You're now on the archive server. Commenting has been disabled.
Gold And The Potential Dollar Endgame Part 1
Submitted by Joe Yasinski and Dan Flynn of Gold Bullion International,
Part 1 of 3: What supply and demand? It’s all stock to flow these days.
Reading our title has us convinced that somewhere our college economics professors are hanging their heads in shame with all of those x and y graphs scribbled to no avail. Economists the world over can take comfort that the laws of supply and demand still largely rule the marketplace. However, we believe there is a noted exception for a yellow, largely useless metal. A metal that just happens to have shaped the world’s monetary systems for the last several thousand years. Gold’s “supply” traditionally defined as global mining production is virtually meaningless in determining its’ price. How can this be? Analysts pontificate that global supply dynamics are integral in forecasting future metal prices. We can only attribute this to the fact that these analysts still myopically cling to the view of gold as a commodity.
Gold, even when viewed as a commodity, is unique in that it is not consumed. As there is little cost effective industrial application for the yellow metal, little to no “natural” industrial demand exists. Virtually every ounce ever mined from the earth is still above ground, either in a vault or a safe or an earring. An estimated 170,000 metric tons sits above ground, hoarded and unambiguously owned. Given that the annual supply of mined gold is approximately 2,500 metric tons, how is it gold not priced close to zero? After all, there is a 65 year overhang in supply! Despite all that we know of supply and demand dynamics and economic ‘law’, gold’s price is within striking distance of its’ all-time-high – in every currency on the planet.
A major contributing factor to gold’s price is that the vast majority of the stock of physical gold is held in very strong hands. It is largely held privately by very wealthy families or by governments and their central banks. This gold lies very still, some of it not changing owners or locations for decades, if not centuries. These giant holders have little need to ever sell, holding gold as a long term store of wealth or as a central banking reserve asset. Gold naturally appeals to these super-savers because of gold’s history as the ultimate store of value and lack of counterparty. Sure you can buy real estate, art, or classic cars- and the extremely wealthy do. But beyond illiquidity and subjective risk, these assets can become cost centers in themselves with maintenance, storage, insurance, etc. Gold is universally recognized as a wealth asset but is also infinitely divisible, portable, and highly liquid. Gold’s value has been established over a millennia and is ultimately the asset that denominates or values all others.
Rather than supply in the traditional sense, what drives the gold price is the percentage of the existing stock (170,000 tons) that is available for sale on any given day. The percentage of available inventory for purchase is the “flow.” Divide the flow into the stock and you get the STF ratio. A low STF ratio indicates a very high percentage of the existing physical stock is available for sale and a very high number means owners prefer to hoard physical metal rather than exchange it for dollars. So for example, if every ounce of gold was put up for sale tomorrow, the STF ratio would go to one and the price would plummet, likely to near zero. But, what if instead of everyone selling their gold tomorrow, all existing physical owners of gold decided to keep it instead? Could this even happen? Doesn’t conventional wisdom and ‘economic law’ tell us that as the price of gold goes up, there are fewer buyers able to purchase and more sellers willing to dishoard?
In our opinion, conventional wisdom simply doesn’t apply here. Gold, in our opinion is what is often referred to as a Giffen good. A Giffen good is one that actually sees a spike in demand as its price rises. Conversely, demand drops along with price. While the concept of a Giffen good is well known, the number of examples in the real world are slim and usually limited to localized commodity markets in extremis. A golden, glaring exception is the massive example playing out before our very eyes. In typical Giffen behavior, gold was scorned and dishoarded by individuals as well as central banks as the price hovered in the low 100’s. Fast forward to today and gold demand is at to or close to all time highs, even as the price sets new records in currencies around the world.
Many prominent members of the gold community insist that gold is going to appreciate massively because of a huge flood of investment dollars will flow into the metal over the next several years. They may very well be right, and we at GBI certainly hope so. But we can see things developing differently as well. We believe that a massive revaluation of gold denominated in dollars can happen quite suddenly, almost overnight. But not because of any sustained long term demand for gold, but simply because owners of metal simply withdraw it from sale, sending the stock to flow ratio to infinity. This is why understanding gold’s stock to flow ratio is so vital.
Can you imagine a manufacturer of automobiles (or any producer of a good with a declining marginal utility) deciding to just sit on his newly manufactured automobiles and let them stock up in perpetuity or would he offer them for sale, for as many dollars as he can get? Of course he would sell for dollars because he must monetize his production. As with almost every commodity, widget, or car – the suppy/demand dynamics are fairly straight forward. The manufacturer needs to exchange those automobiles for cash or they’re worth nothing to him. For a holder of gold, there is no need to exchange his stock for dollars, especially if there is an avalanche of dollars pursuing that stock of metal.
If the dollar avalanche comes, can you imagine a massive owner of gold - perhaps a central bank in a surplus nation or billionaire family, preferring to stockpile gold as a reserve eschewing the current offer of dollars? Or do you see these savvy economic actors dishoarding their store of value in exchange for quickly devaluing dollars (like the auto manufacturer)? Once you can see why one makes sense and another doesn’t, you’re on your way to understanding how gold is priced and how major pricing moves can have almost nothing to do with traditional supply/demand dynamics. There never needs to be a massive flow of dollars into gold for it to go unimaginably higher. Existing owners need only remove their stock from sale. And tying it back to Giffen, when physical gold goes into “hiding” the demand of people bidding with their dollars will increase in proportion to the increasing price.
