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On Gold As A Hyperinflation Put

Tyler Durden's picture




 

Gold has had an amazing recent run. From December 1999 to March 2012 the U.S. dollar price of gold rose more than 15.4% per annum, the U.S. Consumer Price Index increased by 2.5% per annum, while U.S. stock and bond markets registered annual gains of 1.5% and 6.4%, respectively. It is not surprising then that there is so much disagreement about gold’s future and it is this "Golden Dilemma" that a new paper by Erb and Harvey focuses on, analyzing at least six somewhat different arguments that have been advanced for owning gold:

  • gold provides an inflation hedge;
  • gold serves as a currency hedge;
  • gold is an attractive alternative to assets with low real returns;
  • gold a safe haven in times of stress;
  • gold should be held because we are returning to a de facto world gold standard;
  • and gold is “underowned”.

The debate over the prospects for gold resembles in some sense the parable of the six blind men and the elephant. Different perspectives, different models, lead to different insights. Depending upon which rationale, or combination of rationales, one embraces, gold is either very expensive or attractive.

However, one important conclusion is that their analysis shows that the price of gold is very sensitive to even a remote possibility of another Weimar Republic-like inflation episode. So while there is disagreement over gold as an inflation-hedge, it is critically a levered option on hyperinflation as even extraordinarily small probabilities of 'extreme' inflation will have a large impact on the possible future price of gold.


The Golden Dilemma

 

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Mon, 07/09/2012 - 17:56 | 2600125 Snakeeyes
Snakeeyes's picture

Where will the inflation come from? The Fed can't generate squat except fear. Need growth in aggregate demand to get inflation. But the banks ain't lending FOR REAL!

http://confoundedinterest.wordpress.com/2012/07/09/consumer-credit-rises-but-is-it-enough-to-spur-growth-velocities-and-labor-market-still-lousy/

Mon, 07/09/2012 - 18:02 | 2600141 nope-1004
nope-1004's picture

On one hand he states: the U.S. Consumer Price Index increased by 2.5% per annum

Then says "gold is a good inflation hedge".

wtf?  So which is it?  CPI has been low and gold went up?  Or CPI is falsified and real inflation is much higher, and gold went up?

The reason gold has outerperformed over the last decade is precisely because we have out of control inflation and money printing, currency debauchery, and a gross misallocation of capital.

Mon, 07/09/2012 - 18:02 | 2600150 runlevel
runlevel's picture

wtf ever happend to giethner? your icon reminded me i havnt heard from beavis in a while now..

Mon, 07/09/2012 - 18:10 | 2600191 MillionDollarBonus_
MillionDollarBonus_'s picture

The sad reality is that the precious metals bubble has popped and silverbugs and goldbugs are now going to have to learn REAL investing, instead of just ‘stacking’ blocks of shiny metal. Goldbugs are now going to have to learn how to construct a mean-variance optimized equity portfolio with the little capital they still have left. If only doomer goldbugs had bought treasuries, they might have had a little more to invest.

Mon, 07/09/2012 - 18:12 | 2600195 dlmaniac
dlmaniac's picture

 

It's gonna take a while for hyperinflation to strike. When Weimar happened, they did not have an asset bubble implosion preceding it. Nor did they have a global reserved currency. When they printed like crazy the result was therefore quickly felt. 

With US Dollar and this on-going debt meltdown, the case is more complex and the liquidation procedure will last a while before bankers overprint it into hyperinflation. I'd say maybe 2nd half of this decade is where HI strikes.

 

Mon, 07/09/2012 - 18:25 | 2600234 Skateboarder
Skateboarder's picture

I'd love another extra five years, but the whole world is waiting for some sweet, sweet, supernatural action at the end of 2k12. Just sayin.

Mon, 07/09/2012 - 22:11 | 2600835 engineertheeconomy
engineertheeconomy's picture

The economy for the wealthy is doing great and will continue to do so. The rest of us will lose just about everything we own to those select few elite bastards, except those that are heavily invested in Gold and Silver. Any person that has the opportunity but does not invest heavily in Physical Precious Metals now will be hitting themselves in the forehead with a brick in a couple of years when Gold is between five and ten thousand dollars an ounce. Any one that does not understand why that will happen, well, lets just say it's too late for you if you don't get it by now.

Tue, 07/10/2012 - 03:27 | 2601296 Oliver Jones
Oliver Jones's picture

2k12 = 2120.

If you are going to use engineering shorthand, it would help if you learned what it meant, first.

Tue, 07/10/2012 - 03:50 | 2601317 jeff montanye
jeff montanye's picture

i'm no engineer but i don't think 2k12 is engineering shorthand.  a video game or a soviet missile maybe.

plus it isn't shorter.

Tue, 09/11/2012 - 04:27 | 2780942 Oliver Jones
Oliver Jones's picture

1k7 ohms (1,700 ohms or 1.700 ohms in European notation or 1'700 ohms in Swiss notation)
1r7 ohms (1.7 ohms or 1,7 ohms in European notation or 1.7 ohms in Swiss notation)

This definition has existed for decades - it's nothing new, and is is useful because it encodes the decimal point and magnitude in one letter (it also helps to avoid confusion between decimal and separator standards between countries.)

If you use the definition, you should understand it. Otherwise, you simply come across as a bit ignorant.

Tue, 07/10/2012 - 11:22 | 2602225 5880
5880's picture

Weimarch wasn't the reserve currency. people had a choice

Mon, 07/09/2012 - 18:14 | 2600204 akak
akak's picture

*yawn*

Mon, 07/09/2012 - 23:10 | 2601014 He_Who Carried ...
He_Who Carried The Sun's picture

"Gold has had an amazing recent run. From December 1999 to March 2012 the U.S. dollar price of gold rose more than 15.4% per annum"

 

Let's see by what rate/annum it comes down during the next 12 years: 5%? 10%?

As the old saying goes: What goes up, must .... ....!

Tue, 07/10/2012 - 00:59 | 2601182 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

As the old saying goes: What goes up, must ...

...be higher than it was before.

Tue, 07/10/2012 - 19:21 | 2604003 MeelionDollerBogus
MeelionDollerBogus's picture

Gold never went back down to 1300, not back down to 260, not back down to 35. The price of gold doesn't return to older values. It goes up then stays there forever.

 

Take a look: http://goldprice.org/charts/history/gold_all_data_o_b_usd.png?0.53999132...

Mon, 07/09/2012 - 18:19 | 2600217 MunX
MunX's picture

Not sure if trolling or just stupid.

Mon, 07/09/2012 - 18:26 | 2600237 akak
akak's picture

The two are by no means mutually exclusive, and in fact are likely to be mutually reinforcing.

Mon, 07/09/2012 - 18:24 | 2600230 AlamoJack
AlamoJack's picture

You are simply hilarious!!  Is Bevis your straight man?  Hahahaha!  Or, are you just one of the old, tired and worn out traders working for the PPT?  Telly Benny I said shalom.

Mon, 07/09/2012 - 18:31 | 2600255 MunX
MunX's picture

Your hipster iphone has some "shiny metals" in it MDB. Looks like you are a silver stacker. Welcome to the world of REAL investing.

Mon, 07/09/2012 - 19:11 | 2600312 FL_Conservative
FL_Conservative's picture

As long as money keeps being printed ad nauseum, there will be no "pop" in PM's.  Want some FACTS to back this up?  How about over 50 years of data relationship to the US money supply?  But don't let FACTS get in the way of your CONJECTURE.

Avg. Annual Price                               Avg                  Min                Max             Median

Gold                                                  $296.8             $34.6           $1,650.0          $279.8

Silver                                                   $5.6                $0.9               $35.1             $4.6

Oil (per barrel)                                    $19.8               $2.8                $91.5            $15.0

M2 (Avg Quantity)                            2,953.3             293.3             9,217.9          2,417.4

 

Ratios                                                  Avg                  Min                Max             Median

Gold:Silver                                          48.4                18.4                 89.6              41.2

Oil:Silver                                               3.4                  1.5                   6.8                3.2

Gold:Oil                                               14.7                 8.9                 29.4              12.4

 

Growth Rates:                               1960-2011          July-9-2012

Gold Price                                      4,600.9%            4,415.7%

Silver Price                                     3,759.3%            2,893.4%

Oil Price                                         2,801.3%             2,766.3%

M2                                                 3,042.8%              3,266.9%

Mon, 07/09/2012 - 19:46 | 2600475 GOSPLAN HERO
GOSPLAN HERO's picture

King James Bible (Cambridge Ed.):

And all king Solomon's drinking vessels were of gold, and all the vessels of the house of the forest of Lebanon were of pure gold; none were of silver: it was nothing accounted of in the days of Solomon.

