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Bankers and Economists Say Gold is a Bubble. Here’s Why You Should Ignore Them

smartknowledgeu's picture




 

It is indisputable thay:

 

(1) History has much to teach us;
and that

(2) We ignore historical evidence that is useful in predicting the
future far too often, even though history has demonstrated time and time again
that it repeats itself.

 

With the benefit of hindsight, let’s review the chatter of
the leading US economists before the stock market crash of October 29, 1929
that ushered in the global Great Depression:

 

"We will not have any more crashes in our time." -
John Maynard Keynes, 1927.

 

"There may be a recession in stock prices, but not
anything in the nature of a crash."
- Irving Fisher, leading U.S. economist,
New York Times, September 5, 1929.

 

“There is no cause to worry. The high tide of prosperity
will continue.”
- Andrew W. Mellon, Secretary of the Treasury. September 1929.

 

Even after the stock market crash occurred, there was still
no stopping the economic-political propaganda machine.

 

"[1930 will be] a splendid employment year." -
U.S. Department of Labor, New Year's Forecast, December 1929

 

“I am convinced that through these measures, we have
reestablished confidence.”
- Herbert Hoover, US President, December 1929.

 

“While the crash only took place six months ago, I am
convinced we have now passed through the worst - and with continued unity of
effort we shall rapidly recover. There has been no significant bank or
industrial failure. That danger, too, is safely behind us.”
- Herbert Hoover, US
President, May 1930.

 

If one studies economic history, one will uncover a clear
and distinct pattern of unbridled and highly unwarranted optimism that defied
underlying, sickly fundamentals during every recession that has occurred in the
last century.  Overwhelmingly,
there is a clear and distinct pattern among these egregiously poor predictions,
as they consistently are issued by the world’s most prominent economists and
politicians. In fact, if you follow the financial media, I am sure that you
recognize striking similarities between the propaganda issued before and during
the Great Depression and the propaganda issued during this current monetary
crisis.

 

Though this is not a warning that another Great Depression
will inevitably materialize, I do believe that the second phase of this
monetary crisis is inevitable, that it is likely to be worse than the first
phase that we suffered in 2008, and that it is likely to challenge the depths
of the prior Great Depression unless our leading governments drastically alter
the banking and monetary policies they are currently choosing to embrace. 

 

At a very minimum, the brief historical record at the
atrocious quality of unwarranted optimistic economic predictions from
politicians and economists alike in the face of dire economic circumstances should
warn us to completely ignore the repeating pattern of propaganda about imminent
recovery that is occurring today. If we do not take notice of the mountain of
historical evidence regarding the close bonds forged between economists, and politicians
and bankers that lead to the deceit of such propaganda, we have only our own
stupidity to blame when the collective wealth of nations are destroyed in 2010
and 2011.

 

Yes, the cat is out of the bag. There is an alliance between
bankers and the politicians and economists they monetarily support to purposely
mislead the public through well-timed pieces of propaganda.  Either this aforementioned sentence is
true, or the people we continually propel to the forefront of the media in
politics and academics are the dumbest people that reside on our planet. One of
these two statements must be true.

 

Even among the most prominent people that advocate gold and
silver today, I observe a wealth of misguided commentary about gold that
largely has arisen due to the propaganda campaigns that bankers have
continuously waged against gold. And what about prominent economists beliefs
about gold? Today, economists still have not broken their shameful history of
making awful predictions. For this reason, one should ignore every politician
and economist that states that gold is currently a bubble. However, let’s
dissect one case in particular.

 

A couple of weeks ago, well-known and often-quoted American
economist and economic professor at New York University, Nouriel Roubini,
scripted some of the most inane arguments I’ve ever read in support of the
“gold is a bubble” argument. In fact, some of his arguments were so vapid that
it would not surprise me, if one day in the future, an investigative journalist
uncovered a direct deposit from the US Federal Reserve into his bank account a
few days prior to his writing of the article, “The Gold Bubble and the Gold
Bugs.”

 

The economists and politicians that continually rail against
gold do so because gold is the enemy of a fraudulent monetary system that
continually steals the wealth of nations through a silent tax called inflation.
In his article, “The Gold Bubble and the Gold Bugs”,  Roubini wrote, “since gold has no intrinsic value, there are
significant risks of a downward correction.”
 Indeed, today, despite a decent rally in the gold futures
market on Christmas Eve, gold still appears vulnerable to further downside
action, and further downward pressure at the end of this month would not
surprise me, if it happened.  However, when Roubini wrote this article in mid-December, a
gold correction had already commenced (thus, there was zero risk in his prediction
of a gold correction at the time he scripted his article
).

