The money lent out by the banks is created by the fed.
The banks are now loaded with cash that can and will eventually be lent out. >>
No, banks actually create much of the money they lend out. Most money is created by banks as debt. They're not just lending out the same money the Fed or depositers gave them. Parts 1 and 2 of this video explain it pretty well.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
ttown wrote: "Oil rose due to speculation not demand."
I don't think its correct to say oil rose ONLY because of speculation. Oil is certainly falling now because of a lack of speculation AND a lack of demand. After all, we are in a recession.
Proofcollection: your comments about the "ten reasons" are exasperating. To continue this discussion with you requires some basic knowledge and acceptance of economic principles. Gosh fella, you don't have a clue.
<< <i>Over $80 Trillion of wealth has been destroyed worldwide over the past 14 months. And more is being destroyed everyday from real estate to the residual value of your leased vehicle. Money is also created when Barrick gold mines an ounce of gold or when Saudi Arabia pumps a barrel of oil. >>
No money is being destroyed when the price of real estate goes down (or created when it goes up). The people who sold at the peak still have the money they received from the sale - it did not go away or vanish. The people who bought at the peak now have an asset that is worth less than what they paid, but the money has simply transferred hands, not gone away. The dollars are still in the system.
No money is created or destroyed when we value something more or less. Again, the only entity that can create or destroy dollars is the fed, and right now they are creating them, not destroying them. >>
I have a different opinion, so we will just have to leave it at that.
In reviewing MoneyLA's and Proofcollection's top 10 list, I think that PC's has much more going for it. I don't think PC need's any help in economics. Frankly, more than half of MoneyLA's arguments can just as easily be reversed to support a gold move upwards.
There's indeed a lot of wishful thinking among PM holders. All the evidence shows that gold doesn't perform well in recessionary or deflationary environments. That's exactly what we're experiencing now. Eventually, I think it's almost a certainty that the gov't will over-prime the pump and thus create significant inflation. That's when gold should do really well. But that scenario may be several years away. I certainly don't see it happening in the coming weeks or months
Gold performed quite well in deflationary/recessionary environments of the 1930's and 1970's. To exclude those while only looking at 1980-1982 and 1999-2001 is too convenient. And the 1970's is really the only previous blueprint for what gold does in a pure fiat economy following years of monetary abuse. The 1930's still had a gold anchor to the money supply. And the deleveraging of Trillions of derivatives debt that is occuring today, does not cancel out the trillions in monetary excess of the FED/Treasury. Asset deflation does not wipe out monetary inflation because debt does not equal money. Never has, never will.
Just as I suspected. I rose to the challenge, I provide 11 solid reasons, and now you can't be bothered to continue the disucssion.
Our positions are now archived here and we can come back in 6 months or so and see who's right.
Anyway, back to the original topic, which is SHORT TERM moves in gold.
Today's action in gold looked bullish and we had a $12 gain for the day, up as much as $20 at one point. I'm still looking for gold to close over $790 before confirming a new trend to $870 and maybe higher. I don't see much possible downside below $760 in the next few days.
<< <i>How can you say today's $20 move in gold was BULLISH when gold has toppled more than $200 from its recent high?? >>
This is short term discussion.... weeks not months. Gold did not topple $200 last week or even the week before. Gold is looking bullish for the timeframe of this week.
Note that MoneyLA has consistently said he won't consider being bullish on gold until it makes new all time highs. He has consistently stated he has no interest in short term gold moves and that they are somewhat irrelevant....until or if the magic $1030 gets hit again.
I think gold is more than likely due for another touch of the $725-$735 area before attempting another try at $780-$790. And it should happen within a week, if at all. This would continue a sequence of higher lows which would be bullish for the short term picture.
Its all about credit. Always has been, always will.
The money supply has nothing to do with credit. Money is money. Credit is just credit. Contracting the money supply always leads to recession/deflation effects. Expanding the money supply always leads to inflationary effects. Always has, always will. Debt and credit are separate economic issues.
money supply has nothing to do with credit. Money is money.
How can that be? We are living in a near cashless society. If you used currency and coin in circulation as an economic measure you would come up with a measurement based on a tiny sampling of the volume of commerce. Its all about credit. Which is why the freezing of the credit markets both from bank lines and the commercial paper market threatened to cause the collapse of businesses.
What if the money supply actually went to zero? As in, the banks lost all their depositors money through leverage, bad loans, and asset devaluation.
What would happen depends on the amount of credit they can get from the Fed plus FDIC payments on lost deposits to offset those losses and provide them with a means of lending. Now the feit money foes might say that the huge new credits from the Fed means that the boys at the Bureau of Printing and Engraving are running the presses on the night shift and that we will have hyperinflation as a result of a massive creation of feit money. But obviously, if the Fed infusion of credit equalled the banks' cumulative losses, the net effect on "money" would be zero.
<< <i>What if the money supply actually went to zero? As in, the banks lost all their depositors money through leverage, bad loans, and asset devaluation. >>
You mean like now?
I was looking at MZM the other day and it's barely moved compared to M-0. The banks are sitting on a boatload of paper.
<< <i>What if the money supply actually went to zero? As in, the banks lost all their depositors money through leverage, bad loans, and asset devaluation. >>
You mean like now?
I was looking at MZM the other day and it's barely moved compared to M-0. The banks are sitting on a boatload of paper. >>
That is exactly my point and want to drive home further the notion that money supply is not increasing. And quite possibly it is decreasing.
<< <i>What if the money supply actually went to zero? As in, the banks lost all their depositors money through leverage, bad loans, and asset devaluation. >>
You mean like now?
