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ETFsRule (99.93)

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September 30, 2010 – Comments (27)

TMF Sinchiruna wrote:

"With respect, the relative scarcity of gold relative to the supply of dollars results in disparate percentage moves between the two currencies without providing any of the evidence you claim of a failed correlation."

This was in response to my point that, since October 2007, gold has nearly doubled, while the US dollar index has only dropped by a couple of percentage points. To give some context: Sinch had just made the point that the purpose of investing in gold is to counteract the devaluation of the US dollar (or other currencies). And I agree with that point.

However, my point is that numbers matter, and specifics matter. I believe his mentioning of "disparate percentage moves between the two currencies" is a complete cop-out. Is he really saying that every time the US dollar drops by 5%, the price of gold should rise by 75%? It just doesn't seem rational to me.

I believe that there are only 2 logical ways to come up with a "fair price" for gold. One is to compare the price of gold to the devaluation of the US dollar. The other is to compare the price of gold to the increase in the money supply (these are different because an increase in money supply does not necessarily result in a devaluation of the dollar).

Anyway, on a long-term historical basis, the price of gold seems to move in a fairly rational and predictable way, with regards to each of these two measures. However, these correlations have completely fallen apart since the start of the financial crisis.

I believe Sinch has fallen into the trap of "falling in love" with gold, and as a result he has become a permabull on gold. That's why he does not use correlations or numerical analysis to come up with a fair price for gold - instead, he relies on macroeconomic and political arguments. But that takes me back to my earlier statement: numbers matter. That's why we need some way of differentiating between a 5% increase in gold price, and a 75% increase in gold price. They are different.

Even on a theoretical level, his claim of "disparate percentage moves" is nonsense, and in my opinion it is just a way of ignoring the numbers, and continuing with his perma-bullness.

Let me put it another way: Sinch has said himself, that the true "value" of gold does not change over time. The price of a fine men's suit, expressed in ounces of gold, has changed very little over the past 50 or so years. Think about that for a second. The purchasing power of gold does not change over time. But the purchasing power of US dollars does change over time, due to inflation. If we experience 5% inflation for 1 year, then your US dollars can purchase 5% fewer men's suits or gallons of milk as a result.

Next, let's perform a quick thought experiment. Let's say you decide to convert your money from US dollars into men's suits. Then, you convert it from men's suits into gold.

You repeat this experiment again a year later, but, much to your dismay, you finish with less gold the second time. Using the associative property of mathematics, it should be obvious that a 5% devaluation in the US dollar should result in exactly a 5% increase in the price of gold.

Therefore, we can conclude that something fishy has been going on over the past 3 years. My opinion is that gold has been overhyped; the Glenn Beck effect. Everywhere you look, there are people talking about gold. Gold this, gold that. As a result, large numbers of people have sold their stocks and bought gold, resulting in a bubble. Here's a visual aid that I just put together to illustrate the effect.

To reiterate: I'm not saying that the price of gold shouldn't increase at all. I'm saying the extent of the increase has gotten completely out of whack.

27 Comments – Post Your Own

#1) On October 01, 2010 at 12:46 AM, XMFSinchiruna (27.05) wrote:

ETFsRule

I'll let the community speak on my behalf as to whether I'm just a wide-eyed perma-gold-bull who hasn't done his homework. Even those who disagree with me know that I approach the topic with an exhaustive and research-oriented focus.

Before making such spurious accusations, you may at least wish to show me the respect of reviewing my archival posts on the topic.

For the record, I found this comment of your from a recent blog post pretty telling. It was written on August 20, 2010 (40 days ago!):

"Right now, I am not exactly sure if gold is overpriced or underpriced, because I don't have all the up-to-date information that I would need to do my own analysis. But I suspect that it is a bit overpriced right now due to its gains over the past 18 months."

So, you've looked at gold for a month and already you presume to take that sort of tone with me? You need to take a step back, and check your attitude at the door. If you had brought questions to me about relative scarcity of gold versus supply of USD, I could have helped you to understand the fallacy behind expectations of a mirror-image percentage moves between the USD and gold. But instead of asking questions, you chose to attack.

