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The Latest Move in Bullion: Something's Gotta Give

Anonymous's picture





 

Man, you would have done all right in
the last couple of years if you had been only in bonds and gold. As
much as you hate USTs, the numbers don't lie. Recently, we have had a
rally in the bond market, a rally in the stock market, and a rally in
gold bullion with tame currency moves. What gives?

 

The move in bullion last week is not
driven by the currency markets, as it typically—not always—
happens with the Midas metal. At $1000/oz., there is only $1trillion
in gold bullion in total above ground inventory (where is Project
Mayhem to call me on that one?). A lot of it is not for sale, save
for Gordon Brown's brilliancy in 2000, which called the bottom
(conspiracy theorists chime in).

 

True, if you count the trillions that
have been printed here, in Europe, and in Japan (the inventors of QE,
oh, how well it worked there), bullion should be flying. But, what
the gold bugs miss is the trillions that have been wiped out in the
house of cards called “structured finance”, and they miss the
trillions that will be wiped out in a similar scheme of unfortunate
larger proportions called “derivatives”.

 

From the CLSA 1Q preview that was
available earlier in the year on their website (note to CLSA
compliance, I will never post anything of yours that was not
previously in the public domain, I like you guys too much to do that).
This was their thinking at the beginning of the the year, but, some of the points are still very much valid:

 

What’s been happening with the
dollar?

...Currency and commodity price moves are presently
dominated by the destruction of liquidity synthetically created
within the financial markets between 2002 and 2007. Before turning to
currency moves we therefore need to provide the framework of what we
mean by “liquidity” and its destruction.


Figure 9 shows a chart that we first
used in Triple-A on 28 February 2007: Exuberance glut. It is taken
from David Roche, founder of Independent Strategy, and shows
liquidity as an inverted pyramid. At the bottom is “power” or
reserve money – liquidity created on the balance sheet of central
banks. Above this is liquidity (or claims on goods, services and
assets) created through the conventional credit multiplier mechanism
of commercial banks. Above this is liquidity created by
securitisation. This (supposedly) enabled risk to be pooled and
averaged, allowing claims on illiquid assets to grow further relative
to the reserve money in the system. Finally above all are credit and
interest rate derivatives, a system in which each institution, by
“insuring” against losses, was able further to increase its
claims on physical and financial assets without increasing
precautionary reserves either of capital or reserve money.


IS

...For
the purposes of understanding currency and price movements it is
sufficient to observe that the securitisation of debt and creation of
credit and financial derivatives amounted to a huge virtual printing
press, fuelled by the pro-cyclical increase in risk appetite which,
outside of the conventional system of monetary policy and control,
allowed a massive expansion of the value of claims on financial
assets and goods and services.


...The risk
pooling and credit insurance processes that were central to money
creation at the top of the pyramid have proven vulnerable to a
breakdown of confidence (and as the systems have started to break
down this risk aversion has been justified in a classic self
fulfilling prophecy). 2008 was characterised by a massive destruction
of money and we expect this to dominate in 2009 also.
[AD: so far it has been contained]

 

...The reversal of this process has been
key to understanding currency movements which, since July, have been
too large and too rapid to be easily explained by shifts in economic
expectations or short rate expectations. Instead the dollar has been
caught in a short squeeze as the liquidity pyramid has started to
shrink.

 

 

 

Now, Bernanke knows this very well, and
so does Trichet. This is what has been dictating the magnitude of the
printing, and this is why printing so far has been rather benign in
inflationary outcomes. They have managed to reverse the rise in the
dollar since March, but will they ultimately succeed? Europe is in
worse shape than the US, and, the CEE CRE time bomb—more like a
rolling series of explosions given how infested the region is—has
yet to fully detonate. And don't get me started on China; that
will hurt badly when it happens (both dollar and maybe bullion
bullish, why not?)

 

I am not saying printing will be benign
ad infinitum, but pay close attention to the missive from
Societe Generale. Before the long-awaited inflationary outcome, we
way very well get a nasty round of deflation.

 

I don't believe in the naïve notion (I
was about to say idea, but that is too strong of a word) that you can
solve a debt problem with more debt, or a problem created by ultra
easy monetary policy by even easier monetary policy. That is like
giving an obese man drugs to improve his appetite; it's not going to
end well. But before it ends, interesting things will happen.

 

I am not sure we have seen the ultimate
high in bond prices/lows in yields. It is not a good sign though that
Bloomberg TV is running commercials for Monex almost as often as it
was running commercials for Sun Microsystems in 1998 that it is “the
dot in dot com”. That was a great rally in Sun shares over the next
two years, before it got Prechterized. And Sun does look like the chart of silver back from 1980, courtesy of the Hunt brothers (how is the squid different from them, it escapes me).

 

Given who is running the Fed for anther
term, this is an unlikely outcome for gold bullion, but just a
reminder to keep things in perspective. Yes, I expect a big run in
gold, but did the monster rally start last week, I don't know... yet.
What I do know: when the time comes for the gold bugs to sell at $2K,
$3K of $4K, they won't.

