This page has been archived and commenting is disabled.
Guest Post: The Shoeshine Boy
From FOFOA
The Shoeshine Boy
To set up this post I will share with you two brief predictions I
recently received by email. These were both in email blind copied to
large groups of recipients that included me. The two senders do not know
each other. In fact, their only connection is that they are both
supporters of my blog on the highest order, I know what they each do for
a living (very respectable), and I therefore hold them both in high
regard:
Email 1:
This is a very
orderly secular bull market. The bubble, that WILL come, is still about 2
or 3 inches to the right of the margin on the right side of this
chart...
Email 2:
Perhaps we
are talking about the first general realization among the investing
public that the Fed cannot/will not rescue us with their magic wands and
QEs… This may be it, the beginning of Stage 2 of gold's rally, where
the smart money starts moving in. Stage 3 is next when the shoeshine boy
tells you: Buy gold!
For those of you that don't know the
meaning of the shoeshine boy reference, JFK's father, Joe Kennedy
claimed that he knew it was time to get out of stocks in 1929 when he
received investing tips from a shoeshine boy. Ever since, the shoeshine
boy has been the metaphor for "time to get out"; for the end of the
mania phase in which everyone, even the shoeshine boy, wants in.
Joe Kennedy
Joe
Kennedy's credibility on this "bubble top calling" issue is bolstered
by the fact that from 1929 to 1935 his fortune went from $50 million to
$2.85 Billion in today's purchasing power. And the take-home lesson in
this story is that it is time to sell ANYTHING once the shoeshine boy is
recommending it. Because the next phase is the blow off phase where the
item in question comes crashing back down.
Bubble Phases
And
the fact that two of my favorite readers are now calling for an
eventual bubble in gold reminded me that it has been 9 ½ months since I
wrote Gold: The Ultimate Un-Bubble. Perhaps it is time for an update.
Now
I'll grant that the point in both of the quotes above was that we are
nowhere near the bubble top. And they were addressed to people that are
very jumpy when it comes to bubbles because they have been burned by a
couple bubbles in recent history. But even so, I think they expose a
fundamental misunderstanding of what is actually happening today.
How Gold will handle even the Shoeshine Boy
Before
I get into what is actually happening with gold today, I want to show
you WHY it is happening to gold. And WHY gold is different. There's a
unique thing that happens with gold. ANOTHER said it pretty clearly
(even if still a bit cryptic) in his very first post:
"Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises."
In
a future post I'll explain the context in which ANOTHER made this
statement because it portends vast changes in the international monetary
system directly in front of us. (Remind me of this. I was going to
include it here but the post grew too long even without it. :) But for
now, we need to look at why this statement is true. For this I turn to
John Law. Well, not the real John Law, but another pseudonymous blogger
like me using his name back in 2006:
An illustration
Let's start by comparing two hypothetical cases.
In case A, a million Americans decide right now to move all their savings into Dell stock, buying at the current market price no matter how high.
In case B, a million Americans decide right now to move all their savings into gold, buying at the current market price no matter how high.
In both cases, let's say each of these test investors has an average of $10,000 in savings. So we are moving $10 billion.
Neither gold nor Dell can instantly absorb $10 billion without considerable short-term increases in price. Because it would require us to predict precisely how other investors would react, we have no way to precisely compute the effects. But we can describe them in general terms.
In case A, the conventional wisdom is right. Our test investors should expect to lose a lot of money.
This is because Dell has a stable equilibrium price which is set by the market's estimate of the future earning power (price-to-earnings ratio) of this fine corporation. Because it is not the result of any new information about Dell's business, the short-term surge should not affect this long-term equilibrium.
Since there will almost certainly be a short-term price spike, many of the test investors will be buying at prices well above the stable equilibrium. In fact, the more investors we add to the test, the more each one should expect to lose. Doh!
But there is no way to apply this analysis to case B.
Precious metals have no price-to-earnings ratio. With gold formally demonetized (that is, with no formal link between gold prices and currencies such as the dollar, as there was until 1971), there is no stable way to price it. There is no obvious equilibrium to which the gold price must converge.
It is true that gold has industrial uses. It can be priced on the basis of industrial supply and demand. The conventional wisdom is that it is.
Thus we can say that gold, for example, is overvalued if gold miners are selling more gold than jewelry makers and other industrial users want to buy. At present (with gold near $700), they probably are. So if you follow this reasoning, the right investing decision is not to buy gold, but to sell it short.
But this just assumes that there is no investment demand for gold. On the basis of this assumption, it shows that gold is a bad investment. Therefore there should be no demand for it.
Therefore, when our case B investors put $10 billion into gold, that money has to be used to bid gold away from its current owners, many of whom already believe that the price of gold in dollars should be much higher than it is now.
So the result of case B is that the gold price will, as in case A, rise immediately. But it has no reason to fall back.
In fact, quite the opposite. Because the gold price is largely determined by investment demand, any increase in price is evidence of increasing investment demand. Mining production, noninvestment jewelry demand, and industrial use are relatively stable. Investment demand is a consequence of investors' opinion about the future price of gold - which is, as we've just noted, largely determined by investment demand.
This is not a circularity. It is a feedback loop. Austrian economists might call it a Misesian regression spiral.
Suppose you believe this. It's all well and good. But what does it really prove? Couldn't gold still be just another bubble?
And why should gold be a better investment because it has no earnings to price it by? This makes zero sense.
To answer these sensible objections, we need a few more tools.
Nash equilibrium analysis
The Nash equilibrium is one of the simplest and oldest concepts in game theory. (Nash is John Nash of A Beautiful Mind fame.)
In game theory jargon, a "game" is any activity in which players can win or lose - such as, of course, financial markets. And a "strategy" is just the player's process for making decisions.
A strategy for any game is a "Nash equilibrium" if, when every player in the game follows the same strategy, no player can get better results by switching to a different strategy.
If you think about it for a moment, it should be fairly obvious that any market will tend to stabilize at a Nash equilibrium.
For example, pricing stocks and bonds by their expected future return (the standard Wall Street strategy of value investing) is a Nash equilibrium. No market is infallible, and it's possible that one can make money by intentionally mispricing securities. But this is only possible because other players make mistakes.
(Nash equilibrium analysis of financial markets is not some great new idea. It is standard economics. The only reason you are reading a Nash equilibrium analysis of the interaction between precious metals and official currency now on the Web, not 30 years ago in the New York Times, is that the Times gets its economics from real economists, not random bloggers, and the profession of economics today is deeply tied to the institutions that manage the global economy. Real economists do not, as a rule, spend time thinking up clever new reasons why the global financial system will inevitably collapse. They're too busy trying to prevent it from doing so.)
What Nash equilibrium analysis tells us is that the "case B" approach is interesting, but inadequate. To look for Nash equilibria in the precious metals markets, we need to look at strategies which everyone in the economy can follow.
Let's focus for a moment on everyone's favorite, gold. One obvious strategy - let's call it strategy G - is to treat only gold as savings, and to value any other good either in terms of its direct personal value to you, or how much gold it is worth.
For example, if you followed strategy G, you would not think of the dollar as worthless. You would think of it as worth 45 milligrams, because that's how much gold you can trade one for.
What would happen if everyone in the world woke up tomorrow morning, got a cup of coffee, and decided to follow strategy G?
They would probably notice that at 45mg per dollar, the broad US money supply M3, at about $10 trillion, is worth about 450,000 metric tons of gold; that all the gold mined in human history is about 150,000 tons; and that official US gold reserves are 8136 tons.
They would therefore conclude that, if everyone else is following strategy G, it will be difficult for everyone to obtain 45mg of gold in exchange for each dollar they own.
Fortunately, there is no need to follow the experiment further. Of course it's not realistic that everyone in the world would switch to strategy G on the same day.
The important question is just whether strategy G is stable. In other words, is it a realistic possibility that everyone in the world could price all their savings in gold? Is strategy G in fact a Nash equilibrium?
There are no market forces that would tend to destabilize it. Or are there? Actually, it turns out that we've skipped a step in our little analysis.
Levitating collectibles
The problem is that the exact same analysis works just as well for any standardized and widely available asset.
For example, let's try it with condoms. Our benchmark of all value will be the standard white latex condom. We can have a "strategy C" in which everyone measures the worth of all their assets in terms of the number of condoms they exchange for. Cash payments will be made in secure electronic claims to allocated boxes of condoms, held in high-security condom vaults in the condom district of Zurich. And so on.
This is obviously ridiculous. But why? Why does the same analysis seem to make sense for gold, but no sense for condoms?
It's because we've ignored one factor: new production.
Let's step back for a moment and look at why people "invest" in gold in the first place. Obviously they expect its price to go up - in other words, they are speculating. But as we've seen, in the absence of investment the gold price would be determined only by industrial supply and demand, a fairly stable market. So why does the investment get started in the first place? Does it just somehow generate itself?
What's happening is that the word "investment" is concealing two separate motivations for buying gold.
One is speculation - a word that has negative associations in English, but is really just the normal entrepreneurial process that stabilizes any market by pushing it toward equilibrium.
The other is saving. We can define saving as the intertemporal transfer of wealth. A person saves when she owns valuable goods now, but wishes to enjoy their value later.
The saver has to decide what good to hold for whatever time she is saving across. Of course, the duration of saving may be, and generally is, unknown.
And of course, every saver has no choice but to be a speculator. The saver always wants to maximize her savings' value, as defined by the goods she actually intends to consume when she uses the savings. For example, if our saver is an American retiree living in Argentina, and intends to spend her savings on local products, her strategy will be to maximize the number of Argentine pesos she can trade her savings for.
Here are five points to understand about saving.
