Someone explain to me this gold rush

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chris_m's picture
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Someone explain to me this gold rush

I think deflation is coming in a big way.  Unemployment, wage concessions, falling house prices, higher taxes, debt defaults,crazy credit card debt, the fear of future higher interest rates (linked to inflation I know), all this will keep peoples $$$$ at home.

I see the other side with a)printing money & b) the possible devaluation of the USD but....

1.  With everything above going on people feel poorer (& they are!)  The govt wants to fight deflation at all cost (by printing $$) but I just don't think it's avoidable.  A deflationary depression is what everyone should be afraid of / talking about not...inflation.

2.  Ultimately the rest of the world (except maybe India & China) are worse off than the US.  Given the obvious political variables in those countries people are fleeing en mass to the USD which is & will keep it strong for sometime to come.

3.  I'm not sure the IMF & other countries selling gold to a: 'keep the price down' or b: manipulate the price is the right answer.  The bottom line is that they need $$$ for stimulus not gold sitting in a vault.

4.  All this stimulus cannot compete vs. all the massive default & writedowns about to happen (especially in commercial realestate)  = less money out there both personal & business = deflation

Am I the only one here?...maybe...but I'm not buying PM's anytime soon.

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Re: Someone explain to me this gold rush -- I'll tell you

Chris,

What would prevent the Fed-government axis from giving every person in the country a check for $1000?

How about $10,000?

$100,000?

The answer is "nothing."  It is purely a political question.  And there is some amount of money that will cause deflation to stop in its tracks and reverse course.

Once I realized this, the "deflation or inflation" question became much simpler in my mind.  What do you think the politicians will do?  Answer that question and then you will know what to do.  The rest is just details.

- LYS

strabes's picture
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Re: Someone explain to me this gold rush

What keeps them from giving everybody a $100k check is that politicians aren't in control of our money supply right now.  

It's fascinating how everybody who thinks the slightest quant easing from the Fed means "we're heading into Weimar!!"  Do folks think the Fed doesn't understand that same issue?  Weimar simply can't happen given 1) the credit/derivatives bubble hasn't even started its biggest crash, i.e. the total value of money out there has a loooooong way down to go, 2) the Fed is a private banking cartel whose balance sheets are based on Treasuries. They would never do what politicians might do and create Weimar, thereby destroying their own existence.  Until the current framework of the Fed and Treasury working together to generate and mulptiply debt (our current version of money), hyperinflation won't happen.  In addition to #1 and #2, #3 is that Volcker is in charge now behind the scenes...hyperinflation won't happen on his watch.  

Chris, you're right.  Deflationary pressures remain dominant at this point.  There will be a chance to buy PMs at a lower price in the future. 

Montana Native's picture
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Re: Someone explain to me this gold rush

Why gold. The government and the banks are in debt up their eyeballs. Do you think the fed and our Government wants deflation? Bernanke says he'll throw money from helicopters if need be. Watch the crash course inflation portion and see what countries do to their currencies after racking up huge debt. Why would this time be different? In inflationary times gold performs well and it is currently in a secular bull market that could last another decade. It's not meant to make you rich, only to hold wealth, so look at a chart of the dollar value superimposed over gold for say the last 5 years and ask what is likely to happen the next 5. Gold at $500 and the dollar back over 100 not likely, unless you believe in miracles.

Look at how the the cpi has been altered over the years. Watch prices at the gas pump and in the grocery store. Just because Ford F-350's, 50 inch flat screens and bubble housing is getting cheaper doesn't mean inflation isn't present. Buy some bell peppers for fajitas, ouch! Think about the goods you truly need and where the prices are headed. The products that are deflated right now are the things Americans are beginning to figure out they really cant afford. The hockey stick production of money means one thing, inflation (not necessarily hyper, probably the stag variety) is coming. Do you have gold? Oil will be worth a fortune too, but of course a lot harder to store.

I hope this appears as cogent to you as it does to me, if not let me hear your thoughts. I truly am interested.

TJ

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You're ALL correct

To me this isn't about whether, it's about when.

Those who say that for myriad reasons, deflation is now and will continue for some time to be the prevailing force are dead nuts right. I see no room for debate on this.

Those who point out that all this reckless monetary policy just has to lead to massive inflation evenutally are equally correct. It just has to go that way in the long run.

The question of how long deflationary pressure will prevail before inflation takes over is essentially a market timing question, and it depends on both unpredictable public policy and unpredictable market dynamics.

The best you can do is to base your bets on the knowledge of the big picture (first deflation, then inflation), and try to structure your affairs to be timing-neutral. Some inflationists are saying this will turn around to massive inflation within a few months. Some deflationists argue that deflation will prevail for years. I have no clue who's right, and I don't think anyone really does.