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#2) On October 01, 2010 at 2:05 AM, MoneyWorksforMe (< 20) wrote:

"the US dollar drops by 5%, the price of gold should rise by 75%? It just doesn't seem rational to me."

Didn't you already account for this discrepancy by admitting in your own post that the money supply has implications on inflation and therefore the price of gold? 

The money supply has increased by trillions over that same time frame...

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#3) On October 01, 2010 at 2:07 AM, BillyTG (29.46) wrote:

There's no bubble. "Talking about gold" is far different than buying gold.

People keep trying to find some perfect correlation between the dollar and gold. At one time there might have been, but there is no longer a gold standard, and any similarity between the two has gotten so out of whack.  Trying to find a formula that a "5% devaluation in the US dollar should result in exactly a 5% increase in the price of gold" is futile right now.You'd be more successful tieing the dollar to oil, the petrodollar standard, than to gold right now.

You could add up all the gold ounces in the world and convert it to a dollar figure, which gets you only a few trillion dollars! Compare that to the US annual budget deficit or the next QE package and you'll see why gold is undervalued. China sees it. India sees it.

Politics matter.  Macroeconomics matter.  The global economy is as unstable as it has ever been, and we're not even close to getting through the mess.  Those who don't make an effort to understand the bigger forces at work are setting themselves up for letdown.  Trying to analyze gold as a typical security is impossible in my opinion.  Gold is like the ultimate momentum play, fueled by fear and rationality and irrationality and history and scarcity and inflation and a million other things.  As I've heard said, the price will keep going up until people stop buying. I guess that's a " no duh" statement, but it's true, and we aren't even close to any bubble or the peak of our economic instability.  I'm not even a momentum investor, not with stocks anyways, but this is a currency and we are in drastic times.

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#4) On October 01, 2010 at 3:15 AM, Valyooo (99.56) wrote:

So how do you come up with a fair price of gold?  I am very bullish on gold (though I don't claim to know much about it) and I just plan on holding it until 1) monster inflation kicks in 2) treasuries burst ( I guess those can be at the same time) and then once it drops heavily for two days straight after that I am out.  But I can't find an exact price for it.  Any thoughts sinchi?

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#5) On October 01, 2010 at 7:18 AM, XMFSinchiruna (27.05) wrote:

Valyooo

I am happy to offer you my thoughts on the matter.

I worry a bit for investors like yourself. I am glad for you that you have acquired gold exposure, and that you have glimpsed the major drivers for a bullish outlook, but without a specific price target to anchor your decisions, you may vulnerable, in my opinion, to the rampant volatility that characterizes this gold market.

By the same token, I understand that conducting the due diligence into gold that would yield more conviction with specific price targets or other benchmarks is a time-intensive process.

In the meantime, my hope is that you are spared one of gold's monster corrections and are afforded the time to develop your own set of conservative price targets.

Permit me to repost my comments from the very same blog post in August where ETFsRule exhibited such a comprehensive knowledge of the gold market:

Given the nuanced process involved, the safest way to value gold is to remain incredibly and consistently conservative. This is why I have not moved the goalpost of my $2,000 price target over the past few years despite a steady accumulation of fundamental drivers for higher prices over that time.

When value investors face uncertainty in pegging a specific fair value for a company that presents some opacity for one reason or another, they adapt to that condition by employing added conservatism in their calculations. 

The admitted challenge with valuing gold is that I could sit here and propose a vast range of potential fair values based upon a range of future scenarios. For example, one can use Adrian Douglas' very compelling research to calculate a fair value above $48,000 per ounce if the scenario we are valuing for includes a collapse of the paper-induced leverage in the global gold market (primarily through the London OTC).

Others might just as convincingly argue that valuing gold has more to do with pricing-in the balances of payments of the more salient debtors like the U.S ... i.e. what the gold price would have to be in order for the global supply to match those key balances of payments.the result would be well into five figures per ounce, but well below the above mark (I think it was around $30,000 at last check).

A more conservative valuation could be constructed merely on the basis of estimating the impact of price suppression that has thus far muted gold's decade-long move. Adrian Douglas' latest report proves that a covert gold pool has suppressed the price by consistently dumping gold into the London pm fix over the course of the decade. Had suppression never been in place -- and admittedly this is not a quantitative process but rather a qualitative assessment based upon my daily scrutiny of this market over the past 6+ years, I feel comfortable suggesting that gold would already be trading in the $2,200 to $2,500 range absent all manner of coordinated suppression activity.