It’s useful to understand the concept that dollars bid for assets. When dollars bid to buy a stock over and over (high velocity) the price goes up. If all dollars stopped bidding for AAPL the price goes to zero. In reality, dollars value Apple stock. Gold is a unique asset in that it denominates, or values currencies. Dollars don’t bid for gold. Gold bids for dollars. If you’re having a hard time with this idea, think of an extreme, like Weimar Germany or Zimbabwe. A gold owner accepts or rejects a sum of dollars as a suitable trade for their metal. When they reject this bid, it drives the STF ratio higher and higher. Why would gold holders cease to bid for dollars? For the same reasons we all hoard gold, as protection of real purchasing power from a failing fiat currency. Where will the flow come from? Central banks certainly aren’t selling anytime soon, ditto for our fine Asian friends. On a micro-level, we have seen recently in places like Greece and Spain that there is a finite quantity of gold that flows into the market when times get tough. What happens when the citizens run out of gold bangles to sell and everyone else starts hoarding? On a macro-level, what happens when surplus nations no longer save in US dollars and instead save in gold? What happens if the “flow” of gold slows to a trickle, or even stops all together? We can easily paint a multitude of scenarios that don’t require all that much imagination. Will dollars frantically chase after gold? Perhaps, but will the holders of gold bid for those dollars? What will that imply about the dollars purchasing power relative to others goods and services?
It is up to the reader to decide which of the two following turn of events is more likely. Is it more likely that the human superorganism will come to the realization that their dollars are being debased and gradually steer more and more of their assets into gold or is it more likely that existing owners of gold, who long ago came to the same conclusion and likely purchased gold to hedge that very outcome, will first choose to remove theirs from sale?
The answer lies in this question, who values gold higher? The new incremental buyer, or the existing owner? Sure, we could get to astronomical gold prices through a flood of new buyers, but we could have an even more dramatic move overnight if existing gold owners cease bidding for dollars with their gold. Or, maybe, some combination of the two. The only problem for a new investor is one of those scenarios can play out over years while the other can happen virtually overnight.
What happens to the “price” of gold when it ceases bidding for dollars? Zero. Or infinity. Take your pick.
We have some ideas about why this hasn’t happened to date, and how you may be able to identify a S-T-F ratio to infinity unfolding before our very eyes.
»
- 52403 reads
- Printer-friendly version
- Send to friend
Exchange those frn's time is running out.
An age old story... Time to go {Robin Hood} on { Blankfeins, MOMO-PROP desk} <>
I like this thread, but there's a weakness in this claim: "Central banks certainly aren’t selling anytime soon."
CBs may "loan" their gold to their country's big banks when the latter are in distress, as they will be when the Greek haircut takes effect. This loaning will never be paid back, of course. But national politicians will demand that the loans be made. (This may already be going on.) The banks then sell the gold to raise cash. This means that sharp down-spikes in gold's price are likely, and that they will occur when they seemingly shouldn't. Traders beware.
"sharp down-spikes"?
Not until gold is well into the bubble phase, and we ain't anywhere close yet.
"A major contributing factor to gold’s price is that the vast majority of the stock of physical gold is held in very strong hands."
I find that very disconcerting Tyler. Who ,and what are the intentions of those holders of inflation?
When the masses find more value in a potato, than a 20toz ingot, what happens?
Smart traders go all-in on the potatoe market.
"Smart traders , find a third trade." That off-sets the tension, from the original trade.
Excess capital, has been responsible for fantastic innovation...
Lay off the (roid) Dog Biscuits...
There's no such thing as "excess capital." The sum total of *all* capital is just called "the world."
There's only one world, and they're not making any more of it.
Are you using the full capacity of your "Cranium"? Do you think that, you have the capacity to learn more?
One World?
I'm a multi-dimensional thinker. I shouldn't take the piss out of you because I know you'll never get the jokes. Sometimes I do it, anyway.
BlunderPuppy? You are a wanker! You are just beginning to wake up! I get all of your Jokes. Get your rump out of bed to trade.
I see potential in you!
When the producers of those potato's demand to get paid in gold, what happens?
ok, true fonz, but id rather have gold to buy your patato as i am guessing you would not accept my dirty ass fiat.
all will be relative to the value of the fiat in question. a zillion dolas for a blow job, no but an oz will get me laid now and i'll have french fries later.
Fonz is more then willing, to form a "free trade pact" for your quality potatoes... His fiat is exchangeable, "Legal Tender"...
Let's discuss trade terms , based on your last 6 months of delivery, and we have an exchange rate.
The reserve bank of Fonz has 2000kg [xau] of .999(sovereign) as collateral.
I'm working on it lol. Man the back and forth on here is just awesome.
Where do you find this imagination?
I see you being very productive as a story teller. Write a book, I say.
EKM, whos messing with ya? You aren't your normal "tack sharp" self?
Is it the short days?
Short days for sure. I love sun.
But I have a better explanation:
God giveth, God taketh away.
Thats exactly my point to Yen. Forgive me if I am unclear (5th beer). But Yen was concerned when the masses decide they need to eat, and therefore value a potato more than gold. Well what happens when the potato grower demands gold as payment. The masses today all have fiat, and none of them produce potato's.
I was reading a lot of back and forth's with Slaughterer today. I find him intelligent and entertaining as hell. But he trades in paper all day. The thought that the market as we know it may be go through a paradigm change did not sit well with him. The idea that physical markets could take over certainly does not bode well for him, or me, or many others. The key is, will you rail against that possibility just because it goes against your interests, or will you embrace it and prepare as best you can for the possibility?
If shit breaks down I know I fall into the masses category. It is what it is. I caught on late and was already embedded in what I do. But I will be prepared as best I can and I will have tradeable assets that will sustain me until I find a way to start over. At least I hope that is the case. Sorry for the rants. I am pensive this evening.
Crystal clear to me Fonz. ;-)
Trust me it was crystal clear to you long before it was vaguely clear to me.
Can't go wrong with Slaughterer Fonz... Smart person.
Slaughterer has forgotten more about trading then I will ever learn. I just meant a little more big picture. When someone does anything for a living, the idea that what they do can become obsolete or irrilevant usually does not settle in very well for them. I am just using him as an example. He could have a fortress of Gold sittng next to stacks of Remnimbi and Sweedish Krona for all I know. But there is a chance that if this market tanks, and it is the big tank. People throwing Netflix and Panera Bread around every day may need to find something else to do.
Human beings always and always need a unit of account, numeraire.
In ancient Ireland, 'slave girl' was a unit of account, literally. Anything was denominated in slave girls, but of course no slave girls exchanged hands when people bought food.
That is the whole point of Gold, a unit of account that cannot be printed. Funny enough for ancient eire, nobody could print slave girls either.
