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XMFSinchiruna (27.08)

Proof That Gold is Not a Bubble

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March 22, 2011 – Comments (37) | RELATED TICKERS: CEF , GLDX , GG

This really does just about say it all.

A few of you may have seen another version of this chart before, but to date I had not seen anyone tackle the implications of the data in a comprehensive way. I am posting the chart here to pique your curiosity, but this time even more so than most I beseach you to link to the article by clicking here and invest a few moments considering my discusion of the image's true value as proof that gold is not in a bubble.

And then there are implications of this image that I simply ran out of space to discuss. Foremost among them is the incontrovertible manner in which it debunks once and for all any notion that the prior cycle culminating in 1980 has any direct bearing whatsoever on the behavior or potential reach of the present bull market run. You can forget all about utilizing the inflation-adjusted 1980 high as a price target for gold ... the relevance simply is not there because of the obscene extent to which paper assets spread like a plague while the gold price and its reputation were cunningly and systematically manipulated by a fiat financial system that thought perhaps it could bury gold once and for all. If gold was so important that private ownership of it was banned from 1933 until 1975, then what changed after the 1980 spike that rendered it so incredibly unfashionable that the mere mention of the metal came to trigger automated jeers of sarcasm and ridicule? I'll tell you what changed ... the stakes.

And to think that many people resist any notion that the Fed might be engaged in efforts to subdue gold because they can not conceive of a motive for the Fed to do so!?! In a post-gold-standard world, the Fed sought to insert the USD as a "modern" replacement for the "barbarous relic". The only way to maintain a "strong dollar policy", which every administration touted in turn, is to ensure that gold does not serve its role as an alarm system ... a barometer for monetary distress and counterparty risk. Greenspan knew of gold's immutable power as the sole unsinkable currency, and that acknowledgement is clear in his own words both before and after his tenure as Fed chairman. Intense secrecy surrounding the Fed's gold operations, inconsistencies within the scant information publicly available, and the convenient absence of a comprehensive and independent audit of reported U.S. bullion holdings all contribute to the conditions necessary to succeed at subduing gold.

In the London Gold Pool we have precedent. In comprehending the stakes we have motive. In the evidence of recent silver manipulation we have a whistle blower, a smoking gun, and likely the indentities of key participants. In an international exchange structure, where fractional reserve accounting permits massive leverage over the actual physical supply, we have a modus operandi. In the culture of secrecy regarding gold operations we find the means to conceal. The circumstantial evidence is more than compelling. GATA is pining for documentary proof, but in the meantime this is one important question that rational Fools will consider with an open mind as opposed to an irrational, knee-jerk aversion to anything to which that most hideously loaded of phrases can be applied (you know which one I mean ... that Voldemort of two-word English phrases - Gasp!).

I did not mean to write a tome. :) My intention was to present the article I've linked above and try to elicit a community discusion about the significance of the graphic and the divergent trends impacting gold during the final two decades of the 20th century. I hope that you will still take time to read that article and comment here. Clearly, I've also opened up a whole separate can of worms. So by all means, let's get all the conversation going. Dialogue is good. :)

37 Comments – Post Your Own

#1) On March 22, 2011 at 11:00 PM, checklist34 (99.73) wrote:

I do not have the data in front of me obviously as I haven't really sat down to ponder this question ever, and I don't have any plans to dig into this kind of data as it does not directly pertain to my portfolio, and I am not aiming to start a squabble on a Teusday night on the interwebs... 

And I wish everybody well...

But...

I would bet a million dollars that chart is wrong and then go to bed and not worry about it at all.  However it was calculated, it is somehow just wrong.  Gold + gold mining shares were not 26% of global assets in 1981, period.  I just strongly, strongly suspect that is misleading at best and plain convoluted at worst.  

In any case, I wish all of the gold bugs the best, in as much as "the best" for them doesn't correspond to significant misery for the bulk of society.  May gold go to 5000 so long as that doesn't mean that 98% of society is suffering badly.  

Really, best wishes.