 

EDIT: BTW, I find it funny that no one is clicking or commenting on Vitaly's bearish rant on gold above me in the contributor section---which I don't agree with---but I will give him the plug (without a link!)

 


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Sun, 09/06/2009 - 11:30 | Link to Comment chindit13
chindit13's picture

At the risk of being pedantic (as well as wrong), here are a few figures re gold:

There are somewhere between 125K and 130K metric tonnes of gold above ground, which equates to slightly more than 4 billion troy ounces of gold which @$991 is worth a shade under $4 trillion.  At a weight of 19,300 kg. per cubic meter, one could fit all the known gold on the face of the Earth into a cube measuring about 61 feet per side, or a touch longer than the distance from pitcher's mound to home plate in American baseball.

Or something like that.

Sun, 09/06/2009 - 11:56 | Link to Comment ED
ED's picture

I was going to say, the shwedagon pagoda is bigger than that, but it's only gold plated. No wonder the Myanmar junta is perpetually hard up for fed reserve notes.

Great megalomaniacs think alike

Mon, 09/07/2009 - 03:13 | Link to Comment chindit13
chindit13's picture

I'll add to the info collection here:

An ounce of gold can be pounded into a sheet of 300 square feet, so perhaps as big as Shwedagon Pagoda may be, not a whole lot of gold is necessary to cover it.

All the mined gold in the world could be pounded into a sheet that could cover the state of Virginia.

As one who enjoys keeping track of out-of-the-way economies, here's an odd one:  what minor world currency has soared against all the majors this year?  The Myanmar kyat, which has moved from about 1350 to the dollar to 1080.  Now go figure....an economy the size of a GS AIG "Unit" ($12.7 billion), who prime money earner is natural gas (look at this year's NG chart) has seen its currency soar.

 

Sun, 09/06/2009 - 11:33 | Link to Comment RobotTrader
RobotTrader's picture

All I can say is that huge volume breakouts like this are generally the start of a big move, not the end...

 

Sun, 09/06/2009 - 11:39 | Link to Comment RobotTrader
RobotTrader's picture

Sun Microsystems breakout in 1998:

 

Pretty much ran non-stop into the March 2000 top:

Sun, 09/06/2009 - 11:49 | Link to Comment waterdog
waterdog's picture

The Fed has 13,452,783 troy onuces that the Treasury declares is worth $ 42 an ounce.

Chairman Bernanke's position on gold is that it is useless.

I believe that President Obama, during the October bank holiday, will notify the American people that the Mint will begin to sell gold coins at $ 400.00 per ounce, as a part of, his plan to redistribute the wealth. (But we goldbugs know the real reason why)

I own physial gold, too much physical gold at too high of a price. J.S. Kim says to hold on for 36 months it will sky-rocket in price. I may be dead in 36 months.

The only thing that shines in my book is the right-side of Ben Franklin's forehead.

Sun, 09/06/2009 - 17:19 | Link to Comment SWRichmond
SWRichmond's picture

I'm a buyer at 400.  Me and the rest of the planet.

Sun, 09/06/2009 - 11:51 | Link to Comment RobotTrader
RobotTrader's picture

Probably a better example is "Quack"com.

Huge volume breakout here in 1999:

Runs all the way to the Dec. 1999 top:

A 1300% gain in less than a year...

Sun, 09/06/2009 - 12:35 | Link to Comment SWRichmond
SWRichmond's picture

skank; what, no tramp stamp?

Sun, 09/06/2009 - 14:07 | Link to Comment ZerOhead
ZerOhead's picture

Meeeow...

Sun, 09/06/2009 - 20:23 | Link to Comment SWRichmond
SWRichmond's picture

Look at Natalie Wood here: http://www.zerohedge.com/article/crfb-sees-locusts-plagues-and-lots-and-...

Then look at the skank, and tell me which one is more attractive.

Mon, 09/07/2009 - 09:54 | Link to Comment SWRichmond
SWRichmond's picture

Nothing personal...I have a teenage daughter who is not skanky, and I demean skankiness everywhere I see it, it's a mindset thing.  I guess I am over-sensitive to it.

Edit: I actually feel sorry for women who mistreat themselves in the manner portrayed.  It's a waste.

Mon, 09/07/2009 - 11:53 | Link to Comment MinnesotaNice
MinnesotaNice's picture

Oh... you're going to be in trouble if he makes it over to your 'open thread'... you better start praying right now :-) 

Mon, 09/07/2009 - 13:40 | Link to Comment SWRichmond
SWRichmond's picture

I will try to contain my....OMG!!!

:)

Mon, 09/07/2009 - 13:42 | Link to Comment MinnesotaNice
MinnesotaNice's picture

I knew your reaction wouldn't be good... I tried to tell him... but he just wouldn't listen  :-)

Sun, 09/06/2009 - 12:09 | Link to Comment spanish inquisition
spanish inquisition's picture

Nice post. Can I change a term? I believe the FED was injecting SQUIDITY.

