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Hidden Dangers in Gold
Hidden Dangers in Gold
Based on an article by Dr. Paul Price in the Dec. 4, 12 issue of the Market Shadows newsletter: A Failure to Communicate: Numbers, Rates & Lies
Why isn't Paul currently buying gold bars, gold Electronically Traded Notes (ETFs), and mining companies? Wouldn't owning gold offset the (understated) inflation that we see daily and that may soon spiral out of control? While Paul argues that Washington’s Biggest Lie is its denial of real inflation, he also believes that pouring money into physical gold, gold-tracking assets, and shares of mining companies, is very risky, even if it makes logical sense. (Gold - The Biggest Risks Are The Ones You Don't See)
It makes sense because the supply of gold is limited and gold cannot be magically created by the Central Banks. Gold has also been used as a store of wealth for centuries. And of course, gold is presumed to be a good inflation hedge. But is it really?
Going back to 1980, gold peaked at about $850 per ounce. It bottomed in 2000 at about $250 per ounce. Annual inflation in 1980 and 1981 was in the double-digits. Later in the 1980s and through the 1990s, inflation fluctuated from under 2 to over 5 percent, drifting lower over those two decades.
Paul's chart below shows the nominal price of gold beginning in the 1970s. The second chart shows the nominal price of gold from 1979 to July 2012. (Click on charts to enlarge.)
Nominal Gold Prices 1979 - 2012
Chart from allaboutinflation.com
Paul notes that from 1980 to 2000, the CPI inflated by a cumulative 137% (compounded). Gold dropped to $250 during this period. But what about yearly inflation rates vs. the price of gold - is there a correlation?
The following chart shows gold prices vs. annual inflation rates. Apart from a clear correlation between inflation and the price of gold in in the 1970s, the correlation has weakened in recent years.
Gold Prices vs. Inflation Rate
Chart from Bloomberg
Describing the chart above, SymmetricInfo wrote,
It's clear that the lines seem correlated back in the 70’s and 80?s, but lose their relationship in the past decade. This makes it difficult to believe that the recent increase in price of gold has been solely due to a change in realized inflation and weakens the case for gold as a good inflation hedge... There isn’t much empirical evidence to make one believe that the decade long gold rally has exclusively to do with either realized inflation, inflation expectations or the federal reserves balance sheet. (Is gold really an inflation hedge?)
In Gold vs. Inflation, Barry Ritholtz noted that the link between gold prices and inflation is limited. The correlation between gold and inflation year over year is 0.42. On a month over month basis, it's only 0.11. According to Merrill, "Gold is not a great hedge against inflation. Investors would be better off owning TIPS if they are looking for protection against a potential rise in inflation." (Merrill Lynch via Barry Ritholtz)
Paul doubts that gold prices will soar to new heights anytime soon. He questioned the wisdom of amassing physical gold, buying gold in a custodian's care, and loading up one's portfolio with assets reflecting gold prices:
Recent history shows at least some custodians of your warehoused Gold to have been unreliable. For example, commodity brokerage firms MF Global and Peregrine Financial both failed to protect customer interests in the physical gold ‘safeguarded’ by them.
If you correctly bet on Gold going up you still may never even see your original stake returned, let alone any paper profits. Speculators were willing to risk price fluctuations. They didn’t know they were also subject to outright theft of their property.
Many traders today play Gold movements with ETNs (Electronically Traded Notes) without knowing these have bigger risks than simply the metal's price action. These ETNs are unsecured obligations of their issuing financial sponsors....
Physical delivery of Krugerrands, American Eagle gold coins and or bullion bars, and holding them in your own safe seems to avoid the custodial problems. Now, word from ZeroHedge.com confirms that Chinese companies have been actively promoting the sale of assorted counterfeit gold plated items ‘for legal purposes only’. (Gold - The Biggest Risks Are The Ones You Don't See)
Fakes and Frauds
Besides the risks that inflation won't skyrock and that custodians of your gold-based assets will go belly up, Zero Hedge noted that tungsten is being used to fill fake gold items. A firm called ChinaTungsten Online is marketing its broad 'tungsten-alloy services.' These services include "the gold plating of various tungsten formulations among them 'gold' bricks, bars and, yes, coins." The company is openly advertizing its tungsten gold-plating and precious metals replication services.
