GOLD

[romans holiday]

During the deflationary scare of October 2008 and Dow collapse, PM followed the decline with gold decreasing from

900's to 680. The reason stated at the time was that hedge funds were forced to sell gold in order to fund liabilities

elsewhere. After Bubb's warning about impending Dow collapse, I expected gold and in particular silver to

be under selling pressure. During 2008, there was good correlation between silver and the Dow.

 

Yet, yesterday both PM in particular silver were exceptionally strong and reversed course to finish on the

upside. The 60c move of silver in particular requires some explanation.

 

1) Is silver finally perceived also as money?

2) Is the huge short position of large commercials being covered?

3) Are expectations of the strong autumn season driving investor interest?

 

Where is the truth? Perhaps, it is futile to understand short range fluctuations. I do understand the long term

inverse correlation between gold and the Dow, but what about silver's correlation with the Dow?

Surely, if a deep recession is expected, industrial demand should be expected to decline and silver should have followed all other commodities down.

 

Consider that a process is at work with gold whereby it is being "monetized", and thereby "decoupling" from the conventionally assumed correlations.

 

Gold is becoming more stable as other currencies are becoming less so. The gold/ pound cross is a good example of this; where dollar price of gold was relatively stable [because the dollar was also relatively stable]... the pound price exploded parabolically to the upside only to quickly return down to the long term trend line. Here, the pound/gold price was only measuring the volatility/ instability of the pound. I expect more of this in the future where the gold price will be relatively stable against reserve currencies [slow incremental increase] while the price in other currencies will get even more wild... extrapolate the recent past into the future.

 

Silver is an interesting one. It is not simply a leverage on gold as some assume, and does not have the same monetary recognition that gold has. That said, I think in the long run it will keep up with gold... though perhaps slightly underperform [the performance of gold in this environment "pulls silver up with it" imo]. Silver looks to remain volatile at times against the dollar, but gold would also have to be weak against the dollar for the price of silver to be really hit. This may become more unlikely as gold becomes more stabilized/ monetized. It may require deleveraging proper on a double dip to see gold dip to the extent which could see silver back to $15 odd. But even if there was the double dip deleverage, I doubt gold would go very low due to uncertainty and to its confirmed safe haven status.

 

Gold is gold, and silver is silver. It definitely pays to have a core holding in gold. Over and above that, silver looks a reasonable hold though should be considered more speculative.

[Steve Netwriter]

When you see the demand for physical gold/silver go up, and the price go down, you know something "odd" is going on.

Buy physical, and forget the paper price and all this trading nonsense.

 

[Steve Netwriter]

I've just been checking out this Tom O'Brien guy after his latest apparent call failure.

 

I found this:

 

LOL..This guy called a top in Gold @ 1039.5 in October of last year, right before it surged to over $1200. People who took his advice are still waiting to get in below 1039.5, as it hasn't fallen to those levels since.

The truth is none of us are prophets. Short term trading calls are very difficult to make, which is why I don't even try. Long term, gold is bullish.

 

http://neuralnetwriter.cylo42.com/node/3339#comment-4971

 

 

He based his prediction on the link between the US$ and GoldUS$, and got it wrong.

 

[d2thdr]

When (year)did John Exter publish the inverse pyramid?

[romans holiday]

When (year)did John Exter publish the inverse pyramid?

 

Quite early on, it is based on the logic of a debt-based fiat money system. Everyone is short the currency. "Short-covering"/ debt deflation sees the currency strengthen relative to assets, and gold relative to currency.

 

http://the-moneychanger.com/articles_files...omy/exter.phtml

 

This will be a deflationary collapse rather than an inflationary blow-off because creditors in the debt pyramid will move down the pyramid [see pyramid chart -- Ed.] out of the most illiquid debtors at the top of the pyramid -- junk bonds, failing banks, S&Ls & insurance companies, Donald Trump, & Campeau. [Trump has survived until now, 1998, but Long Term Capital Management & other ailing hedge funds fit the same bill. – Ed.] Creditors will try to get out of those weak debtors & go down the debt pyramid, to the very bottom: currency (dollar bills), even though they pay no interest. Next above currency are Treasury bills, issued by the government & backed by the Federal Reserve, which supports the market through its open market operations. They are by far the largest component of Reserve Bank credit, so are really as safe as currency notes, plus they pay interest. Still, you can’t buy anything with Treasury bills; you have to liquidate the bills to get money of some sort to buy something. [The very flight to quality that we are seeing in 1998. – Ed.]