One is that since people will always want to shift value across time, there will always be saving. The level of pure entrepreneurial speculation in the world can vary arbitrarily. But saving is a human absolute.
Two is that savers need not be concerned at all with the direct personal utility of a medium of saving. Our example saver has little use for a big hunk of gold. Her plan is to exchange it for tango lessons and huge, delicious steaks.
Three is that from the saver's perspective, there is no artificial line between "money" and "non-money." Anything she can buy now and sell later can be used as a medium of saving. She may have to make two trades to spend her savings - for example, if our saver's medium of saving is a house, she has to trade the house for pesos, then the pesos for goods. If she saves directly in pesos, she only has to make one trade. And clearly trading costs, as in the case of a house, may be nontrivial. But she just factors this into her model of investment performance. There is no categorical distinction.
Four is that if any asset happens to work well as a medium of saving, it may attract a flow of savings that will distort the "natural" market valuation of that asset.
Five is that since there will always be saving, there will always be at least one asset whose price it distorts.
Let's see what happens when that asset is condoms. Suppose everyone in the world does adopt strategy C, just as in our earlier example they adopted strategy G. What will happen?
Just as we predicted with gold, there will be massive condom buying. Since condom manufacturers were not expecting their product to be used as a store of wealth, demand will vastly exceed supply. The price of condoms will skyrocket.
Strategy C looks like a self-fulfilling prophecy. Condoms will indeed become a costly and prized asset. And the first savers whose condom trades executed will see the purchasing power of their condom portfolios soar. This is a true condom boom.
Let's call this effect - the increase in price of a good because of its use as a medium of saving - "levitation."
Sadly, condom levitation is unsustainable. The price surge will stimulate manufacturers to action. Since there is no condom cartel - anyone can open a factory and start making condoms - the manufacturers have no hope of maintaining the levitated condom price. They will produce as many condoms as they can, as fast as possible, to cash in on the levitation premium.
Levitation, in other words, triggers inventory growth. Let's call the inventory growth of a levitated good "debasement." In a free condom market, debasement will counteract levitation completely. It will return the price of a condom to its cost of production (including risk-adjusted capital cost, aka profit). In the long run, there is no reason why anyone who wants condoms cannot have as many as he or she wants at production cost.
Of course, condom holders will realize quickly that their condoms are being debased. They will pull their savings out, probably well before debasement returns the price of a condom to the cost of producing one.
We can call the decrease in price of an asset due to the flow of savings out of it "delevitation." In our example, debasement causes delevitation, but it is not the only possible cause - savings can move between assets for any number of reasons. If savers sell their condoms to buy Google stock, the effect on the condom price is exactly the same.
Because condom debasement is inevitable, and will inevitably trigger delevitation, savers have a strong incentive to abandon strategy C. This means it is not a Nash equilibrium.
The whole sad story will end in a condom glut and a condom bust. The episode will be remembered as a condom bubble. In fact, if we replace condoms with tulips, this exact sequence of events happened in Holland in 1637.
So why won't it happen with gold?
The obvious difference is that gold is an element. Absent significant transmutation or extraterrestrial trade, the number of gold atoms on Earth is fixed. All humans can do is move them around for our own convenience - in other words, collect them. So we can call gold a "collectible."
Because it cannot be produced, the price of a collectible is arbitrary. It is just a consequence of the prices that people who want to own it assign to it. Obviously, the collectible will end up in the hands of those who value it highest.
Since the global bullion inventory is 150,000 tons, and 2500 tons are mined every year, it is easy to do a little division and calculate a current "debasement rate" of 1.66% for gold.
But this is wrong. Gold mining is not debasement in the same sense as condom production, which does not deplete any fixed supply of potential condoms. In fact, it only takes a mild idealization of reality to eliminate gold mining entirely.
Gold is mined from specific deposits, whose extent and extraction cost geologists can estimate in advance. In financial terms, gold "in the ground" can be modeled as a call option. Ownership of X ounces of unmined gold which will cost $Y per ounce to extract is equivalent to a right to buy X ounces of bullion at $Y per ounce.
Since this ownership right can be bought and sold, just as the ownership of bullion can, why bother to actually dig the gold up? In theory, it is just as valuable sitting where it is.
In the form of stock in mining companies which own the extraction rights, unmined gold competes with bullion for savings. Because a rising gold price makes previously uneconomic deposits profitable to mine - like options becoming "in the money" - the total value of all gold on earth does increase at a faster rate than the gold price. But the effect is not extreme. 2006 USGS figures show 30,000 tons of global gold reserves. This number would certainly increase with a much higher gold price - USGS reports 90,000 tons of currently uneconomic "reserve base" - but the gold inventory increase would be nowhere near proportional to the increase in price.
In practice, modeling unmined gold as options is too simple. Gold discovery and mining is a complex and political business. The important point is that rises in the gold price, even dramatic rises, propagate freely into the price of unmined gold and do not generate substantial surges of new gold. For example, the price of gold has more than doubled since 2001, but world gold production peaked in that year.
The result is that gold can still levitate stably. Even if new savings flow into gold stops entirely, debasement will be mild. The cyclic response typical of noncollectible commodities such as sugar (or condoms), or theoretical collectibles whose sources are not in practice scarce (such as aluminum) is unlikely.
Of course, if savings flow out of gold for their own reasons, it can trigger a self-reinforcing panic. Delevitation is not to be confused with debasement. Again, it is important to remember that debasement is not the only cause of delevitation.
What we have still not explained is why gold, which is clearly already levitated, should spontaneously tend to levitate more, rather than either staying in the same place or delevitating. Just because gold can levitate doesn't mean it will.
Money in the real world
In case it's not obvious, what we've just done is to put together a logical explanation of money, using gold as an example, and using only made-up terms like "collectible" and "levitation" to avoid the trap of defining money in terms of itself.
Now let's apply this theory to the money we use today - dollars, euros, and so on.
Today's official money is an "artificial collectible." Money production is limited by legal violence, not natural rarity. If in our condom example, the condom market was patrolled by a global condom mafia which got medieval with any unauthorized condom producers, it would resemble the market for official currency. No one can print Icelandic kronor in the Ukraine, Australian dollars in Pakistan, or Mexican pesos in Algeria.
It may be distasteful to hardcore libertarians, but this method of controlling the money supply is effective. There is minimal unlicensed production of new money - also known as counterfeiting.
It should also be clear from our discussion of gold that there is nothing, in principle, wrong with artificial paper money. The whole point of money is that its "real value" is irrelevant. In principle, an artificial money supply can be much more stable than a naturally restricted resource such as gold.
In practice, unfortunately, it has not worked out that way.
Artificial money is a political product. Its problems are political problems. It does no one any good to separate economic theory from political reality.
Governments have always had a bad habit of debasing their own monetary systems. Historically, every monetary system in which money creation was a state prerogative has seen debasement. Of course, no one in government is unaware that debasement causes problems, or that it does not create any real value. But it often trades off short-term solutions for long-term problems. The result is an addictive cycle that's hard to escape.
Most governments have figured out that it's a bad idea to just print new money and spend it. Adding new money directly to the government budget spreads it widely across the economy and drives rapid increases in consumer prices. Since government always rests on popular consent, all governments (democratic or not) are concerned with their own popularity. High consumer prices are rarely popular.
There is an English word that used to mean "debasement," whose meaning somehow changed, during a generally unpleasant period in history, to mean "increase in consumer prices," and has since come to mean "increase in consumer prices as measured, through a process whose opacity makes chocolate look transparent, by a nonpartisan agency whose objectivity is above any conceivable question, so of course we won't waste our time questioning it." The word begins with "i" and ends with "n." Because of its interesting political history, I prefer to avoid it.
It should be clear that what determines the value of money, for a completely artificial collectible with no industrial utility, is the levitation rate: the ratio of savings demand to monetary inventory. Increasing the monetary inventory has a predictable effect on this calculation. Consumer price increases are a symptom; debasement is the problem.
Debasement is always objectively equivalent to taxation. There is no objective difference between confiscating 10% of existing dollar inventory and giving it to X, and printing 11% of existing dollar inventory and giving it to X. The only subjective difference is the inertial psychological attachment to today's dollar prices, and this can easily be reset by renaming and redenominating the currency. Redenomination is generally used to remove embarrassing zeroes - for example, Turkey recently replaced each million old lira with one new lira - but there is no obstacle in principle to a 10% redenomination.
The advantage of debasement over confiscation is entirely in the public relations department. Debasement is the closest thing to the philosopher's stone of government, an invisible tax. In the 20th century, governments made impressive progress toward this old dream. It is no accident that their size and power grew so dramatically as well. If we imagine John F. Kennedy having to raise taxes to fund the space program, or George W. Bush doing the same to occupy Iraq, we imagine a different world.
The immediate political problem with debasement is that it shows up in rising consumer prices, as whoever has received the new money spends it. If we think of all markets as auction markets, like EBay, it should be clear how this happens.
Debasement and investment
We haven't even seen the most pernicious effect of debasement.
Debasement violates the whole point of money: storage of value. As such, it gives savers an incentive to find other assets to store their savings in.
In other words, debasement drives real investment. In a debasing monetary system, savers recognize that holding money is a loser. They look for other assets to buy.
The consensus among Americans today is that monetary savings instruments like passbook accounts, money market funds, or CDs are lame. The real returns are in stocks and housing. [Written in 2006]
When we debasement-adjust for M3, we see the reasons for this. Real non-monetary assets like stocks and housing are the only investments that have a chance of preserving wealth. Purely monetary savings are just losing value.
The financial and real estate industries, of course, love this. But that doesn't mean it's good for the rest of us.
