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Everyone knows that gold is now at an all-time high, right?
Wrong.
As Barry Ritholtz points out:
While everyone seems to be all abuzz over Gold’s new highs, you should be aware that these are nominal, not real highs.
Adjusted for Inflation, Gold is nowhere near its all time peak — in real terms, its only about half its prior highs:
courtesy of Bianco Research
[click for full chart]
And MarketWatch notes:
Gold's
performance in the euro, British pound and other currencies has been
lackluster compared to its rise in U.S. dollars, a trend suggesting
investors are more interested in bullion as a hedge against the
greenback than global inflation.
That sensitivity also means
the gold rally could quickly reverse if the U.S. dollar gains ground,
one analyst warned.
"The lion's share of the
gold-price increase is due to the weak dollar," said Carsten Fritsch, a
commodities analyst for Commerzbank in Frankfurt. "Once things make a
turn there, you could see a quite rapid correction in gold prices"...
In British pounds, gold has sunk about 6% from February highs and is up
just 6% for the year, based on pricing of the most active contracts at
the time.
In Australian dollars, the metal has tumbled about 25% from its February highs and has actually lost ground for the year.
The disparity reveals just how crucial a role the falling U.S. dollar
has played in driving up gold and other commodities prices.
Gold is usually seen as the ultimate currency - a liquid investment
that holds fast when paper currencies depreciate, potentially because
inflation is rising. But in recent months, investors seem to be
treating the metal specifically as a hedge against the dollar's drop
than a deterioration in currencies in general.
For arguments for a strengthening dollar, see this. For my view of gold in the long-term, see this and this.
I don't believe the Chinese government will allow gold to fall too far in price after advertising to it's people (on TV) to invest in gold and silver. And no, gold doesn't have all the trademarks of a bubble when it's all times high is in US dollars. Please remember the US dollar is not the only fiat currency out there.....look at the big picture sheeple.
http://www.marketoracle.co.uk/Article14061.html
Gold will rally like oil and collapse like oil, as the deflationary picture strengthens. It's already seeping into mainstream with Walmart/Tesco etc complaining about food price inflation. Falling credit, money velocity.
The gold bugs are too early to the party. I will buy my gold in mid-2010, when the price is at 600-800 and THEN I will hold it as a safe haven.
This may or may not have anything to do with with the price of beans, pigs or gold, but Gold and it's pull on the human conscious goes to it being an ozone protectorant when sprayed as a mist into the atmosphere. Let your imagination run wild when speculating where all the gold actually is or isn't and the motives therein.
That said, considering the times apart from market stats and data towards a focus on some of those crazy prophecies, makes perfect sense it becomes the next bubble.
Nice and perfectly senseless graph. AU does not correlate with inflation, but with $ purchasing power. There was ~300% decrease in purchasing power since the 90s when AU was selling for $100. So today it should be $300. A bubble is a bubble.
Josey Wales' post numbers assumes that all of the Comex gold is there. Maybe it is, maybe it isn't. If it isn't (think Chinese, Germans and others seeking to have their bullion holdings repatriated), well then "...hell is coming to breakfast".
Thanks Sherman. I can't believe the constant repeating that gold is hyped, and everyone has gold fever. The truth is few know about gold, and much fewer actually invest in silver. Its no bubble and this time things are waaay different.
When Billy May's ghost haunts me trying to sell me kruggerand cleaner, then I will agree that gold is in a bubble.
I love this place. H/T Tyler for making it happen.
Josey Wales, you make me think.
And I think,... I have to go and buy a bigger safe. 12"x18" is not nearly big enough for my 1% of my net worth in gold coins, a Berreta 92, Sig .380, and my passport.
here is the whole Itulip.com article if you need it
The Game - Part I: Queen of Hearts
"Alice laughed: "There's no use trying," she said; "one can't believe impossible things."
"I daresay you haven't had much practice," said the Queen. "When I was younger, I always did it for half an hour a day. Why, sometimes I've believed as many as six impossible things before breakfast." - Alice in Wonderland
For over ten years we’ve debated a dozen analysts who forecast an extended price deflation here in the U.S. They keep coming back, even though the deflation they repeatedly predict year after year never arrives.