Sun, 09/06/2009 - 12:17 | Link to Comment I need more cowbell
I need more cowbell's picture

Jumped up jesus christ, andy, that picture is so hot on so many levels.

Sun, 09/06/2009 - 12:23 | Link to Comment Anonymous
Sun, 09/06/2009 - 17:13 | Link to Comment Problem Is
Problem Is's picture

OOOHhhhh... a Crying Game moment... ralph...

Sun, 09/06/2009 - 16:09 | Link to Comment ZerOhead
ZerOhead's picture

Squidity is good... but lisquidity rolls off the tongue easier...

We should really engage in some free PR work for the hard-working boys at Goldman Sachs here at Zero Hedge... after all they are in large part responsible for our existance and success.

And since even Erik Prince had to change Blackwaters name to Xe after the assasination allegations and forthcoming criminal indictments... we  at Zero Hedge should assist Lloyd in choosing a new name for his much maligned investment bank.

In light of the fact that his recent oil play will result in the further impoverishment of the citizens of this planet or horrendous losses to Goldman itself... he may need this new name sooner rather than later.

Giant Squid  is good since they don't have to change the GS on the stationary... however I think that the name that truly captures the essence of  Goldman is SquidCo.

Let the competion begin...

Mon, 09/07/2009 - 18:41 | Link to Comment ZerOhead
ZerOhead's picture

Or not...

Mon, 09/07/2009 - 19:51 | Link to Comment MinnesotaNice
MinnesotaNice's picture

OK... I usually never enter contests... but since I will likely win by default then I have decided to submit a request...you didn't mention the prize I would win however... so I guess I get to select what I want.  Now this name will mean that GS will have to change its stationary... but I think they can afford it with the money that I lost on my short positions in the last 5 months in which they were likely the benefactor as they repeatedly squeezed the shorts... and remember there were no rules that prohibited me playing on the name that you threw out above... but I have sound reasoning for my name choice... I will explain as follows:

The name I am submitting is ColossalSquidCo because I think Goldman Sachs has grown in the time since Giant Squid was selected for them. 

So you may ask what is the difference between a Colossal Squid and a Giant Squid... well let me tell you... a lot.

  • The Colossal Squid's limbs are equipped with sharp hooks... some swiveling, others three-pointed ('getting your hooks into and screwing the retail customer' will have whole new meaning now).  Whereas, the poor Giant Squid's arms and tentacles only have suckers lined with small teeth.
  • The beak of Colossal Squid is the largest known of any squid, exceeding that of Giant Squid in size and robustness. (What better way to eat the growing number of prey that you are consuming)
  • A Colossal Squid actually has a penis to directly implant sperm into females (which is very handy on Wall Street I hear)... as opposed to the Giant Squids who only have a tentacle to do the job.
  • The beak of Colossal Squid is the largest known of any squid, exceeding that of Giant Squid in size and robustness. (You don't want to be killing all that prey and realize you don't have the best equipment available to eat them)
  • Colossal Squid also has the largest eyes documented in the animal kingdom.  (How handy that will be to guard your kingdom... and allowing an extra early warning if Mary Shapiro actually manages to find her way out of the paper bag she crawled into years ago)

OK... so when can I get my prize... I want a big squid dinner in the finest restaurant in New York City  :-)

Mon, 09/07/2009 - 20:05 | Link to Comment ZerOhead
ZerOhead's picture

Clearly you've done some fantastic reseach here MinnesortaNice...

Let's see... 

Hooks are good... very good...

Huge beak (or blood funnel) is great for jamming...

Largest known squid? ... very appropriate... you're doing well so far...

Largest eyes in the animal kingdom? ... beats a blue whale? unfreaking believable... I'm thinking of that giant eye on top of that pyramid do-hickey thing...

Penis? are you kidding me? Penis is really good Minnesota... but does it have GIGANTIC BALLS? What we are looking for is all of the above but it must have enormous balls.

Please confirm the balls.

The Golden Squid Award can only be awarded once all contestants have had a chance to submit their entries... then the entries must be voted on by Zero Hedge members...

Later Alligator

Mon, 09/07/2009 - 20:17 | Link to Comment ZerOhead
ZerOhead's picture

We call it kalamari over here... sounds better than squid... kinda like the escargo vs. snail deal.

Hey... ColossalKalimariCo ? ... Kalamerica ? ... my brain hurts...

It ain't over yet.

Goldman Rapes. Goldman Pillages. Goldman Sachs.

 

Mon, 09/07/2009 - 20:36 | Link to Comment MinnesotaNice
MinnesotaNice's picture

Oh, I really like the ColossalCalamariCo idea... but I still will win unless there is a late entry because you can't be a participant... and if GS can convince Calgon Carbon Corp to give up CCC on the NYSE then they are all set.

