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Stagflation Threatens Western Economies – Gold A Bubble, To Correct Or Go Parabolic As Per 1970’s?

Tyler Durden's picture


Submitted by Gold Core

Stagflation Threatens Western Economies – Gold A Bubble, To Correct Or Go Parabolic As Per 1970’s?

All major currencies have fallen against gold today with the euro down 1% against gold on nervousness ahead of the Franco German summit. Gold is trading at USD 1,776.70, EUR 1,235.10, GBP 1,084.10, CHF 1,389.90 per ounce and 136,450 JPY/oz.  Gold’s London AM fix this morning was USD 1,779.00, EUR 1,236.18, GBP 1,086.81 per ounce.

Gold in U.S. Dollars – January 2009 to August 2011 – Daily and 50 and 144 Day Moving Averages

U.K. inflation accelerated more than economists forecast in July, as the cost of food, clothes, footwear, housing maintenance and rent increased. Negative real interest rates are getting worse as the BOE has kept interest rates at a record low of 0.5%.

5% inflation in the UK is expected in the coming months prior to hopes that inflation will abate. UK economic activity grew at just 0.2% in the second quarter of the year suggesting an annual rate of growth of 0.7% over the past twelve months. 

Economic growth is faltering in all major economies with data this morning showing Eurozone and German GDP growth slowing.

Eurozone GDP rose 0.2% from the first quarter, when it increased 0.8% while German GDP growth fell by more than expected in the second quarter, dropping to a derisory 0.1%.     

Double dip recessions involving inflation and therefore stagflation seem increasingly likely.

Gold in British Pounds – 30 Days (Tick)

Gold is overvalued in trading terms in the short term as it has risen well above its moving averages and there is the risk of a correction from these levels.

The 144 day moving average (identified by Dominic Frisby of Money Week) has provided very strong support to gold since January 2009 and should provide strong support should a material correction materialize.

The 200 day moving average provided support from 2000 to 2008 but more recently the 144 day moving average has been strong support.

As we appear to be entering the second phase of gold’s bull market the 50 and 100 day may become more important support levels.

While acknowledging the risks of a correction, one must also acknowledge that given the scale of physical demand being seen internationally there is a real possibility that gold goes parabolic as it did during the stagflation of the 1970's.

Gold surged 49.7% in 1972, 73.5% in 1973 and by 60.1% in 1974. In the final phase of the bull market in 1979, gold surged 140% in just 12 months.

Gold’s recent rise of 20% per annum since 2000 and 25% rise so far in 2011 has been tame in comparison.

Cross Currency Rates

The conditions today are far more bullish than in the 1970’s as in the 1970’s the U.S. was the largest creditor nation in the world whereas today the U.S. is the largest debtor nation the world has ever seen.

Gold went parabolic in the 1970’s after a period of stagflation. Today, we appear to be on the verge of a period of stagflation.

The 1970’s saw significant geopolitical risk with oil crisis, the overthrow of the Shah of Iran and the Russians invading Afghanistan. Today there is significant geopolitical risk in the world, arguably more, and there remains the real risk of a conflagration in the Middle East between Israel and its allies and Iran and its allies.

Today we have a global debt crisis, massive systemic risk in the financial system threatening the solvency of many banks and sovereign governments. This was not the case in the 1970’s.

This makes a parabolic move in gold very likely in the coming days, weeks and months. Increasingly, the question is not if we go parabolic rather it is when do we go parabolic – in the weeks and months or in the coming years.

Prudent diversification and owning physical bullion remain key to weathering the coming difficult years.

For the latest news and commentary on gold and financial markets follow us on Twitter.

Silver is trading at $39.33/oz, €27.37/oz and £24.02/oz. 

Platinum is trading at $1,810.50/oz, palladium at $741/oz and rhodium at $1,750/oz. 

Gold rises 0.8 percent as euro zone jitters resurface

Gold May Climb as Drop Attracts Buyers, Paulson Maintains Wager on Rally

Gold steady; eyes on Franco-German summit

Gold prices higher in Asia

(The Independent)  
Go for Gold: Yellow Metal Makes Return -

(Wall Street Journal)
The Nixon Shock Heard ‘Round the World

Nixon's Colossal Monetary Error: The Verdict 40 Years Later

Jim Rickards: Return to Gold Standard - Gold to be Revalued to $7,000

(Financial Times)
Time to question the dollar’s role as reserve

Is it time for a gold standard revival?


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Tue, 08/16/2011 - 07:21 | 1564610 FoieGras
FoieGras's picture

Stagflation would mean nominal GDP rising in the double digits. Where is that actually happening? USA? UK? Germany? Spain? Japan?


Stagnating nominal GDP is a signature of deflation. The rising gold prices of the last 10 years are a signal of a deflationary bust. Gold is money. Cars, stocks, homes, TVs and granite kitchen couter tops are not.