When a new challenger joins the debate, we are Bill Murray in Groundhog Day. For them the day is new. Anything can happen. Maybe the U.S. economy will fall into a liquidity trap and deflation spiral, and goods and service prices will plummet as the purchasing power of our money surges. The idea appeals to those who want to believe impossible things.
We concluded a decade ago years ago that governments can always make money worth less by printing it faster than we, its citizens, can increased its value by our industry. For us it’s the same day over and over again: crash after crash, yet no deflation spiral. Instead we see a slow, steady destruction of the purchasing power of our income and savings via currency depreciation, a gradual, perpetual, stealthy dollar debt default. We call this stealth default, hidden in plain sight, The Game.
Deflationists make detailed and perfectly sound arguments. Bank credit is contracting. The money supply is not growing. They note prices falling in some areas of the economy, but ignore the areas where prices that are rising. Of course, they'd say the same about us inflationists.
But they miss the single crucial fact that some deflationists do eventually discover, most recent among them Martin Weiss.
Inflation versus deflation debate: Three round bout
With a few exceptions, the caliber of the inflation versus deflation debate has improved over the years since we entered it as inflationists in 1998. So has our understanding of the political and economic processes involved. The history of the debate, if it is recalled at all, is a muddle.
When we debate old timers who obsess about liquidity traps and deflation spirals we enter a world of convoluted speech and illogic, argument divorced from evidence, the product of selective amnesia. When we debate them we are no longer Bill Murray talking to Andie MacDowell. We’re Alice in Wonderland speaking to the Queen of Hearts. They want us to believe impossible things.
We can’t make progress on the debate over the future of inflation or deflation in the U.S. if we cannot even recall the outcome of recent past engagements on the topic. A brief history of previous rounds of the debate over the past decade follows.
Inflationists vs. Deflationists Round One: Greenspan’s stock market bubble (1999 to 2006)
In 1999, when the NASDAQ bubbled and contrarians warned of a crash as New Economy believers partied, an argument split the contrarians who were otherwise as one foreseeing an inglorious end to the credit financed bubble. One group expected an inflationary outcome and the other a deflationary outcome from an inevitable collapse. The former firmly believed that the government was willing and able to re-inflate the markets and economy after the crash and the latter not. The two camps later came to be known as inflationists and deflationists.
The deflationists argued in the late 1990s that a stock market crash will be followed by a 1930s-styled liquidity trap and a deflation spiral, with debt deflation and commodity and wage price deflation in train. The government, they claimed, is helpless to stop it.
Soup lines. Tent cities. Two-dollar dinners. They told us to prepare for an echo of The Great Depression, complete with an angry unemployed populace venting at bumbling politicians, and opportunistic dictators taking the reins. They predicted that by 2002 we’d have the 1930s economic and political catastrophe all over again, but with nuclear weapons.
CPI falls for 40 consecutive months from 1930 to 1933.
Deflationists expected a repeat starting in 2001
In 1999 I made an alternative case. I argued that after the stock market crash in 2000 the Fed was going to re-inflate the economy with aggressive rate cuts long before a liquidity trap set in. We’d see no more than very brief period of deflation, at most one quarter long. The economy will then recover, albeit with a permanently bombed out market for stocks in technology companies; my research informed me that the locus a any bubble does not recover for a generation. Low interest rates will provide the immediate inflationary impulse, with dollar depreciation doing the rest of the heavy lifting.
In the event, the U.S. economy experienced four months of mild deflation after the year 2000 stock market crash, and a brief recession before the housing bubble took off and created the so-called “economic recovery” of the 2002 to 2008 period.
CPI falls for 4 consecutive months at the end of 2001
We piled into gold in 2001 to ride the wave of currency depreciation.
Gold is not an inflation hedge. It’s a currency risk hedge. Gold does not fall when asset price deflation looms anew, it rises. Why? Gold prices forecast the future reaction of governments to asset price deflation, which is always to re-inflate. Now everyone but the stubborn deflationists is in on the trade, and it’s getting crowded.
The government’s unspoken policy of stealth dollar devaluation by controlled depreciation worked so well at halting deflation after the stock market crash that oil prices, in U.S. dollars, blew right past the $40 level dubbed a bubble in 2004 by many analysts, to unheard of new “bubble” heights over $60 in 2006.
Inflationists vs. Deflationists Round One ended in January 2002.
