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Perspectives On Gold's "Parabolic" Catch-Up Phase

Tyler Durden's picture


Via Lee Quaintance and Paul Brodsky of QBAMCO,


No Pretense

Since 2007 our analysis has suggested the likelihood of economic outcomes that most have considered unlikely: significant and ongoing monetary inflation, policy-administered currency devaluation, substantial global price inflation, and an eventual change in how the forty year old global monetary system is structured. Most observers have viewed such outlooks as tail events – highly unlikely, unworthy of serious consideration or a long way off. We remain resolute, and believe last week’s movements in Frankfurt and Washington towards perpetual quantitative easing confirmed and accelerated the validity of our outlook. A summary reiteration seems in order.

We all know QE began a few years ago in the US and UK with the first rounds of base money creation. This debt monetization came on the heels of Treasury’s 2008 TARP bailout, ironically the broad recognition of a tail event – a credit crisis that had been quietly building for years. Since then, global central banks have been taking turns diluting their currencies through repeated base money issuance, devaluing one at a time against the others. While prices of goods and services bought on credit have since been soft, declining or rising only mildly to reflect the natural demand for credit; monetary inflation has pressured prices of unlevered items with inelastic global demand properties higher, most notably precious metals and natural resources.

(We caution against believing that an increase in aggregate global demand, bad weather, impending conflict in the Middle East, or overzealous futures market speculators have been the cause of higher commodity prices. Such conditions represent a natural and ongoing state and commodity supplies adjust. Rather, we argue there is now far more paper chasing basically the same global supply/demand equilibrium for various commodities, and so resource producers are demanding the same purchasing power in exchange by raising nominal prices.)

Logic and history do not support a correlation linking base money growth to sustainable real output growth. At best, there is a lag period that may ultimately result in temporary nominal output growth. While base money inflation may ostensibly bring forward the time until a new credit cycle can begin (because it de-levers bank balance sheets), such a policy raises global resource pricing coincidentally. Resource providers have incentive to raise prices immediately, yet there is no such market-driven incentive among consumers to increase borrowings.

The money flow today is viscous, to say the least. Against this backdrop, there should be very little pretense among objective observers that last week’s perpetual QE announcement could actually provide real economic stimulation. From a policy management perspective, central bankers are no doubt aware that consumer demand is unaffected by base money inflation unless and until a new credit cycle emerges. As we have seen, newly created base money is not finding its way to debtors or to fully-reserved private sector creditors, but is instead being parked on the balance sheets of under-reserved banks (and ironically called “excess reserves”). In reality banks are de-levering their loan books with newly-created reserves they have lacked.

The specific (but not fully articulated) goal of the Fed and ECB is nominal money stock growth via unreserved bank credit growth. This is pro-leveraging in general and is usually a win/win for banking systems and broader economies; however, it is lose/lose when unreserved bank credit ceases to grow or begins to contract, as is currently the case. So, nominal base money growth, to which central banks have now gone all-in, is orchestrated with the primary goal of restoring nominal bank credit growth and, only tangentially, nominal output growth.

Is what’s best for banks best for their economies? From 1982 to 2007 the two objectives were aligned, at least temporarily. Increasing unreserved bank credit growth allowed the majority of households and businesses to use leverage to build capital and the appearance of sustainable wealth in real estate and financial asset portfolios. In the current economic environment; however, it seems impossible to determine whether banks even have the ability to expand their balance sheets further, thereby providing the basis for a new cycle of credit expansion, or whether consumers have interest in assuming more debt. Nevertheless, policy makers and most professional observers see base money creation as the only option remaining to sustain over-leveraged economies, and so they seem united in looking the other way while the non-bank private sector (primarily unlevered savers) effectively bails out the global banking system, and while the takers of credit (debtors) continue to languish.

The balance sheets of non-bank creditors and debtors are not being improved and base money inflation can do nothing for sustainable real demand, real income, or real returns on most financial assets, and so the economic merit of QE is rather dubious. Simply, central banks cannot de-leverage credit systems in real terms (a relative concept) by promoting the expansion of the credit stock in nominal terms (an absolute objective).

Let’s further summarize and explore current events:

  • Further base money creation through debt monetization is the most politically viable means of de-levering banking systems, which seems to be the true priority of central banks. The only economic rationalization for QE? is eventual flow-through credit expansion from banks to the rest of us, which theoretically could temporarily increase financial asset prices and economic activity.
  • Last week, Chairman Bernanke said: “The tools we have involve affecting financial asset prices. Those are the tools of monetary policy. There are a number of different channels. Mortgage rates, other rates, I mentioned corporate bond rates, also the prices of various assets. For example, the prices of homes: to the extent that the prices of homes begin to rise, consumers will feel wealthier (and) they’ll begin to feel more disposed to spend. If home prices are rising they may…be more willing to buy home(s) because they think they’ll make a better return on that purchase. So house pricing is one vehicle. Stock prices: many people own stocks directly or indirectly. The issue here is whether improving asset prices will make people more willing to spend (i.e. more willing to borrow – Ed.). One of the main concerns that firms have is that there is not enough demand…if people feel their financial position is better (then) they’ll be more likely to spend…” To which we would inquire in response: “what exactly does Mr. Bernanke expect consumers to spend and what does he expect consumers to demand?” Plainly, the Chairman hopes easier credit conditions would bring higher financial asset prices, which in turn would induce consumers to assume more debt with which to consume goods, services and even more assets. The implication is obvious: the Fed’s only hope is now reduced to trying to re-ignite a credit bubble ahead of commodity price increases, which in turn increases input costs for finished goods, reduces economic activity, and transfers wealth to resource providers from resource consumers. As noted above, real growth cannot be orchestrated through this policy. (Could the Fed be guilty of relying on an econometric model that adjusts supply and demand in one currency, without considering the incentive of global resource producers to migrate away from currencies being diluted?)
  • As the Fed continues monetizing MBS, mortgage and other tertiary market yield spreads (including equity dividend and earnings yields) should continue tightening to Treasuries. We would expect policy makers to greatly encourage further declines in nominal mortgage rates in the hope of a renewed housing boom. This would imply the need to further drop Treasury yields with five to seven year durations to maintain a positive spread. Financial asset markets should generally continue to rise in nominal terms (the outcome Chairman Bernanke targeted in his comments last week). Since the economic efficacy of such a financial scheme relies on both homebuyers’/refinancers’ willingness to assume more debt for larger or newer homes, and on further Treasury yield subsidies, it seems obvious that $40 billion/month in MBS purchases should be considered the minimum for future QE.
  • We believe QE via debt monetization in this manner will not provide economic stimulus. Homeowners use rational cost/benefit analyses. Lower home re-financing rates or potential home equity gains would have to be perceived by the public to be worth the risks of potential illiquidity and equity losses, risks they recently experienced. Given already record low mortgage rates, low home equity levels, a zero-bound rate structure, an overcapacity of existing homes, and an aging US population, we would argue that significant re-leveraging will not occur in the US housing market. Central banks would need to find another outlet for consumer credit to successfully stimulate economic activity.
  • Most of the largest global sovereign economies rely directly on a finance-based model for nominal output growth – a model wherein increasing public and private balance sheet leverage drives nominal GDP higher, which further helps to service outstanding nominal debts with the creation of incrementally new nominal debts. Output growth in more commercially-driven economies, notably China and Germany, also relies greatly on further consumer leveraging in finance-based economies.
  • Without a black swan innovation that affects the capital producing potential for a great number of workers in finance-based economies, it is highly unlikely that developed and developing economies can experience real output growth (nominal growth adjusted for debt growth and purchasing power loss across all currencies relative to items in relatively fixed supply with inelastic demand properties).
  • We continue to believe the logical economic outcome is global stagflation – stagnant or contracting global real output coincident with substantially rising prices of commodities and rising input costs of finished goods. A trend towards stagflation seems to have been firmly set in motion already.
  • Unlike 1979-1980, monetary policy makers will not be able to resurrect the purchasing power of their currencies by raising interest rates (or this time by withdrawing base money from the system), because the balance sheets of governments, banking systems and households are already deeply indebted, impaired, and unlikely to be meaningfully improved without currency devaluation. Tightening credit in the current environment would most certainly bring on a deflationary depression.
  • Once banks are deemed to be sufficiently de-leveraged through debt monetization, we believe central banks will begin monetizing assets as a means of explicitly devaluing their currencies. As we have argued, the asset of choice will be the only monetary asset already held by global treasury ministries and central banks and the one with recent precedent collateralizing global currencies – gold.
  • The policy-administered currency devaluation we have envisioned would involve a central bank publicly tendering for gold at an increased exchange rate (i.e. price). For example, the Fed would purchase gold with newly created US dollars, which would bring the ratio of USD-denominated credit-to-base money back into line, thereby de-leveraging the system. (This inflation would increase prices and wages relative to outstanding debt balances, greatly reducing the burden of debt repayment.) Global currencies might be re-pegged to the US dollar which would in turn be exchangeable for gold at the higher price, as per the Bretton Woods system. Of course, other central banks might try to make their currencies exchangeable directly into gold at another exchange rate. (We await the arbitrage.)
  • Were a USD devaluation and re-pegging to occur as of the end of 2014, following 2 ¼ years of $40 billion monthly MBS debt monetization, we estimate our Shadow Gold Price would approximate $15,000/ounce. (The SGP divides the quantity of USD base money by the quantity of US official gold holdings, as per the Bretton Woods monetary regime.) Over the weekend, Bank of America analysts implied USD base money inflation would increase much more than the Fed announced, to about $5 trillion by the end of 2014. This figure would imply an SGP a bit over $19,000/oz.


We are often asked when we see our scenario playing out. Our answer has always been twofold: first, current conditions and policy responses confirm it is playing out now; second, it is impossible to say when the parabolic “catch-up” phase gets underway because that depends on the interplay between the general public’s understanding of the forces behind consumer goods and service price inflation, the pressures on real returns in most financial assets, and the reflexive political pressures and policy responses to them.

Nevertheless, we suspect last week’s events, in which both the ECB and Fed committed to open-ended base money creation – against a geopolitical environment in which China’s USD reserves are being held astride an increasingly dynamic domestic political regime and in which the petro-dollar regime of the past forty years seems under attack – may be the catalyst that begins to raise public awareness of the link between monetary inflation and price inflation.

Inflation indexes such as the CPI are contemporaneous indicators of price level changes. If our analysis is right, very little capital will be properly positioned when consumer price indexes begin to flare. The relatively tiny current universal allocation towards perceived “inflation hedges” seems to bear this out.

We believe significant real Alpha will be generated by those properly positioned first for significant monetary inflation and monetary regime change, and second for significant price inflation. We believe nominal returns using this sequencing will be substantial (far greater in fact than were available to short positions in sub-prime loans in 2007).


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Tue, 09/18/2012 - 14:09 | 2807827 Robert-Paulson
Robert-Paulson's picture

More right-wing Media Bull Crap to get people to buy Gold under the non-sense of "Fiat Currency".

To be exact:
We pay for Gold with US Dollar, European Euro, Israeli Sheqels, Japanese Yen, etc.
So if US Dollar, Euro, Japanese Yen, etc. are "Fiat Currency" then Gold is a "Fiat Currency" since we pay for Gold with these currencies. That is we can step to any Gold counter and pay them US Dollar to take their Gold away, so who now has the "Fiat Currency"!