Tue, 08/16/2011 - 07:28 | 1564631 Debugas
Debugas's picture

I have to reply to this that the reason we had no (or rather mild) inflation so far in the US is because all the money Bernanke printed was falling onto very large credit hole (large M3 vs M1).

THIS TIME however the credit multiplier has been to large extent decreased already and any additional emmision from the Fed WILL CAUSE HIGH INFLATION

Tue, 08/16/2011 - 08:02 | 1564709 Thomas
Thomas's picture

I would argue that is because the bean counters who measure inflation are a bunch of liars.

Tue, 08/16/2011 - 09:06 | 1564863 Smiddywesson
Smiddywesson's picture

I have to agree that the deflationists were right, but that won't prevent currency destruction and hyperinflation.  Their arguments about gold crashing in price because debt unwinding is inherently deflationary, thereby making money more scarce and more valuable, appears childish and overly academic in hindsight.  Gold is money, everything else is deflating.  Maybe if we had a solid currency they would have won that argument too, but it is irrelevant in our current situation.

The game was to keep the money in the hands of the banks, who promised to keep it out of commodities and in equities.  Then they gave the banks as much inside information as they could and also manipulated the markets.  This is stealing of course, but we are doing God's work.  Unfortunately, the banks are not the only ones playing in the equities markets, so those who know the game took their winnings right into commodities and created inflation.  I also suspect the banks didn't keep their promises, but banks will be banks.

The game changed when things just got worse.  The economy didn't do what the egg heads thought, and the extent of the fraud in the financial sector made it unsavable.  That's when the end game in gold started, and central banks started to stack.  Now it's all kick the can and stack gold.  This will all end in tears for those who have no gold.

Tue, 08/16/2011 - 11:01 | 1565258 stirners_ghost
stirners_ghost's picture

Under fiat government (that is, the only kind), money is--whatever the boss says. The fiefs accept whatever.

Leaving aside central banks' floundering and gradually failing attempts to debase currency, can the dollar be in any real danger? It's what the US' peerless war racket (not just the military, but also the domestic warmongers/"law enforcement") accepts as payment, and requires you to accept as payment for settlement of obligations (legal tender). This is where fiat money becomes real, as with all things governed--at the end of a gun.

Shiny yellow metal seems quaint by comparison; it has no teeth.

You'll see deflation in gold. As long as the gullible masses continue to worship at the altar of Hobbes, Locke, and Rousseau, government currency will be your currency, and the overarching tendency will be towards deflation (which central banks will continue to fight, impotently) from here on out--accessible natural resources are trending down. This entire episode that has been a predictable convulsion resulting from exponential growth hitting a brick wall.

Tue, 08/16/2011 - 07:34 | 1564651 Mike2756
Mike2756's picture

Stagnation more likely, austerity in play and no unions to demand higher wages.

Tue, 08/16/2011 - 09:08 | 1564877 Smiddywesson
Smiddywesson's picture

In Weimar Germany, union members were somewhat protected by rising prices, everybody else got squeezed.

Tue, 08/16/2011 - 07:41 | 1564669 ZeroPower
ZeroPower's picture

Rental properties are definitely money: inflation = net price rises, so does the rent you charge; deflation = net price drops {only slightly}, but as people switch from houses and condos and require rentals, supply suddenly dimishes and you can raise rent as well. 

Tue, 08/16/2011 - 09:13 | 1564893 Smiddywesson
Smiddywesson's picture

Rental properties will do better than most other investments, but they are not completely safe.  The tax man can change the game anytime he wants.  More potential renters diminishes supply, but a large supply of empty houses means competition from them entering the game.  Additionally, the job market is horrible, and you may not be able to negotiate a higher rent from someone who can't pay it without evicting.  That means a lot of down time and expense. 

Everything has risk, except PMs.

Tue, 08/16/2011 - 10:26 | 1565123 FeralSerf
FeralSerf's picture

<<Everything has risk, except PMs.>>

Not so -- PMs have a real risk of confiscation and/or theft.  As the economy gets worse, that risk increases exponentially and that risk becomes a personal one as well as the risk of getting killed for one's PMs increases. The thieves will greatly outnumber the PM holders.   Desperate people (and politicians) do desperate things.

Tue, 08/16/2011 - 11:12 | 1565292 ZeroPower
ZeroPower's picture

I suppose nothing is completely safe, including PMs as the person above me referenced.

W/r/t rental properties, personally theres no better place id like to park my money than a nice 6+ family bldg complex in a decent area.

Pros: collect monthly rent which more than cover SG&A; able to raise rent by at least 3%/ann (more if local laws allow it); value of bldg can't completely collapse (prior housing collapse was much worse on single family homes, and housing being close to a bottom is on your side as well, at least in the States); acts as collateral.

Negs: price in absolute terms wont rise as fast as a bull market in gold or equities, though we all know how bull markets end; admin expenses; risk of vacant property.

The people here who like concrete stuff like PMs or their guns or canned food should value rental properties just as much. Granted its almost taboo to be talking to an American about investing in a property but my perspective should be read as extending outside of the country or at least into metropolitan centers where demand will always be there.