The problem is that stocks and housing are more like condoms than they are like gold. When official currency is not a good store of store value, savings look for another outlet. Stocks and housing become slightly monetized. But the free market, though it cannot create new official currency or new gold, can create new stocks and new housing.
The result is a wave of bubbles with an unfortunate resemblance to our condom example. When stocks are extremely overvalued, as they were in 2000, one sign is a wave of dubious IPOs. When housing is overvalued, we see a rash of new condos. All this is just our old friend, debasement.
This debasement pressure answers one question we asked earlier: why should gold tend to levitate, rather than delevitate? Why is the feedback loop biased in the upward direction?
The answer is just that the same force is acting on gold as on stocks and housing. The market is searching for a new money. It will tend to increase the price of any asset that can store savings.
The difference between precious metals and stocks or housing is just our original thesis. Stocks and housing do not succeed as money. Holding all savings as stocks or housing is not a Nash equilibrium strategy. Holding savings as precious metals, as we've seen, is.
Presumably the market will eventually discover this. In fact, it brings us to our most interesting question: why hasn't it already? Why are precious metals still considered an unusual, fringe investment?
The politics of money
What I'm essentially claiming is that there's no such thing as a gold bubble.
This assertion may surprise people who remember 1980. But markets do not, in general, think. Most investors, even pros who control large pools of money, have a very weak understanding of economics. The version of economics taught in universities has been heavily influenced by political developments over the last century. And your average financial journalist understands finance about the way a cat understands astrophysics.
The result is that historically, the market has had no particular way to distinguish a managed delevitation from an inevitable bubble. Because of Volcker's victory, and the defeat of millions of investors who bet on a dollar collapse, the financial world spent the next twenty years assuming that there was some kind of fundamental cap on the gold price, despite the lack of any logical chain of reasoning that would predict any such thing.
Even now, there is no shortage of pro-gold writers who predict gold at $1000, $2000 or $3000 an ounce, as though they had some formula, like the P/E ratio for stocks, that computed a stable equilibrium at this level. Of course, they do not. They are only expressing their intuitive feeling that gold is very, very cheap right now, and tempering it with the desire to be taken seriously.
Gold's main weapon is one we alluded to already: a sudden, self-reinforcing, and complete collapse of the dollar. In a nutshell, the problem with the dollar is that it's brittle. When Volcker did his thing, the US was a net creditor nation with a balance-of-payments surplus. Its financial system was relatively small and stable. And it had much more control over the economic policies of its trading partners - the political relationship between the US and China is very different from the old US/Japanese tension.
For the Fed, what is really frightening is not a high gold price, but a rapid increase in the gold price. Momentum in gold is the logical precursor to a self-sustaining gold panic. If the US federal government was a perfectly executed and utterly malevolent conspiracy to dominate the world, let's face it. The world wouldn't stand a chance. In reality, it's neither. So a lot of things happen in the world that Washington doesn't want to see happen, and that it could easily prevent. Anticipating surprises is not its strength. [1]
Holy
Cannoli, Batman! I think this is the longest "snip" I've ever used in a
post. Nine pages in Word, just for that quote. And I even edited several
pages out of it, "to tighten it up!" I hope you enjoyed it.
To
recap, a rising gold price is evidence of increasing investment demand,
which confirms the belief of those that already invested in gold that it
was a good investment. And because investment demand is over and above
the relatively stable industrial supply and demand dynamic, any new
investment dollars must bid gold away from its current owners. And
because saving in gold is a Nash Equilibrium, the price will rise very
high. And because gold is THE monetary metal with the highest monetary
to industrial use ratio, it will have no reason to fall back when it
reaches its top.
And, as ANOTHER said, "So many people worldwide think of it as money, it tends to dry up as the price rises."
Stock, Flow, Supply and Demand
Let's
try a little thought experiment and see where it leads us. This might
be a bit of a mind bender and a challenge for me to articulate, but what
the heck, we're already 11 pages into this thing. Why stop now?
Let's
think of all the physical gold in the world in the same terms as our
price discovery markets classify the gold they hold secure for private
parties. (You do know that the gold for sale does not belong to the
exchanges, don't you?) There is that gold which is "eligible" for
delivery. And in our experiment this would be all the physical gold in
the world. It is ALL "eligible" to be handed to someone else in exchange
for something else. (The only requirement for eligibility in our
thought experiment being that it is a physical object made of gold.) And
then there is the gold that is actually "registered" for delivery. In
our case this would be the gold that is up for sale or expected to go up
soon.
So "eligible" is the "stock" and "registered" (for
delivery) is the "flow," sort of. (Yes, I know that flow would mean the
gold coming out of the ground and then being used up in jewelry and
electronics if gold was like other commodities, but it's not, so get
over it.)
Now what I just wrote is not entirely correct. You
cannot simply compare stock to flow like that because they have
different measuring units. Flow is measured in units/time and stock is
just units. They do not and cannot compare. The only meaningful
relationship they have is a ratio. Stock:Flow, or units/(units/time),
which = time. This yields us a time value in which the flow will deplete
the stock. So "our flow" is the amount of "registered" gold that
actually gets delivered in exchange for something over a given time
unit.
In the world as a whole, gold has the largest stock to flow
ratio of any commodity, which is why it is unique. This means a very
high time value for the depletion of gold stocks. In fact, it is an
infinite time value since gold is not consumed, it is merely shuffled
around until it ends up with those who value it most. So in our case
we'll think of flow as delivery demands actually being met with
"registered" stock over a period of time. And in this view, "stock to
flow" is a dynamic system that is complicated by many factors.
One
complication is that, today, physical and paper gold exist as "stock"
at par with each other inside the system. And the flow of paper happens
prior to the flow of physical stock (on the price discovery exchanges).
In other words, price is discovered in paper and then delivery comes
later. Price is not discovered at the physical delivery window. In fact,
whether there is any physical at that window when you finally show up
with your paper depends on dynamic changes that happened earlier.
As
the paper flow precedes the physical flow, the supply and demand
dynamics can change very fast, perhaps even so fast as to give the
impression that they traveled faster than the speed of light like a tachyon,
went back in time, and originated in the past! (Making them impossible
to get out in front of!) As demand increases while registered gold is
depleted and/or deregistered one of two things must happen. Either the
price must skyrocket or the supply of paper must explode to take up the
slack.
And as either of these things happen – or they both happen
together – we end up with John Law's self-sustaining Misesian
regression spiral. Where today's demand is determined by yesterday's
performance. (We can call it "the tachyon effect" if you'd like.) This
applies to both physical gold and paper gold, and the feedback loop will
have separate effects on these separate elements of the market. It will
be the cause of the separation and the result will be a flood of paper
and no registered gold to service the delivery demand portion of it.
Ultimately
the stock to flow ratio of physical gold will go inverse to that of
paper gold. Infinite flow demand against zero registered stock. Zero
time until physical depletion, concurrent with infinite time until paper
depletion. At this point the price will have to go infinite and paper
supply will separate because parity will no longer exist.
And in
case you haven't noticed, we are now, apparently, at a novel stage in
the game. The stage when it is becoming obvious to almost everyone that
the Fed can do nothing but print more money (QE), and that it plans to
do just that. I draw your attention to gold trading at $1,301 today as
evidence! And regarding the Fed, what does a monkey with a hammer do?
That's right. It hurts itself.
Being at this stage in the game
right now, when clarity is spreading like wildfire, we can expect a
further run up in the price of paper gold. Of course the price discovery
market buys and sells paper gold so a move in either direction is
possible in the short run, but the general trend in gold should now be
obvious, even to monkeys. And don't forget that delivery of physical in
this market is secondary, and only comes after price discovery occurs in
paper.
So with this dynamic situation we find ourselves in, we
should expect conflicting signals and responses in the gold market. The
flow of gold should increase as demand from dollars pulls on the market.
And the supply of gold bullion should be withdrawn or "deregistered" as
the people holding it realize their investment belief has been
confirmed.
From a demand perspective, flow should increase per
the economic law of demand. And from a supply perspective, it should
decrease. But how is this possible? Well, this is where price factors
into the dynamics of the situation. In most commodities (and all other
markets for that matter) flow would be measured in the weight of the
good. "How many ounces are flowing?" But gold is a little different.
Because
gold is behaving in this case primarily as a savings instrument, flow
can be measured in the amount of savings being exchanged. Just like
exchanging dollars for euros. In other words, to properly judge the flow
we should look at the aggregate amount of wealth flowing "into" gold
rather than the weight of gold changing hands. And in this view, the
flow can increase with demand even as the stock is withdrawn. Price
takes up the slack. It can even accommodate the shoeshine boy without
threatening a top.
But there's another element in this dynamic
situation that must be considered. And that is paper gold. As I said,
price discovery occurs in paper only, and delivery comes after the fact.
So paper supply creation can easily absorb the pressure of increasing
demand while relieving price of its "taking up the slack" burden.
However,
unless the ratio of physical stock "registered" to become flow rises
along with the creation of new paper gold, well, "Houston, we've got a
problem." And I'm talking about registered physical stock measured in
weight, not value! Which is QUITE a problem!
Fortunately, to
quote John Law (not the real one), there is no need to follow this
challenging scenario further. Instead, we can just repeat ANOTHER's line
once again:
"Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises."
In
economic terms, ANOTHER was referring to gold's price inelasticity of
supply here. In other words, gold seems to violate the economic law of
supply. As the price rises, the supply dries up.
But another
funny thing also happens when gold "tends to dry up as the price rises."
Even more people join the "many people worldwide that think of it as
money." And this means that gold violates the economic law of demand as
well, delivering a positive price elasticity of demand. In other words,
gold is a Veblen good.