The gold mines of Ophir!

Perhaps this is the only historical situation were silver had little or no value.

King Solomon's gold wealth was beyond comprehension.

Mon, 07/09/2012 - 19:29 | 2600406 GOSPLAN HERO
GOSPLAN HERO's picture

There's way too much crack in your bowl.

Mon, 07/09/2012 - 19:36 | 2600432 VegasRage
VegasRage's picture

The precious metals bubble has popped? ROLMAO! 

 

Really?

  1. Has the bond market bubble popped yet?
  2. Have the worlds governments and banks found a way to reduce all that excess stimulous from the system?
  3. Have the worlds governments and banks closed all the corruption holes to prevent paper manipulation?
  4. Have all 78 million baby boomers written the government and told them to keep their social security and medicare?
  5. Has the Euro suddenly found a solution that will save it from certain doom?
  6. Has Japan reduced it's 200% debt to GDP?
  7. Has the US gotten honest on the real numbers for the CPI, GDP, Unemployment, and long term fiscal obligations?
  8. Did we correct the massive trade imbalance between us and China?
  9. Did the people of India and China who make up half the worlds population suddenly embraced the western idea that gold and silver are no longer money over night?
  10. Did the world just sing in one voice that stimulus is the solution to all our problems?

 

Mon, 07/09/2012 - 22:16 | 2600861 engineertheeconomy
engineertheeconomy's picture

11. Will the biggest Tsunami of Evil ever in the history of mankind suddenly stop and go backwards, leaving a smooth, calm sea?

12. Will Gravity suddenly reverse itself causing all objects and the earth itself to be catapulted into outer space?

Mon, 07/09/2012 - 19:49 | 2600485 Snidley Whipsnae
Snidley Whipsnae's picture

If China, the Mid East, India and the remainder of SE Asia continue to maintain a floor under gold in the ~ $1,500 - 1,600 range whats to worry about?

Inflation, deflation, blah, blah, blah...

What matters is that gold is supported in it's current range and when real fear enters stage right gold will continue it's upward climb as currencies show their true colors... ie, the color of zero, which all fiats eventually end at. Printing more fiat/credit to relive a system choked with fiat/credit is not going to hurt gold in the long run. Only the most myopic would believe that gold can be permanently damaged by fiat when the paper gold/PMs game is in it's final stages. Take the long view and forget the naysayers that can't see past next week.

So let the blab continue... gold is real money and no amount of blab is going to change that fact.

Mon, 07/09/2012 - 20:33 | 2600579 cranky-old-geezer
cranky-old-geezer's picture

 

 

If only doomer goldbugs had bought treasuries, they might have had a little more to invest.

In the same timeframe gold has risen 500%, treasuries have risen Z-E-R-O.

And they don't pay any interest anymore, so there goes the "yield" argument.

In that same timeframe where gold has risen 500%, treasuries have LOST 70% OF THEIR VALUE from currency debasement.

500% gain or 70% loss? 

Yea, I'll take gold over treasuries ANY day.

You treasuries bugs never talk about how the dollar is losing value. 

No problem, us smart people are well aware of it, and we put our wealth where Bernanke can't debase it away with his printing press.

He can't print boatloadss of gold like he can print boatloads of currency.  We're smart enough to see that.   You're not apparently.  Dumbass.  Moron.

Let's talk again when the rest of the world drops USD as world reserve currency and it just fucking crashes.

How much will your treasuries be worth then? 

The answer of course is they'll be worth the same number of dollars they were before.

But those dollars won't buy a pack of gum.

We're smart enough to see that.   You're not.  

So go ahead, buy treasuries.  We'll buy gold. 

Tue, 07/10/2012 - 19:18 | 2603995 MeelionDollerBogus
MeelionDollerBogus's picture

what if I bought $100 billion in treasuries then used it as collateral for margin leverage and rehypothecated that same amount of Treasuries in London more than 10 times and used it for margin EVERY single time? Now what can I buy?

Mon, 07/09/2012 - 21:23 | 2600740 TraitorsHang
TraitorsHang's picture

I used to hate your posts. I used to think you were ZH's resident contrarian. Then I read them twice, quit worrying, and learned to love the MDB.

+1

Mon, 07/09/2012 - 21:29 | 2600761 thorgodofthunder
thorgodofthunder's picture

TRUTH

Mon, 07/09/2012 - 22:04 | 2600847 QuasiYoda
QuasiYoda's picture

Silly man . . .  Gold and Silver are not finished.  If you knew anything of them you would know this period of consolidation is par for the course.  This has occurred after each of the parabolic blowoff tops that have occurred over the last decade. Treasuries are clearly close to the end of their 30 year run.

 

Look at a Chart before you go spouting such nonsense!

Tue, 07/10/2012 - 01:37 | 2601213 moonstears
moonstears's picture

3.2% more, to be exact, and since inflations only 2%, why that's $1.20 for every hundred, much better than gold at $1500 a year ago, now $1590, that's almost 6.5%....hey....waitaminute...thanks for the advice MDB, is that sarcasm I detect?

Tue, 07/10/2012 - 08:36 | 2601613 Hobie
Hobie's picture

I think you're right MDB. I'm going to rush down to the bank and swap all my metals for shares in... Facebook! I should be onto a winner there, right? Or is that AAPL today? Maybe Netflix?

Tue, 07/10/2012 - 19:07 | 2603957 MeelionDollerBogus
MeelionDollerBogus's picture

o rly?

Interest rates still negative? Yup.

Inflation still over 8%? Yup.

Globally? Yup.

Gold trade is on, bitchez.

Gold, dow, inflation

10 years of gold not nearly out of steam in rising prices

2700 gold on the way

Mon, 07/09/2012 - 18:02 | 2600152 DoChenRollingBearing
DoChenRollingBearing's picture

Quick as I can write it...

Gold, bitchez!

Mon, 07/09/2012 - 20:40 | 2600639 HungrySeagull
HungrySeagull's picture

Metals bitches.

Fixed it.

(Includes ammo.)

Mon, 07/09/2012 - 22:28 | 2600899 engineertheeconomy
engineertheeconomy's picture

Precious metals, good farmland, hand grenades, machine guns, land mines and a years supply of hand held ground to air missles, bitchez.

There, now it's really fixed.

Mon, 07/09/2012 - 18:09 | 2600155 flacon
flacon's picture

Interesting typo on page 18 chart (pictured above): "2st", "1nd", Quadrant. Obviously it is a FNORD moment, designed to confuse intellectuals with characters after their name, such as "pH-dee" and "B.S.".

Mon, 07/09/2012 - 18:05 | 2600168 Aziz
Aziz's picture

Where will inflation come from?

Oh maybe the $5+ trillion in excess reserves floating around Asia.

Or the $15+ trillion of credit that excess reserves could be multiplied up to....

Or, you know, maybe a "transitory commodity-driven blip" like war between Iran and Israel.

 

Mon, 07/09/2012 - 18:47 | 2600292 Son of Loki
Son of Loki's picture

'HyperBiflation' is more likely:

 

"Inflation made here in the U.S. is very, very low," the Federal Reserve chairman told Congress on Wednesday.

"Over the 12 months ending in December, prices for all the goods and services consumed by households increased by only 1.2%," he said.

Around the globe, people are rioting in the streets because of skyrocketing food prices. Health-care costs in the U.S. rise annually by double digits. College, insurance, utilities, the fees bailed-out banks charge their customers, various taxes from nearly bankrupt states and municipalities, basic commodities from pork bellies to gold, and, oh, gasoline -- all of this keeps going up.

But don't worry, Mr. Bernanke swears inflation -- at least as the U.S. government measures it -- will remain low because wages are stagnant. See, there's no need to worry about rising prices, because you're not getting a raise.

On the day Mr. Bernanke spoke, The Wall Street Journal's lead headline read "Inflation Worries Spread." But the story was about rampant inflation in other countries.

 

http://online.wsj.com/article/SB1000142405274870384300457614076270603229...

 

https://en.wikipedia.org/wiki/Biflation

Mon, 07/09/2012 - 19:01 | 2600323 ATM
ATM's picture

All of that World Reserve Currency paper will roll right back to the USA when the dollar is no longer used as a reserve currency - which means it is already starting.

US Dollars are only going to be good for one thing - buying shit in the USA. Compound that with the Fed buying every piece of shitty worthless "asset off TBTF bank balance sheets adn the dollar number grows ever bigger.

Then when the Fed itself can no longer hide it's bankruptcy they will revalue the dollar v. the only asset that they own that has any real value - gold. when the Fed is broke they will simply change the rules to make their gold holdings worth whatever they want it to be worth. 30k? 50k? 250k/oz it doesn't matter.  