I was looking at MZM the other day and it's barely moved compared to M-0. The banks are sitting on a boatload of paper. >>
That is exactly my point and want to drive home further the notion that money supply is not increasing. And quite possibly it is decreasing. >>
You're dead-on. In spite of rocketing M-0, etc., actual cash onhand is barely edging up.
After thinking about for awhile, I've come to the conclusion that the Fed is literally printing cash by the truckload to pay for Treasuries and there it sits.
<< <i>I can sum up my argument that gold is not bullish with one question:
why aren't gold prices moving to new highs? >>
Again, this thread is for short term moves. Gold doesn't have to be bullish or bearish to move up or down $25-50 in day or two - it's just normal price movement and micro-trends.
Tuesday was a typical consolidation day. Overnight it moved up into the mid $790's. We might see $810 today and it might just blow through this level. If we close out in the $780's, look for continued upward movement.
I can sum up my argument that gold is not bullish with one question: why aren't gold prices moving to new highs?
Sound like it's time to get back to basics. You can't put the cart in front of the horse and tell the horse to pull. Recall that over the past several years the gold comex price fell in New York the majority of the time. Yet miraculously, a bull market occured during those years while the pog tripled. It's sort of like saying that when Ted Williams was on his way to batting .406, that every slump signaled the end of his run to .400. The cheerleaders can't have .400 every day, day in and day out. But that's what the anti-gold bulls seem to want. They want gold to go up every day to "prove" to them that gold is in a bull market.
Besides the excellent 10 reasons Proofcollection already gave, here's a few more.
11. HUI/gold has been rallying...since end of October. The HUI is well of a bottom trending with several higher lows and higher highs. The gold stocks often lead gold up (ie look at 1999-2002). While this is not to say HUI can't fall back again, for now it's a bullish sign. A number of strong HUI companies have bottomed and turned the corner. There are more to come.
12. Gold stocks, gold, and all commodities were tossed out first and hardest during the summer equities purging. In fact the gold stocks got almost hit as hard as the worthless banks. This has nothing to do with bad fundamentals, but merely what could be sold quickly for the easiest cash? These really can't go much lower unless we have another purging of the S&P in which case everything will go down again. But gold will fall the least.
13. Delivery of gold futures contracts is now riding at 16% vs. a long term average of 1%. Something is very different here. People want their gold and aren't as willing to grab a piece of paper months away even for a higher rate. Continued higher physical gold prices to acquire 1 oz coins or bars says the same thing.
14. Fed funds rate likely to drop to 0.5% next time around.
15. Gold does well in deflationary environments. It did in the 1930's and many world/US depressions prior to that. Gold also does well in strong inflationary environments as well as stagflationary times (ie 1970's). M1 and M2 have gone from flat or declining to up 5% yoy. It's only a matter of time before the other M's (MZM, M3, TMS) show the same trend if they haven't already.
16. Real interest rates are -3% or lower. That's when commodities thrive over the longer haul.
17. Dow/gold has headed to 1:1 in each of the last major commodity/stock cycles. This won't be much different. Currently >10:1.
18. Tons of gold being held in ETFs has continually grown since first allowed in 2004...even during 2008. Now at >1000 tons held and essentially no less than during the peak in March 2008. If gold were expected to fall long term shouldn't the ETF's be disposing rather than acquiring gold?
<< <i>OK. But I'm still 16% ahead of today's price by selling in the spring at $940. >>
I be way down since my $20 gold pieces in MS61/62 are bring over a grand. Paper hasn't done a thing to them. >>
comparing classic gold to pure bullion is apples to oranges... they never sold for spot in the first place. >>
No not really the spreads when I purchase them were $50 to $75 at which time bullion was $30 bucks or so cheaper. They've held their value and then some.
After thinking about for awhile, I've come to the conclusion that the Fed is literally printing cash by the truckload to pay for Treasuries and there it sits.
I was driving yesterday, and I heard that the Fed just sold some 30-day T-Bills at zero interest, meaning that investors are now paying the government in order not to lose money faster than a certain rate.
Why buy 0% 30-day T-Bills if cash is the same thing? Are these people jerking themselves around for any particular reason? Either way, whether its 0% 30-day T-Bills or cash, the effective net interest rate is less than zero. So, why bother with the extra transaction?
The disinformation about real money such as gold is so predominant that people actually think 0% T-Bills are less risky? I'm aftraid that nobody is going to like what's coming next.
Q: Are You Printing Money? Bernanke: Not Literally
<< <i>OK. But I'm still 16% ahead of today's price by selling in the spring at $940. >>
I be way down since my $20 gold pieces in MS61/62 are bring over a grand. Paper hasn't done a thing to them. >>
comparing classic gold to pure bullion is apples to oranges... they never sold for spot in the first place. >>
No not really the spreads when I purchase them were $50 to $75 at which time bullion was $30 bucks or so cheaper. They've held their value and then some. >>
I see your point. I misunderstood the first time. I was thinking they did not sell so close to spot... I am just too used to buying key dates now days that warps my knowledge on the going price of slabbed lower grade MS double eagles. thanks for clarifying. I thought they would be priced higher.. as in hundreds more.. not 1400 but more like 1100 for a nice eye appealing example.
That does appear to be a good way to hedge your investment. If gold falls... classic double eagles will always be a collectible that has its own value based on other factors.
OK. But I'm still 16% ahead of today's price by selling in the spring at $940.
Give this a little more time or so and you won't be able to say this anymore. And as you've said many times, gold will be $1050 and rising when or if you next consider getting in. In that case you will have left 10-15% or more on the table depending on how fast the move is. What other investments did your $940 gold proceeds go into that have earned money (after inflation) since then? If it's like most everyone else, you've been lucky to hold even by being in treasuries/cash rather than losing 15-40%. By getting totally out of gold you have no safety net in hard assets in the event of TSHTF bigtime. And that's ultimately what the metals are meant to do along with holding their own in deflationary and inflationary upsets.
comparing classic gold to pure bullion is apples to oranges... they never sold for spot in the first place.
