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Guest Post: Gold Bubble? What Bubble?
Submitted by Toby Connor of Gold Scents
We continue to hear pundits describe
gold as a bubble. Certainly it will turn into a bubble before this is
all over but we are hardly in the bubble stage yet. In order for a
bubble to form you need the public to come into an asset class. The
public is pretty dim and it can take 15-20 years before they "catch
on". It took 18 before they noticed the tech bubble.
Once they do start to "get it" we will
have about a year to a year and a half as gold enters the parabolic
stage before the bubble pops. See the Nasdaq chart below from late 98
to March of 2000.
At gold's top, half of your neighbors will be buying gold (not selling like they are doing now).
At the top there will be lines outside the the local coin dealer waiting for the next shipment of gold to come in.
At the top 7 of 10 billboards you see driving down the highway will have something to do with precious metals.
At the top the guy standing next to you
in the grocery store will tell you how many thousands of dollars he
made last month off his gold coins.
At the top everyone will have become
convinced the dollar is toilet paper and will only continue to decline
until it has become worthless.
At the top the population will believe
that we have to go back on a gold standard. By the way, a gold standard
never stopped any country from debasing its currency. In ancient Rome
they clipped some of the gold out of the coins. Roosevelt confiscated
and arbitrarily revalued gold in the 30's. A gold standard will not
prevent a government from trying to get something for nothing by
debasing the currency.
At the top stocks will be universally
hated and gold universally loved. In reality, stocks will at that time,
represent true value. Much more so than a shiny metal with virtually no
industrial uses.
At the top smart money will eventually
come to their senses and realize that true value (profitable companies
making the necessities for life on Earth) are being given away for
pennies on the dollar to purchase a shiny metal that really has no
intrinsic value.
Here is a chart of the Nasdaq followed by a chart of gold. You tell me, does gold look like a bubble yet?
Of course not!
I
think we might be getting close to the Nasdaq 1998 level, but gold is
hardly in the runaway parabolic stage where it rallies over 100% in a
year. Not to mention that none of the other signs I noted above are
even remotely present yet.
But
no one needs to worry about a bubble just yet. We need to have at least
one more serious correction similar to what happened in `08 or in tech
stocks in 1998 to wash out bullish sentiment before we can start the
final parabolic run into a true bubble top.
If
I had to guess I would say that will occur during the next liquidation
event which should be due in mid to late 2012 as the stock market
collapses down into the third leg of the secular bear market.
That
should mark the next four year cycle low and possibly the nominal
bottom for the secular bear market in stocks that began in March of
2000. I expect the selling pressure at that climactic event will also
drag gold down into the correction that should separate the second
phase (what gold has been in since early '06) from the third and final
bubble stage. Gold will quickly recover, like it did from the last
selling climax, and when it does this is when we will see the public
begin to panic into gold.
should mark the next four year cycle low and possibly the nominal
bottom for the secular bear market in stocks that began in March of
2000. I expect the selling pressure at that climactic event will also
drag gold down into the correction that should separate the second
phase (what gold has been in since early '06) from the third and final
bubble stage. Gold will quickly recover, like it did from the last
selling climax, and when it does this is when we will see the public
begin to panic into gold.
Then and only then can we start talking about a bubble.
At
the moment I think we are about to enter the second leg of an ongoing
C-wave advance that began in September of last year. I'm expecting this
leg to take gold to the $1400-$1500 level before experiencing a major
D-wave correction.
I'll
be monitoring the advance on a daily basis to keep subscribers
appraised of where gold is in its intermediate cycle. When I think we
are getting close to the top of the C-wave I'll warn subscribers to
take profits and exit the precious metals market so as not to get
caught in a D-wave correction.
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and that's not even assuming a squeeze on what is papered over...
Well, the guy conveniently ignores the fact that Fox and ESPN have been running slick "buy gold" horror show commercials for AT LEAST one year. These are classic Last Greatest Mook Fleecers not seen since the last Gold Bubble in 1979, baby.
What gold bugs are in complete denial about... is that the value of gold depends entirely on the same mass psychology as fiat money = Faith. $$$ Rhondium >> $$$ Gold, but no one is hoarding Rhondium.
In modern times fiat money has never been "replaced" by gold... but rather the STRONGEST currency and gold co-exist. In the biggest crisis of the 20th century = the ruins of post WW II Europe... gold was exchanged for USD. That kept millions of refugees alive. That's how my family survived. But gold was not used directly as a "currency".
You really believe that the value of a natural resource is based on faith? The value of gold is no different than the value of food, wood, oil, iron, etc. based on how useful the resources are for the crafty critters called humans who sometimes forget that symbols for these things cannot replace the actual things.
You're just confused about what is real and what is symbolic, kind of like a gamer who forgets the importance of real food.
You really believe gold is a commodity of the same nature as food, wood, oil and iron?
That takes some faith.
In your haste to debunk gold, and in this author's haste to write another stupid "gold is not in a bubble" article in which he repeats the cannard, "Gold is not an industrial metal", you both fail to bring yourselves into the 20th century, let alone the 21st.
I ask again: how would you be leaving a comment on a server over high-speed data networks from your desktop computer/laptop/smartphone if gold is not an industrial metal? If you took the milligrams of gold that are in your electronic devices out they would like grind to a halt within minutes/hours/days.
