One of gold’s greatest powers is that it is a unit of account which cannot be fudged nearly as easily as the fiat all-you-can-print buffet.
Feel like your wages are buying less?
In gold-indexed terms, they are:
Feel like your dollar is buying less, even though the financial press claims that the dollar is strong?
In gold-indexed terms it is buying less — but so are the other fiat currencies:
Feel like the housing bubble hit you hard?
It hit you harder in gold-denominated terms:
Feel like you have less disposable income?
Priced in gold, you do:
Feel like U.S. treasuries are really falling in value, even though the popular press keep telling investors that treasuries are priced at all-time highs?
These facts may just be statistical artefacts. They may say more about demand for gold than they do about the rest of the economy. On the other hand, maybe they tell a significant story that the dollar-denominated figures do not.
John Maynard Keynes, Charlie Munger and Warren Buffett all said or implied that gold was a barbarous relic. But what’s the barbarous relic? The precious metal that shows prices without a veneer of manipulation, or the paper currency that smudges the true state of supply and demand through money printing, thus misleading markets and society? Charlie Munger says gold is not for civilised people, but in reality gold may be the most civilised currency of all — because it allows civilised people to purchase insurance against the risk of civilisation failing.
A central bank can claim to have demonetised gold. It can claim gold is a barbarous relic (even while keeping thousands of tonnes on its books), or just an “instrument to hedge tail risk” (although Jamie Dimon surely disagrees — J.P. Morgan prefers to “hedge tail risk” by making huge speculatory prop bets on credit derivatives).
But gold is still gold. It’s still that same shining yellow metal that investors have for thousands of years held up as a unit of account and store of value, and a medium of exchange, even if it is no longer used very much for the latter.
Central bankers can’t just abolish history. On the other hand, one day history may just abolish central bankers. We shall see.
All of these charts seem to indicate gold is in a massive bubble.
That ratio would need to fall by an order of magnitude for gold to be close to a historic high.
That DJ chart shows the same thing as all the others – gold getting more and more valuable against everything else.
I’m not sure what to make of PMs any more, it’s exhausting. Could go so much higher, yet the price could so easily be deliberately crashed by coordinated government action.
My view is that we are still coming off the back of a massive credit bubble that began to burst around 99-2000, and is still gradually bursting now as reality bites. As more money is printed to support (fiat-denominated) debt and asset prices gold is only going to go higher.
This chart I think is the strongest case for gold in the short-to-medium term:
Then there is this, an oldie but worth looking at as we are about 13 years into what is normally a 14 year trend.:
I would guess that this time will be longer than 14 years, simply because of all the Keynesian deception.
I think about that and then think about how mocked paper bugs are for their belief that “this time will be different.” I think this time could end up being the same. The first cycle began with the Great Depression and Roosevelt’s new deal policies. It ended with Bretton Woods. The second cycle began about the time of LBJ’s Great Society (read: Medicare) and the end of Bretton Woods and ran through the stagflation of the 70’s, ending with Reagan/Volcker’s massive attack on inflation and taxes. In each case the kickoff of the cycle was political in nature and the end of the cycle was political in nature. Our current cycle began in 1999 – maybe it was LTCM that could be viewed as the trigger, though the election of compassionate conservative GWB may have kicked it off.
I think that, in addition to telling the truth, Gold helps to forecast how long before people have had enough of the existing regime. It’s a political barometer of the lower class’s (ie the 99%’s) tolerance for pain. Looking at the history, I think this time won’t be different. With this election, the possibility of a Ron Paul presidency, Congress debating ending the FED, it is possible that come 2013/2014 something happens that crashes gold.
But 14 years is a very arbitrary number, and a lot of things are different this time, for one thing hyper-globalisation, and another hyper-leverage. Also an end to the cycle wouldn’t mean gold “crashing”, it could just mean stocks “taking off” priced in gold.
A ZH commenter just summed up my thoughts:
These were my exact thoughts when I found the site: http://www.pricedingold.com. If gold is expensive through bubble speculation everything else looks like it is lower.
See SP500 in Gold back to 1800
But the SP500 is in a bubble of its’ own. PE ratios are way too high for the forward earnings we are hoping for. In this world wide austerity I think we’ll see a re-weighting of the index when P/E ratios are adjusted for realisitic earnings.
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The difference between paper gold and real gold is what would worry me, if I had any of the first variety.
It amazes me that people invest in gold because they don’t trust banks and financial institutions, but don’t then insist on getting real, phsical yellow metal and putting it in a vault somewhere, or burying it.
