mattyboy

Nice chart. <cheeky mode> Shows that property has done very well compared to gold over the years.</cheeky mode> It would be nice to see an up to date version. I'm guessing house prices and gold (in £) are both dropping at comparable speeds at the moment.

er - Gold's going up in GBP at the moment!

There is a long grinding it must at the time for people with our mindset have been excrutiating 50% correction from late 74 to late/mid 76 it's not pointed out on the graph - I am prepared for that to repeat because I am convinced of the fundamentals.

 

If this repeats we will have a steadily falling price for nearly a year, bottoming at not much above $500 before heading to $4000.

 

This is not going to be easy I think only the most committed will win big.

I'm not sure I could get through that

What are your thoguhts on Juniors? I have a few, I think a number of them might die if what you describe above comes to pass..

I suspect many of you already subscribe to the Daily Reckoning newsletter, but I thought I'd share this from today's:

The Daily Reckoning Presents: One could hardly fail to notice that gold investors have suffered a little more than a "bit of pain" over the past month. More like a good kicking as gold moved down by about 20% from its recent high of $986 on July 15. David Galland of Casey Research explores...

 

THE BUILDING STORM: GOLD, THE DOLLAR AND INFLATION

by David Gallan

 

Making assumptions is often a bad idea, but I am going to go out on a limb here and make the assumption that those of you with an interest in gold are concerned over the latest setback, the depth of which has surprised even us.

 

Don't be.

 

The evidence to support that statement would fill a telephone book at this point. Starting with the latest U.S. inflation numbers which, even using the government's own crooked calculations, rang in the last reporting period at 5.6%. Quoting John Williams of ShadowStats.com from a recent email I received from that organization...

 

"Reported consumer inflation continued to surge on both a monthly and annual basis, once again topping consensus expectations. The July CPI-U jumped to a 17-year high of 5.6% in July, while annual inflation for the narrower CPI-W - targeted at the wage-earners category where gasoline takes a bigger proportionate bite out of spending - annual inflation jumped to 6.2%. The CPI-W is used for making the annual cost of living adjustments to Social Security payments. The 2009 adjustment - based on the July to September 2008 period - remains a good bet to top 5%, more than double last year's 2.3% adjustment for 2008. Such is not good news for federal budget deficit projections."

 

Based on William's calculations, which use the same CPI formula used by the Fed prior to the jiggering of the Clinton years, the actual inflation rate is now running at 13.64%. And on August 19, we learned that the U.S. Producer Price Index rang in at a month-over-month increase of 1.2%, the third month in a row where that leading indicator has topped the 1% mark. Meanwhile, in Europe, the latest numbers put inflation at a 16 year high. And these are not anomalies, but the norm as the inflation tide continues to rise literally around the world.

 

A good analogy to the global currency devaluation is a slow-moving hurricane that, once over warm water, gains energy.

 

Right now the global inflation is a huge storm, slowly circling off the proverbial coast where it is gathering strength from the hundreds of billions of dollars being fed into it by governments desperate to avoid economic collapse...and from pricing decisions being made by everyone from manufacturers to local shopkeepers looking to cover rising costs.

 

At this point the skies are dark, the wind is rising, and the torrential rains are beginning to sweep in. The radio is broadcasting warnings to move to higher ground, but the hurricane has yet to hit the shore.

 

But when it does, it will be a Category 5 and maybe worse.

 

That's because, in addition to the straight-up consequences of the government monetary prolificacy and businesses raising prices to try and stay afloat, there is something else feeding power to the storm...something we have been warning about for years now: the rising odds that the global fiat currency system will fail.

 

Let me add some nuance to that remark.

 

In recent years, the global financial community, reflexively looking for an alternative to the obviously damaged U.S. dollar, has settled on the euro. But the euro is equally flawed, and maybe even more so, than the U.S. dollar. Now that the trading herd has also come to that conclusion, they are rushing back toward the dollar.

 

They are doing so not because the U.S. dollar is healthy, but rather because that is all that they know...a heads-or-tails continuum running something along the lines of "If the 'it's-not-the-dollar' play is over, then it must be time to go back into the dollar." The euro sinks, the dollar goes up.

