Economic status and Pm prices.
Julio
Posts: 2,501 ✭
Random thoughts:
I'm going to assume that most believe QE is good for PM's. I for one think QE is going to be fazed out, starting this year. Gut tells me this will not be good for PM's.
Assuming our economy keeps improving, and I believe it will, whatever boost PM's have received from the safe haven boost will fade.
SO far inflation has not been a problem, not good for PM's.
Fracking is a definite boon to the economy. Strong economy not good for PM's.
BUT ON THE OTHER HAND. Probably good for PM's.
Japan and others have caught the QE bug.
European economy is not good and not showing much improvement.
Government is dysfunctional.
Inflation could rear it's ugly head.
Which leads me to my conclusion. Too many variables we are either going to h%$l in a hand basket or we will be fine. Take care. jws
I'm going to assume that most believe QE is good for PM's. I for one think QE is going to be fazed out, starting this year. Gut tells me this will not be good for PM's.
Assuming our economy keeps improving, and I believe it will, whatever boost PM's have received from the safe haven boost will fade.
SO far inflation has not been a problem, not good for PM's.
Fracking is a definite boon to the economy. Strong economy not good for PM's.
BUT ON THE OTHER HAND. Probably good for PM's.
Japan and others have caught the QE bug.
European economy is not good and not showing much improvement.
Government is dysfunctional.
Inflation could rear it's ugly head.
Which leads me to my conclusion. Too many variables we are either going to h%$l in a hand basket or we will be fine. Take care. jws
0
Comments
IMO, I also feel QE will start to wind down toward the end of the year. Believe it or not, the economy is improving, lots of money flowing into stocks, commercial real estate, and even the housing market is improving in several areas. We literally eat out daily, and the resturants are back filing up as well as a ton of folks out shopping. I had to go to the mall today to get my wife a pair of shoes for mothers day from the kids, what a mad house with people out shopping. The last two times I have been out in similar events recently, mad house of shoppers and spenders. I think Bernanke and the FR are just wanting to get a few more months of positive trend before they start to real in the QE. If QE ends it will shave off at least another 15% in gold price.
Some of the same old people (not everyone, still some honest to goodness people affected from the 09 downturn) who are complaining about the economy are the same ones who have no intention of getting a job, and are looking for the continued hand outs.
If inflation ticks up on recovery, I don't think its going to be the big problem that some feel it will. I think things will improve so greatly once it really starts to roll, PM bull market will only be a past dream. Of course until the next market turn and cycle years down the road.
Put me in the "not" category. During the past year, the employment-to-population ratio has increased from 58.5% to 58.6%. Big whoop. "lots of money flowing into stocks, commercial real estate, and even the housing market is improving in several areas" - asset bubbles being reinflated courtesy of massive QE, the money has to go somewhere. Retail sales have been falling for two months. Some restaurants and retailers are doing well because there are fewer of them. The recession forced many of their competitors to close. Appearances are deceiving - I think the economy is far from healthy, possibly even on life support.
My Adolph A. Weinman signature
Gold prices are lower on the NYSE, but when you try and buy physical gold it is only a little cheaper than a month ago and it is hard to find.
Gold prices are not only dependent on safe haven status. I am not sure what percentage of the world's gold supply is bought by central banks, investors, manufacturers of electronics and other consumer products and jewelry. As the economy improves, weddings will be more elaborate and gold will be in demand to give as gifts, especially in India and China.
If QE will stop, there is still a danger for inflation to occur even if not immediate. Prices are rising for all kinds of consumer goods and even food. How can there be no inflation happening right now? Grocery bills have really increased during the past few years alone. Those are necessities. The other stuff we can do without.
When gold is down, buy. When gold is up, stay away. Its a simple rule that has not failed in the last few thousand years.
BST: Tennessebanker, Downtown1974, LarkinCollector, nendee
Agreed, good point.
Overdate,
Neat chart.
jdimmick, "until the next market turn & cycle down the road".
Bingo, rinse and repeat.
Are we having fun yet,
I'm going to assume that most believe QE is good for PM's.
QE is good mainly for the banks and crony firms who are first in line. It's worse for the people at the end of the line who work for a living and foot the bills for people who live on the government dole.
I for one think QE is going to be fazed out, starting this year. Gut tells me this will not be good for PM's.
QE being phased out is this week's latest buzz. It could happen, and the problem isn't that QE will be phased out. The problem is that QE exists in the first place. The debt is already out of control, and QE only exascerbates the problem. Nothing is free. Once QE stops, and since there is nowhere else for rates to go, rates will jump, the stock market will choke, and the economy will tailspin.