The premiums for MS64 saints to melt was relatively small when this market first took off in 2002. An MS64 Saint was buyable at $400 when gold was around $300. That's only about 30% which is less than the copper premium afforded to wheat pennies. If you liked MS61 and MS62 Saints/Libs your premium to melt might only have been 15-20%. In case you haven't noticed, the MS61-62 premiums are now 40% or so. Not a bad gain in 2008 while gold "corrected. And MS64-65 saints are at fairly similar levels to March 2008. And if you can cherry pick CAC quality MS65 saints in the holder, you can plop another $200 in your favor (+12%) for having a discerning eye. Generic gold has very closely tracked the bullion market while providing leverage on the way up as well as down. Though 2008 was an exception to the "way down" leverage since the premiums came off initially and then were placed right back on again.
Gold does well in deflationary environments. It did in the 1930's and many world/US depressions prior to that. Gold also does well in strong inflationary environments as well as stagflationary times (ie 1970's). M1 and M2 have gone from flat or declining to up 5% yoy. It's only a matter of time before the other M's (MZM, M3, TMS) show the same trend if they haven't already.
Gold's price was fixed (raised to a higher level) by the government in the 1930s, so you can't argue that it did well for market reasons. That kind of price increase isn't relevant today.
I posted some data earlier showing that gold does NOT do well in deflationary or recessionary environments. At most, gold will hold its value, but not increase. You might as well hold cash on the sidelines, you'll do just as well if not better.
As an investment, gold is really an inflation hedge. The data bears that out, and we're seeing it now. Right now we're in the midst of a deflationary contraction, and gold isn't doing much of anything.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
Gold's price was fixed (raised to a higher level) by the government in the 1930s, so you can't argue that it did well for market reasons. That kind of price increase isn't relevant today.
It's relevant in 2 ways. For one, FDR purposely devalued the dollar to get the money moving again, by raising the price of gold..+40% gain for gold holders. The same will be done to our economy at some point. And because physical gold was not allowed to be traded or speculated with, it's equivalent at that time......under a gold standard, were gold stocks. Gold stocks were one of if not the best performing groups in the 1930's....while under a gold standard since it was the only legal way to play with gold. It's very relevant to today's situation where we have no gold standard, but can once again hold gold (ie real currency).
I posted some data earlier showing that gold does NOT do well in deflationary or recessionary environments. At most, gold will hold its value, but not increase. You might as well hold cash on the sidelines, you'll do just as well if not better.
Your data must not include the 1930's gold stocks, in which Homestack Mining (now Newmont) increased by 8X. Your data must also not include the 1970's which was a classic recessionary environment. Gold increased by over 20X once allowed to float. I'm not sure why 20X in 9 years (1971-19080) or 8.5X in 3-1/2 years (1976-1980) was such a poor performance. Superb gem rare coins did better. Your assumption that the dollar will perform or gain in value is valid as long as deleveraging continues and dollars are used to close out contracts and positions around the world. What happens when that slows to a crawl in the wake of $8.5-$20 TRILLION in federal spending to lubricate the economy's gear set?
Right now we're in the midst of a deflationary contraction, and gold isn't doing much of anything.
It's not supposed to. Unless you were shorting growth stocks to death, you're not making any money.
Gold is holding it's own much better than most all other investment groups. Isn't that what gold is supposed to do in a deflation, preserve wealth? From the stock market high of Nov 2007 to date (14,000 to 8500...-40%) gold has broke even. Seems like a winner to me. But then when the effects of monetary expansion hit, gold will perform exceedingly well over cash. Remember, we are playing out the contraction of 1975-1976 right now (gold fell 50% in price back then, so our 34% correction in 2008 is not so terrible). When that's over we're looking at several years of strong inflationary stimulus (1977-1980). By Volcker's own words he did nothing to hold back gold in the late 1970's. In today's case the FED has done everything in their power, both legal and illegal (and the major bank's powers) to keep the lid on gold as it is an official "report card" seen by the world on how the dollar and US economy are doing. And this is the best they can do to discredit gold? So what happens when the FED and Paulson run out of tricks?
<< <i>Your data must also not include the 1970's which was a classic recessionary environment. Gold increased by over 20X once allowed to float. I'm not sure why 20X in 9 years (1971-19080) or 8.5X in 3-1/2 years (1976-1980) was such a poor performance. >>
This is the best data I've found on gold's performance during recessions:
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Basically, only during a single recession of the mid-1970s did gold do anything impressive price-wise. Counting the current recession, we've had seven recessions since gold's price began to float in 1971. In six of the seven, gold didn't do almost anything, or even lost value.
Gold's big price runs ups have happened during economic expansions, as the money supply was running apace. The big run up in the late 70s happened in a highly inflationary economic expansion - there was not a recession happening in 1979. Here's a link to the research.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
<< <i>when the effects of monetary expansion hit, gold will perform exceedingly well over cash. Remember, we are playing out the contraction of 1975-1976 right now (gold fell 50% in price back then, so our 34% correction in 2008 is not so terrible). When that's over we're looking at several years of strong inflationary stimulus (1977-1980). >>
My analysis leads to pretty much the same conclusion. I'm bullish on gold in the medium and longer term, though (for the reasons described in my previous post) I am not bullish short term (2009).
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
Today we saw the nice $34 gain I was expecting. I expect we'll need a few days of consolidation and trading in a new range of $790 - $712 before heading higher to $875 by the end of the year.