But you have won so far, and looking back 2, 3, 4 years, did you think gold at 14xx was a lofty target?  

Don't stay too dogmatic and religious about it and get ever more bullish as it goes ever higher, justifying as you go, like the "new economy" crowd in 1999, lest you wind up holding the bag when the bubble finally pops, from wherever it pops.  

Thats my challenge to the gold crowd:  start some threads discussing an exit strategy, discussing price targets, discussing valuation and where you think its headed. 

Again, best wishes.  

 

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#2) On March 22, 2011 at 11:41 PM, DarthMaul09 (29.75) wrote:

What is amazing is that even with the price of gold and silver rising over the last 10 years that the total value only represents 0.8% of global assets.  Even if a person only had 1% of their assets in gold 10 years ago, that percentage would be much higher now that gold has risen up 300%, while the S&P 500 barely broke even.  It would seem that you have to divest 299% of your gold holding just to keep this ratio at 0.8%; so it almost suggests that in spite of the dramatic rise in the price of gold that it may still be greatly undervalued relative to other assets.  There are not many in the mainstream media that would buy this but it is probably the prevailing sentiment of most the guests speakers on King World News.

King World News Broadcast

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#3) On March 22, 2011 at 11:58 PM, HooDaHeckNose (95.00) wrote:

"Don't stay too dogmatic and religious about it and get ever more bullish as it goes ever higher, justifying as you go, like the "new economy" crowd in 1999, lest you wind up holding the bag when the bubble finally pops, from wherever it pops.  

Thats my challenge to the gold crowd:  start some threads discussing an exit strategy, discussing price targets, discussing valuation and where you think its headed."

THIS!!

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#4) On March 23, 2011 at 1:45 AM, DarthMaul09 (29.75) wrote:

The whole point of holding gold and silver is to protect yourself from the pop of the US dollar bubble.

As the US dollar index falls below 75 with Europe raising interest rates, how safe will US bonds be?  Even Bill Gross got out of the US treasury market.  How safe will other currencies be if they try to devalue fast enough to keep some trading ratio with the US dollar?  In the end, hard currencies (gold and silver) wins because they didn't get debased.

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#5) On March 23, 2011 at 1:56 AM, checklist34 (99.73) wrote:

But its not that simple, Darth.  Its not that simple...  There is the question of valuation, of trends, of history, of statistics and sentiment.  There are MANY questions.

But all of the pro-PM argumetns tend to distill to extrmeely simple and dogmatic points.  To non-facts.  

I am saying bring it back to facts, tie it to reality, don't be the "new economy" guys in the late 90s.  And remmeber, they were many, and they were "right", too, in their day.  But it ended badly for those who didn't swap songs before thte one they were playing went off the charts....

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#6) On March 23, 2011 at 2:31 AM, ajm101 (32.87) wrote:

Does it follow that your target for gold is $35,000/oz?

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#7) On March 23, 2011 at 3:21 AM, DarthMaul09 (29.75) wrote:

 checklist34

Are we near the top of the metals market?

The Kitco 10 year gold and silver charts show an almost steady rise in the prices, without an obvious parabolic rise.

Investors have not yet piled into these investments, in spite of the gains in the last 10 years.  The chart above shows how little these investments currently represents.

When the precious metal market does make a parabolic move, it will likely be in response to a rapidly weakening US dollar, which may not be that far away.  Maybe not this year, but I think that it is likely to happen within the next 3 to 5 years based on just the US deficit.

Between now and the peak we will likely see much of the same slow steady rise in the metals market.  There will likely be short term corrections (which are getting shorter all the time) that will be buying opportunities for those of us who have decided to stick with this investment plan.

In addressing your concern about facts, the Kitco charts are fairly clear.  Gold and silver went up a lot over the last 10 year, while the S&P had a very modest gain.  When making the argument that valuation has changed, what has really changed, gold or fiat currencies?  Gold is still gold, but the value of fiat currencies are fiat.  A central banker can't create more gold out of thin air but more currency can be created by a few key strokes on a keyboard.

