Posted on 11/08/2009 4:13:31 PM PST by FromLori
Last week the price of gold rose to $1,100, the highest ever recorded. Gold is still an important measure of the world economy. The theory of the 19th-century gold standard was that gold was “real money” in the same way as landed property was “real estate”. All types of paper money are capable of being created by banks or governments, so the supply is potentially unlimited. It was observed that gold holds its purchasing power over centuries, whereas paper money tends to depreciate towards the value of zero.
Of course, the rise in the gold price reflects the weakness of the dollar as well the strength of gold. I have been writing about the significance of the gold price since the early 1970s. The latest rise in price reflects the significance of gold as part of the world’s monetary reserves.
The immediate cause of the rise was a purchase of 200 tonnes of gold bullion by the Reserve Bank of India from the International Monetary Fund. The Indian purchase is quite large in terms of the gold market, but not particularly large in terms of the Indian reserves. India’s reserves now amount to $277 billion, of which this new purchase of gold amounts to only $6.7 billion.
The significance of the purchase is that it may be the start of a new phase in the struggle between gold and paper. Since 1971, when President Nixon ended the convertibility of the dollar into gold under the Bretton Woods Agreement, the world’s central banks have tended to be net sellers of gold and net buyers of dollars. Now the Indians have decided that they have more dollars than they want.
Already Sri Lanka has followed the Indian lead, with a purchase of five tonnes of gold. If the new fashion spreads, and
(Excerpt) Read more at timesonline.co.uk ...
Well: shit floats better than gold but with this circus nothing surprises me anymore.
I don’t know but with the House passing this POS bill yesterday, I’m looking for the stock market to drop like a leaky rowboat in a hurricane tomorrow. Of course, I could be wrong.
Lead contained in a cartridge is my choice .
GOLD and SILVER for reasons which should be obvious to anyone with half a brain.
And the CORRECT manner of stating the relationship is that one “dollar” (which it ain’t) is equivalent to 1/1,100 ounce of gold. It will go much, much higher as the “dollar” continues to be debased by our alleged “leaders” and their fellow criminals at the FED.
“By a continuing process of inflation, governments can
confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
John Maynard Keynes,
The Economic Consequences of The Peace, 1920
Wonder if Clower, Piven and Alinsky were all related?
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
-~~Ludwig Von Mises
So after the first 5000 rounds what good is it going to do you?
Gold should have been purchased 5yrs ago. Of course all of the FR experts talked it down. Where the hell are these experts now? It is a huge risk ATT
Is that a trick question? I will choose "c", none of the above. At this point in the cycle a real saver would save gold, not paper. The only reasonable current uses for paper is to pay the mortgage and taxes, buy food, and buy gold. The only reasonable use for gold is to convert it to paper at some point in the future to pay the mortgage or taxes or buy food.
As the old saying goes, a penny saved is copper hoarded unless it was minted after 1982. OTOH, gold has no earnings potential and must be converted to paper to be invested. Inflationary boom (gold on top) means a lack of real investment which always ends in a bust (paper on top) which will be the excuse for the next inflationary boom. There will be some good times to trade gold for paper and vice versa, but those times will come and go.
Speaking of Mises
Mises: The Man Who Predicted the Depression
You might also like this article by Schiff on Lew Rockwell
http://www.lewrockwell.com/schiff/schiff55.1.html
You eat your gold. I’ll eat what I kill with a few rounds . When SHTF what good ( gold ) is it ? I can also barter much better with ammo than some inert object like gold. BTW , you better invest in ammo or somebody’s gonna TAKE YOUR GOLD AWAY FROM YOU!!
“I’m looking for the stock market to drop like a leaky rowboat in a hurricane tomorrow.”
Why?
Does not the stock market appear to be celebrating the demise of Constitutionality?
It doesn’t appear to care about unemployment, foreclosures, massive deficits, or gold rising.
[serious question, though posed rhetorically; not looking for an epic reply!]