 

And so gold, viewed by these same traders only in terms of its inverse relationship to the dollar, gets hammered.

 

What they are missing, but not for much longer, is that rushing back into the dollar is akin to heading for the vulnerable coast, and not to the higher ground now proscribed. They are also missing the point that gold's monetary value is not limited to protecting only against a failure in the U.S. dollar, but against any faltering fiat currency...a moniker that the euro deserves in spades. Not only is it backed by nothing, but it is also backed by no one.

 

I hope that the above point is clear, because it is an important one. One way to think about it is to think about Zimbabwe. If you lived in that blighted country and a year ago you could have had an ounce of gold or a wallet full of that country's failing currency, which would have been the better bet?

 

The answer, while obvious, is illustrative...because the wealth preservation role that the ounce of gold would have played for a citizen of Mugabe's paradise had zero connection with how well gold did, or didn't do, against the U.S. dollar over the period.

 

Gold is viewed as tangible money right around the world, and has been for millennia. When the trading herd wakes up to the fact that neither the U.S. dollar nor the euro, nor any other fiat currency, will protect them against the monetary storm that will soon begin tearing the roofs off their cozy offices, they'll fall all over themselves in the rush for something that will: gold and other tangibles.

 

Many of you know that the scenario just described is one that we have forecasted for some time. If you think the thing through, precedent to the global monetary crisis, the euro first had to stumble. Well, it now has. The next stage - and given the volatility of the situation, I don't think we'll have to wait long for it - will be the realization that there is no safe fiat currency. It is at that point that the massive hurricane, a crisis of confidence in the entire fiat system, will begin ravaging the global economy in earnest.

 

The price action of gold and, especially, gold-related investments over the last year, have been frustrating...to say the least. But the scenario now unfolding remains step-by-step in sync with our base case. As such, the best way to view this latest correction in the price of gold is as a temporary setback of no real consequence from an investment perspective (unless you use it as a buying opportunity).

 

The failure of the euro, on the other hand, is not just important...it is as monumental as it was inevitable.

 

David Gallan

for The Daily Reckoning Australia

 

Editor's Note: David Galland is the Chairman of Casey Research, publishers of BIG GOLD, an inexpensive monthly advisory dedicated to providing unbiased and actionable research on simple, effective and cautious ways to participate in rising gold markets.

http://blogs.telegraph.co.uk/ambrose_evans..._just_beginning

Stage two of the gold bull market is just beginning

Tuesday, August 12, 2008, 01:28 PM GMT [General]

 

A war breaks out in the Caucasus, pitting Russia against a close ally of the United States. Inflation reaches a new peak in the euro-zone. The CPI reaches the highest in Britain since Bank of England independence. Rampant inflation sweeps the developing world.

 

 

All that glitters is not reliable in these uncertain times

 

Yet gold crashes. It has failed to deliver on its core promises as a safe-haven and inflation hedge, at least for now. Why?

 

Four possible answers:

 

1) Nobody seriously believes that Russia will over-play its hand. The world could not care less about Georgia anyway. Ergo, this is a bogus geopolitical crisis.

 

2) The inflation story is vastly exaggerated in the OECD core of countries that still make up 60pc of the global economy. The price of gold is already looking beyond the oil and food spike of early to mid 2008 (a lagging indicator of loose money two to three years ago) to the much more serious matter of debt-deflation that lies ahead.

 

3) The seven-year slide of the dollar is over as investors at last wake up to the reality that the global economy is falling off a cliff. Indeed, the US is the only G7 country that is not yet in or on the cusp recession. (It soon will be, but by then others will be prostrate). As an anti-dollar play, gold is finished for this cycle.

 

4) The entire commodity boom has hit the buffers. Looming world recession (growth below 3pc on the IMF definition) trumps the supercycle for the time being.

 

Gold has fallen from $1030 an ounce in February to $807 today in London trading. It has collapsed through key layers of technical support, triggering automatic stop-loss sales. The Goldman Sachs short-position that I have been observing with some curiosity has paid off.

 

For gold bugs, the unthinkable has now happened. The metal has fallen through its 50-week moving average, the key support line that has held solid through the seven-year bull market. This week is not over yet, of course. If gold recovers enough in coming days, it could still close above the line.

