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Guest Post: Is Gold Still The Answer For Investors?
Submitted by Bud Conrad of Casey Research
Is Gold Still the Answer for Investors?
Though late to the party as usual, the proverbial man on the street – along with members of mainstream media and Wall Street heavyweights – is finally waking up to the decade-long, 700% increase in the price of gold, joining a growing buzz around the monetary metal. From questions whether gold is in a bubble to predictions that soaring prices are just around the corner, one thing is clear: a new phase of awareness for gold is upon us. How far might it move before these troubling times are over?
The Big-Picture Economic Environment
Kicking things off, I would like to explore several themes in order to put the current economic situation in context.
For example, continuing weakness in employment and housing indicates that the big slowdown that started in 2007 persists. Actually, the economy never exited the recession but rather – thanks to massive intervention – enjoyed a temporary reprieve that I have called the "Eye of the Storm."
We experienced the first part of the storm from 2007 to 2009, but by late 2009 and into 2010 massive bailouts, stimulus, and deficit spending produced a false-dawn recovery. This recovery was most pronounced in the financial sector where the government transferred toxic private-sector debt – including large amounts held at Fannie and Freddie – onto the government's own balance sheet.
We now are entering the second half of the storm, as it is becoming impossible to ignore the unprecedented and intractable sovereign debt problems sweeping the globe. These problems are especially obvious in the weak countries of Europe where punitive levels of interest rates are pushing weaker members of the eurozone to the brink. As the parts begin to fail, so will the whole.
And the US is not so far behind, with its own historic levels of government debt and deficits running at levels never seen before.
As we at Casey Research have warned of ahead of time, in their attempts to avert a 1929-style depression, governments took on the bubble in toxic private debt, stupidly transferring that burden onto the government (and taxpayers), causing the problem to morph into today's sovereign debt crisis. Simply, with the government debt too big to ever be repaid, we are now beyond the point of no return.
The private debt problem is not resolved, either. That's because much of the bad debt on the books of corporations and financial institutions was hidden through "Extend and Pretend" practices, starting with the elimination of mark-to-market accounting requirements. Much of this debt will eventually be revealed to be in default.
Worse, because sovereignties around the world have caused their finances to deteriorate to such extreme levels, they are now ill prepared, and maybe even unable, to step in yet again to soften the blow of private-debt deleveraging and write-downs. As a consequence, the next part of the storm could be prolonged as companies and banks are dragged down.
Furthermore, due to their poor decision-making to this point in the crisis, the governments themselves are now facing a loss of confidence in their sovereign debt, evidenced by soaring interest rates and the rising cost of credit default swaps (CDS) for the PIIGS.
There is no way to recapitalize the Greek debt, and Finland is right to demand collateral, which it recently has. The contagion will extend to the other PIIGs and to the stronger European countries of Germany and France – they can't also bail out Spain and Italy, which are too big to fail, without destroying confidence in their own economies. Yet absent such a bailout, massive restructuring of weak-country debts held on the books of the banks in the stronger countries will further exacerbate and extend the crisis.
Meanwhile, the European Financial Stability Facility (EFSF) is too small, and the resources to cover all the countries in trouble just aren't there. Economists now understand that the PIIGS are well past the point of no return with 130% or so of debt to GDP. The European Central Bank (ECB) will be expanded, like other central banks, to print more euros, but still the system is going to face more debt problems.
The ratio of debt to GDP in Europe, the US, and elsewhere (which is projected to only increase from here) will lead to the sort of problems historically associated with Latin American banana republics, collapsed communist states, and certain countries in Africa. While this is not being adequately discussed in the mainstream, the debt of the supposedly advanced countries is projected to explode beyond the levels that are already tormenting the PIIGS. Put another way, in the decade just ahead, I expect the advanced countries to undergo the same pain we are already seeing in the weak countries.
Supporting that contention, a new paper by the Bank for International Settlements (BIS) points out that when government debt approaches 80% to 100% of GDP, there is a weakening in the economy. Greece and the euro system aren't just facing an economic weakening but a breakdown of the financial system.
Importantly, the debt-to-GDP ratio of the United States is now (conservatively) at 95%, and demands from a tidal wave of retiring baby boomers will make the deficits far worse. Remarkably, annual deficits of a trillion dollars or more over the coming decade are projected. The US debt-to-GDP ratio will break above 100% in two years or less, and debt could double in the next decade if interest rates rise in concert with a widespread loss of confidence in the government's ability to manage its fiscal and monetary affairs.
The next logical step in this sovereign debt crisis is for us to see further signs of a loss of confidence in the currency. Such a currency crisis is usually measured by rising inflation that, in turn, leads to higher interest rates, which make the crisis worse. That’s because a vicious debt "death" cycle begins to form, with interest on the debt begetting ever-worsening deficits begetting ever higher interest rates that, in time, leave the country unable to even pay the interest on its debt, let alone pay down the debt itself.
Sounds dramatic, I know – but that is what is happening in Greece. The major difference from historical events of a similar nature is that this time, it is not just the smaller, less developed countries – the so-called banana republics – that are in the throes of a financial collapse but most of the world's advanced economies. This is certain to end badly.
In the short term, the central banks will print up money for their governments and bankers, but in the long run, the loss of confidence will become so great that currencies self-destruct. As the problems extend around the globe, currencies and bond markets will be wiped out together.
In time, new currencies will have to be issued, almost certainly with some form of link to gold and other commodities. To survive what's coming, you need to understand the process and try to gauge how fast it may unfold. To shed further light on those issues, in the following I provide data on how serious the situation is and conclude with my predictions for the price of gold.
Central Banks Can Print Paper, But They Can't Print Gold
Gold is the only real money. In contrast, the power of central bankers to create fiat money out of thin air has distorted our financial systems beyond anything imagined in the early days of slips of paper issued for gold held at the local goldsmith's.
To get a sense of the distortion, we'll start by looking at the difference between the quantity of gold held by central banks and the amount of paper money they have issued. As you can see in the chart below, the amount of gold held has been surprisingly stable. But the blue line, a close reflection of the narrow definition of money that has been created globally, shows that the quantity of all forms of financial assets has grown dramatically.
The clear point of this chart is that the nominal quantity of the paper money in circulation has been growing much faster than the gold that formerly underpinned that currency and may be called upon to do so again before this is over. Regardless, as the power of money creation greatly benefits the money printers, we expect profligate money spending and creation to continue apace.
Importantly, central banks are no longer selling off their gold but rather are increasing their holdings. You can see that shift in the small upturn in the red line at the right of the chart. Central banks halting gold sales and becoming net buyers of gold decreases supply and increases demand, leading to higher gold prices.
As a related anecdote, Venezuela's President Chavez recently recalled gold reserves not currently held in Caracas, exciting the gold bulls with the thought that the withdrawal of some 150-200 tonnes of gold from the Bank of England and bullion banks will force a squeeze on traditional stockpiles of gold. Chavez is further proposing to nationalize Venezuela's gold mines. His many faults aside, I think Chavez understands the situation perfectly and is using his dictatorial powers to move back towards gold faster than slower-moving nation-state competitors.
Another way to measure the debasement of the world's currencies is to compare global industrial production to the global quantity of currency in circulation. As you can see in the next chart, industrial production has only moderately increased over time. Since Nixon closed the gold window in 1971, the quantity of currency in which that output is priced has grown exponentially. Is it any wonder that the nominal price of the average car has soared from $3,542 in 1971 to almost $30,000 today?
Of course, the price of gold as measured in these currencies has increased over time. At least in theory, the ratio of the dollar value of gold to the dollar value of all currencies in the world, shown in the next chart, should give us a basic measure as to whether gold is overpriced.
As you can see, gold would need to trade closer to $10,000 per ounce to cover all the paper issued over the period. This confirms, in my mind, that although gold is rising rapidly towards $2,000 an ounce, gold investors need not fear that it is in a bubble or that its upward momentum is nearing an end.
Federal Government Deficits Are "Beyond the Point of No Return"
The government's debt has accumulated to an amount so enormous that it won't ever be paid back. The annual deficit is unmanageable as Democrats cry for more spending and Republicans want to continue tax cuts. The chart below shows that the current deficit is at a completely new level, even in comparison to the two world wars.
Looking at the future of government deficits, the Congressional Budget Office (CBO) starts with a baseline projection of the expected government budget deficit based solely on laws already enacted. In other words, the baseline doesn't account for new laws, which invariably expand spending. Not surprisingly, as you can see in the chart here of previously published baseline forecasts, the CBO's deficit projections are always optimistic about the expected deficit.