Assuming our economy keeps improving, and I believe it will, whatever boost PM's have received from the safe haven boost will fade.
An improving economy won't happen when the influx of free money to banks ceases. In order to make their bonuses, banks will be forced to find new ways to skim their cut from the system. That hardly makes for a business-friendly environment. With unemployment routinely understated and with fewer actual consumers, tax revenues will decline, forcing governments to either make significant spending cuts or to lay off government workers. Does anyone really think that will happen in any significant way? I don't.
SO far inflation has not been a problem, not good for PM's.
So far, inflation has been masked by the dollar having world exchange currency status. That status is being undermined. Inflation isn't required in order to justify owning PMs in a major way. Sovereign default is the issue, not inflation - although major devaluation is the end game either way. Money creation is inflation. Price levels are a reflection of inflation, but they are not inflation per se'. Price levels may not increase if money isn't circulating much.
Fracking is a definite boon to the economy. Strong economy not good for PM's.
Easy & cheap energy are always good for the economy. Strong economy is a relative term. The US still has a strong economy, but only by comparison to most other economies. The economy has lost a lot of ground in the past 3 decades, and those good jobs aren't coming back. Energy is the key, though. I agree with that.
BUT ON THE OTHER HAND. Probably good for PM's.
Japan and others have caught the QE bug.
European economy is not good and not showing much improvement.
Government is dysfunctional.
Inflation could rear it's ugly head.
Good for PMs doesn't mean good for people. It means having it a little better than you otherwise might have it, and better than most others.
Which leads me to my conclusion. Too many variables we are either going to h%$l in a hand basket or we will be fine.
There's never a conclusion. Never underestimate the extent to which a corrupt bunch of politicians can mess up everything that they touch. It can go on for a very long time. The longterm trend in gold prices is a reflection of that reality.
I knew it would happen.
PM's are out there and available, you just aren't looking
<< <i>Random thoughts: I'm going to assume that most believe QE is good for PM's. I for one think QE is going to be fazed out, starting this year. Gut tells me this will not be good for PM's. Assuming our economy keeps improving, and I believe it will, whatever boost PM's have received from the safe haven boost will fade. SO far inflation has not been a problem, not good for PM's....... >>
QE is not a requirement for PMs to rally, neither is price inflation. Where was the QE from 2001-2008 as gold quadrupled in price? Monetary inflation is still here with M2 continuing to
rise 8-10% every year. M0 is already up another 15% since October 2012....over $300 BILL. What people can't see are the money flows created by currency swaps, derivatives,
and the shadow banking system in general (SBS). The SBS money supply is nearly the size of the pubished US money aggregate M2. That's an extra USA out there. None of this shows
up in routine govt reports describing monetary changes.
Gold reacted quite negatively to the last QE announcement in 2012. Are we to assume that taking away current QE (which isn't going to PMs anyways....but mostly to stocks)....
is going to knock gold down another $300? Recall that the gold rally kicked off in 2000-2001 as stocks tanked and recessionary effects hit. Gold did just fine during the 2001-2003
recession....gold miners did fabulously well. Declining business conditions tend to be good for PMs. Business conditions were declining from 2007-2008 as gold rallied from $650 to
$1033. For the 3 mini-gold runs of the 2000-2008 period, 2 of them were driven by deflationary/recessionary forces...the other by inflation. Gold has much wider world-wide demand
now. That's far different than it was in the 1970's or even in 2000. It matters a lot what Asia is doing. The US and London markets are not the only input for world gold prices.
Gold depends on these 4 things:
1. real interest rates being negative: check
2. sovereign and state debts increasing: check
3. money supplies (both published and non-reported) increasing significantly: check
4. confidence in the dollar and govt weak or declining: not there yet as the dollar has moved generally upward the past 2 years / sideways consolidation for the past 4 yrs.
Three year cycle bottom is due summer 2014. Note, a rising USDX doesn't mean the dollar's purchasing power is rising, only that it's not falling as fast as its competition.
Because of huge govt currency market interventions, the "safe-haven" play has been in stocks since August/September 2012. Consider gold a "no-haven" at the present.
Those buying physical silver today, at spot +$4 or +$6 are playing long shot odds. They need a 33% bull move just to get to break even if selling back to a dealer. I am not a person that likes to play the long odds, I much prefer to play with house odds.
