Inflation, deflation, gold and currencies

[richard5za]

You know the world is watching you buy gold and laughing right?

I don't think that anyone who is serious about money laughs at someome who buys gold, or any other fiat currency or inflation hedge, for that matter. The question serious people ask is "whats your thinking?" and then there is a process of evaluation and a decision to agree or not, or perhaps to take a hedged position.

The first question involves the inflationery / deflationery probability forecast, and to what extent. John holds strong views on a substantial deflationery outcome which will be bad for gold. He may be right. Vince holds strong hyperinflationery views which will be good for gold. He may be right. Lets see what happens.

I haven't come to a firm conclusion at all; its a very complicated subject, and I prefer to evaluate the markets on a frequent basis, with what in effect is a hedged position. I have done very well out of gold and gold miners, on a small proportion of my total assets. I think that the gold upward trend will continue for some while, at least, albeit that from time to time it will consolidate with ups and downs.

One of the basic rules of investing is to have stop losses in place and to review and revise these on a regular basis. I enjoy technical analysis and on all my investments I choose a 'support level' and if the price breaks down below the price I have nominated, a computer sell order is immediately generated. It works very well in normal circumstances, but of course in the event of a global panic it might not work. Thats a risk one builds into your investment strategy.

On the matter of theft, especially with respect to gold bullion owners: There are safe places to keep your gold. If there are going to be home breakins its more likely for food. In the early 20's during the time of hyperinflation in Germany, farmers food stocks were targetted and pillaged by town dwellers.
Regards,
Richard

[richard5za]

I have been meaning to post this chart for some while: It shows silver stocks at tne Comex warehouse which have dropped substantially in recent years, with a massive drop since the beginning of this year, as this chart shows. Interpretation is not easy: Firstly over the years there has been little correlation between Comex warehouse stocks and the silver price, but are things changing? Are various persons seeking to 'corner' the market? Or could this be a scam in the brewing?
Does anyone know whats going on?
Richard

[RDRUNR]

PS. Here is a nice warming thought for those holding gold coins/bars... Have you told others you have gold in your home? do you trust your neighbours? If the SHTF for real, don't assume for 1 minute a horde of straving, poor, nothing to lose people won't be coming for your gold.

Most of the people smart enough to figure out that the currency is going to fail and they need food and gold/silver also figured out they need weapons. Many even have bullet proof vests etc. Not all the gold guys will make it through the coming mess, but their chances are better than the starving people in the mob.

And THAT'S the country you want to live in eh? That is YOUR vision of the USA of the future?

Best of luck to ya, better arm up now then, build that fortress to hide in and hire some soldiers to protect your gold.

Seems to me what you are saying is being wealthy in prison with armed protection is better than having freedom and being broke.

You know the world is watching you buy gold and laughing right?

..Thats a risk one builds into your investment strategy. ..

On the matter of theft, especially with respect to gold bullion owners: There are safe places to keep your gold. If there are going to be home breakins its more likely for food. In the early 20's during the time of hyperinflation in Germany, farmers food stocks were targetted and pillaged by town dwellers.
Regards,
Richard

Not the world is laughing at an "investment stragegy" but the world is laughing that:

A. American's haven't learned from their housing boom/bust crisis which is the same as the gold boom/bust crisis. (You all bought high and thought it would go up forever).

B. American's are better agaist their own country and dollar, ie, their future! If USA's future is bleak, then gold holders "think" they win.

About the home B&E's, it's all about taking something of value. Gold would have a lot of "value", thus it would be targeted by BIG, well armed and professional gangs. A civilian would have no chance at all. And yes, there indeed are places who will "hide your gold" and give you a piece of paper for it, but if the panic does come gold bugs expect, they will be 1 in 100,000 at the gates holding onto a paper promise.


I'll repost this since it's a undisputable WARNING:

I have an interesting chart too. It's called Gold Bubble.

Wow, look at that, actual history showing gold going up 300% then crashing 300% downwards taking... 31 YEARS TO RECOVER! What an investment.