Mon, 07/09/2012 - 20:35 | 2600621 DanDaley
DanDaley's picture

Then when the Fed itself can no longer hide it's bankruptcy they will revalue the dollar v. the only asset that they own that has any real value - gold. when the Fed is broke they will simply change the rules to make their gold holdings worth whatever they want it to be worth. 30k? 50k? 250k/oz it doesn't matter.

 

Of course the corollary to that is that, because they don't have all the gold -and you do have some, they are going to screw with you in some way, shape, or form.  

Mon, 07/09/2012 - 22:32 | 2600918 engineertheeconomy
engineertheeconomy's picture

They will have us all slaving in a prison labor death camp crammed into a big chicken coop, but it will look and sound like Disneyland and the sheeple will love it.

Mon, 07/09/2012 - 18:07 | 2600176 I think I need ...
I think I need to buy a gun's picture

i can't use any of these charts from the last 100 years obviously all ratios and charts over the last 100 years need to be thrown out if we are going to some type of new worldwide system.

Mon, 07/09/2012 - 18:10 | 2600192 DosZap
DosZap's picture

Or CPI is falsified and real inflation is much higher, and gold went up?

CPI is fudged, real rate is actually 5%.
And that does not count food,or fuel costs..........if it did we would be showing 15%.

Mon, 07/09/2012 - 18:51 | 2600300 youngman
youngman's picture

Anyone watching feed stocks...corn and soybeans...they are skyrocketing..if this drought sticks....that higher costs will be passed thru fast in meat products...and wheat, rice will follow.....we could have 30% inflation in food prices...

Mon, 07/09/2012 - 20:38 | 2600632 DanDaley
DanDaley's picture

Buy bags of wheat berries and learn to store it in mylar and plastic buckets.  Good for 30 years at least.  

Mon, 07/09/2012 - 21:16 | 2600718 dark pools of soros
dark pools of soros's picture

oh no, will the food stamps be raised to keep pace??  at least until elections? 

Mon, 07/09/2012 - 18:47 | 2600294 Peter Pan
Peter Pan's picture

Fear of collapse has seen gold reassert itself but all calls for a collapse that have not eventuated have simultaneosly created a sense of complacency.

Gold is stuck between these two poles at the moment and it will only move with determination once the euro has its next major crisis or breaks up and once the USA amd Japan finally hit their fiscal icebergs.

Also do not underestimate the power of a major military confrontation, capital controls or natural disaster to shake things up.

The bottom line is that there is no perfect form of wealth.

Mon, 07/09/2012 - 19:24 | 2600378 VegasRage
VegasRage's picture

The CPI being referred to is the same as what Bernanke always talks about. Core inflation, which conveniently excludes food and fuel from it's caluculations. I submit real inflation is much higher than the shiny happy numbers of 2.5% per annum. 

Mon, 07/09/2012 - 21:39 | 2600783 Whiner
Whiner's picture

And...and..a perpetual "Confederacy of Dunces", that is to say, our bought and paid for USSA Congress and Community Organiser in Cheif. The Dems are going to hold the senate. Let the good times roll! 2012!

Mon, 07/09/2012 - 18:03 | 2600160 tmosley
tmosley's picture

Hyperinflation is more closely related to deflation than it is to inflation.

Lower interest rates and you get deflation.  Lower them to the point that everyone can borrow at negative interest rates, and you get hyperinflation.

Mon, 07/09/2012 - 18:22 | 2600225 Reptil
Reptil's picture

voilà

that process started in Danmark I read here

Mon, 07/09/2012 - 21:05 | 2600696 ultimate warrior
ultimate warrior's picture

Raise the interest rates in this debt ridden environment and the game is up.

Mon, 07/09/2012 - 18:04 | 2600164 flacon
flacon's picture

Let's suppose there is no more money printing.... Gold should be revalued at free market prices to above $3,000/ounce just to compensate for what already exists as actual paper money. 

 

 

Mon, 07/09/2012 - 22:30 | 2600879 cranky-old-geezer
cranky-old-geezer's picture

 

 

Money supply is 10 trillion admitted. 

It's more like 30 trillion actual. 

2/3 of it is "off the books".

If USD loses WRC status, that whole 30 trillion comes flooding into circulation.  The dollar loses 2/3 of it's value overnight.

That's hyperinflation.

 

Tue, 07/10/2012 - 11:27 | 2602263 5880
5880's picture

The "off the books" part is rapidly reducing

the fed printing is just filling that hole

= no inflation

plus the fed has to pull that injection because the bonds expire

the gold price increase came from the dollar drop

Mon, 07/09/2012 - 18:17 | 2600175 akak
akak's picture

Snakeeyes vomited:

Need growth in aggregate demand to get inflation.

Please tell me about the massive 'growth in aggregate demand' which fueled the hyperinflations of Zimbabwe, Latin America, Russia, or Weimar Germany.  Or even the 'growth in aggregate demand' that fueled the inflation of the 1970s in Europe and the USA.

Spoken like a truly clueless Keynesian true believer.

Mon, 07/09/2012 - 18:31 | 2600252 delacroix
delacroix's picture

 high inflation and hyperinflation, are 2 different beasts 1 is the increased demand for goods, the other is a loss of demand for currency

Mon, 07/09/2012 - 18:37 | 2600263 akak
akak's picture

You fail to mention the overissuance of fiat currency by governmental agencies as another (and ubiquitous) possibility.

Mon, 07/09/2012 - 18:53 | 2600302 youngman
youngman's picture

I would say its more a loss of FAITH in the currency....that is hyperinflation

Mon, 07/09/2012 - 19:55 | 2600507 Snidley Whipsnae
Snidley Whipsnae's picture

"I would say its more a loss of FAITH in the currency....that is hyperinflation"

Bingo!

Mon, 07/09/2012 - 20:56 | 2600676 CrockettAlmanac.com
CrockettAlmanac.com's picture

The faithful love bingo!

Tue, 07/10/2012 - 01:43 | 2601218 HungrySeagull
HungrySeagull's picture

Bingo huh.

More like shit bingo purses worth maybe 50 bucks for the big one.

Mon, 07/09/2012 - 18:08 | 2600182 zuuuueri
zuuuueri's picture

forget about the model of banks lending to the public. That's obsolete now.
The game is all about central banks lending into government debt, now, and you can be sure every penny of that is spent.
Some connected banks get access to the freshly printed toilet paper and do whatever they think profits them, with it, but weve already moved into the stage of the game where lending to the public as a driver of spending or inflation has been exhausted and the loop is much tighter now through monetizatoin of government paper.

Mon, 07/09/2012 - 19:48 | 2600482 cranky-old-geezer
cranky-old-geezer's picture

 

 

Need growth in aggregate demand to get inflation. But the banks ain't lending FOR REAL!

This type of bullshit comment is a classic example of not understanding what inflation is.

Inflation is NOT rising prices.  Price movements are a RESULT of inflation PLUS supply / demand factors.

"banks not lending" is bullshit.  Banks may not be lending into the economy, but the Fed is printing and lending $170 billion a month to the federal government, plus billions more to the EU in currency swaps, and no telling how much more in other behind-the-scenes lending to banks and god knows who else.

This masive amount of printing and lending by the Fed is expanding the money supply and debasing the currency, the true definition of inflation.

It shows up in the economy depending on supply / demand factors. 

Where supply & demand is relatively constant, like food and fuel, we see prices rising dramatically over the past few years. 

Where demand has collapsed, like the housing market, we see prices barely rising at all and dropping in many areas.  This simply means demand is falling faster than the currency is being debased. 

Another area where demand has collapsed, jobs, is seeing price action just like the housing market.  Prices are barely rising across the board and dropping in some areas of employment.  It means the demand for labor is dropping faster than the currency is debasing.

Prices staying steady does NOT mean there isn't any inflation.  It means demand in that area is dropping faster than inflation.

This is exactly what Bernanke wants to do, cause demand to collapse in the economy in order to offset the price effect of massive money printing to keep the government going and keep Wall Street going.

But some sectors of the economy don't collapse.  Demand for food and fuel holds steady, and that's where we see the full effect of Bernanke's massive money printing, with prices doubling in the last 3 years.

Those doubling prices are NOT inflaiton.  They're a RESULT of inflation of the money supply combined with steady demand. 

No, you don't see it in housing, because the housing market is just fucking collapsing.   If demand in the housing market was holding steady, we would see prices doubling there too.

No, you don't see it in the job market either, because the job market is just fucking collapsing.  If demand for labor was holding steady, we would see prices doubling there too.