For a look at a more reasonable assessment of the impact of yet-to-be-enacted legislation on future deficits, we turn to a set of data assembled by the Concord Coalition that show much higher deficits going forward. Here are the modifications that underpin what they call a "plausible" scenario:
The CBO baseline is adjusted to assume appropriations increase at the same rate as the economy (GDP growth). This increase is closer to the historical average rate of increase. They assume that supplemental appropriations do not continue indefinitely. For the wars in Iraq and Afghanistan, troop levels slowly decrease to about one-third of their level at the time of the estimate. They assume that Medicare physician payment cuts (under the Sustainable Growth Rate (SGR) are postponed, as they have been for the last several years.
The major tax cuts are assumed to extend beyond 2010. One-year patches to the Alternative Minimum Tax are enacted, holding the level of taxpayers hit by the tax roughly constant throughout the baseline period. A calculation for the increased debt service (interest payments) that these policies cause is added.
As bad as are the resulting deficit forecasts, however, the assumptions behind even these "plausible" scenarios are so far off from my expectations that I am confident they err on the side of being much too conservative. For example, in the Concord Coalition's assumptions, the Consumer Price Index never rises above 2.3% – all the way out to 2021 – and the unemployment rate drops to 5.4% by 2016. Along the same optimistic lines, 10-year Treasury interest rates never climb above 5.3% and GDP will reach 5% in real terms by 2015.
While no one can see the future, all of my work leads me to expect much higher inflation, much higher interest rates and a much slower growth of GDP over the time period.
And I can think of worse scenarios, like a recession that cuts tax revenue and higher interest rates that cost more to service the government's debt. The expansion of war to Libya and Pakistan, and a comment from Obama that the Syrian president "must go" indicate that military spending will continue to be high.
My point is that even under the CBO's Pollyanna projections, US deficits ensure that total debt continues to rise into increasingly dangerous territory – but actual deficits are likely to be much worse than those projections, and quite possibly devastatingly so. Deficits debase the dollar and are bullish for gold.
The economic situation in the US is declining rapidly, with zero net jobs created for August and the numbers from the previous month adjusted to show a further loss of 58,000. And even those dismal numbers understate things: embedded in the latest report were 81,000 jobs added from a flawed birth/death model that estimates new jobs from small business.
Elsewhere in the economy, housing prices remain weak and consumer confidence has turned down sharply.
The likelihood of continued recession adds to the deficits by decreasing taxes and increasing demands for government spending on unemployment and stimulus.
Adding it all together, it becomes clear that the trajectory for government deficits, and therefore more debt, is to continue to go up, and dangerously so.
The Fed Papered over the Private Debt Crisis But Is Creating Future Inflation
The Federal Reserve jumped into the credit crisis with both feet, tripling its balance sheet since 2008. It did this by creating deposits at the Federal Reserve out of thin air to buy mortgage-backed securities and Treasuries to the tune of $1.6 trillion. Historically, when the Fed paid no interest on deposits, banks would draw down these new deposits to lend out to borrowers in order to make a return, expanding the money supply in the process. By expanding credit, this process also can help prime the economy. That hasn't happened this time around, and credit has not grown in the private sector.
The deposits at the Fed are obvious in the chart below. Banks receive 0.25% interest on the deposits, which is better than they can currently earn with short-term loans and T-bills, so the Fed has $1.6 trillion of deposits it never had before.
It is helpful to understand the details of what we call printing money and the physical paper money in circulation. The chart above shows that the outstanding currency in circulation (blue area of the chart) is growing at a relatively slow rate. The amount of paper money is not really decided on by the Fed; it is the result of the preference of the population to carry cash as opposed to having deposits at their bank. When people withdraw cash, as they do around the Christmas holidays, for example, the demand for paper dollars increases at the commercial banks. A commercial bank can send a Brinks truck to the Fed, ask for more dollar bills and have the Fed decrease its account at the central bank. In other words, the process is not driven by the Fed but the consumers and the banks.
If the Fed wants inflation, stopping the interest-rate subsidy of paying interest on deposits to the banks would be a good place to start. Then banks would look for places to loan money and inject it into the system.
The Fed surprised the market by extending its policy of a 0 to 0.25% fed funds rate to mid-2013.
Most people reading that the Federal Reserve plans to maintain current low interest rates out to 2013 probably shrugged and went about their business. But I think it's important to understand that the only way the Fed will be able to meet its low interest rate pledge is to buy Treasuries with newly created money – essentially printing money to purchase the government's unending supply of Treasuries. Quantitative easing, anyone?
The big question is whether the policy will have a sizeable effect on markets. The chart below shows the historical jump in the Fed's combined policy tools that were used to lower rates and bail out financial institutions through a variety of programs. These include the big purchase of mortgage-backed securities (MBS) called QE1 and the large purchase of Treasuries called QE2.
The point of the extrapolation in the chart is to guesstimate how much more money the Fed might need to create to keep the rate extremely low for another two years. By connecting a straight line from the start of the unusual policy tool expansions in late 2008 to today's number and then extending it to 2013, we can estimate that the policy might require about $1.5 trillion in order to keep the rate low.
The Fed doesn't calculate the amount of money that might be required and probably doesn't know for sure. They just keep buying on the open market until the rate target is reached. If there were a loss of confidence in the dollar, the amount of the purchases required could become very large – and in the extreme, printing more money contributes to that loss of confidence, which in turn causes runaway inflation. We are not there yet. But this kind of open-ended promise is a dangerous precedent because we can't be sure of the ultimate cost of the commitment. And make no mistake, it is an astounding commitment. At the meeting where the decision was made, even more aggressive operations to expand the money supply were discussed.
The long-term direction of the Fed is not in doubt: they are debasing the dollar.
In the next chart, we look at the mirror image of the commercial bank deposits at the Fed – the cash being held on the balance sheet of the banks. As you can see, this confirms that instead of making loans, they are holding cash, mostly in the form of these Fed deposits. The effect is that the Fed policies have had much less effect on the economy outside of the banking system than would usually be the case, given their extreme bailouts and money "printing." Inflation has been contained to commodities, and interest rates have remained at record lows.
The fact that this money sits mostly as cash deposits at the Fed is why the QE programs have had little effect on the economy. Rather, it is clear that the Fed’s priority has mostly been to provide support for the banking system. Though going forward, these deposits – almost $2 trillion – could be easily loaned into the system, and the result could be very inflationary.
Europe Is Turning to the US Dollar and to Gold for Safety
The loss of confidence in a country is most obvious when lenders demand high interest rates to loan money to a government by buying their bonds. With the yield on two-year Greek government-issued notes now at 45% and one year being quoted at 70%, the situation in Greece has gone beyond the level where the government can operate.
The risk in Europe is rapidly becoming more acute as the promised bailouts aren’t happening and the population of Germany is turning against a further expansion of the European Financial Stability Facility (EFSF) that was set up in an attempt to calm the situation. A series of routs for German Chancellor Angela Merkel’s political party in recent local elections reflects the public discontent with further bailouts at the German taxpayer’s expense.
The Wall Street Journal reported on September 5: "The suspension of the talks in Athens between the government and a group of officials representing the providers of Greece's bailout cash came, officials said, amid a dispute about how to address new gaps opening up in the government budget deficit."
In September, the Bundestag (the German parliament) is expected to decide on a package that empowers the EFSF to buy bonds preemptively and recapitalize banks. While the bill is likely to pass, the furious debate leaves no doubt that Germany will resist moves to boost the EFSF's firepower yet further. Some say the fund needs €2 trillion to stop the crisis from engulfing Spain and Italy.
In short, the very fate of the European monetary union is hanging by a thread. And, as noted earlier, the banking crisis will be more difficult to handle this time – the governments are in much worse shape because they took on so much additional debt in bailing out the banks to this point. So this time a private banking crisis could become much worse, leaving the central banks as the buyers of only resort for government debt. Should that occur – though we at Casey Research believe it's a matter of when, not if – it will be the starting gun for the end of the fiat currency systems.
In the meantime, the next chart shows clear signs that foreign central banks are beginning to run scared – indicated by a soaring willingness to park money with the Fed. They were big users of reverse repos when the Lehman collapse signaled the onslaught of the credit crisis, and their holdings just spiked again in the face of European weakness.
The interpretation is that foreign central banks are finding the safety and returns in the US more attractive than their own banks. Regardless of the causes, this measure reflects banking system fear and is indicating more trouble ahead.
The result of a loss of confidence in Europe is a flight to safety, i.e., to the Swiss franc, the dollar, and to gold. The dollar has been less coveted because of its own flaws.
US Money Growth Is Picking Up
Recently, the money supply has taken a jump with Fed liquidity, and commodity prices have risen.
We need to consider that international forces may be a factor in driving US money growth. A European loss of confidence is decreasing the attractiveness of keeping deposits in European banks and may be behind the increase in deposits at US banks. Cash assets at foreign institutions in the US have jumped from $400 billion to $800 billion since the beginning of 2011. It is certainly not a booming US economy driving the US money supply; this increase in foreign deposits is suggesting the money supply increase is due in some part to a flight to safety from worried Europeans.