But unlike a Rolls or the Mona Lisa, gold is divisible and fungible
making it the Veblen good that puts the common man on equal footing with
the Giants!
This is what FOA meant:
In
this world we all need much; blessings from above,,,,, family,,,,
home,,, friends and good health. But after all that, one must have
currency and an enduring, tradable wealth asset that places our footing
in life on equal ground with the giants around us,,,,,, gold!
And this is how and why gold WILL accommodate even the shoeshine boy without collapsing!
There is no such thing as a physical gold bubble.
So,
to wrap this beleaguered post up, let's just say that we have the
distinct makings of a parity break between paper and physical gold in
the works. The supply of paper gold must rise while the supply of
physical is withdrawing (deregistering). The flow must also rise, at
least in nominal terms, so the price will skyrocket to take up the
slack. And as expanding paper competes with a rising price for the
"slack taking-up" role, who do you think will win?
Could they
each have their way? Could the price rise to take up the extra demand
while supply contracts at the same time as easy paper dilution wins
itself a lower price? Confused yet?
Well, this situation leaves
us with an uncomfortable question. If the only price of gold we know
today is the price of paper gold, what is going to happen to "the price
of gold?" Will it skyrocket? Or will it plummet?
And if we apply
the principles learned in John Law's amazingly long piece in a logical
way to this uncomfortable predicament, we'll find ourselves at the
conclusion that the true Nash Equilibrium is to take possession of
physical gold. And, if you already have some, not to sell it while the
price is rising OR falling (this time).
And with the supply of
paper gold rising to meet demand while physical is being withdrawn, the
only conclusion we can come to is that the gold buyers **IN SIZE** will
have to stop buying from the price discovery marketplace because, if
they do their due diligence, they'll clearly see that subsequent
physical delivery has become impossible at the present price.
So, in conclusion, the price of gold will plummet!
That's
right. At some point in the future, after the price of gold rockets
upward, it will fall like a box of rocks! And right about that time
you'll see more of Robert Prechter on CNBC than you ever thought was
possible.
But here's the challenge. When the price of gold falls
to $200 per ounce, try and get some physical. I'm sure that Kitco will
sell you some from their pooled account. And GLD will be standing ready
to sell you a share at $20. But just try to take delivery. I think
you'll find it will be impossible at that point.
And that's why
you've got to take delivery NOW, at the current "high" price of $1,300.
Don't wait for the dip. Oh, yeah, the big dip is definitely coming. A
**BIG** "correction." But will there be any physical available? Perhaps
at $1,200 if you're really lucky. At $200? No way.
When I look into MY crystal ball, here is how I see a future gold price chart developing (roughly, of course):
And with that, I'll leave you with my replies to the email at the top:
My reply to email 1:
Is this an orderly bull market in paper gold or physical gold?
The bubble that "WILL come"... will it be in paper gold or physical gold?
Is there a difference between paper gold and physical gold?
Is your chart showing paper gold or physical gold?
My reply to email 2:
You
may be right on stage 2. But my gut says that stage 3 is when it's
obvious everyone's flooding into gold and the real physical **IN SIZE**
decides its best move is to withdraw from delivery registration. At that
point the paper market won't be able to handle the flood.
My bet, when the shoeshine boy tells you to buy gold he'll be talking about small gold coins only.
GLD probably won't even exist anymore. And in this unique historical
case, the shoeshine boy will not be the bad omen of a bubble top mania
phase, but he will instead be the amazing bell-ringer of a new era. One
in which even shoeshine boys can save their surplus wealth in gold. One I
like to call Freegold. Because a physical-only gold market can actually
handle everyone PLUS the shoeshine boy, unlike any other market.
Sincerely,
FOFOA
[1] From Why the Global Financial System is About to Collapse
by John Law
Edited by me for length and content.
»
- 32395 reads
- Printer-friendly version
- Send to friend
- advertisements -
It was an argument using his own logic.
I apologize for my dickheadedness.
You are correct.
Gold, like humility, is a beautiful thing. Rocky, that's gold.
.
For a while now, my thought on silver has been that once people realize that they can't take delivery from the COMEX, they will dump the paper and chase physical silver. This would crash the paper price and dry up physical supplies. This comports with FOFOA's conclusion and I assume FOFOA would apply their theory to silver as well.
I'm not sure how FOFOA views silver but FOFOA's intellectual forebears (Another and Friend of Another) viewed silver with a little skepticism, largely because Central Banks don't own any. Their point of view was, silver may be fine, but gold is better, so just own gold instead.
"Another" was never identified, however it is speculated that he may have been a central banker at one point, and that he was involved in the creation of the Euro.
I came to my conclusion based on common sense and human behavior. I own physical but I also trade paper which I do to earn money to buy more physical. I initially felt that when the COMEX defaults, the price would skyrocket and I'd make a killing but thinking it through further, it came to me that when news of a default hit the wire, every paper long would run for the exits and the paper price would collapse, not scream higher. Reading this article confirms my belief.
every paper long would run for the exits and the paper price would collapse
In that scenario there would be no exit. No buyers at any price for worthless, fraudulent "paper" claims. The market seizes up very, very quickly and then ceases to exist.
Agreed
Paper ---> $0
TEOTWAWKI
Maybe...but it wasn't that long ago in human history that we would be returning to. The end as we know it only a few generations back knew quite well. What is old is new again.
I also agree. Plus, permanent backwardation of physical if the paper market collapses.
Too many paper claims on a small amount of underlying physical gold.
If suddenly the paper market for gold collapsed then the LBMA, CFTC, and other paper gold markets would implode and the many holders of claims to physical would be wiped out. It does not logically follow that physical holders would face a catastrophic fall in price of physical gold. In fact, I believe the opposite to be true...physical price would soar after the initial shock of paper gold collapse subsided.
My understanding is that FOFOA prefers gold as well.
IMO silver ought to do great as well, but more speculative. I have all three: Au, Ag, Pt. But, by far more money in gold than the rest.
FOFOA has stated previously that he owns some Silver (he quoted a response to me that I'd be surprised how much Silver he has), however Gold is in a class by itself.
FOFOA gives his opinion here: Silver vs Gold
My retirement plan: Have two oz. of gold for every month I plan to be retired (for the wife and I). Thats 24 oz for every year of retirement.
I'm glad I started this plan in 2005. If FOFOA is right, maybe an oz. per month will do the trick.
While it is kind of obvious that you think today's purchasing power of those oz. ($2600) should cover your monthlies, I'd like to hear more, if anything about your thinking regarding your strategy. It is simple and charming and because I own my home, and it all does not go to hell, it may be what I will aim for, as well.
In Mesopotamia 3000 years ago an ounce of gold could buy 350 loaves of bread, about the same as today. If you price foodstuffs in 1941 vs gold, you get the same ratios as today.
If there is a currency crisis or hyperinflation, a few oz of gold might buy a nice second home. I think the gold/foodstuffs ratio would stay pretty constant no matter what.
If I had 40 acres of arable land paid off, the 2 oz/month figure could certainly be reduced, provided I was healty enough to work the land myself.
Could a family live on $40/month (2 oz Au) in 1900?
So you're saying that gold buys less and less labor over time?
Or weren't you aware that it takes far less labor today to make bread than it did?
If money held its value, then nominal prices for most goods would fall--because companies are constantly finding more efficient ways to produce more with less labor and less capital.
In 1910 how many bushels of wheat were produced on an acre? And how many acres could one man farm? What about today? More bushels per acre, and fewer men per acre...
The productivity increases that made a bushel of wheat less labor intensive also helped to make gold mining equally less labor intensive. Finding gold is a different story. Funny that 200 oz of gold could buy a nice house 100 years ago, and is the same today (except CA).
Remember, before tractors, you had to have one acre of hay field for every 10 acres you expected your animals to plow.
"If I had 40 acres of arable land paid off, the 2 oz/month figure could certainly be reduced, provided I was healty enough to work the land myself."
The problem with arable land is the same as faced by the Romans during the decline. The tax men will eat you alive. The Romans deserted their land because of high taxation...the state made desertion of land illegal...the farmers deserted anyway because it was impossible to pay the taxes. This is the culmination of socialism...the state takes and redistributes real wealth until the expense of running the state bankrupts the republic.
The bloated socialist system has to collapse before owning arable land will be a good strategy. The system is not going to voluntarily reform itself. Lord Acton knew this long ago, as the Roman farmers learned from real life experience.
What if you only needed 40 square feet instead of 40 acres?
Read "Square Foot Gardening" by Mel Bartholomew
ISBN: 978-1591862024
+ 100 creativity points!
(past)time to rethink gardens, lawn ---->food.
those with grassy expanses might consider beginning the composting now:
http://www.suite101.com/article.cfm/gardening_southern_ontario/19271
one needn't have acreage to begin - and keep some chickens in the back, their manure is *cough* the shit!
This is assuming you're allowed to retain 2 ounces of Gold for each year of your remaining retirement after the "(Inter)National Gold Confiscation Act of 201*" is passed.
Of course it won't be named that. Rather it will be endowed with a charming name, nay inspiring (as in inspired to turn in your bastard hoarder of a neighbor to the "Gold" authorities) name such as "The (Inter)National Gold Patriot Act of 201*"
When they come to take your gold, they won't stop there. Your guns, any "hoarded" food, and your children (to serve as cannon fodder in some desert s*ithole) will be taken also.
If it comes to the point that they label gold owners as terrorists, the country is through anyway.
"Then they came for the Zerohedge blog visitors, but I said nothing because I didn't read Zerohedge".
+ 1 Duo!
duo,
Long have I pondered this thought, and what it would bring.
