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Old December 2nd, 2009 #201
Rick Ronsavelle
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The gold is the money- not the paper. Barter gold for something else tangible. Holding jewish paper is evil.

We're just getting started. When fear/greed kick in, $100/day moves will be routine. This is a threefer- survival, conserving capital, and riding along with speculation. The general public has to be brought in- where they will buy at the top. I would sell 1/3 to 2/3 and immediately get something other than paper.

Selling gold implies that the FRN is still "the money". The gold is the money.

Over $1220 at the moment.
 
Old December 2nd, 2009 #202
Alex Linder
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Quote:
Originally Posted by Rick Ronsavelle View Post
The gold is the money- not the paper. Barter gold for something else tangible. Holding jewish paper is evil.
Depends on circumstances.

Quote:
We're just getting started. When fear/greed kick in, $100/day moves will be routine. This is a threefer- survival, conserving capital, and riding along with speculation. The general public has to be brought in- where they will buy at the top. I would sell 1/3 to 2/3 and immediately get something other than paper.
What evidence the general public will buy in? I read the LRC crew. Rogers is the one they respect, he's actually holding dollars right now. I think he expects gold to dip, then rise later, don't know the time frame, I guess years to a decade, as he has said he expects $2000 gold in next ten years. His point is global deficits are driving gold market. Public is nervous but not really in gold yet. China and India are moving into gold and away from dollars, trying to be carefully and cagey about it, like backing out of a room of thieves.

Quote:
Selling gold implies that the FRN is still "the money". The gold is the money.
Maybe, but you can buy stuff with FRNs and that won't change soon.
 
Old December 2nd, 2009 #203
Rick Ronsavelle
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"What evidence the general public will buy in?'

History. Lure of easy money. Madness of crowds.
 
Old December 2nd, 2009 #204
Rick Ronsavelle
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Richard Russell On Gold


November 25, 2009 --From yesterday's Associated Press: "Demand for gold held up as investors looked for safe places to park their cash. Gold is seen as both an alternative to a weak dollar and a safe-haven investment because of its stable store of value. That has helped drive gold prices to record highs this year."

This pre-Thanksgiving period seems more important than any other I can remember. The place where I park is empty, meaning that everybody has high-tailed it out of town. I note that the Christmas signs are up already -- lights, sales ads, reminders. Long ago I called Christmas "inventory reduction day." I've never seen the stores so anxious to unload their wares -- and their employees as well. And I wondered, "What would Jesus say about our modern merchandise-loaded Christmas?"

Despite what our government tells us, it's been a tough year. In the last day I've read five full-length articles regarding why the employment and unemployment statistics are an outright lie. Even the Prez admitted that employment statistics are an "inexact study."

Stock Market The Dow has been leading this market higher. Some of the other major stock averages are failing to hit new highs with the Dow. My main concern with the market action now is that volume has dropped off dramatically. This tells me that the big money, the institutional money, has moved to the sidelines.

I've been telling subscribers to be in gold rather than stocks. Why? Because gold is outperforming the strongest sector of the stock market, the Dow. No guessing here. The chart below shows the relative strength of the two. As long as the ratio rises, it's telling us that gold is the place to be. Why debate it? Charts don't lie.



Gold -- There's still loads of scepticism about the rising price of gold and the bull market in gold. It's been so long since the US public (since 1971) realized the gold was real, Constitutional money, that they don't know what to make of the gold action. They think gold near $1200 an ounce is expensive and they'd rather have dollar bills. I've coined the phrase, "dollar-bugs" for these ignorant Americans. I guess they'll have to get educated the hard way, which means holding on to their fading Federal Reserve Notes, no matter what. As far as I'm concerned, it's an amazing example of mass brain washing. "Hey, I'd rather have junk paper turned out by the Fed than the real thing -- gold." Pathetic. And the happy thought is that you can (legally) still swap your junk fiat paper for gold.

As I write the Dollar Index has broken to a new 15-month low. This must be driving the Bernanke-Geithner team up the wall. Despite their stupid protestations, the Administration wants a cheaper dollar. It's a battle in favor of rising exports against our collapsing currency. In his all-out war to halt the deflationary bear market, Bernanke may be losing a bigger battle -- our nation's currency.

Gold is the immutable standard of value. Everything I watch is now sinking in relation to gold. And I'm talking about stocks, the Dow, the S&P, almost all the world's currencies, all the world's stock averages, most commodities, bonds, real estate, land, you name it. My old friend, James Dines calls it the "great stealth bear market," and he's been very right.