Back to Gold
As we are trying to revisit our base case for gold going forward, let’s return to the ultimate safe harbor. The next chart illustrates, through the ratio of gold to the increase in M1 and M2, that gold is still well below its peak of 1980.
In the chart below, I look at one slice of the analysis that shows that money printing and fiscal deficits have driven commodity prices higher. As you can see, the index of world food prices has risen 40% over the last year. It was rising fast before the credit crisis, dropped during the worst of the crisis and is rising again, along with gold.
As should be clear, deflation is not part of the story for food or gold. The path forward points to higher prices, especially if the banks return to their core business of lending. The right way to look at the speculative fever is not to look at the gold market but to what the government is doing to the currency. There is a lot more debasement to come – which means a lot more price rise ahead.
Gold Is Not Record High in Inflation-Adjusted Terms
Gold is just bouncing off $1,900/oz highs, a record in nominal terms. The blue line shows the average monthly price of gold. As you can see, the previous peak was in 1980 at $675 per ounce monthly average, which included an intraday high of $850. But the dollars of 1980 would purchase more than the dollars of today. To estimate the number of today's dollars that would be required in 1980, we can use the inflation index of the Consumer Price Index (CPI). The red line indicates that even by this manipulated government measure, the 1980 price of gold in today's dollars would be $2,000. We are getting close but have not yet reached the old peak.
However, as you are probably aware, the government's CPI numbers seriously underreport the amount of inflation. The government has made a number of significant adjustments to its CPI calculations, all of which cause it to be understated compared to the CPI as constituted in 1980. Thus, for example, today's CPI uses rental equivalent for housing costs; inflation is revised downward based on new improvements in products; and even the basket of commodities used in the calculation is changed when an item becomes expensive.
Another view of inflation comes from John Williams of Shadow Stats, who removes the adjustments and concludes that inflation is much higher than the CPI admits to. Applying his inflation numbers suggests that the 1980 gold price peak would have been $7,000 in today's dollars, as indicated in the green line. The visual conclusion is that in inflation-adjusted terms, gold still has a ways to run.
A one-year chart of gold shows it already exceeding my prediction of rising to $1,800 by the end of the year. The subsequent drop of 10% from $1,900 to $1700 was surprising, but not enough to indicate a change in direction because gold had risen so much just since July. The drop may have been inspired by exchange margin hikes, which hurt momentum and highly leveraged traders, but margins do not change fundamentals. The margin hike of 27 % in August was in line with the preceding price rise, and the subsequent price recovery confirms that the effect was short lived.
Gold Is Entering a New Phase of Public Acceptance
The fundamentals of government deficits and the Fed's loose monetary policies have, if anything, become worse. We at Casey Research have been pounding the table for years that gold is a must-have, long-term hold for protection against a demise of the dollar. The 700% increase over the decade – running laps around the performance of Warren Buffett's much-touted Berkshire-Hathaway fund – has confirmed that we were right.
Looking at the landscape, I am observing changes in the attitude of the media and others about the direction for gold. This market has been mostly under the radar of mainstream media; despite its unparalleled performance, gold was not considered a mainstream alternative for investment dollars. You could think of the past decade as a "stealth" bull run.
We seem to be entering a new phase where a much wider population of investors is now aware of what's been happening in gold. Evidence abounds, including a recent Gallup poll that, for the first time, included gold as an option to its question of what is the best long-term investment, and it was the most popular.
In addition, CNBC is airing an 11-part report called The Golden Age of Gold, and Fidelity brokerage now offers physical gold and silver, something unheard of for a firm that thrives on mutual funds.
These and many others are mainstream sources that would rarely discuss gold in years past, and if they did discuss it, it was derisively. Their arrival on the scene raises the question if we are at the point of euphoria where there is too much interest in gold. Yes, we could have a pullback from this impressive rise again to $1,900, but I don't think we are close to the end of the golden bull.
Many people I know keep asking the question whether it is too late to join the game. I think a better interpretation is that we are moving from the stage of stealth increase in price toward the final stage of mainstream involvement that will bring wider participation and even higher prices. Before this is over, we will see a true mania in gold, and prices will soar.
Which begs the question, by how much?
The Long-Term Case for Gold
Given that the stars are lining up for gold to continue on the path of resuming its important role as a monetary metal – and given the almost certain collapse in the fiat currency systems that is heralding a return to that role – it is entirely possible that gold could rise at the same rate in the next decade as it has in the last decade.
Therefore, using the same growth rate and extending the gold price as a straight line on a semi-log curve, we can come to the resulting price at the end of the decade. Under this projection, by 2021 the dotted line rises from today's $1,825 to $12,500. (More detail on the method is contained in my book Profiting from the World's Economic Crisis in Chapter 15 on gold.)
The increases due to price inflation and the flight from fiat currencies to gold are combined in the above chart. I think price inflation has been relatively low in the last decade but will certainly rise going forward.
To reflect my forecast for higher price inflation, I separated the two components by calculating the rise in the real price of gold since 2001 and projecting that forward. I then projected a rise in CPI that eventually matches the rise in the inflationary 1970s, when it ultimately reached 14%, and then applied that data to the real price of gold, for a combined projection that is much higher. You’ll see it below as the dotted line with a small curve upward for the increasing inflation that I expect over the decade. The result: gold could reach $24,000 by 2021, a decade from now.
This fits with my scenario of escalating loss of confidence in the dollar and the preference for gold that will be the fallout from continuing huge government deficits.
The chart below establishes the case for the CPI to reach the same 14% level that it peaked at in 1980. It shows both the CPI and gold annual percent changes. The correlation is obvious in the 1970s. The projection for a gradual rising CPI used in the above chart is specified in the rising line after 2011:
This confirms the historical sensibility for a 14% CPI for the more complex two-part analysis, but it is not the only method for calculating a scenario for $24,000 gold.
If gold rose at the rate it did in the 1970s, it would rise well above $30,000 over the coming decade. A visual of that projection is shown in the graph below.
The dashed line on the left shows the fit to the rise from 1971 to 1981 at a bit over 30% per year. Applying that rate of increase to the current price for the decade ahead, as in the dashed line on the right side of the graph, we get to a price of $39,000.
Of course, reality is always more complex than a straight line on a semi-log graph; for example, in the 1970s there was a big pullback in the middle when the first oil shock slowed the economy and disrupted the trend. Also, the 1970s were playing catch-up for gold being fixed to the dollar ever since Roosevelt's hike of the price to $32 in 1934. The point is not to conclude that this is a prediction made with great precision but rather that gold's amazing price acceleration over the past ten years has historical precedent, and much greater gains are certainly not out of the question.
Ultimately, the probability that we will see the sort of projections discussed here will depend on whether the loss of confidence in the dollar going forward will match or even exceed what happened then. Given that things are much worse today than they were back then, I think that is an entirely reasonable scenario, which makes the astounding headline number a very real possibility.
The models are summarized in the following table indicating the gold $/oz expected:
| Dec 2011 | Dec 2012 | Dec 2021 | |
| Simple 2001 to 2011 Growth Extended |
$1,950
|
$2,400
|
$12,500
|
| Real Gold 2001 to 2011 Growth + CPI Rise to 14% |
$1,960
|
$2,500
|
$24,200
|
| 1971 to 1981 Growth Applied to Next Decade |
$2,030
|
$2,800
|
$39,200
|
I consider the rising CPI model, highlighted above as the middle case, to be the more likely one, because I expect continued loss of confidence in the dollar over the decade from the spending patterns, out-of-control deficits and Fed actions.
The seasonal aspect of gold investing gives a strong upward bias for the fall season that is not included in these models, so I think a $2,000 prediction for the end of 2011 is a sensible uplift to the short-term prediction.
My projection of $2,500/oz for 2012 represents a 25% increase next year, just modestly above the rises of recent years. In other words, for these predictions to come to pass it does not require an extreme event or major new disruption. The extension for 10 years could easily be much less, or much higher, as the scenarios indicate.
Calibrating the Prediction
I predicted $1,800/oz for the end of 2011 at the beginning of the year. (We started the year at $1,421, so this was an increase of 27%.) For reference, the table below summarizes the view from a variety of well-known sources, which were all lower. My $1,800 was the outlier on the high side.
| Gold Price Predictions from Last Year | |
| Gold 2011 | |
| Morgan Stanley |
$1,315
|
| Goldman Sachs |
$1,690
|
| Society General |
$1,485
|
| BNP Parabas |
$1,500
|
| Barclays (Q3) |
$1,490
|
| Bank of America |
$1,425
|
| (Source Reuters) |
|
| Average |
$1,484
|
|
|
|
| Bud Conrad |
$1,800
|
Predictions help us understand the future, even though they are necessarily fraught with speculation and error. Be cautioned that nobody knows the future precisely, but here I have divulged my methods so you can see how I came to these estimates. Use them with your own judgment.