 

Courtesy of my old colleague Peter Brimelow - whose columns on gold are a must-read - note that Australia's Privateer point and figure chart has also broken its upward line for the first time since 2002. This is serious technical damage.

 

So have we reached the moment when gold bugs must start questioning their deepest assumptions. Have they bought too deeply into the "dollar-collapse/M3 monetary bubble" tale, ignoring all the other moving parts in the complex global system? Nobody wants to be left holding the bag all the way down to the bottom of the slide, long after the hedge funds have sold out.

 

Well, my own view is that gold bugs should start looking very closely at something else: the implosion of Europe. (Japan is in recession too)

 

Germany's economy shrank by 1pc in Q2. Italy shrank by 0.3pc. Spain is sliding into a crisis that looks all too like the early stages of Argentina's debacle in 2001. The head of the Spanish banking federation today pleaded with the European Central Bank for rescue measures to end the credit crisis.

 

The slow-burn damage of the over-valued euro is becoming apparent in every corner of the eurozone. The ECB misjudged the severity of the downturn, as executive board member Lorenzo Bini-Smaghi admitted today in the Italian press. By raising interest rates into the teeth of the storm last month, Frankfurt has made it that much more likely that parts of Europe's credit system will seize up as defaults snowball next year.

 

As readers know, I do not believe the eurozone is a fully workable currency union over the long run. There was a momentary "convergence" when the currencies were fixed in perpetuity, mostly in 1995. They have diverged ever since. The rift between North and South was not enough to fracture the system in the first post-EMU downturn, the dotcom bust. We have moved a long way since then. The Club Med bloc is now massively dependent on capital inflows from North Europe to plug their current account gaps: Spain (10pc), Portugal (10pc), Greece (14pc). UBS warned that these flows are no longer forthcoming.

 

The central banks of Asia, the Mid-East, and Russia have been parking a chunk of their $6 trillion reserves in European bonds on the assumption that the euro can serve as a twin pillar of the global monetary system alongside the dollar. But the euro is nothing like the dollar. It has no European government, tax, or social security system to back it up. Each member country is sovereign, each fiercely proud, answering to its own ancient rythms.

 

It lacks the mechanism of "fiscal transfers" to switch money to depressed regions. The Babel of languages keeps workers pinned down in their own country. The escape valve of labour mobility is half-blocked. We are about to find out whether EMU really has the levels of political solidarity of a nation, the kind that holds America's currency union together through storms.

 

My guess is that political protest will mark the next phase of this drama. Almost half a million people have lost their jobs in Spain alone over the last year. At some point, the feeling of national impotence in the face of monetary rule from Frankfurt will erupt into popular fury. The ECB will swallow its pride and opt for a weak euro policy, or face its own destruction.

 

What we are about to see is a race to the bottom by the world's major currencies as each tries to devalue against others in a beggar-thy-neighbour policy to shore up exports, or indeed simply because they have to cut rates frantically to stave off the consequences of debt-deleveraging and the risk of an outright Slump.

 

When that happens - if it is not already happening - it will become clear that the both pillars of the global monetary system are unstable, infested with the dry rot of excess debt.

 

The Fed has already invoked Article 13 (3) - the "unusual and exigent circumstances" clause last used in the Great Depression - to rescue Bear Stearns. The US Treasury has since had to shore up Fannie and Freddie, the world's two biggest financial institutions.

 

Europe's turn will come next. We will discover that Europe cannot conduct such rescues. There is no lender of last resort in the system. The ECB is prohibited by the Maastricht Treaty from carrying out direct bail-outs. There is no EU treasury. So the answer will be drift and paralysis.

 

When EU Single Market Commissioner Charlie McCreevy was asked at a dinner what Brussels would have done if the eurozone faced a crisis like Bear Stearns, he rolled his eyes and thanked the Heavens that so such crisis had yet happened.

 

It will.

 

Gold bugs, you ain't seen nothing yet. Gold at $800 looks like a bargain in the new world currency disorder.

hang in there guys!

Sorry to hear this. Just try and stay away from margin in anything gold. Think of people (like cgnao or DrBubb) who got into gold very early and have seen movements like this many times over. Even I, who started buying gold much later, can't be @rsed to feel anything stronger than "darn it, should have bought my silver at $16.60 rather than at $17.40." But at the end of the day, will it matter once it has reached +$100?

