This page has been archived and commenting is disabled.
Eric Sprott Debunks The Gold Bubble Myth
From Sprott Asset Management, by Eric Sprott and Andrew Morris
Debunking the Gold Bubble Myth (pdf)
Gold’s continuous ten-year rise hasn’t sheltered it from controversy. Despite producing consistent returns in virtually all currencies year after year, some market pundits still question its validity as an asset class. It’s true that gold doesn’t pay any interest, and it’s also true that much of the gold produced throughout history still exists in some form today. But these characteristics shouldn’t inhibit it from performing as a monetary asset. Cash, after all, doesn’t pay real interest either, and there is more fiat money in existence today than ever before. So why does gold still receive such harsh criticism?
We believe much of it stems from a widely held misconception that gold is forming a financial bubble. It’s a fairly straightforward view – that gold buyers are merely foolhardy speculators buying on a whim with no rationale other than to sell to the ‘greater fool’ at higher prices in the future. It’s a view that assumes that gold has no intrinsic value and is simply a speculative asset that has captured investors’ imaginations.
We don’t take these views on gold lightly. We’ve seen bubbles before and fully know how they end. We have no interest whatsoever in participating in some sort of speculative frenzy – that’s a recipe for disaster in the investment business. Thankfully, however, our gold investments present no such risk. As our analysis has revealed, gold is actually a surprisingly under-owned asset class – and one that has generated far more attention in the media than it probably deserves. While its exemplary performance since 2000 is certainly worthy of discussion, gold simply hasn’t commanded enough investment to warrant the bubble fears it seems to have aroused among market pundits and business commentators. The truth about gold is that most people simply don’t own it…yet.
To be clear, a speculative bubble forms when prices for an asset class rise above a level justified by its fundamentals. For this to happen, increasing amounts of capital must flow into the asset class, bidding it up to irrational levels. Gold may be trading at all-time nominal highs, but a look at investment flows proves that it isn’t anywhere close to being overbought.
In their Gold Yearbook 2010, CPM Group noted that in 1968, gold held by individuals for investment purposes represented approximately 5% of global financial assets. By 1980 that amount had fallen to roughly 3%. By 1990 it had dropped significantly to 0.6%, and by the year 2000 represented a mere 0.2% of global assets. By the end of 2009, nine years into the gold bull market that began in 2000, they estimate that gold had increased to represent a mere 0.6% of global financial assets – hardly much of an increase. Gold ownership didn’t change much last year either, as we estimate that this percentage increased to 0.7% of global financial assets in 2010.1 So despite gold reaching record nominal highs, the world holds about the same portion of its wealth in gold as it did over two decades ago. While this probably says more about the proliferation of financial assets over the past decade than it does about gold investment, it is surprising to note how trivial gold ownership is when compared to the size of global financial assets.
The increase in gold ownership from 0.2% in 2000 to 0.7% in 2010 is also misleading. If you consider the approximate $227 billion that was invested in gold bullion in 2000, that level of investment would have grown to $1.18 trillion, or 0.6% of financial assets, by the end of 2010 - based purely on gold appreciation alone.2 In other words, the actual amount of new investment into gold since 2000 represents only 0.1% of current global financial assets, or about $250 billion. Although this number may seem large, consider that roughly $98 trillion of new capital flowed into global financial assets over the same period, so gold’s approximate 0.3% share of global investment flows is essentially trivial.3
The 0.7% ownership data point also has interesting implications for global gold ownership going forward. Consider that to return to a meaningful level of gold investment, say to the 5% level of 1968, it would require over $9 trillion of gold investment today, or about 6.5 billion ounces of gold at the current gold price. This would represent well over 1.3 times the amount of gold ever produced throughout history and four times the amount of known gold reserves.4,5 So not only is the public relatively underinvested in gold, but at current prices it isn’t even possible to increase our gold holdings back to a meaningful level.
Gold’s apparent underinvestment also applies to gold equity financings since 2000. According to our sources, gold companies raised approximately $78 billion of equity capital in new financings over the past 11 years.6 To put this amount in perspective, this is equivalent to the total amount of equity raised by technology companies in the first three months of 2000.7
To further illustrate the lack of activity in the gold equity capital markets, we compare last year’s gold company financings with the technology company financings in the year 2000 (Chart 1). Once again, looking at the relative amount of capital market activity in the gold equity markets, we find no indication of a bubble whatsoever.
Furthermore, we compiled information on mutual fund flows to get a sense for the average retail investor’s appetite for gold equity investments (Chart 2). We found very familiar results in this area as well: compared to the $2.5 trillion dollars that was invested in US mutual funds since 2000, precious metal equity funds have seen a mere $12 billion in inflows. If there is a bubble in gold investments, the average retail investor hasn’t participated in it.
To truly gauge the level of exuberance (or lack thereof) in today’s gold market, it’s beneficial to review equity valuations, since they provide an excellent lens into investor sentiment for an asset class. Certainly if a bubble was forming in gold, it would likely rear its head in the stock market, where speculative manias have been fleecing ‘greater fools’ for centuries. The best gold index to review for valuation is the Amex Gold Bugs Index (HUI), which has returned a stunning 674% since 2000. It is certainly an index that could be mistaken for a bubble based on its incredible performance… until one considers its relative valuation. In Chart 3 we present a time series chart comparing the price-to-EBITDA of the HUI vs. that of the Nasdaq Composite since 1998. Price-to-EBITDA is a valuation metric that compares a company’s stock price to its profits before accounting for taxes, interest payments, and non-cash charges like depreciation and amortization. It is similar to the ubiquitous price-to-earnings (P/E) multiple but allows for a comparison across periods where net earnings are negative and P/E ratio’s incalculable.