Yep. As Zero Hedge and I noted earlier this month, though, physical gold is winning the battle:
Cool graph. That says it all.
If the physical bullion market is so much bigger than the imaginary bullion market then that’s some comfort. I had thought it was the other way around, with most PM trading/holding being mickey mouse.
Lot of Chinese physical buying.
As PBOC official Zhang Jianhua noted:
Note hard currency, not some ETF derivative. ETFs are for idiots, and I don’t use the word idiot lightly.
Also Japanese pension funds are starting to buy physical gold.
My favourite heuristic for the price of gold is the CASH4YOURGOLD ads. The more there are, the happier I can be gold is not in a bubble. When gold is in a bubble, the suckers who are all selling their “broken jewellery” now will be buying it back at 10x the price they sold it for.
Who are you trying to kid?! Those gold ETFs are safe and sound they would never be “Jon Corzined”!!
I’m still waiting for iShares to start offering doomsday bunker, hollow point ammo and MRE backed ETFs.
I’m going for the double long doomsday bunker fund.
I used to laugh at Doomers. But luckily I don’t live in the USA. If the US army can’t control the Taliban, how will it control its own people?
When the system collapses, and the youths get excited by mob rule, I think the Police and Millitary willl have a very hard time controlling the situation.
When will the world decide that enough is enough and stop funding the US dollar and its deficit. This will be the black swan we have been talking about.
Or do we fear collapse in the US because of the consequences? I am sure the world Governments will prop up the US, because of its home grown gang banger (Not terrorists as these are usually educated) threat.
Gold is transportable in a pick up truck. And is accepted where Mastercard/Visa is down.
Problem with gold and silver right now is that I think it is over-denominated, i.e. ounces are too big for most reasonable purchases of food/water/fuel. I like and respect metals dealers who offer things like old silver nickels, or small denominations of gold (e.g. sovereigns).
Gold can be rolled into foil. You could unroll a tab for what ever you wanted to buy. Just as thin as paper. But prettier.
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what do you do if you cant afford gold?
Rule 1 of investing: don’t make investments you can’t afford. Gold is for preserving wealth. If someone doesn’t have wealth to preserve, then gold isn’t for them. Once you have wealth to preserve gold becomes a good option, even at the level of grams. I personally recommend households keep a few ounces of gold and silver as a hedge against counter-party risk, geopolitical shocks, etc.
Of course (take this with a pinch of salt) if it became obvious that hyperinflation was hitting, having an empty credit card lying around and using it to load of up on a few ounces of precious metals seems like a good idea.
Guns, land, and water baby!!
Hahaha I’m not half as much of a doomer as most of the people on ZH, but it’s always good to buy insurance on these things.
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This is off topic re: this article, but i thought you should really read guy’s comment from zerohedge… one of the best comments i have read on ZH in the last 2 years. It was posted on the thread about the ne bill that a senator proposed re: leaving the US.
Wow, what a fantastic read. too bad Zh’ers don’t get it.
To save readers the agony of sifting through to page three, I’ll reproduce that comment here:
If ever there was a need for a tl:dr summary…
I haven’t read it all yet… another reason why I “bookmarked it” for later by posting it here.
The guy”s post is pure inspiration and accute obervation. Most on ZH just glanced at the length and dismissed it – which is their loss. That post is a work of art if I’ve ever seen word-art.
Good on him. It was a long red, and I see where he is coming from. As an Australian, we see the life of the US through our daily TV and Newsfeeds, yet we have a different culture. (But it is heading that way) He certainly is a story teller. I hope he came to Australia. He needs to have a beer and relax. Do what our people do. Go on welfare and 1. Avoid paying US taxes. 2. Get a welfare check from the US Government, via Australia, which funds it welfare via deficit spending, thanks to the Federal Reserve.
His words: “That slick commercial skin, the bright colored signs for Circuit City and The Gap (rest in peace), the clear plastic that covers every product from CDs to pre-cut vegetables, the friendly yellow and red wrapper on the burger inside its bright red paper box, the glossy branding of every item and experience. These things are the supposed tangible evidence that the slick conditioned illusion, the one I call The American Hologram, is indeed real. If it’s bright and shiny and new, it must be better. Right? It is the complete opposite of real life.”
This is how the US culture permeates the world. Ever seen the look on the eyes of an Afghan child when presented with a GI Joe toy, fully boxed?
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We live in a illusory fantasy, a plastic artificial life. We are fed and full but mostly like farm animals. Break out…go into the wilderness of self, awaken and regain your natural birth right, leave artificial life behind. We are all one, being an owner of vast capital is not freedom.
An American businessman was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them. The Mexican replied only a little while.
