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Credit Suisse Helps Aleviate Bernanke's Gold Confusion, Sees Gold Going To $1,360
During his testimony before the House Budget Committee, when asked about the recent move in the price of gold to a fresh all time high, the Princetonian, who usually has an answer for everything, was stumped: "the signal that gold is sending is in some ways very different from what other asset prices are sending" he said, adding that "the spread between nominal and inflation-indexed bonds, the break even, remains quite low, suggesting that markets expect about 2 percent inflation over the next 10 years." The fact that TIPS are linked to the most manipulated indicator in the government's arsenal the CPI, was not mentioned. But back to gold, Ben Shalom concluded "gold is out there doing something different from the rest of the commodity group." Yes, Ben - it is indicating that your policy of endless fiat dilution is about to come to a forced end. But don't take our word for us. Here is a report from Credit Suisse which explains not only why the firm sees gold rising promptly to $1,360 but possibly going much higher - and this is from a bank whose very existence is contingent on gold prices staying sufficiently low for some marginal credibility in fiat to still remain.
Here is what CS has to say about gold:
We on the global strategy team remain overweight of gold (last October we forecast a $1,200 gold price) – and see the risk that the gold price could rise another 10% to 20%. We acknowledge that our view on gold is more positive than the house view (now under review) – and that there are short-term downside risks (most importantly, a pull-back in worries about sovereign debt). However, we believe the following factors are supportive of the gold price:
- The macro environment: gold tends to do well when the real Fed Funds rate is below 2%, as it is now. We expect that the inflation-adjusted Fed Funds rate will remain below 2% for at least the next three years (the 10-year inflation swap is 2.5%, while the end-2011 Fed Funds future is 1.2%, implying a real Fed Funds rate of negative 1.3%). The Fed normally does not raise rates until 19 months after the peak in unemployment, which would imply March 2011, and this time around there are plenty of reasons why tightening could be postponed further (the output gap is -5%, bank credit is contracting at 2% yoy and net fiscal tightening is nearly 2.6% of GDP next year);
- We see a 80% chance that the macro environment will be supportive for gold. There are, we think, five possible macro scenarios, in three of which gold is likely to do well: i) a renewal of QE, either as a response to a sovereign credit crisis or a double dip (35% chance); ii) an economic recovery during which central banks keep policy abnormally loose (40%); iii) a major sovereign default, outside of Greece (5%). The scenarios which would be bad for gold have, we believe, a lower aggregate probability: (iv) a normal recovery with the normal amount of monetary tightening (15% chance); (v) renewed deflation with no renewal of QE (5%). If there were a double dip, we feel that QE would be renewed more quickly than fiscal policy would be eased. After all, the US/UK have done QE, the ECB is half way there and the BOJ thinks of itself as doing QE at the moment.
- A low proportion of FX reserves is in gold. Just 1.6% and 2.5% of China and Japan’s reserves are in gold, compared to 70% and 66% for the US and Germany. If the PBoC and BoJ were to put 10% of their reserves in gold, the increase in demand for gold would be 3.5x annual mine production.
- Shortage of a reserve currency. There are no safe big-cap currencies: the Yen has been strong, but the BOJ is engaged in QE; the US is still running a current account deficit, has c1.5$trn of excess consumer leverage and a primary budget deficit of 7.5%; and ECB will, we believe, embark on QE. The only currencies that look relatively safe tend to be either commodity plays (and hence too cyclical) or in NJA (and hence do not represent diversification for the PBoC).
- Low aggregate weightings in gold. Global ETFs may have seen strong inflows, but still represent just 0.7% of global funds under management.
- The real gold price is still 34% off its all time high and the behaviour of gold is not yet typical of a bubble.
- Credit Suisse gold analyst Dr David Davis believes that the cost of producing gold will be $1,400 by 2015, but the future market price is only $1,360. [uhm, that makes sense] Gold stocks still look relatively cheap. We continue to recommend clients buy the cheap gold stocks (Newmont Mining).
Full report with numerous pretty charts here.
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I was somewhat impressed by the questionning by Paul Ryan. Showed he had done some research and knew what he was talking about. Maybe there is some hope after all...
Sorry, I didn't mean to hit junk. I meant to hit reply.
I don't understand Ryan. He seems to understand what is going on, but then again he voted for the TARP. He may be another one who says the right things, but then turns around and votes for bigger government and more theft.
Did you see the next Congressman to question Bernanke after Ryan say that there was a surplus under Cinton? Ryan was sitting right behind him and looked up and clearly said "bull****".
You can hit junk again to unjunk him.
Thanks!