You then turn the potato into vodka and then put the gold into the vodka (like in GOLDSCHLAGER). There, fixed it or you.
Better off trying to figure out how many angels can dance on the head of a PIN.
A solid 5.
Most investors will wait till gold really starts going through the roof, then they will sell some of their bonds and netflix to ' git in before it gits away'. It all seems to be a gamble, however, 5000 years of ( world ) history of gold as money is hard to overlook.
This article is more guff trying to work with the quantity theory of money - that it is quantity that determines value. A far simpler, so more logical, explanation is that value is determined by quality.
Only gold has an eternal, unchanging quality, so only gold is a standard of value. Hence the gold standard.
AUD we miss time zones. I like your posts. ;-)
Pick me ! Please pick me?
You’ve be picked. The MMT [Modern Monetary Theory] crowd is launching another theatrical play to regain confidence. The curtain hasn’t been raised yet, the audience will see. No spoilers…
Hope you’re doing well – Have a good weekend!
Atomizer Well spoken. Just another " Shakespearean tragedy"... We're all on the same barge...
Thanks for looking out... Good man you are :-)
i lived thru the 900/oz mania
coke for gold
shit was crazy then. wow a krugerrand; i fucking want one.
a bubble of gold> and finally we are on the eve, only this time dolas of fiat for the real deal...
walla, gold the drug of choice:), cures the fear of future blues...
Good on ya. I'm trying to understand you. usd- or xau?
Ohhh it's cny "cyn"/usd " trading band " expansion?
Old skool .
This was from Doc Engali on another post
"When the time comes they have us so divided we will take out each other and TPTB will come mop up the rest."
This is what keeps me up at night. This is what makes me walk around my house at 3am looking out my window, and I live in a decent neighborhood and the shit has not touched the fan yet. That sentence is why I spend my day prying open the lids on the brains of the people around me, peeking in to see if any bells are going off. They are not. I spend way too much of my time trying to figure out a way to get people to 1) be concerned 2) direct that concern to the right place. I can't get past 1.
This is quite the conundrum.
They're zombies. Which is why DOC is stuck in möbius loop.either that or taking great green gobs of SSRI's. Just saying.
Or maybe I try to consider all scenarios and think of the one most likely. Or the one that TPTB would like to see played out. And when I see them dividing us further apart that tells me that if all hell breaks loose they want us focusing on each other instead of them.
I wouldn't worry too much about the TPTB. They are TOUCHABLE. just a matter of the type of tool that will be used to touch them.
One thing I've learned in life is to never underestimate the enemy.
and never underestimate the identity of the enemy. Criminal law has helped me get to that same intense point. Authority is often the ultimate rapist. You can see it most nakedly in the actualized veterans. (Like Miles Kendig and SgtShaftoe) THey have seen the ugly inside of their fearless leaders in the most tangible undeniable way
fonz,
This is what keeps me up at night. This is what makes me walk around my house at am looking out my window, and I live in a decent neighborhood and the shit has not touched the fan yet. That sentence is why I spend my day prying open the lids on the brains of the people around me, peeking in to see if any bells are going off. They are not. I spend way too much of my time trying to figure out a way to get people to 1) be concerned 2) direct that concern to the right place. I can't get past 1.
This is quite the conundrum.
It's because they are living in DENIAL, and not the river in Egypt.
My son laughed in my face last week,because of my belief in Au/Slvr, as insurance and real money.He and his spouse live in a home that cost 4x's as much as the one I OWN, and drive Mercedes,and other new models.They both have a job, making $50k-$100k +,and are frugal with cash,but own ONE thing, or real net worth one vehicle outright.
( the Mercedes, and it was free,a gift from her employer,he gave three away to emps for their service when he sold out.)
He also laughed at me for stocking up on food,and water.I told him I was not stocking up on it for myself and my wife,but my IGNORANT kids that I knew I would have to be feeding,that have been warned,but choose to ignore.He did not laugh after that comment.
Both my kids are older, and are content with their Walter Mitty lives. Sounds like your acquaintances.
Food Stamps (SNAP)..hasn't updated their report since 28 September. They are supposed to update every month....hmmm
http://www.fns.usda.gov/pd/29SNAPcurrPP.htm
GOA in Vegas, re-election party...
Timeless argument, but it still all rests on one thing; whether or not people are willing to believe in the intentions of the people holding the gold. Yes, they might see value in it at the moment, they may well have done so for several thousand years, but they used pencils for a long time too. Regardless, can the supply and demand argument be made redundant? The article above says it’s a moot point.
Considering that the above argument does not concern itself with ordinary supply and demand dynamics to make its case, partly due to the fact that those dynamics are rightly quoted as largely stable, (and indeed goes on to remind us all that gold is practically useless, true), rather it depends on the weight of historical human interpretation, and we can go on to say that any stably mined commodity could act in the same way, only if enough people believed in it or not; in another dimension, gold could be umbilical cords by people born on the Septembers of every year, they too are of stable supply. Of course that’s a shitty example, but it’s irrelevant, as too are gold supply and *demand dynamics
Hence the big problem, apart from the obvious stuff which we are all sensible enough to neglect (it could be graphite since we don’t use pencils anymore); the holders of the gold could never let you believe that the metal was on a par with umbilical cords, much like Columbus could never let the Indians know that silly trinkets were not on a par with the value of their land.
This is not an argument against gold in the present tense though, or the people that wish to rightly keep their money safe at this moment in time... this is a frivolous attempt to make people see, contrary to what has been implied above, that there are no temporally infinite set-theoretical certainties when it comes to how people perceive value. There will be no "game, set and match" or “economic checkmate” move for how people will continue to perceive what their labour is worth. Gold could be made worthless by giving everyone on the planet a single piece of the supply, for example. What i am trying to say is that the worth of gold lies largely in the fact of those that are holding it, their argument; they have it, you have been convinced you want it.