My conclusion is that we face very serious financial problems ahead. The situation is far more out of control than any previously faced in the United States. I see no way to ever pay off the government debt, and Congress has shown itself incompetent in all things, but especially in applying the brakes to soaring deficits.
Elsewhere, the Federal Reserve has already indicated that it plans to abandon the dollar in favor of printing new money to support the economy and the banks. The combination of both doesn't bode well for the survival of the dollar.
My fear is that the situation will turn out to be much worse than the historically projected trends referenced above, with the price of gold escalating well beyond the numbers shown. So as we go forward, you can use these benchmarks to see whether we remain on a trajectory to significantly higher gold prices.
Of course, if confidence in the fiat currencies erodes to the point approaching failure, the value of gold denominated in worthless paper approaches incalculable numbers – Zimbabwe-like numbers that would be meaningless.
Summed up, until there are fundamental changes in government fiscal and monetary policies – and a recognition that the sovereign debt is unpayable and therefore needs to be restructured – there is no reason to fear gold pullbacks and every reason to expect even more positive returns in the gold mining stocks that are still catching up to the rapid gold rise.
Even higher prices than mentioned here are possible from the flight to safety out of the euro, the seasonal rise into the new year, and the accelerating action of gold from a shift in sentiment of the investment public to a relatively small market. Gold is by far the best "answer," and now is still the best time to invest.
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Yes,without a society, I would much rather hold paper from past governments
Honey Badger don't care. Honey Badger don't give a shit. It just takessss... what it wantssss.
+1. Agree with you.
I understand where you are coming from Nate, but our objective here is to survive so we can extend our individual gene pool to future generations. "That" is our #1 reason for being here.
Incorrect.
Our neural wiring the moment we are born is DUE to the genes of our individual ancestors succeeding at surviving and procreating. Once we are born we just respond to environmental cues to get the same neurotransmitter cocktails that obtained success for our ancestors. That doesnt have to be selfish pursuits. Our current culture stresses competition over cooperation. It doesnt have to be that way - google Ultimatum game etc.
Anyways...
I'll bite.
Hang a dollar bill from one string.
Hang gold eagle from another.
See which one the baby reaches for.
Just try it,
Breakaway gap up tomorrow in Treasuries.
U.S. Fiat "Paper" is by far the most desired asset globally.
Another 100 point drop in ES will crater the 10-yr. yield, Bill Gross' head will be spinning.
That's only because there's so much U.S. fiat "paper" out there and it's going to be a long, cold winter. Where we're going, even robots get cold.
Please stop, Momo! I just ate.
Forget all the charts and verbiage. Gold and silver are "insurance" policies against the stupidity and malevolence of governments and the international banks and corporate fascists who own them. Since their stupidity and crimes are endless, so is the potential for the gold and silver to rise. Keep your metals "cool, dry and nearby". When reality strikes, the paper pushers will be pushing up daisies and you will survive with your ass and purchasing power intact.
if i was bass, i would move all of my metals stash to my ranch, asap.........and he can figure out something to do there to guard it etc..........i don't trust brinks..........i don't trust banks, etc etc.........he should know this.
yes Tuco, insurance...with a paper based devil for a counterparty and a phys based mafia who will give you the option of lead or galvanized vertical bars
also...a target on your back
still...it is shiny and I'd rather get my hands on some than not
Hook Line and Sphincter ( ! )J
The TLT is a very good contrary intermarket indicator for smaller cap gold mining stocks.
But I would say that no discussion of gold without discussing interest rates or lease rates is making a cogent evaluation.
http://www.youtube.com/watch?v=IH8K0bPc-BE
ring up that stupid dennenger he likes charts AND stuuf
gold important ,,
but you cant have sex with gold he said
a nitwit and a slop head , looking into the mirror of his extreme narcisism ,, my way or the high way
He is saying you can have sex with a roll of one dollar bills. I guess.
I doubt KD has much sex with anyone... But that's just my 'skeptic' nature talking...
Perhaps not, but he sure does seem to have anal rape on his mind a great deal.
Karl bought so deep into OWS he is blind to anything else, other than anal rape of course.. If nothing else he can be singleminded, "prosecute, rule of law blah, blah", its all gone Karl there is no law, we are just waiting for the realization..
Karl got "burned" on gold and didn't have the stones to hold.
Which is why he got burned. And pissed off.
And yes, he's a bit arrogant, bit worth reading if you can get through that.....mostly.....
And he's a douche that steals content from ZH.
And he's stlil hacked off from getting robbed on his ISP.
And....whatever. Everbody gots thier problems....
So, "you can't have sex with gold", eh?
every thing going forward iw going to depend on europe
a niwit observation
but without a society to spend it in, it will be a pyhrric investment victory
take your chances with gold .. with paper it will be even less so.
another nitwit
gold is not a investment. it is a holder of value. it protects your wealth.
+1,707
Ultimately, those that don't understand this, will.
its amazing how someone would write something like this knowing full well what i am talking about. gold and silver react to currency devaluations, nothing more, nothing less. gold and silver do not pay interest. it is real money. it has no liens on it. it is in your possession. therefore when you have it, you control your own money. is this any big secret after all of this time?
Hidden in plain sight, methinks. Veiled in a fog of anti-truths.
A constant drone of anti-truths.
Great post. The chart showing the Federal Reserve "Printed" Deposits in Banks shows clearly the latent inflation that is just sitting at the precipice. I remain convinced that money velocity (aka releasing the Kraken of digi-fiat via bank runs and/or savings-depletion spending) is the last, thin membrane between those "dollars" and a tidal wave of inflation.
This is like standing at the true north pole...it's south from here no matter which way one steps.
As long as the proles don't get any of that money there can't very well be much velocity. And TPTB seem to have no intention of letting the proles have any of it. If anything, they're taking it away from the poor bastards.
Without exception those graphs show once Nixon did the dirty deed in August 1972 and the reserve currency was cut free of the Gold anchor, everything has gone to shit.
fuck paying for the Vietnam War by inflating dollars - now you are about to pay a frightning price for the lazy option.
Tells you something about Golds power over Paper - like a canary in a Coal mine..... Yes
Well said. On 8/15/71 Nixon closed the gold window.
I'm goin into town tomorrow and stop by the barber shop to buy a few more coins.
Gold is an investment in the future. People who do not believe that our fiat monetary system will survive would do well by purchasing gold.
As a short-term investment? Gold is not so much a sure-fire hedge or safe haven. Gold's value is as a long-term store of value. It will ALWAYS be worth something and will NEVER be worth nothing. So, as a short-term investment, it's value is as limited as stock in NFLX. As a long-term store of value, it cannot be beaten.
franklin sanders always talks about going long on precious metals. it is the only way to play that game. these volatile fluctuations are to be expected during these strange days when we are witnessing the death of the world fiat financial system............this is unchartered territory. not too many people have ever witnessed such a thing. i can tell you, imho, life as we have always known it, will change and it will not be nice ..........
At this point, you could take 50K and buy gold, OR buy a REO property and move in. 12 months from now, it will not matter what your property is worth, because you lived in it and don't pay any rent. Your gold WOULD be worth, maybe 40K and you def would still be paying rent. YOUR CHOICE chimpos.
Thanks for the chuckle. I always enjoy a misplaced deterministic argument.
Chill bill - one things for sure. buy a house and your forever digging out the wallet to pay some hanger on. Don't get me started on the costs to sell it again. Buy Gold and thats all the costs you have.
at least run the figures before you swark on property anchors - owning a property that owns you is a descretionary spend Never an Investment
Are you planning on burying that gold in your landloord's back yard?
cute. So, 12 months from now, when that high paying job has disappeared, the property taxes just doubled, food and energy consume more than 50% of the household budget, and the cost of health care for your family exceeds your ability to participate in any way, you'll still be livin large, right?
Ill take zee gold thanks... bet the doctor will too!
btw, can we have a nightime shot of your avatar? I think it would be more "reflective" of the wisdom of your advice.
How about both?
Housing you need. Gold you want for preservation of the exra money. It's not one or the other.
What if you already have a paid off house?
You will also be paying property taxes on the REO, but not on gold.
How 'bout a gold house? :D
Bingo
Or a (probably fictitious) gold boat?
I've spent a lot of time living in tents. And I mean a lot of time. I don't need a house.
you left out taxes, insurance and maintenance......etc etc etc.....
Johnny doesn't need to mention those things.
I don't think that gold will be where you suggesst in a year, but no matter. If you can buy a house that you will live in for that price, you've bought a real asset. The real issue with the economy is that there are so few real asets. If there were real assets, especially productive real assets, then buying gold would be real dumb. But that is because the economy would be healthy and growing.