I do agree with strabes that there will almost certainly be an opportunity to buy PMs at lower-than-current-market prices. But when this thing eventually turns, it will happen fast and those who wait for a clear sign of reversal will miss most of the upside. The best strategy is to assume that that PM purchases will suffer at least a 20% price decrease. On the other hand, I think it's a pretty darned safe bet that PMs bought now will eventually be marketable for prices much higher than the current market. The best you can do is average in cautiously and make darned sure you are ready to suffer some serious short-term downside before making the decision to invest.

Whether the dollars you get for your PMs "eventually" will still be worth anything is another story.

Erik

 

switters's picture
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Re: Someone explain to me this gold rush

I agree with Erik.

Also, the idea that gold won't perform well during deflation isn't necessarily true.  Mish (Mike Shedlock) is a hard-core deflationist, and he has said several times over the past few months that he is long on gold.  He's not long on gold because he believes inflation is around the corner.  He's long on gold because he thinks gold will do well during deflation.

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Re: Someone explain to me this gold rush

I do have a 'theoretical' issue with why gold has value at all but I'll leave that for a later I think. 

Other that Barack mailing me a $10k cheque or Ben throwing money (or peppers) from helicopters I think some of the 'flight to gold' thinking comes from previous examples of emergent economies in turmoil which we have seen but our life lessons with 'deflation' are rare.  I think there's yet significant downside in the price of gold <$600 while the risk of upside is miniscule so you may be throwing money down a rathole.  I'm not talking about trying to 'time the markets' but I would ask people that if so many indications were present that a stock price of a company were destined to fall....would you still buy?  I do think there is significant barriers to gold above $1000 an ounce but as I've said above I'll leave it for another post.

 Erik,  I always find your posts interesting, rational and well thought out.  I do agree there will be some inflation in the future but I think it will be almost 'insignificant' after deflation does it's damage to the shiny metal.  So I guess my 'deviation' from others is the degree of inflation that will result.  For me anyway, 'insignificant' vice 'massive'. 

I guess where I see the big difference is that in this case we're not talking Argentina or Zimbabwe but we're talking about the worlds largest economy & the world's reserve currency (for now anyway).  All this massive debt (money) is being issued in our own currency in an attempt to offset the massivly hugely gianormous debt defaults that are about to occur to re-capitalize banks.  It's not a USA can do / resolve anything issue but remember this is global & many countries are way worse off so maybe not from our point of view but the USD is considered 'safe' (sort of) .  I'm curious if any have looked at it from this point of view.

Leading into my 'future' post...I think to effect real change in economies & monetary systems around the world there will need to be a shift away from fiat & gold based systems.  Gold only has real value because someone ( a loooong time ago said that it does - other than in electronics I guess).   As alluded to in the Crash course the future will be all about energy & maybe we need to work to the value of currency being tied to the amount of energy it will have a claim to. (human labour)  This would be too big of a shift to happen unless Mad Max came along (which I don't advocate or believe in) unfortunately ,,,,,but I think that as long as we go along the same path of fiat or gold based currency the cycle of boom & bust will continue.

Switters...why gold during deflation?

 

Montana Native's picture
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Re: Someone explain to me this gold rush

Chris,

I do agree that gold has the potential for a down side in the near term. The volatility of the markets and the world could shift at any minute.I look at my holdings as fire insurance, only worth a damn if the house burns down.. As far as why gold is valued so highly over time and eternity? There are reasons I understand and reasons that are unknown. The historical repetition of fiats being trounced and gold shining through is enough for me to not ask too many questions. I guess I have faith, something I renounce in almost every other aspect of life.

I'm no proponent of a gold standard or anything like that but I see world economies debasing their currencies in a race to the bottom. Even countries that have a strong currency will be tempted to stay competitive. I suppose you could find a rather obscure currency like the Swedish Krona and dive into it, but for the average Joe some gold stocks and coins are a little more realistic. I cant put a finger on why gold, but it has always been that way and I see no exception this time.

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Re: Someone explain to me this gold rush

Interesting article from Jon Nadler @ Kitco re: gold, deflation, etc.:

 http://www.kitco.com/ind/nadler/apr062009B.html

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Re: Someone explain to me this gold rush

In the long run everything has to deflate, it is the law of nature.  Right now the Fed, and the world are trying to fight inflation by printing large sums of money.  But as I recall when it is man v. nature, nature always wins.  Japan has been increasing its money supply by 30% every year for the last 7 years to no avail.  Prices are still falling, and all that money is sitting in the bank just waiting for somebody to lend to.  Trouble is nobody wants to borrow money to buy something that will be cheaper tomorrow.  The same thing is happening here, the money will just sit in the banks until there is somebody to lend to.  Guess what, there is nobody to lend to.  People are making less money in the U.S., and they have huge liabilities to pay, so there is no room to take on new liabilities.  The only people who can take on new liabilities are people like me about to leave school, but people leaving school cannot find jobs right now, and still do not make enough to buy a house.  I live in Santa Clara California and I live in a 2 bedroom one bathroom house and the rent is $2100 a month.  The house next door to me which is similar just sold for $900,000.  How can somebody just out of school or under the age of 30 afford to buy a house?  The answer is that they can't.