<< <i>My analysis leads to pretty much the same conclusion. I'm bullish on gold in the medium and longer term, though (for the reasons described in my previous post) I am not bullish short term (2009). >>
Based on your chart and your own assesment the price of gold has pretty much ended the recession phases at about the same price as it entered. Since the price in early 2008 was around 900-950 we can assume that the price should at least return to that level during 2009. Of course if you consider the inflationary aspects of the huge stimulus planned then it could go much higher.
Worse case is the return to the 950 level., Better than the -1% return on a Tbill.
I not sure what to make of the chart since you couldn't own gold in the US before 1974 and it was set at a fixed rate of $35 an ounce. That leaves 4 dates with the 80/81 number right after a big bubble and the Mrach 2001 really is right near the front of the stock market correction and right after 9/1/01 gold soared the next year still in the recession as far as I'm concerned. Now what's the tranaction cost of something you can't own on most of the chart? Looks like they picked a few dates to prove a point, even now over a year after this recession started they are just coming around to tell us about it so you'd have to look at those dates and add months to the front and the back of each IMO.
Looking at gold's performance in past recessions is not especially applicable to the current situation. ProofCollections points are exactly the issues here:
<<Do you think this recession is like the others?
Did the other recessions have bailouts and bank and company failures of this size and quantity? >>
We are looking at the aftermath of, as Dick Morris put it last night - Bush's lobotomy as he presides over the socialization of the U.S. economy.
What bothers me personally is that there will eventually be two new groups as it relates to personal wealth - those who own precious metals, and those who don't. As is usually the case these days, those who don't will undoubtedly make every effort to expropriate property from those who do - in this case, gold & silver.
And that's where we run into the problem of who's doing what to whom.
Q: Are You Printing Money? Bernanke: Not Literally
Basically, only during a single recession of the mid-1970s did gold do anything impressive price-wise. Counting the current recession, we've had seven recessions since gold's price began to float in 1971. In six of the seven, gold didn't do almost anything, or even lost value.
By the most strict definition imaginable of a recession, and following data evaluated by the NBER your chart "proves" your point. However I don't look at the 1970's nor the 1990's nor the 2000's downturns the same as you do. 8-12 month snippets of an "official" govt "sactioned" recession hardly defines the 1970's stagflation nor the periods of 1990-1996, and 2000-2008. I see years of malaise in those decades and not a just a "few" months. To define the 1970's recessionary economy (the only real comparable period to today while we were pure fiat) by a single 1975 recession doesn't fly. While it can define 1975, it certainly doesn't define 1977-1980....nor 1971-1974. By definition the govt is very slow to define a recession and is very good about limiting the months of said "recession." They much prefer to define it 1 year late, and then "officially" end it a couple months after defining the event...less worrisome to J6P that way.
Gold's big price runs ups have happened during economic expansions, as the money supply was running apace. The big run up in the late 70s happened in a highly inflationary economic expansion - there was not a recession happening in 1979. Here's a link to the research.
Stagflation was most certainly occuring in the 1977-1979 window. The "stag" part was a stalled economy, gas shortages, a lackluster stock market, a failing Chrysler corporation, etc.....but booming prices in commodities, esp. precious metals, coins, art, antiques, collectibles, etc. While maybe not technically a defined recession, it was no boom expansion period period for equities. Here's a case where gold did not need a current economic expansion to explode in price. It was in fact responding to decades of previous issues that had never been resolved, one of which was not allowing gold prices to float. This is similar to our current struggles where we are paying for 25 years of a "low inflation" environment (as defined by the CPI of course) with a consistent money supply and credit growth well beyond the nation's growth rate. The monetary inflation has never really been paid for due to the lower prices of foreign labor and owning the world's reserve currency....25 years of pent up abuse now coming home to roost.
The data is a lot more compelling to me than any of the theories being thrown around about why gold isn't doing so well in the current environment. Historically, gold hasn't done well in environments like the present one, so why should this time be any different? Gold has a good story to tell, but it doesn't need to be oversold through conspiracy theories and exaggeration. Gold's day is coming, fairly soon I believe, but that day hasn't arrived yet; we still need to work through the deflation before we see the inflation.
Mike Shedlock put it well:
"It is comparisons to Zimbabwe that may be years or decades early, along with various conspiracy theories elsewhere about central bank suppression of the price of gold, coupled with rumors spread for the past few months that there will be a failure in the delivery of December gold, etc, that turn people off about the gold story."
"Such stories turn people off because they are hype. If governments could manipulate prices, the stock market would not have fallen 50%, Bear Stearns and Lehman would not have gone under, and housing prices would not have collapsed. If the government is acting to suppress the price of gold, then bring on more of it cause it sure is failing."
"Articles that launch the idea that "gold is going to the moon next month on a failure to deliver", or that "gold will not be available at any price" because of backwardation, and comparisons between the U.S. and Zimbabwe simply do more harm than good to the gold story."
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
Who predicted anything around here about gold going to the moon by next month? We're looking at s...l...o...w...l...y trying to break resistance at the 830 and 880 levels, then trying to work on $900 again. It could take months or a year to get there. But then again, I would not be surprised to see $980 again before May considering all the financial problems that still remain hidden. Sinclair talked about a deadline date of January 18th when things would break open again. He didn't state what that meant and he didn't give any links to a gold price. In 6 weeks we'll know something. The fundamentals alone state gold's bullish long term case.
Considering that manipulating gold through JPM and GS contacts would strongly benefit their own positions (as well as the FED and Treasury) and help them to surivive longer, it would be very hard to believe that no manipulation or collusion goes on.