Inflationists: 1
Deflationists: 0
____________________________
Inflationists vs. Deflationists Round Two: Greenspan credit bubble (2006 to 2009)
The previous defeat did not deter the deflationists from their zeal to believe impossible things. They returned in 2006 to proclaim that brand new set of liquidity traps had been set by egregious levels of debt and leverage that had built up in the financial system and economy since 2001, the Greenspan credit market bubble. A deflation spiral ala 1930 to 1933 awaited the U.S. economy after its collapse.
They made their liquidity trap and deflation spiral case again throughout 2007 and early 2008, even as the investment banks and hedge funds grabbed oil and every other commodity riding the weak dollar wave and rode it higher and higher using their substantial access to other people's money.
I don’t blame the deflationists for their confusion on this crucial point of government anti-deflation policy. After all, one U.S. Treasury Secretary after another restated the “strong dollar” policy from 2001 to 2008 even as the dollar lost 38% against major currencies over the period.
The Queen of Hearts would approve.
Investment banks and funds pushed oil, the input cost to nearly every important economic activity, to a crazy price of $147. Food riots erupted from Egypt to Haiti as prices exploded.
As commodity prices rose higher and higher, the deflationists protested more and more.
In 2006, the Fed’s program of baby step rate hikes that they started in 2004 kicked in and crashed the housing market. Housing collateralized the mortgages backed by securitized debt, which market crashed in 2007. Finally, in 2008, the global credit markets and banking system caved in. The U.S. economy, already in recession for a year, took a death plunge in the second half of the year, and dragged the world economy down with it.
After struggling for seven years to press their case under the cloud of high inflation, which reached 20% in year over year in mid 2008 as producer prices are measured, the deflationist’s day in the sun at last appeared. With the great crash of Q3 2008, the deflationists at last felt confident that their long awaited liquidity trap and deflation spiral had begun. Years of contracting credit and falling prices would restore Team Deflation’s battered reputation and send inflationists like us scurrying like frightened cockroaches.
Once again, it didn’t happen. The deflationists’ respite was momentary.
Back in 2006 I argued that the Fed was once again planning to re-inflate the economy after the crashed credit bubble much as it had after the cashed stock market bubble six years previous, but using even more extreme measures: rate cuts to zero, quantitative easing, direct purchases of long bonds, and purchases of asset-backed securities or any other paper garbage that banks and financial institutions cranked out during the Greenspan credit boom. The U.S. will run ridiculous fiscal deficits. Most importantly we’d depreciate the dollar again.
Once again, we’d have no more than a quarter or two of deflation.
Guess what happened? The dollar spiked and CPI inflation turned negative for four months between Q4 2008 and Q1 2009 before turning positive again in Q2 2009.
We didn’t need to fight our way out of a liquidity trap because we never fell into one. We escaped it in April 2009 as I explained in May 2009 in Deflation fare thee well – Part I: In search of real returns in an unreal world.
We did not have 40 months of deflation as occurred from 1930 to 1933. Instead we had four.
CPI falls for 4 consecutive months from the end of 2008 to early 2009
Inflationists vs. Deflationists Round Two ended in March 2009.
Inflationists: 2
Deflationists: 0
____________________________
Inflationists vs. Deflationists Round Three: U.S. Government credit bubble (2009 - ???)
Only six months after the latest failed forecast the deflationists are back again, calling for a liquidity trap and a deflation spiral to emerge from a range of potential sources. The latest argument is that the banks are even bigger and shakier than before, that debt leverage was never de-leveraged, consumer credit is contracting, and the money supply is not growing. They seem to forget that they lost the argument on the same grounds not once but twice before over the past ten years. They still don’t understand why.
The Game: What deflationists don’t understand
How did I make the forecasts of bubble crashes and brief deflations that turned out to be accurate in 2001 and 2009? How did I know the Fed was going cut rates to zero, execute a program of quantitative easing, make direct purchases of long bonds, and purchase asset-backed securities or any other assets that financial firms made billions selling during the so-called boom? Do I possess great powers of prediction? Do I consult a crystal ball covered in blue velvet in the dark corner of my basement?
Of course not.
I read several dozen papers between 1998 and 2006, many written by the Fed itself, which explained the Fed’s plans.
But this part of what I learned is key.
The most important element of anti-deflation policy measures—and the most effective—is not in the Fed’s literature, although it pervades most of the academic literature on the subject.
