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XMFSinchiruna (26.56)

The Price of Gold Adjusted for Alternate CPI. Gold price is NOT high!!!



June 12, 2008 – Comments (9) | RELATED TICKERS: AEM , AUY , CDE

Gold has been contained to the degree it has by the investment banks and other entities that use black-box trading to move strategically between short and long positions and between groupings of equities to manipulate the market... and by such action, manipulate investors into seeing weakness where there is, in reality, unbelieveable strength yet to be realized.  Picture a coiled spring...   the manipulation will last only until physical shortages become acute enough that the shorts get squeezed no matter where or when they're placed.  The timing of that upward correction cannot beknown with certainty, but the manipulation will fail... and dramatically.

Have you given yourself a gut check?

Do you know how much new gold mines are costing to bring online???

Silver's price action has been even less rational, and when supplies run out... which they will... we'll see quite a correction as the metal marches back towards its historical ratio with gold.

I see the image is coming up rather small... I'll try to find a larger version...

The big spike on the chart is 1979-1980, and the present day is right before the start of the red line (which is the projection of the chart's creator).

9 Comments – Post Your Own

#1) On June 12, 2008 at 8:57 PM, XMFSinchiruna (26.56) wrote:

I just noticed chart is from 2007, but given what real inflation has done since then, I guarantee the lines haven't budged much despite gold's 'apparent' huge run-up.

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#2) On June 12, 2008 at 10:27 PM, leohaas (30.15) wrote:

Sure, the banks are manipulting the gold price.

The red piece of the chart is where we are going.

The black line in the chart reflects real inflation. 

Aliens landed in Roswell, NM.

We never landed on the moon.

The CIA orchestrated 9/11.

The Mossad helped them.

The Republicans stole the 2000 election in Florida.

The Democrats stole the 1960 election in Chicago. 

Ron Paul will be our next President. 

And I can get you a great deal on the Brooklyn Bridge!

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#3) On June 13, 2008 at 1:51 AM, XMFSinchiruna (26.56) wrote:

I guess a reasoned debate is out of the question?

You can keep your bridge... I'll stick with gold thank you.

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#4) On June 13, 2008 at 3:32 AM, adventurerneil (< 20) wrote:


Sorry, I get a little angry whenever the F-word is mentioned. (the f-word being "Florida" - unless it has a "builder" on the end of it)

Anyways, just wanted to drop by and say THANKS for all the replies to my weak pitches for gold and silver picks. It's nice to have someone who's familiar with all these companies help me out, as I'm totally new to the sector.

Thanks again - I'll be watching and learning intently. 

Fool on!

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#5) On June 13, 2008 at 3:40 AM, adventurerneil (< 20) wrote:


I love contrarian thought as much as the next guy... (see, for example, Ken Fisher's ramblings about why debt is good and we need more of it:

However, I challenge you to bring the spirit of collaboration when you disagree. Do you have any sources or outside links to refute the manipulation idea?

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#6) On June 13, 2008 at 10:52 AM, anchak (99.91) wrote:

Chris....Clearly leo took it a bit too far. However, maybe the shadow inflation thing maybe just that too..... but the govt one is a joke.

What I really dislike in the chart is the extrapolation - that's what probably elicits such extreme responses....its like some of the Sales targets you see in corporations.....Sales have been dropping YoY by 10%, last quarter however was QoQ up +.01%..... So how are Sales going to grow next year - Of course +25%!!!!

But the chart does bring forth a few interesting points -  

(1) I am guessing the basic premise of the chart is to establish the notion that if Gold is a true Inflation hedge then this graph should more or less oscillate around a static straight line - basically following the direction of inflation 

(2) However, the thing to notice is during a period of rampant inflation - as was in the mid-to-late 70s.....there is a self-reinforcing loop as in a dynamic system simply fueled by perception

(3) This notion is further supported by the double peak - in 1980+ when inflation was coming under control - but the reinforcement force was still counterbalancing - but as the numbers started falling all over the developed world driven by drop in Oil......the loop simply collapsed and WENT THE OTHER WAY.

(4) So if we take out these bumps as anomalies - you do see the graph maintaining the semblance of equilibrium.

All right brings me to your thesis of using GOLD as a key investment holding. Based on the above.....

A. I agree...but I wouldnt jump in immediately. The main reason for agreement is - Inflation has reared its nasty head big time all over the world.However,

B. The counterbalance is - free flow of information. People are much better informed (comparatively)  - and the semblance of control ( or the mere notion of it) by the Central banks can put a lid on panic gains ( which is the reinforcing piece)

C. The biggie - Deflation threat. Fairly unknown - how it will go. Some argue - everybody reverts to Gold. But it glitters - doesn't quench your thirst or take away starvation. I do not think there are gurantees - I think there is a small chance of a mirage or a veil of deflation showing up. It would be interesting to see what happens then.

 Net net - its like any other stock - you should buy Gold big  in a correction. If you believe in an uncontrolled inflationary scenario - Dollar cost in.....HOWEVER, you will need to get out sometime - UNLESS its a pure hedge. Otherwise, this shows that net net , you'll REVERT TO THE MEAN. That's not bad maybe - I think your expectation still is 4-6% annually. ( I have not heard of a Gold investor who has that return expectation)

Appreciate your comments





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#7) On June 13, 2008 at 3:14 PM, leohaas (30.15) wrote:

Indeed, I took it a little far. When it comes to conspiracies, I am a sceptic!  Conspiracy theories are fun to read, but if you come up with one, you have the burden of proof. I don't see any in your blog.