There are those who fantasy "Gold will get to $10,000, I'll be on top!" But on top of what? Think of what the world would look like were gold to get to that level. There were those who became rich by owning gold and similar things in 1923 Germany. You want to live in a society like that, and what it became?
I will never understand the many idiotic anti-gold strawman arguments such as this one.
The fact is, bud, my fantasies and daydreams have NO impact upon the nature of reality. The kind of society I want to live in is irrelevant to the discussion. Holding gold is not about fantasies and wishful thinking, socially perverted or otherwise, it is about acknowledging reality and preparing for the likely if not inevitable future, and I take offense at the implication (when it is not stated explicitly) that those who hold gold are "doomers" who have a perverted wish to see Armageddon arrive. Do cruise ship designers secretly "wish" to see their ships sink simply because they put lifeboats on them?
“The best time to plant a tree was 20 years ago. The second best time is now.”
– Chinese Proverb
You just reminded me. This is another long term investment which will pay handsomely as oil disappears.
Plant hardwood trees in forrest like parcels. 30 years to mature. So instead of Modigliani, plant hardwood trees and set your sons and daughters along with your gold, since some tell us that we cannot eat it.
I planted 175 seedlings last spring. Hardwood, nuts and fruits.
I bought an REO (will be paid off in 4 years)
I am stacking silver coins.
There. I can either please or piss off everyone here.
Good on you, mate. We've also been investing into expanding our farmland and have added a few more acres of woodland. Next to that I've also been stacking some metals so that my kids can have a better tomorrow.
Now if only I could get my hands on some cheep Greek islands, that'd be great.
I planted around eighty mahogany trees 20 years ago to enhance my place in the Philippines.
Look how big they are now (7th picture from the top)
Good chart porn, but I ran out of napkins.
seriously though. fun read.
Not according to the left wingers. But gold standard here we come.
libertarian86.blogspot.com
It's a shame most dont realize that inflation is the worst kind of tax.
When i was a kid they said "start a bank account and SAVE SAVE SAVE your money!"
When I was a teenager they said "Get your credit up by getting a crdit card and making timely payments. You NEED good credit because you NEED a loan"
When I got married they said "A house is the best investment of your life! They NEVER go down in value"
Now what do they say? I dont know. My ears just dont listen when I hear stupid.
Now they say "US government paper is the ultimate safe haven!"
Hah, good one. Im not sure if i should call it the mother of all bubbles or the bubble of all mothers. Maybe its the vodka talking.
Now they say "US government paper is the ultimate safe haven!"
I wonder, in 20 years, what will the U.S. $1 trillion bill auction for on EBay? I figure it'll be a push with a 1983 Cabbage Patch doll.
Gold's going up a lot. The banks are going to fall apart unless a lot of money is pumped into them.
the most powerful chart is the 1000 year chart. it was never worth zero.
here we have a lengthy article on gold charts and all .
then we have the nit wit gold bashers with out a pot to pizz in making absurd assumptions about gold never reading the article and if they did would not understand because it is not in funny pictures.. like the comics on sunday morning
these guys are programed with pavlovian bells. and take their morning slop with lots of dog poo.
You can buy property, but you still have to pay taxes right?
if i'm up to my eyeballs in euro's i'm converting that money to anything that isn't paper based. the dollar is obviously different because pretty much everything we need is priced in dollars. it's kinda bullshit if you think about it. that would mean you really can inflate your way out of this catastrophe...
the dollar is obviously different because pretty much everything we need is priced in dollars.
Not for long...
$10K gold has always been my benchmark,... and those without, will simply have to accept its reinflated substitute - whatever - perhaps plastic debit cards with your dna prints embedded?
Silver I think will take golds place as gold will be out of the reach of most. Just imo
http://m.youtube.com/index?desktop_uri=%2F&gl=US#/watch?v=y_qoyTCvzSA
LIbtards are probably going to have a windfalls profit tax on gold in the future.
Then they will have to find it, track it, tax it, then come for payment .... bitch.
!
There may be a time where PM's "go underground", more or less as you describe it. FOFOA has suggested that this will be shortly after the paper (gold) markets collapse - having been exposed as a farce, much like sovereign debt is being now (treasuries or gold next?). Then, some fairly short time later (not specified - several months, a few years?) PMs will be revalued at their true value (the "Freegold" event, if I understand it right...). If true, this will be a very testing time for all, but particularly any gold holders.
So think ahead. Are you strong enough, you and your hands, for these kinds of shenanigans? I don't know, myself...
just because chavez asked for the country's gold, does not mean they got it yet? does it? did they ever get delivery on those bars? did they assay those bars? chavez has cancer. he will be dead soon.
I have been following this, and no, there has been no delivery as yet as far as I can tell.
Supposedly, the logistics are "still being worked out." It is a lot of gold, 190 tones or so.
Looks (to me) that the LBMA is fighting this.
Interesting story.
"Chavez has cancer." Reportedly. Maybe, yes he is old. But can you trust the "media?"
He HAS nationalized mines, but this is nothing new for Argentina. (Hate that for the people. They have been fucked repeatedly.)
I keep watching, the news is spurious at best.
This is what I know from my man in Buenos. So don't take it as gospel, he tells me of rumors and such. That's all I know.
Chavez - Venezuela
I can't recall where I read it, but I do remember an unspecified date in early December as the shipping date.
Jim Willie said that both Venezuelan and German Gold have been delivered according to his highly placed German banker source...
Nice work Casey but I am not seeing europe buying anything dollars.
http://www.bea.gov/international/bp_web/simple.cfm?anon=71&table_id=17
Random thoughts
The "Super committee" failed to reach any consensus to cut even $1 from future spending. Gee, what a huge surprise!
Did anyone really believe back in August that Congress would cut any spending anywhere for anything?
Congress MUST spend to keep GDP from imploding statistically and the debt MUST increase ... exponentially... to keep the debt bubble from imploding. The only way for The Treasury to "pay their past bills" is to borrow more. Revenues alone cannot ...have not for many moons... pay the bills. With normallized interest rates, revenues will not even pay more than the interest on accumulated debt.
Broke is broke!
Meanwhile the sovereign debt contagion in Europe is spreading to France and Belgium while Germany's Commerzbank is doing it's best to pull a "BankAmerica". They need another 5 Billion Euros in capital that they have said in the past that they don't need. Foreign bank holdings at the U.S. Fed have ballooned again illustrating the faith and trust ...lack of... amongst banks. Make no mistake, we are living through an electronic bank run, no lines or shuttered doors in this Greatest Depression because it is all done with computers. The fact that we don't "see it" in videos or on the news makes it that much more likely that a surprise bank holiday will eventually result.
Yesterday Sprott management filed a $1.5 Billion shelf registration for their Silver ETF "PSLV" ... BRAVO! Of course it would have been better were this already filed earlier so they could have bought from all the panicked sellers around for the last 4 trading days. Of course this is in jest because the "sellers" were only selling fraudulent and unbacked pieces of paper supposed to represent Silver. PSLV only buys the real deal as per prospectus.
Maybe the next time an option expiration comes around, Sprott can be waiting to buy real Silver and call the paper fraudster's bluff?!
As for the offering of $1.5 Billion, is this much real physical Silver even for sale?
The COMEX says they have something like 32 Million ounces registered and available for deliver, this is less than $1 Billion. Where will it come from?
To put this amount in perspective, it is less than 12 HOURS of the federal DAILY DEFICIT. So we have sort of a "double perspective" here, on the one hand $1.5 Billion is a huge, huge number compared to actual available physical supply yet on the other hand, it amounts to less than a ham sandwich when compared to the big picture! Think about it, $1.5 Billion nowadays is nothing, in some circles it is less than nothing. Can you say a "disconnect from reality"?
Regarding Gold finally being talked about to "save the system". I would like to add a little because this is very dangerous to the powers that be. On the one hand, Gold is hushed up, muted, muzzled and price suppressed to support sovereign issuance of paper. On the other hand, it IS the answer.
You must understand that Gold would not be spoken of (other than as a joke of an asset class) if there were not a huge and now unsolveable problem. The fact that it was even mentioned in such "polite circles" means that something has gone very wrong and the end is very very near.
The financial system is spinning out of control as the paper bubble has gotten far larger than it's master creators. The paper bubble has bankrupted the banking system and sovereign treasuries, they must (and will) be recapitalized to start anew.
Revaluing Gold has always been the answer and now as the biggest paper bubble in all of history implodes, it will be revalued as never before in direct proportion to the bubble that was blown.
The entire system must be recapitalized, it must be "reset" back to zero.
Savers in paper will have to start all over again as has been done many many times throughout history. In essence, debtors will be forgiven and savers punished. This is not fair, but it is the way it is and always has been. Savers do not have to be wiped out, all they need to do is change the medium they are saving in before this all passes. A few have and will, the masses will not which will amount to governmental confiscation of their savings.