I will be waiting outside for the awards van to take me for my squid... errr calamari dinner.

Mon, 09/07/2009 - 21:01 | Link to Comment ZerOhead
ZerOhead's picture

Damn... kalimari is with a C not a K... shit!

I'm such an idiot!

P.S. You may require a passport...

 

Mon, 09/07/2009 - 21:04 | Link to Comment ZerOhead
ZerOhead's picture

Double Damn... kalimari is with a C and an A, not a K and an I...

I need a CatScan...

Mon, 09/07/2009 - 21:25 | Link to Comment MinnesotaNice
MinnesotaNice's picture

What country do you live in... I might need to pack a larger suitcase... and are you listening to ZH radio?

Mon, 09/07/2009 - 20:19 | Link to Comment ZerOhead
ZerOhead's picture

Oops

Sun, 09/06/2009 - 12:15 | Link to Comment I need more cowbell
I need more cowbell's picture

Here is the one thing I truly do not understand about gold. If it is such a no-brainer, why are so many gold businesses spending so much money advertising it? We have Glenn Beck ad nauseum  with bucu radio spots; printed media; some TV ( not the ones wanting you to sell them your gold fillings, etc.- the ones saying its never been a better time to buy), etc.

Why would anyone sell any gold?

Sun, 09/06/2009 - 12:16 | Link to Comment AN0NYM0US
AN0NYM0US's picture

"And Sun does look like the chart of silver back from 1980, courtesy of the Hunt brothers (how is the squid different from them, it escapes me)."

 

The squid has the full and unconditional backing of the US government or is that the other way around.

Sun, 09/06/2009 - 13:00 | Link to Comment long-shorty
long-shorty's picture

That's not correct. There were plenty of tech bears through '99. From Julian Robertson to small managers. "Bubble" was being used widely by those who found themselves on the wrong side of the rally.

Sun, 09/06/2009 - 12:27 | Link to Comment SWRichmond
SWRichmond's picture

The move in bullion last week is not driven by the currency markets

Only if you consider currencies in relation to each other, which means you must consider fiat currencies to be absolute.  Fiat currencies are only viable wrt each other.  A competitive debasement of all fiat currencies is incredibly bullish for gold.

The risk pooling and credit insurance processes that were central to money creation at the top of the pyramid have proven vulnerable to a breakdown of confidence (and as the systems have started to break down this risk aversion has been justified in a classic self fulfilling prophecy). 2008 was characterised by a massive destruction of money and we expect this to dominate in 2009 also.

For the purposes of understanding currency and price movements it is sufficient to observe that the securitisation of debt and creation of credit and financial derivatives amounted to a huge virtual printing press

Conflating money and credit.  Credit is not money; why do people keep thinking that it is?  Credit differs from money in that it does not fulfill the "store of value" function, and no wonder: it is born of nothing in the magical fictional reserve system.  I strongly suggest readers brush up on exactly what credit is, so that they can more clearly understand what it most emphatically is not.

This is what has been dictating the magnitude of the printing, and this is why printing so far has been rather benign in inflationary outcomes.

IMO the reason is this: most Western economists, market participants, bankers etc have been trained in monetarism and the belief system that it requires, that is, the conflating of money and credit.  This too shall pass.

What I do know: when the time comes for the gold bugs to sell at $2K, $3K of $4K, they won't.

Except for those of us with an exit plan, but you are right to point out that an exit plan is needed.

 

Sun, 09/06/2009 - 12:28 | Link to Comment AnonymousMonetarist
AnonymousMonetarist's picture

Gann, Elliott, & Demark  are converging on short equities, long dollar & short gold (in the near term).

Be careful out there.

 

Sun, 09/06/2009 - 12:49 | Link to Comment . . .
. . .'s picture

Yup.  A lot of money is doing a barbell strategy of credit with a hedge in gold or commodities.  If you get fundamental types thinking the positions are over-valued, they could easily rotate into relative value trades of long-short equity trades, or something else.  And if that happens, you could easily get a bandwagon effect due to momo traders following, and then dumb money.  The coast is never clear.  The CIC chairman talking about how "we can't lose" with the barbell strategy is one of the people who could accidentally walk off a cliff.

Sun, 09/06/2009 - 12:31 | Link to Comment Lionhead
Lionhead's picture

"What I do know: when the time comes for the gold bugs to sell at $2K, $3K of $4K, they won't."

Speaking for myself, you are wrong. I have devoted much time & attention to the study of parabolas, their formation & growth rates of expansion. If gold should run that far, I'll be happy to unload even if I don't come close to top tick. Human behaviours never change, and the same will apply here someday. That you can take to the bank...

Sun, 09/06/2009 - 12:42 | Link to Comment MinnesotaNice
MinnesotaNice's picture

For the purposes of understanding currency and price movements it is sufficient to observe that the securitisation of debt and creation of credit and financial derivatives amounted to a huge virtual printing press, fuelled by the pro-cyclical increase in risk appetite which, outside of the conventional system of monetary policy and control, allowed a massive expansion of the value of claims on financial assets and goods and services.