Notwithstanding the fact that this article is stupid anyway because everything it describes as for when gold will be "in a bubble" will never come about. By the time the economy collapses and the dollar hyperinflates, there will be no gold available. So those lines stretching around the corner at the gold coin shop will not materialize. Instead you'll see bread and soup lines stretching around the corner (and far off into the distance).
I am Chumbawamba.
DD2,
Yes! Gold does go up because of hype also. However, it follows the depreciation of fiat currency. If the dollar looses half its value, gold will normally double. However because of the hype and fear, gold will overshoot. Isn't that good for those who do hold it?
Gold is also a medium of exchange into other commodities or even paper money for the immediate needs. Don't nock it. Buy some, if not a lot. Insurance maybe?
Gold preserves wealth it does not make you wealthy. No one will take rhodium or even unobtainium even if it was the most valuable metal on earth. Gold is what you use when society breaks down or about to break down and people loose faith in paper currency.
And yes my family has lived through two devaluations to zero in Europe. Gold saved them.
Cheers mate
"Rhondium >> $$$ Gold, but no one is hoarding Rhondium."
No one is hoarding "Rhondium" because there's no such thing.
http://www.google.com/search?sourceid=navclient&ie=UTF-8&rlz=1T4GWYE_enUS255US256&q=rhondium
DeeDeeToo: Faith? Hmm...well, I DO have faith that gold has scarcity.
this is a stupid question perhaps, but cant China produce gold on the cheap? like everything else....you know what i mean? since the labor is so cheap over there and all that....thanks!
How much labor does it take to print trillions of dollar bills?
we can have our 100 dollar bills printed in China and that would lower our costs too, right? Might not this lead to a collapse of the dollar?
brilliant question Arius.
it costs 500-600 to mine one ounce of gold on average
Oh, that's an excellent question, I think.
We need a new measure maybe. How do we value the costs of mining gold? In terms of gold? Wow, maybe this question is why nothing can be considered pure money because pure money has no rate unto itself.
What is the true cost of producing gold? Anyone?
Well, apparently, in Afghanistan, gold is lying all over the ground, and can be obtained very cheaply. The answer to the question is how much gold lies in the ground in China? I don't have the first freakin' clue. If they have a ton of it, they'll mine it out with slave labor.
My instinct (total effing guess) is that China has little at best known or easily accessible reserves. If they did, they would be using slave labor to get it, and not taking delivery of tungsten, and building office buildings nobody can afford to move into.
in 2007 china surpassed south africa as the country that mined the most gold. south africa had held the "title" since 1905. china produced 276 metric tons of gold in 2007. the top producers after south africa are australia, the u.s., peru, russia and canada. marginal cost varies with the mine and generally ranges from $200 to $850.
That fits what I've been reading and hearing about China now being the largest producer of gold. What I'm surprised to hear is that their mining cost are around the same as ours, not because of labor but just new methods of extraction. So even all of these brand new mines are using the same old methods? I guess the mining industry has been hindered by the suppression of metal prices, maybe?
What I find to be fascinating about the "cost" of gold "production" is the sovereign authority governing its extraction tends charge exactly the amount equal for it's continuing to operate. Hence, if infrastructure, workforce and investment capital are all present, then egregious regulations will be enforced to create a heavier financial burden for the extractor. If on the other hand, labor needs to be imported and your mine location is in a remote jungle plateau, geopolitical sovereign authorities are generally easier to satisfy. This is nothing more than to say gold is the standard.
Here’s another observation. As the earth’s population increases, additional money is needed to allow an orderly transfer of goods and services. We all suffer, by the way, when some greedy, selfish human buries the hoard he/she accumulated and never trusted anyone enough to say where before death, causing it to be taken out of circulation. It’s kind of like when a wise person dies and never gets an opportunity to teach the lessons learned.
If it were not for the consistently rapacious nature of governments to expropriate the wealth of their citizens through onerous taxation, confiscation, currency debasement and self-destructive warfare, there would never be any need for anyone to even consider burying their wealth in the ground in the first place. You are attacking the symptom here, not the disease.
I will agree. Sometimes symptomatic relief is all one can hope for. But you are correct, nonetheless. The cancer is lack of trust at the core. I only point it out on the surface, you correctly apply it to the macro-view.
Labor in China is not cheap. On average, it is about $5000 a year. Labor in Africa is much cheaper, and you don't see any "cheap" gold coming out of there.
Mining gold is a capital intensive process. The Chinese have adopted capital friendly policies. Their gold supplies are highly limited, however, and their hunger for gold FAR exceeds their in-ground supply (by some 200 tons per year), with thier in ground supply set to start seriously drying up over the next five to ten years.
They are already "producing Gold on the cheap", as you say.
China is one of the biggest producer of Gold in the world. And the Chinese government buys close to 100% of domestic production, for a price that is, I am sure, way below the prices quoted by the LBMA and the COMEX.
The rest of the chinese Gold production is, as far as I know, sold to chinese citizens, with perhaps a very small fraction sold on the International markets. All of these operations use the official/international prices.
The chinese gov also buys Gold on international markets, but always on the "dips", and always in small quantities, so that the price of Gold does not go up too much.
I'll be monitoring the advance on a daily basis to keep subscribers appraised
subscribers? to this trash? are you kidding me?