So to have as your so called philosophical basis that "Fiat Money" and "Gold is only real Money" is absolutely insane. But that is what the Republican party, specially its lunatic Money wing, such as Ron Paul are.

Now you may argue that Gold is an investment, which would be a somewhat rational argument, compared to such insane talk as "Fiat Currency", but then as an investment Gold is one of the Worst since it pays NO dividend, you can not wear it, you cannot live in it, ONLY thing you can do is hope for a BIGGER fool to pay you more for it.

Tue, 09/18/2012 - 14:13 | 2807836 MillionDollarBonus_
MillionDollarBonus_'s picture

In June of 1998, Professor Robin Hanson of George Mason University suggested that an economic singularity may be just around the corner. An economic singularity is a period of exponential growth, where the economic landscape changes dramatically and prosperity multiplies by many factors in a very short period of time. I believe that the US Treasury market is a precursor to an economic singularity.

Let me explain:

In 1980, the peak yield on the 30 treasury note was 15.20%. Since then, there has been a steady flow of money into US treasuries due to a growing confidence in the responsibility and trustworthiness of our congress and central banking officials, and today that yield is a phenomenal 2.80%! If this trend continues at an exponential rate (and there’s no reason to believe that it won’t), the yield on the 30 year note will soon be sub 0.01%. It may be hard to believe, but this IS possible, and its implications are far-reaching. With treasury yields at sub 0.01%, our government will be able to borrow at next to nothing, allowing our congress to finance lavish lifestyles for all Americans, with extended benefits and unlimited paid leave for government workers. This is a real possibility in America, and I think this calls for more optimism and positive thinking, and less doomer fear mongering.

Tue, 09/18/2012 - 14:15 | 2807858 Diplodicus Rex
Diplodicus Rex's picture

 +1000 MDB_ Exactly. Spot on. There's no actual need to work at all. Every time you need to eat or fill the car with fuel you should just be able to print the money out of thin air then we wouldn't have all that debt nonsense to contend with.

Tue, 09/18/2012 - 14:24 | 2807908 Whiner
Whiner's picture

All praise and glory for MDB! A reader can't determine whether he is the Master cynic or highly paid Treasurery Troll! And that's where his mastery lies! In either case, keep it coming, MDB!

Tue, 09/18/2012 - 17:15 | 2808532 ZeroSpread
ZeroSpread's picture

MDB, you forgot to address the close correlation between falling treasury yields and PM prices (R=0.9914159). This would have underlined your sympathy for the right investment strategy further.


Regardless, you understood fight club.

Wed, 09/19/2012 - 15:59 | 2812619 CIABS
CIABS's picture

I don't monitor MDB, but it looks like he's tipping his hand lately.  Clearly a comedian, not a troll.  The dispelling of the mystery makes him a lot less interesting, in my view.

Tue, 09/18/2012 - 14:26 | 2807916 killallthefiat
killallthefiat's picture

I go chop your dollar

Tue, 09/18/2012 - 16:05 | 2808322 DoChenRollingBearing
DoChenRollingBearing's picture

Ha ha.

We are in Taranto (Italy, SE part) which was founded by the Spartans in some 796 BC.  It was considered to be the richest city  in "Magna Grecia" (the Greek Empire) with LOTS of gold.

In fact, the ad the Google just brougth up is an Italian buyer and seller of gold (Or maybe commodities in general).  Take a look:

I am still seeing (and documenting) signs and stores everywhere around here re offers to buy Italian gold...

Tue, 09/18/2012 - 17:47 | 2808621 silvermaister
silvermaister's picture


Wed, 09/19/2012 - 03:33 | 2810030 StychoKiller
StychoKiller's picture

Stating facts is not retardation, but single word comments are! (-1 for you)

Tue, 09/18/2012 - 20:21 | 2809087 Papasmurf
Papasmurf's picture

There's an iPhone app that does that.  It uses QE codes.

Wed, 09/19/2012 - 15:36 | 2812498 Diplodicus Rex
Diplodicus Rex's picture

Two down arrows???? Are you out of your tiny little fucking rehypothecated mind?

Tue, 09/18/2012 - 14:32 | 2807944 cynicalskeptic
cynicalskeptic's picture

And damn near everyone in ZImbabwe was a Millionaire or BILLIONAIRE before the currency totally collapse and the value went to zero.  The Zimbabwe stock market was also the 'best performing' in Africa at the time with ever-increasing share prices.

With $Zim 100 TRILLION notes being the highest denomination printed, being a 'millionaire' or 'billionaire' means wou're STILL broke.  An 11.2 MILLION PERCENT inflation rate is no good for anyone (except the paper supplier for your currency printer.)


Beb Bernanke may go down in history as the US version of Gideon Gono  - doing far more damage as the $US affects far more than the US population.

Tue, 09/18/2012 - 14:51 | 2808041 cifo
cifo's picture

MDB, this is your best so far.

Great analysis, great conclusion.

Tue, 09/18/2012 - 14:57 | 2808070 Al Huxley
Al Huxley's picture

That was fucking AWESOME MDB!  This is far and away your best post, and the best articulation ever of what we're collectively meant to believe in happening as indicated by UST yields.  Well done!

Tue, 09/18/2012 - 15:03 | 2808097 Eally Ucked
Eally Ucked's picture

I think it will be much better than you predict. Everybody will pile-up to US tresuries even at -5%! So basically they want us to maintain our standards of living and lead the world to future Nirvana in US$ world!

Tue, 09/18/2012 - 17:31 | 2808571 hapless
hapless's picture

Well said, E.U.

My wife was born and raised a Theravada Buddhist.  She loves it when people use the word "nirvana" as a substitute for "ecstasy".

