Recs
October 27, 2009 – Comments (23) | RELATED TICKERS: GLD , GDX , DGL
The dollar rises. I have been saying for a while, much to the chagrin of fundamentalist libertarians, that we are still in a deflationary environment. Gold has reached record highs on speculation of inflation that has not even materialized. It's fluff. A gold correction is immanent is my belief.
I sure hope you're right. I would like to buy some on the way down. How much correction are you thinking? 10%? 20%?
I'm a fundamentalist libertarian, and gold is going south soon. These are not contradictory views.
Gold is not for people with debts. Gold won't yield interests.
Gold is not for people who want to invest in some ponzi stocks.
Gold is the physical currency that is backed by mother natural, not Fed or any central banks.
Gold is one of the way to fight the debase of Fiat money. No matter if it is USD, Chinese Yuan, Euro or Iceland dollar.
The question: Is $1000/oz too expensive for hold?
"NO" if US Fed keep on printing and US deficits and debt keep rising.
Yea, I'm looking for 10-20% correction. I also want to expose my portfolio to gold.
cbwang888
Nobody said $1000 is too expensive to hold. It's too expensive to buy. I also hope the Fed does keep printing money. You probably don't even know the money supply has been contracting and the inflation rate is negative.
Now the real question.....Is the reason we don't have inflation yet because the big guys are still losing it faster than the Fed can print???
It's the mulitplier effect in reverse.
Typically when the Fed prints a dollar, it trickles through the economy and becomes several dollars.
For instance, a bank borrows that dollar, and then lends out 90 cents, so now there's $1.90 in the system, and that 90 cents finally ends up at a another bank, which then lends out 72 cents, so now there's $2.62 in the system etc.
But now we have the reverse: someone defaults and doesn't pay back his dollar, and that causes someone else to default, and this cascades through the system until several dollars disappear.
So yes: can the Fed print money fast enough to replace the money that is disappearing? My hunch is yes, but ultimately only time will tell.
BetapegLLC
I have been saying for a while, much to the chagrin of fundamentalist libertarians, that we are still in a deflationary environment. Gold has reached record highs on speculation of inflation that has not even materialized. It's fluff.
The inflation rate is negative? That's a good one!! I show real inflation at 6% and beginning to rise, but perhaps you'd prefer to retain the fully debunked calculating methodology of the BLS. Perhaps you're not aware that BLS is best spelled without the 'L'. ;)
I'll have to reassess my definition of a "while". Last I checked it was longer than 6 weeks. :)
Also, immanent = imminent. ;P
Fundamentalist libertarians? Really? Do you really find it necessary to bring politics into a discussion on gold? Do you truthfully consider that a constructive contribution to a reasoned debate on currencies and inflation?
I will repeat my prior response to your call for a 20% correction, which I now see you've trimmed to 10-20%. As I said then, 10% we might possibly see, but 20% does not appear even remotely likely. This is my comment from Day 8 of your renamed correction watch.
Okay, I see from your previous post that you expect a 20% correction in the gold price. From recent levels around $1,060, that would bring us to $850, which happens to be a key support level should that range be tested anew before marching higher.
I never claim to foretell near-term movements in the precious metals markets ... these are heavily manipulated markets with monster futures volumes by bullion banks coupled with coordinated dollar-supporting moves at key battlegrounds in the bull market's progression able to prompt a correction at entirely unpredictable intervals.
To offer the opinion of a Fool who has tracked every detail of this market's progression over the past several years, I will repost my discussion offered in response to a blog post by GV:
For the record, gold already has posted a major advance from $1,005 where you called a top on October 4, to $1,060 ... officially canceling the 18-month corrective range-bound phase between $700-$1,033. Whether that advance is extended or interrupted going forward hinges upon the key technical pivot point of 0.76 on the USDX ... which is presently the line in the sand that will determine the next near-term move within the broader multi-year bull market for precious metals.
It is entirely posible for gold and silver to take a breather here after an explosive run (again depending upon the action in the dollar). While a blip of near-term strength in the USDX is plausible if investors are spooked back into Treasuries by another precipetous decline in the broader indeces (which I agree is imminent), the dollar raly will be far smaller and shorter than the prior reversal as the fundamental environment has changed inalterably.
I think $1,000 now has a chance of holding as a floor beneath gold, but consider $980 as a far greater foundation of support. In the unlikely event that $980 breaks amid a truly miraculous and manipulated dollar rally, then $950 and $900 stand as bastions of reinforcements behind the gold price. The likelihood of a test of $900 is extremely slim IMO.