So today again had a nice little bump up to $860 and currenty back down at $850. Gold will most likely hit $875 in the next two days and then will have to take some time to consolidate. I'm loaded up and planning to take profits at $875, although gold may go as high as $881.
Business projections into next year do not look good. The Fed said today that they expect rates to remain low for a fairly long time - indeed, they can't go any lower. Indeed, P/E ratios are the same as they were when the market was twice as high as it is right now, which seems to point toward further market declines and as a result, less money in consumer hands, fewer jobs, less spending by businesses. Not too good.
So, what's left that can be used to stimulate business? Government spending, which is what Obama plans to do. The money won't come from increased tax revenues, because business is still headed further down. Where is the money going to come from?
Let's not forget the housing debacle. Prices are still headed down, and the guvmint still thinks that we have to rescue home prices. There's no end to this stuff. Where's the money going to come from? Show me the money!
Q: Are You Printing Money? Bernanke: Not Literally
So this week gold hit $875 as I had predicted, but it didn't stay there long. Gold needs to retest the $830 level and will probably consolidate at this level before making a the next move up over $900. Next week is a holiday week, but I'm still expecting gold to bounce to $860's before coming back down to touch the $830's again. IMO, this consolidation is a really bullish sign.
Comments
Eventually can be a very long time.
CG
<< <i>
The money lent out by the banks is created by the fed.
The banks are now loaded with cash that can and will eventually be lent out. >>
No, banks actually create much of the money they lend out. Most money is created by banks as debt. They're not just lending out the same money the Fed or depositers gave them. Parts 1 and 2 of this video explain it pretty well.
I don't think its correct to say oil rose ONLY because of speculation. Oil is certainly falling now because of a lack of speculation AND a lack of demand. After all, we are in a recession.
Proofcollection: your comments about the "ten reasons" are exasperating. To continue this discussion with you requires some basic knowledge and acceptance of economic principles. Gosh fella, you don't have a clue.
www.AlanBestBuys.com
www.VegasBestBuys.com
<< <i>
<< <i>Over $80 Trillion of wealth has been destroyed worldwide over the past 14 months. And more is being destroyed everyday from real estate to the residual value of your leased vehicle. Money is also created when Barrick gold mines an ounce of gold or when Saudi Arabia pumps a barrel of oil. >>
No money is being destroyed when the price of real estate goes down (or created when it goes up). The people who sold at the peak still have the money they received from the sale - it did not go away or vanish. The people who bought at the peak now have an asset that is worth less than what they paid, but the money has simply transferred hands, not gone away. The dollars are still in the system.
No money is created or destroyed when we value something more or less. Again, the only entity that can create or destroy dollars is the fed, and right now they are creating them, not destroying them. >>
I have a different opinion, so we will just have to leave it at that.
Knowledge is the enemy of fear
There's indeed a lot of wishful thinking among PM holders. All the evidence shows that gold doesn't perform well in recessionary or deflationary environments. That's exactly what we're experiencing now. Eventually, I think it's almost a certainty that the gov't will over-prime the pump and thus create significant inflation. That's when gold should do really well. But that scenario may be several years away. I certainly don't see it happening in the coming weeks or months
Gold performed quite well in deflationary/recessionary environments of the 1930's and 1970's. To exclude those while only looking at 1980-1982 and 1999-2001 is too convenient. And the 1970's is really the only previous blueprint for what gold does in a pure fiat economy following years of monetary abuse. The 1930's still had a gold anchor to the money supply. And the deleveraging of Trillions of derivatives debt that is occuring today, does not cancel out the trillions in monetary excess of the FED/Treasury. Asset deflation does not wipe out monetary inflation because debt does not equal money. Never has, never will.
roadrunner
Its all about credit. Always has been, always will.
CG
Our positions are now archived here and we can come back in 6 months or so and see who's right.
Anyway, back to the original topic, which is SHORT TERM moves in gold.
Today's action in gold looked bullish and we had a $12 gain for the day, up as much as $20 at one point. I'm still looking for gold to close over $790 before confirming a new trend to $870 and maybe higher. I don't see much possible downside below $760 in the next few days.
www.AlanBestBuys.com
www.VegasBestBuys.com
<< <i>How can you say today's $20 move in gold was BULLISH when gold has toppled more than $200 from its recent high?? >>
This is short term discussion.... weeks not months. Gold did not topple $200 last week or even the week before. Gold is looking bullish for the timeframe of this week.
I think gold is more than likely due for another touch of the $725-$735 area before attempting another try at $780-$790. And it should happen within a week, if at all. This would continue a sequence of higher lows which would be bullish for the short term picture.
Its all about credit. Always has been, always will.
The money supply has nothing to do with credit. Money is money. Credit is just credit. Contracting the money supply always leads to recession/deflation effects. Expanding the money supply always leads to inflationary effects. Always has, always will. Debt and credit are separate economic issues.
roadrunner
Knowledge is the enemy of fear
How can that be? We are living in a near cashless society. If you used currency and coin in circulation as an economic measure you would come up with a measurement based on a tiny sampling of the volume of commerce. Its all about credit. Which is why the freezing of the credit markets both from bank lines and the commercial paper market threatened to cause the collapse of businesses.
What if the money supply actually went to zero? As in, the banks lost all their depositors money through leverage, bad loans, and asset devaluation.
What would happen depends on the amount of credit they can get from the Fed plus FDIC payments on lost deposits to offset those losses and provide them with a means of lending. Now the feit money foes might say that the huge new credits from the Fed means that the boys at the Bureau of Printing and Engraving are running the presses on the night shift and that we will have hyperinflation as a result of a massive creation of feit money. But obviously, if the Fed infusion of credit equalled the banks' cumulative losses, the net effect on "money" would be zero.