And then there is an endless parade of alternative scenarios that a seasoned gold observer can apply to price projections much the way oil analysts work in contingent scenarios like an armed conflict in the Straits of Hormuz into their oil price projections. For example, another $700 billion bailout or massive resumption of quantitative easing could be estimated to appreciate the gold price by X. A wholesale increase in China's gold reserves could be estimated to increase the gold price by Y, and likewise, and further advances from less impaired nations to adopt an alternative reserve currency regime with a reduced role for the U.S. dollar and/or the Euro could be estimated to appreciated the gold price by Z.

It's definitely an inexact science with plenty of ifs and buts, but much like placing a fair value upon an opaque company, there is room for different analysts to come to different conclusions ... the real confidence is found in taking the lowest common denominator of myriad valuation attempts / procedures.

This is why I am sticking with $2,000 for now. As we approach $2,000, I expect far greater visibility for determining whether $3,000 or $5,000 might make a conservative secondary price target, or whether instead some miraculous confluence events might have by then reduced the likelihood of further parabolic price moves.

These are merely the rambling friday afternoon thoughts of one Fool. Every Fool will likely come to a different conclusion on fair value. My own range is anywhere between $2,000 and $48,000, which is why I stick with $2,000. :)That being said, I will be shocked if we get through this whole mess without seeing $5,000 gold, and I also see plenty of scope for 5 digits.

Sinch

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#6) On October 01, 2010 at 8:22 AM, ChrisGraley (29.61) wrote:

Everyone else is printing money too!

The flock to the dollar for safety is only temporary.

Think Global.

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#7) On October 01, 2010 at 11:54 AM, RonChapmanJr (33.21) wrote:

"However, my point is that numbers matter, and specifics matter."

"I believe that there are only 2 logical ways to come up with a "fair price" for gold."

Yet no numbers are given for what you think the fair price of gold is.  Afraid to go on record?

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#8) On October 01, 2010 at 12:01 PM, ETFsRule (99.93) wrote:

Sinch: I think it's funny that you mention "attitude", and then you go through my posts trying to find something to use as an ad-hominem attack against me. If reputation is the only thing that matters, then we should just ignore everything you have to say, and declare Mr. Munger the winner here. But that's not the way a civilized discussion works. So, how about we both check our egos at the door and focus on the issue?

"If you had brought questions to me about relative scarcity of gold versus supply of USD, I could have helped you to understand the fallacy behind expectations of a mirror-image percentage moves between the USD and gold."

I tried to illustrate the fallacy of your logic, but you have ignored it. I'll get to that in my next post.

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#9) On October 01, 2010 at 12:12 PM, BillyTG (29.46) wrote:

Just another thought to expand horizons---gold is almost always shortsightedly evaluated against the dollar. There are currencies, debts, and derivatives that go well beyond a simple "dollar versus gold" analysis.

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#10) On October 01, 2010 at 12:12 PM, ETFsRule (99.93) wrote:

"Trying to find a formula that a "5% devaluation in the US dollar should result in exactly a 5% increase in the price of gold" is futile right now."

Maybe so. I understand that the actual price of gold is irrational, and it fluctuates all over the place - often with no regard for its true, fundamental value. I'm not the one who called it a "safe' investment - Sinch was.

Regarding the 5% thing, let me explain the logic I am using here. First, let's look at 2 statements:

1. The purchasing power of gold is stable over time (in terms of the price of a men's suit, for example, priced in gold).

Sinch and I have both agreed that #1 is true, and I believe that the historical evidence supports this.

2. "With respect, the relative scarcity of gold relative to the supply of dollars results in disparate percentage moves between the two currencies without providing any of the evidence you claim of a failed correlation."

This is Sinch's new hypothesis, which he recenty posted. From a logical/theoretical standpoint, he has failed to realize that #2 contradicts #1. They cannot both be true!