Another big factor is sentiment. Will futures traders are bearish, the little fish are pouring into the local shops in the U.S. and overseas. During the 12 year bull market, buy the dips was a magic formula and a winning formula. If this turns out to be a major bear market, buy the dips is the road to the poor house. Many buying now have not felt the pain of a major bear market in metals, or forgotten how painful it was last go round. Be careful. We will not know if this is Ursa Major in gold until the history gets written. It would be helpful if some of the perma bulls had actually thrown in the towel, but so far no sign of that on this forum. There was one thread by that title but it was a sarcastic one. Too bad, because those kind of posts would be a glowing neon sign pointing to a market bottom. So watch the forum. It might give the mother of all buy signals, if some of the multi-year perma bulls write about selling for big losses. Can't imagine that? Well, like I said, many have not experienced the pain of a major bear market in metals. A lot of folks throw in the towel at the bottom, that is what makes a major market bottom. What is going on now, might indicate a dip and recovery, but is more likely pointing to more pain to come. Again, impossible to tell until more time passes, but it is not a good sign that people are lined up to buy. It would be much more bullish if every hated it, and gold was again seen as a useless archaic asset that was no longer relevant.
Some point to central bank buying. I have said many times the best time to buy gold was when the Bank of England bungled their major gold sale. The opposite might be true, that the worst time to buy in recent memory was when central banks were loading up.
The QE question has distorted most market. Yes, it has propped up bonds and stocks, and gold. Japan was on the QE bandwagon well before Bernanke. Japan is several years further along the government debt road than the U.S. There are significant differences, but the government debt load has already reached levels that the U.S. will not see for another five to ten years. High government bond yields that may come will mean much more competition for gold. The zero interest rates have made it much easier for people to stay in gold because the alternative is zero return in safe treasuries. If rates go back up to historical averages, it will mean that much more competition for gold.
The bottom line: This is not a time to be aggressively long or short in any of the markets. There is so much smoke from the central bank distortions that it is hard to see clearly. As much as some on this forum pooh-pooh charts, those with skill in this area have a good fallback. Technical indicators and confirmations are is a good thing to look at in this kind of environment. Another point worth making is that if price is unclear look at the time intervals.
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PM's are out there and available, you just aren't looking >>
These must be the same people that can't seem to find a job even though businesses have resorted to putting help wanted signs in their windows.
Just sayin
I've never been able to predict the future but imo all the FED can do is
play a game of hide and seek on QEternity. I just don't see it going away.
Who in gawds green earth is going to want to load up on usguv debt at these
yields? The guv refuses to use austerity, creates unsustainable debt that needs to be sold.
The only replacement creditor for this debt in the not so distant horizon would be mandatory purchases by
US retirement accounts. That will not be pretty.
Agree with this position.
I can't say if this is a good time to buy or a good time to sell but I have survived the 80'a to present by selling to the bull and buying from the bear. The bull thrusts up with his horns and the bear strikes down with its paws. Yeah, who hasn't sold into the bottom or bought from the bull...kind of like the guy that goes to the MD and says "It hurts when I do that." and the MD replies "Don't do that and please pay at the desk." After a while, you learn to not do that.
I do have to admit that some of the stock pickers in the little contest amaze me...How do you do that?
If you have too much money, why not park it in some RE or some metal? Maybe finish up that walker raw AU book or get to working on a nice merc Dansco...quick, while nobody's looking and before it all gets melted. Why not buy some stocks? Can't say there is much to be gained by keeping it in the banks and besides, the banks get their money for almost nothing, why to they need yours?
If it were accomplishing its goals it would have already ended.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
A good point. What we don't know is how much of that CB gold buying is the same gold sold by other CB's? I think it's a very considerable amount.
Why does Germany want their gold back from the US, London, and French vaults? Why does anybody want their gold back at the present? Must be a good reason.
China's CB buying is larger than all the other guys combined. And they haven't reported what they're buying since 2009. As long as China can swap paper reserves for physical
metal, they will continue aiming towards their 5,000-8,000 tonnes target. As long as they don't change this course, and I'm not sure why they would if competing as an alternative
world reserve currency is their goal, then things stay the same. Whether China is in recesssion, depression, or booming, I think they can afford the $25 BILL per year to stash away
another 500 tonnes. If China could buy 500 tonnes a gold in one whack, I'd think they'd be happy to pay $1600-$2,000/oz for it. Thing is, no one is offering tonnage of that size or
even close to it at $1500/oz. The sovereign gold market is not the same as the one seen at your local coin shop. Gold is hard to come by when your name is China and you want to
take delivery in 20-100 tonne tranches. They can't drive down to Ye Olde Coin Shoppe and stack AGE's or Pandas. To make matters worse, these current lower gold prices are
reducing the the amount of recycled gold coming on to the market. It's also reducing the amount of gold miners are bringing to the market as unprofitable projects are tabled. I'm sure
we'd all love to know where those 300+ tonnes leaving the GLD inventory went to over the past 8 months. That's really the only sizeable source of gold that was available and not
spoken for. Economies in distress tend to be good for gold. Not seeing any change in that from the non-Asian continents. Booming economies tend to be bad for gold and the periods
it tends to go to sleep for a couple of decades.