  The only way for inflation to occur is for the money to end up in people's hands.  This can only happen if wages rise, or if the government hands us checks or dumps money from helicopters.  The question then becomes what does the bank do with all the money they have been handed, and the answer is probally to buy other countries debt, gold, or other safe investments.  Japan did this with thier newly created money starting in 2002, they bought U.S treasuries and look what happened, a huge housing bubble was born in the U.S. not Japan.  Japan has already proved that monetism aka the printing of money does not work. 

However gold does well in deflation as well (see: Depression, Great) Gold rose 70% during the great depression, aka an era of deflation.  Remeber all of these banks hold large sums of money, and so does the Fed, so it is in their best interest for gold to go up in value eventually.  I would not be suprised to see the dollar revalued to gold as it was during the great depression.

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Re: Someone explain to me this gold rush

I just dont get deflation.  Food prices are expected to rise 4-5% this year.  Energy prices are low, due to soft demand, but demand is only down 1.5% off recent highs, people are still hooked on e cheap energy crack.  That and if you believe we have peaked in oil production guarantees inflation in two important commodities.  Food, energy, inflate. But because governments are busy printing money (worthless) to replace the lost value of their bankers' bad bets in malinvestments, that's going to cause massive deflation because noone can continue to malinvest? 

All I forsee is too much paper chasing too few necessities.

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Re: Someone explain to me this gold rush

Has any economy collapsed due to deflation?

Steve in Ohio's picture
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Re: Someone explain to me this gold rush

MCFLYFYTER, excellent and key point.

Jim Puplava has an excellent discussion about the inflation vs. deflation argument. Listen to the back half of the third hour at http://www.netcastdaily.com/broadcast/fsn2009-0404-3b.mp3.

People are confusing asset price decreases with deflation. When the DJIA ran up to 14K, that was a Bull Market. When the DJIA crashed down, that was deflation. When real estate prices went through the roof, that was a Bull Market. When they crashed down, again, that was deflation.That's bogus.

Inflations effects (higher prices) will kick in when people lose faith in the currency (USD) and no longer wish to hold it. Once they realize ow badly the currency is being depreciated and they need to get rid of their dollars in favor of hard assets, you will see the inflation of the money supply that is going on now turn in to rampant higher prices.

Others have made the points for why you should own gold. Get some. The price drops you see right now will seem miniscule compared to the meteoric rise you will see in 9-12 months.  

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Re: Someone explain to me this gold rush

 

How do China and Japan fit into the inflation/deflation equation?  Combined they own about two Trillion USD in treasuries and cash reserves.  China has indicated multiple times that they are very uneasy about their investment.  As this deflationary environment puts more strain on their economies, won't they ultimately feel compelled to sell off their treasuries and use them for their own benefit (ie securing commodities, natural resources, oil).  Hasn't this process already begun with China securing oil contracts with Russia and Venezuela.  I've also heard that China is purchasing gold mining companies in Venezuela and other mining companies in Australia.  I expect this process could dramatically drive up prices, even if no one is lending/borrowing in the US. 

So, I guess what Im asking is... is a world wide dumping of the dollar possible.  if so, then when.  Next month, five years from now?  From my standpoint, a little gold on hand eases the uncertainty.

 Blue

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Re: Someone explain to me this gold rush

I think there are some basic errors in analogies being mader here (from my point of view)

 Inflation is too many dollars chasing too few goods.  The price of Oil rising because of lack of supply is NOT INFLATION.  The price is up but not due to too much money but rather a scarcity of resources.  A subtle difference but a important point.

Deflation is the opposite...too few dollars chasing too many goods.  ie...no one wants to spend any money. 

The velocity of money affects things greatly.  A devaluation of the USD...(no one wants to hold it anymore) only works if people have money in there pockets to spend.  With so much debt already out there combined with negative savings and lending dropping off a cliff the money supply is contracting so much faster than can be managed by anyone (The Fed)  Combine that with what I think a new 'mentality' of living closer to what is in your means & saving a bit more (for this generation at least) and spending will slow down radically.  I think a lot of people now realize that reckless spending & debt accumulation is not sustainable.

There will be more shocks coming with massive pension plan "adjustments".  Baby boomers have just been 'shocked' out of spending into a savings mode since seeing half of their assets destroyed in housing & market turmoil.  I don't think we'll reach this level of spending again for sometime until memory of this event fades or the population increases but by then the energy crisis we all talk about will be more obvious further suppressing the economy.