Zero Hedge also relayed a story about counterfeit gold being found in Manhattan's Jewelry District. "Myfoxny reported that a 10-ounce gold bar costing nearly $18,000 turned out to be a counterfeit. The discovery was made by the dealer Ibrahim Fadl, who bought the PAMP bar in question from a merchant who has sold him real gold before. 'But he heard counterfeit gold bars were going around, so he drilled into several of his gold bars worth $100,000 and saw gray tungsten -- not gold. The bar was filled with tungsten, which weighs nearly the same as gold but costs just over a dollar an ounce.'"
Will we soon be drilling into the cores of our shiny golden trinkets, bars and coins to test for purity? This is expensive, time-consuming, and decreases value and transferability.
The fraud in the metals market is here in the US, and not limited to physical pieces. In a Fool’s gold? CFTC says 12 firms sell phantom metals, Rob Varnon reports:
The U.S. Commodity Futures Trading Commission announced Wednesday, it filed a civil injunctive enforcement action in the U.S. District Court for the Southern District of Florida against 12 firms and their executives for fraudulently marketing illegal, off exchange retail commodity contracts...
According to the CFTC complaint, the defendants claim to sell physical metals, including gold, silver, platinum, palladium, and copper, to retail customers in retail commodity transactions. Under the defendants’ retail commodity transactions investment contract, customers allegedly make a down payment on certain quantities of physical metals, usually 25 percent of the total purchase price. Defendants allegedly claim to arrange loans for the balance of the purchase price, and advise customers that their physical metals will be stored in a secure depository.
But the CFTC alleged that the defendants do not purchase any physical metals, arrange loans for their customers to purchase physical metals, or arrange for storage of physical metals for any customers participating in their retail commodity transactions. Instead, all the transactions are just paper transactions, according to the complaint. Defendants allegedly do not own or sell metals to customers; customers are charged storage and insurance fees on metals that do not exist; and are charged interest on loans, which are never made by the defendants... (Fool’s gold? CFTC says 12 firms sell phantom metals)
Mining companies may seem like viable alternative to other gold-based investments involving trusting custodians or stockpiling one's own gold supply. However, particularly for mining companies with foreign operations, forward estimates and past performance may not be good predictors of future profits.
I used to favor shares of international resource and mining companies as a safer, liquid, back-door play on rising inflation. Worldwide political forces and heavy government debt have been catalysts for repudiation of long-term contracts and unilateral nationalization of foreign assets. This puts downward pressure on the earnings power of resource companies with significant assets in less developed countries.
Argentina-based oil company YPF (YPF) lost about half it value overnight some months ago after local authorities basically seized its assets without fair compensation. Indonesia has threatened to abrogate signed contracts with FCX because it now wants bigger royalties than previously agreed to. Australia is raising taxes dramatically on BHP, which cut back on its development there in protest.
The good old days of paying contractually promised royalties to less developed nations while mining their natural resources appears to be coming to an end. This explains what look like bargain prices on industry leaders like BHP Billiton, Rio Tinto (RIO), Freeport Mc-MoRan (FCX), Newmont Mining (NEM), American Barrick (ABX) and others.
All forward estimates may be shot to hell in the political climate that looms just over the horizon... (Gold - The Biggest Risks Are The Ones You Don't See)
A Gold Bubble?
