Nearly everyone agrees that we are facing massive inflation down the road. If that were the case - gold would likely skyrocket alongside inflation. What has prevented buyers of gold running up the price today with the “almost certain” rampant inflation that is expected? If it were to happen, would series of events or factors would have to occur to make gold begin to jump? I work with a former trader from the CME who traded gold for many years claim that he expects gold to hit 5/10K an ounce. Everybody agrees that it is likely or at least possible, so why hasn’t it happened yet with all of the factors facing us - or is it just delayed while the slowdown is offsetting inflationary pressures?
i am not yet buying gold as i do not want to play the game of musical chairs. what is gold’s intrinsic value if i may ask and what paramters are used in this calculation? expecting that someone is giong to take it off my hands at 5k shouldn’t figure into the equation i don’t think.
It won’t happen because every tom dick and harry will bring their household gold into the gold dealer. More gold is currently being consumed (and has been consumed in the past) as jewelry than as a pseudo monetary mechanism. Only 20% of the current gold demand is from hoarders. This is a mountain of supply if the prices get up there. Already it’s happening a little bit.
the statement “almost certain” is exactly why I’m extremely comfortable taking the opposite side of the trade. its is distant from certain… i’d say its 50/50. if you drive off a cliff, it doesn’t matter how much water you pour into an ocean you won’t be able to make the fall any better before you reach bottom. $30 trillion destroyed. $9 trillion promised. doesn’t equate. markets have momentum and demostrate inertia just like science and it would likely take $60 trillion in stimulus to STOP that momentum and turn it around. this is especially true of the whole world is in the exact same mess as you cannot lean on anyone. eventually policy makers will understand that it would be much more damaging to crucify the fiat money system than it would be to live in a depression for 3 years.
matt, what da hell are you talking about? is gold going up or down and why?
“nearly everybody agrees”. ROFL, who is “nearly everybody”? You mean, nearly every gold bug agrees we will face inflation because they can’t see the whole picture? There have been a half dozen times in the last 80 years the Fed has expanded the monetary base to counter credit crunches or other economic issues and then contracted it once the situation has resolved itself. What makes you think that this will be any different? I don’t buy into the monetization argument, “printing”, or any other such stupidity. Why? Because it assumes a static situation whereby the Fed cannot reverse the situation once it can. Nor does it assume monetary destruction through asset reduction, nor does the assumption of inflation assume price decreases due to simple contraction of demand for the goods, services, and labor, none of which are directly tied to actual money supply as much as good/service/labor demand. It doesn’t account for price declines in derivative goods such as food (ethanol bust), oil (oil bubble bust), or raw materials (copper, silver…etc). The correlation between gold and inflation is crap. The correlation between gold and economic/credit crisis is FAR higher. Gold is a “safe” bet, not an inflation play. It’s only seen as an inflation play by people who ignore reality and get tied to some image of monetary stability. Those same people have been parroting the same argument for more than 70 years. Hell, Warren Buffet’s dad and uncle parroted the same stuff. When it comes down to it, the whole reason behind the Fed is to be able to dynamically adjust to economic and systematic turmoil by adjusting the monetary base, ensuring liquidity in the most difficult periods while contracting liquidity when it isn’t needed. They CAN and WILL dynamically adjust the monetary base to adjust for this situation. Gold, right now, is stupidly high, just as it was in the early 80s (when it was 850, lol).
Well…we’ve become a finance based economy. When the fed contracts the money supply we die.
gold is going down. deflation = gold drops by at least 50% just like all other metals have. it has no use. it is not a safe haven in deflation as it will track other depressed prices. only reason why gold worked in the 30s is because the govt paid you almost double its market value to redeem it; we don’t have that today and we won’t have that today. if you believe that you should buy gold because of inflation, you might as well buy the S&P or a house because they will track inflation as well and both are depressed whereas gold trades at a premium already. the other bonus, if you beleive in inflation and you own a house, at least you have shelter… good luck living in 5 bars of gold.
the only argument i can come up with for Gold is that they will be a transition vehicle into other currencies.
interesting thread. My biggest position right now is short gold, as it seems expensive, and way too many people are ‘hiding’ in GLD who have no business trading gold as they dont understand it, but will learn the hard way if their ‘safe haven’ drops 10, 20%. There are 2 sides to the inflation argument, and I unashamedly am on the fence. At the moment this ‘printing’ is not causing inflation as its of smaller size than asset and wealth destruction. As spierce correctly points out, it is the job of the fed to be able to contract as required when things loosen up. Here is the problem, historically, central banks have not been very counter cyclical in this regard, mostly due to political and public pressure not to suppress the good times, so have not contracted supply. Inflation lags behind but once it appears and expectations rise, it is tough to suppress. Way tougher, i would argue, than inflation. I am certainly in the camp that says investing in a US long bond right now until maturity would be a disastrous investment. So short term people’s views on gold are way overdone, and I expect a sharp reversal lower. But given the likely future path of the USD in the next 3,4 years (down, although I have no conviction where we will be in 6-12 months), its tough to make a case for USD denominated gold going lower long term. Maybe short gold denominated in some other currency will be the trade at that point
FrankArabia Wrote: ------------------------------------------------------- > the only argument i can come up with for Gold is > that they will be a transition vehicle into other > currencies. that said, you will still stand to lose/win based on market timing of your buy and sell. if you hold until that new currency is in place and it is stable, gold will drop to rock-bottom levels again from a purchasing power perspective. supply is outrunning population growth, so ultimately that means if the price is going to stay elevated over the VERY long-run people will have to hold more and more gold, this goes for jewellery and investment holdings. gold involves more speculation than any investment in the universe because you can’t use it for anything productive, except as a pass-through during fiat money transition periods. IF you were smart enough to load up on gold and sell your gold when all currencies of the world implode (not just inflation, but the failure of the fiat monetary system), then buy productive hard assets with the proceeds, then yes, your wealth could be increased in that scenario alone. i’d say the risk of depression is higher than the risk of fiat money implosion, thus why I wouldn’t hold gold. we’ve already talked of this before… buy a gun and steal all the gold and resources you need if the fiat money system falls apart because that scenario would not be orderly.