I could include relative strength charts of gold against all of the above items, but what's the use -- you get the idea. Against the standard, gold, the world is deflating, and no amount of paper-creation has been able to change that!

For some long-term perspective, the chart below shows the Dow in term of gold going back to the year 1999, Take your choice, you can call it the "stealth bear market" in the Dow," or the "stealth bull market" in gold.




This is the reason why I have wanted my subscribers to be in gold rather than stocks or anything else. Gold is THE place to be. Period!


Richard Russell
Editor-in-chief - DOW THEORY LETTERS
www.dowtheoryletters.com

The inimitable and venerable Mr. Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron's during the late-'50s through the '90s. Through Barron's and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-'66 bull market. And almost to the day he called the bottom of the great 1972-'74 bear market, and the beginning of the great bull market which started in December 1974.


http://www.gold-eagle.com/gold_diges...ell112509.html
 
Old December 2nd, 2009 #205
remnant
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Quote:
Originally Posted by Alex Linder View Post
Next question: what price would get you to sell some or all of your gold, if you own it?
This may cap the price for now; I sold mine @ 1224.Maybe I'll buy it back tomorrow if this story doesn't gain traction,but it has the potential to end this run:

http://www.chinaeconomicreview.com/d...ld_bubble.html
 
Old December 8th, 2009 #206
Rick Ronsavelle
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Look at post #126 about seasonality. Gold, on average, drops in early December, stopping around 1/3 of the way thru the month. That would be, on average, Thursday the 10th.
 
Old December 8th, 2009 #207
George Witzgall
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Quote:
Originally Posted by Rick Ronsavelle View Post
Look at post #126 about seasonality. Gold, on average, drops in early December, stopping around 1/3 of the way thru the month. That would be, on average, Thursday the 10th.
as soon as you can identify a trend, fifty other people have identified it and capitalized on it so it will equilibrate out.
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Old December 10th, 2009 #208
Rick Ronsavelle
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Buying to-day at $1125- the December seasonal low may be in.
 
Old December 10th, 2009 #209
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GOLD IS NOT GOING UP – PAPER MONEY IS GOING DOWN

Quote:
Gold is not going up. Instead gold is doing what it has always done, namely maintaining its value and purchasing power.
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Old December 11th, 2009 #210
Mr Murray
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Default China's Thirst For Gold

China eyes India's spot as top gold consumer

Quote:
SHANGHAI/MUMBAI (Reuters) - It's taken all of recorded history, but this year China finally looks set to overtake India as the world's number one gold consumer.

It may struggle to hold that position in the short term, as the one-off factors that have slowed India's gold demand fade, but in the long term China's rapidly growing economy and investment demand could see it add gold to the long list of commodities where it is the world's largest buyer.
 
Old December 19th, 2009 #211
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How Much Imaginary Gold Has Been Sold?

Quote:
...the gold market is a Ponzi scheme because it sells gold that doesn't exist by implementation of the principles of fractional reserve banking.
...
This basic scam is at the center of modern gold market manipulation. Instead of real gold, paper substitutes for gold are sold through derivatives, futures, pooled accounts, exchange-traded funds, gold certificates, etc. I estimate that each actual physical ounce of gold has multiple ownership claims to it.
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"To speak his thoughts is every freeman's right, in peace and war, in council and in fight."
Homer-The Iliad

"The very aim and end of our institutions is just this: that we may think what we like and say what we think."

-Justice Oliver Wendell Holmes, Jr.

 
Old December 22nd, 2009 #212
Walter E. Kurtz
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Default Gold is Useless? Survival is Everything

Good short vid, worth taking a look at.... Twice.



"Too bad he may be right on gold being useless in a total SHTF. I'm from St.Pete, former Leningrad so we know a thing or 2 about a total SHTF. Gold is not useless but its buying power goes down to a gold ring for a loaf of bread or even a slice. Luxury antique furniture and pianos burned for heat, leather eaten, boiled shoes for soup, wallpaper used to be glued to the walls with starch, torn off and eaten to the last bit, in a few cases corpses, abundant on the frozen streets carved for meat, all animals and birds eaten, grass eaten and trees bare because treebark was eaten during the summertime. Those who had food stashed away, were the lucky ones, they survived and let their loved ones survive. A friend of my family survived because they had a huge bag of coffee bought right before the Seige, about 50lbs or so. Coffee has oils in it, this factor decided their fate. Warm clothes were priceless because ther was no heat, people could skate in their appartments because the floors were covered with ice, just like on the streets."
http://www.goldismoney.info/forums/s...d.php?t=434021


The Housing Collapse of 2010 Will Be Worse Than 2008

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Last edited by Walter E. Kurtz; December 22nd, 2009 at 11:44 AM.
 