 

 

Tue, 07/10/2012 - 05:29 | 2601364 Freegold
Freegold's picture

"Where will inflation come from?" Look around and you will find it´s already here. Inflation is moneygrowth x money velocity. Right now money velocity is low but if/when it picks up you will truly find inflation :)

Mon, 07/09/2012 - 17:58 | 2600130 thren
thren's picture

You also can't hyperinflate away the value of land or guns, both of which are much cheaper on a historical scale then gold. 

Mon, 07/09/2012 - 18:00 | 2600146 TideFighter
TideFighter's picture

"You also can't hyperinflate away the value of land or guns, both of which are much cheaper on a historical scale then gold. "

 

hmmm, that chart does look like a target from my local range...

Mon, 07/09/2012 - 17:59 | 2600139 runlevel
runlevel's picture

LowProfile... Where you at!?

Mon, 07/09/2012 - 18:00 | 2600142 fonzannoon
fonzannoon's picture

 "A single exchange traded fund, GLD, holds more gold than the official reserves of China"

These guys should ask Kyle Bass about taking delivery.

Mon, 07/09/2012 - 18:07 | 2600179 gmrpeabody
gmrpeabody's picture

"A single exchange traded fund, GLD, holds more gold than the official reserves of China"

ROFLMAO....

Now THAT'S funny!

Mon, 07/09/2012 - 18:04 | 2600158 Alexmai
Alexmai's picture
The average dollar is only being used in 1.5 transactions a year!

The velocity of money is at an all-time low, even lower then it was in the 50’s.

Mon, 07/09/2012 - 18:08 | 2600180 flacon
flacon's picture

What happens when the velocity of "money" (currency) STOPS? Answer: Socialist utopia where the ocean turns to lemonade and all of society becomes wealthy, except for the very rich, who feed us with grapes.... /s

Mon, 07/09/2012 - 18:39 | 2600270 blindman
blindman's picture

does money or currency have velocity, is it
even possible that that term has any meaning?
money has speed perhaps, but can it have velocity?
what is the direction?
and time is just space with a number of observations
of variance. where does that leave our money system?
and us?

Tue, 07/10/2012 - 01:44 | 2601220 HungrySeagull
HungrySeagull's picture

Bullshit.

Listen to the cashier asking for dollar bills.

Mon, 07/09/2012 - 18:05 | 2600166 CuriousPasserby
CuriousPasserby's picture

People say if gold goes to $10,000 (6 times now) then gas will be $20 (6 times now.

But in 2000 gold was $275 and gas was $1.50, Gold went up nearly 6 times and gas only doubled.

Mon, 07/09/2012 - 18:10 | 2600189 Dingleberry
Dingleberry's picture

Gold haters always use the argument that "gold is not an inflation hedge b/c it did not rise during the inflationary mid-80's and beyond while the stock market rose".  The reason that gold did not rise then is because you got paid INTEREST on your parked cash.  Remember the good ol' days when you got 5, 6 and 7% or more?  What do you get now?........

If we are in deflation now...then can I please pick inflation?

Gold is completely and totally safe. How on earth anyone can doubt it is suppressed now that the LIBOR thing broke.....interests rates even move up on friggin' inch, and it's game over.  For real estate. For consumers.  For stocks. For the government. For everyone.  Welcome to ZIRP World, bitchez!

Mon, 07/09/2012 - 18:13 | 2600201 flacon
flacon's picture

You are right. If interest rates rise to compensate capital holders it would need to be in the double digits just to break even.... but then the entire rest of the world comes down.... it truly is over, we are just in the waiting phase to hear that last groan/breath before it is restarted. 

Mon, 07/09/2012 - 18:41 | 2600282 EmileLargo
EmileLargo's picture

The reason gold did not go up for twenty years is because it was massively over-priced at $850 an ounce in 1980. From there it was only going to go one way when the Fed stopped printing money like drunken sailors. And yes positive real interest rates defalted gold for a long time. 

Mon, 07/09/2012 - 19:11 | 2600339 anarchitect
anarchitect's picture

I'm surprised at all the "5" votes for this article. Read the paper, all of you with 1-minute attention spans. They don't think gold protects against inflation, currencies, or low rates of return. They do think the risk of hyperinflation is a powerful factor, along with--maybe--gold being "underowned".

Sorry, no points for hyperinflation being a powerful factor. Too obvious.  As for gold being "underowned", the question is why, and what would change it. A random walk, for fuck's sake? Surely it must be protection against inflation (unless real interest rates are high) or protection against one's national currency going down the toilet. And gold's appeal in the face of negative real returns is obvious to anyone thinking about where they'd actually put there OWN nest egg. But no, they dismiss all of this with bullshit charts and statistics, doing a bang-up job (without realizing it) of reinforcing the Austrians' admonishment against this kind of conceit. Hell, their currency chart PROVES that gold is a good inflation hedge (over time), one that protects against the simultaneous debasement of all currencies, not just your local one.

An interesting article, but SERIOUSLY flawed. More and more, the knee-jerk and puerile comments and voting that I see in articles tells me to just read the articles and to forget about readers' reactions.

Mon, 07/09/2012 - 19:46 | 2600468 smiler03
smiler03's picture

If a ZH article mentions gold, it gets 5s, if it mentions that gold might not be perfect for any reason whatsover, they give it 3's.

There are often times when ZH readers shoot the messenger via the ratings.

Mon, 07/09/2012 - 21:22 | 2600693 maximin thrax
maximin thrax's picture

This report reads like some dude spent a week or so cobbling together research to convince himself that he is smarter than the gold-holding public - and the central banks buying thousands of tons each year. The fact that the hyperbolic rise in inflation on his generally convertable metal - officially convertible metal - fiat chart didn't steer him from his preconceptions points out his normalcy bias.

 

Mon, 07/09/2012 - 18:16 | 2600210 RobotTrader
RobotTrader's picture

Funny how the "hyperinflation" everyone is predicting is already here.

 

It is manifesting itself in a super strong dollar, skyrocketing Treasuries, and blue chip Dow stocks like WMT getting hockey sticked into outer space.

Meanwhile, gold and silver have done nothing the last year, despite huge increases in deficit spending and bailout emergency loan packages announced almost monthly.

Gotta follow the money.

And its flying into TLT, TIP, AGG, BND, etc.

Mon, 07/09/2012 - 18:22 | 2600223 akak
akak's picture

*yawn*

 

PS: Please give up this sockpuppet shtick of yours already, Tyler.

Mon, 07/09/2012 - 18:26 | 2600239 SwingForce
SwingForce's picture

When you're right, you're right. Its all about money, income, & transactional cash. WalMart's the new Check Cashing Store- they are the bank for the "unbanked". Rechargeable Visa debit cards, money orders, think about it, who needs Chase or BoA and their nasty monthly fees. WalMart has tried to obtain a banking license and has been denied, but they don't need it! They are better off without it. When they accept silver & gold for transactions, then the price will rise again. 

Mon, 07/09/2012 - 19:32 | 2600421 americanspirit
americanspirit's picture

I have my doubts that many Walmart shoppers have any gold or silver to 'spend'.

Mon, 07/09/2012 - 21:06 | 2600697 maximin thrax
maximin thrax's picture

There's an international grocery I shop at locally that has a "we buy gold" jewelry repair shop inside.

Tue, 07/10/2012 - 01:46 | 2601221 HungrySeagull
HungrySeagull's picture

A local mall has a store dedicated to buying and selling Gold. By computer of course. Not a gold anything in sight other than the sign.

Course no one weighs the gold hanging off the necks of the thuggies Mr T style.

Tue, 07/10/2012 - 01:48 | 2601222 HungrySeagull
HungrySeagull's picture

We do. But prefer to simply swipe the card.

Once a month is all it takes.

Let me put something else to you regarding gold and silver transactions to pay for wally shit....

The first night, the deposit manager is going to be held up at gunpoint.

The second night the Brinks Truck and their three machine gun guards are going to be taken down.

The third night customers will be held at gunpoint as they enter the store.

The forth night carjacked before they complete the turn into the walmart.

The 5th night followed home.

The 6th night....

Mon, 07/09/2012 - 18:16 | 2600211 Frank N. Beans
Frank N. Beans's picture

"Gold has had an amazing recent run. From December 1999 to March 2012 ..."

recent?  I was thinking two weeks.

Mon, 07/09/2012 - 19:33 | 2600427 kito
kito's picture

The author left out the recent run down from 1900 to 1500. With deflation winds growing stronger and the fed holding off on lsaps, gold sits at this level for a while

Tue, 07/10/2012 - 01:38 | 2601215 Vic Vinegar
Vic Vinegar's picture

Sure buddy you are right.  But it's a bit disingenuous to come on here and piss on gold because of the temporary deflation we are experiencing.

The bottom-line is gold is going to have value 3, 30, 300 years from now.  The USD, not so much.