Cheers GF - don't worry, I have got nothing on margin mostly physical with BV and Perth Mint. Also worth noting (ss someone else pointed out) that the US$50 drop from 930 to 880 is actually about AUD$10. Sometimes it is nice to get a bit of reassurance tho!

It does sh!t me the way the juniors behave - seemingly on a downward ratchet, they plummet when gold goes down but the upward movements just don't seem to keep pace!

I am not really a TA advocate and I am not trading any of my positions - fundamentally, what has just happened? The Fed's statement is more doveish (slightly) than the last. They are sticking with -ve real rates for the foreseeable and we all know what that has meant in the past!

thanks Steve!

 

Kind of in agreement with you there, Bobsta. Ok I haven't lost money having bought in a lot lower than this but I always try to remember that I can only set so much store by what I read on the internet even if the sources of information are particularly knowledgeable. I still believe in the long-term bull market in PMs and at times like this, I ask myself some fairly simple questions like: Is the US banking system REALLY out of the woods ? Did or did NOT gold hit $1032-ish in March while oil was at far lower levels ? Is there likely to be less or more investment demand for gold going forward ? I don't wanna sound patronising so forgive me if i do but I take comfort in simplicity.

 

I ain't backin' up no truck to load up when the path ain't clear but even though I might end up kicking myself by year end with gold at $1200, I'm happy to look elsewhere for opportunities. Uranium and water come to mind.

I'm with Bob and Justin - I got a bunch of gold earlier on but loaded up again in March at 980 which took my average in to about where it is now. I am wearing +50% losses on more than 50k of Juniors - my silver is above water but that's about it.

I'm getting my confidence shaken a bit atm - more so than the big drop in March - today was a total bloodbath for the Aussie juniors with -10% and more across the board! Double baggers required everywhere just to break even for me - I need a virtual group hug and some reassurance please!

Maybe but why not just relax and accumulate. By the end of this mess micro-second timing will look irrelevant.

I couldn't agree more - 10, 20, 50 even $100 either way will not make much difference in the long run if this bull run has the legs we think it does. I have not tried to trade any of it although I have to admit watching the drop from $1030 back to $850 was less than heartening - but I did manage to load up on a bit more at that price!

I know Jim says we'll go mad if we watch the tape all day - but it is fascinating isn't it? Looks like the PPT are struggling a bit atm!

If they are going to whack gold, they will do it now in time for the bank holiday weekend

 

Down a tad now 941 - 942

Here they go!

Far easier to catch with a trap, than shoot; the meat is a bit greasy but perfectly edible.

I have heard that it is rather good - next time you see "ground partridge" on the menu, give it a try!

But stay focussed on the take home messages from all of this

- politicians are now running scared of the wage-price inflation spiral kicking in big-time

- gold will rocket as inflation rises, largely overwhelming any CBs manipulations

I wonder how much it would suit the politicians to blame a bit of this inflation on the greed of the workers pay 'demands' (the cheek of it!)

p.s. silver up over 2% on US open - I'll probably need to edit this with a 'famous last words' later !

Yes, but then why do prices and wages continue to increase after the money supply is constrained? Because expectations have been set and because the wage-price spiral continues to operate.

 

I think it's fair enough to point out that the fundamental cause is monetary inflation, but the actual mechanism through which it operates is also worth examining. We've had huge money supply growth in the past without a wage-price spiral. Why? Because globalisation kept the costs of goods low, and even though asset prices were rising sharply this didn't affect most people (other than via house prices), so wage demands weren't too strong. Now that inflation is feeding into everyday costs, wage demands will rise. The monetary inflation is the same, but the effects are different.

true - and you may well be right but I suspect all of these mechanisms may be at work. The wage demands I can see coming as a result of the price inflation - I am interested in how much the wage increases themselves feed back into the price inflation - ie just how well established this feedback mechanism is. We know the cause of the inflation we are seeing now is not wages (in the UK at least) - and the money has to come from somewhere.

I'd say that's disingenuous, and an attempt to assert that all inflation is monetary inflation.