The many questions that you mentioned are actually very helpful to the PM investors, since they add doubt, concern and the bias against this sector of the market, which keeps the prices affordable.  One day they won't be and then I'll have to take up the problem of an exit strategy, but for now I'll continue to buy the dips and build the paper profits that one day may be measured in a basket of commodities that replaces yet another group of dying fiat currencies.  And this is where history is on my side.

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#8) On March 23, 2011 at 3:23 AM, DarthMaul09 (29.75) wrote:

 checklist34

Are we near the top of the metals market?

The Kitco 10 year gold and silver charts show an almost steady rise in the prices, without an obvious parabolic rise.

Investors have not yet piled into these investments, in spite of the gains in the last 10 years.  The chart above shows how little these investments currently represents.

When the precious metal market does make a parabolic move, it will likely be in response to a rapidly weakening US dollar, which may not be that far away.  Maybe not this year, but I think that it is likely to happen within the next 3 to 5 years based on just the US deficit.

Between now and the peak we will likely see much of the same slow steady rise in the metals market.  There will likely be short term corrections (which are getting shorter all the time) that will be buying opportunities for those of us who have decided to stick with this investment plan.

In addressing your concern about facts, the Kitco charts are fairly clear.  Gold and silver went up a lot over the last 10 year, while the S&P had a very modest gain.  When making the argument that valuation has changed, what has really changed, gold or fiat currencies?  Gold is still gold, but the value of fiat currencies are fiat.  A central banker can't create more gold out of thin air but more currency can be created by a few key strokes on a keyboard.

The many questions that you mentioned are actually very helpful to the PM investors, since they add doubt, concern and the bias against this sector of the market, which keeps the prices affordable.  One day they won't be and then I'll have to take up the problem of an exit strategy, but for now I'll continue to buy the dips and build the paper profits that one day may be measured in a basket of commodities that replaces yet another group of dying fiat currencies.  And this is where history is on my side.

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#9) On March 23, 2011 at 3:24 AM, DarthMaul09 (29.75) wrote:

Sorry for the double post, I didn't think it went through the first time.

 

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#10) On March 23, 2011 at 5:41 AM, ryanalexanderson (< 20) wrote:

+1 for the original post and DarthMaul's response #7 (and #8!).

But I have to agree with checklist on the 26% in 1981 - that just doesn't make sense.

Regarding a PM exit strategy, that's easy, for me. Any of the following:

1) Adoption of the gold standard again - quite unlikely.

2) A -real- parabolic gain, where the public is frothing at the mouth for gold, and the "paper vs. delivered metal" disparity has come to a head. Reasonably possible.

3) Paul Volcker 2.0 shows up and hikes rates ruthlessly. Somewhat possible, but it gets less possible every day that the US debts rack up. 

Then my non-equity assets would be shifted. But still probably not into USD.

 

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#11) On March 23, 2011 at 7:45 AM, XMFSinchiruna (27.08) wrote:

ajm101

No ... the nominal value of global assets will deflate considerably when the derivatives market ultimately deleverages in a meaningful way.

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#12) On March 23, 2011 at 7:49 AM, XMFSinchiruna (27.08) wrote:

ryanalexanderson

The data was collected and vetted by Eric Sprott, a very capable and respected hedge fund manager. The datum for 1981 actually does make sense ... it predates by just a couple of years the incredible explosion in the scale of global assets.

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#13) On March 23, 2011 at 7:55 AM, XMFSinchiruna (27.08) wrote:

checklist34

I welcome and appreciate your comment #1, and as I have said I will begin to discuss exit strategies in earnest as we approach $2,000 gold. There are certain key macroeconomic developments yet to unfold before a terminal gold price can be surmised, but in the interim $2,000 represents a sufficiently conservative target.

Your comment #5 was less well appreciated. Non-facts? That's totally bogus.

The above article deals directly with the "valuation, of trends, of history, of statistics and sentiment" that you suggest we track.

