romans holiday

Hard to work out what that chart is predicting for the gold price this year. Correct me if I'm wrong but Pixel8r was predicting a new large up leg this year in US price of gold.... not a sideways consolidating move for the year. http://www.greenenergyinvestors.com/index....st&p=154235

Concerns about bank failures and hoarding money is deflationary! We have already seen the hyper-inflation in credit. The extension of credit affects the behaviour of all borrowers and the exisitng stock of money. Think of credit as "anti-money" if you must insist that only cash can be money. Money created ex nihilo, on the willingness of debtors, is destroyed when it pays down debt. The existing stock of money is stuck in orbit around an increasingly unstable black hole of debt. It is this black hole of debt [credit being the other face of this Janus-like instrument] that is central in determining and shaping the behaviour of our monetary system... and whether that system expands or contracts, inflates or deflates. If credit is not a monetary phenomenon, then what on earth is it? A purely cash-based economy, such as Weimar was, is capable of hyper-inflation.... if the authorities sufficiently lose the plot and have a death wish. But to compare that monetary system to our debt based monetary system... apples and oranges. If the trillion dollar bailouts/ stimulus didn't work... what makes you think a few more hundred billion will?? Put your own axioms and theorems aside for the moment, go outside the cave of your own cogito, and observe what is going on in the real world. You might see the light.

What concerns me about silver is that the instability may trump the rational fundamentals. When deleveraging takes over, investor behaviour can be very "irrational".... fundamentals go out the window. Silver was always more speculative than gold. In this environment, it has to be doubly so.

Guys... politics is not about what ought to be in an simple ideal world [or not be], but about what is, and managing the complexity of that. As for far right libertarian ideology, it has taken a pretty bad blow. Expect more pragmatic government involvement... deal with it. The "free" market you talk about... free from law and government.... is just barter. Extremely inefficient, and hardly the stuff for getting an economy going [people need price discovery and then will be much more willing to buy and sell]. For that you first need a currency... a currency enables a market to then form. A currency is always a social institution. Gold is going mainstream and will be rehabilitated to the monetary system, salvaging economies. Are you more interesting in where you want gold to go, or where gold is likely to go... no matter your preconceptions? Edit.

From that link: There is a tendency to reify the "free market" today, where the idea of the market is turned into some ontic reality, which exists over and above, or outside of, society. The reality is actual free markets exist only within the context of society, government, institutions and law. Given this, "market forces" can not really fix the problem, all they can do [insofar as they are the sum of investor behaviour] is exacerbate the problem [and perhaps for good reasons]. As the financial market becomes more unstable, money will increasingly run into gold. From an economic/ social perspective this is disastrous with gold representing a gigantic sun in which existing monetary values start to lose their orbit being caught in a strengthening and ultimately destructive gravitational pull. The solution will then have to be governmental. In order to halt the economic collapse, government will be forced to restore some kind of gold standard, that is, recapitalize and stabilize the currencies. From a "free market" perspective this would be a fixing of the gold price. From another perspective, this will just mean the re-institutionalization of gold [and the death knell of market fundamentalism] as our monetary bedrock..... with our currencies being fixed/ priced to it... not gold to our currency. This is the end game imo and will solve trade/ currency imbalances/ instabilities at the same time by fixng currencies at the appropriate levels to gold. This will also allow money/ trade to find an equilibrium between nations as it finds its natural level due to gold serving as a kind of natural "ballast" to trade. Hume's theory is good here: http://en.wikipedia.org/wiki/Price_specie_flow_mechanism For those that have a bias against government for whatever reason, consider that a gold standard is a natural restraint on what governments can and can not do. They will only restore a gold standard very reluctantly and to avoid complete economic collapse. Probably the fix will come by a capping of the price when a "tipping point" threatens, with money increasingly being caught in gold's pull.. draining the life-blood out of the economy. I imagine the price could be somewhere betwen US $2000/ 3000. Currencies would be fixed to gold, and a lot of debt default would occur though economic activity could get going again on a sounder footing. Creditor nations would take a haircut on their reserves, but like any creditor will be relieved to see the bulk of those reserves guaranteed by the new international system. If a few thousand dollars an ounce doesn't seem a lot compared to the other guesstimates around, consider that asset prices will most likely continue to slowly decline. Gold stabilized currencies will continue to become more valuable against assets, with the new era characterized by deflation expectation and the saving of money as the last was by inflation expectation and spending. Even though the numbers might be fixed, the relative value [behind the numbers] of gold/ currency to assets will continue to increase. With the classic functions of money restored, where savings should counter-balance spending, the economy would then again grow... and if more slowly at least on a more sustainable basis. edit

