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Gold's Unstoppable Rise
The fundamentals behind the gold trade are generally understood on a very superficial level. $3000 gold will have very little to do with inflation. It will have little to do with the economy being "bad"- we have had recessions with collapsing gold prices. In many ways we are talking about something far more menacing. We are talking about capital running for cover. We are talking about unprecedented skepticism towards government. We are talking about the long overdue self-destruction of a system that magnifies the folly of man. In essence, we are talking about a profound paradigm shift.
There are a lot of things in investing that are "obvious", but for whatever reason, aren't generally accepted. Just think about the question: "What is the best approach to investing?" As far as I am concerned, there is only one approach that makes sense, and that is the value approach. To consistently make profits, you must buy assets at below intrinsic value. If this isn't instantly obvious to you, I advise you to stay away from investing.
Investors are led astray not only by emotions, but by theories taught in business school, such as the efficient market theory and the Capital asset pricing model, that I can tell you, no serious investor should believe. These theories fail on a number of levels, but I'll focus on one aspect. The CAPM assumes that the risk premium in a stock changes in direct proportion with beta, or the stock's relative returns against the market. If you base your investing on this model, you are not mentally prepared to profit from the coming explosion in gold. After all, if gold corrects 30%, CAPM evangelists will tell you to run for cover because gold just became a riskier trade. The smart money believes the exact opposite; they are huge buyers on large corrections. The failure of the larger investment community to recognize such obvious flaws is a big reason why the same people outperform the market over and over again. It is no coincidence.
As an investor, I thrive on panic selling and fear since my mind is always fixed on value. I can't say the same about gold permabears, who are undoubtedly among the most amusing species on earth. They try to paint a picture of gold bugs as irrational and extreme. The ironic thing is, when arguments get to the level of hard data and facts, its is the gold bears who are exposed as irrational. I have some homework for gold permabears. Over the past 30 years, how does gold's rise compare to the rise in stocks? How about the national debt? How about the money supply? At the end of the day, gold is a data-driven investment. I don't care how many people tell me otherwise; they are the ones who are too lazy to test the data for themselves.
Fed Stupidity
Now that a majority of Americans are officially against the Federal Reserve, I don't feel as motivated to criticize them. But honestly, they are so inept I feel morally inclined to expose their shortcomings. The Fed is myopically focused on maintaining an arbitrary rate of inflation. OK great. But while these geniuses are focused on a manipulated government statistic, Rome is burning around them. Sure core inflation rates are holding steady, but food and energy costs are up, interest rates are flying, the national debt is rising, and gold is shooting to the moon. The supposed cures to our disease are creating even bigger problems. Someone wake they guys up before it's too late.
Stocks
There is a large contingent of bears that think the stock market is going to collapse. One thing these people miss is that the Fed's mandate is constantly in flux. The Fed of the 1930's didn't go around buying government paper, and its sole purpose wasn't to prop up the stock market. We live in different times- the Fed has much more leeway to collapse the economy with their stupidity. I remember quite clearly when the Fed cut interest rates 75 basis points over a weekend in January of 2008 because of unusual weakness in foreign markets that was creating havoc in the U.S. futures markets. Did they have any idea about what caused the drop in stocks? No. They were simply propping up stocks. If the Fed is that focused on stock prices, then trust me, stock are going higher. Don't argue with me on this point and instead try to focus on what the unintended consequences of an easy money policy will be.
At this stage in the game debt begets more debt. Lower stock prices beget more liquidity infusions and higher stock prices.
Gold
There are two scenarios I see for gold, both of which can be characterized as "extreme." One is a steep sell-off to about $1000-$1200, followed by a very healthy rally. The other scenario is a monster rally to about $1600-$1800, followed by a healthy correction. As a proponent of the value approach to investing, take a wild guess as to which of the two aforementioned scenarios I prefer. At $1000, I will be shouting from the rooftops to buy gold.
One of the reasons I believe extreme moves are coming is because gold is an asset where the passions of man are very evident. After all, fluctuations in gold represent perceived changes in the underpinnings of our entire monetary system. When gold truly lifts off into the stratosphere, it won't give people the chance to hop on board. Believe it or not, at $1370, we are still in accumulation mode.
No matter how firm I am in telling you the likely events of the future, very few of you will believe, and even fewer of you will take action. My genuine wish is for our leaders to figure things out and stop this crazy Ponzi scheme financing before it's too late. But until then, I must do what I can to protect myself in an intelligent manner. I hope you are all doing the same.
Expected Returns is a finance and economics blog focused on gold investing.