It is not easy to find financial gurus and writers who are currently bearish on gold. There is Warren Buffett, who prefers buying something that generates income. Joe Weisenthal posed the bubble question in writing about Felix Salmon's attempt to go shopping with a gold bar. "It sounds silly, but if gold is a currency, then it should be usable as a medium of exchange... Felix goes up to a guy loading wholesale beer, and the guy knows instantly (!) what a gram of gold is worth: right around $50! When the guy loading wholesale beer knows the price of a gram of gold instantly, you've just got your famous example of the taxi driver giving you stock tips. DANGER!" (This Is The Best Proof We've Ever Seen That Gold Is In A Bubble)
Safe Haven Built on China?
Jordan Weissmann at The Atlantic argues that China's problems are gold's problems.
Investors who love gold tend to think of it as a sort of bomb shelter. It's supposed to be a secure place to park your money when the rest of the financial world is blowing up...
In the past decade, much of the new demand that set gold off on a wild tear from around $300-an-ounce at the turn of the century to almost $1,900-an-ounce last year has come from two places: India and China. Combined, they account for 45 percent of the world's demand for gold jewelry and bars...
For today, let's focus on China, which passed India as the world's top gold market earlier this year. The country deregulated its gold market in 2001, and since then, it has gone from consuming about a third as much gold as the developed west to overtaking it by 2011. Let me repeat that: the Chinese buy more gold than the entire west combined...
Just as China's rich have found new places to invest, the country's economy has been slowing down frighteningly, which dropped demand for jewelry this last quarter by 9 percent from a year earlier.
Source: Why Is the Price of Gold Falling?
Updated and based on Paul's article in the latest Market Shadows newsletter: A Failure to Communicate: Numbers, Rates & Lies.
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Ilene is the kind of person Augusto Pinochet put on the barge that sailed out into the Atlantic.... not that I would ever condone such an action....
I thought Chile was mostly on the Pacific? Anyway, as things get more and more dicey we'll have hatefull calls of all sorts to do in the Emmanuel Goldsteins
Paul just wrote about inflation: http://www.marketshadows.com/2012/12/03/washingtons-biggest-lie-and-why-...
"Paul notes that from 1980 to 2000, the CPI inflated by a cumulative 137% (compounded). Gold dropped to $250 during this period. But what about yearly inflation rates vs. the price of gold - is there a correlation?
The following chart shows gold prices vs. annual inflation rates. Apart from a clear correlation between inflation and the price of gold in in the 1970s, the correlation has weakened in recent years.
Gold Prices vs. Inflation Rate"
__________________________________________________
That is the wrong way to go about it. Then his second article sucks equally as bad as the above.
Do you have any fucking clue what inflation is ilene? Any?
Inflation is the size of the money supply. That was the original definition of inflation before the Keynesian assclowns fucked it up and turned it into rising prices.
Supply [of money]. Too much and your purchasing power goes down and shit costs more.
And you can toss that barbourous relic of a good definition out the window these days. Know why ilene? Any fucking clue? Any?
Oil.
Oil is an integral part of all goods and services.
So now we've reached a point where all the oil we can get on the market is sucked up. We can't get at it fast enough. And that is now in a depression. China in 1990 had 500 fucking miles of road and 1.5 million cars. Today China has more miles of paved highways than we do, 53,000 miles and they have 200 million vehicles on them. Asia has increased their oil consumption while most other regions have remained very flat.
You 2 don't know what is going on. You have no clue at all.
This biggest clue? In that article you link to is this:
"Bond Vigilantes are people/institutions that insist on coupon rates (i.e. interest rates paid on bonds ) being high enough to offset inflation." Before that he says that Bond Vigilates are on the endangered list. They're not, they are extinct.
Look, I really don't care if you luv this guys work. Wallow in it, just please take crap like this to CNBS you'll get positive comments and better than a 1.6 vote. ZH readers aren't morons.
Just how the fuck is it that you get to post shit like this here? Were you a good lawyer? Were you Tyler's lawyer? If so I'll put the gloves back on.