As wikipedia says: "The word literally means 'blown out' (as in a candle) and refers, in the Buddhist context, to the imperturbable stillness of mind after the fires of desire, aversion, and delusion have been finally extinguished."


Wed, 09/19/2012 - 03:42 | 2810037 DosZap
DosZap's picture

 to the imperturbable stillness of mind after the fires of desire, aversion, and delusion have been finally extinguished."

Sounds like like right after really hot sex.

Tue, 09/18/2012 - 15:36 | 2808238 SAT 800
SAT 800's picture

Fine with me; the less doomer fear mongering and the more optimism; the more I'm going to make on my Silver Bullion when the roof falls in on your head. You see there is such a thing as reality; and it;s a bitch.

Tue, 09/18/2012 - 18:15 | 2808712 The Continental
The Continental's picture


I must congratulate you on posting economic scatologic thinking so exquisitely vapid and dripping with monetary turpitude that the sane and rational amongst us are stunned into utter silence. There is no logical retort to such pure idiocy that can be made without appearing supremely superfluous. A pile of excrement is recognizable by all, and only achieves needless exaltation when it's value is for an instant entertained.

Tue, 09/18/2012 - 23:33 | 2809730 Muppet of the U...
Muppet of the Universe's picture

You have achieved God status.  I hereby knight you the Grand Wizard of Knightmares and 33rd degree Master of Crap, they Defaulted Obligations. 

You are the greatest ZH poster of all time, and I bestow this song upon you.  May God have mercy upon your soul.

Tue, 09/18/2012 - 14:11 | 2807842 Diplodicus Rex
Diplodicus Rex's picture

Duh, you can't eat it either apparently.

Tue, 09/18/2012 - 14:35 | 2807967 Esso
Esso's picture

Well yeah, but gold & silver have caused so many maritime mishaps to ZHers that it should be outlawed for safety's sake.

I know, I lost all my PMs in a bizarre boating accident.

Wed, 09/19/2012 - 03:29 | 2810025 DosZap
DosZap's picture

In Mr.T's vernacular, FOOL!!!!!!!!!!!!!!!!!!!!! yo sho can ware it!!!!!!!!!!!!!

Wed, 09/19/2012 - 03:43 | 2810040 Urban Redneck
Urban Redneck's picture

Perhaps they've never been to a gold market in MENA or the subcontinent... where gold bangles are the preferred medium of exchange.

Tue, 09/18/2012 - 14:17 | 2807869 SumSUN
SumSUN's picture

A bigger fool is not needed for the price to increase.  Gold and silver have everything they need right now for the price to rise.  Here'e one for ya, Timothy Geithner....  10 other reasons are coming to mind right now, but I'm too busy shoving my face with popcorn.  

Tue, 09/18/2012 - 14:39 | 2807976 akak
akak's picture

The "bigger fool" (if not the biggest fool) is in fact he who naively and ignorantly ignores the fact that his fiat currency is currently being devalued RIGHT NOW, and that every fiat currency is soon going to experience a dramatic if not devastating decline in real value.

Tue, 09/18/2012 - 17:06 | 2808510 Think for yourself
Think for yourself's picture

I'll be buying all the gold and silver I can (hint: not much) until they touch 2000 and 50, respectively.

By then I'll probably revise these numbers to 2500 and 80, because that'll still be a deal considering how fucked we are. Problem is, I don't think that new interval will last long...

Tue, 09/18/2012 - 14:23 | 2807902 fiddler_on_the_roof
fiddler_on_the_roof's picture

Then tell me - Why are CB's holding and continuing to load up Gold "only" ? (Not Silver, platinum...)

Tue, 09/18/2012 - 15:29 | 2808212 SAT 800
SAT 800's picture

Scale factor. The Silver market in dollar value is tiny compared to the Gold Market. Professionals never want to cause a price rise in a marke they're entering. Tradition. Psychology. All these reasons. For the individual, the cae is different. 100% Silver is correct for the individual. to comment on Platinum is to enter into a discussion with a fool; which merely indicates that one himself is a fool.

Tue, 09/18/2012 - 20:06 | 2809042 Snidley Whipsnae
Snidley Whipsnae's picture

The PBOC and many other SE Asian/Mid Eastern central banks AND soverign wealth funds are continuing to 'load up'.

Simply because Westerners have been brain washed into believing that fiat is the end all do all does not mean that the entire world takes the same view.

How many fiats have the Chinese seen come and go in the past 5,000 years?


Tue, 09/18/2012 - 14:26 | 2807915 Dr. Engali
Dr. Engali's picture

We already have a resident troll with MDB, only he is a pretty good troll because he is funny. You....well you're just lame.

Tue, 09/18/2012 - 14:30 | 2807933 Top_Kill
Top_Kill's picture

Your precious fiat pays not interest either. Can you say ZIRP! I guess it is not money.

Tue, 09/18/2012 - 14:56 | 2808042 KingTut
KingTut's picture

Bob, we're a little wet behind the ears .. eh?

Gold is NOT fiat currenct, by definition.  It comes out of the ground, not out of a mint.  Fiat money come in three varieties: coin, paper and electronic.  The paper currency has symbols printed on it, with a number indicating how much its "worth".  You can't eat it, but if you're cold you can burn it. Coins are metal slugs with symbols stamped into them  You can't eat or burn coins, but you can melt them down and make something useful.  Electronic currency isn't really money, but an entry in the books of a bank.  Somebody said he robbed bank because "that's where the money is".  Ironically that's not really true.  Banks keep a relatively small amount of paper moneyto reload their ATMs etc., they have coins too but they're a nuisnace. Banks create electronic money out of thin air everytime they make a loan.  Your deposit is just used as a reserve for more loans.  Very weird system.