The moral of the story is that everything will always be worth whatever the rest of us are willing to pay...whether its shiny or sinewy. If you are a realist though, you will go with the shinny stuff at the moment. But is gold the best of a bad situation? Whether sinewy or shiny, it depends whose holding it and when.
there are no temporally infinite set-theoretical certainties when it comes to how people perceive value.
Shh...folks 'round here tend to hate on the Austrians in any screeching goldbug thread. This is one of those.
Should read, " There are no "finite-theoretical" oxymoronic "quantum" thoughts,] like comparing theory & Being Human<>
Blunderdog, you need to brush up on the " prepositional phrase", side of things.
Beautiful Yen, if only it made sense...i got you on a technicality there.
Fetch me a EGG ROLE, Aanonymous.
Role reversal?
I'm thrilled that you're following my work, but you don't do it very well. Simplicity is the key to good writing.
" grammetical educate"?
¶ The,
¶ Ends
¶ here
Heh, its gibberish Yen, sorry mate.
I'm not your mate Chinese, troll... Hey Hop Sing, lay of the Bonanza re'runs...
Crossing swords again??? BAD BOY! Very, very bad boy. How does: cuz, bro, shipmate strike ya?
PBoC change over, press conference on Z/H?
Sure. Topic will be how to get money from disappeared family since the Post Office is going BK. invoice for bullet used to "re-educate" soon to be disappeared will have to go either paperless via I-crap phone or old fashioned way. Courrier for special delivery??? On a bike of course... Wouldn't want global warming to be advanced by using internal combustion engines. Maybe that is why the DHS ordered soooo much ammo.
Thanks for re-iterating the fact/ I'm sure your GOULAG friends will be compliant!
Confused you are. Gulag is RUSSIAN. You have to come up with the AMERICAN equivalent. Use that grey noodle of your for something for once. Just saying.
My Bad, OK, corral) Chinese style? Is your Family safe for the change over WAMO556 ?
Is the new corrupt party going to save you?
Providence.
Semper Fi!!!
Gold,
It's a statement of power...by which it derives it's value. Kings of the mountain hoard it, because they can.
Gold conducts electricity as well as silver. The values could be flipped, based upon above ground stockpiles.
If mining shut down....the illusion would have troubles.
Are you ready for a ratio reset?
Or things could go in the opposite direction. I think it depends on whether you think the Fed are bunch of bumbling incompetants who will inevitably print into oblivion until we have hyperinflation or if you think they are crafty conspirators that have already planned every major macroeconomic move past, present and future. If you think the former then sure, gold might be a good bet but if it is the latter then watch out. If the Fed has everything under control and given that they are a private institution, then one must ask what scenario would be in their best interest. It seems to me it would be in their interest to have a deflationary spiral where the banks will be able to use their now better valued dollars to buy up or reposses the now cheap gold, stocks, land and everything else under the sun. And as an added bonus for the Fed, many of their biggest critics, the gold bugs, would be stunned into silence as they watch their shinny metal plunge in value as everyone else tries to dump the substance in a frantic attempt to escape being the last one still holding the stuff.
The big money has already left the dollar. It is in hard assets and stronger currencies. It will come back to buy many of the things you mentioned (Stocks, land etc.)on the cheap once the dollar is on it's death bed.
Ever wondered why Saudi Arabia does NOT use its own currency to sell oil?
Canada sells oil only with canadian dollars. One has to buy canadian dollars in order to buy canadian oil, hence CAD is a petrodollar. But, not Saudi's riyal.
Ever wondered why? What would happen if Saudis did not sell oil in USD?
Ever wondered why? What would happen if Saudis did not sell oil in USD?
******************
Saudi does sell oil in other currencies-it is a myth that they "have" to sell in USD's- they agreed back during the oil crises to use the USD as a "benchmark" price-based on WTI grade oil-
Eh...you're missing something major here: it's that "benchmarking" that is what is meant by "selling in dollars only."
If you translate everything into dollars to determine the price for the transaction, you're "selling in dollars." Not because you must receive dollars in payment, but because the agreed-upon payment price is DETERMINED by the value of the transaction-media in dollars.
Aside from the fact that the USA protects the Saudi government, the main reason SA sells oil benchmarked in dollars is because their economy is TINY and virtually completely owned by the royal family. There's no use in the rich Saudis collecting more riyals--they've already bought everything they want/need that their country produces.
They have to have the ability to exchange that wealth for stuff that they don't already have. What other point is there in being rich?
Eh...you're missing something major here: it's that "benchmarking" that is what is meant by "selling in dollars only."
************
Hardly-when currencies can be exchanged in a nano second-how could they implement such a rule?
Oil is priced in all currencies just like gold or copper or any commodity-
USD's are "mostly" used to buy oil-because the US runs massive trade deficits and so the USD is held in reserves of most countries and what are those countries supposed to do with their reserves?
http://globaleconomicanalysis.blogspot.ca/2007/11/oil-pricing-unit-red-h...
Thank you to both.
I think you're both right.
I'm thinking you're a bit fuzzy on the meaning of "reserve currency" in this context.
Banks can convert currencies in nanoseconds, but the actual buyers and sellers of oil cannot.
They have to PAY bankers to do that FOR THEM. You're correct only as long as you ignore the plumbing that connects the various market participants.
In other words: you may have the theory down, but the practice (which is the part that matters most when discussing the trade of real commodities) doesn't match the model.
(EDIT: This was intended as a reply to JJ, not sure how that happened.)
Quite interesting
Banks can convert currencies in nanoseconds, but the actual buyers and sellers of oil cannot.
*************
Are you serious?
I can open my trading account (i'm canadian) and in a nanosecond completely exchange all of my cash into USD's or trade on any exchange in either currency- so-you're trying to tell me a fucken "country" couldn't do the same?
JJ
What he is saying is that those countries have no expertise on FX trading and they choose to pay somebody else for it.
Duh. YES, I'm serious.
1) YOU are not a buyer/seller of OIL
and
2) you are PAYING A BANK to perform that exchange for you, just as I said
Duh. YES, I'm serious.
1) YOU are not a buyer/seller of OIL
and
2) you are PAYING A BANK to perform that exchange for you, just as I said
*************
Duh--you think i cant buy or sell oil?