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In late 2002, I read an analysis of the macro-economy which predicts, according to their model, that the price of gold will exceed US$3000/ounce. It was less than $300 at that time. I certainly regret it a lot that I did not buy gold at that time.
In gold we trust.
In silver we trust.
In platinum we trust.
In palladium we trust.
In real, physical goods we trust.
In fiat, fake, fraud, fiction, fantasy, fractional-reserve we despise.
Would that be like... Madoff?
Not too much new in the post except I have to say - purchasing gold can be a psychologically difficult thing - you're basically repudiating the dollar.
What's an FRN ever done for you? Keep in mind that paper, no matter how well-decorated, is still only worth around $85/Ton!
The Fed and politicians are basically repudiating savings. If its good enough for the Fed, it's good enough for me. Don't fight the Fed. Buy PMs.
As long as the Chinese consider gold is money, I'm with them. The rest is noise.
To take that another step, India and China are 2.5 billion people approx. making up the largest portion of the world's population by country...the U.S. being next in line with 335 million. As their economies, the so called MEs, grow and their middle classes get spending cash they will continue to buy gold and silver. Just by that alone it is a good idea to buy PMs now.
paradigm shift reality...deny the denial...
http://www.creditcontraction.com/images/affiliate/Great-Credit-Contraction-Liquidity-Pyramid-Large.jpg
Another, FOA, FOFOA,
Should have read you 10 years ago, but you've changed my world in time, and I'll be forever in your debt !
I wish that I had read them too... My DD did not include what I used to think of as "silly Gold Bugs". I realize now that as quirky as they were, they knew what the hell was going on.
FOFOA is a great read for anyone seeking the insights of true visionaries.
Not that you're wrong but when I hear someone say "new paradigm" my bubble alert goes off like a Klaxon.
http://www.housepricecrash.co.uk/images/bubble-lifecycle.gif
Personally I do not see that chart working as it would in the past.
Not when the entire planets societies are involved.
During all other phases close to this, if there have been any.
The CB's were not buyers,and holders, and nation states worldwide did not implore their peoples to buy PM's.
I have never seen anything like this,ever.
And I have been around a while.
The old saying this time is different, well...it iS
There is no Return to Normalcy as we have known it, that I can see, nor imagine.
We are indeed seeing, living a Paradigm shift.
agreed
gold is different, I think we are in the second phase, we will go to the new paradigm, and we will NOT fall down this time. money will change. it will split. gold will be store of value and a new-fiat system will be introduced for trade. probably digital.
european pensionfunds are starting to buy physical,
we are in the second stage
i agree
What is the thought of trading some gold for silver. Thought I would swap an oz. of gold with my coin dealer for some silver. ????
If you have gold, keep it. When you accumulate enough silver over your allocation, trade a bit of the silver up for gold. Gold will be the final currency so hang on to it. Use the volatility of silver to leverage up to gold, keeping enough in reserve for everyday use.
Onlooker, Ive have thought about that trade too. A couple of kuggerands for US junk silver 1) made a tidy profit on the 1oz gold coins, after 1-1-11 the tax issues will change. 2) US junk silver is still cheap, can be traded in in small batches getting around some of the tax problems. 3) US junk is very easy to use in a small purchase or trade, you do not want to flash a oz of au for a tank of gas when a couple of cartwheeels will make the nut.4) the possible huge upside of silver. What say you??
You have two scenarios for gold. It goes up, or it goes down. Thanks
Okay, so you've convinced us that you failed reading comprehension in school.
How about the point was: It goes up from here ... or ... it goes down a bit (thereby providing a buying opportunity) before it goes up much further.
Final trajectory is UP, you dork.
+1
Almost all the people who have the cash needed to buy gold see safety in stocks and bonds and God help them, real estate.
Those who have been abused by the system enough to be skeptics can't afford a safe full of gold. That is part of why we see heavier interest in silver. As noted everybody can scrape up enough for an ounce.
The ones to worry about are the truly screwed who invested in lead as a desperate last alternative. They are the last people we want to see trading their hoard for the necessities of life.
Bagbalm, any serious collector of PMs also has the one that becomes precious when moving at a high enough velocity:
Pb
I think I read here a long time ago that there is a 98% correlation between gold owners also being gun owners (but, obviously not the reverse). So any MZBs out there who try and ´forage´my stuff is going to meet lead.
Hope you read and meditate on this ZH troll fatasswilly.