CG
<< <i>What if the money supply actually went to zero? As in, the banks lost all their depositors money through leverage, bad loans, and asset devaluation. >>
I was looking at MZM the other day and it's barely moved compared to M-0. The banks are sitting on a boatload of paper.
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That was my first thought, too.
The ONLY "money" they have is that which they are STEALING from taxpayers
via CORRUPTION-based "bailouts."
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<< <i>What if the money supply actually went to zero? As in, the banks lost all their depositors money through leverage, bad loans, and asset devaluation. >>
I was looking at MZM the other day and it's barely moved compared to M-0. The banks are sitting on a boatload of paper. >>
That is exactly my point and want to drive home further the notion that money supply is not increasing. And quite possibly it is decreasing.
Knowledge is the enemy of fear
why aren't gold prices moving to new highs?
www.AlanBestBuys.com
www.VegasBestBuys.com
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<< <i>What if the money supply actually went to zero? As in, the banks lost all their depositors money through leverage, bad loans, and asset devaluation. >>
I was looking at MZM the other day and it's barely moved compared to M-0. The banks are sitting on a boatload of paper. >>
That is exactly my point and want to drive home further the notion that money supply is not increasing. And quite possibly it is decreasing. >>
You're dead-on. In spite of rocketing M-0, etc., actual cash onhand is barely edging up.
After thinking about for awhile, I've come to the conclusion that the Fed is literally printing cash by the truckload to pay for Treasuries and there it sits.
<< <i>I can sum up my argument that gold is not bullish with one question:
why aren't gold prices moving to new highs? >>
Again, this thread is for short term moves. Gold doesn't have to be bullish or bearish to move up or down $25-50 in day or two - it's just normal price movement and micro-trends.
Sound like it's time to get back to basics. You can't put the cart in front of the horse and tell the horse to pull. Recall that over the past several years the gold comex price fell in New York the majority of the time. Yet miraculously, a bull market occured during those years while the pog tripled. It's sort of like saying that when Ted Williams was on his way to batting .406, that every slump signaled the end of his run to .400. The cheerleaders can't have .400 every day, day in and day out. But that's what the anti-gold bulls seem to want. They want gold to go up every day to "prove" to them that gold is in a bull market.
Besides the excellent 10 reasons Proofcollection already gave, here's a few more.
11. HUI/gold has been rallying...since end of October. The HUI is well of a bottom trending with several higher lows and higher highs. The gold stocks often lead gold up (ie look at 1999-2002).
While this is not to say HUI can't fall back again, for now it's a bullish sign. A number of strong HUI companies have bottomed and turned the corner. There are more to come.
12. Gold stocks, gold, and all commodities were tossed out first and hardest during the summer equities purging. In fact the gold stocks got almost hit as hard as the worthless banks. This has nothing to do with bad fundamentals, but merely what could be sold quickly for the easiest cash? These really can't go much lower unless we have another purging of the S&P in which case everything will go down again. But gold will fall the least.
13. Delivery of gold futures contracts is now riding at 16% vs. a long term average of 1%. Something is very different here. People want their gold and aren't as willing to grab a piece of paper months away even for a higher rate. Continued higher physical gold prices to acquire 1 oz coins or bars says the same thing.
14. Fed funds rate likely to drop to 0.5% next time around.
15. Gold does well in deflationary environments. It did in the 1930's and many world/US depressions prior to that. Gold also does well in strong inflationary environments as well as stagflationary times (ie 1970's). M1 and M2 have gone from flat or declining to up 5% yoy. It's only a matter of time before the other M's (MZM, M3, TMS) show the same trend if they haven't already.
16. Real interest rates are -3% or lower. That's when commodities thrive over the longer haul.
17. Dow/gold has headed to 1:1 in each of the last major commodity/stock cycles. This won't be much different. Currently >10:1.
18. Tons of gold being held in ETFs has continually grown since first allowed in 2004...even during 2008. Now at >1000 tons held and essentially no less than during the peak in March 2008. If gold were expected to fall long term shouldn't the ETF's be disposing rather than acquiring gold?
roadrunner
www.AlanBestBuys.com
www.VegasBestBuys.com
<< <i>OK. But I'm still 16% ahead of today's price by selling in the spring at $940. >>
I be way down since my $20 gold pieces in MS61/62 are bring over a grand. Paper hasn't done a thing to them.
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<< <i>OK. But I'm still 16% ahead of today's price by selling in the spring at $940. >>
I be way down since my $20 gold pieces in MS61/62 are bring over a grand. Paper hasn't done a thing to them. >>
comparing classic gold to pure bullion is apples to oranges... they never sold for spot
in the first place.
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<< <i>OK. But I'm still 16% ahead of today's price by selling in the spring at $940. >>
I be way down since my $20 gold pieces in MS61/62 are bring over a grand. Paper hasn't done a thing to them. >>
comparing classic gold to pure bullion is apples to oranges... they never sold for spot
in the first place. >>
No not really the spreads when I purchase them were $50 to $75 at which time bullion was $30 bucks or so cheaper. They've held their value and then some.
I was driving yesterday, and I heard that the Fed just sold some 30-day T-Bills at zero interest, meaning that investors are now paying the government in order not to lose money faster than a certain rate.
Why buy 0% 30-day T-Bills if cash is the same thing? Are these people jerking themselves around for any particular reason? Either way, whether its 0% 30-day T-Bills or cash, the effective net interest rate is less than zero. So, why bother with the extra transaction?
The disinformation about real money such as gold is so predominant that people actually think 0% T-Bills are less risky? I'm aftraid that nobody is going to like what's coming next.