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#14) On March 23, 2011 at 8:38 AM, cbwang888 (25.56) wrote:

US T-bonds are the bubble. USD is overvalued. US has consumed more than what it produced for decades and is struggling with mountain of debts. Where is the stop sign? Can anyone see?

Developing countries like China had just realized that since the credit bubble burst / re-inflate along with endless Wall Street bailouts.

Hard assets are honest. To add more gold and silver into the pool at least someone has to work hard and spend energy to mine them. Wealth transfer (or stealing) won't be easily conducted by the US Fed like entities. Main Street is SLOWLY waking up to the fact that this so called economy growth (just the USD demise in disguise) is only for the elites who control the monetary policies ...

There are more than what I just stated and it doesn't need a chart to prove anything ...

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#15) On March 23, 2011 at 9:26 AM, ryanalexanderson (< 20) wrote:

Hi Sinch,

Yeah. I'm a big Sprott fan, have been for years, but I wonder if that chart may have slipped through the vetting process. Here's an excerpt from his latest Feb 2011 newsletter: 

In their Gold Yearbook 2010, CPM Group noted that in 1968, gold held by individuals for investment purposes represented approximately 5% of global financial assets. By 1980 that amount had fallen to roughly 3%. By 1990 it had dropped significantly to 0.6%, and by the year 2000 represented a mere 0.2% of global assets. By the end of 2009, nine years into the gold bull market that began in 2000, they estimate that gold had increased to represent a mere 0.6% of global financial assets – hardly much of an increase. Gold ownership didn’t change much last year either, as we estimate that this percentage increased to 0.7% of global financial assets in 2010.1 So despite gold reaching record nominal highs, the world holds about the same portion of its wealth in gold as it did over two decades ago. While this probably says more about the proliferation of financial assets over the past decade than it does about gold investment, it is surprising to note how trivial gold ownership is when compared to the size of global financial assets.

I do note that it says "individual" here, and not on the above chart, but that current 0.6% seems pretty close to the 0.8% on said chart. If both statements were correct, it would imply that individuals own 75% of all the gold right now, and only about 11% in 1980.

 I suppose that's possible. But still, the idea that the gold assets dwarfed the assets of any individual commodity or equity class in 1980 - the auto industry, the oil industry, all agriculture, banking, etc. still seems pretty hard to swallow. 

Unfortunately, the trail goes a bit cold at silberjungen.de to check Sprott's sources, as I don't spreche the deutsche very gut.

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#16) On March 23, 2011 at 9:46 AM, XMFSinchiruna (27.08) wrote:

ryanalexanderson

I encourage you to address your questions to Erste Group, which published the chart in its gold report here:

http://www.zerohedge.com/sites/default/files/2010-06-21%20IE%20Special%20Report%20GOLD.PDF

I can tell you that the two sets of data you are seeking to compare above are not so neatly comparable.

As for the 1981 datum being hard to swallow, it makes perfact sense to me following the culmination of the most dramatic decade of gold revaluation that the modern world had ever seen. Remember, gold rose from about $40 in 1971 to average about $500 for 1981. It was illegal for individuals to own until 1975, and you can bet there was indeed a powerful surge in private ownership once gold became legal to own after 42 years of imposed prohibition.

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#17) On March 23, 2011 at 9:53 AM, XMFSinchiruna (27.08) wrote:

ryanalexanderson

Also remember that until 1975, individual ownership of gold was prohibited in the U.S. by the Gold Reserve Act of 1934 (and a prior executive order in 1933).

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#18) On March 23, 2011 at 9:56 AM, ryanalexanderson (< 20) wrote:

Thanks for the link! Much appreciated.

Ryan

ps. I have a very annoying post-it note still attached to my computer screen dated January 2010. It says: "GPRLF - Look into it."

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#19) On March 23, 2011 at 10:02 AM, XMFSinchiruna (27.08) wrote:

ryanalexanderson

Ouch... :) Crazy as it sounds, it's still a great buy IMO.