Looking at the price-to-EBITDA multiple for the HUI Index we see absolutely no evidence of a frothy market for gold stocks. At the current level of 13 times EBITDA, the HUI is actually trading below its 15-year average of 14 times. Moreover, valuations for gold stocks are currently one-third of the levels reached by the Nasdaq in late 1999. There simply isn’t any evidence of excessive valuations in gold stocks, which is most certainly where we would expect the excesses to be most apparent.
Based on our findings, this notion of a gold bubble is patently false. The current investment interest in gold relative to other financial assets remains surprisingly low - about where it was two decades ago. Moreover, the modest valuations of gold equities highlight the absence of unbridled investor enthusiasm for gold investments. The fact is, despite all this talk about the gold bubble, the capital flows into gold vis-à-vis other financial assets have simply not been large enough to indicate any speculative mania. Investors can rest assured that they are not participating in any speculative bubble by owning gold. They are merely protecting their wealth.
1 SAM estimate based on data obtained from McKinsey & Co., IMF, CPM Group, Thomson Reuters, BIS
2 “CPM Gold Yearbook 2010” CPM Group (March 2010)
3 SAM estimate based on data obtained from McKinsey & Co., IMF, CPM Group, Thomson Reuters, BIS
4 Larmer, Brook. “The Real Price of Gold” National Geographic Magazine. (January 2009) Retrieved on March 7, 2011 from: http://ngm.nationalgeographic.com/
print/2009/01/gold/larmer-text
5 “Mineral Commodity Summaries 2011” US Geological Survey (January 2011). Retrieved March 7, 2011 from: http://minerals.usgs.gov/minerals/pubs/
mcs/2011/mcs2011.pdf
6 RBC Capital Markets, Dealogic
7 Ibid.
- 16756 reads
- Printer-friendly version
- Send to friend
- advertisements -


Iran new weapons
http://dawnwires.com/politics/iran-new-weapons-of-mass-destruction/
With Japan's reactors in trouble, I cannot understand why Russia is so blasé about IRAN working on nuclear technology.
It's because the 2010 Russian summer heat wave didn't remove enough mouths (56,000).
.
"Iran new weapons of mass destruction"? A bunch of Iranians working on cyber warfare qualifies as "weapons of mass destruction"?
Puhleeeeeze.
Russia wants a nuclear Iran. Why? It provokes the West. So Russia can make money selling tech and then arms to Iran. When the West invariable responds in the bully, ham-fisted way it is known for, oil prices will moonshot. Russia is the largest exporter of oil in the world. It's a way to fill their own pockets and weaken a potential foe.
And if there is a disaster because of an attack, Russia will be able to harp about the West and being anti environment and use it as an excuse to shine on the Western environmentalists. Russia is playing the geopolitical game better then anyone right now and seemingly no one is paying attention. And I'm no fan of Russia, just calling it as I see it.
Well, Shameful, that was very enlightening. Yes, Russia has lots of talent and experience in geopolitics.
Thanks for that explanation, I see it as very plausible.
...
Awhile back, you and I went back and forth re Freegold. You were winning our exchange. But, let me stroke a ball now back over the net.
You said (words to the effect) that before a Freegold scenario that the CBs and others in the know would buy more gold (a big arbitrage if you will).
I now say: they already have! They have front-run us! And at low prices. Also, FOFOA says the mechanics of buying BIG PHYSICAL GOLD (even a single metric ton, but much harder in very large quantities) are rather difficult. Sprott, for example.
Hey, like you, I am not starting any fights! I am a student of gold who wants to protect our financial butts!
Any ME conflict is economically better for the US than for Russia in the long run. Do not forget the big player China. The US has a direct border to both Russia and China via controlled Afghanistan and Pakistan. Russia is no danger guys. Get real!
Care to explain how high oil prices hurts the worlds biggest exporter of oil and helps the world biggest importer? I know the American economy is unstoppable and not even $200 a barrel oil would slow it, but care to go into detail?
And technically Afghanistan is not sharing a border with Russia, pull out a map. Actually kinda far away, unless you are saying we would plow through Uzbekistan and Kazakhstan to get to the Siberian Corridor. Hell easier just to invade though the Baltic states. at least they are part of NATO. And if your claim is the US would just up and invade Russia, that's crazy. Russia is kinda really easy to defend and you know has ICBMs.
Also care to address how we have problems with Iraq and Afghanistan but you seem to think we can take on Russia AND China at the same time? I know speaking as an average American man I'm 10ft tall, carved from marble in the shape of Hercules, and bullet proof, but don't we have American Idol to watch instead of fight? :)
you really believe that the PTB show interest in the US economy or people? If they were, there wouldn't be a military industrial complex which is highly inflationary for the US and the world. There would not be a FED, there would be cheap and cleaner energy, et cetera. The power wants more money, regardless of the fate of a country.
What I meant with sharing a border is the control of a country by having a military bases there, as in Kyrgyzstan, and Uzbekistan and soon to be Kazakhstan with a huge border to Russia.
Russia and China are too big to invade, however creating problems in the periphery does help the US controlled corporations to reap immense profits.
War and terrorism is a racket, that's my point.
I'm not so sure the CBs are buying, well not the Western CBs anyway. If one holds that the Western CBs, mainly the Fed, has suppressed gold then they must be selling gold. Where does this gold come from. US reserve and the fools who left gold in the Fed's possession. Sold into market via leases.