Old December 22nd, 2009 #213
remnant
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Quote:
Originally Posted by remnant View Post
This may cap the price for now; I sold mine @ 1224.Maybe I'll buy it back tomorrow if this story doesn't gain traction,but it has the potential to end this run:

http://www.chinaeconomicreview.com/d...ld_bubble.html
Bought 1/2 position today 1080-1085; low is most likely in @ 1075 today.Kept some dry powder in case of a year-end markdown by the Feds to 1050.
 
Old December 22nd, 2009 #214
Rick Ronsavelle
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Good call at 1224. Are you guessing, or using other methods?

I would not trade survival metals- buy and hold only. If you sell at a short-term overbought condition- the entire system may collapse the next day with no chance of repurchasing.
 
Old December 22nd, 2009 #215
remnant
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Quote:
Originally Posted by Rick Ronsavelle View Post
Good call at 1224. Are you guessing, or using other methods?

I would not trade survival metals- buy and hold only. If you sell at a short-term overbought condition- the entire system may collapse the next day with no chance of repurchasing.
Everyone's guessing. That said, I do have a fair amount of professional experience around markets.Gold is by far the toughest,the most obviously manipulated.
 
Old January 4th, 2010 #216
Alex Linder
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Quote:
Originally Posted by remnant View Post
This may cap the price for now; I sold mine @ 1224.
Nice call!
 
Old January 4th, 2010 #217
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The Gold Bugs Were Right

by Eric Janszen

Victory is sacrifice, sacrifice is continuity, continuity is tribulation.
~ Jack Kirby

Imagine you were knocked over the head in 1999 with the December issue of the Red Herring magazine. It weighed in at two pounds, such was the demand for advertising in that west coast technology bubble catalogue at the time. The NASDAQ had climbed over 4000, the S&P500 near 1500, and gold averaged $283 that month.

You wake up ten years later in the hospital. The nurse left today’s Wall Street Journal by your bed. You pick it up. It’s dated Dec. 31, 2009.

Holy cow! You’ve been in a coma for ten years. Then you spy the headline “2009: Banner Year For U.S. Stocks” and you smile.

Whew! You may have been out of it for a decade but at least your portfolio, heavy in tech stocks and the S&P500, kept growing as you slept.

Then you start to read the story.

S&P500 1123?

NASDAQ 2285?

After ten years?!

You drop the paper on the floor.

Banner year? Shit, you think. If they call stocks ending the year lower than ten years ago a “banner year” you’d hate to see what they call a “bad year” these days.

Slack jawed you look down at the paper now strewn on the floor. Your eye wanders to a small story on page 32: The price of gold is $1095.

What the hell? Did the world end?

You crawl out of bed to the window, expecting bomb craters in the street. Instead, zombie shoppers plow the sidewalks with white wires spouting from their ears, pods in their pockets.

You stagger across the room, climb onto a chair and, from a black metal bracket on the wall, you rip an object that looks like a TV, only flatter. You grab it firmly in your hands and, in one sweep, clobber yourself over the head with it.

Maybe in another ten years your portfolio will be back to where it was so you’ll have a hope of paying your hospital bill.

Good decade for gold, bad decade for just about everything else

In our analysis, the story of the past ten years is told in the price of stocks and gold. We start our journey with a review of articles recently published in Project Syndicate by two economists I respect, Nouriel Roubini and Harvard’s Martin Feldstein. Each weighed in on the topic of gold as an investment in articles. These two fine economists address the question, “Should I buy gold at a historically high price?”

Feldstein approaches the question from a long-term perspective while Roubini focuses his analysis on the recent past, since 2008. Readers asked for my opinion on these articles. Parts I and II are my response.

Part III pours over ten years of stock and gold market data to answer the questions:

* Whether our gold investments are down 10% or up more than 300%, should we buy more, hold, or sell?
* What’s in store for 2010?
* Might the year 2010 be the first since the year 2000 that gold finishes the year below its opening price?
* What might that mean for stock and bond prices?

Taken together, the review of Feldstein’s and Roubini’s articles, and our review of the past ten years of stocks versus gold, draws us to the inescapable conclusion that for the decade that began in the year 2000 the gold bug hypothesis was the right one: stocks, bonds, and real estate did, net of asset price inflation and deflation, performed worse and with higher volatility than the barbarous relic.