Let's analyze it using 3 variables:

A = the cost of a men's suit, in ounces of gold per suit

B = the price of a men's suit, in $ per suit

C = the price of gold, in $ per ounce

Now, let's use some hypothetical numbers for the year 2010:

A (2010) = 1 ounce per suit

B (2010) = $1000 per suit

C (2010) = $1000 per ounce

Now let's say we come back 20 years later, and we find that the US dollar has de-valued by 50%. Now the variables become:

A (2030) = ?

B (2030) = $1500 per suit

C (2030) = ?

Plug in whatever numbers you want for A and C, and you will see that it is impossible for both statements, #1 and #2, to both be true.

(and yes, once again I am aware of short-term, irrational changes in the price of gold - but that has nothing to do with this example. I am only talking about long-term trends here)

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#11) On October 01, 2010 at 6:06 PM, Earendil (< 20) wrote:

The source of the confusion is that the price of gold does not depend on the current level of the ‘suit index’, but on the risks and uncertainties surrounding the future level. 

Assuming that ‘suits’ have a constant real value over time, the gold to dollar value at the end of 20 years, when suits have gone up in price from $1000 to $1500 will be very different in two different scenarios: 

Scenario 1:  The price of suits rose gradually, regularly, and predictably every year for 20 years, and there is no reason to think that anything will change. 

In this scenario, we would expect the value of gold to fall relative to the dollar (it will take more than 1 oz. of gold to buy a suit).  This is because risks and variability in the future value of the dollar seem low, and there are better ways to hedge against the predictable inflation than through gold. 

Scenario 2:  The price of suits fluctuated considerably and unpredictably over the twenty years.  The price has been going up steeply in the last few years, and many are worried that there is a risk that prices of suits in dollars could explode upwards. 

In this scenario, we would expect the value of gold to rise relative to the dollar (it will take less than 1 oz. of gold to buy a suit).  The value of gold might rise quite a lot. 

Thus, the price of gold is related not just to the current ‘suit index’, but, critically, to the value of hedging against future ‘suit index’ risk. 

Therefore, short term fluctuations in the price of gold are not necessarily ‘irrational’.  They are often driven by changing risks, and therefore changing values of the hedge or option against those risks.  (Of course, sometimes they are ‘irrational’ as the emotional forces in the market drive gold, like most asset classes to often overcorrect, both up and down.)

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#12) On October 02, 2010 at 7:23 PM, XMFSinchiruna (27.05) wrote:

ETFsRule

Excuse me? An ad hominem attack against you? I engaged in a patient and respectful dialogue with you on another post, and you returned the favor with a trash-talking rant like your original post above. And then you have the audacity to suggest you've been attacked? First of all, check the definition of ad-hominem before tossing it about. The quote of yours that I cited from August was entirely relevant to the conversation given your attempted assault upon my credibility.

It's unfortunate that you had to bring the conversation to that level. If you expected me to take a baseless accusation like "I believe Sinch has fallen into the trap of "falling in love" with gold, and as a result he has become a permabull on gold" without moving decisively to set you straight, that's just not going to happen. 

As I said, there is much about gold that you could have learned from me ... since I am always here to help people understand more about the topic. By coming out firing despite an admitted lack of knowledge on the subject, however, you burned that bridge. Really, you've only done yourself a disservice.

Despite having ample cause to do so, however, I won't write you off. If you would like to alter your tone and show a willingness to learn a thing or two about gold, I would still be willing to help. 

Sinch

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#13) On October 02, 2010 at 7:34 PM, XMFSinchiruna (27.05) wrote:

ETFsRule

As regards comment #10, you have taken the suit example entirely out of context. That is an anecdotal example of a general rule of thumb that tends to hold true over the very long-term ... i.e. over the course of centuries. If you're looking for gold to exhibit steady purchasing power during a secular bull market and historic re-pricing event, you'd be better off searching for the lost city of Atlantis. Gold's purchasing power is increaing because it is returning to its rightful rle as a currency following decades during which it had been cast aside and misperceived as some kind of relic.

Because your starting point with the whole suit example is a complete fallacy in the relevant timeframe, then of course the remainder of your challenge is rendered dead on arrival. Remember ... if you want to understand relative scarcity as it applies to currencies and the ramifications for gold... all you have to do is ask nicely and I can try to explain it to you. Trying to prove me wrong on this will get you nowhere.