 

The higher debtors sit in the pyramid, the less liquid they are. At the top are all the least liquid debtors that I’ve already mentioned. This explains why we are headed for deflation. Creditors will move out of debtors high in the debt pyramid as many of those debtors fail through defaults & bankruptcies. That is very deflationary.

.....

That’s right. I thought of this upside down debt pyramid when I was at Citibank in the early ‘60s. I first gave talks on it inside the bank, trying to influence the bank because I saw too much borrowing short term & lending long term. It was just awful! I kept on warning the bank, but was just brushed aside. When Nixon closed the gold window I said, “This is my chance to get out,” so I took it. [laughing] It was a great move on my part because I could buy gold & gold mining shares when gold was F$50 an ounce or less. Now Citibank is on the problem list because it has so many bad assets.

[The Mad Hatter]

Back over the £800 Toz mark again today...

[G0ldfinger]

I'm not sure what your reason for holding gold is in this example but it looks like you intend to protect the value of your entire life and future in the event that all pension obligations are defaulted upon, you can no longer earn an income and you have to abandon your home, all during an even in which gold's purchasing power rose tenfold from today's level (so that 10% of assets in gold is enough to restore all wealth).

...

This is not exactly my point. In this example I don't expect the future lifetime income to be defaulted on (although that might be naive), but I expect it to be eroded away. Purely seen as an investment, the house might also not be the best idea, but you have to live somewhere.

 

All I wanted to point out is that there is always a crowd of people shouting "100% in gold is nuts", but the important point is to ask: "100% of WHAT?"

100% of most people's LIQUID assets might be a pretty small part of their total assets. Therefore the example.

 

So it should be no wonder that there are people who feel that they are underinvested in precious metals even though they are 100% in with all liquid assets they got.

[romans holiday]

Back over the £800 Toz mark again today...

Mostly due to pound weakness. Pound also looks like it wants to test its lows against the dollar again soon. Starting to look like a third-rate currency. If the pound price of gold spikes to a 1000 odd over the next few months, it could likely come back to 850 odd [the old spike being the new support looks like the pattern].... before going on to greater things of course.

 

 

 

 

[nicejim]

"100% of WHAT?"

Of the value at risk. The house will retain most if not all of its value (as a house, not necessarily as a means of barter for other goods or services) even though the price may fall. Someone with a £2m farm will not be having nightmares if they own less than £200k of gold! Among one's non-liquid assets the value at risk may be very small.

[nicejim]

Back over the £800 Toz mark again today...

...and £12 for silver. But if you'd tried to buy any silver in the last few weeks you'd barely have noticed the dip!

[romans holiday]

Of the value at risk. The house will retain most if not all of its value (as a house, not necessarily as a means of barter for other goods or services) even though the price may fall. Someone with a £2m farm will not be having nightmares if they own less than £200k of gold! Among one's non-liquid assets the value at risk may be very small.

Especially if held without debt.... and the monetary value of assets are not a prime concern.

 

If on the other hand one was either in mortgaged property or completely liquid, then the percentage of your liquid worth in gold should ideally be greater imo.

[Magpie]

I picked what I thought was the most apt analogy. I will explain. I view philosophy like this:

 

1. There are inputs, and with philosophers those inputs are limited, as most philosophers are scientifically ignorant. It seems to me that philosophers tend to reduce the inputs to just their own thoughts, and those of other philosophers.

 

2. There is the philosophical process. Again limited to philosophical type thinkers.

 

3. The result, is often rubbish, best treated with care, and discarded carefully.

 

I hope you can see the merit of the analogy, and why "navel-gazing" is less appropriate.