 

And here’s where the chicanery of economists like Roubini
emerge if one takes the time to dissect his comments. Note that when Roubini
released his article to the media that gold had already shed $75 to $80 an
ounce from its previous high earlier in the month. At this point, an
eight-year-old could have predicted the likelihood of further short-term
weakness in gold markets. When the gold correction continued after Roubini’s
comments circulated the internet, there were inevitably many people that read
Roubini’s comment that erroneously deduced that Roubini correctly predicted the
current downward correction, and thus, gold must have no intrinsic value.

 

But let’s break down this statement even further to
illustrate exactly why Roubini’s comments offer nothing beyond what a shill for
the banking industry would state. 
Roubini claims that gold has no intrinsic value. If we look up the
definition for intrinsic, this is what we find: “Of or relating to the essential
nature of a thing.”
  The fact that
people are willing to pay more than $1,000 an ounce for gold, by definition,
grants gold intrinsic value. The fact that people value gold as an attractive
adornment in the form of jewelry and are willing to pay top dollar for gold
jewelry, by definition, grants gold an intrinsic value.  If gold had no intrinsic value then why
do people offer top dollar for it? I wonder if Roubini is married and if he is,
if he bought his then fiancée a diamond ring? Using the flawed “intrinsic
value” argument, if gold has no intrinsic value, then surely diamonds have zero
intrinsic value as well. And if so, then why do so many people that accept the
flawed “gold has no intrinsic value” argument willingly buy diamonds? Of
course, the answer is that both gold and diamonds DO have intrinsic value as
indicated by the willingness of people to pay loads of money for these commodities,
whether in raw or processed form.

 

If Roubini is arguing that gold can not  serve as money because it has no intrinsic
value, then has he ever considered the intrinsic value of all fiat money
itself, including not only the US dollar, but also the yen, the euro, and the
pound sterling? The only qualities that grant fiat paper money value are the
numbers and the pretty ink with which governments adorn it. But strip away the
numbers and pretty ink, and how much would someone be willing to pay for that blank
piece of paper? Not even a penny I would fathom. Yet, strip gold from its
jewelry form, or better yet, offer it to someone in its rawest, unprocessed
form, dug up in a core sample from the earth, and you will always find people
willing to pay vast sums of money for this raw metal.

 

By definition, this gives gold far more intrinsic value than
any fiat currency
, and renders Roubini’s argument as almost laughable. It is
even more amusing that the public, en masse, then embraces such silly arguments
and repeats them like mindless parrots. Though this is amusing, it does not
surprise me. This is the fault of institutional academia that has stripped all
young adults of the ability to critically think and reason for themselves.  This is why I have argued that business
school is an utter waste of time and money (something I unfortunately did not
realize myself until completing my MBA), and why some of the worst reasoning
about global economics and monetary policies originate from former economic
chairs and professors of supposedly esteemed academic institutions such as
Harvard and Princeton (aka Ben Bernanke). 

 

The public stands far too much in awe and grants far too
much trust to public figures just because they are in a position of authority
or because they might possess a degree from Harvard or MIT or Oxford. I’ve seen
this pattern of gullibility happen over and over again. Commercial investment
firms are able to repeatedly mesmerize and recruit clients by advertising sophisticated
quantitative models developed by some Wharton MBA that grant their clients a
sense of entitlement and superiority. In reality, this is just nonsense because
stock markets are rigged and the only way to guarantee results is to become
friends with the riggers or understand how the riggers operate, which no
quantitative model can effectively accomplish.

 

Though I graduated from the University of Pennsylvania, I
have met more people on the streets during the course of my life that
understand politics and monetary concepts much more fully than any student or
professor that I have ever met inside the hallowed academic halls of any Ivy
League institution. A fancy degree should never grant anyone a pass as someone
to be respected and it should not grant me one either. Rather, one’s logic, rationale, and track record should be
necessary to earn the respect of masses, though these ingredients never seem to
be essential to the financial media. 

 

Most politicians, economists, bankers, and media personnel
that constantly denigrate gold seem to be embattled in a crusade to paint all
gold owners as crazy, lunacy-tinged, tin-foil hat wearing conspiracy buffs that
believe gold can only rise in a straight line to $10,000 an ounce. In fact,
from my experience, I’ve found almost the exact opposite to be true. In my
encounters with gold owners over the past decade, I have found most gold owners
to be insightful, of above-average intelligence, and much more capable of
independent thought than the average person. Though there is a small contingent
of gold owners that may indeed resemble the mentally unstable character, Jerry
Fletcher, portrayed by actor Mel Gibson in the movie “Conspiracy Theory”, there
is also a small contingent among the investment community, otherwise known as
Chief Investment Officers of large commercial investment firms, that always
believe that the stock market will rise no matter the circumstance.