I clarify points like these for the benefit of all readers. 

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#14) On October 02, 2010 at 8:01 PM, whereaminow (< 20) wrote:

Is he really saying that every time the US dollar drops by 5%, the price of gold should rise by 75%?

I'm confused by this.  When the US dollar drops by 5% compared to what?  Are you comparing to a basket of equally crippled currencies?  Are you using the CPI? 

Gold prices not only reflect past devaluation, they also reflect expectations of further devaluation.  At the very least, I would expect is gold to reflect True Money Supply, which has risen at least 6-fold since the mid-80's, combined with expectations of future increases in TMS.  Considering how large QE1 was, knowing that QE2 is likely to be in the same ballpark, and expecting a QE3, 4, 5, 6....17 (until rioting) (since they don't work, never have worked, and never will work....) gold looks rather cheap.

One more kind of, just a wee bit, important thing.  Wars are expensive endeavors.  And since the bulk of the cost of America's follies have yet to be paid, gold investors must account for that as well.  More money to be printed down the line.  (This is actually less true of unfunded liabilities, which won't be paid, because nobody actually cares about the poor. Those are just promises for suckers.)

But, hey, the Fed could just divest itself of all gold holdings, and the gold 'speculators' would be crushed.  (Not really, if you actually think about such an event. In fact, if you truly understand the implications of suggested event, you'd convert all cash savings into something, anything other than dollars asap.)

But we'll see. An audit of the Fed would help. They're the biggest gold hoarders in America.  If gold is truly not money, not useful, etc., then why are they holding so much and why don't they let us audit the 'people's money' and see how much is left?

David in Qatar

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#15) On October 03, 2010 at 11:15 AM, ETFsRule (99.93) wrote:

Sinch: It's not that I'm "trying to prove you wrong". I'm just trying to arrive at a correct method of valuing gold. That's all. And in order to advance the discussion, I am pointing out the error in your logic.

You have said before that gold's purchasing power has historically been constant, for long periods of time. If you have changed your position, that's fine, but you should have at least said so, in order to avoid the obvious contradiction.

You could have learned a lot by trying to walk through the theoretical steps required for establishing a sensible method of valuing gold. Instead you have posted one possible driver (the price suppression of gold), and used that to somehow arrive at a target price of around $2000 (or was it $5000? or something else?).

"This is why I am sticking with $2,000 for now. As we approach $2,000, I expect far greater visibility for determining whether $3,000 or $5,000 might make a conservative secondary price target, or whether instead some miraculous confluence events might have by then reduced the likelihood of further parabolic price moves.

These are merely the rambling friday afternoon thoughts of one Fool. Every Fool will likely come to a different conclusion on fair value. My own range is anywhere between $2,000 and $48,000, which is why I stick with $2,000. :)That being said, I will be shocked if we get through this whole mess without seeing $5,000 gold, and I also see plenty of scope for 5 digits."

I find it ironic that you continue to attack my credentials with your constant condescension, even after posting something like this. The above quote is much more embarrasing than anything you'll find in my posts. But I'm just a novice, not an expert like you, right?

Let's face it, all you're doing here is guessing and throwing numbers around.

"If you're looking for gold to exhibit steady purchasing power during a secular bull market and historic re-pricing event, you'd be better off searching for the lost city of Atlantis"

That's sort of the point. In the long-term, gold's purchasing power is relatively constant. Therefore, if gold's purchasing power suddenly rises by 75% over the span of three years, then you would tend to conclude that it is overpriced, no? And in order to get back to its long-term trend, it will have to drop at some point, will it not?

Lastly, if you can't appreciate the value of blunt honesty, maybe you are just too sensitive to engage in these sorts of discussions on the internet.

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#16) On October 03, 2010 at 11:48 AM, ETFsRule (99.93) wrote:

"But, hey, the Fed could just divest itself of all gold holdings, and the gold 'speculators' would be crushed."

Or, the state budget crisis in California could cause the unemployment rate to go even higher, which would probably plunge the US into a deflationary environment. This would absolutely crush the price of gold, which has already priced in a ton of future inflation.