Tue, 08/16/2011 - 10:02 | 1565057 Stuck on Zero
Stuck on Zero's picture

As soon as landlords start doing moderately well our socialist local governments will do everyone a favor by imposing rent controls.  Bank on it.

Tue, 08/16/2011 - 07:53 | 1564693 DormRoom
DormRoom's picture

Alot of inflation is due to the US carry trade, and 0% interest.  If there is a flight back to USD, market movers will have to unwind that trade, and it will lead to a collapse in commodity prices.  Just like in '08. Deleveraging = deflation.  Not stagflation.

Tue, 08/16/2011 - 08:05 | 1564715 Thomas
Thomas's picture

Not that clear. Does anybody really think you can describe something so complex by using one of two terms? If food and energy is skying and condos in Vegas are plummeting, it all cancels: Does that mean there is no deflation or inflation? If the price of sneakers is not changing but they last 3 or 4 months before needing replacement, are they cheap or expensive? At this point, I grow weary of the money supply arguments because so much garbage is obscured in the shadow banking system.

Tue, 08/16/2011 - 09:17 | 1564911 Smiddywesson
Smiddywesson's picture

Alot of inflation is due to the US carry trade, and 0% interest.  If there is a flight back to USD, market movers will have to unwind that trade, and it will lead to a collapse in commodity prices.  Just like in '08. Deleveraging = deflation.  Not stagflation.

If you are suggesting that the USA will raise interest rates anytime before the end of this charade, think again.  Most of our debt was switched to short term debt over a decade ago.  Our debt levels cannot withstand higher interest rates, so you won't see them before a complete collapse, or a controlled switch to an entirely new system.

There is not going to be a flight back to the USD, the price of gold indicates where this is going.

Tue, 08/16/2011 - 10:32 | 1565139 FeralSerf
FeralSerf's picture

<<There is not going to be a flight back to the USD, the price of gold indicates where this is going.>>

There will be if there's a major war.  Nobody has as large a military as the Americans do.  That military will be seen, mistakenly IMHO, as the safe haven.

Tue, 08/16/2011 - 12:30 | 1565736 Hugh_Jorgan
Hugh_Jorgan's picture

<"There is not going to be a flight back to the USD, the price of gold indicates where this is going.">

Long term you're right, but in the short term the EuroZone collapse will probably cause lots of clueless people to move back to the USD which will drive it up, thus driving corporate profit down. Many more people will then wake up to the reality of what we face. I think that this in turn will move the whole world into a mode of capitulation regarding our economic woes at which time gold could go into the parabolic move that some are predicting. Until most of the world is thinking that the end of the world is here, the USD is still considered a backstop to the moneyed western world, obviously this is an ignorant opinion these days, but a reality nonetheless.

Tue, 08/16/2011 - 12:25 | 1565707 narnia
narnia's picture

carry trade is borrowing your own currency & selling it to purchase currency of another denomination to invest in that denomination.  you'll notice that countries with currencies pegged to the $ who have higher government borrowing rates are the most vulnerable (sell $, buy other currency, purchase govt bonds/other highly liquid assets in that currency).  this trade weakens the $ & mainfests itself in inflation in these economies (since the currency cannot provide a counterbalancing force).

i'm sure some highly leveraged funds are speculating in commodities, but they are engaging in that trade directly (buying $ to sell $ to buy another currency to sell that other currency to buy $ to buy $ denominated commodities has some obvious unnecessary steps).

i do see a reason why china & other net exporters with exposure to US debt would want to purchase $ denominated commodities instead of government debt. this preference has clearly had an effect in the markets.

cutting to the chase...  if the carry trade goes away, tons of other currencies will be sold, tons of $ will be purchased.  the $ will strengthen & other currencies will fall. it's not the deleveraging of this carry trade that will materially cause the price to go down.  it's the currency effect, which is materially affected by tons of other economic activities & is one of a myriad of factors affecting the price of commodities.

Tue, 08/16/2011 - 07:56 | 1564698 Snidley Whipsnae
Snidley Whipsnae's picture

Hello author??? Here is what is driving PMs... and this is just one purchase among many... PMs are going EAST, when will the clueless scribblers get it?

"Vietnam to buy 5 tons of gold to ease market crunch"

Tue, 08/16/2011 - 08:11 | 1564720 Thomas
Thomas's picture

The sovereigns are buyers. No hedge fund will override that trend (nor would they bother to try). Hard to make a long-term bearish case for gold right now. Bring in Paul V and we can talk. Until then, I intend to enter my 12th year as a gold investor with all precious metal-based investments fully intact. (The equities are, admittedly, beyond frustrating. Are these companies run by idiots or something?)

Tue, 08/16/2011 - 08:30 | 1564765 Snidley Whipsnae
Snidley Whipsnae's picture

A gold miner is a liar standing next to a hole in the ground...

Tue, 08/16/2011 - 10:04 | 1565063 Stuck on Zero
Stuck on Zero's picture

What's a banker?