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#20) On March 23, 2011 at 10:06 AM, benedekgb (< 20) wrote:

this is not proof. it is a chart randomly selected without clear imput or possibilty to compare. it is a magick trick and the title is misleading.

my view is that the gold in not a bubble, but this articles is weak.

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#21) On March 23, 2011 at 10:15 AM, GeneralDemon (< 20) wrote:

Checklist:

"Thats my challenge to the gold crowd:  start some threads discussing an exit strategy, discussing price targets, discussing valuation and where you think its headed." 

Fiat money imparts a perpetual threat to the wealth of its holders that must be hedged. Insurance against a perpetual threat must be maintained. PM's present a proven hedge. 

Would you ask what the 'exit stategy' is for your car insurance?

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#22) On March 23, 2011 at 10:23 AM, XMFSinchiruna (27.08) wrote:

benedekgb

Tell me how you really feel.  :)

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#23) On March 23, 2011 at 2:07 PM, Munchies101 (99.40) wrote:

Not to copy or reiterate what Checklist said, but that’s really what bothers me in gold investing. How can one accurately value gold? I mean really? I think we can place a floor at about $500 or so because that’s what it costs to mine the stuff, but other then that I see no reliable valuation other then people spouting ‘fundamentals.’

 

I get it, you don’t believe in fiat currency. That’s fine. I get it, your hedging against inflation. That’s fine too. What I don’t get is how one can actually just have an arbitrary number in their head based off of a chart (chartests make me even more upset then goldbugs, but that’s something different entirely) and say “Well based off these trends it should be worth this amount.” That’s just dumb honestly.

 

We all know how to value a company, as we have access to all sorts of information that can be quantified against other companies in a sector from which we can compare it to. We can’t do that with gold. Maybe somewhat compared to the dollar, but still, that’s not nearly enough information to make an investment decision.

 

There is also no inherent value to gold. With food, water and oil, I know that there is value underlying it because people generally need all three to survive. Even with things like Ipods, I know the material is worth a certain amount. And with services, I know that its worth at least as much as a profession values its time. With gold, it’s really not necessary for anything (except electronics, but that’s a very small category). So how do we value it? Obviously we’ve decided NOT to value it based off of the labor and skill involved to mine it.

 

So I’ve come up with my own valuation of this product. Ready? It’s pretty ingenious. Gold is worth: Exactly the amount the last gold bug is willing to pay before the community as a whole decides its overvalued based off of their charts they pulled together.

 

Fool on.

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#24) On March 23, 2011 at 3:12 PM, Munchies101 (99.40) wrote:

So in other words, how do you value a yellow rock endorsed by absolutely no one? At least the dollar is endorsed by the labor of a nation, but mind you I am in no way saying the dollar is a safe or a reliable store of value...

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#25) On March 23, 2011 at 4:40 PM, XMFSinchiruna (27.08) wrote:

Munchies101

I understand your frustration. Determining a fair value for gold is at best riddled with potential pitfalls and subjective inputs, and at worst an exercise in arbitrary fantasy. I have no easy answers for you. As you point out, unlike stocks there is no simple procedure by which a mathematically derived value for gold can be derived. Qualitative analysis comes into play, as well as forecasts of likely economic scenarios forthcoming, etc. My own $2,000 price target, as the round number suggests, is the product of countless thousands of hours of research I have conducted, but in now way is it lacking in subjectivity. But nor is it arbitrary ... It represents the lowest common denominator of multiple avenues of inquiry that I undertook to devise a reasonable target, and the degree to which macroeconomic developments and gold's price performance since I first offered the target in 2007 have all collectively built in a massive margin of safety. In other words, when I first came up with $2,000, even my worst-case scenarios regarding U.S. debt expansion did not envision a national debt at $14.2 trillion within such a short period.

Gold is money, and it is incorrect to suggest it is endorsed by no one. On the contrary, it is endorsed by every nation that hold's gold on the balance sheet of its currency reserves. China and Russia have endorsed gold by seeking to have it incorporated into a new global reserve currency basket. Gold is a currency constrained in supply, also, and therefore the impacts of various macroeconomic developments can indeed be modeled with some success.