It is the single policy tool that trumps all of the others.
It is the most difficult to detect and measure directly.
It is also the one policy that no central bank of a net debtor will ever speak of using explicitly.
It is: currency devaluation via passive depreciation.
The explicit use of currency depreciation by a debtor nation is an act of economic war. So it is conducted covertly. That's The Game.
Re-inflation via currency depreciation, then and now
How did U.S. policy makers induce a 30% inflation from minus 15% CPI to plus 15% CPI in a few months in 1933 after the money supply collapsed 40% over the previous three years? The banking system was in shambles and hardly lending. Unemployment exceeded 25%.
As we’ve explained to readers since 1998, in 1933 the U.S. government deflated the dollar 72% against gold to produce that surge of inflation. Below we explain the mechanics of currency depreciation, how it induces inflation, even for an economy that is experiencing credit contraction and a shrinking money supply.
The U.S. as a net debtor was able to execute this policy unilaterally and in broad daylight in the early 1930s, because as a net creditor there was no risk at any time that U.S. trade partners holding dollars might retaliate by selling off U.S. debt and dollars.
That is not the case today. Another means must be used.
Going into Round Three of the inflation versus deflation debate, you’d think the deflationists would wonder how oil prices are above $70 in 2009 when demand is lower and inventories higher than in 2001 when the economy was nominally 15% smaller the oil prices averaged $22 after a very brief recession.
The answer is dollar devaluation, but not by the same crude method used in 1933. We can’t do it that way. As a net debtor, we have to follow the rules of The Game.
Rules of The Game: Re-inflation of debt-deflation by stealth currency devaluation
In a debt deflation crisis, also known as a “balance sheet recession,” economic policy makers have four main tools to use to keep an economy out of a liquidity trap or get out of one.
1. Expand the monetary base
2. Reduce long-term interest rates
3. Run fiscal deficits
4. Depreciate the currency
Deflationist’s do not understand that even if the all other policies fail to raise inflation expectations, for a net debtor, the fourth tool—currency depreciation—is foolproof. Paradoxically, currency depreciation is also the one tool that U.S. policy makers can never explicitly admit is being pursued.
The U.S. monetary system is not on a gold standard in 2009 as it was in 1933. Instead the U.S. and the rest of the world monetary regime employ a de-facto global oil standard.
To prevent a liqudity trap via currency depreciation, instead of depreciating against gold the U.S. government depreciates the dollar against oil.
The result? Rather than oil prices falling to $16 a barrel as in 2001 after the economic contraction that followed the 2000 stock market crash, after the credit market crash of 2008 oil prices briefly fell to $36 and were back to $66 by June 2009. Oil prices averaged $100 in 2008 despite the worst financial and economic crisis since The Great Depression.
Currency depreciation, the government’s most effective tool for setting inflation expectations, once again halted a nascent liquidity trap and deflation and spiral dead in its tracks, but before a liquidity trap occurred, versus years after as in 1933.
Today oil is back over $70 and gold is up from US$720 October 2008 lows to a new high of US$1055 today.
All of this while the U.S. claims to pursue a “strong dollar” policy.
How does currency depreciation prevent or end a liquidity trap?
It’s all well and fine to assert that currency devaluation via depreciations raises inflation expectations, but how is a currency devalued this way and how does that cause higher inflation expectations to rise? Below we quote from one of several papers that influenced the way we think about currencies and inflation that we found in 2003.
Even if the nominal interest rate is zero, a depreciation of the currency provides a powerful way to stimulate the economy out of the liquidity trap (for instance, Bernanke (2000); McCallum (2000); Meltzer (2001); Orphanides and Wieland (2000)). A currency depreciation will stimulate an economy directly by giving a boost to export and import-competing sectors. More importantly, as noted in Svensson (2001), a currency depreciation and a peg of the currency rate at a depreciated rate serves as a conspicuous commitment to a higher price level in the future, in line with the optimal way to escape from a liquidity trap discussed above. An exchange-rate peg can induce private-sector expectations of a higher future price level and create the desirable long-term inflation
expectations that are a crucial element of the optimal way to escape from the liquidity trap.