Have a look at the Front Page of news tool U.S.A. Today, 12/17/10. If that's not pumping for an offload . . . I will be watching the outflow reports here at ZH very carefully in the first few weeks of 2011. If they don't get Main Street back in, could get interesting.
Yes, Au will simply have its own way. No need to get all Epic about it. Better to have a modulated outlook but to be in position for a spike.
Also in USA Today:
"Experts agree: Get over your fear and get back into stocks
NEW YORK — Five Wall Street heavyweights say it's time for individual investors to shun the perceived safety of bonds — and get over their fear of the U.S. stock market — so they can take advantage of what they predict will be a third straight year of solid gains for stocks in 2011..." (http://www.usatoday.com/money/perfi/stocks/2010-12-16-usa-today-investme...)
... and then there's some other BS that I didn't bother to read.
I'm less worried about the existence of one gold machine, than I am that people will actually follow the "expert" advice and lose everything when it all comes down.
I laughed my ass off when I read that drooling idiot article this morning. The MSM really 'cares' about the sheeple.
There is also a series starting monday 10pm EST on Bloomberg TV called "The Dark Side of Gold" or something to that effect.
Who cares if there are gold dispensing machines? There is 1 (one) in the U.S. Hardly tipping the scales and if you compare that to all the gold sales that are lost from bankrupt retail jewelers it is a drop in the ocean.
I have spent years trying to convince people to buy PMs with little success I doubt one blurb on USA Today (it should be called USA Yesterday) will have any impact at all.
An estimated 5% of the Worlds population owns some Gold.
And my $$ says the majority of that 5%, is not in the USA.
The people of this country, even my age, are for the most part to risk averse to let go of what they have TRUSTED for 75yrs.
Fiat US Greenbacks.
Which is mind boggling to me, in the last 25yrs, I have seen two major stock market slaughters,(not counting the smaller ones)I spoke to a 35yr Bank Pres yesterday, who said he had been set to retire at 51.
His portfolio was at nearly 3 million, and he lost all of it, and lost his 19yr position with the firm, and left better off than most with a $52k payout.
And a months pay for every year he was there.......
He said he was one of the lucky ones.
i would appreciate it if you kept your damned mouth shut about gold....i like stupid people and most people are stupid....let's keep it that way...
educating people about gold is not an activity i appreciate. i love weak hands and feeble minds....
tony, for the next week or so I agree! I need to get back to the USSA and add a bit more to my stash.
You can´t eat gold!
Gold is in a Bearish Wedge!
Au to $0.02
Ag to $0.01
You can't eat gold or silver but you can barter for food and other goods with it. Short of an EMP or a Comet/Asteroid you will need to be able to trade to get the system back on the rails, and sorry but that means real money; Gold and Silver. If we do have the Comet or EMP attack, then you may be right. The markets for bullets and body armor may see a long bull run before Gold and Silver come back as money.
You can't eat gold or silver but you can barter for food and other goods with it.
Why is this fallacy parroted over and over again? If the current financial system crashes, and fiat money is worthless, you won't be bartering with PMs.
Let's say five percent of the population hold some form of physical gold/silver, what will the other ninety-five percent do? If there is a shortage of food or fuel, would you trade any for a piece of metal?
If there's a food shortage, I won't trade a can of tuna for a whole wheelbarrow full of gold or silver. While trade might occur, it would be with true commodities (e.g. clothing, medicine, tobacco, alcohol, firearms, bullets, etc.). You might be able to swap PMs for services, but not for goods.
So your claim is that if the financial system crashes, you wont be able to trade food for PM's? Right?. Funny:
http://www.youtube.com/watch?v=7ubJp6rmUYM
Zimbabwe's financial system collapsed and they seem to be using gold. Hmm, perhaps you should educate them in the barbaric nature of gold.
correct...
For those that are interested there is a nice long (2 hours) presentation video by Jim Rickards at the Applied Physics Laboratory of Johns Hopkins University. I am providing the link from GATA as that is where I found it:
http://www.gata.org/node/9432
Also the Jim Rickards piece reminded me of the Gold Rush 21 which is also linked from GATA (this is the summary 24 minutes in 3 parts):
http://www.gata.org/goldrush21
For more of the Gold Rush 21, entirely worth watching every speaker IMO:
http://tiny.cc/d0vr2
and
http://tiny.cc/c5ycx
Watched Gold Rush 21 five years ago and recieved in 8 hrs. a PhD level education in honest money...honest economics.
It is still available @ www.GATA.org
It certainly saved my sorry financial ass... made me +++$ ... and let me sleep soundly at night.
