romans holiday

Houston, we may have a problem.

This spike up took many by surprise. Originally I was looking for one more wave up in the "inflation trade" with the ratio going near 50 and the DOW through 10000... but after listening to the combined bear blasts of Prechter and Hoye, I swapped silver for Yen, though luckily only a third of my silver position. Moral of the story; stick to your own instincts. Even if gold/silver heads up a little here, I think gold will come back below 1000 with silver coming back even further as it does.

If you don't mind me asking, what currency did you take profits in? Yen, and dare I say it, the dollar, will strengthen in the event of a market crash. Sterling [risk currency] is likely to tank again. I have Yen set aside in the event of a crash.... though I like to think I would buy some gold stocks, I will most probably just buy silver. Maybe 5% of my worth in something like minefinders would be OK for "diversity". I'm concerned, as a staunch deflationist, that there might be havoc in all stocks.... though gold related ones should pull through in the end.

Not sure what you mean here. If you mean selling gold and taking profits in another currency... I do not see this as taking profits. imo if you sell something [say silver when the ratio is more favourable] and take profits in gold, by buying gold, this is taking profits. When the next shoe drops I doubt gold will dip far.... silver is the one to watch out for there. That said, investors do not look like selling anything at the moment... with all the supposed liquidity about, why sell? If you sold gold, what would you take profits in? It would have to be another currency. Why not think of gold as the better currency and stay put?

Due to the volatility. If you manage to trade the volatility right... sell near a peak and buy on the dips it can be quite lucrative. I am not sure how long this window of opportunity will last. I imagine at some point silver will stabilize at a higher level, similiar to what gold has done. Gold is a lot more stable now [with a floor around 900 compliments of QE] which is why I think it is for saving, that is, for taking profits in.

imo silver is for speculating and gold for saving.

I'll be jumping near 50......with the sword of D hanging over it.

Not at all. I have consistently said gold will perform well in this deflation. Gold sold off previously on forced liquidation and before QE last year. QE has effectively monetized gold and problematized the currencies indulging in this practice. The debasement of currencies is the" hyper" in my hyper-deflation thesis where the value of all assets deflate including cash [see signature]. Gold could dip again [i doubt below 900, on another round of liquidation] but is on its way to 2000 next year imo. Equities, commodities and real estate should go down with continued deflation once this bear market rally is over. Demand for gold as a currency will remain strong. Gold does not need to be linked formally to a currency to act as money. It has already been "remonetized" in the minds of investors and nations such as China and Russia [sovereign funds looking to diversify out of the dollar]. Think of it as a currency now. Gold could continue to strengthen along with the dollar at some point on liquidation in the market. There is nothing sacrosanct about the supposed inverse relation between gold and the dollar. Look at gold here, it has shot up while the dollar remains relatively stable.

Gold looks likely to go through 1000 here, and could well go below it soon after though I doubt very much we will see gold below 900 again.

Nope... just holding some Yen.

Your guess is as good as mine. I wonder though if that kind of ratio might be a good few years out yet; where a lot of wealth has been destroyed, the price of gold is higher, money is more scarce, and silver effectively monetized.

The [re]monetization of gold.

Ratio back on track heading towards the 50s. Will be interesting to see how much life is in the markets here and how low the ratio can go before we see a reversal. imo there is always the deflationary sword of damocles hanging over these markets and would count myself lucky if I could trade 50 pieces of silver for gold.

Does that make us...old?

Don't tell me you are thinking of selling for pounds.

There is a very real danger in this kind of thinking. It shares a similarity to Puru Saxena's call to buy gold if it continues in a bull market, but to sell it for all you are worth if the dollar rallies and gold goes below 920. They both buy into a simple binary logic that the dollar must crash and burn for gold to perform. Investors following these luminaries will panic out of gold if they see gold decline and the dollar spike up. imo this would be a spectacularly wrong move as a newly strengthened dollar will most likely weaken again at some point [though not crash and burn] while gold goes on to reach new highs. Not 1 in a 100 pundits are calling for both gold and the dollar to strengthen. imo the market is in the "twilight zone" at the moment where all rational analysis will most probably be confounded. The dollar is quite likely to strengthen at some point soon due to deflationary dynamics and not fundamentals. Gold could weaken, but in the longer term gold will become the prime currency where the dollar and Sterling will become secondary currencies as the fundamentals finally catch up with them. Though weakened, the dollar will remain valuable because we are moving into an era of money scarcity. Currencies will be valued by the general population but eventually weakened by investors on the fx market as capital, that most nebulous property, moves increasingly violently in search of a safer haven. In this scenario, assets will continue to decline in both nominal prices and real value; they will decline against the dollar, but then doubly so against gold.

I do not often say this... but I think Puru is pretty clueless when it comes to the macro picture and how gold will perform within it. He spat the dummy when gold failed to shoot to the moon as his monetarist theory dictated. He then flip flopped from the [hyper] inflation position to the deflation position. Not sure where he is now. I certainly wouldn't want him managing my money. Does he imagine investors are made in his own image? What Puru fails to understand is that gold is in the process of being "remonetized' with it increasingly perceived as a currency and not a commodity. In this situation, gold and the dollar could well strengthen together. But this seems to be beyond Puru's worldview which is fixated, like most worldviews are, on a binary opposition.

There is nothing magic about the 1000 line. Gold could easily breeze through it and fall below it again. Good to see the fanciful figures of 10000... 50000 are being dropped and the more reasonable ones of 1400... 2000 being envisaged. imo these prices will be reached within a couple of years as capital flows from weakened currencies into gold. The price will remain meaningful because the weakened currencies will remain valuable to newly impoverished consumers. This is the inexorable logic of deflation.

I guess stranger things have happened, but I have been saying for quite a while now - since we first saw QE - that QE had effectively put a floor under gold at 900 by "monetizing" it. Gold is the go to currency of choice now and I think the only thing that could set it back a little would be a full-on deflation scare in the market where absolutely everything goes down. Even then I can't see gold going below 900... before recovering. Keeping some powder dry in Yen in order to buy silver should the big one occur.

Yes, good advice. If I didn't already have 50% of my liquid worth in gold/silver, I wouldn't be trying to find a lower buying point with the other 50%. This also acts as a hedge against such a large position in metal. If the price of gold just keeps on climbing not much harm done. I doubt it will keep climbing here though and at some point draw back. Silver should draw back more and present a good buying op. Gold could go through 1000 and dip back to 950. Hard to imagine gold could go below 900 now.

It may or may not happen. I wouldn't bet the house on it, or all my stash, but markets are looking vulnerable. All it would take is something to come out of Europe, then a renewed credit crisis, and then watch out below.

Big money moving into both Yen and gold here. Buying the Yen is the risk averse trade par excellence... gold may give Yen a run for its money in this role in the near future. I think this should pretty much put to bed all those worries about how gold performs in deflation.

The bastion of stability. The ballast in vertiginous markets. The refuge of the frugal. The macro solution to an economic mess.... etc etc etc

Interesting to compare gold and silver against Yen. With the Yen strengthening the gold price is relatively lower than the graph which is priced in dollars. Also, in Yen, silver looks over-priced in comparison to gold.

I swapped half the silver I had for Yen. Will be happy to sit on Yen until Mr Market spits the dummy next.