As you can see, $850 is nowhere on my radar screen within what I consider a conservative assessment of potential retracement levels in the case that dollar support can still be achieved in this new fundamental landscape where the greenback's ultimate trajectory is clear for all the world to see. A 10% correction in gold is quite possible, but a 20% move is effectively off the table at this stage. There is simply too much buying interest from central banks looking to diversify holdings for such a dip to take shape. Of course, this is just another Fool's opinion, and only time will tell, but I for one will be bookmarking this page to see who our calls look in 6 months to a year from now.
Fool on.
tfirst
no. We have the appearance of deflation because trillions of USD are sitting around gathering dust and companies are lowering prices to accommodate reduced purchasing power and discretionary income of the consumer base. Meanwhile, the inflationary impact of the creation of those trillions is presenting counteracting inflation in the form ofdollar devaluation that those focusing upon CPI alone ignore entirely. The USD has lost 15% of its purchasing power since March. Every product that is in demand around the world will adjust in USD price accordingly: especially staples like energy, food, metals, etc.
Fools please understand that the stagflation we face is a currency event, and not a demand-pull consumer pricing event. Jim Sinclair has been one of several voices of reason on this front. If you take one thing away from Jim Sinclair, let it be this:
"Financial TV’s new spin is that crude is the new gold. What they have missed is that crude is your first example of how a currency has the potential of delivering hyperinflation as cost push without any meaningful demand pull."
As I stated in the Peabody piece, the tenuous condition of the dollar underlines a key currency component of the decoupling phenomenon.
Good I am glad. Now I can buy more at a lower price.
silverminer
Yes, inflation is negative. -1.3% to be exact. The m1 and m2 money supply from Jan - Sep 2009 has risen only .9%.
As for fundamentalist libertarians, yes it certainly belongs. We can get into the economics of it all, but let's get back to reality. Gold bugs are by and large, fundamentalist libertarians, and the debate always revolves around misguided beliefs about monetary policy.
I have no problem with libertarians, just the loons who scream "end the fed!". You opinion on gold is certainly appreciated, and I take it seriously. Thanks for your input. As my correction from gold bubble makes clear, I am willing to admit when I'm wrong and change my arguments accordingly.
OK.Take a look at the following graph on the Federal Reserve board website. Here is the link:http://research.stlouisfed.org/fred2/series/BASE
If this doesn't spell inflation then nothing does.That means it is going to take a lot more pieces of counterfeited green pieces of paper to purchase the same amount of gold.
Milton Friedman said it was not possible to predict when inflation would manifest itself after an increase in the money supply. However, in general he said it was often within 18 to 24 months. We are at about 13 months from the point where this madness started.
And for the record: in my view Libertarianism is the solution to the nightmarish problems caused by Keynesianism, the horrible effects of which can clearly be seen in the Federal Reserve graph I just offered to you.
How does Fed forecast 2.5~3.3% GDP growth for 2010 when jobless rate continues to rise up to 10%+.
How can it be? Increasing productivity? No
It is the USD effect. When USD fall, everything else goes up, including GDP.
Your added distinction between "bubble" and "correction" is well appreciated.
Your presumptions about "gold bugs" possessing "misguided beliefs about monetary policy" are not. Many of those "loons" that you so disparage with such dismissive remarks saw the cracks developing in the dollar's wall years before anyone residing in your version of "reality" recognized a problem.
History, at this stage, speaks for itself.
As for the future ... Once you see how futile the Fed's multi-trillion dollar reflation strategy truly is in the context of a $600 trillion mountain of frightful derivatives, you too will find yourself joining the loons with calls to first audit, and then end, the Fed.
I offer thoughts from my last (now dated) tally of official fiscal interventions in response to the derivatives crisis:
With a collective response that crams trillions of eggs into one hastily woven basket, the largest bets in history are being placed upon the roulette wheel of global financial markets. The adopted strategy of spending our way out of this mess by propping up the system with loans and guarantees has now been etched into stone ... there is no turning back. To the contrary, I fear the only path ahead implies still further commitments of public funds and woeful undermining of the U.S. dollar.
Sustaining a rally even in the face of quantitative easing and new fiscal interventions to battle the toxic asset menace, investors seem comfortable with the bets even as the stakes rise sharply. Come on, lucky seven! Although I continue to hope for the best, I am increasingly skeptical that the odds are in our favor.
The 684-trillion-pound gorilla in the room Fools may be right to question whether any amount of money will prove sufficient to sate the hunger of this deleveraging beast. According to the Bank for International Settlements, the notional value of over-the-counter derivatives worldwide reached a mind-boggling $684 trillion last summer. That's more than six times the scale they had reached by 2002 when Warren Buffett dubbed derivatives "financial weapons of mass destruction".