Now who are the buyers, the foreigners who are getting shafted by the Fed's press IE commodity nations and China. So while I can accent the Fed and Co selling gold to suppress prices, the scheme about an agreement is flawed because the spread from FOFOA projection of golds "real value" and current price would have everyone buying anything with any gold in it. Based on his numbers even going to he mall and buying 14k jewelry is a good deal! So all it would take is one huge player to move the market by themselves and end the game. Now that one player would have a incentive to not rock the boat to hard till they loaded up. Problem is when you have many players in the game. Each player has an incentive to get as much gold as possible, so it becomes a tragedy of the commons type scenario where everyone will try to harvest up all the cheap gold, arb it then build a cycle of wealth. Even 2 players in this game means this will happen, but will all the players FOFOA talks about we are talking of at least a dozen players. The Nash Equalibruim says the optimal strategy is max gold harvest for each player. And I have yet to see Giant's agents on the ground at malls in the US and India buying up any gold they can get their hands on. So buying gold in this way would be easy, or bushwhacking refineries and paying 100% over spot. If "real value" of gold is $55,000, then anyone would be happy to pay $3,000 an oz and take a $52,000 an oz profit.
Say for example Carlos Slim got word of the scheme. That man alone has the wealth to crack the game open and make a vast fortune on his own, should be willing to commit on it. Non sovereign, just one man. So when you enter the sovereigns into the scheme doesn't make a lot of sense for them not to ramp now.
And I'm not anti gold. Most of my net worth is in gold. Moved a bunch of my parents net worth into gold. I'm a big believer that it will do well as our leaders drive us into hell. I just don't think FOFOA is right about a freegold system. Now having said there there may very well be a gold backed currency, but not the way he sees it. If it's take dollars to buy gold it's a lot like right now, and if market forces were allowed to act and nothing changed politically then we get put in a constant state of high inflation perhaps hyper. Say that gold was known as a source of value and due to money printing was rising at a known 20-25% a year and the cause was known money printing, well how many will by T-Bills at 4% when gold is rocking 20-25%? Can the system survive with real interest rates? No. And with the culture of entitlements as long as it's a soft gold standard like that there will be an incentive to print and we will routinely see massive devaluations of the dollar. So it still would not be stable and people want a stable money system. Now the argument is that debt will disappear, yeah good luck with that. It's been with man since record keeping, history as old as gold actually.
Also watch Saudi Arabia. If they go down will shoot FOFOA theory in face. After all they are supposed to be the corner stone of the freegold plan (at start anyway), and if they get topped I half expect the price of gold to go down as they are forced to liquidate for new digs in another country.
If Saudi Arabia falls or even erupts into widespread riots, Gold will launch skyward. Oil as well.
Dawnwires. Sounds like a credible source.
It says here the editorial staff consists of:
1) Jennifer, and
2) Sasha
Jennifer's an ex-Goldman Sachs employee. I wonder if Sasha's a cheerleader.
http://dawnwires.com/about-us/
Tyler check this out and then i'll delete my post ... Very high readings Live geiger counter around Japan.
translate.google
The unit for the chart is nGy/hr. 32 of these is the background from cosmic rays; none of these readings is significant/.
I didn't want to bring this shit into a gold thread can't you fucking read, I was going to delete it, Tyler posted before he wanted readings near the site ....
Tyler take out both my post and IQ of 20 also ....
How were you planning to delete your post after Tyler read it? You would have no way of knowing, unless he responded, at which point you couldn't delete it anyways.
Also, uptight prick is uptight.
Don't you have some minority babies to abort this morning?
1, I have explained to you many times that I am not an abortion doctor, and 2, it isn't morning, you moron.
2 things: you are a liar and mother earth contains more than your selfcentered childish time zone you moron. HAHAHAA
Sure, but there is only one time zone in Texas, the state that you acknowledge that I live in.
You say "HAHAHAA", but all I hear is "HURR HURR HURRRRRRRR".
Whats up ...
I did not need Tylers response I would have deleted it after 5 minutes .....
Lay off the methamphetamine already.
S_S, don't let the number upset you, it's not his score, only a target.
Neither do most people own any crude oil futures. Should they go rush and buy some?
Futures? Who is talking about futures? Try the shiny stuff!
Gold is one of the few places to hide in the storm coming. Everyone should own some. Only 1% - 3% own any non-jewelry gold.
Might want guns & ammo as well as food and water and medical goods asl well. Just in case.
NONE of our financial problems have been solved.
NO ONE has gone to jail (other than sideshow Maddoff).
FED delenda est.
Having a gun don't mean shit without the guts to use it
Yes.
I have a check mark beside each one of those suggestions. I only need to update my medical kit and add some Pottasium Iodide.
mr sprott, my fine art gold jewelry has doubled in value, in 8 months.
yip peeeeeeee†
It's mid-March and Gold is up a whopping 1% YEAR-TO-DATE.
This is not how asset prices behave in a "bubble". So stop the f***ing "bubble talk" already.
Since it's not in a bubble it can't go down. ...Right?
Why would you care? I doubt you could afford 1/10 of an ounce.
No, it can go down at any moment.
All that needs to happen is for interest rates to outstrip actual inflation rates, or for a segment of the economy to grow much faster than inflation and people to become aware of it.
For 7 of the last 10 years gold has hit its bottom for the year in the first quater and I think it hit its low 9 out of the last 10 years with the first 5 months.
Perhaps a 1% gain will be gold's low for 2011.
If you dont agree with me, great, we have a market - i'll buy and you can sell or short.
My point is that those claiming that gold is "a bubble waiting to burst" are likely to be sorely disappointed. Gold's rise has been slow, steady and consistent, not parabolic.