Once the true scale of the coming energy crisis comes to bear people will not need gold to 'preserve' wealth.  Gold will get dumped in an attempt to feed yourself & drive your car.  There is a lot of "don't try to time the market" sentiment now with gold dropping but I would argue that these same people will be doing the same if...if this inflation kicks in & trying to time their sell.

If TSHTF in a massive inflationary enviroment it would be short lived in my opinion as govts would immediately jack interest rates to get it under control & if you don't time it right then you're in trouble.  Worse yet if govt raises interest rates too soon then the bottom would fall out.  I see the later as the greater risk personally.  Someone in power will convince themselves we've bottomed & start (slowly) raising rates.  This will slow the velocity of cash & raise interest rates all killers' to gold.

Bottom line...gold is a shiny, base metal with very limited use to everyday people.  In my opinion it is a ridiculous 'store' of wealth only because 'civilizations' of old said it was & kings wanted it as more of a status symbol.  I understand people doing what the think they need to to protect themselves now but I think a big shift away from PM's needs to happen.  Why do we put such wealth on an essentially ornamental metal.....(because it take a lot of effort to dig it out of the ground) ..some will say.  I think that's ridiculous.  The only reason it gets dug up is because we (people) assign a lot of false value to it.  How much precious energy both resource & human is devoted to the collection, refinement & storage of a material that has no real significant contribution relative to other materials we need bady.  This is ultimately in my opinion where the fundamental 'paradigm' shift needs to happen.  (I hate using that word but it works here)

 A good analogy from 'Crude awakening' was how people are willing to spend $5 for a cup of coffee but many consider it 'the end of days' when gas hits $5 a gallon.  Thinking is way out of wack in my opinion.

long post ...

 

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Re: Someone explain to me this gold rush
bluestone wrote:

 

How do China and Japan fit into the inflation/deflation equation?  Combined they own about two Trillion USD in treasuries and cash reserves.  ...

Blue

Inflation of the money supply alone doesn't cause an increase in prices. Money Velocity comes in to play here. That is, if the Fed prints (quantative eases) $2T, gives it to the banks, and the banks stick it in their vaults, then you will see little to no effect on prices. Once the banks start to lend that money, it hits the larger economy and prices will go up.

Similar concept with India and China's reserves. Sitting in their "vaults", those reserves do nothing. This is what economists mean when they say "we have exported our inflation overseas". But if the world loses faith in their USD reserves, they might send those dollars home. Buy up US Natural Resources or other companies. Buy up farm land. Buy up homes in CA and FL. The result is you would see price rises for stock and real estate.

In the meantime, the government is forced to print trillions to fund the deficit (and this keeps the inflation at home) because the world won't be buying new dollars if they are dumping their old. Now the value (purchasing power) of your dollar savings sinks like a stone. A hidden tax kicks in.

But then the Chinese influence over US foreign policy will start to drop as well. Hillary Clinton might start talking about Human Rights again, instead of saying "Oh well... seems Human Rights don't really matter... but just please, please keep buying our debt!". The US President might not have to bow the next time he meets the King of Saudi Arabia. Just stuff like that.

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Re: Someone explain to me this gold rush

chris_m,

One of the good things about these forums is that it seeing other opinions does make one think.

With regard to yourcomments - "Inflation is too many dollars chasing too few goods" - it's also too many dollars chasing the same amount of goods. Surely one of the effects being described in posts here?

"Bottom line...gold is a shiny, base metal with very limited use to everyday people". Whoa! Your paragraph I really disagree with. Gold is NOT a base metal unless the definition of a base metal has changed. Yes, it IS of limited use to everyday people, one of the VERY reasons why it provides a store of value or wealth, using the definition of money as opposed to currency.

The (relative) rarity and energy required to obtain it are what make it a useful and recognized medium of exchange. Sure, we could use seashells or cigarettes (unless someone flies in an aeroplane full of them and then guess what happens? Inflation).

Rubbishing gold,  you don't propose any alternative. Gold has maintained its store of value longer than any fiat currency (where ARE the fiat currencies of 1000 or even 100 years ago, as we would recognize them today? Even the dollar has changed out of all recognition in 65 years). The bezant (a gold coin of the Byzantine era) was used as money for nigh on 600 years across different cultures because its purity had been maintained (i.e. the Byzantine Governments had made a point of NOT debasing it) and its VALUE was known.

If I have a choice of a piece of paper, produced by a Government, the production of which is only limited by the speed of a printing press or the click of a computer button, or a medium that has been around longer than me and is still worth something, I know which one I'll opt for.

Rant over.

