GOLD

[electroweak]

Have been seeing HEAVY buying on BullionVault over the weekend.

Liquidity reached a VERY low point earlier this evening.

It was tight on saturday night/sunday morning, but got VERY tight a few hours ago.

(spreads over USD1000 etc..)

 

EDIT: I personally turned over USD 75000 this weekend (!)

[bitbigt]

The Contrarian Investor feels deflation is here: http://cij.inspiriting.com/?p=514

I think a dangerous misunderstanding is developing... about whether we're experiencing inflation or deflation.

 

M3 in the US (total mney supply) is still, today, increasing at a rate of about 15% per year (see http://www.shadowstats.com) and this is strongly inflationary. Plus the same is happening in other countries, especially Asia. In fact, in Asia the wage-price spiral effect is also now in play, pushing up inflation further. And just as we exported our inflation pressures to Asia and they absorbed it all for a decade or more, thay're now passing it back to us - with a vengeance. Look at the data at the shadowstats website, it shows that real Western inflation is now about 10%, and even the massaged CPI is at 5% and still increasing. In short INFLATION IS HERE, NOT DEFLATION.

 

However, liquidity is most definitely down (credit crunch), and so the amount of 'cash available for spending now' (M2 money supply) is indeed falling. To make an analogy with a househod budget, imagine that dad is putting more money into the household bank balance each month (M3 going up), but more needs to be spent every month as prices are rising (inflation), and hence there's less left over as cash or savings (M2). But that is NOT deflation - that's a credit crunch, and it will probably cause a recession.

 

Hence, what we're looking at is stagflation - incredibly bullish for PMs, once the reality (and the resulting fear!) becomes clear to everyone. Thus all currencies will weaken wrt gold, but which weakens the least (i.e., strengthens wrt other currencies) will depend on many factors, not least interest rates and CB manipulation.

 

We must not fail to see the forest for the trees!

[G0ldfinger]

I think a dangerous misunderstanding is developing... about whether we're experiencing inflation or deflation.

...

We must not fail to see the forest for the trees!

I agree. Most will not understand. Like this guy. He's going to get wiped out IMO.

 

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Bonds Show Inflation Peaking as Slowing Growth Deflates Commodities Prices

...

Aug. 11 (Bloomberg) -- Schroder Investment Management's David Scammell is so convinced inflation has crested that the bond fund manager this quarter has sold securities designed to protect from rising consumer prices.

[romans holiday]

I think a dangerous misunderstanding is developing... about whether we're experiencing inflation or deflation.

 

Yes, I agree. This inflation/deflation debate rests on a false dichotomy; where two concepts are considered mutually exclusive. Rather, we can have both at the same time. What is required first is another look at how we define the money supply.

 

We tend to focus on only the money supply [M3] which is undoubtedly being inflated. Many economists argue that questions of inflation/deflation deal not only with the money supply [M3] but also credit. They use a wider definition of inflation/deflation; increasing/decreasing M3 + credit [debt money].

[i will try to find an article for this]

 

I do not think it has to be an either/or proposition; that either we have inflation or we have deflation. Obviously we have both and the larger definition of the money "supply" accommodates both.

 

What does this mean for gold? I envisage monetary inflation to debase the dollar while deflation [credit "crunch"/the withdrawal of debt money] will make money more scarce. This scarcity will not increase the purchasing power of the dollar as other stronger currencies will compete for goods on a global stage. In this scenario, Gold is doubly good.

 

http://agonist.org/tjfxh/20080422/deflatio...e_mish_shedlock

 

I happen to believe in Austrian economics and the definition I use when I speak of inflation is a net increase in money supply and credit. Deflation is the opposite, a net decrease in money supply and credit

 

Also, I think some kind of time line is useful to keep in mind. Maybe we will have an extended period of inflation as the Fed attempts to reflate. Once this attempt fails we could then have deflation proper.

[bitbigt]

Yes, I agree. This inflation/deflation debate rests on a false dichotomy...

I do not think it has to be an either/or proposition....

What does this mean for gold? I envisage monetary inflation to debase the dollar while deflation [credit "crunch"/the withdrawal of debt money] will make money more scarce.