In order to understand how manipulation of the exchange rate can affect expectations of the future price level, it is useful to first review the exchange-rate consequences of the optimal policy to escape from a liquidity trap outlined above. That policy involves a commitment to a higher future price level and consequently current expectations of a higher future price level. A higher future price level would imply a correspondingly higher future exchange rate (when the exchange rate is measured as units of domestic currency per unit foreign currency, so a rise in the exchange rate is a depreciation, a fall in the value, of the domestic currency). Thus, current expectations of a higher future price level imply current expectations of a higher future exchange rate. But those expectations of a higher future exchange rate would imply a higher current exchange rate, a current depreciation of the currency.
The reason is that, at a zero domestic interest rate, the exchange rate must be expected to fall (that is, the domestic currency must be expected to appreciate) over time approximately at the rate of the foreign interest rate. Only then is the expected nominal rate of return measured in domestic currency on an investment in foreign currency equal to the zero nominal rate of return on an investment in domestic currency; this equality is an approximate equilibrium condition in the international currency market. That is, the current exchange rate must approximately equal the expected future exchange rate plus the accumulated foreign interest (the product of the foreign interest rate times the time distance between now and the future). But then, at unchanged domestic and foreign interest rates, the current exchange rate will move approximately one to one with the expected future exchange rate. If the expected future exchange rate is higher, so is the current exchange rate. Indeed, the whole expected exchange-rate path shifts up with the expected future exchange rate. Thus, we have clarified that the optimal policy to escape from a liquidity trap, which involves expectations of a higher future price level, would result in an approximately equal current depreciation of the currency.
This has the important consequence that the current exchange rate immediately reveals whether any policy to escape from a liquidity trap has succeeded in creating expectations of a substantial increase in the future price level. If it has, this appears as a substantial current depreciation of the currency. Consequently, if the currency does not depreciate substantially, the policy has failed.
- Journal of Economic Perspectives Escaping from a Liquidity Trap and Deflation:
The Foolproof Way and Others, Lars E.O. Svensson, January 2003
Clearly the Fed has succeeded in its bid to increase inflation expectations via currency depreciation. They did so without ever explicitly devaluing the dollar. To be explicit violates the rules of The Game.
By deflating the dollar against oil, U.S. policy makers have created a new problem. We are experiencing inflation in areas of the economy that are sensitive to energy costs and deflation in areas of the economy that remain open to cheap imported labor. Food gets more expensive while clothes from China get cheaper and wages fall. China will likely take the Japan took and allow its currency to gradually appreciate against dollars.
Bottom line, our standard of living here in the U.S. is declining as the purchasing power of our savings and income falls while our government pursues its anti-liquidity trap policy of currency depreciation. This is the opposite of the policies pursued by Japan since the early 1990s when the yen appreciated, wages inflated against goods and services, and living standards improved.
Will a $1.3 trillion budget deficit help to increase the exchange rate value of the U.S. dollar? Not likely.
No deflation spiral.
No Japan-style so-called “lost decade” of stag-deflation.
Instead we will suffer a steady decline in living standards as the purchasing power of our income and saves falls.
All the while, the risk of a Sudden Stop hangs over the U.S. like a Sword of Damocles.
The hyperinflation case
Some fear that the dollar may crash exactly like the Argentine peso in 2001, or the Russian ruble in the late 1990s. We’ll buy bread with money-filled wheelbarrows—but not wheelbarrows made in China because we won't be able to afford imports. As the dollar crashes, prices shoot into the stratosphere in a hyperinflation that cancels out the nation’s debts and destroys its wealth.
A version of an Argentine or Russian style debt default and currency collapse is possible, an Argentina Crash with U.S. Characteristics (See : Does USA 2009 = Argentina 2001? Part I: Falling economy reaches terminal velocity). We have since 1999 called our theory of such an event Ka-Poom Theory, noting that for net debtor nations there is a tendency for debt default, currency crisis, and high inflation to follow a brief period of severe deflation, much as we saw in the U.S. earlier this year. In line with our expectation of ongoing decline in purchasing power through currency depreciation, there is small but too big to ignore, ever-present and increasing risk of an accident that causes the global monetary system to collapse in a disorderly heap.
Ka-Poom Theory Update
For more than a decade we have warned of the possibility of a sudden stop event for the U.S. that we call Ka-Poom Theory. Since writing Argentina article, one reading of events is that the U.S. escaped a Ka-Poom event in 2009, at least for the time being. Another read is that a Ka-Poom event is in progress, and an acute phase may occur as soon as this year. A spiking price of gold may correspond to capital flight in the pre-flight phase explained in Headed for a Sudden Stop, Sept. 2008. We explore these scenarios of The Game in Part II.