 

Even though I believe that gold will eventually top out at a
price multiples of its current price, the truly educated among gold owners don’t
expect this price to be achieved as a straight shot higher to the moon. For
this reason, we have bought gold since it was $500 an ounce and held on (or for
the more sage among us, maybe even at $300 or $400 an ounce). We have acted in
this manner because we understand that not only is it natural for gold to correct
after rapid surges, but that gold also corrects sharply at times due to price
suppression schemes executed by bankers. And we understand that neither
occurrence constitutes a gold bubble bursting.

 

As one of the themes of this essay has been to learn from
history, I will conclude this article by stating that one of the best reasons
to ignore the gold bubble advocates today is their failure to acknowledge one
of the most important contributors to steep declines in the price of gold that
occur from time to time – the execution of price suppression schemes and free
market interference into gold markets by bankers. To support this thesis, I
will reproduce below a portion of an article I wrote on October 16, 2008, in
which I discussed the enormous anomalies created in gold markets by these
banker executed schemes during the fourth quarter of 2008.  Though I wrote this article more than a
year ago, it is worth revisiting to understand the ample evidence of gold price
suppression schemes that one must account for to understand that gold
corrections cannot be a bubble bursting.

 

“Today (October 16, 2008), there have been four distinctly
and differently priced markets established for gold: (1) Futures markets in
Asia that consistently establish prices $20 an ounce to $60 an ounce higher
than the prices established in (2) Futures markets in New York; (3) Physical
bullion bars that dealers are starting to price at healthy premiums above both
daily spot prices established in Asia and London/New York; and (4) Physical
coins that dealers have always priced at premiums above bars and spot prices,
but that are now selling at soaring premiums above spot prices.”

 

“Since the July 14th (2008) correction in gold and silver
markets began, waterfall declines have occurred in gold prices in New York
futures markets that trade paper gold where physical delivery of real gold
occurs with less than 1% of all paper traded futures contracts. The differences
in spot prices in Asian futures markets and in New York futures markets for
gold have been staggering for the past 10-12 weeks, so much so that two
distinct and separate future markets for gold have been established, one in
which the gold price is significantly higher in Asia and another, where the
gold price is significantly lower in New York. As they say, a picture can paint
a thousand words so below you can find the daily spot charts in Asia and in
London/New York so you can compare the huge discrepancies between these markets
on a visual basis.”

 

In the remainder of that article, which you can find here,
complete with all graphs
, I presented compelling visual evidence of enormous
discrepancies in the price of gold between Asian and NY/London markets within
the same 24-hour trading day that lasted for weeks on end, and seemed to point
to excessive suppression of gold prices in the NY and London markets.  The evidence was so compelling, that when
I forwarded it to CFTC commissioner Bart Chilton, Mr. Chilton promised me that
he would investigate the discrepancies with his team. Given the evidence, I concluded
back then “that something [was] seriously amiss in the futures markets for
gold…and that rampant manipulation for profits by just a few players [was]
occurring in an unchecked fashion. According to data recently released by the
Office of the Comptroller of the Currency, a division of the US Treasury, of
the $135 billion of gold derivatives contracts (including futures and options)
controlled by financial institutions, JP Morgan controls $96 billion
(71.11%) of these contracts and HSBC Bank USA controls $34.4 billion (25.48%)
of these contracts. In other words, just two players control almost all gold
derivatives contracts in the entire United States.”

 

Thus, if we tackle all flawed arguments against gold on the
basis of logic and from the perspective of understanding that from time to
time, bankers execute artificial schemes to depress the price of gold to serve
their own purposes, then it should be quite simple to ignore your local
politician and economist when they tell you that you shouldn’t buy gold because
it is a bubble.

 

JS Kim is the Founder & Managing Director of
SmartKnowledgeU, LLC
, a fiercely independent investment research and consulting
firm.

 

 

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Tue, 12/29/2009 - 11:42 | 176700 Anonymous
Anonymous's picture

haha yes, its only you genius bloggers who have are aware of the true, "intrinsic value" of gold. Way to go, keep on buying. This guy went to business school ? Maybe Loony Toons State perhaps.

Last time I checked, the argument that an investment is worth a price just because someone else is willing to pay that price was the definition of BUBBLE, baby.

Tue, 12/29/2009 - 01:31 | 176537 Seer
Seer's picture

Thoughts?

Fed Proposes Term-Deposit Program to Drain Reserves

http://www.bloomberg.com/apps/news?pid=20601068&sid=atvMKCr1TYno

Tue, 12/29/2009 - 01:03 | 176522 MNnice
MNnice's picture

I'm new to ZH and have been quite impressed with the information available, in spite of of the many acronyms. A couple quick questions: 1)  Anyone have any first hand knowledge on JS Kim or the smartknowledgeu memberships/newsletter being offered. I read his website and it appears to be full of hard sell scare tactics and his offerings are not cheap. 2) Again being new to your site and trying to catch up, what would be the pros/cons of buying EFTs instead of actual gold? Thanks.