Well, I don't think he understands why many (most?) of us (now, not 'at the top') are buying gold and have for lo these last several years.
It's not about 'flipping' it and 'getting out at the top' with mucho fiat in hand - at least, not for me. It's about losing all confidence in the fiat system, altogether. Being convinced that our current currency system is on its last legs, and that the next one won't be pure fiat. It's about having some WEALTH that isn't 'confidence' based with the 'full faith and credit' of any moron government, and WEALTH that doesn't put you & your children into debt for life in the attempt of gaining it (eg, mortgage). REAL not promised wealth.
However - I think he's right about bubbles, bubble tops, and gold's possible trajectory in 'bubble' terms.
But I think he doesn't see (or at least doesn't mention in this article) that there is a larger perspective in play here.
Me, I'll treat gold like it's at the beginning of a bubble, when and only when I can have some form of REAL evidence that this fiat currency has any longevity to it; that there is any benefit for me, a peasant, in holding fiat at all; or that this fiat regime will at all outlast the top of the gold bubble that he outlines. JMHO
So less than 1% of the people of the world have physical gold, but the global powers that be will be unable to provide the 99% who have no gold a medium of exchange to conduct daily transactions.
That's plausible.
Gold will be readily available when it is properly priced and not a second before.
Short and to the point, nice!
Good question:
So less than 1% of the people of the world have physical gold, but the global powers that be will be unable to provide the 99% who have no gold a medium of exchange to conduct daily transactions?
Poor answer:
Gold will be readily available when it is properly priced and not a second before.
I'm afraid I don't see this ending anywhere nearly as neatly as the Nasdaq bubble, or any most other bubble this country has had.
http://www.goldensextant.com/SavingtheSystem.html#anchor125744
"With respect to the form the denouement will take, much has been written within the gold community on the subject of whether we face hyperinflation or deflationary depression as the prelude to monetary collapse. Both sides of the debate appear to accept the premise that whatever may transpire will bear a linear relationship to what now exists. The disagreement centers on the direction the line will go. But today's markets are fully linked by derivatives and technology, and they are patrolled by wolf packs of large, leveraged speculators not noted for their patient outlook. So it seems likely that the terminal monetary crisis will unfold on virtually an instantaneous and discontinuous basis, once the fog of statistical deceit and false market cues begins to lift and a clear trend either way becomes evident. We are not likely to enjoy the luxury of observing either a deflation or an inflation unfold in the fullness of time, but rather, just as Mises foretold, a final and total catastrophe of our fiat monetary system."
IOW, you're not going to sell because you see the Morts lined up outside the gold shop. More likely you're going to be trying to get across the border (if you haven't already) because Morts are out marching in the streets shooting and looting.
A while back someone on here said it was idiotic to imagine a kind of half-collapse that made goldbugs rich and yet didn't end in blood. I didn't want to believe it at first, but it's making more and more sense given that the fools in charge of this ship have it aimed straight at the iceberg and not only fail to see the need to change course, but are shoveling in coal just as fast as they can.
I’ve been thinking some about another poster’s comments regarding simultaneous inflationary and deflationary signals that actually make historical sense. As was recently mentioned, luxuries and those goods and services that attend them, have and will experience deflationary pressure while those goods and services needed for day to day substantive life will be placed in a category of higher value, therefore, higher price.
As for a philosophy of buying, it makes sense to me that purchasing these particular goods, services and/or an ownership position in an entity purveying a substantive life affording experience will be mammon well spent/invested.
Disclosure: Boxed Merlot
If you really believe what you're saying - why own gold? In the scenario you describe, it would seem best to buy productive farm land and invest time making solid relationships with your surrounding land owning neighbors. Otherwise, you'll eventually find yourself dead.
Why own gold? How about owning deeded mineral rights with proven reserves in a (more or less) stable, infrastructured and up until very recently pretty law abiding nation? No taxes to be paid on the property and records that confirm the deposit's existance, the downside is?
Your suggestion is not a moot one by any means, but as for other forms of real estate, there are many, many variables that can affect the value of such a holding ---- taxes, regulations, funding for development, accessibility, etc., as well as future changes in all those variables to consider as well. Such an investment could be a good one, but is even less liquid than the average lot or home, and is simply no substitute for the simplicity and high liquidity of gold (or silver, or platinum).
+1.
Another ZH'er once posted, "You don't sell gold. You spend it."
Bubble?? Maybe. I don't buy it to get rich in the first place anyway.
Renfield, drwells, colonel,
My gold will go to my kid (or grandkid(s) someday God willing) or else exported out of here if things start looking REAL BAD. I'm NOT selling it, unless under dire situations.
The big question, once I have given away my gold away is:
Do I stay and fight, or do I leave for Peru?
...
Yes, this week I will buy a bit more, just like I have for decades...
Me too, DoChen
Our gold is our 'inheritance', 'rainy day fund', 'capital', you get the idea.
My husband works hard at his job for fiat to pay bills, put bread on the table. He provides for us...my little FX work is for our SAVINGS, and that's in gold. If we lose our little trading account and that small amount of fiat, then I will work a job (for much less fiat) again, so we can ditch that fiat right away for our REAL savings. This is the bit that so many people around me don't seem to understand. It's for the LONG TERM. It has precious little to do with 'bubble' and it's not a 'flip' to some greater fool. :-)
Slowly, as our governments flush more and more fiat bailing out worthless parasites and ignoring large-scale fraud, I see friends and family beginning to understand. This currency system is not set up to benefit them; it's basically our insolvent governments promising that we will get (less) goods & services for these bits of paper. It's all about confidence in the government. I have none, and I see those who are much more mainstream than I starting to figure it out.