Some things have never changed from the beginning of history.
www.lemetropolecafe.com
DP,
Good call on the exponential element of debt expansion and its necessity.
it is my hope that we last long enough to see a 20 T debt in the US.
You know why.
Hook Line and Sphincter ( ! )J
Physical gold is an investment, COMEX gold is an illusion of price discovery and until this shit unfolds where the TPTB crumble and the money system changes the price of COMEX gold will not accurately reflect the investment demand in the physical.
When all is said and done, justice in the form of banks and central banks stockpiling PM's will have to be seized and redistributed to the people they stole so much wealth from in the first place: the citizen.
The time to trade some of that gold for interest ( and I mean real interest )bearing bonds is after a currency credibly links to gold. Until then they can keep their 'Safety with income' and sit on it.
Given the perfect record of politicians always breaking promises, how could anyone ever trust any claims of backing any paper with gold? Fiat currency, bonds, whatever. Despite claims of convertability - trade in your paper at any time for real gold - that can end at any time. Next time will be different? As Rogoff points out, it is never different. The next Richard Nixon will announce the gold convertability window is slammed shut sooner or later. And fractional reserve banking is automatic debasement. Gresham's law of good money driving out bad will always prevail.
I will not be inclined to trade in real gold or silver for any kind of paper or electronic credits except to immediately pay off debts at inflation-adjusted pennies on the dollar, or in return for physical assets having real value. I will take your gold for paper anytime.
DP enjoy your post's and as always the liabilities are supernova even without a leverage tail.
Be cognitive of your dissonance.
http://www.bea.gov/international/bp_web/simple.cfm?anon=71&table_id=14
Merci!
Mon dissonance cognitive est très.
I was reading all the deflation/hyperinflation points up above and it seems to me in a deflationary spiral everyone has less and less money. People with gold still have the edge, they have money. Good money. The fiat value is less, but the buying power is just fine.
In a hyperinflation everyone is throwing confetti around, again the gold holding guy wins. He's got the money.
I'd like to see some hyper-inflation, to pay off debts with a small part of the stack. After that, I love me some deflation, it makes everything cheaper. Simplistic but Occam's razor approved.
Big myth about hyper-inflation and paying off debts...the banks will just re-write the loans and it will continue to take more dollars to pay off the original loan... how do I know...go read French History before their little party in 1792... That is exactly what the banks did!
Turn off your TV and start reading, you got alot of ground to make up and little time to do it!
But I could all ready pay them off right now from the increases in the value of the silver..
There's investment interest driving the prices higher at the same time as inflation.
After a devaluation they will recalculate, but not before, right? So as the balloon goes up, before the devaluation, that is when I'd do the deal. And no, I never read any books about banking practices in the French revolution.
Nice condescension there, too.
that would never work in America. Too many houses, too many underwater mortgages, too many lawyers. this ain't Vichy France pre Revolution. If my bank tried that bullshit I'd mail them the key or sit out an eviction since I'd be number 100,000th in the pile...or I'd burn the fucker down and let them try to find me or have insurance company pay it off.
Not what happened in more recent history in Wiemar Germany in the 1920's, Yugoslavia and Argentina in the 1990's, or Zimbabwe in the last ten years. In Zimbabwe mortgage holders were getting letters from their building society asking them to please pay off the mortgage early with inflated Zimbabwe dollars - so they the building society would get something of value before the nominal mortgage amount went to zero real value. People with non-local currency - US dollars in Wiemar Germany, Argentina, and Zimbabwe and German Marks in Yugoslavia - were buying hard assets for trivial amounts. One Argentine took a taxi across town to pay off his mortgage after a couple of years of near hyperinflation, and the taxi fare was more than the mortgage payoff amount.
US fixed rate mortgages clearly state the interest rate, payment, and principal can not increase. Now it is possible some Presidential Executive Order could just arbitrarily change 25M+ fixed rate mortgage terms overnight. But that would cause an uproar that local police and courts just may not enforce - judges and police officers have mortgages too.
Yup. Inflation, they can't beat. Pay it off with tiny dollars.
But an official revaluation (lop a couple of zeros off) would probably get your mortgage recalculated in the new dollars, along with everything else.
I've brought this up before: an indexing system depedning on the asset class in order to maintain debt as currency nominal value. I know it would cause x,y,z but do the ptb care?
US paper will be valuable for as long as the 300 milion slaves keep toiling and paying a portion of their labor to the gov't in the form of taxes. I don't see that stopping anytime soon.
Sorry to say but the vast majority are severely brainwashed. The tide will not turn until atleast the last babyboomer is dead. The post WWII brainwashing was insanely potent.
You're an idiot.
So the dollar isn't backed by the US taxpayer?
Baby boomers aren't the largest demographic of taxpayers?
SO boomers ddn't continues to pay taxes for the last 40 years despite their protests of US polices?
Wake up
I hate to spoil the party, but if gold hits $3000, the TSA thugs will be at your door with a general warrant encompassing not only bullion but also any jewelry; national security, dontcha know.
I plan to tell them that my stash disappeared when I was abducted by Keynesian aliens (no relation to the current President).
h/t Krugman
You need to tell them you sent your gold to a keynesian prince for safe keeping.
i think maybe they should stick to feeling off travelers at airports......... bothering people at home about gold............hmmm , not so much...........
350,000,000 Americans. how many TSA agents? not a fair fight.
Yeah, that might not go so well in my neighborhood..
I really feel bad that this article was written and now EVERYBODY is going to be buying...but on the other hand, 60% of the households in the US cannot get their hands right now on $1K!
So as FOFOA would say, "Little Ants, think like GIANTS". One of the best written articles about AU on ZH.... 10 stars!
Where is that article?
fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html
I'll buy the GOLD & SILVER and hold it until the institutions, overloards, Galactic Confederacy or the Annunaki show up in our solar system on planet Nibiru to take what they created us humans to do and that is mine the gold..........For them.....Now Move Sucker Move.......Now Groove....... Sucker........... Groove.....
I'm just curious. Whats the general consensus here. When they raise cap gains to 80% on sales of precious metals, whats the way around it? Black markets? Also if/when the dollar collapses and you have precious metals and need to purchase something of necessity, is it straight up barter? Is that where this all goes?
More like a new currency that screams "We failed the last go around, but really we learned from our mistakes. You can TRUST US! Trade with cramer!"
I have heard in certain places when their currency failed they created a new currency and hailed it and a lot of people sold their gold in exchange for it. Shortly after the gov't said "just kidding" and cancelled that currency and kept their metals. I think it was Russia
To Cramer's benefit, someone called in yesterday to thank him for telling them to purchase Pharmasset stock a year ago. He had a big smile on his face, so maybe he enjoys helping people occassionally. Or else it was just a shill on the phone.
Like Washington said at before the Battle of Trenton, "We'll figure it out when we get there..."
Fuck it, I figured I would ask the questions. If the answers are not here I am not going to ask them anywhere else.
The way around it is to turn it back into gold dust with your handy dandy grinder. Then sell it as newly found gold dust, in small quantities if necessary.
you can always find a cash buyer......start doing your due diligence now while you can. we will one day switch to a world of trading one thing for another and the worth of the trade will be worked out among the people etc. also in this game it is always a good idea to get smaller denominations of gold for when you want to do something on the black market. the oz coins may be too expensive and too dangerous to carry around etc..............who knows. .........then we have the poor man's gold, silver to talk about ..........silver imho, is the baby doll........that is why blythe and the jp morg hate it so much.......
Thanks. It's kind of along the lines of what I was thinking
Good luck finding a cash buyer when the credit markets and cash market dry up. Youll be selling your gold for 20% of todays value to get enough FIAT to buy some greens or meat from the local farm which has a sign out 'NO GOLD ACCEPTED!!' as its value swings wildly and no one can figure out what its good for once they get their hands on it other than to tell the guy next to them 'it cost $5.00 to dig it out of the ground!'
The only thing the farmer needs $$ for is to pay his/her bills. Bill collectors take FIAT only. And in a deflationary enviroment would never even consider taking the barbaric relic gold.
"no gold accepted" is a scenario that has never occured once in the history of mankind
It would be immensely helpfully if you knew what the fuck you were on about before publicizing your ignorance by posting stupidity as fact. Coming from generations of farmers I can downright guarantee that as long as there is a surplus of produce, gold, just as any other form of barter will be accepted by us farmers. Now I can't say that the exchange rate will be fair, but hey, you've got to eat much more than I need more gold. While fiat might to some extent still be accepted, I would like to see a tax-man with balls big enough to come collecting once the shit has hit the fan. Without a substantial military support that is.
HAHAHAHAHA! You didn't research about Green Revolution didn't you? They actually have bills because they use fertilizers!
THE ONLY THING FARMERS NEED are seeds. End. Of. Debate.
Conclusion: buy gold, buy seeds, buy a land and be Sovereign.