David C

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deflation/inflation - "Dying of Money"

Last week FSN suggested reading

"Dying of Money: Lessons of the Great German and American Inflations" by Jens Parsson

Out of print, but can be read on-line

http://mises.org/resources/4017

So far, I've only read through the part about Germany, but I recommend it. His analysis of what Germany went through between the wars was interesting and I kept hitting passages that sound all too familiar today, even though the particulars are quite different (history rhyming, not repeating). But the germane part had to to with the different stages the economy went through and what was inflation and what was not.

I only read about finances for self-wealth preservation, but this book (so far) has been fascinating. He puts down a lot of common held opinions as well (that the inflation in Germany was a result of war reparations, etc).

If nothing else read the part about Germany - you will see many passages that seem too close recent events for comfort.

And of course in searching for the link to this book I ran across this one as well:

"When Money Dies: The Nightmare of the Weimar Collapse" by ADAM FERGUSSON

http://mises.org/resources/4016

Which I've heard is also good and have on my reading list now.

 

 

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Re: Someone explain to me this gold rush

Oops...my bad..yeah not a base metal.. I was thinking something else when I typed that word.  So much for proof reading.

David 

As for your other comments.  They fall perfectly in line with the models we've been setting up over centuries & how well have they worked?  Like you said...where are all the other fiat currencies?

 You said...."The (relative) rarity and energy required to obtain it are what make it a useful and recognized medium of exchange. Sure, we could use seashells or cigarettes (unless someone flies in an aeroplane full of them and then guess what happens? Inflation)." ..you've got your head too tightly wound around something physical or examples of the past.  I challenge you to read what's below with an open mind & not simply look for reasons to discredit it.

As far as an alternative...well you're right I don't have the perfect answer for that either.  I'm not that smart I guess. BUT....if we all went back to trading in gold coins then in my opinion that would be a step backward.  From the CC energy will be the key in the future ahead of just about everything else.  Maybe $$ needs to be a claim to a specific amount of energy NOT a given amount of gold.  Oil will come & go but a measure of energy like say a Kwh would be a good analogy.   Like I said this is still pretty theoretical, but maybe it could work.  I think dismissing the idea based on the fact that gold has worked in the past is not a good arguement.  (It hasn't worked by the way...like you said....where are they all?  Your ancient coins will fetch far more as a fancient orm of currency(historical value) than if you melt it down.  How about a pre revolution american dollar? ( I forget what they're called) but you'll get a bit of cash for that aswell far beyond it's paper value.  I see what your saying with your analogy but I want to go a different way entirely.....see further

Think of how much energy in the form of exploration, oil, electricity, human energy is put into collecting gold on a daily basis.  Given the upcoming shortfall in energy I don't think this is the most effecient use.  If 'the gold standard' were brought back that would place huge constraints on expansion of economies (not necessarily a bad thing) but then if you consider what that would do to stifle development resources for alternative energy & such.  I guarantee that every country would put HUGE amounts of dollars & energy into finding & storing gold to ensure adequate money supply for ever expanding populations seeking to better their way of life.  Then a follow on would be wars over gold (like the past) ...we already have wars over energy & I don't think we need 'currency' wars.

 "The energy standard"

Value a dollar on how much energy it costs to generate a kwh of electricity.  Not a physical substance but very very valuable to humans (energy is undervalued now which is why the argument is hard to grasp).  Oil will be replaced someday but our soceity cannot funtion without electricity (full stop).  Again I don't have all the bugs worked out but imagine how that would spur efficiency / innovation in the energy sector if your wealth is determined by the electricity you can generate from various sources.  The whole 'store of wealth' thing is not addressed but it would be an interesting discussion....could it be as simple as 'generation storage'?

Very theory I know & it's not going to help NOW but if people truly want to see a better future then 'the system' needs to be "re-thunk".(in my opinion)  Ultimately I don't think it would ever happen in the forseeable future as it's just too big a stretch for people right now & too many have a too vested interest in keeping the 'status quo'.  Unfortunately this may be 100 years out but I thought I'd throw it out there.

Back to the original reason for the thread...

 I still think gold is the wrong investment now with 95% of the arrows pointing to deflation.  That was the purpose of the original post.  My comments about the 'energy standard' are meant to spark discussion & pick the brains of people a lot smarter than I .

 Cheers

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Re: Someone explain to me this gold rush

Chris_M,

Great posts.  Ok, so how do we trade in units of value, say labor or energy?  One foundation of proper money is it has to be easily transported, we can't all drag wagons of fuel around.  You aren't a big fan of fiat money either, as it easily corrupts govts.  Someting that just sits there, you're almost redefining gold, except for your distaste in the metal as Ancient.

As I try to wrap my brains around the current world situation, I dont really subscribe to deflation scenarios because its too "macro" for me.  Sure, housing and equity portfolios have been dinged, with the subsequent loss of purchasing power, but for those of us who avoided either trap still experience inflation.  What do you want me to do, buy a 2nd home because its cheap?  Also, deflation is too few dollars chasing too many goods.  That would mean available goods.  Manufacturing is pretty much on-demand these days, so again you're pointing value at things that have been overproduced or somewhat unneccessary, no?