 

You can if you wish see my views on philosophy, and my answers to all the common questions like "what is the meaning of life?", here:

http://neuralnetwriter.cylo42.com/node/3335

 

Hi Steve,

 

As a (longtimeago) philosophy graduate I feel vaguely compelled to defend philosophy. I read the link and did enjoy it, and you're right that philosophers can be a bit too detached from scientific inputs - though there is some value in that also as science is subject to its own myths and prejudices and occasionally a philosophical perspective can be valuable.

 

But my main feeling reading your views was that you aren't really attacking modern philosophy, but a dated version of what it consists of - very few philosophers bother to ask "what is the meaning of life" or "where did we come from". Whereas there is a lot of discussion of how neural networks relate to thought and whether the sensation of free will arises from (chaotic or deterministic) brain processes. You have recent schools of thought like functionalism and neural darwinism and the work of Dennett which has a lot of interesting stuff to say on these topics. Your answers to the questions are fine and would probably be all a scientist needs to bother with, but one can see potential problems in them and it is in those problems that a lot of modern philosophy resides.

 

[nicejim]

Especially if held without debt.... and the monetary value of assets are not a prime concern.

 

If on the other hand one was either in mortgaged property or completely liquid, then the percentage of your liquid worth in gold should ideally be greater imo.

Debt confuses the issue because you can have 1oz of gold and it be worth 500% of net liquid assets. To determine a suitable holding you need to consider the change in asset values relative to the debt and the likelihood of income from the assets being sufficient to service the debt. It may be safer to repay the debt rather than buy gold. Fortunately I'm not in a position to have to think about this :-)

[romans holiday]

Debt confuses the issue because you can have 1oz of gold and it be worth 500% of net liquid assets. To determine a suitable holding you need to consider the change in asset values relative to the debt and the likelihood of income from the assets being sufficient to service the debt. It may be safer to repay the debt rather than buy gold. Fortunately I'm not in a position to have to think about this :-)

I was thinking along the lines of - if someone were heavily indebted with say an illiquid property, and then the monetary value of that property collapsed, they would do well to have a large percentage of their liquid worth in gold... say 50% [thinking of gold as a currency here, where those ounces would be say half your liquid worth]. The reason being, the rising price of gold would be a safety net to clear the debt if needed.

 

The danger is if they repaid most of the debt with their funds rather than put a substantial amount into gold, and then the monetary value of the house collapsed, they would be in a position of having no liquid funds and at risk of having to sell the house.... unless, as you say, there is income from the property [but who wants to rely on rental income in hard times].

 

Similarly, if someone was completely liquid without property it would make sense for them to have a large percentage of their worth in gold in case other currencies continue to weaken. This would enable a more fortuitous purchase of free-hold property at a later date once prices had deflated.

 

Seems the best policy is to be as liquid as possible in the strongest currencies.... unless the reasons you have for owning assets are besides monetary ones.

[romans holiday]

Dollar strengthening here could see higher gold prices.

 

Over the course of this year [since Feb], gold and dollar have been roughly positively correlated as safe havens on risk aversion.

 

 

[romans holiday]

I might be wrong but I think Churchill saw it as a matter of honour to restore the pre-war rate - because a lot of citizens had bought government bonds, thus funding the war deficit, he felt that to devalue would be to pay them back at a reduced rate.

 

He may have had a point, but his stubbornness on this probably did more harm than good in the long run (and yes there was a bit of mythology underlying it too).

Yes, Churchill ummmed and arrred about it for quite some time before finally deciding to go back to pre-war parity... to the consternation of the modern economists.

 

imo the real villain of the piece is Roosevelt, yet the way history has been written Roosevelt seems to have been elevated at the expense of Hoover. Hoover may have had his faults but at least he was a stateman with an international perspective. His memoirs are a good read.

[G0ldfinger]

Of the value at risk. The house will retain most if not all of its value (as a house, not necessarily as a means of barter for other goods or services) even though the price may fall. Someone with a £2m farm will not be having nightmares if they own less than £200k of gold! Among one's non-liquid assets the value at risk may be very small.