Tue, 08/16/2011 - 10:31 | 1565136 mick_richfield
mick_richfield's picture

A thief standing next to a hole in the U.S. Treasury.



Tue, 08/16/2011 - 10:37 | 1565157 FeralSerf
FeralSerf's picture

<<What's a banker?>>

"Give me your money.   I'll protect it from, er I mean for, you.  I promise to give it back to you when you want it.  Really!"

Tue, 08/16/2011 - 09:14 | 1564899 speculator
speculator's picture

Yes, lots of idiots, and lots of shady promoters. Nonetheless, the HUI is up 14x since 2000, while gold is up 6.5x.

The explorers tripled last fall, so it's not surprising to see them stagnate for a while. Explorer index chart:

Producers have been the underachievers of the last couple of years, but are starting to generate massive cash flows with this gold price. Producer index chart:


Tue, 08/16/2011 - 09:22 | 1564928 Flakmeister
Flakmeister's picture

Patience and research is about to be rewarded.....

Tue, 08/16/2011 - 12:39 | 1565786 speculator
speculator's picture

It's a bitch to find solid companies in this business. Here's my research tool for making purely quantitative value assessments (but caveat emptor - Bre-X looked great on paper):


Tue, 08/16/2011 - 17:08 | 1566767 Flakmeister
Flakmeister's picture

Thanks I'll check it out.

Tue, 08/16/2011 - 09:28 | 1564943 Smiddywesson
Smiddywesson's picture

I don't believe we will see confiscation of physical from the public, but we very well may see nationalization of the miners.  It would be wise to spread your bets.  The precedent is there with the GM common stock holders.  They were run over by the government.

Tue, 08/16/2011 - 09:34 | 1564963 Flakmeister
Flakmeister's picture

Yes, nationalization is a risk.... that is why I favor Canadian producers with domestic resources...

Tue, 08/16/2011 - 10:47 | 1565196 FeralSerf
FeralSerf's picture

Canadians have become the Americans' poodles.  They will turn over your (assuming you're an American) gold to the American kleptocracy in a heartbeat when TSHTF.

Tue, 08/16/2011 - 17:06 | 1566762 Flakmeister
Flakmeister's picture

You have no idea what you are talking about....

Tue, 08/16/2011 - 19:16 | 1567136 FeralSerf
FeralSerf's picture

It's amazing how many people stake their entire future solely on hope.  Have you paid any attention to what the IRS has done to Swiss financial "independence"?  Do you think the Canadians are more independent from the Americans than the Swiss?  The Swiss that held off the Nazis?  Give me a break!

Do you remember what the Canadians did to the foreign holders of Canadian trusts?  I learned my lesson real good on that one!

Good luck on your Canadian investments.

Tue, 08/16/2011 - 23:35 | 1567824 Flakmeister
Flakmeister's picture

You have a preconcieved notion of what things are and how they play out. You likely have never lived abroad. Also you have no idea about my situation. So really just STFU.


Tue, 08/16/2011 - 10:44 | 1565183 FeralSerf
FeralSerf's picture

Physical gold is always confiscated  from the public when the government gets sufficiently large and tyrannical.  Count on it.   Anything else is wishful thinking.  Where else are they to obtain the wealth necessary to pay themselves and their police when they are unable to collect taxes and no one will accept their paper anymore?

Tue, 08/16/2011 - 09:21 | 1564923 Smiddywesson
Smiddywesson's picture

There is no technical or fundamental reason behind this market.  The reason has nothing to do with market forces.  The real reason it won't crash is because if they let it crash, it will mess up their plan for a new system.  The reason is found in sovereign and central bank purchases of gold.

Tue, 08/16/2011 - 09:03 | 1564854 A Man without Q...
A Man without Qualities's picture

"Stagflation would mean nominal GDP rising in the double digits."

Utter nonsense..  There is no hard definition, but the general idea is high price inflation relative to growth.  


Tue, 08/16/2011 - 10:23 | 1565108 Capsaicin
Capsaicin's picture

So let me get this is either going up or down. Gutsy call.

Tue, 08/16/2011 - 07:24 | 1564612 Debugas
Debugas's picture

the reason gold crashed in 1970’s was Paul Volcker raising interest rates to have positive real interests. Absent that drastic increase the gold will continue up

Tue, 08/16/2011 - 09:25 | 1564936 Flakmeister
Flakmeister's picture

January 1980 was the blow off top.... get your dates straight. Gold also rocketed up as the 10 yr yield increased in 1979....

The game is very different this time. The US is all in, nothing left in the pot, no significant new sources of oil on the horizon....

Tue, 08/16/2011 - 10:05 | 1565068 Stuck on Zero
Stuck on Zero's picture

Gold also crashed because the Soviet Union was selling gold to support its economy.

Tue, 08/16/2011 - 07:28 | 1564619 oobrien
oobrien's picture

Gold is about to die on the vine.


The global governments have too much power.