Fiat currency gets its name from how the government forces people to use their "money".  You can only pay taxes in legal tender.  In addition debts can legally be paid with legal tender, and government fines have to be paid in legal tender, and courts settle disputes in legal tender.  Of course, the government dictates that bank money, the electronic entries in their books, is also legal tender.  That's why you can pay your taxes by wrting a check.

Gold on the other hand competes wth legal tender fiat currencies becaucse the government cannot create it, the cannot give it value or take its value away.  Now that Iran is subject to sanctions, they are using gold to buy internationally.  Gold is accepted everywhere in the world, no questions asked (except is it real gold?).  Governments come and go, and their currencies come and go, but gold's value survives all of that.  If you own a gold coin, it could been Cleopatra's jewlery, Napoleons treasury, or stolen from the Chinese during WW-II.  It can't be fiat because the government has no jurisdiction over its existence or value.

Of course, governments hate gold, so they tax it, confiscate it, hoard it, steal it, and generally make you think its junk money.  But the only reaosn they do that is because they can't really control it, only your perception of it ... if you're stupid enough to let them.

Tue, 09/18/2012 - 14:53 | 2808053 Smartie37
Smartie37's picture

Ho Ho Ho --- Merrrrry  Stupid !  

Let's make it real simple: 

A silver dime buys 1 gallon of gas in the 1950s

A silver dime exchanged for fiat buys ~1 gallon of gas in 2012

A fiat dollar buys ~10 gallons of gas in the 1950s

A fiat dollar buys ~1/3 of a gallon of gas in 2012

Lot's of anti-Gold folks on this one..................WHY ?????????????????

To "protect us" from protecting purchasing POWER ????????????????????????

Tue, 09/18/2012 - 15:14 | 2808140 Colonel Klink
Colonel Klink's picture

A fiat dollar buys ~1/4 of a gallon of gas in 2012.


Fixed it for you.  Good post otherwise.

Tue, 09/18/2012 - 15:16 | 2808150 Getting Old Sucks
Getting Old Sucks's picture

Uh, I can only get less than a quarter gallon of gas for a buck.

Tue, 09/18/2012 - 15:07 | 2808107 lasvegaspersona
lasvegaspersona's picture

His name was robert Paulson

no wonder they killed your character off in the are illogical

I pay for gold with paper....therefore gold is paper???

Tue, 09/18/2012 - 15:12 | 2808123 incognito
incognito's picture

Gold is not fiat because it can not be produced in infinite quantities for a minimal difference in cost. Gold can only be produced by mining and refining that uses up time, effort, and capital. Duh.

Tue, 09/18/2012 - 15:32 | 2808224 SAT 800
SAT 800's picture

You are at least somewhat familiar with the human race and its behavior, and you doubt there will be plenty of greater fools? The supply of greater fools will prove to be very adequate; on this point you need have no concern.

Tue, 09/18/2012 - 16:18 | 2808357 marathonman
marathonman's picture

All money is fiat.  Money is just an idea.  It's only value is as a means of exchange.  Gold has been considered money through the ages because of its inertness, divisibility, rarity, etc.  But really it is based on an idea that its worth exchanging.  It also doesn't have counterparty risk.  A gold coin in your hand is unencumbered by someone elses ability to pay and it has to be dug out of the ground providing a cap to its availability. 

While it doesn't pay a dividend, it holds its purchasing power because of its rarity and governments propensity to print money out of thin air to pay unpayable promises in political vote buys.  Oh, and you can wear it.

Gold and silver is the currency of last resort when everything in Federal Reserve Note land has gone FUBAR. 

Tue, 09/18/2012 - 16:54 | 2808471 thewhitelion
thewhitelion's picture

I'd like to be the first to congratulate you on your compelling use of "quotation marks" around the words "fiat currency."  Finally, I see the error in my ways.  (Plus, "fiat" might have "floated" in my "boating" "accident" "."

Tue, 09/18/2012 - 17:30 | 2808570 thadoctrizin
thadoctrizin's picture

Take your shill ass back to Cnbs


Tue, 09/18/2012 - 18:24 | 2808734 Darth Rayne
Darth Rayne's picture

Gold is a yellow metal, it conducts electricity and is very maleable. So say metallurgists.

Gold is not money, so says Ben Bernanke.

I have exchanged all of my excess currency for some gold. I may be a fool but I would be a BIGGER fool to ever swap my gold for US Dollars, Euros, Japanese Yens, british pounds or any other form of money that someone else can devalue to nothing with a few key strokes.

An ounce of gold today will be an ounce of gold in a thousand years. What will $1700 dollars be worth in a thousand years? How about 100 years? What about 10 years? Next year?

The West might see gold as a commodity. The East don't. I don't.

I believe I am swapping, what will be worthless, bits of paper with numbers on for actual wealth. I don't care if I am right or wrong. I slept better after removing my money from the bank. Most of my material wealth now rests in Zurich and London. None in NY.

I couldn't care less about my paper wealth.

Wed, 09/19/2012 - 04:44 | 2810109 EmileLargo
EmileLargo's picture

So if US Dollar, Euro, Japanese Yen, etc. are "Fiat Currency" then Gold is a "Fiat Currency"


Tue, 09/18/2012 - 14:11 | 2807838 Vincent Vega
Vincent Vega's picture

What is this; troll day at ZH?

Tue, 09/18/2012 - 14:37 | 2807977 Qualitative Tig...
Qualitative Tightening's picture

Yes. I second that.

Tue, 09/18/2012 - 18:59 | 2808826 emersonreturn
emersonreturn's picture

Vincent Vega...other than Max F the whole gang's playing Benny G's song.