+1
Just want to add: "increase in the supply of money AND CREDIT." (with the awareness that fiat money is in fact a form of credit, so its almost redundant)
-- Gold and inflation: why do we keep seeing this argument that "gold hasn't done well during times of inflation"? It has been made clear over and over that gold doesn't do well during inflation with economic growth (ie during times when capital investment gets a real return), but gold does very well during times when there is an expansion of money and credit with no productivity/wealth creation (i.e. no real return on capital investment). Gold is a store of value, it stores man-hours / capital during times when man-hours/capital cannot provide a return on investment.
-- Article states that gold is not going up due to inflation expectations or federal reserve balance sheet. Bullshit. China doesn't care about dollar devaluation and the prospect of default? Riiiiiight.... And I can tell you that inflation expectations ending in currency collapse is just one reason why I am willing to buy gold at a higher price. And the knowledge that my labor hours are going to be debased over time through money supply expansion, while my taxes will go up due to credit expansion -- just raises my willingness to buy at higher and higher prices.
-- Trying to compare the gasoline sales guy with the taxi driver scenario is a bit of a stretch. Knowing the price of something and knowing the value of something are two entirely different things. Secondly, knowing how much something costs does not mean that person is actually buying it. Thirdly, be honest, how many igadget carrying fools on the street really have a precious metals app and keep track of metals prices? I don't run across average Joe's wanting to talk all about the maples they just bought. If you say an ounce of gold is worth $1700, they go "wow, thats a lot" and then promptly forget, as if you just told them the price of a Gucci purse or a MacBook Pro. It means nothing to them.
The taxi driver scenario will fit when the lines outside of coin shops look like the lines outside of the Apple Store on igadgetX+1 release day.
Isn't the amount of money printed left out of the equation? Why do you price gold in terms of fiat money if they are destroying the value of the latter and raising it on the former?
Jim Sinclair and Martin Armstrong have both stated, emphatically, that gold is not an inflation hedge. Over the last 1,000 years, Armstrong has shown that it is periods of deflation, where debt induced booms go bust, that cause gold to skyrocket. Some of these have resulted in hyperinflation and gold retaining value, but for the most part, they claim that gold is not an inflation hedge.
So it would appear that the last gold run up is being viewed as a response to inflation due to the timing of each, but this may not entirely be a causal relationship.
And in 1980, we didn't have algos and HFT's running the exchanges, hyper trading ETF gold and silver "promises". Anyone who is close to this market can see it's clearly not a free market.
Boy the pumpers are shitting bricks and just got bent over by Ilene.
Luv it.
Watch as they scranble to dispute and flame.. It's ok assholes.
How does it feel to be on the wrong side of the fucking trade you assholes.
Looks good on ya.
Don't worry though I'll be there to buy at 800..
mogul rider do not be too greedy, you might get a 1,300 correction if you are lucky. Median income in 1905 was 420, gold 20, cigarette pack 7.5 cents, today 50,050 , 1700, 7.5 dollars. Ratio of calf to Silver= 0.75 ounce in 200 years before Christ in Portugal, 2 ounces in 1870 in US and about 5-6 ounces today, nothing like overvaluation of Silver here, stop betting on 800 you will hurt yourself, China central bank would complete their program in one fell swoop.
Nice try, troll.
Assumimg silver would drop by about the same percentage, we could buy it for approximately $15/oz.
Now I see your point: since silver costs only $5 to dig it out of ground, at that point it would still be expensive but less outrageously so. Very reasonable, I must admit.
Keep waiting!
Pumpers? Fuck you moron mogul rider. Ben Bernanke is the pumper. Alan Greenspan is the pumper. Greenspan got to the hill because he was pumping Charles [convicted criminal] Keating. Greenspan got paid $40,000 to walk around the hill telling 535 morons that Keating had a sound and ethical business plan. Keating didn't. 23,000 people were effected by Keating, most investors lost thier life savings. 5 Senators were bribed by Keating. Reagan liked Greenspan and put him at the Fed to pump.
How fucking dare you call me or anyone else who knows up from down a pumper.