It's a store of value...not a trade, remember?

Mon, 07/09/2012 - 18:22 | 2600226 TheCanimal
TheCanimal's picture

MDB may be correct.  However, for the first time in my life i no longer have faith in our financial system nor government.  A prudent investor needs to have some metals, stocks, bonds, real estate, trust deeds, cash, weapons and ammunition.

 

Mon, 07/09/2012 - 18:29 | 2600247 Bam_Man
Bam_Man's picture

The Gold price is the "reciprocal" of faith in the fiat monetary system.

Period.

Gold is not an inflation hedge or deflation hedge per se.

Mon, 07/09/2012 - 18:43 | 2600286 blindman
blindman's picture

perhaps it is money with no velocity,
is that such a bad thing?

Mon, 07/09/2012 - 18:30 | 2600249 jonjon831983
jonjon831983's picture

Just started Adam Ferg's Death of Money, lookin for that Gold part!  Though it seems it was more used as reparations to France.  Most of it talks ot stock speculation, currency flight (and banned), and trading of real items (and gold equivalents) for food.

Tue, 07/10/2012 - 03:06 | 2601285 ParkAveFlasher
ParkAveFlasher's picture

spoiler alert: the whole book is the gold part

Mon, 07/09/2012 - 18:31 | 2600256 blindman
blindman's picture

my line.
" excuse me gentlemen,but,
i think there may be an elephant
in this room, either that or a 600
pound gorilla?

Mon, 07/09/2012 - 18:36 | 2600261 q99x2
q99x2's picture

Do not swim while carrying gold. It may sound stupid but had signs been posted along south american rivers in the 15th century Spain may not be having the problems they do today.

Mon, 07/09/2012 - 20:22 | 2600588 Clever Name
Clever Name's picture

Woulda been nice if there was a sign in the river I was a swimmin in last weekend, and last month, and last year...

Mon, 07/09/2012 - 18:37 | 2600264 balz
balz's picture

Am I the only one who has a problem with the fact that the authors are using the CPI? We all know the CPI is crap since 1980.

Mon, 07/09/2012 - 19:23 | 2600375 Antifederalist
Antifederalist's picture

Bingo!   My conclusion as well.  This paper is propaganda.  Not research or anything new.

Tue, 07/10/2012 - 02:29 | 2601248 cynicalskeptic
cynicalskeptic's picture

So many questionable 'facts' and assumptions in this I don't know where to start.  The use of offical stats makes an analysis worthless given the manipiulation of CPI to deliberately UNDERSTATE inflation.

 

I love the quote about Zimbabwe going to $US - you had/have a sizeable number of people in ZImbabwe panning for a pinch of GOLD dust to pay for food.  And while the $US and South African Rand have become the currency of general use in ZImbabwe, a l;arger question arises:  

History has shown that when 'weak' fiat curreencies fail, and begin to hyperinflate, people flee to 'strong safe haven currencies.  Right now the Swiss are having a bear of a time trying to keep the Swiss Franc from increasing in value against the Euro (and killing Swiss exports) because so much capital is seeking a safe haven there.  When Yugoslavia imploded people used German Marks as a way to preserve purchasing power.  Argentinia, Brazil and other nations have been through similar capital flights when inflation struck.  Yet what do you do when a major currency - or, more frighteningly, the $US, the world's reserve currency - has lost the confidence of holders?   We are already seeing China, Russia and others reducing their $US holdings, converting them to tangible assets (commodities, companies producing commodities - oil, mining, etc and yes, GOLD).  

There is no alternative currency with a large enough total value to serve as a 'store of value' if confidence is lost by even a small percentage of holders of the Euro or $US.  Switzerland, Norway, singapore, even China or Russia?!?!? The latter are looking for alternatives to their $US foreign reserves and for trading arrangemenets that eliminate the need for use of $US.  China is buying gold, taking physical delivery (not leaving it in London vaults)  - and remelting it into 1 kilo bars (perhaps making sure there's no tungsten in the middle as they go) - taking gold OUT of the 'London Good Delivery' system while paper manipulations trying to keep the canary in the coal mine from giving alarm let China buy at a cheper price.  The blatant manipulations of the Gold market in conjunction with economic stat announcements - or other news - are clear and beyond doubt.  Again the concern seems to be convincing people that 'all is well' instead of addressing the fundamental problems in the world's financial system (because THAT would mean large numbers of financiers and bankers going to prison).

What happens when people no longer believe that the $US IS worth the paper it's printed on?   It's not just governments holding $US.  People all over the world have large numbers of $US bills stashed in mattersses, safes and banks (not to mention all the drug lords and other peple transacting illegal trade).     Keep in mind that in times past those funds would have been held in Spanish pieces of eight or British Gold Sovreigns (even today the US issues Gold Sovreigns to troops in Afghanistan for 'emergency' funds for paying one's way out of a p[roblem situation).  

What happens if they believe those dollar bills may NOT be a better store of value than their locally printed pieces of paper?    And let's be honest - that is the ONLY thing propping up the $US right now - a beief that (for some reason) the $US is 'better' than any alternative.  And while this may be true when comparing the $US to other fiat currencies, is it true when comparing the $US to any TANGIBLE asset?  Maybe THAT is why Gold has been going 'up' in price - because the purchasing power of paper money is going DOWN..

This whole 'analysis' seems to be a pure propaganda effort to downplay the role of gold - or ANY alternative to the $US - even as the fundamentals underlying the US economy and the $US continue to weaken.  The Fed may PUBLICLY talk of a 2% inflation rate but we all know from personal experience that REAL inflation (for things that matter like FOOD) is far higher.  Over the course of my 50 odd year life I have seen the value of the $US tank.  The 5 cent candy bar of my childhood is over $1 now.  The house my grandparents paid $12,000 for in the late 40's - which cost my parents $29,000 in the late 60's is - even after the drop in housing would sell for ovver a half million (this being an old crap 2 family place, albeit in NYC burbs).  The car I would have paid $3500 for when graduating from college is now well over $35,000.  The college degree that acost me $50,000 now costs FIVE TIMES that amount.   Even the cost of heating oil - under a dollar when I bought this house 20 years ago is now 4 times higher.   Meanwhile my local property taxes have more than tripled. 

These are NOT 'insignificant increases' - especially in light of income growth (and we have been lucky and done reasonably well - far better than most who have really fallen behind in buying power).

And meanwhile that 'safe' 2% being paid by US government bonds - and the near 0% interest paid on plain old savings - guarantees that any savings I have will be worth less and less... At least in the '70's when inflation was 13%, a CD was paying 11%.   With REAL inflation at 5-8% today's gap is even larger.

I feel as if I am witness to a runaway train - one that nobody has any idea how to stop.   MOPE - Management of PERCEPTION Economics does not focus on fixing anything - it is all about convincing the masses thart 'all is well' while propping up financial institutions that have gambled all they own and LOST (though we the taxpayers are getting stuck with the bill - THAT isn't factored into the analysis above anywhere).  Well, the stock market is rigged - as arew all other capital markets - in ever more difficult attempts to prop up a toppling house of cards.   REAL unemployment is worse than the 1932 peak.  We no longer have a solid industrial base so even WWIII (coming soon with Iran and the Islamic world) will not jump start the US economy.  National debt is at insane levels - that cannot be infinitely refinanced. 

I suspect Nato standard 5.56 and 12 ga.00 will appreciate far faster than gold in the coming years. 

Mon, 07/09/2012 - 18:39 | 2600273 EmileLargo
EmileLargo's picture

The best financial blog on the internet. Good work Tyler. I wonder how you get the time to post so much stuff every day. 

Mon, 07/09/2012 - 20:43 | 2600651 DanDaley
DanDaley's picture

It's because Tyler is like Goerge Forman...there are about 20 of them.

Mon, 07/09/2012 - 18:48 | 2600297 johny2
johny2's picture

With so much leverage, once the rate go down they can never go up, without causing a lot of pain and destruction. And that is what our dear leaders and bankers have done, they unleashed lots of credit with ever decreasing interest rates, stoking greed and consumption beyond the means. 

The plans of man and mice often go awry, so I am not sure it is wise to put all the savings on one outcome, but it is wise thing to have a part of your reserves in the PM. It may not save you at the end, but until the end happens, you will sleep better.

Mon, 07/09/2012 - 18:59 | 2600316 Downtoolong
Downtoolong's picture

extraordinarily small probabilities of 'extreme' inflation will have a large impact on the possible future price of gold.

In other words, under this scenario the 2-3% of gold in your portfolio will end up worth more than everything else in it. And that’s the reason you should have at least 2-3% of your portfolio in gold…. like right now.

