Posted on 11/19/2009 8:03:17 AM PST by SeekAndFind
Is gold going to $6,300? Dylan Grice, an analyst with Societe Generale, says it’s possible, given the decline in central bank credibility. But investors need to keep one thing in mind: Gold is merely a vehicle to protect the purchasing power of money.
Gold is surging because investors see that the Federal Reserve — more concerned with deflation and unemployment than sound money — may be trapped in a never-ending cycle of monetary accommodation.
Ben Bernanke says he won’t monetize debt, but he already has. His Fed has bought $300 billion of Treasuries and is on pace to buy $1.45 trillion of government-backed mortgage debt all of which is being salted away indefinitely on the Fed’s balance sheet.
Why indefinitely? Because the Fed has no intention of unwinding its balance sheet so long as the economy is stressed. Witness comments this week from Bernanke, Fed Vice Chairman Don Kohn and San Francisco Fed President Janet Yellen all suggesting that the Fed’s “extended period” of low interest rates can be measured in years, not months. Today St. Louis Fed President James Bullard said rates aren’t going up till 2012.
So long as deficit spending continues, if the Fed wants to avoid deflation, it will be forced to monetize more debt.
(Excerpt) Read more at blogs.reuters.com ...
Grice contends that the price of gold could reach $6,300 an ounce. He explains: “The U.S. owns nearly 263 million troy ounces of gold (the world’s biggest holder) while the Fed’s monetary base is $1.7 trillion. So the price of gold at which the U.S. dollar would be fully gold-backed is currently around $6,300. Gold is very cheap — at current prices, the USD is only 15 percent gold-backed.”
Absurd you say? It happened 30 years ago. President Nixon ended the Bretton Woods global monetary system and his compliant Fed Chairman Arthur Burns let inflation run wild. So by 1980 gold spiked to a level at which the dollar was “overbacked” according to Grice.
Did gold overshoot in 1980? Sure, but only because Paul Volcker was willing to hammer the economy to re-establish the Fed’s credibility. Today’s Fed has been very clear that it isn’t willing to put up with a recession of any kind in the service of sound money.
All of that said, investors should be careful. Grice’s chart shows that, over the long run, gold is likely to do no better than protect your purchasing power. An ounce of gold today buys a good men’s suit; in 100 years, it is likely to buy the same.
So gold won’t make you rich. But it may protect you from becoming poor.
Gold is going up because it’s going up. It’s a bubble. The bubble will burst and then many will regret buying gold when it was high.
You can not eat gold. Gold does you no good until you convert it into money.
Well as Red Badger just said
Thu Nov 19 2009 10:01:34 GMT-0600 (Central Standard Time) · 11 of 12
Red Badger to FromLori
Ezekiel 7:19
They will throw their silver into the streets, and their gold will be an unclean thing. Their silver and gold will not be able to save them in the day of the LORD’s wrath. They will not satisfy their hunger or fill their stomachs with it, for it has made them stumble into sin.
Gold is money.
What you think of as money is a money substitute.
That chart of gold price across seven centuries surprises me. It looks like the price of gold shot up and hit an all-time high, and stayed unusually high, for almost a century — as Spain brought in ships full of gold from the New World. First major infusion of gold to Europe in over 1000 years, and that massive influx of supply made the price reach unprecedented heights. Seems odd.
I agree. People hoard gold as if it has intrinsic value. Like paper money, gold has only the value that people assign to it when they accept it in exchange for something else. In a truly failed economy, nobody cares about gold ... they want food, ammunition, land, trades, skills, etc.
You can’t live on gold — you have to cash it in or trade it, just like any other investment. So, treat it just like any other investment — buy low, sell high.
SnakeDoc
Gold is going up because it’s going up. It’s a bubble.
If Obama keeps spending money the way he’s been doing, a First Class postage stamp will go to $6,300.
Your chart of real gold prices over the centuries looks suspicious. Are the data points annual averages? Annual closes? Monthly closes?
If so, someone tried had to get an anomalous 1980 peak in there, contrary to whatever methodology was used.
That’s a rather sane assessment.
You sure you’re from around here? :-)
Don’t fall in love with an asset too much that you don’t know when to part with it. This isn’t marriage, it’s trading.
For years, I tried explaining that to my late wife. Coming from a socialist background in Australia, she couldn't understand that the value of a house, jewelry, land is only what you can get for it if you're trying to sell it or trade it. She was highly upset because the county had made a valuation on our house which was very .. VERY .. low and felt that that implied we were the equivalent of "poor white trash". I explained to her that, since we owned the house and the land and weren't planning on selling it, the lower the valuation the better, because we wouldn't have to pay high taxes for it.
Until the day she died, she never understood that nothing .. nothing .. has any specific intrinsic value.
Kudos for your clear, concise statement.
---------------------------------------------------------------------------------------------------
RESISTOR
Swear allegiance to the flag, whatever flag they offer;
Never hint at what you really feel.
Teach the children quietly for, someday, sons and daughters
Will rise up and fight while we stood still.
Der Elite Møøsënspåånkængrüppen ØberKømmändø (EMØØK)
Nor can you eat federal reserve notes, nor stocks, nor bonds.
Gold does you no good until you convert it into money.
What is money? When currency systems have collapsed historically, precious metals and barter goods were the only currency of any value. It seems to me increasingly likely we are headed towards such a collapse.
I don't expect precious metal to accumulate real value; I do expect it to hold its value better than Obamadollars.
The chart looks right regarding 1980. Gold hit $850 (or above) in Jan 1980. The Dow to Gold ratio in Jan 1980 was about 1:1.
Try telling that to my Vietnamese friends who got out of Saigon as the US abandoned them. Gold most certainly does have intrinsic value... intrinsic to what you need and for what a seller will trade with you. Their currency was worthless for even food purchases as they ran out of the country. If they had not had gold (chain links, clippable) they would never have hired a junk to sail them away to Japan. Gold is money. And, gold should back our currency at parity. It is because it does not back it now that we are in the situation where people who print on paper cannot and will not say what that paper is really for or worth. They make paper money out of thin air, declare it’s value to be what they want it to be. A massive con game by potemkin fakirs. First FDR and then Nixon opened the door to these paper merchant globalists and we have been chasing paper ever since.
...or use it as a REAL medium of exchange for things one needs to live when the paper crap crashes and burns (as it always does).
See “Weimar Republic” or “Zimbabwe” for the history of paper “money.”
You can’t eat US$’s either. You have to convert the dollars to bread or other food first. What happens when the owners of food no longer accept dollars? Or what happens when they want so many dollars for a loaf of bread you cannot pay it?
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