There is not once credible piece of evidence that anyone can cling to in hopes of some level of justification for the absurd assertion that gold is in a bubble.
"Gold ownership didn’t change much last year either, as we estimate that this percentage increased to 0.7% of global financial assets in 2010" - that's it. No bubble.
It would be much easier to make a case for gold being in a relatively bearish market. I personally have about 20% of my assets in gold, imagine the price if the rest of the world were so cautious.
Lucky you, in euro gold is down 2.75% for the year, be it from a 30% rise over 2010. ;-)
I know it's not gold, but it seems there is a lot of effort to keep silver under $36.
FYI gold is not silver; looking forward gold will not wear silvers jock in utility or trade.
well, gold was an asset back in '68. Then we went off the BW1 standard and the place to be was in paper stuff. Those days are now coming to an end...simple as that.
Gold will continue to crawl upward as a percentage of assets, but the bigger issue is the 2001 production peak and whether the latest spike in production can establish a new peak or even a new trend. If we see declines going forward, then price will adjust to reflect that, as well as if we see increases going forward.
When you have a hammer everything looks like a nail.......
ur right...fundamentals never matter. Supply and demand are irrelevant. Idjit
My gold and silver meatlas and PM miners are doing much better than my Thomas Kinkaid winter landscape painting. The painting reminds me of my youth with out alll the buggary.
Gotta lay off the valium if you are going to post...
All correct until this ..."yet"! There won't be many holders of gold neither now nor in the future and why? because most are not educated enough and have debt to pay off! the little guy "owns" gold by having little or no debt, maybe gets some silver, its cheaper for them!
Gold wagon has already left the station, at these levels there wont be anymore buyer! unless you have so much money that you are obliged to buy! capisci?!
GOLD monthly chart warns of downside risk.
http://stockmarket618.wordpress.com
Dem's fightin wurds n dis hood.
Do you ever get tired of being 100% wrong at any given moment?
You don't so why should he?
The increase in the value of my assets speaks for itself, you brainless pervert.
You're a liar.
Even so, go through my posts (as I know you have, since you have a gay crush on me). Look at the charts of the things I talked about owning when I talked about them. They have made a HUGE amount of money.
But then, since you are too stupid to tell morning from afternoon, you probably can't understand that.
You're a gold pimp pure and simpleminded, with nothing to offer but inflation yadayada, and you missed silver entirely.
Gold has done well, too. You can't even come up with a scenario where my advice has been faulty, not even by making shit up.
What a moron.
You must have been born with a butt plug as a head. Pull it out of your ass and look around. You'll note on extrication, that the FRN's and system that you are so enamored with, will not smell any different from what you are used to.
You two are like a daily love fest....
Sorta like two porcupines mating ain't it?
Good description...
i equate these two, (too/to] dogs fighting each other, only to just be chasing their tails†
-
Smeagol: Mustn't go that way! Mustn't hurt the Precious!
-
Is radioactive gold worth more? Can you buy radioactive fish with it? Can ES talk his book some more?
"Is radioactive gold worth more?"
No, but it tastes better.
I see you haven't subscribed to the Auric Goldfinger Newsletter.
Radioactive gold has a half life on the order of a few days, depending on the isotope.
So, remember the film Gold Finger?
Bollocks.
The only question is QE-3 or not. That will determine PM. As nobody today, except China, now made fragile by loss of local partner Japan, can challenge USD as reserve currency. As the yen is on weak legs, there are three MAJOR weak currencies today with ONE combined agenda together : PRINT BABY PRINT. They are now in the same bath tub. So we are heading for the coordinated printing of three currencies to artificially support world wide economic growth. And the rest of the world including China can lump it!
There is no fear of a bubble in the gold and silver market.
The only bubble is the fear bubble.
And it will never burst
Most people are afraid to invest in them because of the "Fucking Pig-Dog" Manipulators,(which just happens to have the blessing of the USA Govt.)
Most preople fear the day finally decide to jump in the precious metals market,that it will be an hour later the "Fucking Pig-Dog" Manipulators ,smash the price down and scares the hell out of them,as was the plan.
You have to have balls of steel to hold gold,and not let the the "Fucking Pig-Dog" Manipulators,take your silver and gold off of you,by scaring you to sell out.
AND P.S. "FUCK YOU PPT".
Silver bug here. Have been buying and holding since $5 much to the dismay to my wife - who has finally seen the light. Last purchase was $27. Just came into some cash and want to put it all on silver, need an entry point. It's very hard for me to buy at $36 - it's run up so fast, I'm half expecting a pull back. Will we ever see silver in the 20's again, even if there isn't a QE3? I know... BTFD. I think path of least resistance is still up. I'm going to be holding for 20 years and would love to have a buying opportunity, but i think the cats out of the bag. We may never see cheap silver again.
What if it resists at $36 for ages and then breaks out to $40? Then you'll be longing for $36!
Amen to that!
Could hardly believe I was paying 30.00/oz a few months ago.
I had a group of guy friends (ages 40s - 60s) over at my house last week, and the topic of conversation somehow segued from the current newsline to silver/gold. They know I've been into PM, so they asked me some pointed questions, which I answered. They then began to ask about getting some of their IRAs or cash into ETFs, and I stopped the discussion to go back into my (super-secret batcave) location and pull out a pristine Morgan and an UNC SAE.
I let them see and touch the coins themselves (always by the edges, please...thank you very much), and the expressions on their faces were priceless. They had never seen actual silver coins before (not even a Morgan or such), and their attitudes regarding holding physical changed right in front of me.
