Indicator Warns of 78% Collapse in Gold's Purchasing Power

goingbroke

There is an abundance of indicators giving extreme readings which indicate that the gold cycle is near a secular peak. However, any arguments dealing with gold’s sky-high valuation or current overbought levels seem be dismissed with the gold bugs chanting their favorite mantra: “But the Fed is printing money!” It has become increasingly apparent that if this argument is not addressed head on, all warnings will fall on deaf ears.Text

derryb

I'm sticking with my earlier belief that PMs are going to get hammered in the short term as QE withdrawal symptoms hit ALL markets. I expect percentage declines between different markets to be similar to the 2008 crash, although housing has probably already taken its greatest hits. I think today's negative action in both equities and PMs may establish the beginning of this downturn. Good upcoming opportunity to play some inverse paper PMs and maybe some VXX, but keep stacking because PM fundamentals continue, even moreso, to point to a beautiful long term outlook.

goingbroke

Gold Could Top Sooner Than Later and Fool the Bulls
Text

roadrunner

There is so much wrong with that guy's analysis that I don't where to start. The first chart with nearly 300 yrs of "history" has one glaring hole in it, only the date from 1979-80
reflects a modern industrial economy. What value is data from the 1700's when there is so little in common with today's world with unlimited entitlements, too big to fail banks,
>$1 QUAD in otc debt-based derivatives which are effectively substituted for money (aka "tulips"), and sovereign debts at historic world record levels?

While 1979-1980 was the first act in playing out the world fiat currency game where most world entities were still solvent. We're now in the 2nd act but this time around very few
are technically solvent.

I've followed Bannister for a few years and he's been pretty accurate. Even though gold is within 3% of it's all time high, I find that most everyone is still bearish on gold going a lot
lower. The HGSI sentiment index is only around 20% (quite bearish) after bouncing off 7% within the past month. Bannister must not be looking too hard for gold bears as 80%
of the gold analysts surveyed by Hulbert are currently bearish.

roadrunner

derryb

I think Act 2 is at a stalemate; waiting to see who flinches first by raises interest rates. Paul Volcker would have solved the problem in 2008 and we just might have been in full recovery by now.

secondrepublic

I am wary of "analyses" with convenient dates like 1969 -- first year of really floating gold prices -- and 1980. The information from the 1700s, even if accurate, has very little bearing on anything.

roadrunner

I don't think interest rates are going anywhere for a few more years. $200 TRILL in otc derivative Interest Rate swaps held by our biggest banks will ensure it. If rates try to rise, then
they'll just pile on some more swaps. The PTB have to shuffle around trillions more in dead assets so that J6P (and not them), gets stuck with them. Once that is accomplished, then they can proceed to allow IR's to start slowly rising. But still too early in this game.

1969 was actually the peak of leg #1 in the gold bull market of 1962-1980. And it wasn't much of a peak. Even though gold was "fixed" in price to most Americans, it was allowed to move in the international markets. That's the reason why the G-7 of that period instituted the London Gold pool from 1962-1968. While the price of silver was rising during this period, gold was effectively held down via the sale of several thousand tons of gold via the G7. After the London Gold Pool tossed in the towel in 1968, the recession from 1969-1970 kept gold on the ropes for another year.

roadrunner

streeter

The problem is that the govt has to get SOMEBODY to buy that paper. Govt is borrowing 40 cents out of every dollar it spends.

If the FED prints the money with QE3....that's how it will be solved( for now). However, if enough pressure is brought to bear, and the FED can't execute QE3 soon enough,,,,then interest rates may have to be raised to bring capital from outside sources. This will probably mean that capital buying the govt junk can't lend into the private sector and will further hurt the needed recovery. Europe is probably going to beat us by raising rates first and that will be a rare occurance coming out of a recession.

Scenario A, FED prints, buys govt junk, devalues dollar, gold climbs.

Scenario B, FED hesitates, interest rates rise, private investors buy Govt junk, further unemployment and less 'recovery'(if there ever really was one). Gold pulls back or WAY back depending on your outlook.

30-50% probability for B. Maybe less---stay tuned if 1) you have gold interests, 2) you have business interests, 3) you plan on borrowing money, 4) You do or don't have a job, 5) you care if we ever get out of this recession, 6) you want to tell your grandkids about how not to solve economic problems.

jmski52

From the charts shown in the article I note the following:

1) The losses in purchasing power during the declines are orders of magnitude smaller than the huge gains in purchasing power during the advances.

2) The current gain in purchasing power during the current timeframe is nowhere near the gains shown for the top 10 timeframes - judging from the numbers in those charts, there may still be a triple, a quadruple or more left in the rise of gold's purchasing power.

Anybody can play with numbers and make it look like it is something that it's not.