Soon gold will be outlawed.

What should we do?

Tune in, turn on, and drop out.

Fuck it all in the ass!

Let's sing the Ben Bernanke Song:

First they ignore you.

After that, they fight you.

Then they lose.

Or so said Gandhi.

I like that Asian.

He reminds me of Jesus Christ.

Tue, 08/16/2011 - 07:58 | 1564702 Snidley Whipsnae
Snidley Whipsnae's picture

Jim Rickards to CNBC bobble heads...

Jim Rickards & the Euro Gold Standard. To banks, “Sorry, you played, you lost”

Tue, 08/16/2011 - 07:25 | 1564620 Popo
Popo's picture

And don't look now, but Krugman just trotted out the ditch digging fallacy (ie:  If we pay people to dig ditches and fill them back up it will help the economy) proving to the world that he is an intellectual fraud.  (Also known as Bastiat's Broken Window Fallacy).  Economists all over the world are pretty much laughing at the guy.   Career implosion.   Looks like he forgot to study Economics somewhere along the way...



Tue, 08/16/2011 - 07:32 | 1564645 Debugas
Debugas's picture

"pay people to dig ditches and fill them back up" can indeed help under certain conditions and we are exactly at these conditions. However it would be more wise to pay people money for doing something usefull (definition of being useful is debatable of cause).

Let me explain - imagine a world were almost everything is produced by robots - people do not have to work to enjoy the fruits of automated production. The problem is people do not have the money to pay for the products but if we give them money they will buy more products without actually raising the prices up until the production capacity is maxed

Tue, 08/16/2011 - 07:40 | 1564667 Pay Day Today
Pay Day Today's picture

Thanks. Nothing worse than people spreading fallacious fallacies.

Tue, 08/16/2011 - 08:05 | 1564714 Doña K
Doña K's picture

Production can be reduced to one word. "Energy"

Tue, 08/16/2011 - 08:36 | 1564781 Peter Pan
Peter Pan's picture

I for one believe that digging ditches and filling them up again makes sound economic sense provided you bury some of the clowns in the Fed, the government, academia and the economics profession before you fill the ditches up.

Tue, 08/16/2011 - 08:52 | 1564821 prole
prole's picture

That suggestion sir, is outragious!

Tue, 08/16/2011 - 09:24 | 1564932 speculator
speculator's picture

You just made a Keynesian out of me.

Tue, 08/16/2011 - 11:37 | 1565463 Strider52
Strider52's picture

"What's that dirt doing in the boss' ditch, Luke?"

"I dunno boss"

Tue, 08/16/2011 - 07:27 | 1564629 lolmao500
lolmao500's picture

And when empires fall, TSHTF... every single time. So who will be the last country the US goes to war against before it falls? China? Iran? North Korea?

Tue, 08/16/2011 - 07:31 | 1564641 Popo
Popo's picture

Don't forget that the US already re-invented the term "War" when it didn't have an enemy:  "The War on Drugs".

We'll undoubtedly find innumerable sink-holes for capital-spending in the name of "stimulus" -- which will ultimately just be transfers of wealth to politically-connected corporate overlords.    But they'll stick the word "War on ____" in there and it will sound like a national emergency.




Tue, 08/16/2011 - 07:36 | 1564657 moregoldplease
moregoldplease's picture

Real wars, those of mass people and property destruction are inflationary. Deflationary in the wiped out countries. The war on drugs etc are wars on the indigenous population's, us, rights. The object being direct control by the central government. Look out here it comes.

Tue, 08/16/2011 - 07:55 | 1564699 Mike2756
Mike2756's picture

War on Debt!

Tue, 08/16/2011 - 09:50 | 1565013 Smiddywesson
Smiddywesson's picture

This will be The War On Mankind.

A war on an over populated world is also a war on unsustainable agriculature, peak energy, peak farmland, and peak fresh water.

The future generations will ponder the why, just like they did after WWI, but the real reason is, like lemmings, the population and culture hit a tipping point and it was just time to kill.

Tue, 08/16/2011 - 09:51 | 1565017 Smiddywesson
Smiddywesson's picture

War on The Ignorant Without PMs!

Tue, 08/16/2011 - 10:53 | 1565222 FeralSerf
FeralSerf's picture

War on Hoarders and Financial Terrorists. Send out the SWAT teams!

Tue, 08/16/2011 - 07:49 | 1564687 Advoc8tr
Advoc8tr's picture


Tue, 08/16/2011 - 07:34 | 1564649 DormRoom
DormRoom's picture

 Gold is a hedge against inflation, not deflation. I shorted your gold bullions, bitches.

Tue, 08/16/2011 - 07:36 | 1564659 moregoldplease
moregoldplease's picture

Thank you

Tue, 08/16/2011 - 08:10 | 1564722 ZeroPower
ZeroPower's picture

While your logic is sound, and probably closest to what i subscribe to considering everyone and their mother has a blog suggesting gold is going to $20,000... id be very weary shorting gold until we get some sort of resolution from Jackson Hole. I havent bought gold since ~1400 and dont plan on adding at these levels.