You know, you fucking moron, there are folks out there who stand up for wrong, who spend untold hours blogging to help others. I seriously doubt anyone on this page who commented has anything to sell and befinits in any way shape or form financially from spreading the good word.
You're a piece of shit. At least the author and ilene have a fucking excuse.
At 800$ gold, your daily costs would be ten times as much as today. No gold would be mined. You would probably have to kill someone to get your hands on it.
Theres a stone somewhere in a suburbia lawn thats missing its resident right now. I suggest you crawl back.
I'll be there to buy at 800..
In which currency?
Quatloos
You don't really expect to get gold at 800, do you? It's going to be a long wait. Don't hold your breath. (Or do)
Quoting my Dad, it's "don't hold your finger up your ass until it does, as it will likely rot off!"
If the money supply increased by an annual rate of 7% prior to the year 2000 (after which everything went haywire with Y2k and 911), then explain why gold hit $850 in 1980 and then went DOWN until the past decade? If gold is correlated to the money supply then gold should be well over $3k by now and it's not.
Almost every poster on this board believes in manipulated markets yet expects FUNDAMENTALS to prevail in the precious metals markets? Seems to be a glaring contradiction yet nobody wants to admit they've probably been duped.
I, too, will be a buyer when gold hits $800.
Oh you're so smart! EVERYONE would be a buyer at US$800/oz., and that's precisely why it will not happen anytime soon.
I've no issue with keeping most of my savings in the irrationally behaving gold.
Just as when gold was $250, few people were buying it then, why? Mostly because there wasn't anything on the horizon that told investors it had bottomed and also because gold had been in a long and protracted bear market since 1980. Very probable gold is in a bear market now and will take a decade or more to bottom, especially if the unimaginable happens and the fiscal cliff becomes an ant hill and the can is kicked down the road by taking a page out of the EU's playbook. Heck, for all we know, the U.S. might even get their triple A rating back! Big stretch but nobody's even mentioned THAT possibility. Wouldn't that crush gold? Yup.
I was ridiculed on another website when I posted I was buying stocks hand over fist during 2008-2009 and doubling-down on my gold and silver holdings, everyone warned me that I was going to lose my shirt. I still have my stocks but parted with my silver and gold holdings near their peaks. Guess I am smart! Men hate it when women outsmart them.
No, men dont worry about trivial shit like that, thats why you have breasts, something to look at while you spew that vitriolic garbage.. Its women vs. women, always has been, take it to Chatelaine.
"I still have my stocks but parted with my silver and gold holdings near their peaks. Guess I am smart! Men hate it when women outsmart them."
If you aren't being sarcastic, then I really regret not knowing you I knew you when I was young and single.
Near their peaks. Brilliant /*sarc
And oh, by the way: You do know that solar is about the only non water power China can get and silver is an integral part of photovoltalics? While we're all tranfixed on gold on this thread silver will be the monster in the room in just a few short years.
Nope, not being sarcastic and I have my transaction receipts to prove it. Your loss, my husband's gain....now going back to bed to enjoy my man.
When gold peaks at some obsene figure, $76,000 an ounce if they catch it fast, trillions if they fuck it up like they fucked up Lehman, then you can tell me how you sold gold at the peak.
Fucking clueless, but not for long.
Investing is an expensive education when your mentally addled.
Chart #3, GOLD vs. "CPI" (government data?). If the TRUE CPI(INFLATION RATE) was shown in this chart, then the upward line of GOLD, and the line for the true CPI would corrolate. When you have fraud and lies from our dear leaders, you can't formulate ANYTHING! JUST BUY THE FUCKING DIPS, THERE'S TOO MUCH HISTORY FOR YOU TO TRY SOMETHING NEW ON US NOW.
OK now they're just f**king with us.
Just seen on the GLD ad beside this story: No one has a heart of Tungsten.
No, really. Funny, guys. Very f**king funny.
I wonder how a woman can piss into the wind. Evidently Ilene has managed the trick. It's all over her face and dribbling down her hairy little chin.