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#17) On October 03, 2010 at 12:10 PM, whereaminow (< 20) wrote:

ETFsRule,

I get that, but this is the same argument we always have.  I have yet to meet a central bank that doesn't inflate once it gets a whiff of deflationary pressures.  So, let's say that you're right and Cali's problems cause a push down on the price level.  If the Fed were to allow that to continue, it would be the first time in some 60 years that a central bank sat on its hands.  It's not a bet I want to make. 

(The argument whether they should or should not sit on their hands is a separate argument.  The crucial question is will they and they never do.  At least it's been so long that they have, why bet on it?)

David in Qatar

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#18) On October 03, 2010 at 12:18 PM, AvianFlu (24.03) wrote:

David makes a good point that I would like to reiterate.

If gold goes up that means the dollar index goes down...right? WRONG! It is possible or even likely that if the dollar loses purchasing power then the dollar index may actually go up. That can happen when the other currencies in the index are losing value even faster than the dollar is.

The analogy I read here that I like involves 6 people in quicksand. They are all sinking, but some are sinking faster than others. That is the dollar index.

The bottom line is, the dollar is about to be trashed much worse than it is now, and you need to figure out how to preserve your capital. Traditionally, gold has been a good choice, but there are other choices as well.

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#19) On October 03, 2010 at 1:22 PM, starbucks4ever (98.56) wrote:

" I have yet to meet a central bank that doesn't inflate once it gets a whiff of deflationary pressures"

One case where it is happening, to a degree, is European Central Bank, which printed relatively little, and the reason is very interesting. Since Germany and France are controlling shareholders, the eurobureaucrats feel that PIGS economies are expendable. However, any threat of PIGS defaulting will send the Euro sharply down, which is just what controlling shareholders want. By NOT printing enough money, the ECB can drive the Euro lower than it could drive it by printing too much of it, while confining the austerity pain to the colonies and positioning the metropolis as a safe haven. 

Maybe we too should accept Mexico into a dollar union, let it absorb as much debt as it can carry, and then shut the printing press off, getting a cheap dollar AND a low inflation? What do you think? 

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#20) On October 03, 2010 at 1:41 PM, whereaminow (< 20) wrote:

zloj,

I'm not sure I understand this.  Never mind the Mexico stuff, I mean the PIIGS.  Germany has always been among the least inflationary of the post WWII Western countries.  If the PIIGS keep pushing the brink of default and Germany continues to push the "responsible inflation" line, doesn't that lead to a break down of the Euro?

David in Qatar

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#21) On October 03, 2010 at 1:59 PM, starbucks4ever (98.56) wrote:

whereaminow,

Germany is also heavily dependent on exports. So they actually want a cheap Euro. The problem is, if they just print Euros, they will get inflation which they are very much afraid of for historical reasons (once burned, twice shy, you know). Ideally, they want to combine cheap euro with stable prices and low interest rates. So when Greece got in trouble, they made it appear they would not provide any help, which made investors panic and sell Euros. This gave German exporters a boost and Germany had a very good second quarter, and that without a single Euro printed. 

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#22) On October 03, 2010 at 2:08 PM, XMFSinchiruna (27.05) wrote:

ETFsRule

You had your last chance, and chose your path. From your comment the other day alleging: "thinly-veiled partisan politics, and a bizarre association between gold investors and the struggling working class - in an apparent attempt to gain populist support for your ideas", to the confrontational and argumentative tone within each of your comments above, you have made it crystal clear that you are not interested in a rational, respectful exchange of ideas ... but rather a pulpit from which to spew your hastily constructed hypotheses on a topic that you yourself admitted to knowing virtually nothing about. If you consider that condescension to give you only that respect which you earn via your interactions with me, then you are free to call it that.

You continue to miscontrue and maul my myriad writings on the topic in a way that appears motivated by a desire to match your desired conclusions. Nowhere in any of your recent interactions have you exhibited an openness to actual dialogue. You attempt to characterize your comments as "blkunt honesty"... but there is nothing honest about them. It is rudeness and disrespect, plain and simple.