Part I: “Is Gold a Good Hedge?” by Professor Feldstein reviewed
Part II: “The Gold Bubble and the Gold Bugs” by Nouriel Roubini reviewed
Part III: Will the year 2010 be the first in a decade that is worse for gold than for stocks?

We start with Professor Feldstein’s analysis “Is Gold a Good Hedge?”

Feldstein follows the script of well-meaning gold investment advice that we have read since 1998 when we began to investigate gold in earnest, and three years before jumping into the gold market in 2001. The script covers five main points to warn potential investors away from gold:

* Gold does not earn interest or dividends, as do stocks and bonds
* The gold price does not reflect underlying earnings, as do stocks and bonds
* The gold price is not determined by supply and demand fundamentals as are other commodities, like copper or silver
* Gold prices are volatile, compared to stocks and bonds
* Gold investing is risky, compared to stocks and bonds

The first point is irrefutable, but the second is only half true – and it’s the untruthful part of it that will get you.

The gold price does not reflect underlying earnings, but then again since approximately 1995 stock and bond prices have not reflected underlying earnings either, but rather monetary and economic policies intended to produce continuous asset price inflation in stocks, bonds, and real estate. Result: the two largest asset bubbles in world history since 1998. Today stock, bond, and real estate prices are heavily influenced by monetary and government policy aimed at helping the economy recover from the aftermath of these two bubbles, so they are still not driven by fundamentals any more than they were when government policies created the bubbles in the first place. Some day they will be. At that point we will re-enter the stock market.

As to the third point, that the gold price is not determined by supply and demand fundamentals as are other commodities, this is also true. But if not industrial and other forms of so-called “fundamental” demand, what keeps gold prices above zero? Our conclusion in 2001, and the primary reason we bought gold then, is that the ownership of gold by central banks of more than 20% of all gold ever produced – and no other commodity besides gold – gives gold its unique role as part globally traded commodity, part global currency. The gold price is a function of the value of gold in that unique role.

The last two assertions are simply incorrect in fact, as we demonstrate.

To the five main elements of the common gold investment warning script, Feldstein adds two more: gold does not effectively hedge either inflation or a weak dollar, two assertions that are easy to disprove.

As I walked through the airport in Dubai recently, I was struck by the large number of travelers who were buying gold coins. They were not reacting to Dubai’s financial trouble, but rather were joining the eager rush to own gold before its price rises even further. Such behavior has pushed the price of gold from $400 an ounce in 2005 to more than $1100 an ounce in December 2009.

Gold prices have risen every year since 2001, so why measure the beginning of the rise in the gold price starting arbitrarily in 2004? The gold price increased from $260 an ounce in May 2001 to more than $1,200 an ounce in December 2009, a factor of four over eight years, not a factor of three over five years. Selecting 2005 as a starting date understates both the duration and the extent of the gold price gain. As we step through Feldstein’s article, we find that the selected time period used in the analysis produces results that support the author’s argument that gold does not hedge inflation or currency depreciation. If the entire period of the free market in gold in the US since 1975 is used, the data lead to the opposite conclusion.

The author also makes the mistake of expanding personal observations into broad generalizations about the gold market. For example, in his opening paragraph, how does Feldstein know that travelers at the Dubai airport on his recent visit were in fact buying more not less gold than before? If he had been to Dubai several times over the past few years he may be able to estimate that gold purchases had increased or decreased since his previous visits. He then generalizes the motivation of all gold purchasers from that single observation, to “join the rush to own gold” rather than in response to the Dubai debt crisis.

A google search turned up a dozen articles published between November and December 2009, such as “Debt fears keep Dubai retail gold sales stagnant” in Arab News, that tells us that the debt crisis has in fact affected gold demand locally – by reducing not raising it. Articles in the Dubai business press that we located blamed lower gold sales in recent months on the poor business climate, especially reduced tourism.

These articles do not distinguish between gold bullion and gold jewelry sales. Gold jewelry and bullion are separate and distinct markets in Dubai, as they are everywhere in the world, the former driven by demand by consumers of gold for ornament and latter of gold by investors to hedge inflation, currency depreciation, and other capital losses.

Here in the US, the gold jewelry and bullion markets are split between low and high income and net worth groups. As middle class families sell gold jewelry to raise cash to pay the bills in our stagflationary depression (high unemployment, stagnant wages, high and rising goods and services prices, high and rising taxes, and soon to be rising interest rates), wealthy households buy gold bullion to hedge future inflation and a weak currency, two typical long-term problems for nations that run large fiscal deficits combined with a large external debt.