It's funny being on the ground, in the working underclass, rather than up in the economist/analysis ivory tower. In some ways, being so sheltered, they are the last to get the news. We'll see how long government fiat/promises last - I bet gold lasts longer. I'll also bet we see some thriving black markets, not just for gold, before much longer.
PS: Respect to you, buying gold for 'decades'. Congrats. We've only been buying since early 2007. Pre-2006 I was just a happy little sheep. :-)
+ $1250 Renfield.
Just keep buying, even if only a little bit at a time, and you will be better off than urban/suburban 99% when TSHTF.
Might want to get a gun or two w/ 500 rounds each while you still can, you know just sayin'...
And if TS does not HTF, you lose little.
Stay nimble, it sounds to me like your family will be OK under almost any scenario.
Actually, DCRB, I would recommend at least 1,000 rds per long gun and 500 per handgun as bare minimums. If it gets to that point, and even before if new fascist laws are passed, ammo will have ever increasing values and a good trade partner for gold. Yes, nimbleness is next to g*dliness and situational awareness is ZH.
DoChen and Cossack
Thank you for the gun advice! Alas, I live in Australia, land of bloated property prices (thanx China), good people, and few guns. We used to be gun-owners...
The likeliest one I could get would be a shotgun or rife, like Canadians. My husband used to shoot roos, but I've never fired a weapon in my life.
We are going to buy a shotgun when we move to the country...hopefully in a year or two. I am often in awe of the gun discussions here on Zero Hedge. I DO want to get a shotgun, but I think I might have to rely on him to fire it...until I get in a year or two good practice in the back yard with some tins anyway.
Let's just say I'm praying for the Great Unwind to happen a bit slower here (so far so good) and thanking the Gods of China. :-)
I wouldn't recommend a shotgun. No ability to reach out farther than 20 yards, and perhaps most importantly, the ammunition takes up way more space than rifles or pistols. Pistols have the benefit of you being armed without people knowing it. But you don't want to be without capacity for distance shooting (if you move to country) and ability to hit several targets quickly (semi rifle)...so...
The best thing to buy would be a semi-automatic rifle akin to an M14 sold by Springfield Armory. Unfortunately, that'd be a pretty illegal purchase Down Under. It'd be immoral for me to advocate you break the law and buy one illegally.
I advocate you break the law and buy one illegally. Or two.
Bolivia, Butch.
You go to Peru and fight.
I agree there is no bubble yet. I know very few people even buying gold right now. One observation is people are at least listening to you if you suggest they buy gold. This wasn't the case 6-months ago.
Dave Ramsey the financial advisor in Fox was asked yesterday by a listener about gold. He replied saying gold is just a commodity no value whatsoever, the biggest bubble. he himself as a sophisticated investor (as he humbly called himself) did not own any gold at all...the only thing was his gold watch and the watch had better value than the gold according to him.
SO, if you put such an opinion of a sophisticated investor together with the 5 trillion just discovered in Tora Bora you wonder why would anyone would waste his precious dollars in some barbaric relic....yeah well...people never learn....
A sophisticated investor that only invests in mutual funds, should stick to his broken record advice to stay out of debt.
Dave Ramsey knows nothing about gold. He is useful for those who didn't know that debt could be a problem, but his level of sophistication in economics is otherwise on a par with George Bush's.
Same species, different animal: I was driving through Virginia a couple of weeks ago, and some outfit called "The Mutual Fund Store" was hosting some infomercial type investment show.
One caller asked about gold, and the host responded that he didn't like it, as gold had had a big run over the last 10 years, and investing in gold would be "buying at the top". The very next caller asked about getting into bonds, and the host pointed him to some fund that "Has gone up 8 times in the last 10 years", or something. I pulled a Jon Stewart style double take, pointing my finger at the radio - "But... but... you JUST said you didn't want... to buy... at the... the top..." (trailing off)."
These clowns get paid either way, I guess, so what's their impetus to change? Where are the customers' yachts, indeed.
ah Arius you little troll, you pretended to ask an innocent question first now we see your trollness.
Ramsey said in early 2008 that the economy would be fine! on his show. And what's your point? Just one opinion of a clown on FOX?
hey amigo - my point is that we are "at the end of the beginning"....no announcements of trillions found in Afganistan, opinions of experts etc. will change that....the rest is up to everyone you either in the train or left in the station....holding paper duck tape...the real duck tape is on the train...
Duct. Duct tape.
No; but it might be in the beginning stages of one.
Note the following:
GOFO ends week -16% [periods avg w-t-d], GOFO-LIBOR still negative. Cash-commodity swap rates decline following rise in gold
Daily clearing LPMCL avg. up a staggering 35.33% [ounces cleared], $-value up 38.6%
Last time LPMCL cleared more than 24M--->OCT-08. This is the largest m-o-m increase in both the $-value and ounces cleared in the history of LBMA/LMPCL
Largest $-value cleared in LPMCL history; European, Indian and Chinese demand might have been a big contrib [in light of debt problems] in demand surge in May.