The Game -- Part II: The Shrinking Pie Economy ($ubscription)
If not a deflation spiral, stag-deflation, or a dollar crash, what is in store for the U.S.? In a nutshell, a new kind of stag-inflation as the dollar continues to weaken as it has since 2001. As long as the dollar weakens there will be no general price deflation in the U.S.
ND: Everyone on the contrarians economics and finance circuit has been waiting since last summer for a new deflation scare to knock stocks and commodities down in a fresh wave of deflation like the one we saw in late 2008 and early 2009. They want another chance to “buy the dip” in a secular uptrend in commodities.
EJ: U.S. stocks and commodities may correlate short-term, such as during the de-leveraging that happened during the panic last year and early this year. Investors sold anything and everything to raise cash. We rode through that so-called “deflation” in Q3 2008 to Q1 2009 on cruise control, knowing that no 1930s liquidity trap and deflation spiral repeat would follow.
Oct. 12, 2008 in Confusion reigns: A crisis-driven global rush to dollar liquidity is not deflation, we warned readers to not mistake the spiking dollar for a deflation spiral starting gun. Many analysts at the time said the crash marked the beginning of a 1930s style liquidity trap that they’d long predicted. They got it wrong, although they’ll never admit it. In The truth about deflation and a dozen other articles since 1998, we explain that governments don’t do deflation spirals anymore, not since the end of the gold standard. And the Fed knew the that most effective way to get the U.S. economy out of a liquidity trap is to not fall into one in the first place.
ND: You don’t expect another deflation scare?
EJ: I never use the term “deflation scare.” It’s not a useful concept. Market participants expect either rising or falling future inflation. They aren’t “scared” of either. If by “deflation scare” the users of this phrase mean “a false expectation of future deflation” then the idea is tautological. It asserts that markets falsely expect deflation in a “deflation scare.” How will we know the deflation expectation was false? Because the deflation doesn’t happen.
A more logical way to think about the dynamic is that the majority of market participants are deflationists, that is, they do not understand the nature of asset price inflation and deflation in the FIRE Economy, its relationship to commodity price deflation in the Productive Economy, monetary policy with respect to each, and the impact of monetary policy. Now the question is, after the past two asset price crashes, the first in 2000 and the second in 2008, have the majority of market participants caught on? If so, we may not see any commodity price deflation at all in the next crash. We may skip the “deflation” step entirely. more... ($ubscription)
iTulip Select: The Investment Thesis for the Next Cycle™
Another good article on why this analysis is VERY short sighted.
http://www.itulip.com/forums/showthread.php?p=127376#post127376
Anon #93435
Yes, sorry to harp, but if you get the wrong idea about gold (this article may steer you in the wrong direction)
Just trying to be constructive (which, as was deftly pointed out by GW, was much lacking earlier)
Sorry for that GW
I am a fan of data, it tends to give some pretty grounded arguments.
So here is one set of data:
78.2 million baby boomers accd. to 2005 census.gov
Average net worth: 80,000
Total net worth: (80,000 * 75 million) 6,000,000,000,000 or 6 trillion dollar
The COMEX warehouse currently holds 9 Million Oz of gold, current value 9 Billion.
If 1% of the 6 Trillion net worth of baby boomers diversified to gold, that would be 60 Billion dollars, or 6 times the Comex inventory. Split between gold and silver, 3 times COMEX totals in gold (30 Billion $) and 15 times Silver available (115 M OZ * 18$, 30Billion)
So but that in your "bubble" pipe and smoke it.
So Josey, can we realistically, and conservatively, say that the 4 years since the 2005 census has cut the average net worth of the boomers down to about $55,000 through the deflated real estate and equity values?