Mon, 12/28/2009 - 21:35 | 176429 Anonymous
Anonymous's picture

Any insights on JS Kim??? I'm new to ZH and so far am quite impressed with the articles and some of the comments. I went to Kim's website and it felt like one big fear tactic sales pitch. And the memberships aren't cheap! Anyone subscribe to his newsletters/memberships?? Feedback? Thanks.

Mon, 12/28/2009 - 21:33 | 176424 order6102
order6102's picture

i have 2 important questions: 1. Do you need to be paranoid to invest in gold? 2. Why so much zealotry in gold investing? ITS JUST ANOTHER TRADE. get over with it. And yes, I think gold perform ok over next 10yrs, BUT its not a best trade IMHO. Food, lead, PMG, and M60 will be the best trade. One who has M60 will have all gold...

Mon, 12/28/2009 - 22:57 | 176478 Seer
Seer's picture

The smart(est) play would be to use one's gold to buy land on which to grow food.

One who has M60 will have all gold

Great, sitting there with an M60, a pile of gold and starving to death.  Hm, seems history has many stories of how this hasn't worked out well...  Remember: "the meek shall inherit the earth;" I'm not thinking that M60s qualify.

Tue, 12/29/2009 - 01:49 | 176543 order6102
order6102's picture

i stand corrected. MRE, farmland and barber wire + lead and M60... but if u have M60 you can get the rest? unless u have M2, but M2 bullets cost fortune... so back to M60.. In all cases gold doesn't add anything to this? Does it? Farmagedon is coming, we all like to eat and f**k, and this is just disaster scenario in making

Mon, 12/28/2009 - 23:00 | 176480 Seer
Seer's picture

But, I should add, most people are too lazy to farm, in which case they will resort to the use of M60s: maybe cannibalism will make a comeback?

Mon, 12/28/2009 - 23:15 | 176491 delacroix
delacroix's picture

hungry people, are not very eco-friendly. look what they did to haiti. humans are disgusting, I would rather eat a rat.

Tue, 12/29/2009 - 01:35 | 176539 Seer
Seer's picture

It's quite the contrast, Haiti and the Dominican Republic.  Same freaking island!  One didn't save trees (drill baby drill mentality), the other did.

Hatians have resorted to eating mud pies!

Mon, 12/28/2009 - 21:30 | 176421 Jay
Jay's picture

I'm disappointed in this article. I kept looking for a good argument to support the thesis that gold is not in a bubble and I never found one.

Mon, 12/28/2009 - 21:43 | 176438 Crime of the Century
Crime of the Century's picture

Here ya go, gratis. Physical gold is not in a bubble until junior mining stocks go parabolic. Paper gold is just a play to keep physical out of the hands of the proles, and it's effect on prices doesn't interest me.

Mon, 12/28/2009 - 20:44 | 176384 KevinB
KevinB's picture

Roubini thinks gold has no intrinsic value? Millions of men for centuries have known it has one specific intrinsic value.

Therefore, Roubini must be gay.

Mon, 12/28/2009 - 20:25 | 176372 Sqworl
Mon, 12/28/2009 - 20:03 | 176356 Anonymous
Anonymous's picture

Thank whoever for the people who doubt gold! If people have learned nothing from history, they really deserve what they get.
If really pressed in a crisis, food and water will become priceless. But gold will be the only form of "money" to survive, one way or the other.
That any sane person can believe in paper and digits on a computer for their wealth is waaaay beyound me! To trust the banking system today is downright moronic. The only way to stay out of this system is by denying them power over you. How?? buy gold!
And, if that earns me a tin hat, so be it.

Mon, 12/28/2009 - 17:21 | 176211 wawawa
wawawa's picture

We all remember real estate bubble,it was not too long ago.   When hair stylist, used car sales man & etc. were buying multiple units.  Jubilation and excitement was incredible and almost everyone was convinced that real estate was a sure avenue to wealth.   That kind of environment was bubble.

 

I do not see similar environment for gold.   We bloggers are minorities who pay attention to gold and buy gold.   When general public start showing jubilation and excitment about gold as it was for real estate then one may claim the we have gold bubble.   We are very far from that point.

Mon, 12/28/2009 - 17:34 | 176223 Anonymous
Anonymous's picture

wawawa, you're joking right?
Everytime I'm in my car, I hear at least one gold advertisement. At my Christmas party, I had a medical doctor, a housewife, and a retiree ask me about how to invest in gold. On the off-topic forum on my favorite automobile enthusiast site, there are several threads about investing in gold. At what point will the "general public" start to show interest?

