happen?”

The dollar rose in a counter-trend rally because the banking sector tightened credit and the market crashed. No credit meant businesses, hedge funds, and individual investors had to raise cash to operate and service existing debt. Weak investments were sold first, then stronger investments. Everything fell except cash and 5-10 year bonds. Gold fell as hedge funds sold stocks and futures to raise cash, but it fell less than most stocks. Forced selling led to demand for dollars, raising the value of the dollar. Gold is now still off its peak, but the only thing that outperformed gold year over year in 2008 was 5-10 year bonds.

Gold IS the anti-dollar, but it doesn’t rise on increased Fed Base Money supply alone. There must be evidence that the base money is finding its way into the economy via lending and multiplication due to fractional reserve banking. Currently, there is little evidence the base money increase is going anywhere except to bolster bank reserves, pay executive bonuses, and buy out other banks.

“When you buy gold you're essentially buying a hard asset currency with the hope that one day it will become the world's choice of currency again.”

Sort of, but not really. Gold need not ever become the world currency of choice to protect against several dangers. All that is required is that people remember gold is easily concealed, portable, a store of value and insurance against: inflation, loss of confidence in paper assets, and civil unrest.

So, your basic premise is basically correct, to understand where the price of gold is going, the dollar is important. But where is the dollar is going and when? That is the question. Right now, I would bet all paper currencies will see renewed inflation in the second half of 2009, but nothing in life is certain.

Don't Miss the Coming Gold Bull

I've been in precious metals and commodities since 2000 when the Nasdaq crashed. Study of market crashes led me to the historical fact that the Fed inflates the money supply whenever markets crash. Since then, I've recouped most of my Nasdaq losses. It is harder than it might seem to consistently make profits even in an eight year precious metals bull market, because precious metals are so volatile.

But, history says Fed measures being taken now to inflate the money supply will eventually show up as price inflation and be reflected in the precious metals. That being said, gold could easily dive before rising. If you want into the precious metals markets, never say the price cannot drop when you least expect it.

Right now, commoditities and most precious metals have taken a dive, even silver, platinum, and palladium. Comparatively, gold hasn't taken a significant dive. If you think it has, you haven't been investing in gold for very long or you are only thinking of gold in terms of the USD.

Why hasn't gold dived? Because enough people, including bankers, still think of gold as money, much more so than the other precious metals. And, they study history, they watch the Fed, and they sense monetary inflation coming after the current price deflation abates.

You can believe that people will lose faith in gold and it will drop like all the other commodities. You can believe that the banks will take down gold again if it approaches $1,000 again (many believe the banks, most notably JPMorgan, take gold down periodically by shorting futures and via mysterious unspecified "derivatives"). You can believe that "de-leveraging" is not over and will knock gold down again as hedge funds take profits. Or, you can believe that Fed reflation of the money supply will fail and it is Great Depression II, and everything but cash is a bad idea. Or, the market can just decide to stab you in the eye for no particular reason.

I'm going with the idea that history will repeat itself again and gold and gold stocks will provide outsized gains as they have since 2000. Myself, I'm wary of those sharp unexpected drops, and I think the gold price ratio to the other precious metals is significantly out of whack at the moment. Gold could drop to a price more in line with the other precious metals before it rises again. That's why I'm heavily into silver at the moment, not gold, slightly into palladium, and I'm eying platinum and palladium. The gold/oil ratio is out of whack too, so I'm also now into oil. When the ratios normalize somewhat, I’ll be ready to get back into gold or gold stocks.

But, I'm ready to sell everything and short or double short the S&P500 if the overall market turns ugly again. This is not a buy and hold market.

Don't Miss the Coming Gold Bull

I've been in precious metals and commodities since 2000 when the Nasdaq crashed. Study of market crashes led me to the historical fact that the Fed inflates the money supply whenever markets crash. Since then, I've recouped most of my Nasdaq losses. It is harder than it might seem to consistently make profits even in an eight year precious metals bull market, because precious metals are so volatile.

But, history says Fed measures being taken now to inflate the money supply will eventually show up as price inflation and be reflected in the precious metals. That being said, gold could easily dive before rising. If you want into the precious metals markets, never say the price cannot drop when you least expect it.

Right now, commoditities and most precious metals have taken a dive, even silver, platinum, and palladium. Comparatively, gold hasn't taken a significant dive. If you think it has, you haven't been investing in gold for very long or you are only thinking of gold in terms of the USD.

Why hasn't gold dived? Because enough people, including bankers, still think of gold as money, much more so than the other precious metals. And, they study history, they watch the Fed, and they sense monetary inflation coming after the current price deflation abates.

You can believe that people will lose faith in gold and it will drop like all the other commodities. You can believe that the banks will take down gold again if it approaches $1,000 again (many believe the banks, most notably JPMorgan, take gold down periodically by shorting futures and via mysterious unspecified "derivatives"). You can believe that "de-leveraging" is not over and will knock gold down again as hedge funds take profits. Or, you can believe that Fed reflation of the money supply will fail and it is Great Depression II, and everything but cash is a bad idea. Or, the market can just decide to stab you in the eye for no particular reason.