While cpi accuracy is debatable.but you can't escape looking at prices in a hostirical relevance,since absolute prices don't mean nothing. So if gold was at 700-800 range in the late 70's,how much a car was back then or a home os a pack of smokes(or a bottle of scotch)?and how much was any of these things was in 2000?and how much is it now?so yes gold is still cheap if we are expecting a financial disaser. But if that diaster does'nt materialize,then what?I personally think that as long as the u.s keeps on running a trade deficit,then China and company will keep on converting at least some of their excess dollars into gold,fearing an all out assault on treasuries,and as long as they want to keep supreesing their currency against the dollar.
http://ispeakofpeak.blogspot.com/2009/09/bull-market-in-gold.html
Relevant article
The dollar's value against gold isn't exactly floating. Just ask GATA or the IMF or the FED. With that said, the risk in holding dollars is so extreme that the latter 2 entities have lost control over it. This happened in the 80's when Volker looked back and said he should have bitch-slapped gold. Gold/ Dollar is as close as you are going to get to adjusted nominal value. As you can see, the dollar is getting adjusted-not gold. Good insights into other currencies GW.
USD will rally hard when bear market rally ends.
www.zerohedge.com/forum/market-outlook-0
The inflation adjusted price ofter quoted is based on the Feds inflation calculator you can find it on the far right corner under
What is a dollar worth?Directions: Enter years as 4 digits (i.e. 1913) through 2009. Enter dollar amount without commas or $ sign in box on first line. Click Calculate button to compute dollar amount shown on second line.
http://www.minneapolisfed.org/index.cfm
Ah memory serves me well......interesting little article from April 2004. This is when I knew were we getting very close.....and if you have to ask who are the Rothschilds:
Cypher: You know, I know this steak doesn't exist. I know that when I put it in my mouth, the Matrix is telling my brain that it is juicy and delicious. After nine years, you know what I realize?
---------------------- Rothschild to pull out of gold market after 200 years[Takes a bite of steak]
Cypher: Ignorance is bliss.
http://www.telegraph.co.uk/finance/markets/2883029/Rothschild-to-pull-out-of-gold-market-after-200-years.html
That article is from freaking 2004 !!! I mean- common...
------------------uh...not gonna happen.
Hey, guess what, equities inflation adjusted are negative as well! In other words, what is your point GW?? If the dollar strengthens everything tumbles except for treasuries. Frankly the argument is bit irrelevant, IMHO, because everything is appreciating because of dollar weakness. I appreciate the warning, but I can hear that all day long on CNBC as well.
The longer-term trend for the $ and gold are firmly in place, baring the sudden onset of fiscal responsibility by OECD members (which would require a sea change in the attitude of voters toward government deficits and debt).
Japan will likely be a net seller of Treasuries in 5 years. China is in a symbiotic $ dance with the US, but would love to be able to exit stage left. And they have been actively working to that end, visibly so in the last year. What seem to be innocuous baby steps now will have a much more pointed effect in a few years from now. Bilateral trade agreements not denominated in dollars, sovereign wealth funds and other wealth advisors telling clients that the $ and the US (and most OECD members) have severe long-term financial structural problems. And sadly, they are right.
I trade around my core holdings, and commodities by their very nature are volatile, but make no mistake - this is a long-term uptrend.
I'll go with pigpen, gold is already inflation adjusted.
According to (us) gold bugs a smoothed historic gold price is *the* measure of inflation.
That said, remember that gold's instantaneous relationship to any currency is clearly not 'pegged' and can therefore be driven off that historic average in either direction, at any time, based on zillions of 'managed' and/or unmanaged forces (ask Mr. Fiske).
GW provides us a great service when you overlay a historic gold/USD averaged curve over his graph, and see where the price/trend is going right now, especially when you look at that 1980 spike... If the arbitrage is extreme, you could probably make some good money in either direction... hmmm. Or at least give back less...
FWIW, I like and trust gold. A lot. However, I'd love to be able to read the equivalent 'blogs' that were being written in the middle of 1986 (look at the graph then/now and through say, early 2008..). Of course 'times are different' now...
It's all good stuff to help get past the emotion and keep (my) relative perspectives inline.
These are interesting times. I'm not sure I like interesting...
tnx GW/ZH
Wouldn't that imply that inflation has been LESS than the government-reported numbers, when in fact we know it is more?
In Gold We Trust. You keep your green rectangles. At some point the only value they will have is to heat your trash can stove so you can keep warm. Gold buys about what it did 100 years ago, while the dollar has lost 95% of its purchasing power in the same time frame. This 38 year detour into fiat currency will end the same way it did with the Continenetal.
Smart money says the all-time inflation high in gold is now the next target. Barry is just too dumb to recognize an investment opportunity when he sees it.