 

 

Mon, 07/09/2012 - 19:14 | 2600344 orangegeek
orangegeek's picture

The primary elliott wave count for gold remains bearish.

 

http://bullandbearmash.com/index/gold/

Tue, 07/10/2012 - 02:31 | 2601254 cynicalskeptic
cynicalskeptic's picture

They're not just painting the close but drawing the charts with the manipulations...... that's what MOPE is all about.     Maeanwhile China continues to buy (as do plenty of other Central Banks wary of holding other paper currencies as their only foreign reserves)

Mon, 07/09/2012 - 19:18 | 2600348 Antifederalist
Antifederalist's picture

Just read this paper.  Not entirely worthless, but close.

Only an academic could come up with this beauty:  p. 23

"First, in the U.S. there has been an abundance of research that finds little evidence of a link between money supply growth rates and inflation rates." (Note: Anderson et al. (2003) "it is commonplace for monetary policy analysis, both in theory and practice to be conducted without reference to the monetary base or other monetary aggregates."

AAAARRRRRGGGHHGGHH!  

The author concludes that because the value of gold is appreciating at 7 times the inflation rate: gold is therefore overvalued.  No mention of the fact that the recorded official inflation rate is bogus.  No mention of inflationary expectations.  Basically, these authors are shills for the establishment.  The paper provides academic cover with false premises like the one above. 

There is no correlation between the monetary aggregates and inflation.  Ha, ha, ha, ha, ha.......... That is a good one.

 

 

 

Mon, 07/09/2012 - 20:59 | 2600684 cranky-old-geezer
cranky-old-geezer's picture

 

 

"it is commonplace for monetary policy analysis, both in theory and practice to be conducted without reference to the monetary base or other monetary aggregates."

And Weimar hyperinflation never happened.

Denying the effect of massive currency printing doesn't make the effect go away.

It just shows how much of a dumbass you are.

 

Mon, 07/09/2012 - 21:54 | 2600728 Antifederalist
Antifederalist's picture

Cranky Old : You dumb fuck.  You did not even read the post.  I did not say that....the paper said that.  You can take back your negative vote.

Mon, 07/09/2012 - 22:05 | 2600844 cranky-old-geezer
cranky-old-geezer's picture

 

 

Hey dumbass, my comment wasn't aimed at you, it was aimed at dumbass economists who disregard the size of the monetary base in monetary policy. 

You're the one who doesn't read too well, idiot.

Tue, 07/10/2012 - 02:35 | 2601256 cynicalskeptic
cynicalskeptic's picture

bwahaaaaaaaaa....'ya think?      

 

Since Nixon weaseled out of Bretton Woods they've been trying to convince the world that golds doesn't mean anything.......     From the old London Pool (and the BOE getting taken for suckers) to the desperate short selliong of massive amounts of gold on COMEX to regularly drive the price down, all they've accomplished is a massive transfer of wealth to China and elsewhere 

Mon, 07/09/2012 - 19:19 | 2600359 spinone
spinone's picture

As long as OPEC takes dollar for oil, no worries.

Mon, 07/09/2012 - 19:32 | 2600420 sudzee
sudzee's picture

I look at my stash as being free insurance on my wealth that can be used, penalty free, any time the need arises.

Mon, 07/09/2012 - 19:45 | 2600466 Getting Old Sucks
Getting Old Sucks's picture

So, if the U.S. owns as much gold as it says it does, why wouldn't the U.S. want gold to go to 50k an ounce?  Maybe because it's really tungsten in Fort Knox?  Educate me guys.

Mon, 07/09/2012 - 21:32 | 2600768 Antifederalist
Antifederalist's picture

Bingo.  All the gold in Fort Knox is probably long gone. 

Mon, 07/09/2012 - 20:16 | 2600573 loveyajimbo
loveyajimbo's picture

Ever wonder why a simple request (Ron Paul) to audit the US gold reserves NEVER comes close to passing?  Way overdue, and with the exposures of many problems with fractals and leasing and derivatives... doesn't it make sense?  Here is the mysterious answer:  We do not have any gold any more... it has all been sold to supress the price, or leased, never to return.  there will be no revaluation, because for that to work, there must be a redemption option to turn in your $10,000 of fiat for an ounce of gold. the US is SOL.

Mon, 07/09/2012 - 20:33 | 2600610 SqueekyFromm
SqueekyFromm's picture

Sooo, here is the GOLDBUGGERY PARADOX (Something I invented):

 

1. A person who owns GOLD does so on the HOPE that he can trade the GOLD for more purchasing power than he paid for the GOLD. This is because there is not much else he can do with the GOLD unless he is a jeweler, or really likes shiny paperweights. (This part is self-evident)

2. A person who owns GOLD, MUST at some future point , find another person who is willing to give, or swap him something of value, in an amount of purchasing power greater than the GOLDBUG paid for the GOLD, or the GOLDBUG has made a bad deal. (again, self-evident)

3. The more valuable the GOLDBUG can convince such a future payor or swapper the GOLD is, the more profit the GOLDBUG makes. (self-evident)

4. If the GOLDBUG does NOT find such a person, or the person is not convinced of the higher value of the GOLD, then GOLDBUG is either stuck with a bunch of shiny yellow metal, or loses profit.(self-evident)

5. Therefore, a GOLDBUG MUST convince other people of the stupendous value of GOLD, or the GOLDBUG destroys the market for his own little stash of GOLD, regardless of the real state of affairs.

6. Sooo, (and here is the PARADOX) a GOLDBUG can NEVER tell you the truth about the value of GOLD, or even admit that it worth less than he paid for it, or he loses money. Sooo, why would a smart person ever listen to anything a person who owns GOLD says about GOLD???

A Goldbug can never be relied upon to provide you an unbiased opinion about the value of Gold.

So there!!!

Squeeky Fromm, Girl Reporter

 

Mon, 07/09/2012 - 20:47 | 2600659 BalanceOrBust
BalanceOrBust's picture

Ingenious logic.  /sarc. 

 

Gold is about preserving purchasing power, not increasing it.  This is the purpose of holding any currency.  I don't know if I am a "goldbug", but I own gold because I want to preserve the value of my wealth.  

 

Now run your logic again with U.S. dollars or with zero interest rate bonds.  

 

What do you come up with?

 

But unlike these, there is no man behind a curtain that can produce more with the push of a button or the pull of a lever.  There are real physical constraints that maintain the value.

 

Your logic has disproved the value of fiat currency, not gold.

 

Mon, 07/09/2012 - 21:25 | 2600739 SqueekyFromm
SqueekyFromm's picture

BorBust:

Well, try this. Suppose that you read that Roubini person, whatever, and you have an EPIPHANY, and LO AND BEHOLD!, you decide that Gold is a Rubrick Relick. Do you go out and tell everybody, and share your newfound insight or do you sell your GOLD first??? I bet you sell your GOLD first, and then you are free to provide reliable information about it. But, while you are a Goldbug, you can not afford to say anything except how wonderful Gold is.

This is because the ONLY significant market for Gold is other Goldbugs, who think the value is going up. . .per above.

With FIAT CURRENCY I can go out and buy a new guitar and the person who takes my fiat can do so knowing the value of the cash is going to decline in purchasing power. Or not. The guitar has some value and utility, and the cash has some utility. Or, I can buy books with the money instead. I don't have to necessarily find another person who thinks the value of the fiat is going to increase. 

But with GOLD, which has no practical value except the expecation that some future person will provide more purchasing power than what was expended on it, can only be spent with a like-minded person, who takes it assuming he or she can find another Goldbug. And while each Goldbug possesses the Gold, they must work to preserve the Illusion that it is a wonderfully valuable thing.

Squeeky Fromm, Girl Reporter

Mon, 07/09/2012 - 21:40 | 2600752 Antifederalist
Antifederalist's picture

Yeah, and there are only six billion of those people around the world who think it  has value.  Small market.  Gold is accepted universally around the globe and can be exchanged into the currency of the realm.  The dollar, and some other currencies, not so much.   In China they wouldn't take my dollars, but gold was fine.

"They must work to preserve the illusion that it (gold) is such a wonderfully valuable thing."   Yeah, that illusion that has been around since the beginning of recorded history.