Interesting... money creation outside of the Fed... we may have a way bigger hole to fill than I thought...

Sun, 09/06/2009 - 12:49 | Link to Comment MinnesotaNice
MinnesotaNice's picture

I think this concept was floating in fringes of my mind... but with that statement the enormity of the situation was brought front and center... the Fed is really like a little tug boat trying to push the Titantic one minute before the iceberg tears a hole in its hull.  The scope of this problem is so complex and massive... that it boggles the mind.

Sun, 09/06/2009 - 17:24 | Link to Comment SWRichmond
SWRichmond's picture

Yes, but only because they were rated as more creditworthy than they actually were.  KD, for all the bad things I say about him, posted a good article that explained how the ratings puff enabled this.

Sun, 09/06/2009 - 12:44 | Link to Comment Anonymous
Sun, 09/06/2009 - 17:28 | Link to Comment SWRichmond
SWRichmond's picture

Finally, for the gold bugs. I have never seen anyone feed gold to their kids when the get hungry or use it to power their car or heat their home.

 

You can't eat fiat either, your argument is ridiculous, except the heating your home part:

http://washingtonindependent.com/2345/us-economy-looks-like-weimar-on-th...

Precious metals:

  1. Will never be worth zero
  2. Have no counterparty risk
  3. Are a store of value
  4. Do not require the support of legal-tender laws to maintain their value
  5. Cannot be debased by governments
  6. Have been recognized as money for over 6,000 years, much to the chagrin of monetarists, central bankers and endless-war-loving governments
  7. Will always be convertible into whatever the fiat-de-jour happens to be

To anyone who says gold's value is irrational, I say this: given the above facts, which is more rational, accepting gold as valuable or accepting fiat as valuable?

Sun, 09/06/2009 - 21:41 | Link to Comment Project Mayhem
Project Mayhem's picture

+1 krugerrand

Mon, 09/07/2009 - 08:11 | Link to Comment Anonymous
Sun, 09/06/2009 - 12:44 | Link to Comment Anonymous
Sun, 09/06/2009 - 12:49 | Link to Comment quaker93
quaker93's picture

Nice article, Andy.  Your theories are very similar to Robert Prechter's.  It makes perfect sense that we are in the early stages of massive deflation. Your inverted triangle is a good visual explanation supporting this idea.

I believe the recent run up of gold/silver (despite no movement in the USD) is due to a last minute flight to "perceived" safety. The rats are leaving the ship and looking for somewhere else to stay dry.

At the end of the day though, gold is priced in dollars.  There are now less dollars to buy gold but yet there is no change in the quantity of gold.  Therefore the price of gold will go down.

Finally, for the gold bugs.  I have never seen anyone feed gold to their kids when the get hungry or use it to power their car or heat their home.  The only value of gold is the notional value that people assign to it. Except for a few industrial applications and jewelry it is worthless.

If the shit hits the fan I would rather have land and guns. Not a pile of gold to hoard.

Sun, 09/06/2009 - 13:14 | Link to Comment I need more cowbell
I need more cowbell's picture

I did for the first time today, Andy. I mentioned to my wife, " Wow, Pottery Barn is having a 75% off Labor Day sale".

Her reponse was, "So?" That ,muchacas, is deflation. 

Sun, 09/06/2009 - 13:46 | Link to Comment . . .
. . .'s picture

You want more evidence, I've seen projections that 401(k) contribution caps would drop by $500 if CPI deflation continues at the pace it has YTD.

Sun, 09/06/2009 - 14:02 | Link to Comment . . .
. . .'s picture

The 401(k) contribution cap for 2009 was $16,500.  For 2010, if deflation continues at the pace of YTD, it's been reported the cap could be cut to $16,000.  USA Today and less high brow papers have reported this. http://www.usatoday.com/money/perfi/retirement/2009-08-26-401k-contribution-limits-irs_N.htm

The cut in contributin caps would undercut Obama's proposals to allow an increase in contributions by letting folks contribution tax refunds, sick pay, and vacation pay to their 401(k).  Or not, Obama probably just intended these proposals to help folks who were contributing way less than the cap.

http://money.cnn.com/2009/09/05/news/economy/Obama_retiremetn/index.htm

 

Sun, 09/06/2009 - 14:16 | Link to Comment . . .
. . .'s picture

Andy, you ain't seen nothing yet in terms of using 401(k)'s to bilk the beneficiaries.  Congress' plan to boost revenue by letting upper-middle class people convert their traditional IRA and 401(k) plans into Roth plans is pure genius.  Congress gets a revenue boost by taxing as income the full value of the amount contributed, on the theory that down the road withdrawals will be tax-free.  Then down the road, when revenue gets tight, surprise, surprise, Congress has a card up its sleave, they can change the law to make withdrawals taxable, but give beneficiaries basis in their plan equal to value of the plan at the time of conversion.