Mon, 12/28/2009 - 21:38 | 176434 Crime of the Century
Crime of the Century's picture

When they get invited to your Christmas party

Mon, 12/28/2009 - 22:54 | 176476 Seer
Seer's picture

LOL!  Now THAT was funny!

Mon, 12/28/2009 - 16:34 | 176153 hidingfromhelis
hidingfromhelis's picture

I think the only "bubble" in gold is a bubble in the use of the word bubble to describe gold prices.  The definition of the word and the motives of those pushing its application currently is something worthy of questioning.

Sure, gold had what looked like the start of a parabolic curve on the charts.  Then it corrected.  Maybe the correction (or suppression, if you prefer to call it that) will continue for a while.  So?

Politicization of the world Ponzi economy marches onward as it serves those with vested interests.  Distrust of markets isn't going away any time soon.  No, it isn't different this time!

History shows that gold (and other PM's) prevail as a store of value and a recognizable medium of exchange.  If you can read the tea leaves skillfully and are willing to trade, it can be an investment as well. 

Mon, 12/28/2009 - 16:20 | 176137 macroeconomist
macroeconomist's picture

I remember having expressed my thoughts on Gold before as an anonymous writer before subscribing but I have decided to say them again with my username, and I have purposefully waited for the gold price to fall so that they do not look like Roubini saying that gold is a bubble after the prices have fallen. I have ALL my wealth in Gold, and that is equivalent to two houses sold in June and July 2008 (in Europe)

Gold was a bubble and it is not going to be when the price corrects. Though it may sound funny or stupid, I think the upward movement to 1200$ or 800Euros was partly supported by this bubble, because a significant portion of investors buying gold was TOTALLY unaware of the correct rationale behind the forthcoming peak. (which of course has not arrived yet). One does not have to think too much to see the reason for the incredibly fast movement to 1200$: Hyperinflation arguments voiced in the media and the crushing of the dollar. As long as the upward movement is accompanied by a weakening dollar (and sterling), rising stock markets AND (not or) the hyperinflation arguments, there is a bubble in the gold price.  The true gold bugs that keep on buying gold at almost any price are NOT buying becasue they believe that hyperinflation will lead to a massive increase in the price but becasue they are aware that this funny artificial game is going to end with debt-deflation and a currency crisis that will throw the price up to levels noone can imagine.

I seriously thought of selling all my gold around 1120-1180, or to be more precise when gold price exceeded February highs in EUROS, in line of these thoughts. This is simply because with rising stock markets, the stupid optimism pumped up in the media and the absence of ultra expansionary monetary policy in the Euro area as in U.S and U.K, there was absolutely no reason for the gold price to go above February highs in Euros. Or in other words, I was certain something was not right when the price rose above that level because the reasons gold price reached 780 euros in February were totally different than the recent episode, it was mainly the fear of complete collapse. I am sure there were a lot of gold bugs had exactly the same ideas as they watched the price rise so rapidly between Sep2008-Dec2008.

But I did not sell even a gram of my gold in the end. My own reason for this was because I was afraid that this groundless increase in price COULD HAVE BEEN followed by some seriously bad news that would push the price to sky high, for completely different reasons. Or more precisely, a bad enough news COULD HAVE triggered the decoupling of the gold price from dollar, just like the beginning of the year. I sensed that some bad news were about to come, but I was not sure whether they would be bad enough to trigger this decoupling and push the prices even higher, or would be made to look mildly bad and reverse the dollar carry trade with small declines in the stock markets. In this case, the ignorant gold investors (the hyperinflation camp) would jump off the ship immediately, thus leading to a large correction in the price. I simply did not know, and knowing the true state of the economy, I was afraid to risk increadible profits for the sake of 10-15% short-run gains.

When I heard the news about the Dubai debt problem (folllowed by Greece), for a second I thought the news were bad enough to lead to a skyrocketing of the price.However, I had underestimated the power of propaganda, manipulation and how stupidly optimist human beings are inclined to be. The cost was a missed opoortunity of increasing my gold by 10% as I would immediately have bought around 1100$.

The gold bugs are right in all their arguments (apart from the danger of hyperinflation in the short run). Rather in the short run, it will be the currency crisis.  Gold is not going to be a bubble when it is accompanied by crashing stock markets, increases in interest rates on bonds and widespread panic, as in Feb 2008. Just wait, and do not regret not selling at recent highs. After all, I know most of you did not do it because you know too much. And time will prove you right...

Mon, 12/28/2009 - 22:53 | 176475 Seer
Seer's picture

More simply stated: why would one want to spend precious gold on fiat dollars?

Mon, 12/28/2009 - 15:56 | 176117 Anonymous
Anonymous's picture

Gold has intrinsic value because women will let you f*ck them if you give it to them.

Tue, 12/29/2009 - 00:04 | 176510 Master Bates
Master Bates's picture

Pay 1000 dollars to fuck???  AHAHAHAHAHAHA...