 

Tue, 07/10/2012 - 00:57 | 2601165 moonstears
moonstears's picture

Squeeky, if you understand two things, maybe it'll help. 1. Count how many commercials are "we buy gold", vs "you need gold". No bubble,  yet, it's a prequil. 2. You're correct about filling the pantry and thanks for noting it, but once you cannot pack anymore rice bags and beans, and cans, small gold trinkets and coins(mix in silver too here, I'd suggest, as you state a gold price run would get too tough to trade if it went nuts) are easily hidden, transported,  and can hold purchasing power without rotting as, oh say, 6 years canned food would. Gold is not the only answer, but it is easily stored and traded. You're assuming that paper dollars, as we know them, will continue to be valuable, even though there are trillions more extant in the last few years. I once owned the 1st appearance of Spider-Man comic, in very low grade. It sold at a small profit a few months later, in excess of $1500 you know why? Because few exist. People wanted one, 'cause they didn't have one in every attic, in any grade. If suddenly 50,000 copies were found in an attic somewhere, put there in 1963/4 high grade copies would plummet in value. More money lessens the value of extant "money". We're in a lull because that money's not in the greater economy, it's banker bucks. For now. Deflationary with unemployment and such. I postulate some of it's going into gold, quietly. When it becomes inflationary, at first it'll be called "recovery". Look for this. Why must it become inflationary? Because inflation makes debt payable. Who's the worlds biggest debter? Is it that asshole up the street with the bmw and pool and trophy wife? Why no! It's Uncle Sam, and the only way you pay the unpayable debt is to inflate away, then switch currency. When? I don't know, but Gold (and beans and land) will still be valuable. In ANY currency, world wide. Get it?

Tue, 07/10/2012 - 01:19 | 2601200 devo
devo's picture

That happened to me with '87 Topps. They printed like a bazillion of those things and destroyed the value of my Bonds rookie card.

Tue, 07/10/2012 - 08:45 | 2601638 WmMcK
WmMcK's picture

Still long McCovey rookie cards. Bought them "new" for a (copper) penny a piece in a vending machine once upon a time when I (and much of the world) was more innocent.

Tue, 07/10/2012 - 09:56 | 2601852 moonstears
moonstears's picture

Thanks to the 3 who get it! As an addit, beans like gold have no counterparty risk, spoil risk? Yeah. Land is good only in hyperinflation 'till the taxes become untenable. Do I see that happening? Don't know, but it gets ugly quickly, if we look to Weimar as an similar example. 

Mon, 07/09/2012 - 21:22 | 2600732 devo
devo's picture

So don't buy gold.

Mon, 07/09/2012 - 21:24 | 2600743 Antifederalist
Antifederalist's picture

Your logic is specious.  It does not matter what a goldbug says his/her gold is worth.  What matters is what 6 billion humans scattered around the world think it is worth.  6,000 years of history says they place more value on it than they do on paper currencies which have always failed or been devalued.  Compare gold to paper.  Not gold to whether its holders promote it.  Who cares what goldbugs say.

Mon, 07/09/2012 - 21:38 | 2600781 SqueekyFromm
SqueekyFromm's picture

AntiF:

BUT, if YOU own "Investment" Gold, then you are de facto a "Goldbug", and you have to say that it vauable in and of itself, and will always be so, or you will decrease the value of your own stash. You are stuck in this "Goldbuggery Paradox" because the only practical value of Gold is its perceived vaue to some future taker.

YOU, can not be relied upon to comment truthfully on the value of Gold since you own some of the stuff. The person you sell to MUST think and believe that it is going to hold some value or increase. Meanwhile, I can tell a potential buyer that my new guitar is hard to play, because nobody is buying it in the hope that they can sell it for more. They will buy it because they like the way it sounds, or likes the way it plays. I didn't buy it thinking it would hold its value or increase in price.

But, Goldbugs are like the courtiers and hangers-on in The Emperor's New Clothes, who have no choice but to compliment the Emperor on his new threads, or lose their job. Just read all that "Gold is going to $5,000 per ounce stuff." 

Squeeky Fromm, Girl Reporter

Mon, 07/09/2012 - 21:42 | 2600788 devo
devo's picture

You could say the same exact things about stocks. It's the biggest Ponzi ever, and the bullish schills are just as bad as gold bugs. 

Also, if you hate gold then don't buy gold.

Mon, 07/09/2012 - 22:02 | 2600839 SqueekyFromm
SqueekyFromm's picture

Devo:

A lot of people do buy stocks thinking that,  in general as a class, they will always go up in value or at least hold their own inflationwise. But usually the price is in someway influenced by the book vaue of the stock, and the anticipated dividends. Personally, I am not real motivated to becoming a minority stockholder in most companies, but there is some value in owning a piece of Wal Mart, or P&G. But Gold doesn't pay dividends. Gold does not make detergent to sell.

Detergent is not a Rubrick Relic at this point in time. And if becomes such, then there is still toothpaste to sell.

Squeeky Fromm, Girl Reporter

Mon, 07/09/2012 - 22:21 | 2600872 devo
devo's picture

My point is this: why are you angry with gold bugs who are plugging their product and not angry with stock shills doing the same? Stocks have a long history of pump and dump. When have you heard anyone in mainstream media say to sell stocks? Why are you not angry with these people who never say to sell, even thought we're at year 12 with zero gains in stocks...

Mon, 07/09/2012 - 22:46 | 2600924 SqueekyFromm
SqueekyFromm's picture

Devo:

??? I am not angry at GoldBugs. I just hate to see people get zonked if this Gold stuff is a bubble, and I am pointing out how people who own Gold can not be relied upon to give unbiased info. True, the same stuff happens in stocks and a lot of other stuff. People are always hyping whatever they happen to be selling.  But with most stuff you buy, there is some value to what you buy besides the expectation of future resell.

If you overpay for  a Hyundai, and the door falls off or whatever, at least you have a car to drive. Or push, and ride in downhill. Or sleep in if you lose your job. And duck tape will hold the door on. But, if you buy a bunch of gold expecting to make a killing in the Mad Max days, you are probably going to wish you had invested in smart stuff like food and ammo.

What I do is point out to what I consider "oversold" Gold Bugs, that they maybe ought to be thinking more about this point because all the commercials I see about "Buy Gold!!!" or the creepy "Gold Fondlers" with their "Don't you just luuuvvvveee the feeeel of gold???" crap make me think BUBBLE!!!

Squeeky Fromm, Girl Reporter 

Mon, 07/09/2012 - 22:54 | 2600977 Antifederalist
Antifederalist's picture

It is easy to think of gold as being in a bubble because it has worked for 11 years and you are applying pattern recognition.  However, you may be using the wrong template.  Bubbles and bull markets can go much further than rational analysis says that they should.  That is how they truly become bubbles.  Internet stocks were a bubble in 1998.  I thought it was over that summer when LTCM and Russia blew up.  But, it was really just getting started as the party in 1999-2000 was one for the record books.

Be careful Squeeky.  You may be somewhat right, but you may also be shocked to see how far this thing will run.

Just watch and check back in a year.

 

Tue, 07/10/2012 - 00:12 | 2601124 SqueekyFromm
SqueekyFromm's picture

Antifed:

I agree with you on this. Gold might indeed go higher. Who knows??? It all depends on what people think it is worth. I sorta think that we are headed into a period of time, or era, when most all us are going to be a lot more concerned about the basics of life.

In terms of purchasing power, I think there are a lot better investments for $1,600 than a piece of metal about the size of 1 1/2 quarters. For two of those ounces, I could buy a Gibson Hummingbird and become a street busker after the crash. For three or four ounces I could buy an acre of farmland and a hovel to live in.Three or four more ounces and I could get a tractor, and another acre or two in some places.

All of which I am seriously considering, even though I don't really have any monetary worries. Just two cats now. But I am only 28, and who knows where we will be when I am like a old timer or something at 40.

Squeeky Fromm, Girl Reporter

 

Tue, 07/10/2012 - 00:40 | 2601156 devo
devo's picture

People with wealth might not want to buy a tractor and farm, or they might not know how to farm, period. They might want to save their wealth and start a business in the future, when the economy is more sound. Is a farm really a better investment if the government can take it away, make you sell food at low prices, raise your taxes, tax windfall profits, etc?? This is the counter-party risk component you fail to grasp. Yes, agricultural land is the best investment right now, but it will be stolen by our broke government. It also has to be defended if there's chaos and people want food. I mean, you're assuming investments in a stable world with enforceable laws. Also, if you go on the street holding a $3,000 guitar you'll find it's more a liability than an asset.

PS. Start with G-C-D. You can play a lot of songs with those chords.

 

 

Tue, 07/10/2012 - 02:30 | 2601253 TheFourthStooge-ing
TheFourthStooge-ing's picture

SqueekyFromm, with an anti-gold boner that is getting closer to that four-hour-duration danger zone, said:

In terms of purchasing power, I think there are a lot better investments for $1,600 than a piece of metal about the size of 1 1/2 quarters. For two of those ounces, I could buy a Gibson Hummingbird and become a street busker after the crash. For three or four ounces I could buy an acre of farmland and a hovel to live in.Three or four more ounces and I could get a tractor, and another acre or two in some places.