I knew it would happen.
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<< <i>OK. But I'm still 16% ahead of today's price by selling in the spring at $940. >>
I be way down since my $20 gold pieces in MS61/62 are bring over a grand. Paper hasn't done a thing to them. >>
comparing classic gold to pure bullion is apples to oranges... they never sold for spot
in the first place. >>
No not really the spreads when I purchase them were $50 to $75 at which time bullion was $30 bucks or so cheaper. They've held their value and then some. >>
I see your point. I misunderstood the first time. I was thinking they
did not sell so close to spot... I am just too used to buying key dates
now days that warps my knowledge on the going price of slabbed
lower grade MS double eagles. thanks for clarifying. I thought they
would be priced higher.. as in hundreds more.. not 1400 but more like 1100 for a nice eye appealing example.
That does appear to be a good way to hedge your investment. If
gold falls... classic double eagles will always be a collectible that has
its own value based on other factors.
Give this a little more time or so and you won't be able to say this anymore. And as you've said many times, gold will be $1050 and rising when or if you next consider getting in. In that case you will have left 10-15% or more on the table depending on how fast the move is. What other investments did your $940 gold proceeds go into that have earned money (after inflation) since then? If it's like most everyone else, you've been lucky to hold even by being in treasuries/cash rather than losing 15-40%. By getting totally out of gold you have no safety net in hard assets in the event of TSHTF bigtime. And that's ultimately what the metals are meant to do along with holding their own in deflationary and inflationary upsets.
comparing classic gold to pure bullion is apples to oranges... they never sold for spot in the first place.
The premiums for MS64 saints to melt was relatively small when this market first took off in 2002. An MS64 Saint was buyable at $400 when gold was around $300. That's only about 30% which is less than the copper premium afforded to wheat pennies. If you liked MS61 and MS62 Saints/Libs your premium to melt might only have been 15-20%. In case you haven't noticed, the MS61-62 premiums are now 40% or so. Not a bad gain in 2008 while gold "corrected. And MS64-65 saints are at fairly similar levels to March 2008. And if you can cherry pick CAC quality MS65 saints in the holder, you can plop another $200 in your favor (+12%) for having a discerning eye.
Generic gold has very closely tracked the bullion market while providing leverage on the way up as well as down. Though 2008 was an exception to the "way down" leverage since the premiums came off initially and then were placed right back on again.
roadrunner
Gold's price was fixed (raised to a higher level) by the government in the 1930s, so you can't argue that it did well for market reasons. That kind of price increase isn't relevant today.
I posted some data earlier showing that gold does NOT do well in deflationary or recessionary environments. At most, gold will hold its value, but not increase. You might as well hold cash on the sidelines, you'll do just as well if not better.
As an investment, gold is really an inflation hedge. The data bears that out, and we're seeing it now. Right now we're in the midst of a deflationary contraction, and gold isn't doing much of anything.
It's relevant in 2 ways. For one, FDR purposely devalued the dollar to get the money moving again, by raising the price of gold..+40% gain for gold holders. The same will be done to our economy at some point. And because physical gold was not allowed to be traded or speculated with, it's equivalent at that time......under a gold standard, were gold stocks. Gold stocks were one of if not the best performing groups in the 1930's....while under a gold standard since it was the only legal way to play with gold. It's very relevant to today's situation where we have no gold standard, but can once again hold gold (ie real currency).
I posted some data earlier showing that gold does NOT do well in deflationary or recessionary environments. At most, gold will hold its value, but not increase. You might as well hold cash on the sidelines, you'll do just as well if not better.
Your data must not include the 1930's gold stocks, in which Homestack Mining (now Newmont) increased by 8X. Your data must also not include the 1970's which was a classic recessionary environment. Gold increased by over 20X once allowed to float. I'm not sure why 20X in 9 years (1971-19080) or 8.5X in 3-1/2 years (1976-1980) was such a poor performance. Superb gem rare coins did better. Your assumption that the dollar will perform or gain in value is valid as long as deleveraging continues and dollars are used to close out contracts and positions around the world. What happens when that slows to a crawl in the wake of $8.5-$20 TRILLION in federal spending to lubricate the economy's gear set?
Right now we're in the midst of a deflationary contraction, and gold isn't doing much of anything.
It's not supposed to. Unless you were shorting growth stocks to death, you're not making any money.
Gold is holding it's own much better than most all other investment groups. Isn't that what gold is supposed to do in a deflation, preserve wealth? From the stock market high of Nov 2007 to date (14,000 to 8500...-40%) gold has broke even. Seems like a winner to me. But then when the effects of monetary expansion hit, gold will perform exceedingly well over cash. Remember, we are playing out the contraction of 1975-1976 right now (gold fell 50% in price back then, so our 34% correction in 2008 is not so terrible). When that's over we're looking at several years of strong inflationary stimulus (1977-1980). By Volcker's own words he did nothing to hold back gold in the late 1970's. In today's case the FED has done everything in their power, both legal and illegal (and the major bank's powers) to keep the lid on gold as it is an official "report card" seen by the world on how the dollar and US economy are doing. And this is the best they can do to discredit gold? So what happens when the FED and Paulson run out of tricks?
roadrunner
<< <i>Your data must also not include the 1970's which was a classic recessionary environment. Gold increased by over 20X once allowed to float. I'm not sure why 20X in 9 years (1971-19080) or 8.5X in 3-1/2 years (1976-1980) was such a poor performance. >>
This is the best data I've found on gold's performance during recessions:
Basically, only during a single recession of the mid-1970s did gold do anything impressive price-wise. Counting the current recession, we've had seven recessions since gold's price began to float in 1971. In six of the seven, gold didn't do almost anything, or even lost value.