I'll freely admit that gold is a religion...but it's a pretty fucking nice one and it's the best one I know of. plus it's a hell of a lot better than the church of the irredeemable intrinsically worthless dollar that losers worship and reject high priests like Paul Krugman practice their voodoo in.
Yeah gold sucks. That's why every government in the world buy it, hoard it and guard it with massive weaponry. It is also what dictator's fleeing the country stash on their plane. Central banks buy it, the IMF has a massive stash of it and all the while the MSM and most pundits talking their books have discouraged private ownership. Gold has never needed a bailout like the very banks that hate the idea of gold ownership vs stock ownership. I don't really need intricate charts with a lot of algo's to help me determine whether or not gold bullion is worth owning. Seems like just a bit of common sense and observation can lead you to what conclusion to draw. It may be of value for this person to investigate what happens to the value of gold during a depression and world upheaval say during the period of the 1930's and 40's. How did gold and mining stocks do compared to the rest of the market, you know while the market was causing men to jump out of skyscrapers. Just curious.
The miners today are fucked. Lowest possible ore, highest energy cost, wacko guberments stealing shit and permits up the ass.
Remember too, the 1930s depression was a deflationary one, today we have assclown Bernanke who will inject liquidity until we have hyperinflation, bubbles popping isn't deflation (overall deflation).
Gold holds in deflation.
You can stand me up at the gates of hell and I .... wont back down
Gonna stand my ground. In a world that keeps on pushing me around
Gonna stand my ground and I.... wont back down.
http://www.youtube.com/watch?v=JMzW42zZVN0
Cheers
Holy smokes! A lot of noise, and gnashing of teeth here, over what exactly???!?
While no great fan of Phil's Stock World, I can't see the point of bashing em for putting this piece before the punters for examination...this is nothing more than a rehash of some of the obvious pitfalls of being in the pm game...Hidden Dangers in Gold?...keep a steady hand on the tiller, an eye on the depth sounder, and scan the waters ahead for signs of shoals...no use ranting at the rocks themselves!
If your hide's not thick enough to read anti-gold screeds without losing it, you've picked the wrong commodity to go gaga about... this particular piece by Price was actually quite helpful in allowing me to puzzle out something that's been nagging me for a while...
in a world of relentlessly manipulated 'markets," it's psychological torture to maintain any but the most modest expectations for one's AU\AUG investments...so as coping mechanism, I've been willing to buy into the story that gold's primary value is as inflation-hedge...I've never really been comfortable with that rationale though. And when I read this piece the light finally dawned...
Reading that gold's relationship to inflation has 'decoupled,' allowed me to finally get comfortable with the truth....the suppression of pm prices far below market value is the real reason to be holding them...the coiled spring which has been constructed by the moneypowerz for more than a decade is going to release with such a blast that the value of your portfolio is going to jump exponentially in the briefest of time frames...2x? 5x? 10? ...X???...who can say???-but-the return to natural levels of value will far outstrip even severe inflation scenarios...unlike other investments...
we're almost ready for showtime...which will leave those bold enuff to hold through thick n thin in a stratosphere of return unparalleled by any other investment...and for better or worse, part of a whole new 1%...all because of price suppression...the unfortunate part of the story is, it's now crystal clear that the explosion in price is going to be co-incident with the implosion of the western world...and perhaps even cataclysmic war...mix blessing indeed.
Hat's off to the Dental Drone...he's drilled down far enough into my fear zone as to finally liberate me from fear itself....something not even Ned Schmidt could previously accomplish. And to Phil n ZH for giving him a platform...hat's off as well, to the moneyboyz, for making AU\AUG the greatest stealth investment of all time!
It's the end of the world as we know it - and I feel fine...
The way of living will dramatically change going forward. Sustainability and long term thinking will win. As always...
But this time around, we've peaked in easy money. A money policy inherited by high EROI. So this long term-thinking will be rewarded short term ad infinitum.