I'm going with the idea that history will repeat itself again and gold and gold stocks will provide outsized gains as they have since 2000. Myself, I'm wary of those sharp unexpected drops, and I think the gold price ratio to the other precious metals is significantly out of whack at the moment. Gold could drop to a price more in line with the other precious metals before it rises again. That's why I'm heavily into silver at the moment, not gold, slightly into palladium, and I'm eying platinum and palladium. The gold/oil ratio is out of whack too, so I'm also now into oil.

But, I'm ready to sell everything and short or double short the S&P500 if the overall market turns ugly again. This is not a buy and hold market.

Nine Ways to Profit in 2009

It certainly was a very nice day. Silver did well all week. Also two PGM stocks: PAL and SWC. Even the commodities ETFs, DBB and DBC were up. Gold stocks turned up first, now commodities might be beginning to follow. Caution is warranted, though. This could just be a relief rally and optimism concerning what the new POTUS might be able to accomplish.


On Jan 02 07:28 PM aitvaras wrote:

> It is /was a really great day, the dollar went up, oil went up gold
> went down.
>
> I've pick a great day to enter my triple shorts, Good prices for
> them.
>
> Maybe oil goes to $50 next week, hope so. Gives me a chance to take
> a serious profit on DXO in my real time portfolio. Remember when
> oil spiked earlier, this is another spike to savage the shorts.

>
>
> IMO

Nine Ways to Profit in 2009

Thank you for making specific and detailed predictions. Right or wrong it makes for more interesting discussion.

Oil could go as low as you said. The charts suggest it is possible. But, I'm betting the low is in or close to it for two reasons. Even if some people think oil could go as low as you say, $20-$30, I think most people expect it to rebound in 2009, just as you said. If they expect it to rebound to $45-$85 by the end of the year, why risk missing the opportunity to buy at $30-$35 and chasing the price up should it head back up early? Why not buy in at $30-$35 and add more if the price weakens. I think most people would see it that way and such an attitude will prevent the price from dropping all the way down to $20.

Also, historically the price has already dropped as much percentage-wise as it did after the 1970's oil crisis. To fall all the way to $20 would mean a much larger drop percentage-wise. It could happen, but if it does, it would confirm that that this recession/depression is as bad as you think.

To me, the opportunity to buy oil at $30-$35 now and probably double the investment in a year or two years at most seems like a very good bet. I bought USO at very close to $31 with about half the money I wished to dedicate to oil before Christmas. I'll hold the other half and see how it goes 1Q '09. If the price drops to $20, I'll buy more. If the price goes up and the future looks as bleak then as it does now, I'll sell and bet on a second big decline in the market to buy back in.

Thanks again for your predictions.

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.

Value vs. Price: Trade in Your Gold for Oil and Agriculture Futures

I've been thinking much along the same lines myself for several weeks.

Sold my gold in the mid-900s and my silver in the low 19s before the absolute highs, bought gold back in the low 800s and luckily sold again when it rallied back up into the high-800s and before gold and silver dropped off the cliff. Can't claim any genius there, just happened to trade out and stay out while they fell.

Started buying silver back gradually and averaged down, my average cost being about $12 now. Still haven't bought back into gold, worried that it will also drop like: silver, platinum, and palladium did. Platinum and palladium look very attractive at current prices, though, but I don't know the best way to invest in them.

So, I've started looking at oil, general metals and commodities ETFs, and the agricultural ETFs. Just took a small position in USO today. Will start looking harder at the commodities ETFs. Even with price deflation, I cannot see food prices dropping much. And, if the high future inflation scenario that so many are predicting plays out, food prices should be a safe bet to rise.

Who knows though? My general rule is the greater the certainty of the analyst, the more full of sh** they are. Sometimes common sense beats out the most sophisticated analysis, and sometimes the unexpected beats the he** out of common sense. You never know for sure.

Own Gold? Time to Fold

Gold has been "money", a medium of exchange and store of value for 3,000 years. Gold fluctuates in value but never defaults. You cannot use gold coins at the supermarket but you can easily exchange gold coins for dollars that can. I can exchange a French 20 franc gold coin not much larger than a dime for almost $200. Says something about a dollar, eh?

People were saying the same kinds of things about gold in 2000 after the Nasdaq crashed: barbarous relic, not money, can't spend it, obsolete, stupid investment, etc. Eight years later, gold has kicked you-know-what, and stocks have eaten you-know-what. The Gold/DOW ratio is still closer to its cyclical low than its high and is still in an uptrend as the US and world economies sputter.

Recent Fed actions do not inspire confidence in the dollar. Central banks are not selling gold or have cut back sales. Physical gold is difficult to obtain except at very high premiums to the spot price. Gold recently went into backwardation on the futures market, implying that people suspect that forward contracts might default and want their gold NOW.

A Fed bank, I think it was Citibank recently predicted that gold would go to $2000 by 2010 was it?

But, go ahead and sell gold. Anything can happen in the short term. You might be right. But, I wouldn't bet on it.

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.

Precious Metals Manipulation: Lawyers Prepare for Battle

The SLV Prospectus mentioned a way to redeem shares for physical silver, I think (I didn't save it). Does anyone recall how to do it: where the silver must be picked up, what amounts can be redeemed? Has anyone tried redeeming their shares?