I’ve got ee loaded a @# loaded and a @@# loaded. Plus I have gold, Come get it.
I’m serious. How much will be enough for you? 5k? 10K? 20K? 50K?
YOU do realize there is a spectrum between a normal functioning economy and TEOTWAWKI, Zombie Apocalypse, Road Warrior fantasy you have. And for 99% of that gold will be a useful tool, just like it’s been for 5,000 years of history.
I’ve got cash, and gold, and food, and lots of ammunition too.
Health insurance stocks will lead the way (to the bottom).
Does not the stock market appear to be celebrating the demise of Constitutionality?
:::::::
I have been having discussions about this — why did the stock market recover to 10,000 ??? Why? Why? There is no sound basis in financial terms. This administration continues to set fire to the economy and capitalism. Why should it recover?
It will ensure that my family eats, and the no politician can force me to do his/her will.
Road Warrior ?? You watch too many b movies . . I have enough for my needs and do not horde by the 1000’s. Sell now before the bottom falls out of the gold market. I aim to provide for my needs and food is a big part of that need . If stores run short there is a lot of protein running and swimming out there .
Hope its in old coins and hidden well cause the government just might take all that shiny stuff from you like they did under FDR!
I don’t want it . Enjoy ! BTW, just a hint . I wouldn’t telegraph that I own a lot of that shiny stuff. Locations are easy to find these days .
Well if it comes to that they can come for your guns and ammo too now can’t they?
“Health insurance stocks will lead the way (to the bottom).”
Viewed in isolation, I don’t think one could make the case that they constitute enough of the market to have that much effect. Besides...if the market “believes” HC will become a reality, then it should celebrate the implied reduction in expenses = more profits for the companies whose stocks make up the market.
Please understand I am not trying to convince you or anyone else of any particular bull/bear market thesis. My original comment was half snarky, half asking you to be sure you’ve thought out whatever thesis you might have.
Myself, I don’t think there is a fundamental-based market thesis one can have here. 90% of the time, in *any* kind of market, for every bull fact or rumor or sentiment you can cite, I (or someone else) can cite an opposing factor.
I am fairly bearish on the market at current valuations, but the market has shown *no* tendency to sell off that is not fixed in two days, maximum. I note that the amount of secondary stock that was issued after March 2009 and now has smashed all prior records, and will undoubtedly take a long time to distribute. It is thus very important for the folks who run the market to keep levels high to get more and more people involved.
All in all, I and most anyone I know whom I respect as far as market commentary finds current market conditions/valuations utterly baffling. Louise Yamada said as much, practically verbatim. Art Cashin has been quite humbled for the last 200 SP points. The CNBC pumpers insist the thing goes to da moon, but that’s their job and they do, after all, work for GE.
Good luck !
The only thing I would reply to your question is, asking “why?” implies that the asker has a framework into which the observable reality [eg; stock and index prices] have to fit in order to “make sense”. My point is only: that if the goal is to have the thing “make sense”, then...that’s the goal. It’s not necessary for the thing to make sense to make (or lose) money.
I absolutely agree with you, but it has not helped my own trading one iota to insist upon the idea that the casino has to make sense.
Sure there is. The Fed "loans" banks dollars at negative interest. Those banks then turn around and buy assets with the money. If someone paid you to borrow money from them what would you do with the funds?
So after the first 5000 rounds what good is it going to do you?
When SHTF what good ( gold ) is it ?
After you have beans and bullets, then buy gold.
Sure there is. The Fed “loans” banks dollars at negative interest. Those banks then turn around and buy assets with the money. If someone paid you to borrow money from them what would you do with the funds?
:::::
House of cards. Part of the agenda. More government funded “false economy”.
If you think the end is at hand, buy silver. Gold is for storing value, silver is for the apocalypse.
So again, when will you have enough? 50k 100k 1 million rounds? Is that all you plan on having a supply of?