'scuse me for a second...

HAHAHAHAHAHA!!!!

Mon, 12/28/2009 - 23:03 | 176484 delacroix
delacroix's picture

I like the way you think.  GOLD BITCHES

Mon, 12/28/2009 - 21:39 | 176435 order6102
order6102's picture

M60 has more, bcs women will NOT let you f*ck them if she has it

Mon, 12/28/2009 - 18:05 | 176255 Internet Tough Guy
Internet Tough Guy's picture

Now we know how you get a date. Thanks for sharing.

Mon, 12/28/2009 - 14:37 | 176066 lawrence1
lawrence1's picture

To paraphrase Voltaire, "Man will be free when the last central banker is hung by the entrails of the last Goldman Sacks executive."

Thank you ZH for providing your commentaries and forum, an island of enlightenment in a sea of disinformation, lies and profound fraud.

Mon, 12/28/2009 - 13:39 | 176026 jmc8888
jmc8888's picture

It is a short term bubble, I can see it going under 800 ounce easy. It's still long term undervalued by a mile. That's what you have to understand about the investing environment we're in. Because both things are true. It is both a bubble, and yet no where near being a bubble. That's the dynamic.

 

I can see gold being at both 500 and 5000 in 2010. So to be a buyer of gold or seller of it? Well of course it depends on your makeup. How much profit are you really chasing? If you're in it for long term wealth preservation, buy now, and keep buying even if it reaches 500 an ounce. If you're in it for quick money, then be ready for the next shocks to perhaps send gold down to 500 an ounce. Sell before that, buy after it.

 

The market doesn't know when that will happen. It can't decide whether that will be short term, medium term, or long term. hell it can't even sort out what is the general timeframe between the three.

 

I still see 1-2 oz of gold buying you a house at market prices within a few years if inflation occurs. I can also see 1-2 oz of gold buying you a house if deflation occurs. Because if we stop printing and everything goes down. The price of gold could be at 100 bucks, yet that will be the equivalent of gold 5000, since money could become THAT scarce. So if gold goes to 100 dollars, you want to own gold, because everything else will be 10x worse except physical dollars which are a mere fraction of our ponzi scheme economy.

 

This is just the range of what could happen. I still overall think we'll keep printing until hyperinflation though with some big currency shocks upwards as other countries default before the U.S. Because Bernanke KNOWS if he stops printing everything collapses (or did at the start - I don't think he's drinking his own kool-aid yet). Thus why they keep printing. Deflation is given if you stop printing. Hyper-deflation. Thus it's print at all costs and hopefully the numbers down the road, work. In the end, monetary systems, will vanish. Because what we have lived through, and are about to, is the consequence of having a monetary system.

Mon, 12/28/2009 - 23:01 | 176482 delacroix
delacroix's picture

this is the main valuation problem I see, people price gold in dollars, instead of pricing dollars in gold. which one has lost 97% of it's purchasing power, since 1913 ?

Mon, 12/28/2009 - 21:25 | 176417 Crime of the Century
Crime of the Century's picture

India bought 200mt at $1045 - Central Banks make markets.

Mon, 12/28/2009 - 12:53 | 175995 Anonymous
Anonymous's picture

A couple of my Russian friends tell me that soap and toothpaste make better currency than gold if the sh$t really hits the fan. If you want to stick with gold, that's cool. Just make sure you are also packing if you want to keep that gold.

Mon, 12/28/2009 - 22:44 | 176470 Seer
Seer's picture

Ah, they were intentionally misleading you!  If you would have looked in their closets you'd have found vodka! :-)

Mon, 12/28/2009 - 21:22 | 176413 Crime of the Century
Crime of the Century's picture

Now there's an astute observation. If soap and TP make a better currency, shouldn't you be arming to protect them?

Mon, 12/28/2009 - 13:03 | 176002 vanderrook
vanderrook's picture

Yippe kay Aye!!

Mon, 12/28/2009 - 12:51 | 175988 vanderrook
vanderrook's picture

As stated above, gold's intrinsic value is as currency. Six thousand years, as currency. There is a reason for this...

I talk to a lot of people about this who tell me what I already concluded: a lot of people aren't buying gold as some hedge against inflation these days; they are buying it to use as a currency of last resort...

Mon, 12/28/2009 - 14:30 | 176061 the grateful un...
the grateful unemployed's picture

and when we reach that moment when gold is the currency of last resort, then we are in a barter economy, and gold has almost no intrinsic value. People assume gold will improve their intrinsic value like a sports car, or a new hairdo. it won't, barter imposes an exchange of like value. if you offer me a gold bar for a chicken, i would think, well maybe someday this gold bar will make me rich, but i would rather trade this chicken for some vegetables. gold is, and always has been, the display of conspicious wealth. ask any professional athlete.