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Re: Someone explain to me this gold rush

chris_m,

As others have pointed out, gold performed very well during the Great Depression, which was a deflationary event.

If you tell us that you "still think gold is the wrong investment now with 95% of the arrows pointing to deflation", it would be helpful if you explained why you think that and provided historical evidence to support that opinion.  

Here's a quote from Mike Shedlock (Mish) on why he thinks gold will perform well in deflation, after an initial drop.

Quote:

I have often said that gold would decline in the initial stages of
deflation as leverage was wiped out everywhere. If that leverage has
been wiped out, gold miners have a lot of catching up to do with the
price of physical gold.

Finally, gold itself is now free to rise
in deflation given its true role as money, even as those in gold for
the wrong reason (as an inflation hedge), bail.

See the full post here.

While your philosophical objections to the value of gold may be valid, they're largely irrelevant unless a significant majority agrees with them.  That isn't the case right now.  Gold has been used as money for so long because it satisfies so many criteria of a good currency.  I do not see that changing in our lifetimes. 

That is why so many here are buying gold, regardless of whether they expect deflation or inflation.

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Re: Someone explain to me this gold rush

Thanks for the input but I'm not sure that shrugging our shoulders & carrying on with current or past plans are the answer.  We just go in circles ultimately ending up at the same point over & over.

Switters...I don't need historical evidence for deflation....look around you.  I've talked a lot already about unemployment, decreasing wages, credit & loan defaults, demographic changes, housing, increased taxes...that's my 95%.  People have less money (worth) and are not spending.   I think people need to save now NOT SPEND. 

As for inflationists, the only response I keep getting back are rising food prices (farmers have been struggling for a long time....talk about price manipulation) & oil rising slightly , recently ...(originally oversold I think but considering where it was last summer $140...)

 As for gold in the Depression...I'm of the view that the decision to abandon the gold standard by countries prior to WWI and then subsequent re-instatement of the gold standard had a lot to do with what you're talking about.  This tells me that if you believe we'll go back the the gold standard then maybe this is a good bet but I don't think it will happen (right or wrong).  Politicians won't accept the limitations that this would put on the expansion of the money supply especially considering the booming world population....but I talk about that in my previous post.

As for the trade of labour in a 'energy standard' currency, I didn't say that I don't think paper money (fiat) wouldn't be used but rather that it would be tied to some measure of energy vice a physical amount of gold.  To counter the 'corruptive' nature of fiat a more robust system of 'checks & balances are needed' .....way beyond this post.  Before you clobber me about having no real backing for the currency...like I said the idea is still 'in the zygote stage'.

Switters said:

 "While your philosophical objections to the value of gold may be valid, they're largely irrelevant unless a significant majority agrees with them.  That isn't the case right now.  Gold has been used as money for so long because it satisfies so many criteria of a good currency.  I do not see that changing in our lifetimes. 

That is why so many here are buying gold, regardless of whether they expect deflation or inflation. " - that's why some people here will hope to just get back to even in the long run. (in my opinion)  I'm not in US$ at all....

"Irrelevant" in todays market...I agree.  Change needs to start somewhere.  I'd argue that gold is not good to be used as money.  In large quatities it is not easily transportable or storable.  It can be broken down into denominations but if you took all the gold in the world & divided it up amongst the population I would argue that it would not be practical.  If we all traded in gold a 'world currency' would result.  If each country had their own coin it would be easily forged...much easier than fiat anyway.  I think a lot of the current 'attachment' to the metal is purely soceital.

Wealth & by default gold is our ONE true world religion.  Everyone seeks it, believes in it (for the most part) & has trouble with changes to it.  More people have fought & died over 'wealth' in one form or another than for any other reason in history.

change is difficult but it doesn't mean that it shouldn't happen.  Our soceity(globally) is about to face a crisis like nothing ever before experienced .......the energy crisis.  From the 3 E's....economies have come & gone and will continue to do so in the future, enviroment is still farther out on the radar than ENERGY.  I think we all agree with the CC.  The energy crisis will threaten the human species as a whole.  Without this being put to the forefront sooner rather than later who knows how many could or would die from starvation, war, civil unrest.  I think connecting our money supply to our energy supply will truly make it 'hit home'.  Are people ready for that?....no ....not until after the first energy crisis anyway.  ( the 70's was nothing compared to what this will be both in depth & scale)

Rant off...as they say

thanks ...good talk.

chris_m's picture
chris_m
Status: Bronze Member (Offline)
Joined: Feb 7 2009
Posts: 36
Re: Someone explain to me this gold rush

 