This single minded obsession with piling up rounds shows a profound lack of imagination.
To me, gold's well overvalued right now, and it is a gamble to invest further. You're betting on world-wide devaluation of all currencies without any regard to supply or demand. I did push the buying of silver earlier this year, as I thought it was really lagging in gold valuation, but again, I think it's at the top of market.
If the US was exercising even a tiny bit of fiscal responsibility right now, it would again just be a repeat of the run up in the 1990’s, other currencies being punished, but alas, we're trying hard right now to emulate economies that everyone knows are unsustainable.
If someone today gave me a thousand pounds of gold, I'd sell it on Monday and never look back until gold returned to under 900 levels. Just don't see the justification for this price level.
Well, I take that back, if you compare the early 2008 run up to today, and take into account the economic situations in the various countries, the roof is almost 30 USD for silver, and 1,500 USD for gold. I just don't see it reaching that level, there's too much opportunity to meet demand at these prices and supply will quickly overwhelm purchases.
But that run up was an outlier, just as this one is turning out to be. Really wish I had the money last December to buy silver when I recommended it, but such is life.
Sure there is. The market was oversold, and the big banks went way below any reasonable P/E because they were seen as risky. But does it make sense that the Fed would let any of them fail? Of course not. They are extremely profitable on the margin now, borrowing at negative short rates and lending at much higher rates. Sure they have a large overhang of bad loans but the Fed will buy those too if need be.
The market is more generally reacting to an inflationary bubble created by the Fed. The inflationary bubble will continue and the market will rise until the Fed is good and ready to pop it (generally when unemployment peaks). Or it will pop sooner if they fail. When it pops it will again threaten the economy, just like July 08 (all the bad bets on rising commodity prices came down hard on banks that had made loans to speculators). Then the Fed will pump some more and create another inflationary bubble.
If they fail to create the bubble, we will have trillions in liabilities for failed banks through FDIC. If they succeed we will spend trillions in bailouts and stimuli until they finally fail. Each boom and bust leaves the economy weaker since money is being used for speculation only, not investment (e.g. FNM, FRD).
Well, I said it was the reason. I didn't say it was sane. Works like a charm until rates go up.
Don’t forget coffee, tp, and toothpaste!
How did you determine that? To me the fair price of gold is close to zero. Silver is worth a bit more since it is a great antibacterial. I am holding right now since gold is showing a lot of strength. Not much profit taking at each new step up since Sept. I am also buying more, but just one 2009 Buffalo and one high relief double eagle, mainly to collect. I am paying about 1400/ounce because that's what the Mint wants for them.
Huh? Gold has DROPPED in value against paper, over the last 35 years:
It's back to about HALF of its peak, and about on-par with the prices in the first half of the 80s. Meaning if you had certificates of deposit that were pegged to inflation, you'd be twice as rich as if you had bought gold...
Gold IS a speculative market, pure and simple. It has very little commodity value, and is simply valued because we choose to value it. Much like US Dollars or Euros or British Pounds. It cannot be consumed like silver (which has a much larger industrial and commercial use than gold), copper, iron, oil, wheat, pork bellies, or other commodities.
Gold is valued simply because people like it. When it falls from grace - again - it will tumble down to the $250 range and stay there until the next bubble of gold buying takes place.
If you want to buy precious metals, then invest in silver, or platinum (key in catalytic converters), or beryllium, or rhodium, or tungsten, or any other of the trace metals used in modern industry. They have value, and their demand is increasing world-wide as all economies and industries continue to consume these metals.
What you say makes sense if we take what I’d call an outsize bank-heavy view of the market.
I keep coming back to CATerpillar. Dow component, cyclical company, a fine company, and viewed as a proxy for “the economy” or maybe I should say the “non-bank economy”...if there is such a thing, since everything is ultimately dependent upon bank lending.
At the very peak of the frenzy, CAT sold for $84 and earned $7.60 a share. PE = 11.