On the other hand, it is also completely insufficient to conceive of gold's value purely in terms of its production cost. The only thing a production cost provides is a cement floor beneath long-term prices, as you correctly point out (except that all-in costs of production are likely closer to $750 than $500).

Anyway, I just wanted to say I understand and appreciate the challenges that gold presents with respect to first determining, and then assigning sufficient confidence to, an independent and conservative target price. It would take a book to fully describe how I arrived at $2,000 for my round number, and the degree to which subsequent events have rendered the target progressively more conservative in nature.

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#26) On March 23, 2011 at 4:54 PM, ETFsRule (99.92) wrote:

Munchies101 (73.82) wrote: How can one accurately value gold?

No one knows for sure, but there are some analysts who have come up with a pretty convincing method - at least in my opinion.

They take the "value of all mined gold", which is the current price of gold multiplied by the total amount of gold that has been mined. And they compare the result to the global money supply. Simple as that.

If the value of all mined gold is greater than the global money supply, then it stands to reason that gold is overpriced. Paul van Eeden has also done some great work in this field.

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#27) On March 23, 2011 at 5:33 PM, Starfirenv (< 20) wrote:

Chris, just saw your story. Perhaps "Proof" wasn't the best word. Maybe "further proof".

Jeez, discussing gold is now like discussing religion. To me, gold has no intrinsic value but neither did the "Tally Stick" of olde, which was arguably the most successful form of currency in recent history, lasting 726 years.

Now Silver, on the other hand...to the moon!


By the way, the TMF "Banner Ad' above your article comments was titled-
  "Why Your Gold is Worthless".

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#28) On March 23, 2011 at 6:47 PM, Munchies101 (99.40) wrote:

Basing its value off the dollar supply and macroeconomic events has now put us in the realm of speculation. That was the whole point to my post, there is no way to value to gold. That is why you get estimates from 0 to $10,000 and some even higher then that. If I asked you the value of almost any other asset you wouldn’t get this discrepancy, and if you did I would run away from that asset class too.You are all speculating that it will go higher because you have faith that it will return as a major world currency. Call an apple an apple please; we have left investing and entered speculation when gold is reaching the prices it’s at. If it was teetering at $750-$1,100 fine. I could buy that as a markup on mining the gold.Other then that, you are speculating. Gold has no intrinsic value, absolute period. I can’t eat gold. I can’t transport myself with gold. I can’t do anything with it. I can only trade gold for other goods and services. So it’s in this faith that gives gold its value. Currently I can’t go to the store and do any of these things with gold, so in order for you to be investing in a dead currency, you must be speculating that it is going to return as a major world currency.You are all speculating. If you are highly leveraged in gold you are taking a large, unnecessary risk.And I’m not saying speculation is bad, I have some speculative items in my portfolio. But calling gold an investment is a lie. A gold investor’s thesis is INCREDIBLY dependent on future events. As an aside I hope that you all get rich and that it was a good place to put your money, I sincerely do. I just cant get over how much risk you all are taking, its so large it makes my head hurt.

 

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#29) On March 23, 2011 at 6:53 PM, BillyTG (29.24) wrote:

Understanding gold, to me, seems similar to Buffet's description of buying dollars for fifty cents: Some people get it and some don't.  Those who don't are unlikely to ever get it.  Those who get it don't need to be convinced further.

Some of the dominant themes I notice of those who "don't get it":

-They often reference "goldbugs" and talk of TV ads and gold being in a bubble because everyone is "talking about it."  Those who "get it" realize that gold is the currency of kings and countries. My small silver and gold orders don't budge the market at all.  Iran's gold orders DO!!