I can't remember where I found the link to this...might have been here so apologies if necessary.  I don't care if you love or hate the guy but what he says is compelling.  I tend to agree. (of course)

http://market-ticker.denninger.net/archives/689-Where-We-Are,-Where-Were-Heading-2009.html

Montana Native's picture
Montana Native
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Posts: 162
Re: Someone explain to me this gold rush

Bottom line...gold is a shiny, base metal with very limited use to everyday people.  In my opinion it is a ridiculous 'store' of wealth only because 'civilizations' of old said it was & kings wanted it as more of a status symbol.  I understand people doing what the think they need to to protect themselves now but I think a big shift away from PM's needs to happen.  Why do we put such wealth on an essentially ornamental metal.....(because it take a lot of effort to dig it out of the ground) ..some will say.  I think that's ridiculous.  The only reason it gets dug up is because we (people) assign a lot of false value to it. 

Chris_m

I think a lot of people here would agree that gold isn't particularly spectacular. However by proclaiming it as a barbaric relic now, I'm afraid you're too late. I think you are raging against the machine. Gold is the time honored Authority on money and as John Mellencamp is so quick to point out, it always wins. Sometimes you must ride the tide not fight the waves. This cant be rationalized on the level you want. It's just the way it is, and the way it has always been.

Peace...Out.

switters's picture
switters
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Posts: 744
Re: Someone explain to me this gold rush
chris_m wrote:

Switters...I don't need historical evidence for deflation....look around you.  I've talked a lot already about unemployment, decreasing wages, credit & loan defaults, demographic changes, housing, increased taxes...that's my 95%.  People have less money (worth) and are not spending.   I think people need to save now NOT SPEND. 

I was referring to historical evidence that gold performs poorly during deflation.  If gold is seen as money, and money gains value during deflation, then gold should rise during deflation regardless of whether a gold standard is reinstated (which I think is unlikely).

 

 

Montana Native's picture
Montana Native
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Posts: 162
Re: Someone explain to me this gold rush

Dont forget the fear factor either, it could really be the next bubble.

SteveS's picture
SteveS
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Posts: 358
Re: Someone explain to me this gold rush
chris_m wrote:

Bottom line...gold is a shiny, base metal with very limited use to everyday people.  In my opinion it is a ridiculous 'store' of wealth only because 'civilizations' of old said it was & kings wanted it as more of a status symbol.  I understand people doing what the think they need to to protect themselves now but I think a big shift away from PM's needs to happen.  Why do we put such wealth on an essentially ornamental metal.....(because it take a lot of effort to dig it out of the ground) ..some will say.  I think that's ridiculous.  The only reason it gets dug up is because we (people) assign a lot of false value to it.  How much precious energy both resource & human is devoted to the collection, refinement & storage of a material that has no real significant contribution relative to other materials we need bady.  This is ultimately in my opinion where the fundamental 'paradigm' shift needs to happen.  (I hate using that word but it works here)

You may want to review this thread:

http://www.peakprosperity.com/forum/value-gold-zimbabwe-gold-bread/15263

Yes, gold has no 'use', but evidently in Zimbabwe it has become the defacto currency. And yes, there the problem is hyper-inflation not deflation, but it still shows how gold does have use as a known and reasonable stable measure of wealth in the middle of a crazy economy . I calculated a loaf of bread there sells for about $2.80 worth of gold - sounds reasonable. The video shows how some people spend their day trying to dig up enough gold to buy a day's worth of living expenses, and yes, that seems somehow wasteful, but I imagine it's a small percentage of the population. (Even worldwide, gold mining/refining/etc is actually a pretty small industry.) Most others in Zimbabwe are creating more useful items like bread (which they may sell for gold). Through inflation, their government has cheated them out of the stored value of their labor (when stored as cash). Gold allows them to safely store that value for future use. It doesn't have to be gold of course. It can be land, animals, etc., but gold has a great convenience as money and therein lies it's 'use'.  

chris_m's picture
chris_m
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Posts: 36
Re: Someone explain to me this gold rush

People like Mish...

About deflation,

http://globaleconomicanalysis.blogspot.com/2009/02/fiat-world-mathematical-model.html

 I don't want to cherry pick articles (but I will) ....inflationists be aware.

About owning gold,

 http://globaleconomicanalysis.blogspot.com/2007/08/safe-way-to-own-gold-and-silver.html

From this last article, I find his arguements a bit thin for my taste & the 'disclosure' made my hairs stand up.  I think the point is that the place to be in deflation is in liquid assets, Treasuries, cash & gold.  Deflation will keep the $ up but there's limited interest in gold with all the 'stimulus' going on.  People just don't have the $$ to buy it at any significant levels & still feed themselves & pay the bills.  To me it just seems that with everything happening gold should be rising ...not to flog a dead horse but there needs to be buyers for this gold somewhere down the line.  The squeeze in incomes & credit at all levels and insurmountable debt for which the interest will need to be serviced (taxes) will make buyers very very hard to find I think for quite sometime.  The people peddling gold make their money by 'selling' it not holding onto it.  I think the gold 'bubble' has passed in my humble opinion.