Building on the speculation that gold bullion demand is up in Dubai and is attributable to irrational herd mentality rather than the rational desire to hedge inflation and currency risk, the author goes on to generalize this irrational behavior as the force that caused the gold price to rise since 2004 in totality.

The opening paragraph serves to cue the reader that the rest of the article promises to confirm the biases of the author’s target audience, readers who do not own gold and want to be reassured that their decision to not buy gold at a lower price over the past eight years continues to reflect sound judgment even though the price has increased more than ten times the nominal price of the S&P 500 since 2001, stocks being the primary alternative investment proposed by the author.

As long term gold investors, we favor gold analysis articles that help us decide whether or not to buy more gold, hold it, or sell it over articles that assume that we have accepted the standard arguments against buying gold and have not already experienced significant gains.

Individual buying of gold goes far beyond the airport shops and other places where gold coins are sold. In addition to buying coins minted by several governments, individuals are buying kilogram gold bars, exchange-traded funds that represent claims on physical gold, gold futures, and shares in gold-mining companies that provide a leveraged position on the future price of gold.

And gold buyers include not just individuals, but also sophisticated institutions and sovereign wealth funds. Recently, the government of India purchased 200 tons of gold from the International Monetary Fund.

The recent addition of institutional and government gold purchasers to the gold market signals a significant change in the gold market since 2001. Kudos to Feldstein for mentioning this development, which we rarely see noted in articles of this type, but we wish he’d commented on the possible implications of it because, as gold investors, we want to understand how the gold market is evolving over time from as broad a range of perspectives as possible.

Many gold buyers want a hedge against the risk of inflation or possible declines in the value of the dollar or other currencies. Both are serious potential risks that are worthy of precautionary hedges. Although inflation is now low in the United States, Europe, and Japan, households and institutional investors have reason to worry that the low interest rates and the extensive creation of bank reserves could lead to inflation when economic recovery takes hold. And the declining value of the dollar – down more than 10% against the euro in the past 12 months – is a legitimate cause of concern for non-US investors who now hold dollars.

But is gold a good hedge against these two risks? Will gold maintain its purchasing power value if inflation erodes the purchasing power of the dollar or the euro? And will gold hold its value in euros or yen if the dollar continues to decline?

Feldstein argues that while a weakening dollar and inflation present real risks to investors, gold does not hedge these risks well. He selects the period after 1980 to make his point about the ineffectiveness of gold as an inflation hedge. This date selection guarantees data that show a low correlation between the gold price and inflation.

Consider first the potential of gold as an inflation hedge. The price of an ounce of gold in 1980 was $400. Ten years later, the US consumer price index (CPI) was up more than 60%, but the price of gold was still $400, having risen to $700 and then fallen back during the intervening years. And by the year 2000, when the US consumer price index was more than twice its level in 1980, the price of gold had fallen to about $300 an ounce. Even when gold jumped to $800 an ounce in 2008, it had failed to keep up with the rise in consumer prices since 1980.

The US dollar gold market began in 1975, two years after gold was de-linked from the global monetary system and the year that laws forbidding gold ownership by US citizens were repealed. Before 1975, no dollar market in gold existed in the US; governments set the gold price and US citizens could not own it. After 1975, markets not governments set the gold price. An analyses of the dollar gold market that hopes to draw on the history of the entire period of the dollar market for gold starts in 1975, not arbitrarily in 1980 or any other year.

If we take the gold versus inflation analysis back to 1975, the data contradict Feldstein’s assertion that gold does not rise and fall with inflation, and thus does not hedge inflation.

[much more]
http://www.itulip.com/forums/showthr...535#post141535
 
Old January 4th, 2010 #218
Alex Linder
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The Gold Bugs Were Right

by Eric Janszen

Victory is sacrifice, sacrifice is continuity, continuity is tribulation.
~ Jack Kirby

Imagine you were knocked over the head in 1999 with the December issue of the Red Herring magazine. It weighed in at two pounds, such was the demand for advertising in that west coast technology bubble catalogue at the time. The NASDAQ had climbed over 4000, the S&P500 near 1500, and gold averaged $283 that month.

You wake up ten years later in the hospital. The nurse left today’s Wall Street Journal by your bed. You pick it up. It’s dated Dec. 31, 2009.

Holy cow! You’ve been in a coma for ten years. Then you spy the headline “2009: Banner Year For U.S. Stocks” and you smile.