I do get the pun, but how about "In God we trust, everyone else pay in gold"
;-)
Idiot?, No, that would be too kind to describe the analysis above by GW. Terrible (and stupid too, no less!)
Let me see if we can move you up the disagreement heiarchy.
http://en.wikipedia.org/wiki/File:Graham%27s_Hierarchy_of_Disagreement.jpg
See here's you. You are are way down at the responding to tone level. If you work hard and eat right and stay in school. You might be up able to move up to contradiction. It's alot of work to get so high on the heirarchy but it's worth it.
Thanks, anon, the specificity of your criticism was very helpful. Full of graphs and facts...
Could you, next time, maybe do a graph with idiot as the x-axis, stupid as the y-axis, and terrible as the z-axis, just so we can vizualize the relationship between the different co-factors?
I'd be grateful.
gw- i used to enjoy your blog, but you just lost me with that comment. seriously.
GW, that's a fair rebuttal of my critique. (And I did a disservice to you for NOT pointing out what was incorrect in it.
First, please go read the history of monetary inflation in the french republic ( and trade church property then, with US Gov Debt instruments today, and tell me if you can spot a single difference).
http://www.scribd.com/doc/2401211/Fiat-Money-Inflation-in-France-by-Whit...
But this is more in keeping with the Primary GIST.
And that is you need to understand what "Ka-Poom" means.
Google it and look for the link to Itulip.com
Please read and learn.
(there are public and private articles)
This one comparing the Argentinian deflationary phase that preceded their Hyper-inflationary phase. That's What Ka-Poom is Ka deflationary phase followed by POOM rapid (high or hyper) inflation.
http://www.itulip.com/forums/showthread.php?t=10538
The reason I poo-pooed your analysis, is that you don't even the mention the idea of a sudden stop and that this is exactly what the gold price may be reflecting as of late. Thus, making the discussion a moot point. (e.g. Who cares that gold is not at a new real high when your are facing likely risk of high or hyper inflation). It's kind of a missing the forest for the tree's thing.
George, you should know better than to feed trolls. They never learn how to take care of themselves if you do that. I guess being first president and all, you don't know how these new fangled Internets work.
:-)
Are these purchases going to stop anytime soon?
http://www.ny.frb.org/markets/mbs/index.html
No? Then neither will the decline in the dollar.
Would you rather believe gold? or the govt adjusted CPI or whatever else they use to measure inflation.
Nominal gold price is the measurement of inflation no need to adjust it.
Cheers,
Pigpen
"Nominal gold price is the measurement of inflation no need to adjust it."
Perhaps in the long run were it to freely trade without interference.
I am positive we have had lots of inflation in the US dollar since 1980, yet the dollar price of gold does not (yet) reflect this.
Isn't gold's nominal price the inflation adjusted price as it measures the devaluation and debasement of currency or at least the US dollar?
Gold is measurement of lack of purchasing power caused by inflation. Why do you have to inflation adjust it?
Cheers,
Pigpen
"Why do you have to inflation adjust it?"
The idea is that 1980 dollars were more valuable than 2009 failbucks. So comparing the nominal values does not reflect the fact that today's dollar price of gold offers less purchasing power than the 1980 price of gold.
So what has changed since Gold was at $250/ounce?
The United States became embroiled in 2 wars.
So what war were we in during 1980? We were in 2 wars in 2004 as well, gold still under 500.
Weaker and weaker government leadership.
True, in inflation weighted terms gold is not at an all time high, but look at the all time high. The rate iof increase (first derivative) is much higher, and it occured at the same time as the Hunt Brothers drove up silver, so there was a mania aspect to it. The rise today was more gradual, and is supported by fundamentals. In fact in 1980 it is fair to say the gold price should not have been so high while now it is fair to say it should be higher, indicating reasonable restraint today.
There is always a mania aspect !!!
for pete's sake, the dollar will have its ups and downs with gold being rock steady....gold does not go up or down....only the dollar goes up and down....
the dollar in the long run will be able to buy fewer and fewer ounces of gold....the dollar is in secular long term debasement and will not recover as long as the current cabal of jackals in the fed and washington have any say about it...
with economic matters beginning to free gold from its shackles i see an increasingly prominent role for gold and greater purchasing power for it long term....