So, going forward, you'll want to own physical gold and silver. Companies which focuses, and succeeds, with lowering cash cost and expanding reserves cheap. Good luck with that.
You'll want to start to embrace low-consumerism. Get energy effective.
Go Robin Hood-style. Steal stuff. Seriously, steal from the criminal minded corporations of the west. They pay no taxes, no royalties while they lobby for lowering the minimum wages.
Be loud and angry but dont loose yourself in all of this.
Joyful,
I recognize the little tremor of the left hand typing the post and I respectfully retreat.
Thanks! ;-)
Looney
lol Loonster... anybody feeling strung out by articles like this one should head over to silverdoctors and look up anything by SRSrocco...he's got a new one today in fact that's right on topic!
Boy's a breathe of fresh air, and a warm tailwind in a blizzard of bullshit, as we slowly sail towards the Empyrean Isles!
Silver Doc runs almost all my writes...good site too.
The usual Ilene: Sell Gold and Buy APPL. BTFD YFI!!!
I can't finger out (pardon my spelling) how she (Ilene) gets to be printed next to Tyler, Reggie Middleton, Testosteron Richter, Mark Grant, and many other delightful ZeroDudes and ZeroDudettes. BUT... if the price of the ZeroAdmission is an occasional Ilene's "Sell PMs and buy AAPL, BTFD YFI!", I'll take it...
Looney
P.S. For those who's missed the last 4 years: BTFD YFI = Buy The Fucking Dip, You Fucking Idiot! ;-)
Is that inflation rate graph in real inflation or the gov't reported, massaged, realigned or had its equations hampered with, fairy tale kind of inflation rate?
In Paul's original article, he argued that inflation in the twenty years from 1980-2000 was high while gold was falling (70%ish): http://www.marketshadows.com/2012/12/05/gold-the-biggest-risks-are-the-o.... That inflation rate is the government's number. If you look at John Williams's chart, inflation was higher during this period too - using his methods, inflation was even higher. (http://www.shadowstats.com/alternate_data/inflation-charts)
First, why the fuck would you use anything but John William's fine work?
Second, inflation isn't higher prices, I posted a blurb on this way down the thread.
Third, we're going to have a currency collapse, every currency around the globe will be re-valued and I'd bet it'll start between now and 2017. This isn't our father's recession. The 1970s do not apply. Deficits then were billions, not 1.3-1.6 trillion and if you put them on a NPV 5-8 trillion.
Gold is about protection.
Paul needs to study, I mean really study what currencies are. How 3,800 of them have failed. How countries go through BK (without the insolvent IMF economic hitman loans). How currencies are re-issued and re-valued. How the average lifespan is 39 years.
He's talking shit.
Your posting shit (how your crap gets on ZH I don't know).
None of this shit is about the 1970s/1980s v today. Back then Paul Volckler pulled it back from the cliff. Back then it wasn't the broke printing counterfiet and "bailing" out the broke.
You're only legitimate point on gold is don't get stuffed holding tungston. Fine. But for God's sake, there are many ways to test gold without pulling out your dentist tool and drilling it. It can be weighed, measured with calipers and sonogrammed, just to mention a few things.
Drilling gold or advocating it indicates to me ZERO fucking commons sense. I wouldn't bring my late dog to that dentist, and I wouldn't reccomend him for investment advice to anyone, well other than Bernanke et al.
There are simple, inexpensive, electronic devices that passively can test the purity of gold.
Is that inflation rate graph in real inflation or the gov't reported, massaged, realigned or had its equations hampered with, fairy tale kind of inflation rate?
Illene better have a nice ass, cause her financial advice is for shit.
Ilene you are nice and probably a charming lady, but here are a few things to know about Gold. Here is the master, Fullarton 1844.
- “The amount of hoards is not governed by the state of prices, but by the market-rate of (real) interest, which however it may be essentially identified with the rate of profits on capital, it is well known rises and falls in the first with every contraction and expansion of the medium through whose agency capital is distributed, where that be money or credit.”