Employers don't pay more for labour voluntarily, so higher money supply doesn't lead directly to wages rising, only via wage demands.

I believe the definition of inflation is expansion of the money supply?

Your argument in bold would apply equally to goods price inflation. I don't voluntarily pay more for something than I have to, but there is more money chasing the resource, the price goes up.

Whether that resource is a packet of crisps or an hour of labour the same mechanism is at work.

Of course there are other reasons than monetary inflation that drive price increases.

Peter Schiff made an interesting point in one of his recent radiocasts - last weeks maybe. He questioned the wage-price spiral mechanism itself. His point being that inflation is the expansion of the money supply, prices go up as a result - wages are simply the price of labour. That we see wages and goods prices rise at the same time is no coincidence nor evidence of a wage-price spiral, just evidence of an increasing money supply.

I'd be curious to know what people think of that idea, and whether there is real evidence out there for the wage/price feedback mechanism - given that we know that inflation itself is simply an increase in the money supply.

The union thing Goldfinger touched on - I agree completely. People comment on the weakness of the unions now but we have had a couple of cushy decades. I wouldn't underestimate the UK population - when they see the need to get off their backsides they will (eventually).

matt

he says the Irish will decide the price of currencies, gold and oil tomorrow. Looks like a BOMB!

I was searching on my forex calendars and cant see any event firday afternoon. Where can I get analysis about this? Nobody talks about this in any place. Anyone can comment on the subject? I want to estimate the impact of this in pips, and specialy how low or high gold can go.

I haven't listened to the podcast but I can only assume it refers to the Irish referendum to ratify the treaty of Lisbon, which took place yesterday (Thursday) - presumably the result will be known on Friday. I would be interested in what this guy thinks the result will mean for the Euro->USD->GOLD?

wrt to the comments on the perth mint - some people have apparently complained about delays of delivery of unallocated metal. There is some discussion on topic here http://news.silverseek.com/GoldIsMoney/1211570804.php and Peter Schiff addressed the issue during his radio broadcast this week. I am invested with Perth mint certificates and inclined to believe their explanation, that this is a production (as in fabrication) delay broadly resulting from them having to melt down 1000 ounce bars to cast them into something smaller. The talk on silverseek seems over dramatic to me but I would welcome other's opinion on this. At the moment I am inclined to believe that the WA government is a pretty solid debtor.

matt

I know its not gold but any thoughts on this article on silver from the wsj?

http://online.wsj.com/article/SB1210980877..._we_banner_left

its the first thing I've read suggesting a diminishing industrial demand, and not a lot of mention of silver's value as a currency.

not to mention the counterparty risk. Gold apart from the possible speculative gains that we are all hoping for is first and foremost an insurance policy. If my counter-party has gone tits-skyward by the time my call is in the money, I'm no better off - in fact, I'm $20k down

The other point of course is that gold's price tends to increase more than the corresponding drop in the $ - otherwise there would be little point. The inflation adjusted peak of 1980 shows that we could be 100%+ up with the dollar where it is at the moment.

edit:grammar

Hey matt..

thanks for immortalising my best BV deal ever! I was the joker with the $28940 offer and it got filled!

I bought it back at $27800. Small Profit. (big time, eh!?, but it's free!)

Seriously, I have noticed BV does have occasional liquidity 'issues' but they are normally shortlived; say whilst they reboot their servers etc.

 

Seriously, would you be able to sell or buy AT ALL over a holiday weekend at the Perth Mint?

Once the servers start up again (I think they have now) the liquidity will return.

Chris - congrats! Yes that was quite a spread which is what got me thinking

thanks for the replies guys - I notice that the liquidity is back right now. Actually the fact that you are on a bank holiday completely escaped me as I am down in Sydney atm.

I guess looking at a lack of liquidity on there got me wondering what it would be like if prices really did start crashing - would the market makers on BV step in the offer a price come what may?

Steve - re the allocated storage at the mint, I haven't purchased anything yet (just opened a/c today but the plan atm is to close my SLV etf position and replicate this at the mint). I was going to go unallocated as the mint is fully backed by the WA govt - I have heard the physical args etc but tbh if the Aus govt defaults then I will probably have more to worry about.