"If it comes to the point that they label gold owners as terrorists, the country is through anyway."
The day that happens, you had best have a place to go quick.
In a country with in excess of(Made Up Marxist lies) 80 million Terrorists, and 300 million plus KNOWN weapons,if just 10% say screw you,whoever THEY are, just got a sign pasted on their backs.
Who can stand aganst them?.(the 8 million terrorist/patriots?)I do not see American soldiers doing so,they have taken an OATH, and the Republic and the Const comes first.
Not orders from an illegal Gv't.
This would be the worst possible scenario I can imagine.
Talk about Game Over....................shiut.
This book pretty much plays out that scenario for you. They don't necessarily need US soldiers to raise arms against their own citizens. That's where NATO troops will come in handy. Unfortunately, I doubt this type of struggle would end like the book.
http://www.amazon.com/Patriots-Surviving-James-Wesley-Rawles/dp/156384155X
FOFOA had an interesting article on why that won't be needed.
As for anything else of value they want, there's an interesting ad out in the blogosphere that sums it up:
"Go to line #4 to turn in your ____ to receive your food voucher"
Marc Faber "buy gold every month" become your own central bank. The interview gets going about three minutes in:
http://www.youtube.com/watch?v=vworwgpNt1M
------- “”And WHY gold is different.””------- That is the RED FLAG
Gold may have a long history as being of value. Say a couple or 3 thousand years. It also has had a history of going up and going down. Gold WILL go down, from what point I do not know, but the price will fall. Going backwards from the FDR thugry gold theft, gold was known to have intrinsic monetary value in the USA. Most of the population today has no idea of the going price of gold or the forms it is traded in. To have a liquid market you need broad based ability to convert gold to dollars or goods/services. We have that now with some money in the hands of the public. If cash goes dry as in the Great Depression, converting $3000 gold will not be easy. Cigarettes and vodka will be easily traded, and I suspect the US dollar will still be widely accepted.
Gold at $300 and $400 made sense to me. It has been a decade of waiting to see if I was correct. I may buy more silver on a harsh and scary pull back, but I think gold is now a risky adventure for the family nest egg (what is left of it).
...you did read the whole thing, right? Your logic says that gold "seems" high so it must be. That will get ya creamed in the long run. Buy and hold is a strategy, but no so much in the stock market.
Great post. Just a couple of comments from a newb, so don't flame me too bad if I don't make sense.
The reason for this "funny" oddity seems quite clear to me. To me it seems that as price increases (signaling problems with currencies) that the bid price to draw gold away from existing holders increasingly become higher, as they too, will realize the problems with the currencies people are fleeing. As the currencies become less and less stable, holders of gold will become less and less likely to sell, thus drying up the supply. Somebody, please tell me if I have it figured wrong...
I don't think true libertarians would find this method of controlling the money distasteful on a theoretical level. Rather, I think their objection would be to using this method in practice. Why? Because the Austrian school is all about human behavior. History has shown us that NO paper currency artifically created and controlled by a government can be trusted, or will last. In theory this method of controlling money supply would be effective and most beneficial. The problem is that man does not have the capacity to restrain himself from debasing the currency and ripping off everyone who holds that currency.
Either I don't understand this (most likely) or this statement is incorrect. If the gold price is a reflection of the debasement of currencies (as well as demand, etc), then how could it have a collapse in terms of dollars? If gold were to go to say $10,000 an ounce, I would think (hopefully not irroneously) that the dollar would be dead by then. So to say it would crash to "$200" an ounce seems silly to me. I could see the price of gold collapsing in terms of a new currency, but to crash in terms of the dollar? It would seem to me that once gold hits a certain level, it will confirm what we all know (the dollar is valueless and basically dead). If this is true, then how can it collapse in dollar terms when we will be using them to stoke our camp fires? I also do not understand why taking physical possession if gold collapsed to $200 an ounce would be so difficult.
Anyway, great article, enjoyed reading it and think it was pretty much dead on. I've been a long time reader of this forum, but this is my first post - hopefully I don't get flamed to hard!
1) yes, exactly. Read FOFOA's recent post on "credibility inflation".
2) yes
3) If the market can't set a clearing price for something at a very high level, then logically the market might try to set a clearing price for it at a very low level. Another possibility is that some authority can step in and assign an arbitrary price to it. Trading will cease in any event, that is the important point. And of course, if the trade in gold breaks down, then the trade in everything will break down almost immediately
Since modern economies are highly complex and simply cannot function without trading, this would be a very short period of time before the central banks threw in the towel and revalued gold permanently (at a level which FOFOA seems to think is around $50,000/oz.)
Pointing out that the scenario does not play out in an economic vacuum is a very good point. The dials and levers on gold will be adjusted, but it will drastically affect every tangible good on the planet. And how!
Words destined for the landfill of History:
1. Planned Obsolescence.
2. Disposable.
3. One-time usage.
You get the picture.
I agree with Buckaroo on 1. and 2., but my take on 3. is perhaps more simple. When he describes the decoupling of the price of physical gold from the paper price (gold going back to 200$) it isn't really the actual price of physical gold that goes to 200, it is the price of paper gold- what I think of as "fiat gold". Just as currency collapse or hyperinflation is basically loss of confidence in that currency, so will the massive drop in "fiat gold" be the loss of confidence in GLD and other paper obligations. The price of actual physical gold, however, will remain strong.
I think you may have missed one of the key points of FOFOA's essay, which was that there will come a time when gold cannot be bought at ANY price. Or rather, to be more specific: no one who HAS physical gold will be willing to sell it for ANY amount of dollars.
At that point, does it matter what the "price" is if no one is willing to actually sell physical gold?
Note that the physical gold market will seize up AFTER the paper gold market seizes up. Or to restate, first the market won't be able to discover a price for paper gold; then, the market won't be able to discover a price for physical gold.
I am in agreement with you (and appreciate your posts, by the way) on 98% of this, but I guess I think that everything has a price, at any time- so while in generic terms we might speak of a time when "physical cannot be had" the reality would be that yes, it could- if the value to be traded for it were high enough.
Either way, the trigger I am looking for will be signs that paper is decoupling from physical. APMEX with physical at 30% over spot and rising would be a pretty clear signal where we are heading.
"I am in agreement with you (and appreciate your posts, by the way) on 98% of this, but I guess I think that everything has a price, at any time- so while in generic terms we might speak of a time when "physical cannot be had" the reality would be that yes, it could- if the value to be traded for it were high enough."
If the value to be traded for it were high enough...that is the key. Value at that point will not be measured in dollars but other tangible assets. There will be a market clearing price but not in dollars...maybe other commodities or tangible assets.
"At that point, does it matter what the "price" is if no one is willing to actually sell physical gold?"
never say "no-one"
Anyone actually selling Gold at some point in time will just be painting a large target on their backs also! Better to sell it all at once to the local Bank and take in return a huge line of credit for it!
6,000 local banks went belly up in the great depression and you are reccommending that citizens give a bank gold for credit? I don't think so!
The "funny" part about gold is two separate things:
1) gold is the commodity whose marginal utility declines the least
People don't get satiated with gold, the next ounce is worth just as much to someone than the previous. There is no other good with this property.
2) gold is the most marketable
For all other goods, in times of stress or crisis the bid is withdrawn. For gold, it will be the offer to sell gold in terms of paper. Or to put it another way, gold's bid on paper will be withdrawn.
The PAPER gold price is $200, not physical. BIG difference.
Welcome to the fray!
Right, and paper gold will be worth so little because paper gold will have no claim on physical gold. At which point, the paper gold will probably be worth less than $200; without a claim on the physical gold, it's worthless, no?
It'll be worth whatever the entity on the other side of the position can/will pay but if the paper price crashes, those who are short will get to settle with the longs for a lot less than the price before it crashes. Maybe that's why the commercials are so comfortable with such a huge short position. They know that the paper price will crash and they'll be buying when everyone else is dumping.
I will be curious to see if FOFOA's guest post generates as many replies as Gustavo Lira's 1000 + a little while ago.
It all depends on if it goes viral, meaning picked up and re-posted at various other sites, including consolidator sites. You just never know if it will or not.
Israel. There. That ought to do it. I'm gone....
LOL
Hulk does a hit and run. Coward! :>)
Ping em and retreat CD!
I had to junk you. I had this compulsion, I, I, couldn't stop myself. I wonder what came over me? It's like I want to kill, kill, kill, something I tell you...
I have had that effect on women my entire adult life! Kill away! My bad...
Israel, gold.
Israel, gold.
Back at you Hulk, good seeing you around!
Israel, gold.
Gold Babiez!
You guyz are mean! Laughing my ass off...
Good seeing you crawling around in here Rocky! I have known that you were a FOFOA fan for some time. Nice to see him get proper recognition.
I still hope to see this Guest Post beat Gonzalo's 1000 +. That happens, then FOFOA gets even more recognition.
Oh,
Israel, gold.
Gold babiez!
If the article had appeared on a Monday or Tuesday it would have lasted all week. But like the FDIC, it appears on a weekend so it'll only last until it's covered up by all the newer ZH articles.... Sigh.
This essay is not really comparable with Lira's.
Over the heads of anyone too captured by the trader mindset for a start.
I have yet to see a coherent case against it, which means a lot of potential comments are eliminated.
May set a pageview record, though.
200 bucks away from Death after midnight DCRB. But at $50k, I'm locking the front door!
At $50K, I am long gone from my current front door! BOBs in the BOV to the BOL.
Same here. This Hulk is moving to safer environs long before $50k Au...
Pulls a Roseann and starts singing the National Anthem in a screechy voice incurring the wrath of New York and then America for disrepecting the infallable instituion of massive gang violence.