Do you think a country does not buy oil through a brokerage,,such as an investment bank?
Did you bother to read the link i pasted--rebut that-if you can-
I read the link, but I dunno, I have no idea what your point is. I guess we should just chalk it up to disagreement or something. Honestly, I don't even know what you mean when you say "a country" buys or sells oil.
Government agencies buy and sell oil...so do residents/businesses/citizens of a country. Those transactions are not the same thing, and in neither case does it make sense to me to say "the country" is doing the buying or selling.
Start a refinery and spend a few years arranging oil transactions and maybe we can clear up the nature of our disagreement.
And as an added bonus for the Fed, many of their biggest critics, the gold bugs, would be stunned into silence as they watch their shinny metal plunge in value as everyone else tries to dump the substance in a frantic attempt to escape being the last one still holding the stuff.
*********
Completly stupid uninformed poster-
An example-2 days ago the USD/UST's/Gold/Gold miners were on a tear-
Oil/Silver/the whole commodity complex and the stock markets were crashing-
Why did gold and the gold miners decouple in a deflationary trade?
If you can answer that-we can talk-
I don't think one days event represents a refutation of my argument. The question is, does the Fed have things under control in the long term horizon and what is in their best interest?
I don't think one days event represents a refutation of my argument.
**********
It's not a one day event unless you haven't been paying attention-
Whenever there's a rapid flight to safety- in say the last 2 years-gold has linked up with the dollar and treasuries-
Deflation is what makes gold shine other than a currency collapse and i don't see much evidence that occurring in the near future at least-
"Why did gold and the gold miners decouple in a deflationary trade?
If you can answer that-we can talk-"
I will take a run at that one.
Gold (even the f'd up Comex quote equivalent) is closer to real than a mine bet.
Mines have labor, fuel, transport, nationalization and forward pricing risk.
Actual gold does not.
Bird in the hand kinda thing.
Mines have labor, fuel, transport, nationalization and forward pricing risk.
Actual gold does not.
Bird in the hand kinda thing.
*********
True-mines have all those things-but guess what-they also have "gold"
Actually, no. They have inferred deposits.
BreEx comes to mind.
The stuff I can hold in my hand is gold.
The stuff they tell me is in the ground might be.
You use BreEx for an example of a producing miner?
BreEx never produced 1 oz. of gold-
Try looking at some legitimate producers who btw are posting another 1/4 of record profits and are ramping up dividends-the mid tier producers have 30-50% gains since the may/july lows-late investors are slowly waking up to value-
Yo JJ (JimmyJames)
I have considered that Jim Sinclair wanted to have his wealth in gold and having a considerable amount of wealth, he has done that by owning lotsa gold in the ground. The best way to protect it. Pretty hard to steal when it's ore in the ground not dug up or processed yet.
He has then located that gold in the ground in a foreign country to which he has cultivated great connections with TPTB there.
The Ultimate hoarding and protecting of one's wealth as best that can be done, considering. Not only that, I'm sure he got some leverage when buying in.
A gold mine is a hole in the ground with a liar standing next to it.
You are on my radar.
I like this contrarian view.
I doubt this will happen, even though I agree. For prices to crash, rates have to rise......substantially. And that would mean the FED is unwinding its ponzi. But the Treasury cannot afford rates > 2%. But falling prices doesn't affect the real value of gold already in possession anyways, only the nominal value. I mean, I can still buy the same amount of shit with the same gold that i could when prices were high. Maybe i'm off here, but, it seems to me that the nominal value of gold is really only a reflection of the purchasing power of fiat in relation to all other goods and services. When I first started purchasing PM's the advice I received from many dealers was, "don't look at gold as an investment, rather, look at it as a store of value - a currency hedge." If gold were to go to $100 tomorrow, prices for all other goods would also had to have fallen commensurately. But your gold, though significantly worth less on a nominal basis; its real value hasn't changed, all else equal. But before ZH's go batshit crazy on me, I would qualify this by saying that if interest rates are rising such that the real rate is greater than zero, then fiat now becomes an attractive alternative to PM's depending on preferences since now i get paid to "wait", whereas, you don't get paid to wait holding gold. I know I have left a few things unaddressed such as money stock, supply, velocity, but, for me, to keep it simple, I buy PM's not because I think their nominal price is going to shoot up, rather because I want to preserve the real value of my wealth. Nothing more, nothing less. Peace RP 2016.
This is a good comment - and well worth discussing how they might achieve such a thing. Even though these guys will also hold gold, it is definitely in their favor to try and engineer a deflationary spiral - that never actually gets to collapse point.
What would this look like exactly? How could it be done?
I think it would be worth one of our long term contributers take a contrarian attitude and explore how this might be achieved - it doesn't matter if we don't like it, it is worth exploring whether or not it can be done. A detailed exploration might give some warnign signs and possible actions.
What would happen if rates were ramped up, and the Fed just continuously bailed out favoured banks? Could the central banks go on a buying spree of govt debt then? Would that stall the deflation and create inflation?
I don't understand these things well enough to understand how it might be done - anyone who can shed some light into this contrarian scenario - your input would be appreciated.
Maybe the 'Greek gods' of lore were just a bunch of fucking politicians and bankers battling it out?
I have a greater appreciation for chartists and the concept of timelines after having read this 'fundamental' presentation.
Isn't it pretty well established that the Chinese.gov began dumping MBS 2003-2005?
And they have been buying what hand over fist since?
So fucking obvious. NWO doesn't hide anymore. It's just ignored.
Yes, nice..a structural insight, but it's not New World Order that we're currently slouching towards.
It's New World Chaos.
The OLD Order is still holding at the moment. It could end at any second.
Nothing is infinite in the real world.
averros You get a Trophy for finishing last...
I hope the tptb are happy to have successfully destabilized the world. The main flaw I see in their plan is that most people would prefer well-worn supply lines. In order to get everything to fall apart far enough for people to accept unabashed slavery the basic needs for the majority must go through an insecurity phase. During this phase the remainder of the population will wake up and smell the new paradigm, forge new supply lines, offer whatever assets are accepted, and do so with fervor. This is where gold comes into play. It's not so much that gold is worth any particular amount of anything, it's that it will always be worth something to someone and will therefore be worthy. Tptb failed when they allowed people to manage their own day to day lives and provide for their own needs relatively unmolested. Survival is just not enough anymore, forward consumers!