The American then asked, “Why didn’t you stay out longer and catch more fish?”
The Mexican said, “I’ve got enough to support my family’s immediate needs.”
The American then asked, “But what do you do with the rest of your time?”
The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos, I have a full and busy life, senor.”
The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds buy a bigger boat. With the proceeds from the bigger boat you could buy several boats; eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually NYC where you would run your expanding enterprise.”
The Mexican fisherman asked, “But senor, how long will this all take?”
To which the American replied, “15-20 years.”
”But what then, senor?”
The American laughed, “That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions.”
”Millions, senor? Then what?”
The American said, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your family.”
When I was at Arthur Andersen 14 years ago, a school buddy in Accenture told me about this quote. I guess these guys were at the cutting edge of the story that this guy was referring about. The long hours and stress must have circulated this story. It was relevent then and is relevent now.
I visited Bali not long after hearing this quote, and discussed this with Balinese youths who were playing cards on the beach. They wanted to come to Australia. I said “Mate if you come to Australia you won’t have time to play cards with your mate by the beach. Maybe on a weeknight after work, at a casino or “Card group”. It is work work work. Especially for you, a recent migrant.
Ignorance is bliss. Sadly there is not as many fish in the sea.
Buy gold. Wait for the reset. Keep out of harms way.. Start a new family. Like Noahs flood, there will be a reset. We can’t continue plundering the earth like we are doing.
Start sowing your gold into your clothing now.
I know this isn’t directly related to the post but thought you all would be interested. Check out this video of a drone over U.S. soil http://bit.ly/Lb4ZD9
Kids playing soccer? I can see why they need drone surveillance; they’re either Mexican or English, and thus a sworn enemy of freedom-loving Americans.
Yes soccer is decidedly un-American. If they were real patriots they would be playing football… that is American football. Highly suspect. I’m glad my tax dollars are hard at work keeping us safe from these potential terrorists.
No, if they were real patriots they would be at home playing Call of Duty learning how to shoot brown people in resource wars in the middle east.
I feel so much safer now.
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I enjoyed that ZH quote, I’m a bit of an existentialist myself. Shame the author didn’t understand what first world, second world actually means though, before spouting off a load of bollocks about it.
I believe that most ignore the fact that gold [or any other money-substance, for that matter] is simply an abstraction of labor-value. Since the real value of labor has been made virtually opaque due to massive structural interference [fees, taxes, levies, interest, out-right theft, etc.], labor-value’s money-form [in case, gold] value, is one distant from its actual value, by an amount unknowable due to the infinite variability of its determinant factors.
How do we capture our labour efforts. If I perform a job, I need to be compensated. How do I store that effort? Perhaps a token system where energy value is captured which reflects effort (See Technocrat Thinking).
In the old days you would mix raw materials with labour and get a product which reflected the level of effort expended. Later, stored capital was thrown into the mix. Now intellectual research and knowledge. As we get into higher tertiary products, you need to compensate intellectuals to work with paper/electronic money. It is one circular paper trail.
BR, you aptly point out the conundrum, that is, how does one compensate those who have discovered newer and better methods to produce?
The answer: You don’t. Otherwise, Org and Grong’s relatives would still be receiving residuals every time someone lit a match. Soon, all the potential profit goes up in smoke.
If you disagree with this assessment, then you would probably side with the bankers and the rest of the financializers who seek profits through administration and productivity gains.
No I agree with you. I think the days of productivity increase via the computerisation of the office is gone. Outsourcing to 3rd world countries does not work as well except for processing of very simple tasks ( I know from experience!), so I don’t see further productivity gains.
The problem is we define our advancement in terms of GDP, not “Gross National Happiness”, so we are doomed, because we can only grow and consume so much before we get non or negative growth (Experiencing this now).
Can you imagine the Gross National Happiness of the next generation, if we left them houses, cars consumer goods. They would be so thankful they don’t have to work, because 5 billion people’s collective efforts was left to them. GDP Nil. Happiness off the charts. Nothing to do but have a family. What we considered normal when the Earth was abundant and man few in number. A virtual Garden of Eden.
There’s no free lunch. But, having said that, productivity gains should be shared by the entire society like it was before 1913, i.e., in increasing the value of the currency.
The entire economy is in a massive bubble: cars are worth 1/6th what you pay, homes are worth 1/6th what you pay, your employer pays you 1/6th what you earn the company (on average). Where does all that money go? Tune into the evening news, see those people complaining about high taxes and wages? They’re getting the 5/6ths.
I am intrigued and also thinking about what you will be talking about the following