Also, I think some kind of time line is useful to keep in mind. Maybe we will have an extended period of inflation as the Fed attempts to reflate. Once this attempt fails we could then have deflation proper.

Nice informative post! Thanks!

 

I agree with you on all points, and hope people will soon realise: we've had 15-20% global money supply increases for the last 10-15 years. That implies 5-10 times more money floating around in the system than there was 10-15 years ago. And despite current asset value destruction, a very substantial increase in money supply is still going on today. All that extra money makes currencies worth less (and eventually, worthless).

 

Two things to then consider:

 

1) 'What' will currencies become 'worth less' with respect to?

One answer would be the price of living, or the value of one week of work (implying increases in salaries and CPI numbers) - and, of course, ultimate stores of wealth, such as PMs. But at the very same time, assets that depend upon credit/liquidity rather than money supply may well fall dramatically in price, such as houses, various commodities, stock markets (as is hapenning).

 

2) What's happening to all that extra money?

Well remember, there's masses of it out there, and a very great fraction of it is sitting on the sidelines (in cash, bonds, sovereign wealth funds) looking for a good investment vehicle. But with houses, commodities, stock markets etc all currently falling in price its not likely to be put into such assets in the near term. But that said, it has to be put to work somewhere, and I think it will go into global infrastructure development, commodities (once they're just a little cheaper), land/property empires (once they're cheaper), bluechip companies (once they're MUCH cheaper), and especially gold - in a big way - as soon as it is clear to everyone that inflation is not going away, but instead getting worse.

 

In short - in terms of real wealth, informed investors will get richer (people and nations) as they put their wealth to work in ways that take advantage of inflation, whilst the blind masses will get poorer due to the way inflation steals wealth and due to the fallout from the credit crunch.

 

Or to put it another way - there is ever-more money in the global system, and that will do damage to the masses - especially in weaker Western economies. It really doesn't matter whether it occurs quickly (via dramatically expanding Asian economies creating commodity price spikes that cripple the world with hyperinflation ...as people were predicting) or slightly less quickly (via Asian economies growing a little less fast due to the credit crunch but for longer, implying longer term wage-price spiral inflation ...as people will now start to predict). The excess money is there, and it will make its presence felt.

 

This is a perfect re-run of the 70's but on a gobal scale in a globalised economic system, with everything enlarged in size and intensity. The charts tell us clearly what happened to stocks, commodities, house prices and gold during that decade ...and I think we should learn from history

[romans holiday]

This is a perfect re-run of the 70's but on a gobal scale in a globalised economic system, with everything enlarged in size and intensity. The charts tell us clearly what happened to stocks, commodities, house prices and gold during that decade ...and I think we should learn from history

 

Yes, there are some similarities. Read an interesting article here which made the point that it may take a couple of years for this gold bull to play out. Also, I suspect we may possibly see a repeat of the pattern after gold peaked in August '06... it took a year of consolidation before climbing upwards again. Just as well we are in for the long run right.

 

Of course, there could be any number of swans which would sweep aside any predictions we might make.

 

http://news.goldseek.com/GoldSeek/1218389880.php

 

 

Unfortunately, this outcome is now quite likely, meaning that the duration of the correction could be extended by an unknown length of time, from a couple of months to as long as a year.

 

One outcome that we feel we have to mention is the worst case scenario. The current commodity correction could extend for a few more months, easily pulling gold to below $800. If gold stabilizes in the $700s, lower $800s would become new resistance levels, causing precious metals to stall for a longer period of time.

 

Although this will in no way cancel the secular gold bull market, it will, however, likely lead to a cyclical bear market. The chart below shows that gold can fall to the lower $600s and still keep the long-run gold bull alive. During the seventies’ bull market gold lost about half of its value in a period of two years, just before embarking on an unprecedented run that took the price to $850/oz.

[wrongmove]

Or to put it another way - there is ever-more money in the global system, and that will do damage to the masses - especially in weaker Western economies.

 

The central banks are certainly lending more, but it doesn't seem to be nearly enough to cover the drop off in non-CRB lending - or at least the property markets don't think so. Is total lending really accelerating? I do not see much evidence of this.

[wrongmove]

e.g. Dramatic cut seen in mortgage lending (FT)

 

"........Building societies have so dramatically slashed their mortgage lending that repayments outstripped new loans by almost £700m in June, according to the latest data from the Building Societies Association.