Remember, correlations only work until they dont. Ie. USD/oil, USD/gold being polar opposites...until you see them moving in the same direction.

Further, to the Indians and the Chinese, gold in $ has absolutely no meaning. They keep purchasing a set amount, and if they get a bit less for their currency one year and a bit more the other, it doesnt matter. They will keep buying, that you be certain of.

Tue, 08/16/2011 - 10:57 | 1565237 FeralSerf
FeralSerf's picture

"What Did Smart Money Do In the 1929 Crash and Aftermath?

During the same bear market period smart-money moved from the plunging equity markets (i.e. financial assets) to hard asset investments, like Homestake Mining - which is used heretofore as a surrogate for all gold stocks.

The stock price of this gold mining company soared relentlessly upward during the entire bear market. Homestake Mining stock rose continuously from $80 in October 1929 to $495 per share in December 1935 - which represents a total return of 519% (excluding cash dividends) during the devastating bear market period.

Contemplate and appreciate the monumental difference in investment returns during a serious bear market. Smart-money invested $10,000 in Homestake Mining (hard assets) in late 1929 - which increased in value to almost $62,000 by December 1935. This represents a compound rate of return of 35% per year in appreciation alone!

It is meaningful to note that in late 1929 the value of Homestake Mining was about $80 per share. Moreover, during the next six years Homestake Mining paid out a total of $128 in cash dividends. In fact the 1935 dividend alone reached $56 per share. That's almost a 70% dividend yield payout (basis 1929) in only one year! Indeed, hard asset investments (gold mining shares) were islands of economic refuge during the grueling years of the Great Depression."

Tue, 08/16/2011 - 07:41 | 1564656 scratch_and_sniff
scratch_and_sniff's picture

Using models based on Prof Didier Sornette’s work on Log-Periodic Power Law (LPPL), Tuesday 4th September is when the gold bubble will burst, you heard it here first…don’t go breaking my balls when it happens. (He actually codes his calls, they are unreadable and not availible to the public until after the event has passed, so as not to influence the outcome...but his models are free to use)

The funny thing is, the last gold top he called was 2/12/2009, and one of the key methodologies that time was using Google trends and keywords as one of the input variables in the LPPL model. When you compare the interest in searching for gold then, to what it is now, it’s the highest it’s ever been! There are a lot of “buy gold” searches going on…

Tue, 08/16/2011 - 07:43 | 1564674 Snidley Whipsnae
Snidley Whipsnae's picture

"There are a lot of “buy gold” searches going on…"

Meanwhile, there is a lot of gold buying going on in SE Asia, Mid East and Europe...

Americans are just now getting the first inkling that gold is a store of value... way behind the rest of the world...

If you had a bubble up your azz perhaps you would know what one is???

Tue, 08/16/2011 - 08:01 | 1564708 scratch_and_sniff
scratch_and_sniff's picture

Don’t shoot the messenger is another chart, the Indians look to be consistent, but holy fuck, that thing is screeching up, twice what it was on the last peak. I'm hearing BBC doing "special reports" and they are even putting gold dispensers in shopping centres. Last time i said silver was a bubble, no one took any notice...but if you are holding bars, there is no need to worry. Its only traders who should show any concern.

Tue, 08/16/2011 - 08:37 | 1564786 Snidley Whipsnae
Snidley Whipsnae's picture

My comments were meant for the author of this drivel... I will shoot down any moron that has the nads to spread bs...

I don't give a damn if 'they' are putting gold dispensers in pay toilets, gold is not in a 'bubble'... IMO, gold would be in a 'bubble' if it rose to a value greater than 40% of outstanding world fiat currencies... it is nowhere close and as long as the fiat printing continues gold will continue to rise...

Traders deserve what they get... If they win, fine, if they lose they should realize that they have gambled and lost... 

Tue, 08/16/2011 - 08:56 | 1564808 scratch_and_sniff
scratch_and_sniff's picture

As i said below, the term "bubble" is used technically, i.e the model focuses on when a particular buying frenzy will end, and not necessarily when the long-term fundamentals will erode completely. It's traders who will be doing the shakedown when the culeless masses are piling in hand-over-fist. As for shooting him down, you're welcome to try, but he is only a mathematician and i'm sure he means well.

Edit; another thing...he called 22 out of 25 in 2010.

Tue, 08/16/2011 - 10:06 | 1565070 Smiddywesson
Smiddywesson's picture

It's traders who will be doing the shakedown when the culeless masses are piling in hand-over-fist.

Do you mean like in May when 5 margin calls and a boat load of manipulation took out silver?  How long did that last?  The case is even stronger for gold.  Central banks are stacking gold, not silver.  Any drop in prices is manufactured for their benefit, thereby ensuring what you are saying cannot happen.  The "bubble" is not going to burst because it is not a bubble.  It is a rush for the lifeboats by the big banks and soverign funds that know exactly what will constitute a life boat.