On gold, we fundamentally disagree. You think it is a viable investment vehicle, I think it is mainly good for jewelry. That is not to say one cannot make a bundle trading gold, but like a frequent writer on the Fool says: "Gold is not for every Fool." 

If you are right, and I am wrong, then that means that the world as we know it is about to end. Because in the world as we know it, gold is a lousy long-term investment. 

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#8) On June 16, 2008 at 4:18 PM, XMFSinchiruna (26.56) wrote:

Anchak... the extrapolation is not the important part of the chart... it's the 1979-1980 spike that's of interest here.  By calculating the inflation-adjusted price of gold during that spike, analyzing every single aspect of that and similar periods of strong gold cycles in modern history, and comparing those elements to the macroeconomic elements present in today's gold cycle, we can generate some ballpark expectations for how gold can be expected to perform as the dollar continues downward.

I see no evidence whatsoever that people are better informed today than they were during the 1979-1980 spike.  Quite to the contrary, you have hoards of new self-directed investors jumping in and out of gold and commodities with very little knowledge of what's driving the supercycle, how corrections work, and without an exit strategy.  The very prevalence of weak hands within currencies like gold prolongs corrections like the one we're in now.

The chart is not trying to convey what you suggest in point #1, but rather establishes the degree to which gold is presently undervalued given the present real rate of inflation.

As to your last paragragh, I want to agree with one point and take exception to another.  I agree with this part entirely:  "you should buy Gold big  in a correction. If you believe in an uncontrolled inflationary scenario - Dollar cost in.....HOWEVER, you will need to get out sometime ".  Nicely said.

As for your expectation of 4-6% returns on gold, I can tell you I have no intention of ever realizing such minimal returns.  After 3+ years of 20-40% returns, and with the even better returns I anticipate in the next few years, I expect to average 30% or more with gold and related investments over a 6-7 year period.  Because I have a clear exit strategy, I plan to keep those percentage returns intact as I switch out of gold and relatedinvestments one day and back into more traditional vehicles like blue chips, real estate, etc.  I would not be wasting my breath discussing the allure of gold and related investments if I didn't believe as I do... with every fiber of my being, that this is an unprecedented time for gold, silver, etc. 

Deflation is inevitable, but it is also a very long way away.  We have miles of stagflation to traverse before we enter deflation-land.  :)

Thanks for your comments, and sorry for my delayed response.

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#9) On June 16, 2008 at 4:51 PM, XMFSinchiruna (26.56) wrote:

Leohaas.  as far as I can recall, the only point I've ever argued here that could remotely resemble a conspiracy theory is the idea that gold and silver prices are manipulated by wealthy, and therefore powerful, investment banks and hedge funds.  I certainly don't think that qualifies as a conspiracy theory, as the sheer volume of precedent for criminal trading practices resulting in this type of manipulation is a matter of public record.  One need look no further than Enron for an example of this type of practice.  I will post another chart in the coming days, which shows the disparity between the am and pm fixes for gold over the course of many years.  The consistency of that disparity in and of itself comprises hard evidence that trades are executed daily with the intention of suppressing the price of gold for the profit of whomever is on the short side of that trade.  Furthermore, the commitment of traders data from the Tokyo exchange is public record as well.  Unlike the NYMEX and COMEX, the TOCOM data identifies institutional traders, so one can track the massive shifts in positions between longs and shorts from the likes of Goldman Sachs and, over time, the effect of those shifting positions on the underlying prices.  Though you may label this group a bunch of conspiracy nuts, try visiting the website of with an open mind... watch the 2 main videos there, read a few articles, and see what you think.  The evidence for price manipulation has been hard to amass, as much of the shorting is unattributable, but despite the difficulty the organization has amassess an impressive body of evidence for price manipulation.  Draw your own conclusions... I'm not here to try to convince everyone that my view is the correct view or anything like that... I'm just here to try to spark discussions and get people thinking and researching for themselves.  That, incidentally, is precisely what I love about CAPS.  :)

It's clear we do disagree about gold, and that's fine.   :)  If as you say, gold is mainly good for jewelry, then the world must have be pretty blinged-out these days.  Have you noticed?... Gold has made a lot of people a lot of money in recent years.  If you're looking for clues about how long that might last... wondering how much longer this uptrend can last... wouldn't you want to consider the opinions of the people who have been invested in the space and so have been following relevant events closely throughout this period?  I have a timeframe in sight, and an exit strategy.  I plan to make a bundle from gold and related investments during that time, and then exit before the peak.  As a long-term investment, gold's gains would indeed be less spectacular than they have been these last few years, but as a medium-term investment during a supercycle, with a well-conceived and disciplined exit strategy, it sure looks to me like a whole lot more than jewelry.

As for your last statement about the end of the world as you know it.  The world as you knew it ended the moment the housing crises shed light upon the true nature of the beast that's undermining the USD:  derivatives.  That's where you'll find plenty of evidence in my blog for where the price of gold is going... it's all visible through the train tracks that have been laid already for the USD... with an unfortunately steep downhill pitch.  One hardly need watch gold itself... tracking the dollar will suffice.

Thanks for disagreeing with me, as it challenges me to express my views more clearly.  Remember, I'm not here to convince you of anything... we're just here to exchange ideas.  I respect your views completely and the obvious success you're enjoyed with your CAPS picks.  Continued good luck and fortune.

Fool on!


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