MY COMMENTThat is essentially why one needs to hedge his Gold with SHORT Bond ( I am sure Jim Rogers knows that). If the Fed loses control Gold might sink, but the treasuries would sink much faster in a deflation US default case. Next on the sequential impact of money printing. The master (Fullarton).
[In that case] the market would take off at part merely such proportion of the importation as had hitherto sufficed for the purposes of consumption, and the rest would all be sent to the mint for coinage, yielding an enormous accession to the importers, who, to the extent of the means thus placed in their hands, would immediately become competitors for every description of productive investment in the market, as well as for all the material which contribute to human enjoyment. But as the supply of such objects of desire is always limited, and would in no way be augmented by this great inundation of circulating coin, the inevitable results would be,
- –And lastly, a progressive increase in the prices of commodities generally
Finally on the delayed process of inflation and money printing.Good reading Ilene, good reading...
Ah... I almost forgot..
ON THE TOPIC OF INFLATION: Processed tobacco index is up 7.5 times since 1981, so adjusting the top of 1981 is $6,000 USD.
Tobacco has the most inelastic demand and supply and very low growth in both production and consumption, Tobacco was actually used as commodity money in Virginia back in the XVII century. If you dig a bit you will notice that Tobacco is excluded from the official statistics of France for inflation, for a good reason which is that it does not lie. I am talking about the raw material not the cigarettes where prices are distorted with taxes.
That short bond hedge may be a good idea sometime, (I know this because I thought so too) but it has been a horrible hedge for the last several years. IMO, short bonds will be a good play after the dollar loses reserve status, but not before. As long as the world continues to price real goods in dollars the Fed can buy treasuries indefinitely.
Three points.
1. The treasuries might go up in price but down in value at the same time. Meaning that in real terms they plunge (the money illusion)
How do exploit this plunge in value yet rise in price?
2. Since buying treasuries is lending to the Gov at 2.7% for 30 years, shorting is borrowing at 2.7% for 30 years.
For a hedge fund instead of borrowing short at 0% because he is greedy, but does not realize that short term interest rates could be at 5% with inflation at 7% in 7-10 years, instead of being greedy, be wise and lock 2.7% for 30 years.
You have 30 years to figure out how to use that cash in hard assets and repay uncle same with confettis on your treasury strip in 30 years. In hte next 5 years you could see many twist and turns and nice assets with huge yield to purchase and box your trade.
3. ILBE inflation versus 30 years is at a level where 30 years bonds yield only 27 bonds more than embedded inflation in bonds versus strips.
So we have three scenarios, either inflation expectation plunge (massive bankruptices) hedge with credit default swap on high yield index.
Or the Gold start to go on a tear if yield are negative on 30 years bonds.
Or treasuries get wacked.
So long Gold, long CDS on junk credit, short treasuries.
Sorry, boyZ and girlZ, but Tyler must've bumped my post all the way to the top of the thread...
The usual Ilene: Sell Gold and Buy APPL. BTFD YFI!!!
I can't finger out (pardon my spelling) how she (Ilene) gets to be printed next to Tyler, Reggie Middleton, Testosteron Richter, Mark Grant, and many other delightful ZeroDudes and ZeroDudettes. BUT... if the price of the ZeroAdmission is an occasional Ilene's "Sell PMs and buy AAPL, BTFD YFI!", I'll take it...
Looney
P.S. For those who's missed the last 4 years: BTFD YFI = Buy The Fucking Dip, You Fucking Idiot! ;-)
Really Lady? Everybody is buying gold right now? Do you think that is why I see all these places that are advertising, that they are buying gold all over the place? Hmmm. So whom are they buying gold from?
Ding ding ding ding' , that's right: All the people that are selling their gold.
Here's the complete list of the hidden dangers in gold.
not owning it.
Lol & blows away all my merits in under 140 characters too.
DavosSherman, anger is a gift. Keep on spraying! Cover these walls.