June data should be equally, if not more, interesting.
Looks like gold purchases are trying to keep up with debt creation.
The Nasdaq chart is over a 25 year period and the Gold chart is a 10 year period... obviously not a good comparison.
Of note, I am a gold bull all the way...
Agreed, there's a much better chart somewhere that shows gold superimposed on some other bubble chart (I think the Nasdaq) and in percentage terms, which shows that gold is just at the foothills before the mountain.
good article, i have been looking for some technical analysis on gold. Ofcourse if the price starts going up at an increased rate everyone will get into it and become a bubble. And just like the housing market would never go down the price of gold will never go down.
Good point. Once the banks start giving interest only loans to people to buy gold it will definitely bubble and pop. Especially if they can keep the interest rates down. Most people could afford to make monthly interest only payments on 100 ounces of gold.
Oh wait. Banks can only inflate houses, commercial real estate, consumer goods through credit cards and medical costs through insurance companies.
Inflation in house prices, equities, and CEO pay is "growth".
Inflation in wages or gold is a disaster that must be stopped at once.
Hmm, CEO Pay: How about CEO contracts are negotiated in physical Gold. When they say "golden parachute", they really mean it. Gold Faucets and shower curtains are melted down into solid Gold. "Stock options? You aren't serious are you?"
Then we are officially in bubble territory.
Hmmm... You may be onto something here.
I don't understand how we can sit here every day and recognize the effect of the HFTs on the SPY and rely on any chart of the SPY for trading when we all agree that the melt up is a fraud.
Its not Us that matter Mitchman, its the rest of the looney-tunes plowing money into the "indexing" strategy.
That said, I don't think there'll be a new higher high on SPY before the equity indexes go splat again. But my opinion doesn't matter. Only the algos know for sure.
The baggie people are still cleaning out Mr. & Mrs. JSP's "old coins, outdated jewelry, and scrap gold" for 45% of spot. It's not a bubble yet.
Also, it's chief competitor, the USD, is on a rocket sled to oblivion with the hammer down. That represents a more tangible motive for moving into gold than "eyeballs" did for moving into Yahoo! in '98.
I don't think the baggie people pay 45% of spot. I read of people sending in gold rings and getting back a check for $17.82.
Sorry, was referencing a cart in a mall I wrote about a few days ago. They paid by the pennyweight, 25.99 for 24K, which works out to about $520/toz.
I don't doubt that the folks that mail their gold away for some undetermined amount of money get ripped off, and brutally. It sounds to me that the example you describe is an example of misrepresentation and/or fraud. The folks I'm talking about were right up front about what they'd pay and would provide it on the spot.
These folks were screwing their "customers" hard, but they weren't lying about it.
Regardless, both your and my example are both indicators that gold is not in a bubble, at least from the public participation standpoint.
double post - sheesh.
Here is Ritholz commenting on GLD:
http://www.ritholtz.com/blog/2010/06/gold-etfs/
Except the dollar will not survive by the time a "top" is reached this time in Gold.
Mr. Toby Connor is none other than Gary Savage of http://www.smartmoneytracker.blogspot.com/ where he has posted the exact same nonsense article. Perhaps he lost many subscribers due to his horrible calls and is trying to sucker in more fools using an alias. This is the sorriest excuse of an analysis that I've ever seen. Gary is one of the guys I like to call "fake Gold bull" or "paper Gold bull". By his own admission the guy does not hold any physical and even recommends paper Gold like GLD. These guys are only interested in short term paper profits and will sell WAY before [physical] Gold reaches any semblance of its real price/value.
What was your take on FOFOA's response to your debate with Karl Denninger?
FOFOA did not take any obvious side.
But, his analysis, IMO, took apart Denninger like me cleaning the bones off a fish fillet...
Buy gold, my fellow minnows!
I think it was pretty good which is why I have posted it on my blog as well:
http://www.gordongekkosblog.com/2010/06/fofoas-take-on-gekko-denninger-debate.html
All these bubble-heads are expecting a repeat of the 1980s wrt/ Gold Price. Maybe it might happen. Who among the "Realists" that post here, knowing the mathematical certainty of $13+Trillions in debt are gonna bring to the World Economy are foolish enough to sell physical gold in exchange for FRNs (ever)?
Dow 36,000
Inflation 30%
Unemployment 50%
There will always be a "dollar", or agreed upon medium of exchange for international transactions.
I can't imagine it will ever be gold again. That was already the case in history.
The caravan has moved on. Sure, I have made good paper money on physical gold, but in order to use it, I have to convert it to fiat.
If things are so bad that fiat is useless, gold will only be useful to ransom your family from roving bands of barbarians.
If things are so bad that fiat is useless, gold will only be useful to ransom your family from roving bands of barbarians.
Absolutely. Just like all the other times that has happened after a hyperinflation.
Um, wait...
How many examples of hyper (not high) inflation have happened in history to a reserve currency?
How many examples of hyper (not high) inflation have happened in history to a reserve currency?
How many reserve currencies have there been in history that were not backed by gold?
