Use access key #2 to skip to page content.

More Thoughts on Gold's Massive Bull Market

Recs

26

April 09, 2010 – Comments (5)

I am very bullish on gold. This is no surprise. I have written on the subject of gold many times.

The main reason why I am bullish on gold is that it is in a massive bull market in comparison to fiat money. Gold is a currency. Like any currency, you don't own it because it has intrinsic value, you hold it because it is a store of wealth. So when I say gold is in a massive bull market in comparison to fiat money, I mean exactly that. Gold will hold its value while fiat money is devalued in comparison.

As Gary says: Gold is not about price, gold is about value

We have one of the final possible bubbles at it's apex: A Sovereign Debt Bubble. Economies all over the world are suffering and are trying to solve a debt related crisis with more debt. It was *never* going to work and will end badly.

So when ranking currencies relative to each other, and all the major currencies are engaging in some form of Devaluation / Quantitative Easing, they are all fighting debt with more debt.

The problem is debt.

And the Fed has made it very clear that monetizing as much debt as is necessary to keep the system going, at the direct expense to the Dollar, is not only a course of action that is open to them, but THE course of action that they are taking and will take. This plan will continue until there is no longer a Federal Reserve.

Yet the market is trying to purge excesses, and the Fed and the Treasury is not allowing it to happen.

This makes the outcome both simultaneously deflationary and inflationary. The market wants to, and desperately desires to save, but the Fed is directly hurting savers behind the backdrop of *extreme* monetary inflation.

The result is and will be stagflation. It is really the worst of all possible outcomes. The economy needs savers and the Fed will not allow savers to be compensated for their risks. This will ultimately result in the collapse of the bond bubble as there is no longer any faith in Sovereign Debt. And the world will turn to real assets as a store of value.

And this sets up the final bubble ... the Gold Bubble.

Now I don't mean this pejoratively. And I am not casting a negative connotation on it. Bubbles are what they are. When Central Bank monetary policy forces all of us to become speculators by not rewarding savers, then bubbles are formed.

Gold doesn't care that it is in a bubble. It is quietly and quiescently preserving wealth. Again Gold is NOT about price, gold is about value.

I don't hold gold because I like shiny objects. I don't hold it because it makes the world go round. I hold it because it will be the last currency standing that preserves wealth as the world's economy goes through this painful deleveraging process.

No fiat currency will preserve wealth. Certainly not when this crisis has run its course. Some will fare better than others (many will fare much better than the US Dollar), but all will pale in comparison to gold.

The current trend of piling debt on top of debt is unsustainable: Debt Saturation - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=357428. And neo-economists and politicians have to get their collective heads out of their collective assess and not allow a vampire industry (financials) hijack the real economy. But since that won't happen willingly, then the market will force a crisis that will fundamentally change how we view politics and the economy. Crony capitalism will go away. Good laws like Glass-Steagall will become reinstated. Too big to fail will be abolished. Grass roots companies will grow like a new forest. The Mittelstand companies of Germany (small/medium firms, mostly family owned) is exactly the economic model that most of the western world should be following, and I believe will in the future.

And when the crisis nears a real bottom, I will be the first person to dump my gold and invest in the new world economy. One that produces goods, and solves problems, and increases the quality of life for humanity.

Gold is not an end in and of itself. It is a means to an end, a way to preserve value as the economy purges excesses so that the new economy can be invested in.

It is a way to save. And since the Fed is not allowing us to save in the Dollar or Treasury debt, people will turn to saving in real money.

I don't care if you don't agree with me. I don't care if you think gold is a useless shiny rock (it is, just like the Dollar is a useless piece of green paper). I am not here to convince anybody of anything. I am just stating my opinions and why I have them.

I have complied a long list of posts that I have written discussing my macroeconomic views on the Dollar, Inflation/Deflation/Stagflation, and Gold. These might be useful in understanding why I have come to these opinions:

--- Debt Saturation - LINK
--- Moving Some Macroeconomic Deck Chairs: The Dollar, Dollar Swaps, Bonds and LIBOR - LINK
--- What the Bond Market is Trying to Tell the Stock Market: A Look at the Yield Curve and Expectations - LINK
--- Thoughts on the Euro, the Dollar, and a Long Term EUR/USD Count - LINK
--- Something Very Strange Is Happening With Treasuries - LINK
--- The Long View - LINK
--- The Gold Blog. Gold/Silver/GSMs (and a little Oil for good measure) - LINK
--- Thoughts on the US Dollar, Analysis of the USDX Long Term, Follow up on the Gold Blog - LINK
--- The Dow / Gold Ratio - LINK
--- The Gold / Silver Ratio - LINK
--- Gold Miner Performance Relative to Gold - LINK
--- Gold Miner Performance: A Look At Miner Cost Inputs vs. Gold Price - LINK

US Dollar

ENLARGE

ENLARGE

ENLARGE

Bonds

ENLARGE

Gold

Monthly Chart - tune out the noise

ENLARGE

Elliott Wave Counts

ENLARGE

ENLARGE

ENLARGE

ENLARGE

ENLARGE

ENLARGE

5 Comments – Post Your Own

#1) On April 09, 2010 at 6:57 PM, ttboydxb (28.90) wrote:

Binve, great article.  It did raise some thoughts though....  For example, let's say the US dollar, Euro, Pound all s&%t themselves, at what point does one dump his or her gold?  And into what?  You mention the new economy, but I wonder how easy that will be....