[vincecate]

And THAT'S the country you want to live in eh? That is YOUR vision of the USA of the future?

First, I don't live in the USA. In 1994 I left the USA, straight out of school, and moved to Anguilla. This is a low tax country with fresh air and nice beaches.

Second, I don't get to pick the future for the USA, I am just predicting it. If I could pick a future it would not be where the government is printing half the money it spends, that never works out well. Never.

A. American's haven't learned from their housing boom/bust crisis which is the same as the gold boom/bust crisis. (You all bought high and thought it would go up forever).

B. American's are better agaist their own country and dollar, ie, their future! If USA's future is bleak, then gold holders "think" they win.

Trillions of dollars have been invested in government debt. This is the real bubble that is now starting to pop in Europe. It will pop in the US when people realize that dollars are going to be worth less because the government can not stop printing them, since half the money it spends is newly made money.

If you think it is your patriotic duty to not buy gold, well, sorry to hear that. Even if you think that, protecting your family should be more important than protecting the US dollar. You have no real chance of saving the dollar, but you do have a real chance of protecting your family.

The inflation tax is the one optional tax. The smart people opt out. This is a tax for people who do not understand what is going on.

http://howfiatdies.blogspot.com/2010/11 ... money.html

About the home B&E's, it's all about taking something of value. Gold would have a lot of "value", thus it would be targeted by BIG, well armed and professional gangs. A civilian would have no chance at all. And yes, there indeed are places who will "hide your gold" and give you a piece of paper for it, but if the panic does come gold bugs expect, they will be 1 in 100,000 at the gates holding onto a paper promise.

You can also hide gold in the ground, in safe deposit boxes, and many other places. Attacking a well defended position is not easy. In truth criminals usually move on to another target. Even Somali pirates with missiles and machine guns will break off an attack at the first bullets going over their heads. Even if the criminals are victorious it does not mean there is any gold or that they will be able to find the gold if there is. So it is not a good risk/reward proposition. Doing some yard work or guard work for the homeowner is probably better.

I'll repost this since it's a undisputable WARNING:

I have an interesting chart too. It's called Gold Bubble.

Wow, look at that, actual history showing gold going up 300% then crashing 300% downwards taking... 31 YEARS TO RECOVER! What an investment.

I dispute this claim. From $35 in 1971 to $850 in 1980 is up much more than 300%. Putting the Fed interest rate at 5% over the inflation rate would mean the government was clearly broke, the interest on the debt would take up all the taxes. So they would clearly have to print like crazy. Along with Volker's interest rate plan, the government sold a bunch of gold back then when gold was really high and that helped to save the dollar. But gold would have to go far higher before the amount of gold the US has could really help support the currency now. There are far more dollars now than in 1980. The budget is far more out of balance now than back in 1980 with no real hope of fixing it. So while courageous and strong action could save the dollar in 1980, it does not seems there is a plausible course of action that could save the dollar today. The only way they could keep from printing money is if they could balance the budget, and that is just not going to happen.

[MnMark]

My guess is that a 17% increase in the US debt limit will result in a 37% increase in the price of gold.

That chart only looks convincing because of the time frame that is selected. Go back further to 1970 and there is a very long time period (1980-1999) where gold dropped in value while the debt limit increased.

[MnMark]

You know the world is watching you buy gold and laughing right?

Someone sounds a little bitter.

I bought into gold in the late 1990's and have added to my position throughout the years since then. Needless to say, I've done very well. And for ten years I have listened to people say that gold was in a bubble and about to burst. Never has. If you look at a chart since the bottom in the early 2000s, it doesn't even look much like a bubble, but rather a more or less steady increase:

http://www.kitco.com/charts/popup/au3650nyb.html

But I have tried to be careful not to fall in love with my investment in gold, and have looked for good arguments to sell it. So far I haven't heard one that outweighed the basic logic of owning it, which is that printing more dollars is the easiest way for the government and central bank to deal with the fiscal problems we're facing.