Happy birthday Marines - Semper Fidelis
General John A. Lejeune's Birthday Message:
On November 10, 1775, a Corps of Marines was created by a resolution of the Continental Congress. Since that date, many thousands of men have borne the name Marine. In memory of them, it is fitting that we, who are Marines should commemorate the Birthday of our Corps by calling to mind the glories of its long and illustrious history.
The record of our Corps is one which will bear comparison with that of the most famous military organizations in the world's history. During 90 of the 146 years of its existence, the Marine Corps has been in action against the Nation's foes. From the Battle of Trenton to the Argonne, Marines have won foremost honors in war and in the long era of tranquility at home. Generation after generation of Marines have grown gray in war in both hemispheres and in every corner of the seven seas [so] that our country and its citizens might enjoy peace and security.
In every battle and skirmish since the birth of our Corps, Marines have acquitted themselves with the greatest distinction, winning new honors on each occasion until the term "Marine" has come to signify all that is highest in military efficiency and soldierly virtue.
This high name of distinction and soldierly repute we who are Marines today have received from those who preceded us in the Corps. With it we also received from them the eternal spirit which has animated our Corps from generation to generation and has been the distinguishing mark of the Marines in every age. So long as that spirit continues to flourish, Marines will be found equal to every emergency in the future as they have been in the past, and the men of our Nation will regard us as worthy successors to the long line of illustrious men who have served as "Soldiers of the Sea" since the founding of the Corps.
Many Thanks and back atcha
Regards,
80's-90's Jug-H
@ WAMO556
Marines should join oathkeepers.org.
Gold my be an inert metal but it sure does cause some chemical reactions in the human brain and psyche. To many people its position in the monetary world does not make sense yet why should stupid men in possession of printing machines make more sense?
I have often said to friends that gold should not be sold unless it can be exchanged for a better outcome and even then the income from that better outcome should once again be used, at least in part, to repace the gold that was disposed of.
For as long as fuel and food create issues of storage and portability, gold will continue to be a beautiful barbarian.
Mercury...............
One more bit, you can see the crony multi-nationals spin concocted with new laid-off employees because of their inter-workings of ObamaCare support. The 24/7 TV channels often keep the peasants at bay. Forgetful to prior teleprompter speeches.... Many can only remember, the president spoke during your TV program and we couldn’t watch the ending during its regularly scheduled program. You were told to create an internet account to watch the remaining show, you’ve now be lamblasted with our selective advertisement agenda.
CHICAGO CLIMATE EXCHANGE (CCX)
"Smoke Two Joints" - YouTube
I actually listened to that all the way through. Simpler times living off other people's dimes.
Wow. What an article. Wow.
Do you guys understand now what I've been saying about 'Flow swallowing the Stock'?
I've been saying that about stocks, but not gold. Actually, gold is the absolute best example of Flow swallowing Stock since everybody knows that Gold's quantity is FINITE but above all, it's SMALL.
On the other hand, Stock's quantity is ALSO FINITE, but there's a perception that stock's stock is infinite. Which is very wrong. Stock's stock if Finite.
The major difference between Stocks and Gold is that Stocks are derivatives of companies doing business, whereas Gold is not a derivative, it is the underlying asset.
Thus by hoarding Gold, one hoards an asset whereas by hoarding stocks at the Primary Dealers' balance sheets, one hoards derivatives. This is like saying that in time of famine gold hoarders have food supplies and stock hoarders have cockroach supply.
Autobiography Central... A purple punch at the Hotel Del Coronado. "before the renovation" With a snifter of "Tequila"...
You people can drink the "xag"... I respect you!
I prefer that old, "aged" oak barrel taste.
There is a far simpler explanation: GOLD is MONEY. The pieces of paper the state tries to pass off as money, dollars, are simply fiduciary media, a form of money substitute. As fiduciary media expands, its money price drops, until it finds its natural value, zero. At this point you could say the price of gold was "infinite" but what is really happening is that the great con is finally coming to a head, and the masters no longer need a money substitute to pass off to the slaves.
1) GOLD is consumed hugely in JEWELLERY terms in INDIA, though it is debatable if you count it as CONSUMPTION 100%
2) GOLD LOAN is into big boom (thought % terms it is quite low), and they are sort of digging out GOLD from weaker hands
Where are the chinese? They aren't monsters. Welcome back?
Read the link and understand why gold is looked after.
The perennial human thinking of 'unit of account' a numeraire.
http://encyclopedia-of-money.blogspot.ca/2012/05/slave-currency-of-ancie...
Gold cannot printed. But 'slave girls' cannot be printed either.
Any mathematical formula requires a constant. A law or formula cannot exist without a constant.
Example: E = MC2. The speed of light is constant.
Constant = Unit account = numeraire
Shanghai Express...
Well, that slave currency piece was interesting.. thanks.
I might suggest that although your cannot print slave girls you can press them.. and if you press them the right way and follow up with a liquidity injection, you not only can get a yield on your bondsmaid, but have a good time investing as well.
I have never mentioned or condoned slavery, "indentured servitude"... Matter of factly, I embrace Freedom!
If that remark was taken out of context, I stand corrected... Thanks for keeping it real Manthong If I insulted you, I appologize.
;-}
Disproved with only one easy, common example:
Area = Length X Width;
no constant, yet the definition or "law" is always valid. Back to basics. Don't believe everything your read, even on ZH!
My moms ants sisters,fathers brothers mother in law makes 47,000 A MONTH ON THE INTERNET and I am going to make more than that on one ounce of gold.......
Fuck you Bernanke.
Gold is merely tradition
For when traditional really bad banking outcomes occur..
oh wait.. this time is different.