Gold could decline in the near term for various reasons - of course, but it doesn't erase the fact that none of those comparisons incorporated the most relevant financial information in centuries - mainly, the overhang in worthless derivatives on the bond market, the unfunded liabilities and budget deficits impacting the largest national debt load in history of any nation on the planet, and the eroding tax base and political impossibilities that arise from promising more and more with less and less.

TheBigB

No offense, but is the author of the article the OP referenced still I school?

It looks like a class project.

If I presented that mess to my professor it would be tossed back for re-work.

cohodk

<< <i>I'm sticking with my earlier belief that PMs are going to get hammered in the short term as QE withdrawal symptoms hit ALL markets. I expect percentage declines between different markets to be similar to the 2008 crash, although housing has probably already taken its greatest hits. I think today's negative action in both equities and PMs may establish the beginning of this downturn. Good upcoming opportunity to play some inverse paper PMs and maybe some VXX, but keep stacking because PM fundamentals continue, even moreso, to point to a beautiful long term outlook. >>




So do you still have AGQ?

edmundfitzgerald

Indicators also showed according to one well respected in his field that Jesus was returning.

derryb

<< <i>So do you still have AGQ? >>



Yes, stop limit in place, hoping to get a few more miles out of it.

goingbroke

<< <i>Indicators also showed according to one well respected in his field that Jesus was returning. >>

COME ON NOW! everyone is entitled to his or her opinion!

secondrepublic

<< <i>So do you still have AGQ? >>



No, but I do have some ZSL.

johnny9434

id rather have the gold rather then worthless paper

Baley

<< <i>id rather have the gold rather then worthless paper >>



did you mean, "I'd rather have gold, thEn worthless paper" meaning you'd have gold first, and next you'd like to have some worthless paper?

Or did you mean, "I'd rather have gold thAn worthless paper", which sounds obvious, since anyone would rather have ANYTHING, than "worthless paper"

It's a good thing that those aren't the only two choices for a person to make, gold vs worthless paper, since there are so many other places to invest money

But back to the OP, which looks to have been a rather good call of the top in metals prices in 2011, and down stepwise since.

Meanwhile, stocks and bonds and real estate have moved higher in stepwise fashion.

Best wishes goingbroke, hope you're doing well

johnny9434

<< <i>

<< <i>id rather have the gold rather then worthless paper >>



did you mean, "I'd rather have gold, thEn worthless paper" meaning you'd have gold first, and next you'd like to have some worthless paper?

Or did you mean, "I'd rather have gold thAn worthless paper", which sounds obvious, since anyone would rather have ANYTHING, than "worthless paper"

It's a good thing that those aren't the only two choices for a person to make, gold vs worthless paper, since there are so many other places to invest money

But back to the OP, which looks to have been a rather good call of the top in metals prices in 2011, and down stepwise since.

Meanwhile, stocks and bonds and real estate have moved higher in stepwise fashion.

Best wishes goingbroke, hope you're doing well >>

keep your valuable paper and bonds. youll need it

roadrunner

<< <i> But back to the OP, which looks to have been a rather good call of the top in metals prices in 2011, and down stepwise since.
Meanwhile, stocks and bonds and real estate have moved higher in stepwise fashion. >>



Not such a great call other than to say gold was riding near its all time highs during the summer lull of 2011 (ie $1520-$1550). Gold would drop to under $1500 a few weeks later
only to put in a rally from $1478 to $1913 during the months of July and August. It took gold 22 months to finally fall below the $1520 of that period. And even today it's at the
summer lows of June 2011 (ie $1470's). In essence the orig prediction missed the $400 rally, the ensuing $400 fall, and was basically flat over nearly 2 yrs. Most gold analysts
were looking for gold to fall back to $1250-$1350 in summer of 2011. I only know of 2 that called for gold to rally that summer (Sinclair and Sprott).

The original reference in the first post of Gold/CPI is a terribly flawed tool as the metrics for CPI have been heavily altered from 1983-2009. Only gold has remained the same. If
one uses the same CPI metrics that were in play in January 1980....the end results would be somewhat different. Even using that flawed metric, rather than the expected 78% drop
in the purchasing power of gold from June 2011, its hardly moved. In the past 22 months gold is down 3%, oil down 5%, Dow up 25%, USDX up 9%, and CPI up 3%. The ratio of
gold to CPI has decreased 6.6%.....71.4% to go. When the article was written, there was hardly a person out there who didn't think gold was done for a while at around $1500.
After all, silver blew itself out 2 months earlier in April. But yes, in 3 months from that article, gold did top. And most people knew that was a major-league topping without having
to reference the gold/CPI ratio which only grew another 26% taller by early Sept. 2011.

cohodk

And most people knew that was a major-league topping

Except for 82% of this forum. Sorry couldnt resist. Poll

derryb

<< <i>And most people knew that was a major-league topping

Except for 82% of this forum. Sorry couldnt resist. Poll >>


I believe the poll shows 82% of the respondents believe metal prices are manipulated - even when they were above $40.

cohodk

<< <i>

<< <i>And most people knew that was a major-league topping

Except for 82% of this forum. Sorry couldnt resist. Poll >>


I believe the poll shows 82% of the respondents believe metal prices are manipulated - even when they were above $40. >>



We do people participate in a market that they believe to be rigged?

derryb

<< <i>We do people participate in a market that they believe to be rigged? >>


I can only speak for myself:
(1) I know how to profit, using paper trades, from the volatility created by the manipulation.
(2) I continue to stack physical because I believe wholeheartedly that metal will trump paper just as i believe the market will resume control of interest rates.