The value of the house in the example was fairly small compared to the lifetime income. So, I am not sure why you are picking on the house. Eroded income is a bigger risk IMHO.

[nicejim]

http://www.telegraph.co.uk/finance/persona...ps-by-36pc.html

Physical gold bar demand climbed 29pc to 96.3 tonnes (2nd quarter)

[Pixel8r]

Dollar strengthening here could see higher gold prices.

 

Over the course of this year [since Feb], gold and dollar have been roughly positively correlated as safe havens on risk aversion.

Gold AM fix 1/2/10 = $1082

Gold AM fix 25/8/10 = $1237.50

 

$1237.50 - $1082 / $1082 x 100 = +14.37% (Value - Cost / Cost X 100 = gain/loss %)

 

I am very glad that I bought gold over dollars as a safe haven investment, a 14% return over the fiat "safe haven" is an extremely good return.

 

Silver Fix 1/2/10 = $16.23

Silver Fix 25/8/10 = $18.63

 

$18.63 - $16.23 / $16.23 x 100 = +14.78%

 

Even better from silver, which doesn't make sense as it was supposed to deflate.

[Chubbs]

I miss the old days of lots of charty predictions, so here's my tuppence-worth :-)

 

 

Working off the GBP price, on the 5-year chart there looks like 3 major channels. Taking a look at the patterns in each one, it seems all three line up for a forecast that prices increase to £1050 over the next 12 months, before consolidating to £920-950 in the winter of 2011 (Dec/Jan). For the full analysis (separating the channels into separate charts), see linky:

 

(or I can try to get to grips with imageshack and move them over here if preferred...)

 

<puts crystal ball away>

[grumpy-old-man]

I miss the old days

 

me too.....

 

I would love to see a few of the good 'ol posters on here again, Pluto, cgnao & of course swampy.

 

on a seperate note......

 

Ron Paul asks for Audit of US gold reserves....

 

"Texas (Kitco News) -- U.S. Rep. Ron Paul , R-Tex., plans to introduce a new bill next year that will allow for an audit of US gold reserves, he told Kitco News in an exclusive interview."

 

"Though Paul did not say whether there is any truth to claims that there is no gold in Fort Knox or the New York Federal Reserve, he said, “I think it is a possibility.''

 

ok it's not exactly 'breaking news' but if the right people keep pluggin away. You would think the FED would commision an 'expose' live to show/prove all the naysayers wrong wouldn't you?

[fitkid]

me too.....

 

I would love to see a few of the good 'ol posters on here again, Pluto, cgnao & of course swampy.

 

on a seperate note......

 

Ron Paul asks for Audit of US gold reserves....

 

"Texas (Kitco News) -- U.S. Rep. Ron Paul , R-Tex., plans to introduce a new bill next year that will allow for an audit of US gold reserves, he told Kitco News in an exclusive interview."

 

"Though Paul did not say whether there is any truth to claims that there is no gold in Fort Knox or the New York Federal Reserve, he said, “I think it is a possibility.''

 

ok it's not exactly 'breaking news' but if the right people keep pluggin away. You would think the FED would commision an 'expose' live to show/prove all the naysayers wrong wouldn't you?

 

They are enjoying their lifes not messing about trading they have secured their wealth how many times can you say PURCHASE PHYSICAL GOLD TO PROTECT YOUR FINANCIAL FUTURE.

Thats far to difficult for some to grasp by some of the posts over the last few days.

 

 

[grumpy-old-man]

They are enjoying their lifes not messing about trading they have secured their wealth how many times can you say PURCHASE PHYSICAL GOLD TO PROTECT YOUR FINANCIAL FUTURE.

Thats far to difficult for some to grasp by some of the posts over the last few days.

 

indeed fitkid.

 

I listened & learnt......& I am glad I did, for the sake of my family.

[Crashman begins]

 

I think its time

[grumpy-old-man]

I think its time

 

Hi Crashman begins & thanks for the welcome back.....I forgot to reply to your post & can't find it now.