"What, then, is time?" Augustine asks. "If no one asks of me, I know; if I wish to explain to him who asks, I know not."

Hang on a sec. Last I checked, evolutionary progress had been put on hold. Progress is over-rated anyway.... it's all cyclical.

There's a better chance of being resurrected by future cryogenic technology if you freeze yourself while still relatively young. The younger the better apparently, so you better get a roll on if you're into that sort of thing.. btw,,,, read Bernstein"s "Power of Gold", wasn't a bad read.

Looking at that basket again, it does look pretty good. I've always used the dollar/ reserve currency as my gold benchmark and on first viewing your chart was struck by the similarity. I reckon dollar [besides Yen] might be the last currency to stand up respectably against gold. Other charts are starting to look truly awful.

This is telling: Not consumers unloading cash, but investors unloading financial assets. Deflationary not hyper-inflationary. Smarter investors, with a macro perspective, might also decide to unload the local currency for gold. But the mass of consumers in the real economy will keep the currency relatively strong as they increasingly value it due to its scarcity. It will appreciate against local assets. The smarter gold buying investors will have a currency doubly appreciating against assets.

Awesome chart Steve. I like the idea of a proper index of currencies. Is that a linear chart? Still I wonder if only a few central currencies now are worth taking seriously in regards to gold price. US dollar, Yen..... "Pricing in" weaker currencies will show the gold price higher than what it would against the stronger currencies. Is it possible to do one in just US Dollar and Yen?

I agree. The way I see it is that in order to do this I need to first "capitalize" myself. I'm not going to do that just by sitting in my local currency. I guess this also applies to nations. Once capitalized, I'll be in a position to contribute to/ develop my local economy.

If I wasn't worried about the monetary system, which I've been labouring - largely unconsciously- some years for, then I also wouldn't be concerned about the price of gold. Once you start thinking about capital preservation [and the value of your labour] though, I reckon gold soon becomes quite predominant in your thoughts.

Yes, but Prechter is looking at present mass behaviour not case histories. Consider that the behaviour of masses is now on the face of it deflationary. In the real economy, consumers are paying down debt and/ or saving. They are valuing money more... making money more valuable relative to assets... deflation. Then we have the behaviour of investors which is inflationary; spending their savings [or should I say, leveraging up] and bidding up asset prices. But this behaviour is motivated by the ideology of monetarism; the CBs are printing ergo inflation. As we have seen, the inflationary behaviour of investors is very fickle... all it takes is some headline and they panic sell... showing how uncertain they are about their inflation expectation, or should I say ideology. I think the actual behaviour of the masses in the real economy today negates any threat of hyper-inflation any time soon [we can argue about what that behaviour will be in the future... but this will be theoretical.... and most probably based on our own biases]. I think what Prechter is missing with gold is that in a global currency market, where currencies are traded as commodities, instability [and uncertainty] between those currencies will make gold increasingly attractive. Buying gold on currency instability is a form of investor behaviour which is not based on ideology, but on the real needs of investors [not to mention those of CBs] ....akin to the real needs of consumers to save money/ pay down debt... and yet Prechter seems to be ignoring this behaviour and sees it being bought merely as an inflation hedge on an ideological basis. That investors are buying gold as a currency need not entail gold be the anti-dollar. It is perfectly logical that they could strengthen together as safe havens for liquid capital. I'd suggest a common flaw to both Sinclair and Prechter is the idea that gold and dollar must be anti-thetical.