 

According to data from the Bank of England, the net withdrawal of mortgage lending by building societies is unprecedented; not even in the darkest days of the last property recession did net lending become negative................."

 

 

 

Net lending in UK has actually gone negative, not merely slowed it's rate of growth.

 

 

[UpTheKhyber]

Here's the BoE's broad money supply figures:

 

The US government don't publish their broad money supply figures anymore, but I will guarantee it is growing. By its nature lending at interest requires an ever increasing money supply; if it ever falters the doo-doo will really hit the propellor.

[wrongmove]

By its nature lending at interest requires an ever increasing money supply; if it ever falters the doo-doo will really hit the propellor.

 

Indeed. Else we risk a nasty deflationary spiral (cf Japan). Everything goes down. Oh, except fiat!

 

 

 

[G0ldfinger]

Deflation scare. Uhh, wait. No, it's actually INflation.

 

Wholesale prices in Germany jump 10% in one year. Biggest move since 1981.

Der Spiegel calls it 'a bad omen'.

http://www.spiegel.de/wirtschaft/0,1518,571178,00.html

[drbubb]

To make an analogy with a househod budget, imagine that dad is putting more money into the household bank balance each month (M3 going up), but more needs to be spent every month as prices are rising (inflation), and hence there's less left over as cash or savings (M2). But that is NOT deflation - that's a credit crunch, and it will probably cause a recession.

 

Good explanation !

 

Rising foof and energy, are going to suck money away from other consumer discretionary spending,

including things like: Renta and property speculation

 

Dont forget, in times when yields are below mortgage rates, a BTL speculator has to subsidise

every property invetsment that he makes. This isn't easy to contemplate, when more and more of

his cash flow get shifted into food and energy, No wonder we are seeing a rapid death of amateur

BTL, where property is bought at a Pseculative premium.

[Steve Netwriter]

Russian Bear Delivers Crude Oil and Gold a Black Swan Event

Commodities / Crude Oil Aug 10, 2008 - 05:49 PM

 

By: Nadeem_Walayat

http://www.marketoracle.co.uk/Article5830.html

 

Personally where gold & silver is concerned I would limit exposure to 2% of the total portfolio value, to ensure ongoing analysis is unbiased, rather than devolve into a perpetual hunt for sign's in support of gains of a large holding.

 

:blink: :blink:

 

I find that astonishing. At times such as these, and he's suggesting LESS than the normal amount often talked about during normal times !!!

 

[G0ldfinger]

The Guardian says that the -9% in house prices means a £400bn loss in equity. Since I expect losses in the end to be 3-5 times as much, that would mean a drop in equity of £1.2tn-£2tn. That's a lot, and will have dire consequences.

 

http://www.guardian.co.uk/business/2008/au...p;feed=business

[LauraB]

http://news.goldseek.com/GoldSeek/1218389880.php

 

 

Unfortunately, this outcome is now quite likely, meaning that the duration of the correction could be extended by an unknown length of time, from a couple of months to as long as a year.

 

One outcome that we feel we have to mention is the worst case scenario. The current commodity correction could extend for a few more months, easily pulling gold to below $800. If gold stabilizes in the $700s, lower $800s would become new resistance levels, causing precious metals to stall for a longer period of time.

 

& with six figs arriving in her BV account shortly, this is just what a girl wants to be reading

 

When Do I? - Uncertainty reigns, as ever...

 

.... but one thing is certain, without you guys I wouldn't even be here pondering.

 

 

Sorry to be not making any significant contribution this lifetime, but my sincere thxs for this mind-set altering education

 

 

 

 

 

[G0ldfinger]

& with six figs arriving in her BV account shortly, this is just what a girl wants to be reading

 

When Do I? - Uncertainty reigns, as ever...

...

If this is a larger sum for you, it would possibly be wise to not buy all at once, but 'average in' over a longer period of time.

[warpig]

Wow, the swings of late would give me a heart attack with that amount of cash! I agree average in, I have a feeling we could see $7xx/oz again. IMO TA is only of use if we have seen the pattern before, this is completely unprecedented, expect the unexpected.