 

Great reading, just made me think.   If Gold goes to $10,000 do I sell it for that price, even though the Us dollar would still be just as flawed?  At what point does one exit the Gold / Silver / PM trade, and will they be able to?

 

Keep up the good work! +1 REC

 

 

Report this comment
#2) On April 09, 2010 at 7:18 PM, chk999 (99.97) wrote:

Although I agree with you that the fiat currencies will lose buying power over the next while, gold is not an absolute store of value. The price of gold peaked at about 800 in January of 1980 and was under 300 in 1999. Now we did not have deflation in that 19 year interval, so if you bought gold in 1980, you lost buying power. Gold probably will preserve buying power for the next few years better than the USD, but it isn't an absolute.

Report this comment
#3) On April 09, 2010 at 7:31 PM, binve (< 20) wrote:

ttboydxb,

Thanks man!

>>For example, let's say the US dollar, Euro, Pound all s&%t themselves, at what point does one dump his or her gold?  And into what?  You mention the new economy, but I wonder how easy that will be...

I actually think it will be a lot easier than most people assume. Think about it, gold has been a store of value for thousands of years and we have had *many* fiat currencies come and go in the last few hundred. Even with in the US. But in every city in the world, you can still find gold sellers that will exchange gold for local currency.

Will the Dollar still be around during this crisis and after? Yes, I think so. But I do think there will be a global reserve currency, whether an IMF based SDR or something similar. I don't think there will be armageddon, where we have to hunker down in bunkers and "wait it out".

But there will be bad currencies to hold on to and good ones and the best one will be gold. And I think in the future, exchanging gold into a local currency to buy stocks or what have you will be straightforward. I don't expect the world to turn into Zimbabwe, but I do think the landscape will be (necessarily) different.

Thanks man!!

chk999 ,

>>Although I agree with you that the fiat currencies will lose buying power over the next while, gold is not an absolute store of value. The price of gold peaked at about 800 in January of 1980 and was under 300 in 1999. Now we did not have deflation in that 19 year interval, so if you bought gold in 1980, you lost buying power. Gold probably will preserve buying power for the next few years better than the USD, but it isn't an absolute.

I very much agree with you, and have not said or implied otherwise. There are times when gold is a great store of value and there are times when it is not.

I wrote this several months ago: http://caps.fool.com/Blogs/ViewPost.aspx?bpid=307950.

"There is absolutely nothing in economics that has only one cause and one effect. There are primary causes and secondary causes (and always multiple ones), and the primary cause at one time might become a secondary cause at a later time!!

"Gold is only a hedge against inflation". First this is an incomplete statement because it does not distinguish between monetary inflation and price inflation (most people are not even aware of the difference). And gold is a hedge against inflation and it is also a hedge against financial instability / loss of confidence.

It the 1980s, we had massive inflation. However gold dropped. So there is a contradiction right there. Why? Because Volcker's policies returned confidence back to the financial markets. And the future outlook, even though it was inflationary at the time, was deemed to be bright enough that people poured back into equities and left the safety of gold. (An example of a primary cause and a secondary cause switching importance)."

Holding gold in the 1980s was a losing propostion because there was a lot to be confident about. But I think the situation now is very different. We have strong deflationary impulses with massive monetary inflation behind the scenes, combined with legitamite concerns over the stability of sovereign debt.

I think gold will do well during the next decade in this environment.

Thanks for the comment!.

Report this comment
#4) On April 10, 2010 at 10:43 AM, jesusfreakinco (29.02) wrote:

Binve,

Maybe I missed it...  what is your wave 5 gold price objective?  It looks consistent with Sinclairs 1650 PO, but I can't tell because it is off the charts.

Good stuff.  

TIA,

JFC

Report this comment
#5) On April 10, 2010 at 1:39 PM, binve (< 20) wrote:

jesusfreakinco ,

Hey JFC! If my count is right, then I think the next move takes us up to 1300-1400. Then we get a pullback (Wave 2). How far? No idea, but maybe a retest of 1100 or as far as the major support at 1000.  Then the next move after that is the really big explosive bull market move (well past 1650, maybe 2000?)

Thanks!..

Report this comment

Featured Broker Partners


Advertisement