Slightly O/T here, but in the last gold thread a REALLY NASTY troll insulted one of our top shining lights here at ZH.
So if Eric C shows up spewing his filth (this guy is much worse than Bravo), please zap him way ASAP.
Don't worry. Dumpster will put him in his place!
10-4 that Rocky! Just as things start going tediously tiresome, dumpster comes along and saves the day from the trolls.
CD's ongoing essay makes this easier to understand. It is one thing to know what's right; it is quite another to stand away from the herd.
I've lost count how many congressfolk that voted aye have since said "I didn't really like it but they convinced me the world would end!"
Agreed, but he did not challenge the TARP statement, the backstops for Housing, Auto, Lending facilities. They think that replying that TARP has been paid back and will earn money is sufficient. TARP was the smallest of the "bailouts". However, his intelligent questions renewed my hope that absolute dumbasses will be thrown out. Probably too late though.......
The scenarios which would be bad for gold have, we believe, a lower aggregate probability: (iv) a normal recovery with the normal amount of monetary tightening (15% chance); (v) renewed deflation with no renewal of QE (5%).
on the later point being negative assume that is an absolute call not a relative one
The sad part is, Bernanke really is this dumb. Greenspan knows what is going on.
Bernanke is Greenspan's ass bitch.
I think his response to the fiat currency/gold questions was disconcerting:
"Beans and franks, beans and franks, doooooooooohhhhhhhhhhhhhh"
Yep, that is exactly why Greenspan left when he did and why Bernanke is there now.
yeah - not too sharp that Bennie boy. TIPS are basically like buying credit default swaps on the US govt - from the US govt - not too smart. Why? Because if inflation goes sky high and interest rates follow - given the 100% Debt/GDP - the US will default on its Treasuries - unless you believe the country can support paying say 5-10% of GDP annually in interest payments!! . Thats why.
TIPS only work so long as the CPI-U actually captures the real rise in overall inflation without hedonomics and other mitigating factors that they use to enable them to not use the actual rise and use an adjusted rise that takes into account the pleasure one derives from using the product - therefore no real increase, or less than the straight actual rise - to still continue to distort the actual rise in prices going on everywhere.
Why do you think they allowed social security to be indexed to 'inflation'? It certainly wasnt to actually keep pace with increases in prices. Otherwise they would have used the same calculations in place at the time prior to enacting 'inflation' protected soc sec. Why else come up with new ways to calculate price rises unless you dont want to actually account for the real rise that is occurring at the same time you are crafting legislation to supposedly protect seniors from those price increases.
I think the word you're looking for is "hedonics", as in "hedonic substitution" (which is part of the methodology for calculating the PCE deflator).
"Hedonomics" would be the economics of hedonism, which was my minor in college.
So TIPS are fine in a benighn scenario ( the only kind of scenario they probably teach at Princeton). But in dire scenarios - TIPS will fail you when you need them the most.
interesting...elliot wave international has a $1,346 price target if wave 5 = wave 1 in size before a reversal
Could you explain that?
The chicken guts all mixed together indicate a slight chance of rain.
Eye of newt, and toe of frog, Wool of bat, and tongue of dog,.
Don't forget the tiger penis.
Gold is pricing solvency of the global system....has nothing to do with inflation.....it's a "I don't trust the paper to be worth much" in a bater system after the collapse.
He can't admit to that right now, give him 5 years and a congressional hearing.
That's it exactly Hondo. To me, gold is a gift under $1500.
If there is inflation, gold may be a good place to hide IMO.
+ $1230 to you.
That may be so, but then what was gold "pricing in" in its run-up from $260 to $700+ in the period 2001- mid 2007, when worries about the global financial system and its solvency were basically nowhere to be heard?
"basically nowhere to be heard?"
Ah grasshopper, except by those who basically heard and bought gold.
Granted --- I should have been more explicit, and said " .... basically nowhere to be heard in the mainstream media or among the public at large."
ask an economist a simple question, get a simple quagmire of obfuscation for an answer
+10 for "simple quagmire of obfuscation"!
Webmaster: Captcha is misfiring again -- "Math question cannot be longer than 2 characters but is currently 3 characters long." As a response to "___ times (minus eight) equals 280" -- really no idea how to answer that in less than 3 characters.
I see the same issue but it's probably part of the captcha logic, i.e. throw a curve ball in there once in a while.
Yeah, it's been doing that for a while... I thought I was a cruel joke... like
I was supposed to use bernanke math or something...
I keep waiting for that quirky and cryptic Captcha thing to start asking for cube roots or logarithms in base eight or some damned crap like that.