 Montana...I'm disappointed to hear someone here saying that maybe we should just roll over.  Pick your battles...I understand, but ultimately I think this place is about the spread of ideas. ..no offense intended.

Cheers

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plantguy90
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Posts: 271
Re: Someone explain to me this gold rush

The basis of your stand against gold is one that the dollar will not collapse.  Thats' a tough one for me to accept, that this country can continue to borrow into oblivion. 

Quote:

I think the point is that the place to be in deflation is in liquid assets, Treasuries, cash & gold.  Deflation will keep the $ up but there's limited interest in gold with all the 'stimulus' going on.  People just don't have the $$ to buy it at any significant levels & still feed themselves & pay the bills.

Fiat money, or time-tested money... take your pick, which has less risk of downside?  I dont like PM's but I like the dollar even less, its like your point that the world will do worse than the US, so dollars are safer.  Just take that one step farther and you're back to PM's 

Brainless's picture
Brainless
Status: Silver Member (Offline)
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Posts: 150
Re: Someone explain to me this gold rush

An energy based currency sounds good until energy can be produced cheaply. The currency will loose its value very quick. Especially with peak oil and the need to find alternatives finding a cheap solution will be devastating to peoples wealth. In that case the best you would hope for is that there will never be cheap energy available. It will not work as their is no incentive. Using an energy based currency will set you up for a future monetary disaster.

Gold however is 'just' sitting in the faults of banks and governments. If it was not a store of wealth banks and governments would get rid of it and change it into something else. History proofed that finding gold is difficult and it still is. Only when spacetravel is cheap or some asteroid full of gold strikes the earth the chance of rapidly increasing the amount of gold is non existend.

Furthermore people are well aware of what gold is worth. Everyone has affinity with it, mostly through jewelry. It is not something people would have to learn to accept. In Asian countries having gold as a kind of saving is very normal. Working class people adore it and are willing to work hard for it. That would be a few billion people. The asians have ther part of experience with fiat currencies. It explains their love of gold. In the western world gold is only for jewelry and has lost all its merits as a currency, the banks in particular send out this message and by manipulation keep it relatively cheap. It still has a currency symbol, so it is not only a commodity. When there is deflation, inflation or devaluation it seems those scenarios always end in depression, hyperinflation and countries getting poorer. The new race seems to be who can devalue their currency the quickest. Gold seems the most stable in those scenarios.

The US has the largest gold reserves in the world. what a super strategy to have a lot of countries sell their gold or not maintaining their possesion of it, using dollars as their reserves and then destroy the dollar. The US would be on top again in one swift move.

Gold (and silver) have another very good feature and that is that it can not be created out of thin air. An inflationary system is not needed anymore and you would get a system with a slow deflation. It will encourage savings, investing from those savings and will be a start of building wealth. Only for that reason people should not accept anything else as silver or gold for their work and services. It will give you freedom from manipulating governments and banks. That value of gold is priceless!

 

 

Montana Native's picture
Montana Native
Status: Silver Member (Offline)
Joined: Mar 17 2009
Posts: 162
Re: Someone explain to me this gold rush
chris_m wrote:

People like Mish...

About deflation,

http://globaleconomicanalysis.blogspot.com/2009/02/fiat-world-mathematical-model.html

 I don't want to cherry pick articles (but I will) ....inflationists be aware.

About owning gold,

 http://globaleconomicanalysis.blogspot.com/2007/08/safe-way-to-own-gold-and-silver.html

From this last article, I find his arguements a bit thin for my taste & the 'disclosure' made my hairs stand up.  I think the point is that the place to be in deflation is in liquid assets, Treasuries, cash & gold.  Deflation will keep the $ up but there's limited interest in gold with all the 'stimulus' going on.  People just don't have the $$ to buy it at any significant levels & still feed themselves & pay the bills.  To me it just seems that with everything happening gold should be rising ...not to flog a dead horse but there needs to be buyers for this gold somewhere down the line.  The squeeze in incomes & credit at all levels and insurmountable debt for which the interest will need to be serviced (taxes) will make buyers very very hard to find I think for quite sometime.  The people peddling gold make their money by 'selling' it not holding onto it.  I think the gold 'bubble' has passed in my humble opinion.

 Montana...I'm disappointed to hear someone here saying that maybe we should just roll over.  Pick your battles...I understand, but ultimately I think this place is about the spread of ideas. ..no offense intended.

Cheers

No offense taken, Im just saying gold will continue to hold value like it is always has, thats the machine I'm talking about.

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