Perhaps the trillions pledged can plug the leaks from subprime mortgages and failed auto loans, but can we reasonably expect to keep a derivatives market afloat that is at least eight times the size of a contracting global economy? I don't know, but I sure hope Bernanke and Geithner do.
The Yucca Mountain of debt The glaring message from Washington that dollars will be hurled at this crisis in any quantity deemed necessary raises legitimate concerns about the future purchasing power of the dollars in your wallet, your CD, Treasury bonds, or other dollar-denominated instruments. Occurring in a vacuum, a deleveraging event like this one would be decidedly deflationary. In the context of these outlays, however, I believe stagflation will instead be among the words used by historians to describe this period.
I have no problem with libertarians, just the loons who scream "end the fed!".
Hi, I am by no means looking to fight, but what would be your argument(s) for keeping the fed?
I'm looking to reload some mining stocks with gold at $900/oz. My target is in no way based on politics.
I am very surprised nobody commented about the graph on the federal reserve board website. I am hoping someone will be kind enough to comment on it. Am I out of line for being concerned about this? Here is the link again: http://research.stlouisfed.org/fred2/series/BASE
AvianFlu According to this data set, the M2 money supply has increased 11% since January 2008. I fully expect inflation. What I am saying is we are still currently in a deflationary environment. http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt Libertarianism has good ideas and some bad ideas. Just like any ideology. There should be free enterprise to the point at which a company's operations adversely affect the rest of society/economy. I stand for a mixed system in which those at the top can run their businesses but can't exploit those at the bottom for a profit. I do not fall for the idealistic utopia that is laissez-faire capitalism.
Love your opinion, but I can only respond if you could condense your point into just a few sentences.
dbjella
What would my argument be for keeping the Fed? Where do I start? Here are 4 prominent reasons for a central bank.
I ask you now, what is your alternative to a central bank. For all the talk about ending the Fed, the Ron Paul squad does not have any viable alternative whatsoever other than reverting back to our volatile gold standard of an economic system of the 19th century.
Where do you get that inflation rate of -1.3% from? Is that what CPI is currently saying? CPI is generally understood to be understated by about 7%. Due to various changes like quality changes. (i.e. they add an chemical to food which is government mandated this improves the quality of food therefore the increase in prices is offset by some odd calculation of quality increases). This makes the CPI as currently calculated a somewhat arbitrary number? This is what explains why when we go shopping we see our cereal boxes getting smaller while price remains the same and milk getting more expensive. What about oil prices what is the affect on the -1.3%? Oil's been going back up all year as have prices at the pump are closing in at $3.00 again. Yet you say we're in a deflationary environment? Their is some kind of disconnect here.
Also, the fact that their is the disconnect between inflationary and deflationary environment is why some call to "end the fed". Because if their is inflation then interest rates need to rise. If I see inflation being around 6% when one takes into account rising oil prices and removes the quality increases then the feds fund rate should be substantially higher if not they risk hyperinflation. If hyperinflation does come (I think they can still avoid that) then those that called to "end the fed" will have been prophets not nut jobs. Currently given the disconnect between pretend CPI and real world inflation I put my money in the real world that inflation is here and we're getting more of it.
Clayman, the official inflation rate had been negative since March 2009. There are many CPIs, none of which you have named as the one you'r specifically talking about. Some CPIs don't account for volatile commodities, but many others do account for food, gas, etc. The ones that are really important are the ones which monetary policy directly affects, of which food and gas, aren't a part, so no reason to average them into Core CPI figures. I also find this conspiratorial view that the government is trying to hide inflation as complete hogwash. The fact of the matter is, we are still in a deflationary environment, no matter what the misguided conspiracy theorists claim.
http://inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp
Butapeg,
Clearly you need ad hominem arguments to make arguments. "Fundamentalist"? That's the reason your post has over 20 comments, but 2 recs.
However, you are wrong on multiple counts anyway. Gold rises in times of credit stress. There is not the correlation with inflation/deflation that everyone assumes is present. Clearly a long term rise in gold prises MUST be accompany long-term inflation, but short term, gold is much more correlated to credit events.
Second, libertarians are not all in agreement with respect to the inflation/deflation debate (in the short term at least). That said, they pretty much all agree that the fed should be ended. Feel free to ad hominem away!
Monetary policy doesn't affect food and gas? So if interest rates change that doesn't affect how much I can afford to put on my credit card when I go on vacation. Or the size of house I purchase because of heating/cooling prices. I think monetary policy DOES affect the cost of energy and food.
If you see gold going down why don't you put an underperform in your CAPS profile and then really leverage that with some underperforms on gold miners.
View More
Terms & Conditions
RSS Headlines
Fool UK