Uncle Sham at his finest.  This has to be in the top 10 list of bad investments Uncle Sham has sold the public.  Right up there with war bonds, designed to destroy investment value with inflation.

And of course they always have the ace up their sleeve of seizing 401(k) and IRA assets, in exchange for 10 or 30 year treasuries.  Like was done in Latin America.

Sun, 09/06/2009 - 21:44 | Link to Comment Project Mayhem
Project Mayhem's picture

Uncle Sham hahhaha

 

Yeah absolutely I think the government will eventually raid pensions / 401ks.  Argentina did it. Long live our banana republic

Mon, 09/07/2009 - 00:14 | Link to Comment Anonymous
Sun, 09/06/2009 - 13:22 | Link to Comment Anonymous
Sun, 09/06/2009 - 15:01 | Link to Comment Anonymous
Mon, 09/07/2009 - 11:06 | Link to Comment Anonymous
Sun, 09/06/2009 - 13:14 | Link to Comment Anonymous
Sun, 09/06/2009 - 13:21 | Link to Comment Anonymous
Sun, 09/06/2009 - 13:22 | Link to Comment Anonymous
Sun, 09/06/2009 - 14:00 | Link to Comment Project Mayhem
Project Mayhem's picture

good article

 

Sun, 09/06/2009 - 16:33 | Link to Comment Narcolepzzzzzz
Narcolepzzzzzz's picture

"According to IFSL estimates, the total volume of identifiable above-ground gold at the end of 2008 was around 163,000 tonnes or 5.2bn ounces."

www.ifsl.org.uk/upload/Bullion_Markets_2009.pdf

Sun, 09/06/2009 - 21:49 | Link to Comment Project Mayhem
Project Mayhem's picture

I think $4tn is a reasonable estimate but much of that gold is in strong hands (governments, ruling class, and/or gold bugs) and will not be for sale.  If you look at the numbers for silver it's actually rather astonishing the amount of silver available for investment at current prices -- its measured in billions.

Sun, 09/06/2009 - 14:01 | Link to Comment Anonymous
Sun, 09/06/2009 - 14:08 | Link to Comment Anonymous
Sun, 09/06/2009 - 17:34 | Link to Comment SWRichmond
SWRichmond's picture

Gold will rise like a phoenix from the ashes in the middle of deflation.

Yes.  And the reason is simple: gold has no counterparty risk.  No one can default on gold that you hold in your hands.  This is why gold is the ultimate exinguisher of debt.  When the debt pyramid collapses, all the paper promises default.  Imagine that happening, then imagine offering someone FRN's (backed by the "full faith and credit of the government") or offering them gold, which is backed by 6,000 years of history.

No-brainer.

Sun, 09/06/2009 - 14:10 | Link to Comment Anonymous
Sun, 09/06/2009 - 14:12 | Link to Comment RobotTrader
RobotTrader's picture

More from my buddy "Spock"....

 

 

"In the approximately five and one-half years since this observer began
posting on P-Bear chatboard, he has written what seems to be a jillion
words on myriad subjects related to the economy, finance and other
relevant matters.

So at this point there is virtually nothing
new that can be pounded out on a nearly-worn-out keyboard by an
exhausted-and-defeated Vulcan that he hasn't already stated and debated
to a great degree.

Furthermore, all his words have apparently
been for naught since ABSOLUTELY NOTHING HAS CHANGED in the economy in
the ensuing year since the world's financial system supposedly
imploded. Neither has he persuaded even one, single, sheeple/Boomer
peer to do anything other than keep their fiatscos in the corrupt
system and continue to trust TPTB for their well-being.

However,
unfortunately for the readers of this board, the above lament does NOT
mean that this writer will stop posting and slink away, never to be
heard from again. Rather, a dejected Spockputin will take this
opportunity to recap many of his posts and points, categorized under:

"Subjects Covered"

"Spockputin Theories" propounded

...and:

"Terms Coined"

Let's
begin with "Subjects Covered". This Vulcan has done in-depth research,
reporting and analysis, offering his ranting, raving opinions and
conclusions without reservation--and often engendering much
controversy--on the following economic/financial matters:

Subjects Covered:

1.Fiat currency/fractinoal reserve lending/central banking horrors

2. The genreal credit bubble

3. The general housing bubble

4. 401(k)/IRA/mutual fund Ponzi scam

5. Pension fund scroomage

6. Mortgage Backed Securities

7. Derivatives including interest rate swaps, OTC derivatives (CDOs/CDS and other bets)

8. Wall Street lies, scams, schemes

9. Fannie, Freddie, FHLBs, Wall Street "private-label" securitization

10. The Federal Reserve Politburo and Uncle Sugar lies, scams, schemes.

12. Gold and Silver

13. Social Security bankruptcy

14. Inflation/Deflation

15. Bretton Woods, "Bretton Woods II"

16. The general stupidity and laziness of sheeple

17. The IMF, BIS, World Bank, and other corrupt "One World Order" institutions

18. Ratings agencies corruption and complicity in the credit bubble

19. The shift of power from West to East

20. The futility of resistance to TPTB

(Spock):
However, other than provide some comic relief to a few hundred readers
on an obscure, anonymous, chatboard, his rantings on the above subjects
have been completely for naught.