Tue, 09/18/2012 - 14:14 | 2807850 CClarity
CClarity's picture

QE for indefinitely but maybe forever is code for the Fed (and other CBers) can't figure out any way to stimulate demand, so trying to keep economy afloat by feeding equity whiners . . . but won't help keep any loft under the economy itself.  Eventually, the debasement of the US$ will translate into inflation above 10%, moving quickly to 25%, in food and energy.  While the Fed and other traditional economists will point out that they prefer to look at the number ex food and energy (of course they do, it includes housing and labor wages which certainly aren't experiencing loft except in a few specific areas).

When the inflation really gets going, Fed won't have chemicals to extinguish.  The speed with which hoarding of food and various energy products will outstrip the inflation and then the vortex of one pushing the other will be underway.  Gold, arable land with protection, water, and ways to home power folks.

Tue, 09/18/2012 - 14:15 | 2807857 dick cheneys ghost
dick cheneys ghost's picture

What about the Silver?????

Tue, 09/18/2012 - 14:33 | 2807948 jmcadg
jmcadg's picture

Silver:Gold ratio 1:1 :)

Tue, 09/18/2012 - 15:49 | 2808278 PiratePawpaw
PiratePawpaw's picture

Silver looks like it may retest 35 today. If it holds and pushes 37 this week not much to hold it below 40.

Just my humble opinion FWIW.

Tue, 09/18/2012 - 14:18 | 2807875 DutchR
DutchR's picture






Investing is easy.........

Tue, 09/18/2012 - 14:20 | 2807889 mrktwtch2
mrktwtch2's picture

it has to get to 2450 for the  idiots who bought it in 1980 to break if it hits 5k then i will come to your house with my 357 magnum and steal it from preach this garbage to grahm

Tue, 09/18/2012 - 14:44 | 2808009 fuu
fuu's picture

And you'll be dead 600 yards out...<TAP><TAP>

Tue, 09/18/2012 - 17:42 | 2808033 akak
akak's picture


it has to get to 2450 for the idiots who bought it in 1980 to break even

As if we have not endlessly already heard this disingenuous and highly selective anecdotal bit of garbage.  Yes, cherry-picking the most extreme data point to make one's argument is always the height of honesty and intellectual integrity.

And for those (the vast majority, in fact) who did NOT buy gold at its (very temporary) price spike in 1980 --- what about them?  And in any case, what the fuck does the price spike of 30+ years ago have to do with the situation TODAY, with a collapsing and utterly corrupt financial system and soon-to-collapse, equally corrupt fiat currency system?  That's one nice red herring you throw out there.

lol if it hits 5k then i will come to your house with my 357 magnum and steal if from you ...

And my 44 magnum will be there ready and waiting to meet you. 

But nice sentiment: you will just take by force what you want from those who rightfully own it.
With that mentality, you must work for the government.


Tue, 09/18/2012 - 14:53 | 2808051 NoTTD
NoTTD's picture

You won't make it up the driveway.  We'll be stacking you and your kind up like cordwood.

Tue, 09/18/2012 - 15:20 | 2808174 PiratePawpaw
PiratePawpaw's picture

I see your .357mag and raise you a .45acp, a .308, a box of .223 and about 3000 7.92x57.

On a different note, gold(and silver) are already at 3.5x what I bought in for in the early 2000's.

Who preacheth garbage?

Tue, 09/18/2012 - 17:37 | 2808583 XenoFrog
XenoFrog's picture

Thankfully for us PM stackers, people like you who mock us for stacking are also quick to mock us for properly arming ourselves. So you're now 0 for 2. No PMs and no guns with which to procure them when the SHTF. Have fun starving to death waiting for FEMA to come save you.

Wed, 09/19/2012 - 03:32 | 2810028 DosZap
DosZap's picture

if it hits 5k then i will come to your house with my 357 magnum and steal it from you.

Make my day.   ):*

Tue, 09/18/2012 - 14:23 | 2807901 pirea
pirea's picture

this time is going to be different, gold will be banned globally, before is going parabolic. all is set in place for this to happen.

Tue, 09/18/2012 - 14:29 | 2807922 Whiner
Whiner's picture

My Dear Sir. It impossible to ban gold in a global economy. Keep your gold buried or in Swiss Alps. Or I will gladly provide anyone safe storage for free.

Tue, 09/18/2012 - 14:36 | 2807971 Cognitive Dissonance
Cognitive Dissonance's picture

Oh....Oh......take my PMs as well...........please. Shirley you're much safer than those nasty bullion banks/vaults. :>)

<You have such a kind and trusting face.> 

Tue, 09/18/2012 - 15:28 | 2808208 Ima anal sphincter
Tue, 09/18/2012 - 16:20 | 2808362 silverserfer
silverserfer's picture

no tardface, soon PAPER will be banned globaly.

Tue, 09/18/2012 - 18:54 | 2808815 NoTTD
NoTTD's picture

"Tardface"!  ZING!!  

Tue, 09/18/2012 - 16:50 | 2808460 seek
seek's picture

I've noticed a funny thing: Tangible items with no counter-party risk and no central point of contral, such as gold, guns, drugs and alcohol, illegal aliens, etc, seem to remain in existence when intangible legal phantoms "ban" them, while intangible items with centralized control, such as fiat currencies and civil rights in totalitarian regimes, seem to go "poof" on a regular basis.

I've placed my bets accordingly.

Tue, 09/18/2012 - 14:31 | 2807931 Cognitive Dissonance
Cognitive Dissonance's picture

PMs........a once in a lifetime opportunity........again.

<Shorting the market in 2008, then buying it in early 2009 was the first.>

Tue, 09/18/2012 - 14:32 | 2807947 muppet_master
muppet_master's picture

Au @ $10k = possible....

BUT FIRST $300/oz...then @ $10k = SELL before CONFISCATION !! and buy 10 yr @ 20%

Tue, 09/18/2012 - 14:45 | 2808010 fuu
fuu's picture

$300 lol

Tue, 09/18/2012 - 15:10 | 2808117 Getting Old Sucks
Getting Old Sucks's picture

LOL?  I bought a lot of mine for around that.  My hobby was collecting numismatic gold peices.  Collected between 1999 and 2004.  Completed my collection.  Never dreamed they would be worth what they are today.  Never gonna sell them, just pass them down. 