In a situation like this, use of the word "bubble" is misleading.

Tue, 08/16/2011 - 10:38 | 1565162 scratch_and_sniff
scratch_and_sniff's picture

You mean a 32% drop in silver was not a bubble popping? What do you call it then? Manipulation had fuck all to do with silver dropping, the sell off was across most asset classes due to the dollar rallying off its lows, silver was extremely vulnerable to it because it was …a bubble. 



Tue, 08/16/2011 - 07:57 | 1564701 Advoc8tr
Advoc8tr's picture

If by 'Gold Bubble' you mean the leveraged paper gold exchanges and derivatives ... you may be right and that will ultimately be very good for physical bullion / FRN exchange rates.  To propose that right now at this point in time the price of gold will drop significantly and permanently because an encryted logarithmic model which is based on historical extrapolations encompassing vastly different fundamentals indicates that it will is just plain silly.

Tue, 08/16/2011 - 08:32 | 1564772 scratch_and_sniff
scratch_and_sniff's picture

I agree, his research is focused on finding "bubbles", but the 2009 call was at best, a top, or worse, maybe even just a ~15% retracement. The underlying fundamentals came through in the end. But, the model focuses on when a particular buying frenzy will end...not necessarily when the long-term fundamentals will erode completely.

Tue, 08/16/2011 - 09:57 | 1565028 Smiddywesson
Smiddywesson's picture

The problem with models is they work well in measuring what the game used to be, leading you right off the cliff when the game changes. 

How's Bob Prechter doing?  How about Jim Shepherd?  Both have done well in the past.  Both are measuring what worked in the past.

General public speculation is not driving gold prices, so the number of Google searches are not relevant yet.  The destruction of the financial system has driven it for the past decade.  The buying of central banks and sovereign nations is driving it even faster now. 

You can't model that.

Tue, 08/16/2011 - 08:06 | 1564660 Sudden Debt
Sudden Debt's picture

Gold and silver have a 10 year trendline to support it's not a bubble.

It just show the currencies are dying.

But I do expect a massive all out attack on gold and silver to create the illusion that it is a bubble that popped to shake out the weak hands and save the currencies.

But I don't expect dealers to sell out their silver and gold at cheap prices during that drop because I've already read some disclaimers that say they'll first sell out their old stock in case of a event like that at the old prices meaning current prices but the real deals will be made on Ebay when the lemmings throw their last inventory on the market for peanuts.



Tue, 08/16/2011 - 10:15 | 1565093 Smiddywesson
Smiddywesson's picture

A sudden dramatic drop in prices:

If TPTB had absolute power, the Dow would be at 15,000 and gold would be at $200.

The demonstrated their power in May.  Since that time, their ability to hold down PMs appears limited.

Yes they have used two margin increases to back gold prices down below $1800, but we are knocking on that door again in less than a week.  On the other hand, they used up two margin increases, and those things are precious.  I would expect them to be very stingy with the margin increases in the future, saving them for when things get crazy.

In short, they are reaching diminishing returns in price manipulation.  The trend turned up in the beginning of July, and they are losing control.  So I have to disagree, we won't see any dramatic and lasting fall in gold prices until the system either collapses, or the system is swapped for some other kind of system.

Tue, 08/16/2011 - 07:39 | 1564663 Snidley Whipsnae
Snidley Whipsnae's picture

We have an ongoing war in the US... It's the war of Gov/Fed/banksters against Main St and the workers/savers.

...and, gold is not showing signs of 'going parabolic'... who is the idiot that wrote this piece of crap story?

Tue, 08/16/2011 - 07:41 | 1564671 Tater Salad
Tater Salad's picture

I like gold and silver but am not a bug.  Own both in ETF form and physically however, to say they're in a bubble?..  Well, if they are, let the tape reverse course accordingly on both.  Until then, the tape is up and I'm not going to fight it.

The greater risk is to NOT own either.  And yes, I'm a deflationist...

Tue, 08/16/2011 - 07:42 | 1564672 Nozza
Nozza's picture

"The conditions today are far more bullish than in the 1970’s as in the 1970’s the U.S. was the largest creditor nation in the world whereas today the U.S. is the largest debtor nation the world has ever seen."

I don't get this statement.


Tue, 08/16/2011 - 07:44 | 1564679 Snidley Whipsnae
Snidley Whipsnae's picture

The biggest point that this azz clown misses is the fact that in the 70s China/India were not big players in the PMs markets... That has definitely changed...

Tue, 08/16/2011 - 10:22 | 1565107 Smiddywesson
Smiddywesson's picture

Yes, and the dollar was not utterly destroyed in the 70s either.  This collapse is irreversible.  Gold will continue to climb until the end.  Rules about the dangers of parabolic prices are just rules of thumb.  Prices can, and will go vertical and stay vertical until the central banks and governments decide to pull the plug on the patient and institute a new monetary system.  They are the entities with the inside information about what that new system will be, and they are buying gold.  They are not doing so because they think its value will fall.  They will not stop buying until this ends, because amassing as much gold as possible and then ramping the value of that gold is their only path to solvency.