I am not aware of any country that used fiat currency that had a deflation depression. When you have a currency pegged to another currency or to gold, yes - because you can't print your way out of the deflation. But when you have a fiat currency and your debts are denominated in that currency, it's kind of a no-brainer to print your way out of the problem rather than face the austerity and deflation and depression that will certainly occur (though it would be cleansing and restore balance to the financial system) if you don't print.

Some argue that the powers that be would never inflate away the value of their wealth. That assumes that their wealth is held in dollars, though, and it also ignores that the powers that be are the ones closest to the money-printing spigot. They get to spend the newly-printed money first. The rest of us average joes only see it when it has already depreciated in value.

And in a deflation, those powers that be lose their wealth. The Goldman Sachs and Citigroups and Bank of Americas would have disappeared like Lehman and Bear Stearns and their shareholders and partners would have been ruined. Instead, the Fed (predictably, in my opinion) printed money to buy their bad securities and to lend them an essentially unlimited amount of money to prevent them going under. The Fed will continue to do that for the powers that be until the day when the money it prints has no more value. By then the powers that be will have safely spent their newly-printed rescue dollars, buying the hard assets of Average Joe and leaving Average Joe holding a fistful of worthless paper.

Inflation is how the powers that be quietly rob the savers of the country in order to rescue themselves.

[Higgenbotham]

I'm looking to short silver. Heavily. Haven't done anything yet.

From late April, the CRB is down, oil down, silver down, bonds up. Gold is only up 11% in the face of the USA losing its long held AAA status and bonds haven't blinked.

I'd like to see a relief rally in stocks first and that may help some of these items that have been hit the past 90 days.

But I think Fall could be really ugly for everything, including gold.

[vincecate]

I'm looking to short silver. Heavily. Haven't done anything yet.

From late April, the CRB is down, oil down, silver down, bonds up. Gold is only up 11% in the face of the USA losing its long held AAA status and bonds haven't blinked.

I'd like to see a relief rally in stocks first and that may help some of these items that have been hit the past 90 days.

But I think Fall could be really ugly for everything, including gold.

Why short silver? Why not bonds? You think there is any way they can keep from printing $100 billion per month or more? You think stocks will be going up? Higgie, what happened?

[Higgenbotham]

Why short silver? Why not bonds? You think there is any way they can keep from printing $100 billion per month or more? You think stocks will be going up? Higgie, what happened?

"Relief rally in stocks" just means an upward correction. Stocks have lost 10% from the May high and there will probably be a rebound. Doesn't have to be, but it's likely. I think it's possible to see 1280, 1295-1300, or even as much as 1340 (but 1340 seems very doubtful). The futures are already up to 1254 from today's low of 1230.

From the late April high, the CRB is down 9%, oil down 20%, and silver is still down about 16%. It wouldn't surprise me to see oil rally a bit with stocks.

The economy is very weak, much weaker than anyone thought it would be just 90 days ago. I still see US bonds as a "least worst" alternative that look better in the face of rising European yields as John has been posting in the news items (now Italy has broken the 6% barrier).

Finally, in looking at the silver chart, I see a potential technical setup where there's a place it could be shorted with fairly good risk to reward. It may not get there. If it does get there and continues higher, I should be able to get out with a small loss.

[vincecate]

"Relief rally in stocks" just means an upward correction. Stocks have lost 10% from the May high and there will probably be a rebound. Doesn't have to be, but it's likely.

When even people in this group think stocks can go up it is really time for a crash.

I still see US bonds as a "least worst" alternative that look better in the face of rising European yields as John has been posting in the news items (now Italy has broken the 6% barrier).

If all the paper currencies are being printed at high speed, the least worst is gold and silver.

Finally, in looking at the silver chart, I see a potential technical setup where there's a place it could be shorted with fairly good risk to reward. It may not get there. If it does get there and continues higher, I should be able to get out with a small loss.

Last time it went from $42 to $48 very fast and from $48 to $42 even faster . So to me it seems there is "no resistance" in this range and it could go from $42 to $48 very fast now.