ZIRPs are here to stay until the current system blows up or is totally revamped. The big banks carrying $900 TRILL in world-wide otc interest rate contracts that are linked to sovereign
bonds ensures this will be the case. Rates don't move anywhere of significance until this road block is removed.
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<< <i>
PM's are out there and available, you just aren't looking >>
These must be the same people that can't seem to find a job even though businesses have resorted to putting help wanted signs in their windows.
Just sayin >>
Most folks don't want to take that job, or buy that gold. They want what they want, when and where they want it.
All markets are driven, primarily, by emotion, it seems.
good posts all!
Liberty: Parent of Science & Industry
Is present monetary policy rational?
<< <i>Why does Germany want their gold back from the US, London, and French vaults? Why does anybody want their gold back at the present? Must be a good reason. >>
simple - increased counterparty risk. This increased risk is a direct result of growing concern that monetary policy is not going to accomplish its goals and that the result will be worldwide currency debasement. Insurance from declining currencies has gone global, and the best insurance policy is not dependent on promises.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I suspect that the gold market is the same, in that government transactions in the 20-100 tonne tranches are a different animal than one guy plunking down his money for a roll of Kruggerands. I would venture to say that governments negotiate gold transactions in ounces instead of currencies.
I do think that the paper markets change the convexity of the currency/gold conversion curve for individuals, and governments by virtue of their much larger scale - are exempt from those types of variables. Individuals are generally hampered by convertibility issues (and premiums) whenever they buy or sell. Not so for governments. Gold still functions as a currency of last resort at the national level.
I was intrigued by the Precious Metals Forum link about the British merchant vessel (sunk by a German U-boat) that had carried $50 million of Russian platinum in payment to the US for war debts during WWII.
Until the Vietnam War, that's how wars were financed - direct payments in traded goods. I believe that both FDR and Nixon dealt with an outflow of US gold by slamming shut the gold export window, because both FDR and Nixon knew that national security might someday depend on the ability to finance a war without having the ability to devalue the currency beyond infinity.
Bottom line, you can finance all sorts of things internally with currency manipulation, but when the issues start to spill over across borders there are only two things that can be negotiated - who has the best weaponry and who has the gold.
I knew it would happen.
<< <i>I was watching a video of Kyle Bass in a recent discussion at a seminar. One of the questions was whether an individual investor could take advantage of the Japanese Bond market in the way that Bass's hedge fund was doing, and he responded that unfortunately, an individual can't take advantage of the "convexity" of the yield curve in the way that his hedge fund could, due to his scale of operations.
I suspect that the gold market is the same, in that government transactions in the 20-100 tonne tranches are a different animal than one guy plunking down his money for a roll of Kruggerands. I would venture to say that governments negotiate gold transactions in ounces instead of currencies.
I do think that the paper markets change the convexity of the currency/gold conversion curve for individuals, and governments by virtue of their much larger scale - are exempt from those types of variables. Individuals are generally hampered by convertibility issues (and premiums) whenever they buy or sell. Not so for governments. Gold still functions as a currency of last resort at the national level.
I was intrigued by the Precious Metals Forum link about the British merchant vessel (sunk by a German U-boat) that had carried $50 million of Russian platinum in payment to the US for war debts during WWII.
Until the Vietnam War, that's how wars were financed - direct payments in traded goods. I believe that both FDR and Nixon dealt with an outflow of US gold by slamming shut the gold export window, because both FDR and Nixon knew that national security might someday depend on the ability to finance a war without having the ability to devalue the currency beyond infinity.
Bottom line, you can finance all sorts of things internally with currency manipulation, but when the issues start to spill over across borders there are only two things that can be negotiated - who has the best weaponry and who has the gold. >>
That was a hellova good post and
Liberty: Parent of Science & Industry
<< <i>Bottom line, you can finance all sorts of things internally with currency manipulation, but when the issues start to spill over across borders there are only two things that can be negotiated - who has the best weaponry and who has the gold. >>
the ultimate "money?"
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
It's just not time yet.
<< <i>It's just not time yet. >>
I feel the same. Equity markets hitting all-time highs have many people dancing in the streets. Underlining issues remain very similar to 5 years ago.........