History is a guide here. The ratio is now at 19 and heading south rapidly.
Posted on 12/01/2005 10:13:36 AM PST by Travis McGee
Back during the last commodities bull market. Then it had an exponential blow-off stage as all bull markets do. 20 years later, we're in another commodities bull market. These cycles tend to repeat.
Remember the lines of people buying silver at $38 an ounce? It was going to $100. No, it topped at a little over $38.
And that will happen again. Instead, this time around it may top at $380 instead of $38 at the peak of the mania phase. But we're a long way away from that stage.
But gold sellers sure are anxious to sell to me. If it is going to double, why are they so interested in selling to me?
Because they make money on the transaction itself. All of the major gold dealers will not only sell to you, but also buy from you. The lowest spread I've seen is about 3% or so. They make their living the same way someone selling stocks, bonds, or antiques do. Yet no one ever questions *their* motives.
Bump for later...
Greenspan is doing the bidding of the elitists once again (as he did when he sold out on the gold standard).
The CPI is substantially understated. The *real* rate of inflation is anywhere from 6% to 10% depending on who you ask.
They started tweaking with the CPI in the 80s to make the economic numbers look better. Then in the 90s, they totally changed the way they computed it by using hedonics, substitution, and other games.
This was a stealth tax increase on Americans. Democrats knew they could not raise taxes and get re-elected. Republicans realized they couldn't cut benefits and get re-elected. So they took the path of least resistance, which was to inflate the money supply relative to the increase in federal benefits. But the clowns still can't manage to balance the budget even after cheating the people.
Also, understating CPI makes the GDP numbers look much better than they really are since the numbers are adjusted for inflation.
Stuff is way more expensive over the last decade or so. Yet they say there is no inflation. What a crock.
Yep, it ain't gold going up. Gold is just gold, same as always. It's paper money going down down down.
And last week the fed decided that the monthly M-3 data was no longer important, and decided to discontinue reporting it.
Nothing to see folks, move along....
When a few hundred million Indians and Chinese buy a piece of gold jewelry, that creats a demand that didn't exist a few years ago. So yes, a component of the price is driven buy demand for jewelry in Asia. A fraction of an ounce multiplied by millions of new rings and bracelets can add up quickly.
"A component."
My attempts at humour often fall flat in posts. Since you are a Coloradan, and post here, I'm going to assume you are a fine person. I work in Lakewood, and live in SW Jeffco.
Truce. Or, as the young ones say, "peace out."
Sorry, I didn't detect any humor. I too am in the front range area.
Right but my point was that so many gold bugs make blanket assertions about golds price being proof of inflation. Inflation hedging is but one component of golds price/demand.
We should put together a Front Range Freeper convention sometime. Cyaround.
So, the general level of prices is rising 6% to 10%? And you're the only one who noticed? Wow, you're good!
Yes. The real annual rate of inflation is 6-10%. Housing is up well over that. Medical and education are increasing at a rate in the high single digits. M3 (the money supply) is up 6%. Energy prices are up well over 10%. The AIG commodity index is up 13%. And so on.
The government understates the real rate of inflation since this allows them to decrease the annual COLAs and increase the GDP numbers.
You know that most people already own houses? If my house doubles in price how does that impact my cost of living?
Energy prices are up well over 10%.
Yes. Now multiply that by the % of income people spend on energy and you get what?
The AIG commodity index is up 13%.
Yeah, I heard copper was up big. And how much copper does the average consumer use each year?
Now if you are correct, why are long term bonds yielding well under your 6% to 10% numbers? Real interest rates would be -1.5% to -6%. Not very likely over the long term.
If most people already own houses, then why are prices increasing so much? Since demand is ostensibly low (after all "most people already own houses"), and supply isn't decreasing, why are prices soaring? My contention is that it's due to the federal reserve printing dollars like there is no tomorrow.
Yes. Now multiply that by the % of income people spend on energy and you get what?
So if energy really isn't that big a deal, why is it usually excluded from the "offical" inflation numbers?
But I'll answer your question. Let's assume $150 a month for your typical household energy bill, and $150 a month for gasoline. That's $3600 a year, and that's not including higher prices on other goods as a result of the increased cost of energy. That's a lot of money.
Yeah, I heard copper was up big. And how much copper does the average consumer use each year?
The AIG commodity index is 6% copper. The other 94% of "stuff" is increasing in price also.
Now if you are correct, why are long term bonds yielding well under your 6% to 10% numbers? Real interest rates would be -1.5% to -6%. Not very likely over the long term.
I don't understand why the bottom hasn't fallen out of the bond market yet. Perhaps because millions of Americans keep blindly buying them via 401ks and other "investment" (LOL!) plans. Personally, I would not want to be holding any bonds right now.
Home ownership is about 75%. If 1,000,000 new units are built but 2,000,000 families want to buy, prices will rise. A big boost was the cap gains exclusion passed in 1997.
So if energy really isn't that big a deal, why is it usually excluded from the "offical" inflation numbers?
Energy is included in official CPI.
But I'll answer your question. Let's assume $150 a month for your typical household energy bill, and $150 a month for gasoline. That's $3600 a year, and that's not including higher prices on other goods as a result of the increased cost of energy. That's a lot of money.
Fine. If prices rise 10% that's $360 a year. Doesn't add up to 10% inflation.
The other 94% of "stuff" is increasing in price also.
I heard plutonium is up big. I haven't use much of that lately either.
Personally, I would not want to be holding any bonds right now.
Me neither, but people who make a living trading this stuff have a lot more information than you and if inflation was "really" 10% they'd be selling the shit out of bonds.
Fellow Gold Bug,
I am worried that the Russkis are hyping gold right now, then will dump their mysterious gold reserves. They mine it like mad, and no one really knows how much.
History is a guide here. The ratio is now at 19 and heading south rapidly.
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