Money is created when suitable commodity is being held just for it's marketability and not only for direct use. If tradition was to disappear overnight gold would still have good chances of becoming money again. Oil or "kWh of energy" seems to be also reasonable for money purpose but it's much less durable and divisible. Lots of problems with moving or storing physically energy, and oil doesn't have a huge stock to production ratio and would have very volatile price being primary money. Maybe basket of commodities could "win against gold" as we've got really good means of trading without physically moving stuff, but I would bet on gold and/or silver.
Fiat money is merely tradition. This is money that is not and never was a commodity and has not "close to zero" but actual zero inherent value. It's based only on faith and threats of the government.
Could this be the date???
12/21/2012
everything depends on everything else
"May you live in interesting times"
I don't think about these things for a living. This post spelled out some things that had bothered me about gold out of the corner of my eye. Gold is like a hybrid of some kind where the definition of it changes depending on where and how you look at it. Kind of an "is it a particle or a wave" kind of thing. It depends, both, and neither, it is something else. Not a commodity. Not money. But can act like both.
Rehypothecation, swaps, loans, derrivatives = uncertainty principle
If you try to pin it down (in the paper world) it can be there or not depending on when you attempt to look at it and how.
replace "gold" with "honey bun" and I'll give you a greeny; its fits very tightly your description of that existential feeling that we men feel.
There will always be, some sort of exchange-able currency. I like it backed by XAU as much as the next person...
Even Monkeys trade THE MOST IMPORTANT COMMODITY WITH EACH OTHER... Food
Everyone should own some P.Ms., and "Every One" should know how to make a fire with out matches...
"A major contributing factor to gold’s price is that the vast majority of the stock of physical gold is held in very strong hands. It is largely held privately by very wealthy families or by governments and their central banks."
Who owns who, the dog or his boy?
The author does not understand stock to flow, as it refers to stock versus mining supply. Other than that, some decent plagiarism and rewriting. +1 from me.
All of these "phenomena" that attributed to gold in the article are nothing strange.
This stock to flow point of view certainly doesn't invalidate supply and demand. It is just a rare case where gold is better money than legal tender fiat that is mandated for every day use. If gold was primary money holding all of it would be impossible as people and organizations that hoard it still need to buy at least some stuff with it. It certainly has LESSER value now from what it would have if you could just buy stuff for gold-denominated notes. Now it can only be used as a long time storage of value and so it is used this way... and obviously with long time storage there is only a few transactions.
It's like saying that all goods except for basic food have somewhat strange or surreal demand... as all the people that could buy them could also stop buying them. Even overnight. Fashion for ipods stops tomorrow and demand goes to zero and price to zero and ipod market no longer exist. Is something wrong with ipod as a commodity?
Sorry, I don't really buy this Yasinski/Flynn analysis of how gold is priced.
It's based almost entirely on the view that sellers of all goods (except gold) are forced sellers and must accept whatever $price the market is prepared to pay. This is generally true, but in a normal market, many sellers will not usually sell their goods at below cost etc unless they become forced sellers (eg bankrupty).
But in the case of gold, the authors essentially claim that sellers are all optional sellers and therefore they dictate the market price of their commodity. This is obviously nonsense. It is true that the composition of gold owners probably differs from many other commodity owners but that does not mean that gold STF governs the price of gold, only that it affects the supply/demand dynamics. IMHO a much greater influence on the gold price is caused by massive manipulation of the market which goes on.
I think all this talk of Giffen Goods is a result of economists failing to learn that which they were taught in elementary school. The market price of a good is a function of the supply of goods in the market and the demand for that good in the market. A rising price may provide incentive for potential sellers to bring additional supply to the market, but that is hardly the only consideration that weighs upon a potential seller's decision making, which is often overlooked when must begin their economic theories with ceteris paribus.
In the gold market you have several distinct groups of participants with very different bahaviors and even greater externalities which bear upon their desion making - miners, central bankers, recyclers (incl. $ for Au), individual savers, traders, and institutional investors. Miners are the traditional producers. Central bankers' behavior is a function of their States' larger monetary and foreign policy goals. Recyclers behavior is not necessarily similar to the miners, since they are largely dependent upon individual (often forced) sellers for additional supply. Then there are the remaining savers, traders, and investors...
Right on. Another one of the dead-simple things to keep in mind: "price" is literally ONLY a historical record of a component of a transaction that has already occurred. The "market price" (or current price) of something can never be asserted with certainty--it can only be estimated or projected. (And nevermind the discussion of "future price.")
Given that, we see the whole "market price" concept as a metaphor or a variable--there is no "known value" there, although for calculation's sake, we *require* the ability to pretend there is.
Yes, a "price" is a historical figure. A live market, on the other hand, is made up of bids and offers. The authors' statement that "gold bids for dollars" is true, but I find it a bit confusing.
To look at it in currency trading terms, if a gold dealer quotes an XAU/USD spread of 1710 bid / 1720 offered, he's saying that he'll buy XAU 1 (one troy ounce of gold) from you for USD 1710, or sell XAU 1 to you for USD 1720.
Alternatively, he could quote this as an inverted USD/XAU spread of 1/1720 bid, 1/1710 offered, saying that he'll buy USD 1 from you for XAU 1/1720, or sell USD 1 to you for XAU 1/1710. So in that sense his XAU is "bidding" for your USD.
The authors are saying that, if fiat currency starts to devalue rapidly, the dealer (or other owner of gold) might start quoting you a spread of 1710 bid / 1750, or 1710 / 1800, or even 1710 / no offer at all. On the inverted side, the equivalent quote is no bid / 1/1710 offered.
It all seems like a rather long-winded way of saying that sellers might not be terribly anxious to part with their gold in exchange for a fast-depreciating piece of paper. Hardy news to anyone on ZH.
(Oh, and by the way, the authors should know that "its'" isn't English. To say "belonging to it", write "its", as in "its price"; to write the contraction for "it is", write "it's". How hard is that?)
Piecing together "theories" to prove infinities or zeros has become boring. Why can't these knowledgeable people come up with something deeper and more credible, preferably in less words?