This is the event of many lifetimes.  Anyone who treats this matter like it is just another trade will miss the trade.

Tue, 08/16/2011 - 11:42 | 1565492 viahj
viahj's picture

They will not stop buying until this ends, because amassing as much gold as possible and then ramping the value of that gold is their only path to solvency.



Tue, 08/16/2011 - 07:57 | 1564683 Randy Kruger
Randy Kruger's picture

The system we all live in is essentially a global oligarchy.   It lacks a "hard center" and is, therefore, not an efficient vehicle of global oppression.   Gold seizure risk should be heavily discounted.  

Most of the elite have already loaded up on the metal and have vested interest in gold re-acquiring its status as a legit storage of wealth.  The price trajectory quantified in fiat will continue up until we get to the other side of this.  If you disagree with this statement, please suggest a place for liquidity to go that will fulfill the same function of wealth preservation through the systemic change we are about to experience.




Tue, 08/16/2011 - 10:25 | 1565115 Smiddywesson
Smiddywesson's picture

gold, silver, and of course, lead

Tue, 08/16/2011 - 08:16 | 1564741 choorles
choorles's picture

The [way this] negative real interest rate story relates to gold is very interesting, because [people equate] the negative real interest rates with deflation and they equate deflation with an environment that is poor for gold. Historically, however,  negative real interest rates or ‘deflation’ are actually the best time to be buying gold … So gold is [increasing] in either deflation (which is really another word for hyperinflation), hyperinflation or inflation … So there is really a no lose situation. There’s no top on gold, because there is no amount of destruction that one can imagine won’t visit the fiat currencies around the world because the fiat currency grid is going to go the way of the dodo … There is no top on gold, $10,000/oz for gold, yeh of course, it could go a lot higher because fiat currencies are going to zero … It has run it’s course, it’s finished, it’s over, the 25 year paper bull market is finished” Max Keiser


STOP! WHAT IS MONEY? The money that the world uses today is created by private banks lending non-existent money called credit. This credit has never, does not and will never exist, except in theory on computer screens. People die and they starve all because they do not have enough digits on a computer screen. All of this credit, created by the private banks, is owed back to those same banks, plus interest. By design, there is never enough credit in circulation to pay back all the principal plus interest on the loans outstanding, which is why the concept of bankruptcy is built into the system.

Using the simple system above, banksters are given the ability to manipulate the world’s economies into ‘boom and bust’ cycles. In essence, the only difference between a boom and a bust is the amount of credit in circulation, or rather, the net amount of numbers on people’s computer screens. Initially, banksters create a boom by increasing the supply of credit in the economy. During this boom period, individuals and businesses are encouraged to take on more debt as they are more confident of increasing their income in the future. All this extra credit in the system leads to more activity, which in turn creates more confidence in the system, with many getting into more debt. This boom is akin to a fishing trawler, the bankster throws out a credit line and waits, once the bait has been taken the bankster begins to wind in the credit by taking credit out of circulation, it’s gone. The economy then moves into a slump or recession, simply because there are not enough units of credit in circulation. The banksters are then able to trawl from people the wealth that does exist, in exchange for money that never existed in the first place.

Remember, it’s just a ride…

 The monetary revolution will not be televised. You need ¡SilverRevolución!

 Help us follow the paradigm shift towards a decentralized monetary system.

Tue, 08/16/2011 - 08:16 | 1564747 gwar5
gwar5's picture

I thought the gold bubble debate was over -- and the informed consensus had concluded that gold is not in a bubble, by any measure.

The gold price has been suppressed for decades while use of the USD was made complusory for the rest of the world at the point of a gun. That is now unwinding, and any major unintended consequences are not likely to favor the USD since that is the pariah being shunned.

The stated policy of the CBs is to have an 'orderly' decline in the USD. But major political events have a way of intervening that could make things 'disorderly' and gold could go parabolic at any point. That's where things precariously stand today. 

Just due to basic math, $7500 gold (in USD) is much closer to it's current real value. Gold bubble talkers are bitter clingers.

Tue, 08/16/2011 - 08:46 | 1564804 monopoly
monopoly's picture

You guys do not have a clue what is going on. Gold will do well both during inflation and deflation. And if you think we are entering a period of constant deflation, well, lets talk about that in a few months and see where the price of gas, milk, bread and health care are.

Tyler, we need an ignore button. I truly admire different opinions, but when you have scum on the blog I would rather just Bleep! them out.


Tue, 08/16/2011 - 10:12 | 1565086 Freebird
Freebird's picture

With all respect & there is much for Dominic Frisby, the 144MA was originally identified by trader & blogger Michael Hampton - just for the record.

Tue, 08/16/2011 - 16:24 | 1566654 Island_Dweller
Island_Dweller's picture

Paul Krugman says we need an alien invasion to save the economy!

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