Other than the dollar, there has been precisely one, which was the old Chinese fiat, known as "flying money" which was instituted as money across much of the Mongolian empire. Under Kublai Kahn, it was illegal to possess gold within the Western empire. You were forced to trade your gold for paper when you entered, and you could redeem your paper for gold when you left. Inflation was rampant due to overprinting, leading to a series of currency collapses which finally shattered the greatest empire the world had ever known. The aftermath saw the population of China cut by some 75%.
Coins from Spain and Byzantium are still worth their full value in terms of the metal they contain. The paper printed by China only has value as a rare (due to age) novelty item, something like a hundred billion dollar bill from Zimbabwe.
Your point may be correct, but only in the world where we decline from today, directly into Mad Max.
PM's will be acceptable currency before long. AND, it will carry true value. Especially as governments drive the economy underground with taxation.
Your ransoming your family from barbarians scenario may yet come true, but IMHO, you missed a step.
That was my first junk. Thanks, whoever you may be.
Get used to it zen0!
I got blasted away in a Middle East thread (20 junks and your post is gone!) in less than an hour.
On the other hand, respected ZerOhead informed me, along with kindly junking me, that junks also might be a badge of honor.
I really have to find out what this Fight Club stuff is all about (revealing that I am an elderly 54 yr old?)
First Rule of Fight Club is never to talk about Fight Club.
Second rule of Fight Club is never talk about Fight Club.
If it's your first time at Fight Club tonight, then you have to fight.
What is Fight Club?
http://en.wikipedia.org/wiki/Fight_Club_%28film%29
http://www.imdb.com/title/tt0137523/
http://en.wikipedia.org/wiki/Fight_Club
You are welcome.
Do watch the movie.
Most people I know are either bored to tears regarding PM's or have outright animosity towards it.
"At the top smart money will eventually come to their senses and realize that true value (profitable companies making the necessities for life on Earth) are being given away for pennies on the dollar to purchase a shiny metal that really has no intrinsic value."
I stop reading here, but not before I laughed over the irony of your using the "pennies on the dollar" term to explain how gold has no intrinsic value.
This Cash for Gold thing is so geared towards sucking in the masses who don't know any better. In Asian countries, they do not buy 10k or 14k, that is for the peasants. They will know to the gram how much gold there is in each piece, and the purity, and how much cash they should get for it. They would never send it off in an envelope, or go to Sears, or Walmart, to some minimum wage clerk to write them a check. Only in America do we find the dolts who don't understand it's value.
Giving someone only 50-60% of spot for their gold is theft. It's like giving a blind person two fives for a twenty and telling them they're getting a fair deal. Just because someone is "blind" doesn't give one license to take advantage of them . . .
Who are you dealing with? I can go to Benny Lee and get gold maple leafs for like 1% over spot on the day.
Okay maybe a bit more, but not much.
I wasn't referring to me, but friends and acquaintances that I'm constantly coming into contact with who have sold all of their coins / scrap at gold parties, jewelry stores, etc. I too have purchased all of my gold at 2-5% over spot depending on type (Krugs, Pandas, Buffulos, etc.)
I buy (1 oz Eagles) at some 6% over spot at the coin shops where I go. I have never sold so I cannot comment re the spread.
2% sounds really low premium, like a tulving.com...
www.onlygold.com's specials page today had some gold coins at 3.5% over spot delivered. Those days seem to be over, but there was a time when an occasional eBay auction for gold / silver would sneak through at or even slightly below spot. You should be able to purchase Eagles online for 4-5% over spot delivered. Check out www.gainesvillecoins.com
Mr. Man,
I think it's extremely unwise for someone to trade their gold for 50% of spot, but if both parties are informed of the rate *before the trade occurs*, it seems to me it's simply another transaction that has deviated from spot - in this case, in the opposite direction of the folks in Greece paying $1700/oz on the street.
However, in the case of someone sending their gold off to someone in the mail and getting shafted, I can't argue that it's theft/fraud/bad juju, despite the victim having made the jump to stupidity hyperspace.
These situations make me long for a world that operates under the golden rule (and not the one that goes "he who has the gold makes the rules").
Theft would be stealing the gold outright from someone's hands against their will. In this age of information we live in, anyone has a variety of methods to obtain knowledge of what the gold spot price is, AND how much gold would be in a 10K, 14K, or 24K piece of jewelry.
Chumps get taken, dude. By your logic, we should close down Vegas because the chumps think they can win--when if they had 3 brain cells, they'd look around and wonder where the money came from to build those freaking palaces they call casinos.
Gold is not a typical every-day run of the mill asset. It is THE ASSET. Rising Gold shows loss of confidence in Fiat currency. This cannot be measured or plotted as to when it will become parabolic. It's won't take until 2012 and we will be lucky to see 2011 and a non-parabolic metal.
Gold can go to $5k without a collapse of fiat money. Maybe it can go higher.
Art can appreciate insanely without fiat money collapsing.
Merchants will accept electronic bytes before they will give you value for gold.
Gold is a commodity.
Mises said money is the most marketable commodity
Is gold that?
If gold goes to $5,000 per ounce (and presumably silver climbs to something like $75 per ounce as well), it doesn't seem outrageous to speculate that our present standards of the norms of reimbursement might start changing a bit. Some savvy business owners would already prefer to have it as opposed to FRNs. Their numbers are very small now but will likely increase as Ben Bukkake destroys the dollar to deal with unsustainable debt.
silver maybe $60. And easy to trade with for daily needs.