I invision A new paradigm for economic development A new age of reasoning, out with the old and in with the new...Say like the Micro breweries that have sprung up in every city, town and county across the world........We The People will be able to print our own personal micro fiat currency.......from our personal computers and spend it anywhere we want, the recipiant of your personal micro fiat currency can convert it to his or her personal micro currency by printing the same amount they recieved from you, after that they have to shread your fiat currency and thus the great circle of micro fiat paper currency can continue for ever..........and ever.......No need for audits because you can print your own money.......And we take your word for it that you can back your Micro Currency up with more micro currency......Sound familiar.........Does the Federal Reserve ring a bell.......
IMHO it wont happen, there is no need. IF it did you WILL NOT get around it.
If we get a new currency, go look up how much gold was worth in 1913, thats about where its value is headed
why do we need a new currency? because the trust in the old currency is has been lost. in order to restore that trust, the new currency has to be backed by gold.
i don't have any problem seeing gold heading to its 1913 value which is $21. The catch is that for that to happen, the monetary base has to go to its 1913 amount too, which means 5 billions instead of 3 trillions. In additio, with a gold backed currency, the bank reserve ration should be 40% instead of 10%.If you do the calculation, today's m2 is roughly 2,400 times the m2 in 1913, there 1oz of gold = 21 new dollar = the buying power of $50,000 current dollars
You made him do math!! You insensitive BASTARD... well done imo...
Draconian taxes on PM will just be another outrageous act of theft and act of war against free and sovereign men. Qualified account, Black markets, barter, "gifting", and diversify it by getting some/all out of the country. Doug Casey always advises political and geographical diversity for these reasons anyway.
I'm just curious. Whats the general consensus here. When they raise cap gains to 80% on sales of precious metals, whats the way around it? Black markets? Also if/when the dollar collapses and you have precious metals and need to purchase something of necessity, is it straight up barter? Is that where this all goes
If they raise cap gain on PM to 80%, most likely some Weimar-like hyperinflation has already occured, with substantial societal breakdown. law and order can not be effectively enforced.
If I were police, IRA or TSA agent in that kind of situation, I'd be better off taking bribes from the black market, than enforcing the ban on black market.
Well, you got a whole lot correct, but missed it on the first paragraph (if my assumption is correct that you were largely speaking about US citizens.) Well, the monkey on the street is NOT waking up to PM's, nor will they ever. The delusion really is that great.
Most American's are little more than walking delusions, shadows of critical thinking, flatulence of confirmation/normalcy bias, and hogs on their way to slaughter.
Be prepared to have many foreign owners of what once was US citizen assets.
Hook Line and Sphincter ( ! )J
I just got an email that seemed appropriate for this thread.
I made a traffic stop on an elderly lady the other day for speeding on U.S. 166 Eastbound at Mile Marker 73 just East of Sedan, KS.
If a deflationary depression occurs, credit and currency will contract creating a shortage of both. The price of all commodities will decrease including gold. Other commodities will decrease in price more than gold, relatively speaking. Inflation would occur at the bottom of the deflationary cycle. IHMO, the deflationary cycle is about to begin.
Good article, IMO - but fails to answer one PRIMARY question:
FACT: Both Gold and Silver have NEVER traded above their historic highs (in Dollars, in terms of Dollar purchasing power at the time).
QUESTION: Is the author factoring in the massive shorting of Gold (and Silver) on the COMEX, and the creation of MULTIPLES of Paper "Gold" and "Silver" ounces in swaps, derivatives and questionable ETF's like GLD and SLV?? These "vehicles" were not in place at the time of Max Gold and Silver.....
I've heard numbers of "Paper" Gold and Silver being as high as 100 oz of "Paper" Gold to single ounces of actual metal. I'll be conservative and say it's 10 to one.
With the fragility of the financial world this week, and the attendendant "surprises" that rear their ugly heads DAILY (as of this week), is it possible that the massively manipulated PM markets, might go "BOOM" in the next year or two, setting off a TRUE market for PM's that might put Gold at $17,000 an oz, and Silver at $330 per ounce in the next couple years at that 10 to one leverage (which seems to be conservative according to many pundits)?
Just askin'.................
GOLD is a nothing burger. You will see. This talk about 3,000 or 10,000 gold is preposterous. This talk about TRADING gold for items is EVEN MORE PREPOSTEROUS!!!!
First:
60% of america could not get their hands on $1,000 cash within 1 weeks time.
50MILLION/312Million are on FOOD STAMPS
66MILLION/312Million are living on SS or Pensions
In your scenario US DOLLAR CASH becomes less than worthless, NEVER going to happen.
Let me tell you what will happen. MASSIVE DEFLATION. God forbid there are any cuts in SS or Pensions or food stamps or ANYTHING. The POOR set the prices, not the rich. Walmart and Groceries sell food for what can be AFFORDED by the customer. Even with WAlmarts massive BUYING power, they still can not sell produce or a decent meat for anywhere NEAR what I can buy better for locally.
The local farmer pays his bills in FIAT, not gold, NEVER will be gold, EVER.
78% of all statistics are bullshit..
Violent food riots
Sad, horrible, don't know what to say
It's lost approximately 98.7% of it's purchasing power since the inception of the Federal Reserve.
MASSIVE DEFLATION. -- Yep, currently in housing... next in credit thus more monetization and inflation in terms of tangible assets.
God forbid there are any cuts in SS or Pensions or food stamps or ANYTHING. The POOR set the prices, not the rich. -- Poor people don't set the prices. They are directly affected by the prices. That's pretty ridiculous. If they did it would be a homeless persons wet dream on this upcoming black Friday. You sound like the CPI.
Even with WAlmarts massive BUYING power, they still can not sell produce or a decent meat for anywhere NEAR what I can buy better for locally. -- Why don't you just go in and set the price, be sure to tell them you're a poor person.
August 8th, 1971
For some reason, I can not give you a +1. Well, +1 for a good reply.
Yes, housing and credit bubbles are currently deflating. The last two will be USD and TSY bubbles. Then we will be in very "interesting times".
"PREPOSTEROUS!!!!"
Not around here ... been trading for years with a local farmers for well rotted manure, clean straw, organic chickens and organic milk using Ag and real silver coins. My freezer is not big enough to trade gold for chickens... so maybe you have a small point.
L'or est le seul argent réel!
You might be right about Walmart and the Sheeple, but World-wide, there are many TRILLIONS of Dollars of the wealthiest 2% that will need a place to go.
To a point, the poor folk "set the prices" of CERTAIN items (NOT mansions, yachts, or luxury automobiles), and will, as long as SOME profit can be made on the goods the poor folks need. But as soon as producer prices EXCEED what the poor are willing to pay for Peanut Butter, or Laundry Detergent, the poor will do without.
Will they wealthy folk be putting their Trillions into boxes of "Mac and Cheese"?
I think not.
(double post - sorry!)
Looks like the author borrowed Lazlo Biryini's ruler method but for some reason it's not a half-assed joke this time.
Casey Research = Hacks, enjoy their material at your own peril.
2021...
One wholesome, orgainic, zero radiation, non gmo loaf of green house grown rye bread... $473.
humanity failed in inventing currency.. nature succeeded
amen
A gold post. I can't resist making a few comments. First of all, all of the gold that has ever been mined will fit into two olympic sized swimming pools. The first pool (1/2 of all gold) is jewelry. The second pool is 1/2 owned by all governments, ETFs, and the billionaires & multi-millionaries in the world. Most of this gold is not for sale as physical gold. Another 10% was used for Industrial and not available. The leaves about 1/8 of all of the physical gold for the rest of us. And its not much.
Of the 1/8 that is available for the rest of us, I would say about 1/2 of it will not be for sale. So that leaves 1/16 (ballpark guess) of all of the gold for the rest of us to try to accumulate.
This is why the potential for an explosive price appreciation is not only possible, but likely. A time is quickly approaching when physical gold will be VERY difficult to find. It's simply the law of numbers. When 100 million or 300 million people are scrounging for physical gold, most of it is going to be gone very quickly. Call it a run on gold, and it very well could happen.
Now, this might not happen if the global financial system can keep from imploding, but it is not looking good. The wild card for me is the bond market. It is so huge (when you factor in the derivatives), that it won't take much for a meltdown. Once a meltdown begins, that 1/16 of gold ($8 Trillion x 1/16 = $500 billion) is going to dry up pretty quickly. I'm probably being too optimistic. The billionaries and multi-millionaires will probably take much more of the available gold. What physical gold will be left for the rest of us will probably be closer to $250 billion, which is pocket change when you add up the global population.
www.goldsilverdata.com (gold & silver mining stocks)
I was struck by that image of the olympic-sized swimming pools filled with all of the gold ever mined. I tried to replicate that total and got a different number: approximately 3 and a half olympic-sized swimming pools.