Calls so and so's religious based symbol of divine authoritah!! a child molester.
Calls the pope a MONSTER.
Says Mac Fag.
Says UK sucks at soccer.
That should cover it.
http://www.youtube.com/watch?v=cyfbRz4ObFY
I am Chumbawontbebak ... (how did that go again?)
Bartanist Make your connection when you get interested again.
Lol, Bubble in gold? funny as hell. The market is in a hell of a bubble, did you notice? Apple ready to fall. lol
If gold would pop like that I would be very rich. But what would the value of the money be by then?
I don't think you'll be able to buy a house for 10 oz of gold even if it would be at 50.000 because the currencies would also drop like a bucket.
So this article is kind of a one side story.
Also, TO WHO WILL I BE ABLE TO SELL MY GOLD TO? Who will pay 50.000 for a 1 0Z COIN?
I now payed 1450$ each for my coins on average and that is already pretty steep. I can hold my 32000 of gold in my hands. If that would be worth 1.500.000$ (HALELUYAH!) it would still fit in my hands. I don't know...
that's pretty hard to believe. If it doubles I think I'll sell it all for sure. I'll never be able to hold it to 50.000$.
Maybe they start trading the 1 gram coins, of which I also have a few but they look like confetti so...
Sudden Debt! Fabulous name by the way.
You can use your gold to buy bearing companies there in Belgium! If you have enough gold, you could go buy SKF itself...
If you do not get THAT rich, you can always give it away quietly to your children...
DoC,
First off,if it goes to those numbers we know the $ is worthless.
So, as a unit of trade, I see a FEW other countries not being slaughtered like we will be.(fiscally)
So,how much will it really be worth?.For that answer, we have to be at PEAK GOLD, (or in play),not in the ground.
Next we know the PTB will never allow it to get that high, nor will they willingly allow us to keep it.
I find it ironic that you can make millions/billions in the market, and no one will do anything except tax you.
And then your wealthy beyond reality compared to 99.5% of the planet.
If WE the people, were smart enough to see the train wreck coming ,profit massively because of it,why should we be penalized for being prudent?.(Making the correct call,and taking the risks?)
We thoughts are WE shouldn't, but we will be.
"Also, TO WHO WILL I BE ABLE TO SELL MY GOLD TO? Who will pay 50.000 for a 1 0Z COIN?"
well, of course in Zimbabwe last year you could have sold a 1 oz'er for several hundred Trillion easy....
Make sure you're on a first-name basis with the manager of your local Bank...
DosZap, yeah, .gov will come by with their greedy hands to tear away whatever they can. In fact, gold capital gains are treated as a collectible, so taxed at 28%...
Might not hurt to have some gold, you know, in another country!
i don't understand this bigger picture of possible gov taking our gold or knowing we have it. i mean H O W do they know about gold purchases. well, i am glad i have gold jewelry because they can't tax or take. the gold jewelry will go up in value and i can sell at a profit how in the fudge, does anyone know besides me and the buyer?
If more than $600 per annum, Da Boyz want to know what you bought and from whom ...
http://www.dailypaul.com/node/133053
Did you consider that maybe your failure to believe is simply a failure of imagination on your part?
Think about this... how much wealth is there in the world? What is anything really worth?
You think you know, but that knowledge is based on The Dollar System. Economically speaking, you have been looking at the world through a funhouse mirror your entire life (well, assuming you weren't born significantly before 1913, that is). How can you even know what economic reality looks like?
What if there were a LOT more wealth in the world than you could imagine? What if The Dollar System was created in 1913 in order to artificially impoverish 99% of the world? What if The Dollar System collapsed? Could you entertain the notion that wealth might be released and that everyone's standard of living could rise dramatically in, say, 10 years time?
Think of the Japanese after the devastation of WW2. If you had told the typical Japanese person in 1946 that by 1960 they would be thriving, would they have believed you?
Some folks just have no way of correlating present "value" of money with a totally disrupted economic disaster. Still thinking inside the old box, not even able to comprehend a new box, let alone think inside it.
Bravo!
I wish more people could understand this.
A black-market tale: Once upon a time, in Poland, everything was in short supply.
I needed some vacuum tubes for my radio. With plenty of zlotys, I visited the local "electronics" suppler. He sadly explained "no more vacuum tubes".
Very clever me. I returned with 2 pocketfulls of zlotys to destroy his resistance. He stretched his arms out, palms-up, shoulders painfully hunched. "I'm very sorry. Have no more tubes".
I smiled "Wait for me". Went home to my cellar, dug with a small shovel, put 2 bottles of vodka in my cyclebasket covered with a shawl and returned forthwith.
"Oh! Let me look again!". 1 minute later I had the tubes.
No amount of zlotys would work. Those tubes were precious.
Think of it this way: "Who would sell me their house for 10 gold coins?"..... "Who would sell me 10 acres of farm land for 10 gold coins"... etc. Not too far fetched if you think back before the days of fractional reserve central banking.
When the original $20 US gold coins were in circulation, they were probably not exchanged for paper, but to settle large transactions for big ticket items.
Ever see a $100,000 U. S. bank note? We had them, but
http://en.wikipedia.org/wiki/Large_denominations_of_United_States_currency
You're thinking in terms of Gold becoming more "expensive". You should be thinking in terms of dollars becoming worth less and less in terms of Gold over time. Gold's "value" is steady. It's the "value" of Gold measured in Dollars or any other paper currency that moves around. It's exchange ratio changes based upon the value of the dollar in relation to a fix quantity of Gold.
An oz of Gold 200 years ago would buy a good (not excellent or top of the line but good quality and very serviceable) suit with shoes etc that could be worn daily and hold up for a few years. Today the same thing applies. And please don't tell me a JC Penny or Men's Warehouse (buy 1, get 1 free) suit is "good".
Again, you're looking at this the wrong way. The "value" of the 10 oz of Gold is static. It's conversion ratio changes. If there is a glut of houses and 25% of the housing in your country is on the market and empty for, say two years, you might just be able to purchase a home for 10 oz of Gold. The "value" of a house at that time has gone down because of excess supply. It's exchange ratio to Gold has slipped in Gold's favor.
The "value" of the Gold is not changing. It's exchange ratio to other "things" is changing. So if housing remains the same, no, 10 oz of Gold would not buy you a house, just like it doesn't buy you a house today.
To someone who fears it would require $60,000 to purchase the same coin tomorrow because the "value" of his or her dollars is dropping like a rock. Gold isn't becoming more expensive, the number of dollars, the gold/dollar exchange ratio is changing ....rapidly. At that point, someone would see Gold as a static store of value. Gold appears to be going up in price only because the "value" or exchange rate to Gold is going down. People wishing to salvage their savings denominated in dollars would simply be looking for stability. IMHO Gold "true" value is it's stability in times of currency turmoil.
$32,000 in cash will fit in your hand. $32,000 of physical stock certificates will fit in your hand. $32,000 in your brokerage account, signified by the statement, will fit in your hand. What's your point?
You have just self identified yourself as the weak Gold hand. I understand though because it's hard to quantify what makes a strong hand. I suppose one is strong when one knows Gold's intrinsic "value", thus s/he knows it's future exchange ratio to other common stores of wealth will only move to Gold's favor.
The penny looks like confetti now, but in 1913, a penny had a greater exchange ratio than it has today. This is because the "exchange ratio" of the penny has diminished over time. On average, the exchange ratio of a gram of Gold has not gone down, but has remained relatively static compared to paper currencies, with some variation of course. But one can measure the exchange ratio of Gold over thousands of years. One can't do the same with fiat paper currencies.
We all are burdened by a belief that size somehow connotes "value". I suspect some male came up with that notion and has hoodwinked the world ever since. Women allow us to maintain our delusion in order to keep peace in the house. :>)
Ah, for the days of the penny box of matches....
Cognitive: are you saying that gold's purchasing power of labor declines over time?
Or were you unaware that it takes a lot less labor today to make a fine suit than it did in those days?
Just askin'...
Neither. Just trying to come up with an easy to understand example. I was trying to show relative value over time in a way that would be easily grasped. Nothing easily translates because life was very different 200 years ago compared to now. Probably could have come up with a better example if I spent more time on it. But it was already long for a response.
This is the problem with responding on ZH or anywhere else for that matter. Details. This is also why I write my articles long, to cover the details. Then I'm hammered for writing long. Can't win so I don't even try. But I get and agree with your point. I was using an overly simplistic example to illustrate an overly simplistic concept.
Hah! Sophist!
Through the efforts of GATA, FOA, FOFOA, etc, it is taken that the paper gold market is being fractionalized at 100:1
There is already a world gold market with X investment dollars chasing Y amount of paper gold. If, or when, the realization occurs, those X investment dollars will suddendly find themselves scrambling to cover their positions with 1/100 Y physical gold. Or in other words, physical will have to respond by going times 100 present value. When the music stops, which investors and funds are going to be left standing without a chair, and what price will they pay to cover? Thats one of the concepts behind gold at $50K +/-.
Of course it won't play quite like that, but thats the general basis-not even taking currency collapse into the picture.
Gold is going nowhere. It's the thermometer that shows how worthless the dollar is. That's why a good wool suit and 350 loaves of bread are still worth an ounce of gold. The commodity relationships hold up over time and the fiat has never held up (possibly CHF?). Look for some wholesale 14K and 18K wedding bands, very plain and sold by the gram/grain. Scratch test for purity is essential.
50K gold = end of dollar. You will no longer think of giving up gold for dollars, any more than you give it up for dinars or monopoly money. You will give it for goods and services, and accept it in return for goods and services.