Whew! You may have been out of it for a decade but at least your portfolio, heavy in tech stocks and the S&P500, kept growing as you slept.

Then you start to read the story.

S&P500 1123?

NASDAQ 2285?

After ten years?!

You drop the paper on the floor.

Banner year? Shit, you think. If they call stocks ending the year lower than ten years ago a “banner year” you’d hate to see what they call a “bad year” these days.

Slack jawed you look down at the paper now strewn on the floor. Your eye wanders to a small story on page 32: The price of gold is $1095.

What the hell? Did the world end?

You crawl out of bed to the window, expecting bomb craters in the street. Instead, zombie shoppers plow the sidewalks with white wires spouting from their ears, pods in their pockets.

You stagger across the room, climb onto a chair and, from a black metal bracket on the wall, you rip an object that looks like a TV, only flatter. You grab it firmly in your hands and, in one sweep, clobber yourself over the head with it.

Maybe in another ten years your portfolio will be back to where it was so you’ll have a hope of paying your hospital bill.

Good decade for gold, bad decade for just about everything else

In our analysis, the story of the past ten years is told in the price of stocks and gold. We start our journey with a review of articles recently published in Project Syndicate by two economists I respect, Nouriel Roubini and Harvard’s Martin Feldstein. Each weighed in on the topic of gold as an investment in articles. These two fine economists address the question, “Should I buy gold at a historically high price?”

Feldstein approaches the question from a long-term perspective while Roubini focuses his analysis on the recent past, since 2008. Readers asked for my opinion on these articles. Parts I and II are my response.

Part III pours over ten years of stock and gold market data to answer the questions:

* Whether our gold investments are down 10% or up more than 300%, should we buy more, hold, or sell?
* What’s in store for 2010?
* Might the year 2010 be the first since the year 2000 that gold finishes the year below its opening price?
* What might that mean for stock and bond prices?

Taken together, the review of Feldstein’s and Roubini’s articles, and our review of the past ten years of stocks versus gold, draws us to the inescapable conclusion that for the decade that began in the year 2000 the gold bug hypothesis was the right one: stocks, bonds, and real estate did, net of asset price inflation and deflation, performed worse and with higher volatility than the barbarous relic.

Part I: “Is Gold a Good Hedge?” by Professor Feldstein reviewed
Part II: “The Gold Bubble and the Gold Bugs” by Nouriel Roubini reviewed
Part III: Will the year 2010 be the first in a decade that is worse for gold than for stocks?

We start with Professor Feldstein’s analysis “Is Gold a Good Hedge?”

Feldstein follows the script of well-meaning gold investment advice that we have read since 1998 when we began to investigate gold in earnest, and three years before jumping into the gold market in 2001. The script covers five main points to warn potential investors away from gold:

* Gold does not earn interest or dividends, as do stocks and bonds
* The gold price does not reflect underlying earnings, as do stocks and bonds
* The gold price is not determined by supply and demand fundamentals as are other commodities, like copper or silver
* Gold prices are volatile, compared to stocks and bonds
* Gold investing is risky, compared to stocks and bonds

The first point is irrefutable, but the second is only half true – and it’s the untruthful part of it that will get you.

The gold price does not reflect underlying earnings, but then again since approximately 1995 stock and bond prices have not reflected underlying earnings either, but rather monetary and economic policies intended to produce continuous asset price inflation in stocks, bonds, and real estate. Result: the two largest asset bubbles in world history since 1998. Today stock, bond, and real estate prices are heavily influenced by monetary and government policy aimed at helping the economy recover from the aftermath of these two bubbles, so they are still not driven by fundamentals any more than they were when government policies created the bubbles in the first place. Some day they will be. At that point we will re-enter the stock market.

As to the third point, that the gold price is not determined by supply and demand fundamentals as are other commodities, this is also true. But if not industrial and other forms of so-called “fundamental” demand, what keeps gold prices above zero? Our conclusion in 2001, and the primary reason we bought gold then, is that the ownership of gold by central banks of more than 20% of all gold ever produced – and no other commodity besides gold – gives gold its unique role as part globally traded commodity, part global currency. The gold price is a function of the value of gold in that unique role.

The last two assertions are simply incorrect in fact, as we demonstrate.

To the five main elements of the common gold investment warning script, Feldstein adds two more: gold does not effectively hedge either inflation or a weak dollar, two assertions that are easy to disprove.