Now let us turn to some of the theories this Vulcan has proffered to explain our ultimate scroomage:

Spockputin Theories Propounded:

1.
"Age of Infinite Fiat" ("Wash, Rinse, Repeat" cycles of fiat
currency/fractional reserve lending/central banking no matter how many
times booms and busts result)

2. "Convulsions Theory"
(convulsions of debt and derivatives collapse are met with overwhelming
responses of monetization/nationalization/stimulation)

3. "Ponzi
Pyramid of Debt and Derivatives Death" (the entire inverted pyramid
from fiat currency at the bottom, to derivatives at the top)

(Spock):
While all the above theories have been validated over the years, it has
not changed the outcome one whit. So, like a doctor who can diagnose
but not treat the patient, what's the use of all the poking and
prodding on the poor sap if the condition is terminal and the physician
powerless?

Finally, if nothing else, this observer has brought
forth a number of colorful terms to describe the players, systems and
results of this great "Ponzi Experiment.

For whatever it's worth, to wit:

Spockputin Lexicon/Terms Coined:

1. "Fiatscos" (to describe any fiat currency)

2. "Whips and Spoons"/"Buggy whips and Silver Spoons" (gold and silver)

3.
"GHS/SHS" (Gold Hoarding Seditionists/Silver Hoarding Seditionists,
describes how the rest of the world views us "real money" enthusiasts)

4. "Asian Debt Enablers/Bagholders" (foreign Treasury holders)

5. "Uncle Sugar"/"Fed Politburo" (the U.S. government and Federal Reserve System)

6.
"Homedebtor" (to describe the true state of dwelling in a "McMansion",
a term this Vulcan did not originate, but frequently uses)

7.
"McMortgage/McAuto" (terms this Vulcan coined to reflect the whole
suburban lifestyle, however he did NOT coin the term "McMansion").

8. "Twinkies and Slim Jims" (describing stocking up for "The End of the World as We Know it")

9. "Great Disintegration I" (description of what the next "Great Depression" was supposed to be, but hasn't actually happened).

10. "Half-Eaten Bagel" (euphemism for digging through dumpsters for meals after "Great Disintegration I" occurs)

11. "Evil Crimex Cabal" (moniker given to the infinite short sellers of buggy whips and silver spoons)

12. "Lily livers" (chicken-hearted GHS/SHS "Wanna-bees" who are constantly chased out of their paper ETF positions)

13. "F12 Monkeys" (deratogtory term to describe day-traders)

14.
"Algo/Igor/Robo Trader" (describes the Wall Street
high-frequency-trading platforms, which are allowed to front-run trades
and also to pump up stock indices)

15. "Thugocracy" (apt description of our political/economic system)

16. "Chart Huggers" (term used to describe technical analysts)

17. "Fiat Flinging" (central bank money printing and market propping)

18.
"Fannie/Freddie/FHLB Big Bang" (the simultaneous implosion of the GSEs
a year ago, which was supposed to ignite the "Great Disintegration I"
discussed above, which never happened).

19. "Prechtery" (the condition of poverty/penury brought on by following Prechter's advice to short gold)

(Spock Conclusion):
Despite typing his Vulcan fingers to the bone, ranting, raving and
riling against the system, in truth his missives have amounted to
little more than a mosquito flapping his fragile wings in the midst of
a Cat Five hurricane of lies, deceit, fraud and Ponzi.

Frankly,
as this poster has stated many times, he should have given up this
fight eons ago--about the time he postulated his "Infinite Fiat" theory
and at that point KNEW that nothing would ever change for the
better--and re-joined the sheeple race.

Instead, he has chosen
to continue wasting his time and effort in documenting the "Great
Disintegration I" that hasn't come, isn't here, and may likely never
arrive.

Again, he won't give up the "good fight", but he will
admit utter exhaustion at the constant defeat dealt to him at the hands
of potent TPTB."

Sun, 09/06/2009 - 15:58 | Link to Comment Gordon_Gekko
Gordon_Gekko's picture

""Prechtery" (the condition of poverty/penury brought on by following Prechter's advice to short gold)"

ROTFLMAO.

Sun, 09/06/2009 - 14:13 | Link to Comment troublesum
troublesum's picture

Credit is money...Save us jebus that we may understand.

Everyone that maxed out there credit card or bought a car or bought a house that hasn't lost there job is still making payments on those loans. And the people that sold those items have that money so it is now circulating even if only in digital form.

Of those payments that are being made the lender gets to keep and the interest and the rest of the money that paid back on those loans actually gets destroyed or written off of the books...