It may be that gold’s price in dollars may not rise substantially, but I suspect the amount of other goods that gold purchases over time will increase. My position on gold is that people who want to get away from US Treasuries but don’t want to take on credit risk or equity risk don’t have that many options. It’s either that or some kind of basket of currencies.
Why not consumer staples as an alternative? People have got to eat. Consumer staple companies like walmart and P&G feed america (and many other parts of the world). At the same time, their debt is fair/manageable enough so that they’ll benefit from inflation. I read that Walmart was the most successful company in the dow over the last decade or so.
Chicagofx, How did you calculate the intrinsic value of Gold to determine that its cheap? the points you made are well taken, but i can’t see how you can use them to calculate the intrinsic value of gold. please elaborate.
FrankArabia Wrote: ------------------------------------------------------- > Chicagofx, > > How did you calculate the intrinsic value of Gold > to determine that its cheap? > > the points you made are well taken, but i can’t > see how you can use them to calculate the > intrinsic value of gold. > > please elaborate. there is no intrinsic value of gold… its intrinsic value is only as much as someone who NEEDs it in a useful purpose (product, etc) is willing to pay. if that were the case, i’d guess around $20/oz. Gold plated electronics plugs and as flakes in goldschlager… thats all I can think of. it is less useful as copper which sells for more than 1000x less than gold. its only use is as a currency and it only has real value when it is the ONLY currency.
How about the intrinsic value of the dollar then? Backed by the faith of the most debt laden country in the world. I view gold/silver/platinum as an substitution to currency. We had FDR jacked w/ dollar-gold relationship in the 30s, Nixon jacked w/ dollar-gold relationship in the 70s, and I wouldn’t be surprised if some brilliant US president (perhaps Obama or his successor) lead the world back into the gold standard (almost time for the 40 yr cycle). By then, when they tabulate the amount of fiat in circulation they’ll realize the new standard will be $5000 per oz. Just my super paranoid rant (I keep like 20% of my cash allocation in gold, which is like less than 5% of total asset allocation)
kevin0118 Wrote: ------------------------------------------------------- > How about the intrinsic value of the dollar then? > Backed by the faith of the most debt laden country > in the world. > > I view gold/silver/platinum as an substitution to > currency. We had FDR jacked w/ dollar-gold > relationship in the 30s, Nixon jacked w/ > dollar-gold relationship in the 70s, and I > wouldn’t be surprised if some brilliant US > president (perhaps Obama or his successor) lead > the world back into the gold standard (almost time > for the 40 yr cycle). By then, when they tabulate > the amount of fiat in circulation they’ll realize > the new standard will be $5000 per oz. > > Just my super paranoid rant (I keep like 20% of my > cash allocation in gold, which is like less than > 5% of total asset allocation) You act like we didn’t buy anything with the debt. Considering we have the biggest economy in the world, the biggest infrastructure and educational system in the world, the biggest/best military in the world, the biggest natural resource pile in the world (ex oil), and the biggest amount of intellectual capital in the world, it evens out a bit. For example, there’s no other country in the world that has ONE supercarrier, let alone 10+. When the crap hits the fan, you can be the country that has vaults of gold. I’ll be the country that has 10 supercarriers. I’ll guarantee you that your gold will be worthless. Gold is a shiny rock that is inert and useless, bullets, guns, tanks, aircraft, rule the world.
agreed. if gold does become the standard again, the us will just make up a reason to invade south africa (peacekeeping, finally end the racial dispute, etc) and capture 93% of the world’s platinum reserves and 40% of the world’s gold reserves. gold doesn’t matter if you can’t protect it.
“How about the intrinsic value of the dollar then? Backed by the faith of the most debt laden country in the world.” why compare it to something that ALSO has no intrinsic value. I’m not saying I love dollars. I dislike both equally. how about buy something now that will have tangible value if currency does collapse. gold bugs are just psycho doomsdaysayers without the balls to go and get a gun and load up on supplies and are thus useless as the real doomsdayers with the rifles will steal your gold while you protect it with a steak knife. don’t expect the police force to protect you. expect them to protect themselves.
A dollar allows you to purchase 1/M3 of the assets and output of the world’s largest economy. If you don’t have a dollar, you need to get one. So the intrinsic value of a dollar is at minimum equal to the assets plus one year’s output of the US economy.