As I walked through the airport in Dubai recently, I was struck by the large number of travelers who were buying gold coins. They were not reacting to Dubai’s financial trouble, but rather were joining the eager rush to own gold before its price rises even further. Such behavior has pushed the price of gold from $400 an ounce in 2005 to more than $1100 an ounce in December 2009.

Gold prices have risen every year since 2001, so why measure the beginning of the rise in the gold price starting arbitrarily in 2004? The gold price increased from $260 an ounce in May 2001 to more than $1,200 an ounce in December 2009, a factor of four over eight years, not a factor of three over five years. Selecting 2005 as a starting date understates both the duration and the extent of the gold price gain. As we step through Feldstein’s article, we find that the selected time period used in the analysis produces results that support the author’s argument that gold does not hedge inflation or currency depreciation. If the entire period of the free market in gold in the US since 1975 is used, the data lead to the opposite conclusion.

The author also makes the mistake of expanding personal observations into broad generalizations about the gold market. For example, in his opening paragraph, how does Feldstein know that travelers at the Dubai airport on his recent visit were in fact buying more not less gold than before? If he had been to Dubai several times over the past few years he may be able to estimate that gold purchases had increased or decreased since his previous visits. He then generalizes the motivation of all gold purchasers from that single observation, to “join the rush to own gold” rather than in response to the Dubai debt crisis.

A google search turned up a dozen articles published between November and December 2009, such as “Debt fears keep Dubai retail gold sales stagnant” in Arab News, that tells us that the debt crisis has in fact affected gold demand locally – by reducing not raising it. Articles in the Dubai business press that we located blamed lower gold sales in recent months on the poor business climate, especially reduced tourism.

These articles do not distinguish between gold bullion and gold jewelry sales. Gold jewelry and bullion are separate and distinct markets in Dubai, as they are everywhere in the world, the former driven by demand by consumers of gold for ornament and latter of gold by investors to hedge inflation, currency depreciation, and other capital losses.

Here in the US, the gold jewelry and bullion markets are split between low and high income and net worth groups. As middle class families sell gold jewelry to raise cash to pay the bills in our stagflationary depression (high unemployment, stagnant wages, high and rising goods and services prices, high and rising taxes, and soon to be rising interest rates), wealthy households buy gold bullion to hedge future inflation and a weak currency, two typical long-term problems for nations that run large fiscal deficits combined with a large external debt.

Building on the speculation that gold bullion demand is up in Dubai and is attributable to irrational herd mentality rather than the rational desire to hedge inflation and currency risk, the author goes on to generalize this irrational behavior as the force that caused the gold price to rise since 2004 in totality.

The opening paragraph serves to cue the reader that the rest of the article promises to confirm the biases of the author’s target audience, readers who do not own gold and want to be reassured that their decision to not buy gold at a lower price over the past eight years continues to reflect sound judgment even though the price has increased more than ten times the nominal price of the S&P 500 since 2001, stocks being the primary alternative investment proposed by the author.

As long term gold investors, we favor gold analysis articles that help us decide whether or not to buy more gold, hold it, or sell it over articles that assume that we have accepted the standard arguments against buying gold and have not already experienced significant gains.

Individual buying of gold goes far beyond the airport shops and other places where gold coins are sold. In addition to buying coins minted by several governments, individuals are buying kilogram gold bars, exchange-traded funds that represent claims on physical gold, gold futures, and shares in gold-mining companies that provide a leveraged position on the future price of gold.

And gold buyers include not just individuals, but also sophisticated institutions and sovereign wealth funds. Recently, the government of India purchased 200 tons of gold from the International Monetary Fund.

The recent addition of institutional and government gold purchasers to the gold market signals a significant change in the gold market since 2001. Kudos to Feldstein for mentioning this development, which we rarely see noted in articles of this type, but we wish he’d commented on the possible implications of it because, as gold investors, we want to understand how the gold market is evolving over time from as broad a range of perspectives as possible.

Many gold buyers want a hedge against the risk of inflation or possible declines in the value of the dollar or other currencies. Both are serious potential risks that are worthy of precautionary hedges. Although inflation is now low in the United States, Europe, and Japan, households and institutional investors have reason to worry that the low interest rates and the extensive creation of bank reserves could lead to inflation when economic recovery takes hold. And the declining value of the dollar – down more than 10% against the euro in the past 12 months – is a legitimate cause of concern for non-US investors who now hold dollars.

But is gold a good hedge against these two risks? Will gold maintain its purchasing power value if inflation erodes the purchasing power of the dollar or the euro? And will gold hold its value in euros or yen if the dollar continues to decline?