PS: I have learned that if it is asking for an answer that would give three characters, if one of them is the "minus" sign, just leave it out ---- it will usually accept the absolute value as the answer, even if it logically should be a negative number.
akak, I too have had to answer with negative numbers (the negative being number three), but even though I get this red message saying no 3 letter answers allowed, it lets me post anyway.
I'm going to try your absolute value number next time.
You are fighting the good fight vs. gold haters. If this guy Eric C ever spews forth his nasty filth again, maybe we can all zap him the 20 x so fast as to make ZH history. He would deserve it.
I guess I missed the worst of what that clown posted yesterday before it got junked and eliminated, but I did see some other "comments" of his, all but maybe one of which was frivolous and juvenile. I'll be keeping an eye out for him.
Hate to jinx things here, but I wonder where JohnnyBravo is? I mean, this IS a gold-related thread, and he IS paid to swarm each and every one of them, isn't he?
with reference to the math question... if I remember correctly it goes something along the lines of if you're not smart enough, OR DETERMINED ENOUGH, ie. keep hitting it in even if its wrong (or more than two integers), and you will get posted. I believe its only meant to keep out the really bottom of the barrel people.
DR BEN CAN MOO:
http://williambanzai7.blogspot.com/2010/06/dr-ben-can-moo-can-you.html
The chairman of the Federal Reserve, the worlds central bank, does not understand that gold is an alternate currency? LOL
Have to say, seeing Ben fumble with his recovery talk the other day was quite disturbing. I mean, I knew it was B.S. all along, but to see the Fed chairman so OBVIOUSLY quivering and stuttering instead of lying with bold confidence, well, its a bad sign. A sign that they may know things are coming to an end.
Who wants to go all Cortés on 'em? Which city should we start with?
Caracas or Tehran...take your pick.
Into the jungles of south america and after the socialists or into the desert and after the muslims? I was thinging somewhere fatter, lazier, easier to conquor, and containing more gold; but... as you will... I'll be needing some four ships from the governor of Cuba; supplied with crossbows, muskets, salt pork, and cassava bread for some 240 men.
But wait, Johnny Bravo said gold wasn't a good investment, and that it was going to breakdown?
Hmmm, tough choice, should I listen to Credit Suisse, Paulson, Tudor Jones, Soros, the Chinese, 6000 years of history, or some narrow minded low brow jerk-off. I don't know, tough call.
I wanted to ask Johnny Bravo/Master Bates a question. I'm not going to throw names or devolve into name calling. I am just looking for some honest analysis.
One of the things I have read from JB was that gold has shot up in the past, look at 1980. Those holding gold will be hurt when the rising wedge occurs. Maybe he's right, but I think the reason that gold dropped in the early 1980's was because a recovery started taking place and Volcker raised interest rates up to near 20%. I can't see that happening today. The FED has no ability to push rates that high without crushing an already bloody and bruised economy.
So, my question is, Why does JB/MB think that this is just like 1980?
I think you answered your own question; "Gold prices are high". I think that's what their earth-shattering Ph.D. thesis analysis ultimately comes down to. Oh, and you can't eat gold - it's just a yellow metal.
Yep, exactly.
Much easier to digest paper. That's what it seems to come down to.
these people were 2 and 3 years old in 1980,
and are clueless aout life //
the indication that some even find worthy insite. are not of the realization that they are just junking off crib sheets ,, pulling legs , and trolling between coffee breaks.
these people are no more what they claim to be .. than a gnat sucking the tail end of an elephant announcing that they in fact are holding the animal up with a finger ,
dumpster, see above Rocky remark re you taking out the trash Eric C if he ever comes back at us like he did before.
Dumpster = Junk Yard Dog!
Gold tends to move inversely to real interest rates.
almost correct. Gold moves inversely to real interest rates.
I wanted to ask Johnny Bravo/Master Bates a question. I'm not going to throw names or devolve into name calling. I am just looking for some honest analysis.
Then you are going about it entirely the wrong way. Honest analysis by him? Seriously? No matter what the situation or political situation or fiscal situation or even when its completely great out there for the economy or if there is inflation or no inflation his answer will always and only be "its horrrrrrible. Sell gold now before it goes to $50/oz.