Gold's big price runs ups have happened during economic expansions, as the money supply was running apace. The big run up in the late 70s happened in a highly inflationary economic expansion - there was not a recession happening in 1979. Here's a link to the research.
<< <i>when the effects of monetary expansion hit, gold will perform exceedingly well over cash. Remember, we are playing out the contraction of 1975-1976 right now (gold fell 50% in price back then, so our 34% correction in 2008 is not so terrible). When that's over we're looking at several years of strong inflationary stimulus (1977-1980). >>
My analysis leads to pretty much the same conclusion. I'm bullish on gold in the medium and longer term, though (for the reasons described in my previous post) I am not bullish short term (2009).
Did the other recessions have bailouts and bank and company failures of this size and quantity?
frankly, I dont know if I will ever go back into gold again. I dont know what other use I will have for my cash even when gold tops $1050 an ounce.
I am not married to gold.
My money is not tied to gold.
All I know is, gold is now in a trading range. I don't trade "trading ranges." I like to buy during market upswings.
When there is another market upswing, and I think it has legs, I will buy into the market upswing.
It could be with gold, it could be with auto stocks, it could be with casino stocks. I can't predict. I have to wait for it to happen.
And to quote Stan Weinstein... "buy high and sell higher."
www.AlanBestBuys.com
www.VegasBestBuys.com
<< <i>My analysis leads to pretty much the same conclusion. I'm bullish on gold in the medium and longer term, though (for the reasons described in my previous post) I am not bullish short term (2009). >>
Based on your chart and your own assesment the price of gold has pretty much ended the recession phases at about the same price as it entered. Since the price in early 2008 was around 900-950 we can assume that the price should at least return to that level during 2009. Of course if you consider the inflationary aspects of the huge stimulus planned then it could go much higher.
Worse case is the return to the 950 level., Better than the -1% return on a Tbill.
<<Do you think this recession is like the others?
Did the other recessions have bailouts and bank and company failures of this size and quantity? >>
We are looking at the aftermath of, as Dick Morris put it last night - Bush's lobotomy as he presides over the socialization of the U.S. economy.
What bothers me personally is that there will eventually be two new groups as it relates to personal wealth - those who own precious metals, and those who don't. As is usually the case these days, those who don't will undoubtedly make every effort to expropriate property from those who do - in this case, gold & silver.
And that's where we run into the problem of who's doing what to whom.
I knew it would happen.
By the most strict definition imaginable of a recession, and following data evaluated by the NBER your chart "proves" your point. However I don't look at the 1970's nor the 1990's nor the 2000's downturns the same as you do. 8-12 month snippets of an "official" govt "sactioned" recession hardly defines the 1970's stagflation nor the periods of 1990-1996, and 2000-2008. I see years of malaise in those decades and not a just a "few" months. To define the 1970's recessionary economy (the only real comparable period to today while we were pure fiat) by a single 1975 recession doesn't fly. While it can define 1975, it certainly doesn't define 1977-1980....nor 1971-1974. By definition the govt is very slow to define a recession and is very good about limiting the months of said "recession." They much prefer to define it 1 year late, and then "officially" end it a couple months after defining the event...less worrisome to J6P that way.
Gold's big price runs ups have happened during economic expansions, as the money supply was running apace. The big run up in the late 70s happened in a highly inflationary economic expansion - there was not a recession happening in 1979. Here's a link to the research.
Stagflation was most certainly occuring in the 1977-1979 window. The "stag" part was a stalled economy, gas shortages, a lackluster stock market, a failing Chrysler corporation, etc.....but booming prices in commodities, esp. precious metals, coins, art, antiques, collectibles, etc. While maybe not technically a defined recession, it was no boom expansion period period for equities. Here's a case where gold did not need a current economic expansion to explode in price. It was in fact responding to decades of previous issues that had never been resolved, one of which was not allowing gold prices to float. This is similar to our current struggles where we are paying for 25 years of a "low inflation" environment (as defined by the CPI of course) with a consistent money supply and credit growth well beyond the nation's growth rate. The monetary inflation has never really been paid for due to the lower prices of foreign labor and owning the world's reserve currency....25 years of pent up abuse now coming home to roost.
roadrunner
Mike Shedlock put it well:
"It is comparisons to Zimbabwe that may be years or decades early, along with various conspiracy theories elsewhere about central bank suppression of the price of gold, coupled with rumors spread for the past few months that there will be a failure in the delivery of December gold, etc, that turn people off about the gold story."
"Such stories turn people off because they are hype. If governments could manipulate prices, the stock market would not have fallen 50%, Bear Stearns and Lehman would not have gone under, and housing prices would not have collapsed. If the government is acting to suppress the price of gold, then bring on more of it cause it sure is failing."
"Articles that launch the idea that "gold is going to the moon next month on a failure to deliver", or that "gold will not be available at any price" because of backwardation, and comparisons between the U.S. and Zimbabwe simply do more harm than good to the gold story."
Link.
Considering that manipulating gold through JPM and GS contacts would strongly benefit their own positions (as well as the FED and Treasury) and help them to surivive longer, it would be very hard to believe that no manipulation or collusion goes on.
roadrunner
i'd rather see modest gains two steps up and one back.
the economy is freaking me more than gold's action.
So, what's left that can be used to stimulate business? Government spending, which is what Obama plans to do. The money won't come from increased tax revenues, because business is still headed further down. Where is the money going to come from?
Let's not forget the housing debacle. Prices are still headed down, and the guvmint still thinks that we have to rescue home prices. There's no end to this stuff. Where's the money going to come from? Show me the money!
I knew it would happen.