Here's the problem. People have their cherished idea and run with it. So on the one hand you've got Sinclair calling for hyper-inflationary destruction of the dollar.... then on the other hand you've got Prechter calling for the monetary destruction of all assets except the dollar. Sinclair focuses on fundamentals. Prechter on behaviour. Neither considers an approach which can take both the fundamentals [economic rational laws] and behaviour [human "irrational" herd behaviour] into a unified whole. And when you think about it we should because they are the two poles around which the economic world revolves. So maybe the gold price will be found somewhere in the middle, on the equator, equidistant from the icy abstract extremes. Just a thought.

Hi 50s, you could be right. I'm not dogmatic on it. I like to work with likelihoods and probabilities. I see the probability of a 3 digit price declining on events such as central bank buying, and Euro problems. But the real possibility remains, so am hedged, even though I've been quite confident on the price here, and not wanting to lighten up. It also helps if your hedge is the next strongest currency, and the one that would benefit from deleveraging proper. The main thing imo is to be liquid in the strongest currencies, gold and dollar.... and to remain as free as possible from anxiety, which can lead to rash decisions.

Sub 1000 is still possible. It depends on how heavy deleveraging becomes... with gold then recovering quickly. I think there is more of a chance to see a 3 digit price than $1650 by January next year. Yet, I think a continued tracking sideways is the most probable outcome for the year due to the problems with Eurozone. Many were predicting gold to rocket up this year. Instead, it has tracked sideways with a chance of going back to 1000 on deleveraging, which is what I predicted this January. http://www.greenenergyinvestors.com/index....st&p=151250

Sure, but the next leg up could be up to a year away yet. There's a good chance Sinclair is going to miss that target of 1650 by January 2011.

Replace the submerging ones? I reckon it could track sideways for a bit on Euro weakness and dollar strength. Edit: My kiwi brother-in-law bought a heap of gold [after I scared the life out of him] with very weak Kiwi dollars at the bottom of that deleveraging pit. Gold for him was $2000. The price in kiwi dollars then proceeded to crash as the kiwi strengthened, putting him underwater for these past 2 years. Gold has finally recovered back to that price.... and I now feel safer about getting back to NZ

I thought this chart was interesting. It maps the NZ dollar/ US dollar against gold/US dollar. The NZ dollar [the kiwi] got pounded in the 2008 round of deleveraging... going from .80 to .50. Gold at this time also got taken down a bit. Yet even now as the kiwi is getting once again pounded, gold looks to be holding up a lot better. I think this reflects the fact that gold is now more monetized in the minds of investors, and more resistant to the kind of deleveraging that hits commodities and stocks. You could also say that its status is in the process of going from a commodity currency to a reserve currency.

Both safe havens dollar and gold strengthening against Euro. Gold is looking like the anti-Euro now.

Dollar index strengthening. Euro tanking again. Euro Gold up. US Gold showing signs of stabilizing here.

The operative word was some. A while back I moved my core silver to gold for that very reason. What I'm suggesting here is a trade to be done with just a part of your gold and only if metals first weaken with the ratio going above 80. With the market being so volatile there is a good chance the ratio will then snap back to 60 odd, where you'd go to gold again. A small speculative trade gold/ silver in the context of having also a core non-tradable position in gold. Anyway, i thought you were a silver bull.... have you swapped to gold of late? Also, I mentioned this as a strategy for those who might be nervous of the dollar price. If the gold US price did decline a little here, there is the option for them of selling gold for silver [on a higher ratio] rather than selling for dollars.

There were a few here at GEI that got bullish on the dollar when market bearishness was at all time highs in Q3/ 4 last year. This was before the dollar bottomed with the Dubai crisis.

Another option for those with gold and nervous of a hit to the price - yet wanting to maintain their bullion position - is to trade for silver. The ratio is 67 odd now and if it gets to 80/85 on deleveraging it may prove profitable to trade some for silver. When the ratio recovers to 60 odd would be the time to jump back to gold. The conventional approach has been to go from gold to silver at around 80 and then back from silver to gold at around 50 [some even looking for a lower ratio]. Yet this might be too optimistic in an on again/ off again deleveraging environment. A better band would be a higher one of 85/90 and 60. The ratio looks to be going higher, so it is better to now be in gold.