Like crack and stuff.
+ $60 LOL...
+1263.10......Crack is whack!
Gold is an asset... your house is an asset... one more easily tradable than the other but both equally an asset regulated by the quantity of each. If we are all agreed that house prices are comming down then why would you think gold is going up? stop putting gold on a pedistle and recognize it for what it is ... AN ASSET..all other asset values are collapsing right now and gold goes up...how is this not a bubble again?
Gold is an asset, agreed! However, your home is not an asset, if you happen to be one of the many homeowners that owe more on the home then it's worth. That's debt!
If you can't afford gold then buy some silver. <1% of the population could tell you the spot price of gold on any given day. That tells me we are no were near a bubble, IMHO.
Since Real Estate is usually a source of taxation, is it really an asset?
(Real is the Spanish word for King).
Whether they tax your house or your gold the tax is independent of the equation. when all is said and done you still have fewer assets. The combination of how much house vs how much gold you have is irrelevent.
this is a terrible, nonsensical guest post, written by an idiot. a gold bubble implies hyperinflation implies gold price = infinity. in other words gold is a one-way flight, if it takes off it ain't coming back (in dollar terms)
Gold might go up but this post is still nonsense. If you bought gold in 1978 and waited to sell until seeing those ridiculous signs of a top, then you certainly rode it all the way back down to the bottom and will do so again this time. Hopefully you'll get it right next time in 2040.
The dollar is going extinct. So Gold won't be coming back down, just re-valued against the new future currency whenever that happens.
Meaning, there's no bubble.
Every time I read an intelligent article on this website it is ruined when I glance at the retarded readership's comments. Can you redneck amateurs please go away?
Welcome to ZH. You must be new around here.
Up yours, nibblenuts, and seconding the welcome.
Renfield: I like that term "nibblenuts"... Is that a very specific Australian insults?
Oh, and, to the original poster: this is Zero Hedge. Dialogue here is profane, arguments degenerate quite rapidly into inanity, and the noise can be deafening. But don't let that hold you back, it's plenty fun (and informative) when you get the hang of it.
I believe the correct way to approach Zero Hedge is to barge in with guns blazing, a "no prisoner" approach, and a pissed New Yorker attitude, since none of us is getting out of this alive. Keep your wits about you, as well as a handy sarcasm or two, since the crowd here is quite rowdy, and, quite often, completely drunk (or high) as well. I like it, though.
And could you self-important, arrogant, pompous blowhards please join them?
Is that you, Karl Denninger?
Oh, and by the way, the only people who casually and flippantly use the word "retarded" as an insult, invariably tend to resemble that remark themselves.
Signs that gold is near a top: I have moved a substantial portion of my assets into precious metals. I gave my son a 1 oz. gold coin for graduation. The charts above do show a rapid rate of increase in the price of gold that is reminiscent of a bubble (contrary to your interpretation). However, log graphs are more meaningful.
I saw a show on something like the Discovery Channel about the worldest deepest gold mine in South Africa. Something like 3 miles underground they blow up ore with gold not even visible to the naked eye, transporting tons of the ore to the surface for processing and refining into gold bars.
You dig enough ore you get your gold but it seems, overall, that ore deposits are less and less rich with gold, and the cost of production naturally will tend to go up, especially with the cost of energy.
Gold is an asset... so is your house... you could trade your house for other things you want but its difficult to do so... gold however is easy to trade for things... so its still an asset but used a medium of exchange which gives it the "tradable asset" title of being a currency... BUT ITS STILL AN ASSET!!!.
So anybody care to guess where the value of homes are going? Most of you would say down right... because we couldn't care less if the gov prints 100 quadrillion dollars... if they dont give any to us we still cant buy the damn house... so lets finish the thought cause we should know where this is going by now
If we dont have any damn money we cant buy any damn gold... if people want to sell there gold for things they need like food an water they will have to sell it for less fiat becuase...well.... THERES LESS OF IT!!!
All other assets are collpasing in value and gold goes up? How is this not bubble again?
Bueller kicked his friend in the ass and his friend says why'd you kick me... his responce was.. "wheres your brain?"
It makes me laugh when people draw a future chart of anything. Gold is going to go straight up. Stocks are going to go straight up. It is because paper money is going straight down. There is no investing, trading, or timing needed. You guys better check the charts of what stocks and gold did during Weimar.
Why did the housing bubble pop? Because people were buying homes with credit at rates they couldn't afford. Where are the people using credit to buy gold? They don't exist. Gold is bought 99% of the time with cold, hard (?) cash. As the housing bubble popped, no-one wanted to sell thier houses at lower levels because they didn't want to lose money, but they were eventually forced to either sell or get repossessed. When no-one wants to sell their gold, what happens? Price goes up and stays there. There aren't going to be any margin calls here, guys.
1980 was an aborted currency crisis, averted only due to the ability of the Fed to raise rates to ridiculous levels. This is now illegal, as we have a national debt that will blow up it we move the rate up to 5%, let alone 20.
The fact is that when everyone has gold, and is buying gold, we have a de facto gold standard. This, unlike other bubbles, is a stable situation, as we have seen over thousands of years of history. Once a gold standard is reinstituted, people will be most distrustful of the government, and are unlikely to take any government promises to pay gold on demand. We have been burned too many times, and by that time, everyone will know it, and they will remember it for generations.