All of which I am seriously considering, even though I don't really have any monetary worries.

Soooooooo, do you have any money, anywhere at all, on your person, at home, in your car, or in a bank account of some sort???????? If sooooooo, why??????? Why haven't you spent every last bit of it?????? You can't eat it, and the only thing it is good for is spending, soooooooo why continue to hold it instead of stocking up on rice??????? Your rickety arguments against saving money for the future in the form of gold are better applied against saving money for the future in the form of dollars.

But I am only 28, and who knows where we will be when I am like a old timer or something at 40.

Well, reality will step in to extinguish your fantasy of working as a street musician. Someone will quickly separate you from your once-expensive guitar if they think they can get five pounds of rice for it in trade.

At 40 you still might be young enough for street work if you're skilled. With all the younger "service" competition, though, you might eke out three or four worn silver dimes on a good day. That is when you'll understand and appreciate the value of gold.

Mon, 07/09/2012 - 23:51 | 2601087 devo
devo's picture

Gold has more uses than people seem to acknowledge, but that's beside the point.

I agree food and ammo are better in a Doomsday scenario, but if we don't have that and instead just have years of economic depression, gold could serve as money/barter (especially in underground economies). Also, if they're able to extend this charade via printing for another decade, gold will do better than stocks or currency. Everyone is going to get hosed, whether they own a car, house, stocks, etc. If there are "winners" they'll be taxed to hell or have their winnings confiscated. It's why monetary value you can keep on your person is an important part of a Doomsday portfolio. People should put in an amount that they don't care if they lose. That's what I've done, and I never think about gold either way.

It's not your job to scare people out of gold because you think it could be a bubble. You might be scaring people out of something that could save their life and/or savings, and you just come off as a stock shill or anti-gold bug. The truth is somewhere in between--have some gold but probably keep some cash, too, and load up on food and other commodities that you can carry with you. Gold/silver should be one of many arrows in a prepared person's quiver.

Tue, 07/10/2012 - 02:05 | 2601233 TheFourthStooge-ing
TheFourthStooge-ing's picture

SqueekyFromm, still with the anti-gold boner, said:

I am not angry at GoldBugs. I just hate to see people get zonked if this Gold stuff is a bubble, and I am pointing out how people who own Gold can not be relied upon to give unbiased info. True, the same stuff happens in stocks and a lot of other stuff. People are always hyping whatever they happen to be selling.  But with most stuff you buy, there is some value to what you buy besides the expectation of future resell.

Repeating the same failed argumentation that you used here won't make it a solid argument, no matter how many times you repeat it.

What I do is point out to what I consider "oversold" Gold Bugs, that they maybe ought to be thinking more about this point because all the commercials I see about "Buy Gold!!!" or the creepy "Gold Fondlers" with their "Don't you just luuuvvvveee the feeeel of gold???" crap make me think BUBBLE!!!

Soooooooooooooo, I knew you'd eventually get back to the fixation with gold on television.

From everything you've stated, it appears that your problem with gold is based entirely upon your reaction to television advertising. You see a TV advertisement for gold and your naughty bits get all tingly, and that disturbs you.

Again, my recommendation is to reduce your consumption of television. The time would be better spent learning about the fundamental nature of money.

Mon, 07/09/2012 - 22:47 | 2600962 cranky-old-geezer
cranky-old-geezer's picture

 

 

A lot of people do buy stocks thinking that,  in general as a class, they will always go up in value or at least hold their own inflationwise.

Hey dumbass, that's the same reason people buy gold.

And they don't care if it doesn't pay a dividend.  It has no counterparty risk like stocks do.  They don't have to worry about their account getting stolen, like MF Global ...and now PFG.

Physical gold is a way to get OUT of rigged manipulated markets and STOP counterparty risk.

You can't say that about ANY of your paper investments.

Mon, 07/09/2012 - 21:52 | 2600808 Antifederalist
Antifederalist's picture

 

Your criticism of gold implies that you think the dollar is better.  It is not.

You do not get it.  Gold IS money.  It is the superior form of money.  It cannot be debased.  Is money good?  Yes, it is.  Do I need to promote money?  No.  It speaks for itself.  Do I count on the exchangability of money?  Yes.  But what I say is irrelevant.  You are all twisted up in the promotion issue.  Who gives a fuck about promotion.  Gold just is.  It is a form of money.  Just as Federal Reserve Notes are a form of money.  Gold is a superior form of money because its supply grows at 1,5% per year.  What people are willing to pay for my money is only relevant when I go to exchange it.  I prefer holding my money in a form that cannot be debased.  By the way, since 2000 all the paper currencies have lost 70% of their value versus gold.  This is a trend in motion.  I believe it will continue.  If it does not continue and paper money pays me well to hold it i may make an exchange.  But today?  No way.  The Hans Christian Anderson story is best applied to the dollar.  Let's see, it pays zero interest and is being printed at a rate of 20% per year.  Is that a store of value or a naked emperor. 

The only thing correct about your posts is that it is true that money is a mass illusion.  I prefer my mass illusions with 6,000 years of history and NO COUNTERPARTY LIABILITY.

But I am weird that way.

 

Mon, 07/09/2012 - 22:09 | 2600860 SqueekyFromm
SqueekyFromm's picture

AntiF:

Gold can not be debased???

See:

http://www.theprospectorsite.com/blog/?p=352

So many new prospectors of gold ask if gold is in a bubble and after researching the 80?s I can see why.  What happened to gold (it dropped by over half in only a few short months) should send a chill down every investor.

Squeeky Fromm, Girl Reporter

Mon, 07/09/2012 - 22:46 | 2600957 Antifederalist
Antifederalist's picture

 

Arguing with you is like trying to teach algebra to a 3 year old.  You have not addressed any of my points and you don't even understand the answers.

I therefore conclude you are hopeless.   You really have no idea what you are talking about. To label a price drop as debasement shows the depth of your ignorance.  The gold was still gold.  The fiat price dropped.  So what.  Since 2000 fiat has lost 70% of its value versus gold.  So you want to sell dollars right?  And holding them since 2000 was not such a good thing, right?

The reason gold dropped that much in that time frame is that Paul Volcker took interest rates to 20% and promised to break the back of inflation and make the dollar sound.   If you believe that the FED is going to take interest rates to 20% and stop printing money then don't save in gold.  As for me..........

Mon, 07/09/2012 - 23:43 | 2601081 SqueekyFromm
SqueekyFromm's picture

Antifed:

OK, maybe I am hopeless and perhaps you are right about "debasement." Sooo, like could you help me out here and tell me what you would call paying $1,600 per ounce for gold, and then seeing it drop to $800 per ounce or lower is more properly called??? I am betting that "Intelligent Investment" is not the right answer, but I await your judgement.

Squeeky Fromm, Girl Reporter

Tue, 07/10/2012 - 01:10 | 2601193 Praetor
Praetor's picture

Troll be gone. You sound like the female version of Max Fischer, maximus dickheadus.

Tue, 07/10/2012 - 07:17 | 2601437 prole
prole's picture

Hmmm Squeeky was really kind of clever until this IMO uncharacteristic anti-gold ranting. I hope all the posts leading up to this nonsense weren't just building equity in an avatar before the deluge.

But, if you buy a bunch of gold expecting to make a killing in the Mad Max days, you are probably going to wish you had invested in smart stuff like food and ammo.

But Squeeky that is really a unfair straw-man you built there wouldn't you say? Try replacing "expecting to make a killing in Mad Max" with "Like the Billion people in China and the Billion people in India, and the Billion people through history since the King Tut days, they realize that gold is the one indisputable asset of choice, the money against which all paper currencies fall and fall. And since the King TUt days, Gold has never let them down."

If gold goes to 800 again, no big deal, it has been higher, and it has been lower than that, but unlike all paper currencies throughout history, it has never gone to Zero, and you can bet your last Confederate Dollar on that.

Tue, 07/10/2012 - 14:22 | 2602924 SqueekyFromm
SqueekyFromm's picture

Prole:

I like to think that I am still kind of clever. That is why I am not buying gold at $1,600 per ounce. But, it is a free country and you and other Gold Bugs can buy as much of it as you can afford. Just don't start whining if you find yourself losing a good part of your "investment." In turn, I won't whine if it keeps going up forever.

And maybe one day, if things get really, really bad, maybe I will give you few ounces of rice for an ounce of your gold.  

Squeeky Fromm, Girl Reporter

Tue, 07/10/2012 - 01:32 | 2601212 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Sooo, like could you help me out here and tell me what you would call paying $1,600 per ounce for gold, and then seeing it drop to $800 per ounce or lower is more properly called???

It's called a buying opportunity.

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