Tue, 09/18/2012 - 15:24 | 2808187 fuu
fuu's picture

Yeah and I was buying silver for a jewelry business between 2000 and 2006 that blew up when silver popped over $15. I have stuff from $5 an oz, will it ever get back there in my lifetime?

Tue, 09/18/2012 - 16:04 | 2808327 Getting Old Sucks
Getting Old Sucks's picture

Can't see silver ever going back to $5 an ounce.

Tue, 09/18/2012 - 16:47 | 2808453 smiler03
smiler03's picture

"Never gonna sell them, just pass them down."


Well that's great and admirable for you as you obviously have something other than fiat to live on should the USD go tits up. I'm curious what that would be other than a productive farm with it's own oil and water wells.

Please don't reveal it here though. More than likely some gun toting ZHer will turn up, but of course he'll announce it in advance so that you can shoot him first.

Tue, 09/18/2012 - 17:47 | 2808557 akak
akak's picture

What is it about you Euros that consistently makes so many of you absolutely filled with arrogance, hatred, jealously and misanthropic ill-will?

Or in this case, is your unjustified snark somehow a result of the stress caused by your beloved UK police state having 47 million surveillance cameras following your every move from 16 different angles?

Tue, 09/18/2012 - 22:44 | 2809610 smiler03
smiler03's picture

Holy tap dancing christ on a stick of liquorice! 

Arrogance? Hatred? Jealousy? Misanthropic ill-will? Snark?

Are you slightly wound up or something? Are you not curious how this chap can confidently state that he'll NEVER sell his gold? I was pointing out that that would not be possible for most people without some other way of sustaining their existence. You really seriously do need to "chill out". Think about Chinese toilet habits, that seems to normally keep you calm, along with your 4th turning stooge mate.

Surveillance cameras = stress? I hadn't realised, thank you for pointing that out. I'll make a point of standing under one and having a hissy fit.

I think the thing that upset you most was the "More than likely some gun toting ZHer will turn up, but of course he'll announce it in advance so that you can shoot him first."

Because you're all so 100% confident that your gun collection will keep you 100% safe and that somebody elses gun collection used against you will have 0% effectiveness. You'd have to be blind not to notice it reading the comments above. A guy suggests coming to your house with a 357 magnum. Then the parrots all reel off some other calibre gun that will get him first. You all live in a Clint Eastwood fantasy world of being armed makes you safe.

And to save you the trouble of replying. I don't have a gun. I don't want to have a gun. Two unarmed police officers were murdered in the UK today. The media are pointing out how horrific this is. Police in the UK, armed or otherwise very very very rarely get shot. Nothing will change here, because it doesn't need to. Some moron who assessed how to respond to the incident that lead to their deaths needs his/her head put in a vice, and tightened.

Wed, 09/19/2012 - 03:36 | 2810033 DosZap
DosZap's picture


You must be a Brit, have you checked the UK's murder rates, since your guns were taken(yet again), and the violent crimes/break in's, and armed robbery rates also??.They went thru the roof.

Tue, 09/18/2012 - 20:40 | 2809147 Papasmurf
Papasmurf's picture

He's got his chart upside down.

Tue, 09/18/2012 - 14:33 | 2807951 cabtrom
cabtrom's picture

Doesn't matter if I can eat it, live in it or wear it. Those things are given to me by our king O and our oh so wonderfull & "rich" us government didn't you know that I'm entitled to food, clothing, shelter,& now healthcare? So if I don't need "money" I think I'll collect pretty gold coins and bars. Either way WTF do you care paulson if people want to own gold? Harrumph harrumph harrumph!

Tue, 09/18/2012 - 14:34 | 2807956 dracos_ghost
dracos_ghost's picture

"Once banks are deemed to be sufficiently de-leveraged through debt monetization, we believe central banks will begin monetizing assets as a means of explicitly devaluing their currencies. As we have argued, the asset of choice will be the only monetary asset already held by global treasury ministries and central banks and the one with recent precedent collateralizing global currencies – gold."


WRONG. We all know that Belarus prostitutes are the primary assets held by global treasuries and central banks. Gold purchases are correlated purchases to keep them happy.

I'm pro gold like the majority of ZH here but this analysis is terrible. SGP?!. OK, I have a Super Secret Shadow Gold Price(SSSGP) that says gold should be at $500,000/oz based on the Marx Brothers "Cocoanuts" theory of asset valuation. 

Please buy my newsletter. 

Tue, 09/18/2012 - 16:31 | 2808395 Bullionaire
Bullionaire's picture

HA!  Are you really Graham Summers?


Tue, 09/18/2012 - 17:29 | 2808569 MrSteve
MrSteve's picture

Marx Brother's Cocoanuts- opened in Spring of 1929, a pretty good top call in general and great advice with the line, "Boy, can you get stuckO!"

Does your triple S Gold Price analysis include the $1.4+ quadrillion in BIS-identified bank-held derivatives or just currencies printed by central government treasuries?

Regarding the US feds confiscating gold: they've already confiscated all savings account interest payments, what would stop them from targeting gold, other than an informed citizenry (Sarc)?

Tue, 09/18/2012 - 14:40 | 2807991 Dave Thomas
Dave Thomas's picture

It's like Star Trek, you just go over to the replicator and say, "STICKY BUNS" And you hear angels voices and a bunch of bear claws tumble into the basket of your hoverround. Money is a barbarous relic.


Tue, 09/18/2012 - 15:00 | 2808084 ParkAveFlasher
ParkAveFlasher's picture

Gold, bitchez!