Feldstein argues that while a weakening dollar and inflation present real risks to investors, gold does not hedge these risks well. He selects the period after 1980 to make his point about the ineffectiveness of gold as an inflation hedge. This date selection guarantees data that show a low correlation between the gold price and inflation.

Consider first the potential of gold as an inflation hedge. The price of an ounce of gold in 1980 was $400. Ten years later, the US consumer price index (CPI) was up more than 60%, but the price of gold was still $400, having risen to $700 and then fallen back during the intervening years. And by the year 2000, when the US consumer price index was more than twice its level in 1980, the price of gold had fallen to about $300 an ounce. Even when gold jumped to $800 an ounce in 2008, it had failed to keep up with the rise in consumer prices since 1980.

The US dollar gold market began in 1975, two years after gold was de-linked from the global monetary system and the year that laws forbidding gold ownership by US citizens were repealed. Before 1975, no dollar market in gold existed in the US; governments set the gold price and US citizens could not own it. After 1975, markets not governments set the gold price. An analyses of the dollar gold market that hopes to draw on the history of the entire period of the dollar market for gold starts in 1975, not arbitrarily in 1980 or any other year.

If we take the gold versus inflation analysis back to 1975, the data contradict Feldstein’s assertion that gold does not rise and fall with inflation, and thus does not hedge inflation.

[much more]
http://www.itulip.com/forums/showthr...535#post141535
 
Old January 9th, 2010 #219
Alex Linder
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But the Russians are playing it much smarter. They've been consistently and significantly building their gold reserves over the last several years. They seem to add substantially to those reserves every month.

For a long time, I've thought that what will happen is that someone will come out of left field and offer the world a gold-backed version of their currency. It could easily be the Russians, or the Chinese. And if they did it right, making the currency fully redeemable in gold, that currency would become the strongest in the world. As a result, capital would pour into their banking system. And, assuming they made some other reforms, namely cutting taxes and regulation, their economies would become real powerhouses producing sustainable growth.


http://www.lewrockwell.com/casey/casey36.1.html
 
Old January 9th, 2010 #220
Alex Linder
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L: To some degree, the market is responding to government's failure to produce reliable money. There have been several gold-backed currencies established in recent years, though they have to be careful what they call it. There was NORFED, which went to great pains not to call itself a money, nor its silver tokens "coins" – but was still getting its gold and silver warehouse receipts accepted as payment by all sorts of businesses, including some Wal-Marts – until it got shut down by Uncle Sam. E-Gold was the first digital gold currency that saw fairly widespread adoption – until it, too, got shut down by the U.S. government. Now there's GoldMoney.com, which seems to be pretty open about competing with governments in the currency business… What do you make of all this?

Doug: I've got to say that I have a lot of confidence, personally and professionally, in Jim Turk and GoldMoney.com. I'm a very small shareholder, as is Casey Research, actually, though I admit that might be thinking with our hearts a bit as well as our heads. But I think GoldMoney.com is going to grow, because it allows you to store your gold at very low cost and settle transactions with other account holders. It's not actually a bank, because it doesn't lend gold. It's simply a gold storage mechanism and a transfer mechanism.

Incidentally, to the best of my knowledge – and I'm no tax attorney, so you should check with a good one – but to the best of my knowledge, gold stored with GoldMoney.com is not reportable under current U.S. law. So, it's a very convenient way to diversify your assets internationally and out on the Net, without the onerous reporting requirements that come with actual bank accounts.

L: So, GoldMoney.com is your preferred digital gold currency. Can you say a bit more about how that works, for those not familiar with it? Can they go down to the local Safeway and use it to buy groceries?

Doug: They could if the local store had a GoldMoney.com account. That wouldn't be a Safeway, probably, but a local store might have an account. Then you could use computers to transfer X grams of gold from your account to the store's account, and they'd give you your rice and beans, or champagne and caviar, or whatever you were buying.

L: Most stores don't have computers with Internet browsers at their check-out stands.

Doug: No, it's not widespread in commerce yet, but as it becomes so, someone will probably find a way to make a buck distributing dedicated hardware to take care of the transactions, just as stores have adopted credit card terminals. But as individuals, you and I could agree that you'll buy my car for X grams of gold. You'd log on to your GoldMoney.com account and transfer the gold to my account, and I'd log on to verify the transfer, then I'd give you the keys to the car. There are scores of thousands of individuals you can do business with in this way today.

I think everyone ought to have a GoldMoney.com account. Although the first thing is to have a bunch of gold coins in your own possession.
 
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