Right there, one of the older gentlemen in his early 60s commented that he had been considering getting into a silver ETF, and he began to realize the wisdom of having at least some of it in actual physical. It's always fun talking to newbies and letting them see a real coin. It's like waving candy in front of a kid.
I do the same with the ASE I carry in my pocket at all times. I have a slabbed Morgan and a raw Peace Dollar that stay in the desk drawer -- NOT IN ANY BAT CAVE THAT I HAVE TO RETIRE TO. These 3 coins are the only ones I keep on site OF COURSE, wink, wink. If they want to see more they'll have to get their own. Security will be more and more important as time goes by.
Well I'll bet the same twats who have been calling a gold bubble all these years are the ones who cheerleaded the tech bubble and the housing bubble.
the very people that take glee over a 10% pullback in gold and silver (even as they own none to begin with) are the very ones that sat idly by when their paper holding 401k's dropped 40% (as i did with the ups and downs for 20 years in my own account) in 2008/9.
it's a wierd thing.
Not that Sprott is biased or anything.
Sprott makes money by being correct, not by showing up on television to entertain you so an underarm deoderant commercial can be aired. There is a difference.
You don't own any, so that makes you biased as well.
Didn't Sprotts chief analyst call for $50 silver by late spring, meaning May at the latest? And of course gold up as well.
Tmosley, please just ignore the asshat brigade, don't argue with them. Let them talk to themselves.
Thanks ZH for giving me easier math questions to solve to post, I appreciate it.:)
Gold imports in China rose 500% from 2009 - 2010 to over 200 tonnes. China also mined over 340 tonnes of gold in 2010. In January and February of this year China had already imported 200 tonnes of gold. This should come as no surprise and we should realize they are just getting started with their gold buying program. China one of the lowest percentages of gold relative to the nation's foreign reserves, they must continue to import gold if they are to achieve stability and or any sort of dominance in the new monetary system that is yet to be upon us. China does not currently allow gold to be legally exported from their soil. The Chinese government has consolidated the gold mining industry this decade and the number of gold producers fell from 1200 to 700 in this time period. China relies on a handful of producers for nearly half or their production supply.
India's gold demand increased 66% from 2009-2010 to 963 tonnes. India's demand for gold currently rivals China and the USA combined. India's citizens are known for saving in gold and silver and giving large amounts of gold during the wedding season which begins in February. As a percentage of gross household savings Indians are saving much more gold.
I simply like to think of those two markets (China and India) as nearly 40% of the world's population. If you can find trend there, it will likely affect the whole world.
Gold will not only retain it purchasing power in real terms, it will gain purchasing power as many investors, nations and common men attempt to flee from overexposure to fiat currencies into hard assets known to shine in volatile times where nominal terms can be so misleading for only so long.
http://nationaleconomist.blogspot.com/2011/03/case-for-physical-gold-par...
The bubble is base money trying to reinflate credit money, that doesn't work, so do it again, reinflate... repeat...rinse, repeat.
Spott is A-Ok in my book.
Now I guess, I have to write my book, or he technically won't be in it.
0.1% of assets is def a bubble (insert your own clever smiley here ____), everbody is doing it
Gold is a bubble, quick all the smart money is going into 10 year treasuries
ugh, I don't have cable for a reason
(it is garbage and... I'm in a deep underground gold bunker)
Ron Paul, BIG INTERVIEW WallStreet Journal
Question:
"Is the collapse of the currency the only way to FORCE political change in America?"
RP: "It's is sadly, inevitable. No party will change a thing".
http://www.youtube.com/watch?v=VTzfDktv0F4
Sad but true.
Logically, mathematically, and economically, this does appear to be the most probably result, as all other options dwindle and die off as time goes on. I'm not a doomsdayer, but even if collapse/hyperinflation does occur at its kindest, there will still be a very rough period of time in which those who didn't prepare will get very anxious. Political change?...you can bet on it, but will it be for the better after the dust settles?
This article doesn't even discuss how much gold/silver represented as a percentage of assets of normal people via savings during a gold/silver standard. (which is most of recorded history.) I don't know what it was either but but it's a lot higher than 5%.
The sheep are never going to buy gold.
They are already tapped out by buying too many iPads, iPhones, vacation timeshares, and new cars.
Since the retail index absolutely refuses to break down, that means there is still buying power left.
But I doubt they are going to buy any PM's, because nobody wants to be labeled as a kook with a tin foil hat.
No matter how far up it goes, they will not buy it out of sheer fear of embarrassment.
"Hey I bought some gold yesterday!"
"You did what??? Are you one of THOSE GUYS?"
LOL...
project yourself onto other people much old catfish? only in your world does something rise year after year because nobody wants to buy it.
btw: are you a kook? you said you have lots of gold coins, and a bunch of gold investments in your ira that you've owned for years. so i guess you bought them because nobody would ever want to buy them from you.
what a fraud you are.
If you are scared to buy PM's because you fear what the sheep will say then your a fuckin idiot and deserve what you get.
Gold is in a bubble. That doesn't mean it isn't one of the best investments.
The reason is simple, we have already been inflated, and with the fraudulent debt load 'needing' to be printed out of thin air, then the odds are it can go much higher.
It's all relative. This bubble, is much, much, much x100 smaller than the debt bubble and the printing that will go along with it.
If we can stop the printing, and cancel the fraudulent debt, bailouts, etc....then the money supply current and forward projected after such measures would show Gold is truly in a bubble.
The key isn't to make this go up, it's to right the system so it doesn't have to.