Just wanted to say, I've found your comments on this thread both clear and educational - kind of a rare combination. So, thanks for that.
"Where are the people using credit to buy gold? They don't exist."
Not only that, but leverage is used to *suppress* the price of gold, rather than push it up.
"1980 was an aborted currency crisis, averted only due to the ability of the Fed to raise rates to ridiculous levels."
Yep. Sorry to repeat myself, but:
http://www.goldensextant.com/SavingtheSystem.html
"So we see how an increase in the demand for fiat money, brought about by a confluence of monetary policy, deregulation and market expansion, importantly aided by a collapse in commodity prices, proved sufficient to save the system in the 1980’s. The gold bugs were right; Havenstein’s choice could not be ducked. What they didn't know was that it had in fact been made, largely by accident, and that the system had managed to stumble through Door Number One."
RE: silver.
The 'poor man's gold', but also an industrial metal.
I understand the traditional silver:gold ratio is about 16:1...I guess this comes from the years when silver was more plentiful than gold, and wasn't so heavily used in industry.
People I've asked around the blogs agree that silver will rise WITH gold, and to hold silver is preferable to holding fiat. However, considering that industry use has lessened our silver supply, AND considering that the gold:silver ratio is not even close right now to traditional - isn't there a strong case to be made that silver should skyrocket much higher, if gold were to continue to climb? Just to return to the traditional ratio would cause quite a jump, let alone any supply issues that industrial use might cause.
I would love to see an article about SILVER in itself, rather than just as gold's little silver, sometime on Zero Hedge. Tyler, if you're taking suggestions...
Many Gold comments also apply to Silver. And they just had the 2010 Silver buying guide last week.
http://www.zerohedge.com/article/guest-post-2010-silver-buying-guide
Thank you, J Lee. I didn't see that post and will immediately go read it!
Apologies, Tyler. Should have known you were on top of it. I really should read here a lot more religiously than just once a day!
Im not convinced by the whole 'when your shoeshiner tells you to buy gold, then it's in a bubble' argument.
Paper currencies as government debt have become so corrupted that maybe gold silver will stay the only currency for a long time to come. Maybe people wont be in such a hurry to trade back their gold for more government paper.
If thats the case, then, like the present paper currencies, perhaps gold/silver will simply linger as currency for years to come.
heh...speaking as a 'shoeshiner' myself, I wonder if the big banks realise just how dependent the government is, on us shoeshiners.
As long as shoeshiners are buying (with labour) and holding fiat, the government will be OK. But that's as long as most of us continue to trust them: to hold the system together, to keep their promises, to be our partner in building a stable society for us & our families.
We are not without alternatives. Government fiat is ALL about faith in government, and if it becomes impossible in the fiat system for us to own food & shelter, retire, care for our parents or raise & educate our children, then we will most definitely find alternatives. Most of us can do that without bloodshed, too, so any 'Mad Max' and TEOTWAWKI threats can be filed in the Y2K folder as far as I'm concerned.
We may not have the math degree, but when it comes to our survival we are not stupid. When and if us shoeshiners lose faith and desert government fiat, then we'll see what's in a bubble now, and what isn't. :-)
PS: I love how this analyst so casually states, "At the top everyone will have become convinced the dollar is toilet paper and will only continue to decline until it has become worthless." At the top of other bubbles, people just move their money to a new asset class. But if people in fact decide that the fiat money itself is toilet paper, then there will certainly be more severe consequences for that fiat than just languishing at some chart bottom for awhile.
A shoeshiner I know thinks that it's a bad idea to travel to Haiti, shoot up with a bunch of prostitutes, and have unprotected sex with them.
Sometimes the shoeshiners are right.
I don't know. Something that specific sounds like it was learned the hard way ;-)
There is no finer institution than the UHK (University of Hard Knocks). I'll take on board his lesson, sooner than the courses handed out in some of the Ivy League schools.
To paraphrase Ron Paul (and I'm sure others before him), "Markets are powerful than Governments".
The rise in the price of Gold cannot be stopped and will not stop until the Dollar is gone from the face of the Earth.
Thank goodness you're only paraphrasing.
Gold is world currency. Fiat is government/banker currency. Choose your weapon.
EURO buying support i've mentioned over the past few weeks has resulted in a bullish basing pattern on the daily chart. The important weekly chart remains bearish though.
http://stockmarket618.wordpress.com/about
GRAND SUPERCYCLE: Stop posting your gay porn links.
When gold is around $20,000 a oz in the near furture, then I will say yeah your right we are bound for a pullback.
Everything terns into a bubble.I wish i knew when.
Damn it, are even shorebirds now in a bubble?
Guess I better go stock up on sandpipers and plovers while their prices are still relatively low! I like the new iShares Shorebird ETF (GUL) as well.
Who really knows how much gold is out there? How much is under contract and is that gold at your corner Central Bank is half Tungsten or solid gold? The Fed admitted to suppressing the price of gold once, I'll wager dollars to doughnuts they've done it more than once. I'll make the same wager they'll do it again.
Buy ammunition, a Taser, a couple of stun guns, before they declare them illegal, and then come after your gold.
Considering the lawsuit you would get slapped with...anyone worth Tasering is worth shooting in the face and burying in the backyard.