Gold for bread - Zimbabwe
http://www.youtube.com/watch?v=7ubJp6rmUYM
fofoa is pornography at its finest
congrats fofoa, u deserve the recognition...
I love your essay, thx.
Of course gold is partly a bubble, just for the part it is paper.
There are many old goldholders who do scream: buy gold, they have gold, they want it up (they are de facto speculators), as a saver it is not interesting what the price is for gold, except what it is now, overvalued, but it will come down.
It is necessary to have gold(yes, Prechter is right in this). On the longer term, this financial system(as a bubble) will collapse, manipulaters as JPM will run etc.
However, the mayority of the people(all India, all China, all Middle East see gold as a backing or saving, that has nothing to do with the daily trouble of some people in USA, just 300 million) it is long term!
In the short term, all USA people should buy some cans of food /water and have some gasoline in stock, a bigger problem occurs as a storm as Katrina or a little earthquake will be there. Or a real flashcrash, never seen a system what does not break down by an unforeseen reason. Planes come down, cars crashes any electronic or mechanical device has some moments. You can bet on it, you only do not know exactly when. But it happens!
Many people do not realize that a metropool has only food for some days. Logistic a disaster.
Imagine yourself looking around, what happens, the ones which gets out the fastest, have a chance to survive, and you can not come in the midwest paying with gold, but having some food and water is much better then.
I do not predict a disaster, they are imminent to life, they happen. A disaster is how people live in metropoles. They multiply every single little happening.
As a saver(wonder why you made a saver feminine) I will buy physical gold, there are many places around the world you can buy it over the counter.
Before this, I wait again untill it goes down(paper price)still you can buy it over the counter. It is probably not that easy in USA, but even i think you can buy coins for any price over the counter. Prechter estimate around 700 dollar, i think that will be right rougly. But paying now 1300 is not a poblem, because you need it to survive long term, it will still exist, as many have forgotten the USA empire).
Again i love your reasoning, hope it cleared up your mind how to handle.
Narrator: One of the city's most humble and lovable characters was... Shoeshine Boy.
Shoeshine Boy: [finishes shining a man's shoes] All finished, sir.
Man: [gives Shoeshine Boy a silver coin] Thanks, Shoeshine Boy, you're humble and lovable.
Shoeshine Boy: Bless you, sir. [bites coin]
Narrator: Little did anyone know that whenever there was a call for help...
Woman: Help! Help-Help!
[Shoeshine Boy's ears perk up in surprise]
Narrator: Shoeshine Boy became, in real life...
[Shoeshine Boy runs into a telephone booth, which explodes, and he emerges as... ]
Narrator: Underdog!
http://www.youtube.com/watch?v=qHej4ZqZDwo&feature=related
FOFOA, is losing it as usual, with some rather absurd price predictions. Physical Gold and Paper Gold are becoming more and more interchangeable with the introduction of ETFS like PHYS.
I hope he is referring to a hyperinflated price otherwise it makes very little sense.
Gold market will be worth 250 Trillion USD. In todays dollars? good luck with that.
I find your inability to distinguish between fact and promises disturbing.
And of course the ability of people to exchange an ounce of Gold at 55,000 USD in today's dollars is not a promise, or fiction, it is a fact.
You were predicting that gold could not go above -- what? -- when?
10 years ago today's price would have gotten you laughed off any venue.
And your lack of comprehension of the article will be your economic undoing.
Rocky, you are speaking to someone who has made 15X after tax return on Gold, Silver and related stocks in the last 6 years using leverage. So I am not exactly in Jon Nadler's league. I understand reasons for being bullish, but some of this stuff is garbage.
Gold is a wealth/value insurance policy that will pay off when Fiat currenc(ies) collapse.
Specifically? What "stuff"? One cannot escape at ZH with generalities.
I see you've addressed some of that -- GREAT!
I'm not paying $5000 for an oz of gold today. I pay $1300+premium (if I were buying gold right now). When I buy, it is real. When you "buy", you get a promise. You can't tell the difference, apparently. The inability to distinguish fantasy from reality is the mark of a child. Children are slaughtered when they play adult games.
Might I suggest you try hopscotch?
everything has a price and a value. I have no problem with people saying it is going to go up, it is stupid irrational price targets .
He once said Gold never was in a bubble and can never be in one.This was my response.
The last bull run ended with Gold at $850/oz. That was the ultimate bubble in the price of Gold in USD terms. At that price Jewelry demand was almost annihilated. The price of Gold was atrocious in relation to its inherent demand, price of production and in relation to everything else. Most commodities had become too cheap compared to Gold. So had the Dow!
FOFOA says that Gold can never be in a bubble, however I fail to see what would you call the $850/oz price back then. It had discounted enormous amounts of future inflation and it seemed completely useless compared to 21% interest rates.
If you had put $850 in one ounce of Gold, after storage and transaction costs you would have less than $200 after 20 years. Forget the Dow, if you had bought risk free 20 year Treasuries (back then they certainly were) yielding 20% you would have made over $32,000. 160 fold difference!
That is what an end of the bubble performance looks like. When a risk free asset outperforms a legendary "store of value" by 15000% you know you have been taken to the cleaners!
Hey! Wait a second!
Where did the stuff about the 82nd Airborne mobilization go???
Back on the first page of comments...
What do you call $850 gold in 1980? An aborted currency collapse! They were able to abort it only by raising the interest rate to 21%! If they hadn't, the dollar would have collapsed way back then. We can't raise the interest rate this time.
Honestly, did you read the article? I don't think you did. You're jibber-jabbering about things that you don't know about because you couldn't take a little time read the whole article, leaving you woefully misinformed.
You love treasuries so much? Feel free to buy. I can tell you this much, you will NEVER see 10% again so long as we have the current incarnation of the dollar. I seriously doubt you'll see 5%. In fact, I would go so far as to say you will never see rates go up until after the collapse of the dollar and/or the government.
We're talking about the end of America and you're telling me about jewelry?
Lol. I never said I loved Treasuries. I was explaining that Gold was in a bubble in the early 1980s.
That was proved by the fact that a risk free asset gave you 160 fold return over Gold.
We will never see high interest rates before the currency collapses?
You so sure of that? The Fed can only control the Short End.
The difference between 1980 and today is, in 1980, Treasuries could legitimately be considered "risk free". Today... not so much. I mean, you WILL get your principal returned, but there is a significantly larger risk of currency collapse in the interim, this time around.
You have just claimed to have observed a 160 fold increase in risk free assets. Why can't you see a 160 fold increase in gold if the situation demands it?
Read what I wrote again.
Treasuries appreciated 40 fold whereas Gold went down by 75%. The difference in investment outcomes was 160 fold.
Dont blame ya...that is the general level of analysis I expect from people.
And more importantly, TREASURIES never gave you a 40 Fold REAL return. Many competing financial assets trounced Gold, so Treasury's real return among financial assets was probably minuscle at best. They outperformed cash and inflation but again by a few fold and they barely did better than the dividiend reinvested DoW (when you are constantly exposed to 20 year maturity by rolls each year).
Just as in 1970's where Gold went up 26 Fold in nominal terms but went up only 30% relative to oil (both measured at their peaks) and went down against Silver. Its performance against most other commodities was better but only when considering the peak price , which well lasted a day. Till 1979 Gold did at best a 4 fold real return against "some" commodities.
Hence a $55,000 "real" price can only be said by someone who believes "It is different this time"
The 80's crash was to cause a huge panic and get everybody back in school so we could have cheep labor for the information technology revolution. It was supposed to be a HUGE crash. Not just a little dip. Which is why gold went so high because everyone got out and went into gold just before the crash and then exited back out.
They did the same thing this time as you'll see gold rising up just before the crash. What they don't know is that it's not going to happen the same way with gold going back into the gutter and everybody who got into gold late getting hosed. This gold market is going to get monkey hammered till it's DEAD. Monkey hammered if it tries to get back up till it's DEAD. Monkey hammered till it's known how it works and it becomes one giant DEAD end full of DEAD gold traders.
This is supposed to be nothing more than another crash the market retrain america for lousy green jobs that will be worse than working at wal mart 5 years into it and stuff their pockets. What it's not supposed to be is a currency collapse. Which is exactly what everyone is going to give them. This bitch is going to the grave.
You want to negotiate. Let's negotiate.
http://www.youtube.com/watch?v=3oKwg6W05MU
Physical Gold and Paper Gold are becoming more and more interchangeable with the introduction of ETFS like PHYS.
Uh Huh, try and redeem your purchase of paper ETF Funds (ounces), in Physical, you will see how incorrect you are.PHYS is not like GLD,GDX etc,they will allow you redemption at/in 400oz bars.
Pocket change.............
That is as usual a stupid comment from the super Gold Bugs.
a) because you do not have fungibility today does not mean you will never have it.
You already have it in the form of 400oz bars.
b) You retards ought to consider that the majority of the people that have wealth and own Gold CAN take 400oZ deliverability. In a year it may be a kilo bar, who knows?
lol, you think the MAJORITY of people who own gold own more than a half a million dollars worth (at today's prices)? What are you smoking?
You think fungibility improves as physical supply tightens? Get the fuck off of the internet.
"you think the MAJORITY of people who own gold own more than a half a million dollars worth"
No you retard...the majority of the Investment Gold is held by people who own more than half a million dollars worth. Read that about 30 times and when you can tell the difference we will talk.
Why do I suddenly smell the unique troll stench of JohnnyBravo?