The manipulation of metal prices only prolongs the ability to get them on the cheap. Those that can't go the distance do not belong in metals. They will fall out every time someone shakes the tree.

Just out of curiosity, what markets do you participate in that you believe not to be rigged? I dare you to say equities, bonds or currencies.

Face it, they're all rigged these days. Like many here, I choose the one where I see the most potential - one that appears to currently have the most restraint on true price discovery.

Baley

Maybe we need working definitions of "rigged", "manipulated", "crooked", "fixed", etc, because it seems like if by someone's definition, Everything IS, then the definition is too broad to have much value.

"Yeah, this Life on Earth thing, it's totally rigged. What a scam! If something is not right in my hands and in front of my face, I do not believe it. Trust no one!"
OK, what choices does that leave you?

Oh yes, collecting shiny rocks. "stackin" them. Most of us on here like to do that a few minutes a day, or maybe a couple times a week. All Day Every Day? No thanks!

VanHalen

<< <i>Maybe we need working definitions of "rigged", "manipulated", "crooked", "fixed", etc, because it seems like if by someone's definition, Everything IS, then the definition is too broad to have much value.

"Yeah, this Life on Earth thing, it's totally rigged. What a scam! If something is not right in my hands and in front of my face, I do not believe it. Trust no one!"
OK, what choices does that leave you?

Oh yes, collecting shiny rocks. "stackin" them. Most of us on here like to do that a few minutes a day, or maybe a couple times a week. All Day Every Day? No thanks! >>



God owns it all anyway. Greed is one of the 7 Deadly Sins. Be prepared but don't be scared.

"We are quite literally, space dust."

Baley

Wonder if now is a good time for someone to post one of those clever charts that shows the price of gold graphed along with the graph of the national debt or the money supply, because for a while, until the gold peak in 2011, they were the same shape, and one could play with the ranges of the axes in order to "prove" the relationship.

Well, the relationship no longer holds, and gold's "purchasing power" has declined rather steadily since that peak in late 2011. An accurately drawn chart will show that, but of course, an accurately produced chart no longer helps sell gold to the customers, so no one is producing those any more, are they?

jmski52

There's a cyclical nature in gold pricing? I'm Shocked. Shocked, I tell you!

roadrunner

<< <i>Wonder if now is a good time for someone to post one of those clever charts that shows the price of gold graphed along with the graph of the national debt or the money supply, because for a while, until the gold peak in 2011, they were the same shape, and one could play with the ranges of the axes in order to "prove" the relationship.

Well, the relationship no longer holds, and gold's "purchasing power" has declined rather steadily since that peak in late 2011. An accurately drawn chart will show that, but of course, an accurately produced chart no longer helps sell gold to the customers, so no one is producing those any more, are they? >>



I wouldn't call gold vs. US debt a "clever" chart. It's one of the driver's of the gold price. But, during a cyclical bear market correction it loses relevance. Don't worry though, gold will catch up with the debt/money supply charts on the next major up leg. It's a proven relationship. What, if any relationships work 100% of the time in financial markets? Gold vs. debt worked well for 10-12 years. And not worked well at all for 2 years. You'll find the same discontinuities in gold vs debt/money supply in 1969-1970 and 1975-1976. It didn't mean the relationships were no longer meaningful. The last time before 2012 that they lost meaning was in 2008. Nothing is 100%. Speaking of meaningful relationships, how about the 13 year expanding megaphone/wedge in the Dow and S&P from 1996-2013. It puts the "tiny" 7 year megaphone from 1966-1973 to shame. I'm linking it below because it is
a clever chart too.

1966-1973 without QE to infinity

Baley

I wouldn't call gold vs. US debt a "clever" chart. It's one of the driver's of the gold price.

Oh, I would, when the x axis goes from 2000 to 2011, and the chart appears on a web page that also advertises gold for sale, and implies that gold going up is "inevitable"

But you're right that the chart drove the gold price, because newbies saw the and bought gold, causing it to rise. Now though?
An accurate chart, for example from 1973 to present, or 2005 to present, is not a convincing advertisement for gold, imo.

cohodk

The author's prediction was pretty good. In Sept 2011 an ounce of gold could buy 1.58 shares of the SP-500. Today an ounce of gold can buy 0.69 shares of the SP-500. Thats a drop of 56% of purchasing power.