Here's a break down:
Gold's density at room temperature is 19.3 gm/cubic cm
http://en.wikipedia.org/wiki/Gold
An olymic-sized swimming pool is approximately 88,263 cubic feet.
http://www.arthurspools.com/above_ground_pool_information/olympic_pool_s...
This works out to 2.5 billion cubic cm.
http://www.onlineconversion.com
The total amount of gold mined since the beginning of civilization (obviously a pretty fuzzy number..) is 166,600 tonnes
http://www.gold.org/about_gold/story_of_gold/numbers_and_facts/
That number converts to 166.6 billion grams.
... again, http://www.onlineconversion.com
At 19.3 grams per cubic cm, it means that 8.6 billion cubic cm of gold have been mined since the dawn of time.
Since filling the olymic-sized swimming pool takes 2.5 billion cm, it means that all of the gold ever mined would fill 3.45 pools.
My number is 72% larger than your number.
I am not specifically challending your argument, I just wanted to calculate that pool image.
Obviously it all hinges on that 166.6K tonnes number from gold.org
My figure is that world total mined gold fills a cube of around 21m x 21m x 21m. Just counting official US debt ($15T) and converting it at $1700/oz, you would need a cube of more than 23m x 23m x 23m.
Alchemists / Banksters: feel creative today? Or running out of time? Tic... tac... tic... tac...
Some good videos with Juerg Kiener and Jim Rogers on gold, commodities, China, etc:
Kiener mentions CME and counterparty risk, investor risk, COMEX, CTFC slacking off, two tier price action between paper and physical, "the banks are broke":
http://video.cnbc.com/gallery/?video=3000057754
And everyone knows Jim Rogers...
http://video.cnbc.com/gallery/?video=3000058594
Great article and comments...time to check in with the FOFOA-ites before calling it a night. 2012 will be 'interesting'as in algore's "there is an old Chinese blessing may you live in interesting times"... I wonder if algore has learned yet that its m]not so much a blessing as a curde???? nighty nite all.
Hello, This post isn't going to go down very well with the ZH readership. 1. When >>> the proverbial man on the street <<< gets involved with an asset class, any asset class of any nature, experience suggests the smart money takes the other side; 2. Whenever central banks go one way, experience suggests the smart money takes the other side, and I understand (FT recently) that central banks were net gold buyers in the third quarter.
1. Agreed. But "the proverbial man on the street" doesn't have a clue yet. When you hear folks at lunch talking about what coins they bought this week, it would indeed be a good time to get out.
As the final bubbles deflate (USD and TSY) gold will probably be the biggest, baddest bubble ever. Why not ride it on the way up? I'm speaking strictly investment here, not stacking for the reset, which an entirely different story.
2. Huh? I thought you can't fight the Fed. ;-) With look at the chart above, though the banks are buying, it is hardly significant.
Re 1.
Agree not heard that here in UK, but I think they have bought coins in size in (mainland) Europe - in Austria the mint kept running low.
Gold ETF's are certainly bought by retail.
I agree long-dated TSY is a bubble, but to me Au already looks pretty frothy.
If real trouble, I look for a big move into USD, not out.
Still nobody has ever given a clear answer to the question: what do you do with all your gold once the world implodes? what do you do with all your gold once there is 50% unemployment, prices will skyrocket and you won't be ablet o feel safe with your savings in a bank?
Gold will be useless then. What you need is staple food to survive and if you cannot store it then the best alternative is buying land and make sure you do it in a country where your ownership rights are safe.
I find your question irrelevant and intellectually insulting, as it smacks of having bought into the false and malicious doomsday propaganda of the banksters ("Bail us out or the world ends") hook, line and sinker.
Who (besides said banksters) says the world is going to "implode", anyway? Yes, the financial and monetary systems will most likely collapse, but they are NOT "the world"! There will still be an economy, and still be farmers growing food, and still be factories working, and still be people picking up trash, etc. --- the only difference will be in the medium of exchange being used to facilitate these economic activities, and the degree to which the natural (i.e., free) market will be impaired by government intervention and reaction to the failures of the financial and monetary systems.
I, for one, do NOT expect to see Mad Max meets "The Road" meets "Night of the Living Dead" merely because some fucking fiat currency has failed once again. Yes, life will be hard, and probably for quite some time, but the earth is not going to thereby spin off into space, nor are cannibalistic zombie hordes going to suddenly start beating down your door looking for your gold and your tasty brains.
Please stop spreading this sort of bankster-inspired fearmongering already.
Your reply sounds very bitter and insulting as well. It was clear that I was referring to the financial world (as we know it now) and not an implosion of the planet or necessarily a global war. And as usual you have spent 2 paragraphs arguing about my definition of "world" without answering the question what do you do with gold in that circumstance? what do you do when there is hyperinflation or a different medium of exchange, which clearly cannot be gold or anything related to gold. Again just your focus on the "world" part shows you are missing the point here.
OK, perhaps I misinterpreted your question and post, and if so I apologize.
But such a vague and open-ended question is essentially impossible to answer, as it depends on a multitude of factors that are not yet, and may never be, in play. My best overall guess is that one does what others have done in countless similar situations in the past: you either barter your gold and/or silver for goods in the marketplace as needed or desired, or else you sell your gold and/or silver for whatever medium of exchange is currently in use at the time to obtain the aforementioned goods. It is that simple.
Please note that there has never, to my knowledge, been an economic or monetary collapse in which there was NO commonly accepted medium of exchange, government-provided or otherwise, no matter how clumsy or temporary it may have been; I expect our monetary upheaval and/or collapse will be no different in that regard. My working assumption is that the US dollar will NOT be inflated away to nothingness, but will retain some value (even if very low) that will allow it to be used transactionally, if only within the USA. Now whether the government may try to call-in or illegalize gold when or after the dollar plunges in value, I cannot say, but again, my best guess is that if they do insanely try to make any such move, it will be both short-lived and ineffective --- I mean, would YOU meekly hand over any gold you might own?
Again, sorry for the harsh response; I have just dealt with similar-sounding and disingenuous fearmongering from defenders of the status-quo far too many times in the past few years, and have become hypersensitive to it now.
""But such a vague and open-ended question is essentially impossible to answer, as it depends on a multitude of factors that are not yet, and may never be, in play. My best overall guess is that one does what others have done in countless similar situations in the past: you either barter your gold and/or silver for goods in the marketplace as needed or desired, or else you sell your gold and/or silver for whatever medium of exchange is currently in use at the time to obtain the aforementioned goods. It is that simple.""
Well you cannot do this. There is not enough gold (as most people who love gold know, one of the feature of gold is that the supply is sort of capped). Say you also lose gold (in any way, even if you lose it in the ocean) the amount of hard currency available in the economy drops (which also means the ratio at which you barter gold with other profucts would need to be adjusted, but that would not easily happen) it would just mean the world economy is bound to contract. But in general clearly gold cannot be used to do any barter because it's not easily divisible (what do you do? do you bring with you 5g of gold in mg pieces?). So we have eliminated this possibility.
Say then another medium of exchange is going to be used, say a new currency is created, the Newdollar. And let's assume this is backed by gold, would you ever exchange it for another currency not backed by gold? Because not all world countries have gold, UK has sold most of their reserves long time ago. It's not possible to create a new currency backed by something anymore. And why would you use gold and not another material? Just because you hold gold that doesn't mean others will find it attractive. Gold is not the only material to be scarce and mostly useless for industrial production (not completely useless). Because you don't want to use a material which is useful for some production (otherwise it will become scarcer and scarcer) but at the same time it has to have intrinsic value (i.e. used for something) otherwise what's the point in holding it. As much as the value of dollars or Euro or any other ccy is subject to credibility, the value of a commodity depends on what sue you can do and it's the same for gold, despite people think otherwise. At the end of the things, if a new currency has to be created and it has to be backed by more than just faith and credibility, there is no point in choosing gold. Why would a country without enough gold reserves accept it? Do you think whoever holds more gold can impose the choice to someone else? Do you really think that China for example which has probably 15% of the gold held by the US accept it happily? (despite the fact they have been buying gold and land! in Africa/South America).
I read sometime ago a short sf story whioch was proposing to use radioactive byproducts as a new currency, as much SF as it could be, it would not be much different from using gold!
Okay, since your question is serious (I took it as cynical, too), here is my answer. What do you do with your gold? Answer, nothing. Gold will preserve your wealth through a crisis, until you can get through it, or get to another country where things are stable, and your gold can be assayed.
If you are investing/preserving, go with gold. If you are prep'ing for a severe crisis, go with silver. You might be able barter with gold, but what are you going to get? A herd of sheep when all you want is a chicken?
That is why I sold my gold and am stacking silver coin-of-the-realm. Sorry, but I won't trade you some rabbits for a shiny bar of metal, even if it says Canadian or Aussie mint on it. Coins have a know value, are easily recognizable, and are denominable.