Tue, 09/18/2012 - 15:02 | 2808088 zerotohero
zerotohero's picture

It's all a game - it just depends on how you choose to play - some believe in fiat currency others PM's. Some stockpile guns and food in a bunker and some don't give a rat shit about any of it. Take your pick - follow your path - have a laugh and say "fuck it" and enjoy the ride.

Tue, 09/18/2012 - 15:23 | 2808184 Sigep0612
Sigep0612's picture

I went back home to NY recently.  It's been several years.  The baddest dude on the block when I was growing up was now overweight, losing his hair and nearly toothless.  I shook my head remembering how I feared him.

It all comes down to CONFIDENCE in the USA.  Once that trust is breached, we are DONE.   And we are slowly reaching that edge.  Excessive spending, Debt accumulation, QE, Bailouts, Solyndra, and the worst of all a severely divided nation. (Thak you Barrack Obama).   This is not a contest to see which party has the most bravado. We have serious problems in this country and both sides need to recognize what's best for the country MAY NOT be in the best interest of their party.    

The USA would like to think we're stil the baddest dude on the block but the truth is everyone knows we're washed up but we continue to act tough. It's inevitable that we accept a dimished role in the world and a different lifestyle. 

Tue, 09/18/2012 - 16:09 | 2808336 Joebloinvestor
Joebloinvestor's picture

I agree, it sure is a "confidence" game.

Tue, 09/18/2012 - 16:32 | 2808397 Joebloinvestor
Joebloinvestor's picture

I agree, it sure is a "confidence" game.

Tue, 09/18/2012 - 15:24 | 2808188 youngman
youngman's picture

It only took 4 days for Japan to add another trillion to the worlds we pass the baton to the EU....or maybe Britain..."up up and my beautiful ballon...." a year frm know there will be 5 trillion more fiats out gold and silver...hell ....nails & screws will be worth more too...

Wed, 09/19/2012 - 03:48 | 2810049 StychoKiller
StychoKiller's picture

Uh-oh, time for a trip to the hardware store... :>D

Tue, 09/18/2012 - 15:44 | 2808222 lasvegaspersona
lasvegaspersona's picture

The problem with the shadow gold price is that it implies that the current dollar will still be the reference currency, it won't. The dollar's structure does not involve gold. Gold is held by the US government NOT the Fed. For gold to be part of a dollar system it would have to be redifined...a 'New' dollar.....In that system, with a structure similar to the Euro, gold could be brought into the fray by the USA, for now it cannot be deployed and must sit silent.

Wed, 09/19/2012 - 03:51 | 2810054 DosZap
DosZap's picture

Gold is held by the US government NOT the Fed

Partly true, the FRBNY is not the US Gub..............and they have at least 2000Tons of the SO called 8100.

Wed, 09/19/2012 - 03:52 | 2810055 DosZap
DosZap's picture


Tue, 09/18/2012 - 15:34 | 2808231 DaveA
DaveA's picture

Goldbug: Gold is going to $15,000 an ounce, just watch!
Skeptic: Trees don't grow to the sky, you know.
Goldbug: The trees aren't growing; your ruler is shrinking.

Tue, 09/18/2012 - 15:42 | 2808259 Haager
Haager's picture

Rumours are that Ben's QEinfinty is nothing but hot air - and therefore nothing more than QExit. If that turns out to be nearly true and the market realizes that commodities will be traded accordingly. I hope noone has only papergold by the time then.

Tue, 09/18/2012 - 16:54 | 2808469 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Wait just a gosh darn minute.  Are you telling us that the Federal Reserve may be lying to us?! 

The Federal Reserve caused the last Great Depression by decreasing the money supply by roughly 1/3.  Would they do that again?!


Tue, 09/18/2012 - 15:55 | 2808302 wagthetails
wagthetails's picture

If these high gold prices were to occur, what does that imply about other real assets?  would real estate increase 10 fold?  I have no doubt gold will continue to increase.  But i have to believe a gold price 10x today's price means the world would be in such a state, i'd rather not be around.  

Tue, 09/18/2012 - 16:30 | 2808391 nobodyimportant
nobodyimportant's picture

Well....I would at least hang around until I exhausted my wine celler.

Tue, 09/18/2012 - 16:01 | 2808320 janchup
janchup's picture

Another thing you can do with gold Roberto is appreciate it's phenominal rise over the last ten years and if it's not too rude to point out, the "no dividend" meme is idiotic.

Tue, 09/18/2012 - 16:13 | 2808341 dmger14
dmger14's picture

The answer is to send everyone a check for $5 million.  That way none of us would have to work.   They can use the robot bitches who answer phones with their automated options to run the fast food restaurants between calls while we light each other's swisher sweets on the couch watching fooball.

Tue, 09/18/2012 - 16:36 | 2808417 Bullionaire
Bullionaire's picture

I prefer blunts and baseball, but that's just me.

Tue, 09/18/2012 - 16:24 | 2808376 Remington IV
Remington IV's picture

The chimps are running the asylum... and commenting on it

Tue, 09/18/2012 - 16:26 | 2808383 Son of Loki
Son of Loki's picture

"It's those evil speculators."

Nancy P.

Tue, 09/18/2012 - 17:07 | 2808512 Fix It Again Timmy
Fix It Again Timmy's picture

A stack of Confederate bills or a stack of Eagles?  Your choice....

Tue, 09/18/2012 - 20:03 | 2809027 Acidtest Dummy
Acidtest Dummy's picture

Gold (Au) has its own will, a 'Katamari' nature. Au wants to mass into ever larger lumps; it has an affinity for itself.
People don't own gold, they help gold to greater massing.
The massing of Au is the story of your history. Human communication through language has lost its purchase in the civilizing of this planet.
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