And for contrast, let me tell you when gold will be a bad investment - when real rates are actually positive (real rate = interest rate minus inflation). Until then gold is where you want to be. There may be other items that go up more, but gold is a guarantee over the longer term so long as real rates are negative. When that reverses, thats the time to look elsewhere for continued gain. Or when dow:gold hits 1:1. Thats historically a good time to switch from gold to paper again to catch it at its lows before the next paper cycle takes off. That presupposes that they dont break it this time around and that there's still a paper market to go back into at the end of this cyle.
dupe
EURO chart indicates a move soon :
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
Yes, Gold is sending a signal to Bernanke that he's a freakin' IDIOT. Perhaps Benny boy should take a look at Exter's pyramid instead of his crackpot "economic theories".
It's called Gold-Deflation baby! It's the new black.
Precisely!
"and see the risk that the gold price could rise another 10% to 20%."
BWAHAAHAHAHAHAAHHHAHAHAHAAAAHAHAHAAHHAHAAHAHAHAAHAHAA!!!!
John Whitehead, formerly of Goldman, was just interviewed on CNBC.
He said that the U.S. could be the next Greece and people should "hold a little gold".
Of course, CNBC rapidly changed the subject at the mention of the dreaded G word.
Maria was uncomfortable dealing with that, and didn't do the obvious which was to ask for clarification and expansion on his thesis. Poor reporting. Of course, it was just a feel-good piece (not Maria, although that might be a hoot as well).
Hmm. Yes re Maria
I always was a sucker for big zoomies. ...the mind wanders.
I always was a sucker for big zoomies. ...the mind wanders.
So that NEVER happens anymore? heh heh.
John Whitehead on CNBC 6/9/10:
http://www.msnbc.msn.com/id/21134540/vp/37599721#37599721
2015 NCE @ $1400oz. Check
Price per oz. @$1360 Huh?
Gold looks like much higher this year, considering it's 34% off the 1980 peak. Golds rise of 180% in the six months prior to the 1980 peak and only up 12% so far this year. Bubble? Not bloody likely!
Quoting "gold's peak in 1980" is pointing to an anomaly. It was an intraday high which gets quoted so much. Look at the average around a reasonable time frame and you'll get the actual number. And, no, I haven't done that. I'm not that smart.
Nov of 1979 it was at about $450 before it started the final blow off top move that took it to the $900+ level less than three months later in January 1980. before coming back down to low to mid $500's by late March through April of 1980.
And that people, is what a blow off top looks like. It aint gonna be after a paltry 25-30% rise in a year. Last time was a 100% rise in under 3 months. I would suggest looking at QCOM and some other Internet stocks to see a similar repetition in the blow off top area where it went up a ridiculous amount in a very short period of time. And it wasnt 25-30% for the year. Think more like a 16x move in one year. Again, another example of a blow off top.
Yes, that's correct. The shape of the price chart curve is the tell for the bubble. Nothing else. There is no "bubble price", for instance. The ski ramp curve on the price chart is the bubble.
$450. is a good number to work with.
So, that gives us what price it should be today "adjusted for inflation"?
Trust me "cost of production" will have NOTHING to do with Gold's price in the future we are headed.
Folks will be panning like 49ers, hopefully not to stay alive like the Zims.
correct.
As evidenced by this mornings testimony, Uncle Ben was obviously deathly afraid of the Fed Audit move! He fell back on the old "policy control" argument.... which is nothing of the sort. He's scared! It's about time.
Lemme tell ya, if Kudlow knows why gold is gaining strength then you can bet your striped pajamas that Uncle Ben knows.
The cost of production is greatly exaggerated here. Though it may be that costs are higher in legacy mines due to declining grades, as in South Africa. There is also the problem of geology of the gold mines themselves, whether they are not actually copper mines with a declining copper price, for example.
I began buying gold and silver over a year ago when I lost faith in "the system" and "government."
I don't know what happened to the good old days when we could have an economic downturn or a recession without the whole financial system imploding.
Couple that with the re-newed rise of Socialism in the US, and those governement-issued pieces of paper just don't seem all that appealing. Nor do those mass produced pieces of paper called stock certificates.
Leverage...
You can't eat gold - it's just a yellow metal.
_____________________________________
Why is gold the only asset class that gets dinged because it isn't edible? How come no one ever says "You can't eat tech stocks." And, I'm sure that once they find a way to make gold edible, some jerk on CNBC will say "Well gold isn't water soluble."
Because, you know, according to the establishment defenders and sheep (just ask Leo), gold is only good in case of "Armageddon" ---- but then, since you can't eat it, and everyone will be starving and fighting off the roaming cannibalistic zombies, it won't even do you any good in that case either.
In other words, it is just a strawman argument made in the feeble attempt to discredit and mock gold, when all that inane line actually discredits is the monetary and historical ignorance of any person who makes it. Which in the USA today, is just about everyone --- present company (aside from Leo) excepted.