If it is unsuccessful, then yes it has the potential to go stratospheric very soon. That indeed may be the most likely outcome. But until the fat lady sings, we still have a time to implement Glass-Steagall.
So understand this, gold is in a bubble, but one much smaller than the bubble driving the whole thing...debt. That doesn't change my outlook on gold. I can see 10,000 easily as a possibility. 0 or infinity is possible given what us humans decide. That is the real range. But until power is pulled back from the fed and other central banks, I have no doubt the price of gold/silver has no where to go but up. When that dynamic changes, however it changes, anything from that point can change the value of gold/silver and the value might be far lower than some arbitrary number in an arbitrary monetary system. (still though even if you lost like that, one would think you'd still be better off than not buying gold/silver)
Eric Sprott needs to debunk this POST by Kid Dynamite as well (note that ZH is also junked herein): PSLV – Sprott Registers to Sell – Sold To You Sucka
http://kiddynamitesworld.com/pslv-sprott-files-to-sell-sold-to-you-sucka/
Oh, Kid Dynamite. Wow! Now there's an authority on gold.
I guess you read the post and the Sprott SEC filing that he posted really closely. since it has nothing to do with gold, Troll.
Gold, silver. Whatever. I read the Kid's shit awhile back. I happen to trust Sprott and his outfit. It's called credibility. Kid Dynamite doesn't impress me in the slightest but go ahead, suck his dick all you want Pete.
what's funny, BoP, is that I don't impress you because you prefer ignorance, groupthink, and cheerleading to rational thought, facts, and real experience.
My article about Sprott can't be debunked, because it's fact: He filed with the SEC, registering so that he can sell the shares of PSLV that he owns in all of his funds. What do you want to say? The SEC filing is a fake? It's a fraud concocted by The Morgue? Blythe is behind it?
yep - I guess that's possible (/sarcasm) but I'd say the real life explanation, no foil hat required, is that he's smart enough to sell a closed end fund at a 20% premium to NAV.
Otherwise Ok with Sprott then KD? 'Cuz it kinda seems like you are suggesting that this means the fabulously winning Sprott doesn't know what he is talking about... if that is your contention then BoP has you nailed, IMHO.
Blythe is smart too; you really think she's virginal though?
And Japey More gun, you'd eat their yellow snowcones if they told you they were lemon flavoured? Are you trying to say that the SLV product put out by JPM is pristine and not likely a license to shoot yourself in the face? As far as 'conflicts of interest' go I'm not certain how they compare to Sprott, but c'mon, who're you tryin' to kid Kid?
Forgive my ignorance, I have nothing to do with PSLV so I haven't read the prospectus let alone any SEC filings, but I am wondering: could it be that that big premium is due to the high credibility of the fund's audits of its physical inventories? Or is that all you are implying? If so, could be worth a flutter, I suppose.
Regards
PS
Go easy on BoP, you'll have to forgive him for taking the word of a massively successful pro who's been so right for so long over the persnickety nigglings of a pseudonymous blogger. I mean, would you?
You took the words right out of my mouth. Thanks.
I haven't made anything even resembling an evaluation of Eric Sprott's market handicapping views, ie, I have absolutely not suggested that he "doesn't know what he's talking about." He's very good at capitalizing on fear and ignorance - that much is clear. Jeez - it's all explained in the two blog posts I wrote. This one is the more relevant one for your questions:
http://kiddynamitesworld.com/on-misinterpreting-pslvs-premium/
"Here's a 'lemon' snowcone, I made it myself."
No thanks.
so just so I'm clear - you proclaimed your own ignorance about PSLV, asked me a question, and then declined to read the answer, which I have already addressed at length in a clear, easy to understand post? well done.. good luck.
Oh I read it
Personally I find it awesome that PSLV is immune to naked shorting, sincere thanks for relating that juicy tidbit; most interesting piece of your whole piece. That alone is worth a premium in my book (see: http://failstodeliver.com/default2.aspx).
And last time I checked insiders sell all the time; sometimes baby just needs a new set of wheels, as long as the sp continues to rise most investors don't mind. Neither of these things prove the fund is corrupt or overvalued. I mean are you seriously implying that Mr.Sprott is the only insider who has ever sold? Besides you didn't say he actually is selling, I noticed, just that he filed for the right to sell; which isn't the same thing at all. Anyway even if he did unload a few shares... so what? Why don't you chart Sprott's inside sales vs. your JPM, hmmm?
You have yet to address my point that maybe, just maybe the premium on PSLV is so much larger than rickety ol' SLV because, despite your claim that the small print in Mr.Sprott's fund is a dead match to its peer run by JPM, for some investors PSLV's inventories audits, amongst other things <cough>, are more credible than others. What you call fear some might refer to as prudent action. I know, there is simply no accounting for some people's tastes...
Also speaking to credibility: unlike JPM, as far as I know Sprott Inc. isn't currently defending itself against a litany of court cases alleging market manipulation that, if proven true, could stand to implicate an egregious conflict of interest for the investor in a bull PM ETF like SLV or GLD. Odd you don't seem to mention this at all... or are class action lawsuits just all 'tin foil hat' to self-purported omniscients? Speaking entirely for myself, I like to exercise caution and wait for verdicts, or settlements <grin>. From:
http://seekingalpha.com/article/259549-will-jp-morgan-now-make-and-take-delivery-of-its-own-silver-shorts
"The American legal standard requires us to maintain a presumption of innocence until guilt is proven. That doesn't mean Americans are stupid. Only a fool would ignore the testimony given at the CFTC hearing held on March 25, 2010, or the fact that J.P. Morgan Chase is being sued, in two different class actions, accused of being a racketeering and corrupt influenced organization (RICO). Both lawsuits claim that the bank is using allegedly immense silver short positions in various venues, including COMEX, to manipulate prices. "
Really the whole argument comes down to a question of trust. You take Japey more gun over Eric Sprott, fine. 'Nuff said.