Lots of folks have heard about FOFOA's freegold, but have you heard about SEEGOLD?
http://tradewithdave.com/?p=12845
S-E-A Gold. That's what you get with all these boating accidents that happen around here...
no idea (glub glub) what you're talking about
Boating accidents, bitchez
"Gold is not consumed" Isn't that to neglect the fact that gold is a tool of trade and storage of value?
The answer lies in this question, who values gold higher? The new incremental buyer, or the existing owner? Sure, we could get to astronomical gold prices through a flood of new buyers, but we could have an even more dramatic move overnight if existing gold owners cease bidding for dollars with their gold. Or, maybe, some combination of the two. The only problem for a new investor is one of those scenarios can play out over years while the other can happen virtually overnight.
This is a simple one: the incremental buyer will send the price higher, not the current holders unwilling to sell. You'd never know that sellers are unwilling to sell BECAUSE the transaction doesn't take place. The market doesn't clear. If the holders of gold are unwilling to buy dollars period, then the price as denominated in dollars to them is meaningless to them. The incremental buyer therefore is the one that sends the dollar denominated price higher. They have to offer more dollars in a bid for gold.
It's not a circular argument and here's why: take a public company where hundreds of millions of shares are outstanding on any given day. Maybe 90-95% of the shares are held by investors that aren't even coming to market on that particular day. They're major institutional investors, ETFs, or just some schmuck holding on to company stock in his 401k. They're not actively monitoring the share price. They have no plans to sell their shares. Some of them are sitting on such a gain that they don't want to take the tax hit. If the stock price shot up by 20-30% in a day, you're going to raise some heads and some of the people may enter the market at that point. But here's the point: the marginal buyer caused the price to increase AND you can't know why people aren't in the market at any given time. The share holders don't become marginal sellers until a certain price is hit and you can't know a priori what that price is.
I will offer this: the holders of gold who refuse to purchase dollars who continue to not sell gold after a price increase contribute a price increase having legs. Meaning, if you get a big move in the price and it doesn't shake any significant supply out , you're going for a nice ride up.
If what you say is true, "the incremental buyer" combined with "the market doesn't clear" would pose the question... what are they doing over at the DTCC on 55 Water Street if they're not clearing? I guess they're cleaning up after the flood. Did they ever get into that vault, the one with the soaked sealed envelopes. We're talking $30+ Trillion, so somebody needs to check that out
http://tradewithdave.com/?p=13199
http://tradewithdave.com/?p=13092
That doesn't pose that question at all. The DTCC is a non-sequitur. Market doesn't clear and the particular bank housing transaction records for futures contracts are not the same discussion.
I think I got it. You're saying it's like Pinky and the Brain. Which is the Brain, the Fed or the DTCC? Or is it Treasury?
No. I'm saying this is difference between economic price theory and the minutia of the clearing entity for gold futures contracts in the United States.
"Rather than supply in the traditional sense, what drives the gold price is the percentage of the existing stock (170,000 tons) that is available for sale on any given day."
This assumption is wrong....there is "paper" gold....some say 100 to 1...they are trading paper that says they have gold....GLD for instance....so "they" can sell a lot of this if the price goes up....and that is exactly what they are doing...that is why some countries want local control of their gold....
With rehypothecation to infinity, the "supply" of paper gold is infinite. Until there are a few failures in the rehypothecation chain. And/or Germany and other Central Banks bring home their physical gold as Venezuela did. The entire gold "market" will then freeze up. Strong hands holding any significant amounts physical gold won't sell, and will wait to see how this all plays out.
Cock-teaser post ending with rhetorical questions. Keep popping the Viagra until the next episode.
Anyone know how to deal with GBI directly & avoid the horrendous premiums their 'Hard Assets Alliance' frontend charges?
The gold price action has has printed a bullish outside week after four consecutive weekly declines. If the upside mometum carries into next week and beyond the key level I see is around $1800. A break above this resistance could see another push higher and gold bubble frenzy. I agree with your post that "price moves can have almost nothing to do with traditional supply/demand dynamics".
Interesting that the latest Bloomberg poll shows twenty-five of the 33 analysts surveyed expected gold prices to rise over the coming week
See our latest gold analysis post here.
I just read your post I agree the key level is 1,800 a break above would be massive. What could trigger it maybe another US debt downgrade.
gold bubble frenzy
In the circumstances we see globally, the word BUBBLE does not even compute for Au.
I took a look at the $Gold chart from a tecnical prospective today. It has very bullish possibilities. There is a massive cup and what looks like a handle on this last bounce from support. There is also a inverse head and shoulder setup.
The key number is 1,800 a break above that from a tecnical prospective would truly be massive.
Many people would sell at 1,800 I think that would be a huge mistake.
a real technical perspective requires math & producing your own charts. All the rest is just voodoo pictures in the clouds and cold-calling single-linear number targets without a time-frame.
This is how it's done.
http://flic.kr/p/dr5zxy
head-and-shoulders does not work - neither does cup-and-handle. No one can even agree there is/not a particular formation at the same time much less admit to a failed call later.
You can see my failed call in there (gold higher than predicted range) which would hurt short-sellers. No biggie. Other charts show equations. It's 277-week rate-of-change / ROC used to compute this, no secret whatsoever.
Data from http://www.fxhistoricaldata.com/download/XAGUSD?t=hour
"Dollars don’t bid for gold. Gold bids for dollars."
Church!!!!!!
What else are they going to use when the US dollar is devalued and then removed from its reserve currency status? All other fiat currency's have fallen in the last 500 years and the US dollar is ready to also. Think of the wealth destruction for the 99.5% that trusted in the paper ponzi. Precious metals, arable farm land and other physical assets will help you manage this upcoming creative destruction event.
The "stocks to flow ratio" sounds quite "fofoa-ish"...
In any instance is good to know:
1) Gold and also silver are still in a primary bull market, in spite of the current secondary reaction.
2) On November 8, the Gold /Dow ratio turned bullish long term for gold which implies that the odds favor for the next months gold outperformance. Here you have the details of how the ratio turned bullish and its implications:
http://www.dowtheoryinvestment.com/2012/11/dow-theory-update-for-nov-8-s...