With banks not willing to lend and people not will to borrow and everyone else paying off debt (IE destroying money) the amount in circulation is clearly deflating. (Job losses are the clearest indicator of that) The dollar is infact being held low as it should have broken to new highs on all of this currency/debt destruction. The FED has everyone fooled again with the minimal money printing (as compared to debt destruction) they are doing to get everyone to think that the dollar is being debased.

Gold is poised to collapse with the rest of the market. Once it does then you buy it right before the currency crisis hits as the US will not have enough funds to pay its debts. (Thats when the story gets interesting)

Gold is an asset..not a commodity and we are currently seeing asset deflation and commodity inflation. It was shocking to hear this from a fox news reporter but he hit the nail on the head with this comment.

"You sell the things you own to buy the things you need"

You sell gold to buy food/oil in a deflating economy. Gold loses value under these circumstances. at least while the dollar is a viable means of exchange.

Sun, 09/06/2009 - 14:21 | Link to Comment RagnarDanneskjold
RagnarDanneskjold's picture

What about the possibility of gold as the final bubble, the asset of last resort? If the banking system enters real crisis, with MM and deposits losing value, a run on the bank will be a run from deposits towards cash and, I suspect, gold.

If the prices of everything are falling and your electronic dollars are going bye-bye, actual cash dollars increase in value. We joke about the trilions of fiat dollars, but how many paper dollars actually exist? What is the Treasury's printing ability? Treasury says "During fiscal year 2007, the Bureau of Engraving and Printing (BEP) produced approximately 38 million notes a day with a face value of approximately $750 million." That works out to $275 billion, rounding up.

In the end, the rightness or wrongness of the in/deflation case may come down to a few variables at most, possibly one—psychology. That will decide whether the scales tip to deflation or inflation.

And around here (myself included), it seems like the Black Swan would be mild currency moves such that gold and currency are not the place we should be focusing our attention.

 

 

Sun, 09/06/2009 - 14:49 | Link to Comment Anonymous
Sun, 09/06/2009 - 15:06 | Link to Comment Gordon_Gekko
Gordon_Gekko's picture

"But, what the gold bugs miss is the trillions that have been wiped out in the house of cards called “structured finance”, and they miss the trillions that will be wiped out in a similar scheme of unfortunate larger proportions called “derivatives”."

Unfortunately, many of those trillions that would have otherwise gone to money-heaven have been given a new lease of life by our backstop-happy governments. So I'm not really sure they have been "wiped out" yet. Paper-dollar deflation assumes that a majority of the debt repayment contracts will be honored and the government won't print fresh money to cover holes in banks' balance sheets due to defaulting loans. Both the assumptions are being blown to smithereens as we speak (write). Also, the argument that what the CB's have committed so far is nothing compared to the debt that needs to be deflated is completely fallacious - as of now, for all practical purposes (the most important being public perception since that and that ALONE is the foundation of a fiat money system), they have FULLY guaranteed the banking systems' present and future losses, with the printing press.

Deflation is the natural outcome of the economic excesses that have occurred and it will fully play out (and is playing out), but in terms of Gold, not ANY paper currency - period. If you can stop thinking in terms of nominal fiat units for a moment and look at the SPX chart for the past 10 years in terms of Gold, you'll see what I mean.

"Yes, I expect a big run in gold, but did the monster rally start last week, I don't know..."

While no one knows for sure, I am getting the feeling that this is the big one. Sentiment is extermely bearish. Some of the PM analysts I follow are not even trading this rally - they are sitting in cash! This is how surprising this move has been to many. The consensus seems to be that there will be one final crushing drop in Gold/Silver before they start to finally move up for good. Many of it's die hard followers are right now sitting on the sidelines - and I think that this very fact will power this rally into the stratosphere as they are forced to buy at higher and higher prices as they see the "big one" getting away from them.

Sun, 09/06/2009 - 15:34 | Link to Comment Gordon_Gekko
Gordon_Gekko's picture

http://www.marketwatch.com/story/contrarians-see-hope-for-gold-breakthro...

Also, I normally read a ton of articles everyday and, at least to me, the excitement seems very subdued this time around - especially on the Gold sites. I mean I could almost feel the excitement in the air when Gold hit $1k in Feb this year; right now it almost feels as if someone died. Many Gold bugs I know are not even thinking about buying at these levels. But, like I said, who knows?

Sun, 09/06/2009 - 15:41 | Link to Comment Gordon_Gekko
Gordon_Gekko's picture

As for the massive short position, that might actually become the fuel powering the liftoff at some point - perhaps after $1k is breached.

Sun, 09/06/2009 - 15:50 | Link to Comment Gordon_Gekko
Gordon_Gekko's picture

I suggest you buy a few calls as lottery tickets...just in case. I know I shouldn't be giving out financial advice and be shouting caveat emptor from the rooftops, but you know what - fuck it. Sue me. Buy the damn calls.

Mon, 09/07/2009 - 09:58 | Link to Comment Anonymous
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