Recently, their sales are down 48%, they reported quarterly earnings of SIX CENTS. (revised down from 7 cents) They *think* their business should be back on track circa 2013.
If I quadruple that .06 number (for the year) to a quarter a share and quadruple it again to a buck a share and quadruple it again to $4 a share just on random exhuberance and figure on the typical PE for a cyclical industrial company in the 10ish zone then CAT should be selling for $40-44. But it’s $57.
So where is the rationality? Does this mean that if CAT starts to earn $7.60 again it should trade at $1800 a share?
Here's the dirty little secret everyone's ignoring: the stock market has not MOVED AT ALL this year. Nada. The DJIA is made of multi-national companies, and their values are determined from their worldwide activities.
If you price the DJIA in EUR or GBP or JPY, you'll find it's barely moved at all this year, around a 2% increase. The world has determined that the value of the DJIA is about steady.
It's only gone up because the value of the dollar has dropped against those currencies. Meaning it takes more USD to buy the same placement in these multi-national companies as opposed to our friends in Europe or Asia, where it's stayed the same.
The stock market has not rebounded; the denomination of how it's typically counted has fallen. That's what's really happened, and that's what the powers-that-be want people to ignore because it shows the house of cards for what it really is.
Myself, I'm locking in supplier contracts from China and Taiwan in USD, because when they have to adjust their currencies it'll get a lot cheaper for me to buy product, as I'll still earnin EUR and AUD and CNY but will pay with devalued USD. A good way to go!
You've got it wrong. Don't buy gold as an investment. Buy it for its purchasing power which remains remarkably consistent no matter the value of the dollar.
In 1970, an ounce of gold bought 12 barrels of oil. Today, an ounce of gold buys 14 barrels of oil. It took $3 back then -- $78 today. Gold is a store of value; not an investment.
That's why it serves so well as money.
That second part would more correctly read, "...some of the FR 'experts' talked it down..."
There were plenty of us who were right the whole way along on housing and gold. The FR Kindergarten Economists who tried to make us believe in 2005-2006, for example, that the burst of the housing bubble wouldn't lead to recession and that gold wasn't a good investment don't show up much any more.
FWIW, here's a thread from late 2005 on gold hitting $500 an ounce. You will see pretty quickly who's who.
If the money really does go to zero then silver will be the normal street money because gold packs too much value in too small a package, It is hard to buy coffee and doughnuts with gold. Junk silver is in nice calibrated units that are recognizable as “money” and will be easily traded when the paper is not accepted. I also saw some itty bitty coins of 1/20th oz AU once that were pretty nice but that is still $55 or so per fish cale size coin at present value.
Your example is quite artificial. CAT should be valued on a couple years worth of average earnings. It should also take into account that government stimulus that funnels money in their direction. The continued failure of the economy will lead to the continued subsidizing of CAT by the politicians.
You are right. Gold is the best way to save right now. It’s also a way to speculate although there are better ways to speculate in an inflationary bubble such as miners and resource stocks.
That’s a fairly amusing thread. Lots of people living in the last bubble. Once those folks capitulate and buy gold, even a little, I will sell them mine and sell the rest to someone else.
Silver makes change for gold. Which may bring a small premium for (the right) silver holders, but it’s no big deal.
Gold is fine for a side of beef, or a period of rent, or a vehicle.
And if I thought the end times were at hand, I wouldn’t worry about tangible things.
So again, when will you have enough? 50k 100k 1 million rounds? Is that all you plan on having a supply of?
This single minded obsession with piling up rounds shows a profound lack of imagination.
But 10k rounds of 308, 20k of 223, 5k for each pistol, and a bucket-load of 22LR seems just fine to me (per person in your family, of course).
You may be forgetting that all of the above, if it proves to be excessive of one’s own needs, can easily be traded for your other unmet needs.
The short-hand version of your post:
“The dollar doesn’t go as far on Wall Street as it used to.”
(Cynic/realist’s view of an up day in the market).
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