If this is not him, then it is one of his many clones.
fireangelmaverick, you are doing great, dont let the junks bother you. You are pointing out some valid points on gold and the nasty responses you are getting are entertainment at its finest. I will add that when gold imploded in the early eighties, the fed cranked up interest rates to fight inflation, and that is not the case at present, now we have free money zirp, pomo, and the powers in charge going hog wild trying to fight deflation. Makes it a whole different scenario. For now. Yours, Maverick
Thanks SamuelMaverick.
As I have said, I agree there are reasons to be bullish, just that these people are going completely crazy here.
I have written a couple of posts about my viewpoint before, perhaps it may clarify my points.
http://ispeakofpeak.blogspot.com/2009/03/does-idea-that-gold-holds-value...
http://ispeakofpeak.blogspot.com/2010/09/reasons-not-to-invest-in-gold.html
http://ispeakofpeak.blogspot.com/2009/12/gold-ultimate-bubble.html
A brilliant article.
But (there is always a but), the point where there is no physical gold to be had and paper gold goes in the crapper asssumes the world and the comex stand still. In other words it assumes the Comex will be caught like a deer in the head lights. Not so, they will either default or change the rules of the game.
The Comex is under siege right now and they are using their old tricks of adding more paper. At some point either paper wins and the shorts laugh again at the gold and silver bugs or they don't and default. The only way around this is to change the rules of the game. I don't know what the new rule will be. Possibly insist that everyone has to store the Gold with them and not take delivery. Who knows.
So failing to be able to physically purchase gold becasue supplies aren't available people will to turn to the next best thing which is mining stocks.
An article of this nature cannot possibly take into consideration every possible scenario, but you are quite right that the rules can change. The only thing COMEX cannot do is create more gold. That is the key element, and everyone playing the game knows that.
FOFOA answers many of these types of questions on his blog. He has always said COMEX will force cash settlement as physical gold becomes undeliverable. That is all they can do; they cannot print physical gold.
Mining stocks no longer leveraged to gold when all mines are nationalized.
And they will be.
Gleaning what I can from the gold-related posts on zerohedge I've come to the following conclusions:
1) Don't get hung up pricing gold in fiat currency, it may matter to you when acquiring it, but not when you actually use the physical for future barter/trade. (If the worst case comes about.)
2) Gold doesn't care about paper, gold will be a reserve that will enable you to eat, have a roof over your head, and other uses that paper once had. It has always had this ability, even before pesky paper currency came along.
3) Accumulate your reserves now, because as the parent article notes, it will not be available later.
Did I get that right?
(1) Yes. But you won't be using gold for barter/trade. Rather it will store the wealth for you until we get to the other side of the crisis, at which point a new currency system will be put in place.
(2) Yes.
(3) Yes.
Ah, I see on point one the means as an equity 'bridge'. Didn't consider that, thought the world may be too chaotic for another system to emerge. But it does make sense. Appreciate the comment.
Great avatar, by the way. Classic flick.
New systems always emerge. People find a way to adapt.
Pretty good summary from your gleaning!
And I thought that I think about gold too much. You've got me beat hands down.
Long, but got through the whole thing.
Im one of the rare gold bears here, but im not biased in a way to not comprehend how the author makes some fair points.
Only thing i could say is i believe gold will be in this bubble way before $5000.... if it reaches $2000 before everyone and their shoe-shine boy become a gold investor, then ill definitely be surprised.
You are differentiating between paper and physical, aren't you?
Sounds like you are referring only to paper gold.
The selloff in metals and ags makes sense in the context of the Commitment of Trader reports. I have expected a melt up until Election day. Good spot to have a selloff and clear out the shorts, establish longs. That way Turbo and have the Tea Party take the blame, of course the MSM will be all over that.
Ed Steer has the bubble chart today http://www.caseyresearch.com/gsd/ showing where gold and silver currently stand.
Thanks for all the articles FOFOA, I look at your site daily.
Ed's column is a must read for me every day. Here is one you might check out as well:
http://news.goldseek.com/RickAckerman/1285308000.php
good stuff. I just started subscribing to Jim Willie. Others I check daily are Jim Sinclair, Harvey Organ, http://geraldcelentechannel.blogspot.com/, Jesse.
Puplava pushing gold hard this weekend on FSO.
And the price of GLD doesn't look a whole lot different than AAPL, NFLX, BIDU, etc.
So I'm going to be extra careful from here on out with the few mining stocks I have left.
We all know what happened to the price of oil at $147. l think Puplava gets overly excited about certain investment themes.
If the market continues to go up from here, I'm expecting some rotation out of the high flier names, GLD, and other "hot" names and the money will find a home in areas which have more constructive chart patterns, bases, etc.
Right now, the sector NOBODY is talking about is drugs, health care, etc.
I like these:
Sorry Robottrader, you can't compare AAPL or NFLX to gold. NFLX has gone parabolic; gold simply has not.
Did you READ the article?
Go away, you are not funny any more. You are on the verge of being a troll.
GLD does not equal physical gold. All we need is one fraudster to break (COMEX, GLD, JPM with(out) silver, etc.), and all Hell will be unleashed.
fwiw robo, there are a few of us out there who are willing to understand & appreciate the deep satire in your posts and choose to believe that you may have a more complete understanding of how to play the game as it's being played than anyone else here. with that said, i hope you understand that your view of gold is actually not mutually exclusive with FOFOA's hypothetical scenario. in fact, some would say they are yin & yang of the same scenario playing out.
While the article is pretty good, the author fails to mention the central banker and the IMF involvement. Aren't we at a point that even if gold drops to below $1000 again that countries like China and others that are looking to buy more gold do so in droves? At this point aren't all central banks aware there is a currency crisis in the making? I mean since they are effectively creating it.
My thought would be that even with a sharp drop like the one that is predicted that there would be a sharp spike that could send gold above the $1300 mark we see today since that is set as a historical top (for now at least).
Additionally, the only way I see his drop in gold working is if the marketers out there try and push the GLD and the SLV to investors. Which will also make the holders of GLD and SLV buy more physical. The paper game can't work if there is no physical delivery.
Additionally, if there is no physical delivery of gold would this not push investors into silver for physical delivery? Is this not why the spring is coiled even more tightly for silver? And why there would be even a larger problem with silver delivery because of its industrial usage?
I think that is the canary in the coalmine. That there is a smaller supply of gold but a perceived larger supply of silver. And since silver is cheaper, more people will pour more investment dollars into silver. Global investment from the middle classes will break the physical supply of silver. Additional pricing pressure will be put on silver due to the industrial usage. Silver is the overlooked wild card IMHO.
You want to know how the CBs and BIS are involved?
Start here: http://www.usagold.com/goldtrail/archives/another1.html
Yes, it appears that your pet peeve was not mentioned. Who is going to read a 300 page article? Everything cannot be covered lest focus is sacrificed. You are a smart guy and can fill in what is missing. Spoon feeding is not the Fight Club way.
Central Banks are discussed by Another. You can start here:
http://www.usagold.com/goldtrail/archives/another1.html
Actually, there is more Gold on hand than Silver now............this is why Crimex is crapping itself.Harvey Organs Blog gives the stats........there's the tell.
And your correct it is a Wild Card..............let them be unable to meet delivery of Physical, and the party begins.
I'll check it out. Thanks.
Great post.
"Gold buyers **IN SIZE** will have to stop buying from the price discovery marketplace because... physical delivery has become impossible at the present price."
How can we tell when that moment is about to arrive? I think Antal Fekete has got it right: gold will go into what he calls "permanent backwardation." i.e. buyers will pay more for immediately deliverable gold today than for an empty promise of gold to be delivered in the future. As contango shrinks to zero and goes negative, it will mean the end of the paper gold scam, and the beginning of a very unpleasant who-knows-what.
Amish,
Forgot the small country that just snagged ?? 2 Tons?,paid CURRENT street value.
Same as you and I, less spread( I am sure).
But still within $50.00.
India did the same thing thru the IMF at $1,050.00................I know their really sorry.(:>
Apparently Johnny Bravo is busy inbetween his 924 college courses and also his part time job as secretary to an offshore reclusive billionaire who goes by a whispered name as "Goldfinger"
Wouldn,t be helping his Master buy on the dips.
5th Columnist Bitchez ...........
Of course, JB will grace this blog again once Gold corrects, as it always does. Unless his mother restricts access to his computer like she did a few months ago.
"Ah mom, my Zero Hedge friends want me to come out and play. You're being soooooo unreasonable. It's not my fault I infected every computer on our local wireless connection. It's those dam viruses I keep picking up on Zero Hedge. It's wasn't those porn sites. I promised you I would never do that again. All I do is go to Zero Hedge. Honest."
LOL
Suppose purchasing power (wealth, whatever else you wish to call it) was gasoline.
Fiat currency would be a gas tank with central bankers sticking a siphon hose in and slowly siphoning gas out ...till it's empty. Why? Because it's their gas tank.
Gold would a gas tank with no central bankers around, no siphon hose. Why? Because it's your gas tank.
Didn't anyone tell them not to smoke at the gas pump?
Only $50k an ounce? Gold should be at least twice that!! *snicker*
As for shoeshine boys, we don't really have many of those anymore. But look around: today's equivalent has been jumping up and down about gold for a while now.
All these ZH articles and posts about gold are clearly indicative of a formed bubble. As asset bubbles -- of any asset -- grow ever larger (before its eventual pop), more and more hop on the bandwagon, pounding on the table harder and harder about the "rationalizations" for the asset in question at even higher prices which become more ridiculous by the week.
It's really a shame many of you can't see the forest for the trees. Y'all gonna get yer asses handed to you pretty damn hard one of these days.
But, continue on.
And don't worry, I'll start off the junking first by junking myself.
I've got an idea! How about you actually read the article, rather than simply commenting on it?