Mon, 12/28/2009 - 20:24 | 176369 vanderrook
vanderrook's picture

If we reach that moment, then we are on a true gold standard, not a barter economy. barter can be used in conjunction with gold and silver, but the metal is the currency; it is a medium of exchange far superior to chickens.

I don't think that I suggested that it would improve MY intrinsic value; I think that I was suggesting that it would be a medium of exchange. Not chickens, not milk, not wheat or canned goods or oil- PM's. That's the way this has gone down for thousands of years, up to last century, as the good "Internet Tough Guy" has said.

You can't store consumables for any length of time to use as a medium of exchange for the unforeseeable future; PM's are divisible, scarce, durable, recognizable, etc, etc.

Which is probably why it has been the currency of choice for six thousand years...

 

Mon, 12/28/2009 - 23:58 | 176506 the grateful un...
the grateful unemployed's picture

"True gold standard", what sort of tautology is that? The sort that gold bugs love to repeat. When the circumstances the gold bugs envision come to pass, we will be in a barter economy, and then I will sell you a chicken for one of your precious gold bars, and at that point in time accepting gold as an investment may have some value, to the vendor of those necessary goods.

I suggest YOU believe that possessing gold imparts some personal intrinsic value, like owning a sports car, because that's how gold bugs think. The world will end but my money will save me. Putting all this snark aside, I do believe that after twenty or so years, the central bankers will have destroyed global confidence in any fiat currency, and at that time, countries with small currency floats, and large gold reserves will back their currency with gold. There are simply too many dollars to assign more than a microgram per dollar at the current US rate. Then the world financial centers will shift to places like Johannesburg, SA. Then you want to own the gold stocks and the countries which have not debased themselves with fiat currency inflation. Meanwhile saving your personal fortune is a goal which is both short sighted, greedy, and self defeating. We all have the instinct to self preservation, but I don't know when self preservation didn't involve helping my neighbors.

Tue, 12/29/2009 - 10:48 | 176653 vanderrook
vanderrook's picture

I apologize for the "tautology", didn't mean to ruffle any feathers. I have not suggested in this post that gold be used as an investment, if the fiat currency goes the way of the dodo bird, I am merely pointing out it's practical use as a medium of exchange.

I am not a "gold bug" either. Why is it that any time anyone points out the practical and convenient use of PM's as currency (in the absence of fiat garbage), someone starts throwing around the "gold bug" label as a derogatory term?

I do not believe that owning gold is like owning a sports car. Sports cars are not convenient as a medium of exchange. I would not be holding gold as some trophy "asset" or investment because I thought it looked pretty or because someone assigned an arbitrary value to it. I do not believe that my gold would "save me" if the system collapsed. I do believe that it would be of practical use as a medium of exchange.

Just as a quick aside, as the latter part of your comment seems to be, why would you consider someone who tried to salvage their "personal fortune" as "short sighted, greedy, and self defeating"? You seem to have envisioned a picture of a prudent "investor" in gold as some miser or scrooge counting his coin and laughing maniacally...as King John sitting on his chest surrounded by his sheriffs...?

I have pointed out the practicality and convenience of using PM's if the world has gone completely mad; I have pointed out that PM's have been the time tested and preferred method of facilitating trade and commerce for thousands of years; I have pointed out that there are several good reasons for this. That is all.

I am not a "Social Darwinist", and would not spit on a dying neighbor. I simply believe in gold and silver as having practical use for good reasons, not because I think it is shiny and will make me all powerful like some Skeletor wreaking havoc throughout the universe- or thinking I am "richer" because I have some- and someone else doesn't.

I agree with you on your point about there not being as much as would be needed in circulation, which is why I said PM's (not just gold) would/could be used in conjunction with a barter system, but the PM's would most certainly not be useless as a practical tool. However, the scarcity of gold is one of the attributes that makes it so valuable, isn't it?

Mon, 12/28/2009 - 22:56 | 176477 delacroix
delacroix's picture

try trading a generator, or an acre of land, for some chickens. how many chickens would I need to buy a travel trailer?

Mon, 12/28/2009 - 22:39 | 176466 Seer
Seer's picture

You can't store consumables for any length of time to use as a medium of exchange for the unforeseeable future

On the whole, correct, but not in all.  That is, some things can and do store for a LONG time.  That's why salt was quite valuable once upon a time (and will probabyl be so again one day).

Mon, 12/28/2009 - 18:03 | 176253 Internet Tough Guy
Internet Tough Guy's picture

Why do you think a gold standard equals a barter economy? We were on a gold standard until about 80 years ago and people weren't living in the stone age. Get your fiat blinders off.