-Those who "don't get it" often talk of it being a hedge against inflation.  Well, inflation is only part of the story.  The bigger part is what Martin Armstrong says, that gold is a HEDGE AGAINST POLITICAL INSTABILITY AND SOVEREIGN DEFAULT.  Guess how the current global political and economic climate are doing. When Tunisia's leader abandons his country with a plane-full of gold, when Qaddafi pays off mercenaries with gold, when the Saudis are converting their dollars to gold, when China and Thailand and Russia and Sri Lanka and practically every emerging economy is buying gold, that means that they see the writing on the wall: the euro and dollar are not safe!

-Those who "don't get it" often talk of intrinsic worth.  "You can't eat gold," they say.  "Gold is not useful for anything," they say.  I've struggled with this question myself, and this is my answer: FOR THOUSANDS OF YEARS PEOPLE HAVE BEEN GREATLY ATTRACTED TO GOLD.  People like gold! I wish I had some logical explanation but I don't.  It's shiny and beautiful.  I challenge you to find me a society that has rejected gold, that finds it repulsive, that  would throw a gold bar in the garbage.

-Those who "don't get it" often try to use traditional financial models to value it.  They analyze it the same way they analyze Kraft or Wal-Mart or Coke.  Their brains, to me, seem incapable of comprehending the global nature of a political/economic hedge.  GOLD IS NOT A STOCK! It's NOT A COMPANY!

-Those who "don't get it" need numbers.  "Why is $XXX your target?"  I have no idea how high gold will go, not a freaking clue.  What I know is that as long as there is momentum building for default, as long as the world keeps falling apart, gold will continue to be a very attractive alternative to a growing number of people and countries.  All trends I see---from Portugal and the rest of the PIIGS, to a disgusting dollar printing, to a ridiculous Yen printing, to escalating major conflict in the Arab nations, to Israel's recent military activity, to China's internal troubles and long-term strategic underhanded ways---leads me to believe that the momentum is building.  When a new World War starts to indicate a stable predictable outcome, or a new global currency evolves, gold will probably drop like a rock. We're not there yet.

-Those who "don't get it" might get it, if the economy gets to a tipping point for them, where they realize their income is not getting bigger, but the prices for food and gas are, where they realize that the US economy is in serious jeopardy.  When the Euro totally implodes, with the US on very shaky ground, that's when I predict a lot of people here will see the light, and get rid of dollars.

-Those who "don't get it" say things like "Wal-mart doesn't accept gold," or "I can't withdraw gold from an ATM machine." Those who get it realize that a GOLD-BACKED CURRENCY means we don't have to walk around with gold coins in our pockets.  Having a currency that is hardwired to something, whether  gold, oil, or a basket of commodities (for example), is what we're talking about.  Actually, the dollar is tied heavily to oil, the petrodollar, because most of the oil in the world is traded in dollars (though that is disappearing, too, and there is heavily compelling evidence that is why we took down Iraq, and will eventually take down Iran, two countries who refused to trade oil in dollars).  Dollars and oil, however, are not hard tied.  What I mean is that we don't equate a dollar with a certain amount of oil. Instead, we just print dollars by the billions (look up POMO to see how many tens of billions the Fed injects each week).

-Those who "don't get it" are part of one of the greatest lies ever, and don't want to admit it.  Warren Buffett is among your ranks, so at least you have noteworthy company.  I've met a major hedge fund manager this past year who felt the same way, that gold is a joke, but good for a trade or two, and that the dollar will be the word's reserve currency forever.  People who made their fortunes off the dollar ponzi scheme, I believe, are emotionally attached to the system, and unable to recognize the sham that it is.  

There are more that I can't think of right now. The bottom line is that some people get it and some don't.  Gold is a momentum play, in my opinion, and the momentum is that the world's fiat currencies suck big time and ARE GETTING WORSE, making gold more attractive to more people.  If looking at things globally is not your cup of tea, then stick with dividend stocks or microcaps or something, and good luck to us all. We'll need it.

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#30) On March 23, 2011 at 7:12 PM, Munchies101 (99.40) wrote:

Are you saying gold is some mystical asset that doens't need to follow the rules of valuation because its just so baller? I'm going to avoid anything like that, thank you. Once again, read what I put above, you're just speculating that world events will make it a world currency again. Speculation, nothing more nothing less.