You seek to take a complex topic and fit it into a cliffs-notes version to accompany your rudimentary understanding of gold. Unless you insert humility, and also welcome complexity and nuance into your approach, you will only perpetuate your misconceptions.

I am unwilling to waste a single moment further engaging in pointless appeals to your better judgment. Find someone else to help you figure out a means of valuing gold ... you'll not have my help.

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#23) On October 03, 2010 at 3:40 PM, ETFsRule (99.93) wrote:

Good riddance. If you want to post about how great you are, do it on your own time. I don't appreciate someone using my blog for their own self-promotion, while ignoring everything that I have to say. Your methods are a joke, and your estimates are nothing but wild guesses.

Was I confrontational? Sure I was. Regarding respect, I agree - you only get as much as you deserve. You have continued to argue with me, while showing absolutely no sense of self-awareness.

And the reason I accused you of using thinly-veiled partisan politics, is because that's exactly what you did - while also using "weasel words" to give your readers a false sense of security.

How would you respond to a stock pitch written like this?

I believe that company X will continue to rise, anywhere from another 50% - 350% from its current levels. And if it does rise by 350%, I'll probably just keep raising my estimates higher and higher. Don't you dare call me a permabull, though - these estimates are very conservative, and they were carefully crafted using my brilliant knowledge of the subject. Oh and by the way, this stock cannot possibly go down - it's the safest investment in the world.

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#24) On October 03, 2010 at 7:41 PM, XMFSinchiruna (27.05) wrote:

ETFsRule

Thanks for the comedic postlude... especially the self-awareness part. That was priceless.

This game is rigged ... you are free to be as nasty as you wish, while I am constrained to maintain decorum. I believe you are attempting to goad me, and I will not oblige. The record will show I gave you several opportunities to approach me respectfully, and you refused them each in sequence.

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#25) On October 09, 2010 at 3:36 PM, Deepfryer (28.11) wrote:

This is ETFsRule, posting from my other account. 

Sorry about the late reply, but I just realized something. BillyTG linked to this site, which includes the following quote:

"Thus, the most useful monetary inflation analysis is that of Paul van Eeden, President of Cranberry Capital, Inc.  Mr. van Eeden’s Actual Money Supply (AMS) model indicates a 12-month moving average of 8.44%."

This was true at the time, but if you look at the updated figure from Mr. van Eeden, you will see that the Actual Inflation Rate (the AIR, derived from the AMS) has been steadily dropping.

The AIR has a historical average of more than 7%, but recently it has plummetted to less than 4%. So, while people like to claim that the United States has been printing money like drunken sailors - this does not correlate at all with what is really happening. In reality, the money supply is being increased at a much slower rate than its historical average.

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#26) On October 09, 2010 at 5:04 PM, BillyTG (29.46) wrote:

@Deepfryer, thanks for taking the time to look up van Eden's recent stuff.

While this one metric, and I'm not even close to being any kind of economic guru, are there possibly other ways for the government to be increasing the money supply? I'm thinking about things like the Fed injecting money into the stock market, buying real estate, buying other companies. I don't know if those kinds of actions factor into inflation statistics, but it seems obvious that they are doing "unnatural" things to the economy to keep prices artificially up.

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#27) On February 09, 2011 at 12:24 PM, DavidSobel (< 20) wrote:

The drop in the value of the dollor of 5% might translate to a bump in gold prices (but not for long).  The world has been buying the U.S. debt and holding dollars for a long time and now the world wants to dump its dollars for gold and silver.  With a congress and President that are printing greenbacks faster than your local ATM can spit them out ( by the billions and billions a` la Carl Sagen). Gold has made a nice run and silver made a better run.  Here is the rub.  In order to make the greenback attractive again, so the billions and billions of debt will be bought up and keep hyper inflation away for a while,  the price of gold has to take a major hit by at least 30%.  So we have $1000 gold for a while and our debt looks good to the middle east and China and India.  And silver makes a big run to meet the historical trading ratio with gold of 10 to 1.  So $1000 gold and $100 silver trading sideways for as long as it takes to sell the debt.  I hope we will have a gazillion more jobs and the taxes to ballance the budget and then gold and silver can make another run.  Until that time just buy more silver and take your profits and buy gold on the cheap!!

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