And really, that's just fine, good luck with that. But I sure wish you'd quit playing it like you're trying to help people. If Eric Sprott, those involved in the class action lawsuits against your favourites at JPM, and a few others (not a very large herd really) continue to be as right as they have been for over a decade, it's entirely possible you'll wind up not helping anyone at all. Big 'if', I know.
Just so we're clear and all.
Re: "suck his dick all you want Pete"
Well since this is a post regarding Sprott, and since I am a shareholder of thousands of shares in more than one of his funds (as potentially are others on this site), I feel my post and KD's information was pertinent. So I wondered what your rude comment was all about. So I checked...
I discovered that your not only are you rude, your totally nonconstructive and useless. To the best of my knowledge you do not contribute anything to this site in the least. You are a looser troll, plain and simple.
In using the google search string:
Site:www.zerohedge.com "Bay of Pigs"
... everyone can see all the great insight and helpful tips you have been contributing to this site. All your great questions, links to other information, help to others, and general contribution to make ZH a great site in any way seems to be totally missing. Instead, we see a lonely looser TROLL posting negative snipe after negative snipe. No contribution, no questions, no support to others, just rude comments and worthless posts.
I sincerely feel sorry for you. You truly are a looser.
You calling me a troll. That is really something. First time anybody has ever said that to me.
And I suppose you give TD some tips around here on what to write about and tell everyone what stocks to buy like Robo and Spalding? Where is your impressive contributions to ZH? I haven't read anything you've ever posted here that mattered at all.
Sincerely, learn how to spell loser.
Sprott
That is one fuking boring article. Watching paint dry is more interesting than this rehash of every pat statement on Gold ever made! Liven things up next time please or use naked women to keep us awake
HAPPY NOW?!?!
Even after doubling last fall, gold explorers are still trading at the low end of 2006-2007 levels, when gold was 550-700. Here's a gold explorer index:
http://miningalmanac.com/gold-explorers
Producers are also no higher than in '07:
http://miningalmanac.com/gold-producers
That said, PEs are not a great way to measure the mining sector. The big miners like BHP, RIO, FCX and Vale had 9-12x PEs on NET income (not bogus EBITDA) just before earnings and their stocks crashed in 2008. That's how it's supposed to work: near the top of the commodity cycle, earnings & yields are supposed to be great, but you don't pay too much for them because well, it's a cycle.
Likewise, near the bottom these stocks trade at high PEs, since earnings dry up on crappy metals prices, but there are enough forward-looking investors (like insiders) to keep a bid under the stocks, so the prices tend to drop by a smaller fraction than the earnings.
What's striking about the PM sector is how few companies make money: using my screener, I see only 59 gold or silver stocks with bottom line profits, out of 148 producers and 789 total total Au or Ag companies: http://miningalmanac.com/filters
You got that right, most 'gold miners' are really share miners. Ponzi schemes if you like, relying on a rising sharemarket to issue shares to raise cash to spend on tropical holidays, home renovations, private schooling for the kiddies, golf club membership etc.
They're doing it tough at the moment. I should know, I bought a bunch of them at just about rock bottom in '08 (yes, on a whim) and with a couple of notable exceptions they are complete dogs trading pretty much where I bought them.
Why? Because they don't mine any fucking gold. But they're not in a bubble at least, penny stocks trading for pennies.
And Sprott even bought into one of my dogs, Norton Gold, at its (so far) post '08 high!
He's right about gold, for all the wrong reasons - there is no such thing as intrinsic value, value is entirely subjective.
"Intrinsic" may well be the wrong word. I'll venture that what Sprott really means is that with debt-based fiat currencies the paper is meant to represent work that someone has yet to do (and may or may not complete), whereas physical gold represents work that must already have been done. IE it takes a lot more tangible effort to produce an ounce of gold than it does to print "$1500" on a few pieces of linen.
So the value of Au/Ag is inherently built into the metals themselves through the process of mining/refining, whereas with fiat bitz and bytes you have to trust that the issuer has done/will do the work that implies the value.
'No counter party risk' argument.
Regards
PS
RE: Producing miners
http://failstodeliver.com/default2.aspx
A fine resource if you care to look.
there is no such thing as intrinsic value, value is entirely subjective.
Rubbish. I've heard this line before and it might be true for art, wine and other investments but gold and credit notes are historically linked. They are linked to each other as settlement (gold) and credit (notes) devices. As they are inescapably linked (the masses have been educated otherwise), one prices the other.
The bankers can convince the unworldly (in finances) that gold has no intrinsic value but the awakening of gold's function as a reserve asset and settlement device will re-determine the amount of paper needed to rebalance the true figure.
Now ask yourself;
If you were given the right to own a printing press ( as a private owner) with the right to print money, what is the first thing that you would do? Print some for yourself, right?
If you could call your printed paper money, would you try to protect your privilege by denigrating other forms of money?
Knowing that eventually your supply of paper will eventually lose its recognition as a store of wealth and eventually its mantel as THE medium of exchange, would you start using your privilege to print your own to buy an observable alternative?
Hhhelllloooo!?
Subjective my ass. It's entirely measurable.
No, value is entirely subjective. It just so happens thet the physical properties of gold make it the number one commodity for extinguishing debt, which makes it money, which means it has the highest utility of any commodity, which is why it is valued.