As said before, I hope you nothing but luck with all pursuits in life.

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#31) On March 23, 2011 at 7:34 PM, Munchies101 (99.40) wrote:

Also, nice quote from the intelligent investor. Heres another quote from buffet.

"Look," he says, with his usual confident laugh. "You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"

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#32) On March 23, 2011 at 7:37 PM, Munchies101 (99.40) wrote:

Also before the snarky comment about the intellegent investor, I own the one with buffet comentary at the end which is the one i'm refering to. I know it was written by Graham.

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#33) On March 23, 2011 at 8:03 PM, BillyTG (29.24) wrote:

Munchies, yep for the the most part that's correct...just like you are speculating that world events will keep the dollar the world reserve currency and maintain the global order status quo.

Who knows what will happen, maybe the Euro will disappear and the IMF will make the dollar the final global currency, using some revised backing.  In any case, it is naive and incredibly shortsighted, given the velocity and magnitude of global events, to presume that things will stay the same or "go back to normal."  Like I said, some get it and some never will. It really is a macro/global bet, something that most Fools suck at.  It's unfortunately not totally quantifiable, which is what many find so difficult about understanding it.

Based on your posts, it seems like you are trying to avoid basing any investment on the future or on global trends? Isn't that a huge part of what investing, or money allocation, is...understanding the global, market, and psychological trends? By assuming the status quo will remain the status quo, even in the face of rapid change, you will consistently be at the losing end of any bets you make. 

Take your post #28, and  turn it around, replacing gold with dollars and vice versa. That's how I feel---that others are taking tremndous risk by betting everything on the dollar and dollar-based assets. To your point about it being a bet that gold will return as a major world currency...maybe, maybe not. My bet is that the dollar and Euro and other fiat currencies will fade away (or crash) as major world currencies. What will be left? Until we know, gold/silver is the safest bet I know.

Have read the quote a hundred times and it still doesn't change the fact that people like gold, that nations covet gold, that the world is rapidly and drastically changing, that the US place in this world is being challenged and diminished at breakneck speed, and that a few sets of dominoes is falling one by one, picking up speed with each one, with several more to go.  Selling gold just before the big players realize the momentum has shifted, that a stabilized world order and currency are on the horizon...that will be the time to sell. I'm better at buying than selling and I'm not a big player. But I know we're a long way from where the world is going, maybe a few years.

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#34) On March 24, 2011 at 6:11 AM, XMFSinchiruna (27.08) wrote:

Munchies101

The greater risk, IMO, lies in not holding any gold. I too wish you luck.

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#35) On March 24, 2011 at 12:05 PM, jtnrt330 (< 20) wrote:

Chris,

Why???

Great Panther Silver Announces $21 Million Bought Deal Financing

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#36) On March 25, 2011 at 12:48 AM, TheAntiKeynes (< 20) wrote:

It seems many people are perplexed to the point of disgust in trying to understand why many people value gold. There are many reasons, but one reason I see rarely discussed is gold's lack of need for an endorsement. Gold represents itself. You can carry a lot of value with ease, and you don't need a piece of paper to prove what it is. Why not apply the same standards to currency that you might apply to gold and see how it measures up? Gold doesn't require laws for people to recognize its value.  And you can't eat paper either. Currency allows the printers of it to steal your hard work away from you and give it to others. Printers of gold can't - waitaminute. Oh yeah, you can't print gold. The problem with paper is that it relies too heavily on a promise from very corruptible humans. Yes, the value of gold can be manipulated too, but it is much more difficult to do. Gold represents itself, and does not need a promise from someone, or enforcement by law for it to have value.

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#37) On March 25, 2011 at 8:00 AM, XMFSinchiruna (27.08) wrote:

jtnrt330

Probably for strategic purposes, but we'll see once the prospectus is out. I have no concern ... my confidence in GPL's mgt is more solid than a quartz vein.

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