Turn up the EXPERTS!
Turn off the MORONS!
Rickard's 2 hr talk.
The audience was...
-About 200 near capacity...
VADM's, RADM's, MajGenerals, Brigadiers, Colonels, Majors, think tanks, Booz Allen and the usual suspects.
A lot of good information and then surprisingly he shows the video of Nigel Farage a Member of the European Parliament haranguing the leadership of the EU which ends in USSR style music and this is in front of a military audience.
The message being the politicians are really communists and you guys should be aware.
He then progresses to gold and which countries own the most. He discusses the 6,000 mt of gold at the Fed in NY which is not the Fed's gold but belongs to other countries. Remarkably, he then offers to his military audience the idea that in the event of a paper money meltdown or other such event, the military could just go in to NY and take the gold to West Point. By adding this to the other 8,000 odd tonnes we are supposed to have in the country, they could then start a new currency with this gold backing it, while at the same time working out some deal with the real owners of the gold.
Looks like a plan.
Sometimes the best place to keep a secret is to put it out somewhere where all can see!
via lemet
So this guy incites a load of top brass to launch a coup...
while fox news cheers 'em on from the sidelines
and the guy on the street chants 'down with the banking cabal'
hmmm
well thats why people look at me as if i'm a nut when i tell 'em i like gold and got my first ounce when age 8..... sold it 20 years later of a small loss, big loss when counting inflation
The Supposed 8,100 mt,is in four places.
West Point being one of the four, Knox one, and Fed NYC one, and the fourth escapes me.
Lastly,Do we really want the Military in control of this?.
Once the horses are out of the barn, its too late.
Our Castro Jr. in Venzuela, just ask for Dictatorial powers for a year( uh-huh),and WE all know he will relinguish that power at one year.
DosZap:
Naw! ...Let's just let the CIA/Bush/Bankster/Rothchild Mafia/Cabal/Family of murders and thieves continue doing God's work.
What the heck! They are "Doin a Hell of a Job".
...................................................................
VIVA La REVOLUTION!
Long live Fidel !!!! ... Sr. & Jr.
You gotta love him. That old bastrad has outlived them all.
I still think Au has its own will. Gold wants to be in ever larger lumps. It has an affinity for itself, a "Katamari" nature. People and petrol are a means to an end for gold, war and weather are oppurtunities to glom itself into bigger masses. :)
CHUMBAWUMBA bitchez
YES! Acidtest, I remember you and your VERY interesting idea of gold using carbon (in human and hydrocarbon forms) to gather itself into ever larger lumps...
Upon my return to the USA I will do my part to add to mine.
But, no one count on me adding mine to theirs...
...
Re chumbawamba, it is time for him to return. chumba, Gordon_G and I are the founders of the $50,000 drinkfest we will have to celebrate FOFOA´s prediction. For hatching such a great idea you are added to the club. When we get near that time (or soon after) we will make the arrangements. I already have a candidate city in mind...
That should get you a bottle of Jack Shit if FOFOA's predictions come true.
Do Bro,
How do you propose to spend/use the fruits of your labors, if it even gets to $25k?.
( some new medium of money will have to come to pass,and I am sure it will be fiat,but with a REAL solid Intl backstop).
Whatever Gv't entity we are under, no matter where, will EVER allow WE common folks to actually reap the benefits of our savvy investment /protection/wealth preserving decisons.
OK honey, and when BLS Bachelors+ gets to 20%, let me know. For November it was 5.1%.
And for all those who happen to NOT hold a bachelor's degree, it is just "Let them eat cake", right?
Arrogant asswipe.
allot of these gold guys are smart but nothing compares to FOFOA
Allot. That'd be a holebunch, right?
+ $1375 Spitzer re FOFOA.
Only Fekete rivals him.
I have a little different take on FOA and you liking the Euro. I am sure, even with its elegant design those years ago, that the ECB or whoever over there will screw it up. Already Europe is ¨ahead¨ of the USA in heading down the crapper.
FOFOA does not rule out a gentle jump to $55,000, it could be fairly benign and not necessarily destroy the world economy. I hope he is right about that one.
In any case, it is SO OBVIOUS that the corruption, debts, deficits, excesses, impunities, you name it are everywhere that I find little else that seems safe than gold, silver, platinum and, for the gamblers, palladium.
Of course, any Bearing reserves the right to buy 52100 grade carbon steel fabricated into highly engineered components as well...
Does gold at $55k mean you can buy a 5-series BMW with a Krug? Or does it mean a 5-series BMW would be $1 million or so?