Once again, in an honest money regime and with a stocks to flow ratio of 1:1; 1 ounce of gold = 1 credit note. 2 oz of gold = 2 credit notes, etc.
In a free gold situation, 1 ounce of gold can = 1 cr note. 1oz gold should = 2 cns if they create two claims for one oz, 1 oz gold can = 3 cns, 1oz gold can =1 trillion etc, then gold therefore prices paper, as it always has (unless you can manipulate perception to convince otherwise).
The bankers understand this completely and they know that their ability to hoodwink, with full faith and credit narratives, has run its course for this cycle. Their game has been passed down through the ages and they never abandon it, they just change horses midstream, going from paper to gold and then gold to paper (or other facsimiles). Why do you think they are buying gold now and still dissing it? They will extend the misperception for as long as possible and then revalue gold to rebalance their ledgers to recapitalize their balance sheets.
Rince and repeat.
Great news! One of my '08 dogs, Citigold, has come out with yet another half year loss!
Our directors consider it prudent not to declare a dividend! Since when when have they ever done!?
But if we can just raise more capital, we will be a major gold producer....really we will.
Your share is completely measurable, too.
Well, to be fair, the juniors have the same type of business model as biotech:
Raise capital to take huge risks with the hope of finding and developing an asset that can then be sold to a major. For the most part, the majors are the only ones that have income, since a successful explorer/biotech is simply sold before it gets to the commercial phase. It's all about potential capital gains for the shareholders, not income for the company itself.
Nice analysis, Sprott! I like how he took it right down to the hardcore nuts and bolts. Leaving no wiggle room for the PM-challenged to inject their ridiculous adjitprop. They really are just mocking/marginalizing what they don't understand.
Yep, gold stocks have been hands down among the most horrid performers, next to shipping stocks and solar stocks.
For example, TRE is still trading at the same price as when gold was at $700.
What a shame.
The executives of that company must be totally embarrassed.
The holiday in Vanuatu was a blast though!
You just love to throw shit around without thinking don't you? Always in the rearview mirror aren't you Mr Armchair QB?
You are an embarrassment yourself.
too bad for the old catfish mouth. the market is treating him badly, so he has to resort to taunting gold stock investors, even as we bullion holders are coining money, as the catfish wishes he could.
btw: what happened to your taunt the other day that you bought slv (and gld) at $26 from those on this site who sold it to you? lie much?
"....since 2000, precious metal equity funds have seen a mere $12 billion in inflows."
That's funny because the Gold ETFs alone have over 2000 tons, or $90 BILLION in assets. And SLV has another $12 billion in assets. There have been at least $100bn in ETF fund flows alone.
"At the current level of 13 times EBITDA, the HUI is actually trading below its 15-year average of 14 times."
And the S&P trades at 13x EARNINGS, making HUI twice as expensive as the S&P.
Sprott needs to go back and check his numbers.
Children who don't know the difference between equity funds and ETFs should probably learn the difference before shooting their mouths off.
does this all really matter, in the end?
if you don't have any, it will.
People get together,anyone who cares about basic problem of our existance FED invited to vote in our poll and read out latest comments on yahoo FED article about QE3:
http://trendybull777.blog.com/2011/02/21/hello-world/
Voting poll is waiting for you click,take 5sec to make your choice,we must to reach critical level to be recognised by others to tove too!Thank you and keep all us together regardless government effords,we appreciate if you link us to other polls,blogs,sites to let people or your friiends to vote FED existence
I think the FED is the most criminal on this Earth,via bond programs purchases it sponsoring gold,silver,oil,commodities inflation which let countries like Russia,Venezuela,Iran,Libia,Canada,Australia to become superpowers,american grip on being World No 1 economy is lost long time before FED incarcinated its methods into the World body economy,adenomas leaving long time,but it terminates body with itself,FED should learn russian history when Zar Nicolay 2 with all his family and chieldren was liquidated,by the way not by working class,but by Elite rich person Usufov,who leaved afterwards in France in excellent conditions untill his 84years,he was married Zar cusina,but under gay suspect devorced.........
Are they talking "monetary gold"
Or just that commodity stuff
ONLY bankers can have "Monetary Gold"
Kid you not.
What a fucking joke these Banksters are.
No, what a fucking joke the populace is and what a mob of crims the bankers are.
A GSR of 39.77 be intolerable. Intolerable I say!
Are folks in the elevador bragging about how much their gold/silver is worth? Are strippers in Vegas buying gold/silver? No bubble.
True!!!
However, I know first-hand, that the Perth Mint can only supply 10oz Silver Bars and 100oz Silver Bars every now and then.
If people aren't bragging on elevators and Strippers aren't buying them, why the shortage????!!!!
(Rhetorical question, I aleady know why)
What a thrill-ride we have coming!
Charts-Shmarts...paper is expanding for no good reason, THAT's the real Bubble.
If the US monetary base has expanded by double, and Gold is at say $1400/oz, then it's real value is only $700/oz.
The simple fact that the US Dollar is the Reserve Currency allows its' Influence to be felt across most/all other currencies; so the disease affects other currencies artificially.
Gold and Silver prices won't go Sky-High until there's a 'Run' from either the Dollar, Bonds, Equities, or Derivatives, becasue all of these things are tied-in together and mutually supportive.
This structure is ridgid enough to support enormous pressure, but like Diamond, it's brittle, and one significant blow can shatter the whole...is that blow going to be the third largest economy with the greatest Gov debt to GDP having a once in a hundred years catastrophe?!
Oil prices are like the flame under the Pressure Cooker; high levels can break down the ingredience within.