Mon, 12/28/2009 - 21:13 | 176405 mtguy
mtguy's picture

Um, scuse me, but didn't Nixon take us off the gold standard -in 1971? Maybe a minor point, but we do want to get our facts straight don't we?

I for one own some gold, not as much as I'd like, but feel the price will correct before going to the next level. If it doesn't correct then I just have to hope my junior mining stocks take off with the price of gold. BTW, does anyone else hate to use the word "hope" anymore. Our fearless leader "Hopey" kind of ruined the meaning for me

Mon, 12/28/2009 - 12:47 | 175986 agrotera
agrotera's picture

Great article!  Thank you!

Mon, 12/28/2009 - 12:43 | 175984 the grateful un...
the grateful unemployed's picture

Gold is the definition of a bubble, which is a an exponetially rising asset with no real intrinsic value, i.e. tulip bulbs, or housing. (you can define housing as an asset with no intrinsic value because there is no market for housing, it doesn't trade as a commodity, and people consume their house, just as they consume their breakfast)

The second problem with gold is there just isn't enough of it be a fungible expression of currency. Has there ever been a diamond bubble? Even though diamonds have industrial application. When people refer to the Gold Bubble they refer to the paper contracts, which far exceed the total volume of gold, which makes it a paper bubble technically.

Should Bernanke be offered the chance to trade all our gold for the debt we owe, he would take such an offer immediately. After all the U.S. has the lions share of gold, which raises an interesting question. If we own most of the world's gold, and gold is money, why isn't the dollar doing better?

 

Mon, 12/28/2009 - 22:51 | 176473 delacroix
delacroix's picture

most people I know, look at gold as insurance, not an investment.  I personally believe silver has much more appreciation potential. almost the same amount of energy, to mine and refine. production decreasing, use increasing, reserves shrinking, and price is 62 times less than gold. in my book, thats a bargain. the silver market is tiny, and shrinking. buy some physical, while you can still get delivery. it's rarer than gold now.

Mon, 12/28/2009 - 22:29 | 176461 Seer
Seer's picture

The second problem with gold is there just isn't enough of it be a fungible expression of currency.

And the question then would be: how much currency do you believe that the world needs?  And when we exhaust our oil resources (ability to extract and refine)?

Fiat currency has become un-anchored to the physical world.  We have lost all discipline to understand value.

I'd argue that our fungible expression is over-stated...

Mon, 12/28/2009 - 15:24 | 176090 SWRichmond
SWRichmond's picture

The second problem with gold is there just isn't enough of it be a fungible expression of currency.

This is only a question of valuation, the misunderstanding of which gives rise to your other misconception:

If we own most of the world's gold, and gold is money, why isn't the dollar doing better?

The problems include the above one of valuation.  The gold allegedly owned by dot gov is not promised as backing for the dollar, therefore the dollar can go to zero. Were the dollar to once again become gold backed, the value w.r.t. the paper dollar would be many thousands of dollars per ounce.  This would immediately reveal the fraud that the central banks have perpetrated upon the citizens "store of value".  Political changes would rapidly follow.  That explains why the dollar is not gold backed, and why the dollar is not doing better.

Mon, 12/28/2009 - 12:21 | 175963 Anonymous
Anonymous's picture

Jesus H. Christ. Can somebody explain why goldbugs get so freakin emotional over the yellow stuff? There is a religious fervor toward gold that is very disturbing. All this time, I thought sound investment strategies involve being emotion free and not getting attached to any particular asset class. The dude that wrote this article has taken gold bug apologetics to a whole new level. A couple points:

1. The guy spends more time bashing economists and politicians for "getting it wrong" than he does talking about gold. And then to support his viewpoint, he handpicks a few quotes from history that clearly support his diatribe. Here's an idea - how about going to basic principles from that stat 101 course he took at Penn and look at *all* the data rather than just skimming off the data that supports his viewpoints. For instance, it would be much more helpful, if he took a random sample of predictions made by economists and compared them to a random sample of predictions made by goldbugs. But I doubt we'll see such an analysis from this dude.

2. One of his main points for why gold isn't a bubble is because it is highly manipulated. This of course begs the question of why anybody would want to touch a highly manipulated market when investing.

Before anybody bashes me, and I know I will get hammered judging by the number of goldbugs who have already commented, I am NOT against gold as an investment. I own physical gold. I am just amused by the amount of emotion and attachment to one asset class. Gold might very well go to $5000 or $50,000 (if you believe Peter Schiff), I have no idea. But from a risk-reward perspective, buying anything at these levels is going against the odds. Not only that, when my uncle the supermarket manager, tells me it's time to sell off other assets and invest in gold, I get suspicious.

But never fear, because if gold doesn't hit $5,000, just chalk it up to manipulation and conspiracy theories. Of course, I haven't heard anybody explain how this would help my bottom line.

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