 

& with six figs arriving in her BV account shortly, this is just what a girl wants to be reading

 

When Do I? - Uncertainty reigns, as ever...

 

.... but one thing is certain, without you guys I wouldn't even be here pondering.

 

 

Sorry to be not making any significant contribution this lifetime, but my sincere thxs for this mind-set altering education

[electroweak]

Wow, the swings of late would give me a heart attack with that amount of cash! I agree average in, I have a feeling we could see $7xx/oz again. IMO TA is only of use if we have seen the pattern before, this is completely unprecedented, expect the unexpected.

I'd be using the smackdowns (around 13:30 and 16:30 of late- including today..)

[G0ldfinger]

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Asset-Backed Bond Sales Drop to Lowest in Decade, Deutsche Says

...

``The overwhelming bulk of securitizations have been designed solely for the purposes of accessing central bank liquidity,'' analysts led by Ganesh Rajendra wrote in a report published on Aug. 8. Creating and keeping bonds to borrow from central banks ``has become a de facto substitute for capital market funding for many banks,'' the analysts wrote.

How can you reverse this? You can't. Hence massive inflation.

 

More gloom:

 

http://www.bloomberg.com/apps/news?pid=206...&refer=home

FDIC Fund Strained by Bank Failures May Have to Raise Premiums

...

``So if Armageddon scenarios did play out, the people's deposits would be backed by the full faith and credit of the United States government,'' Bair, 54, said on July 30.

Right. And this is the opposite of deflation, i.e. inflation.

[wrongmove]

.... but one thing is certain, without you guys I wouldn't even be here pondering.

 

Then you need to think very carefully, IMHO. This is great board, but it is not made up of financial advisors, or anyone else you can sue if they give poor advice. Betting several hundred K on the back of forum tipsters is a pretty risky strategy IMHO.

 

 

 

 

 

[Bobsta]

I'd be using the smackdowns (around 13:30 and 16:30 of late- including today..)

Good call for today, although slightly later than usual. I picked up a staggeringly tiny amount of silver at 14:10 (time, not price).

[sossij]

Then you need to think very carefully, IMHO. This is great board, but it is not made up of financial advisors, or anyone else you can sue if they give poor advice. Betting several hundred K on the back of forum tipsters is a pretty risky strategy IMHO.

 

Good advice. A lot of people on here have been buying gold for a while and have "found their legs", as it were. Some are very bullish and some are quite cautious. I remember when I first started buying gold about 2 years ago (and I'd been thinking about getting some for almost a year before that!), I would be constantly watching the gold charts tick up and tick down and worry whenever the price moved moved down. I started off very small. My first purchase was a single 1 oz Brittania then nothing for a month, then I bought a Panda a month later. After that I opened BV account and slowly bought just a few grammes at a time. Slowly, I got to see how the market would change (a bit like watching the weather) and would tally my responses with others (in The Old Gold Thread on HPC). Over time I learned not to care about wild variations but to keep plugging away with small regular purchases. By doing this I have managed to smooth out the peaks and troughs but I haven't necessarily benefitted as much as if I'd gone "all in" two years ago... but I've certainly been able to sleep better My reasoning to buy some gold is to protect some of my savings, not necessarily to get rich... but it would be nice!

[LauraB]

Then you need to think very carefully, IMHO. This is great board, but it is not made up of financial advisors, or anyone else you can sue if they give poor advice. Betting several hundred K on the back of forum tipsters is a pretty risky strategy IMHO.

 

It's OK wrongmove. I'm a big girl. I wont be shouting at you if gold falls off a cliff, but thxs

I've lost a pile before* so the second time around should be a breeze.

Being of pension drawing age helps; one can afford to be more philosophical with less long term pain.

Plus I live like a peasant anyway......

 

Thxs GF, I can see the wisdom of averaging; even though it goes agin my natural instincts.

 

 

Edit:- * not PMs

[wrongmove]

It's OK wrongmove. I'm a big girl. I wont be shouting at you if gold falls off a cliff, but thxs

I've lost a pile before* so the second time around should be a breeze.

Being of pension drawing age helps; one can afford to be more philosophical with less long term pain.

Plus I live like a peasant anyway......

 

Thxs GF, I can see the wisdom of averaging; even though it goes agin my natural instincts.

 

 

Edit:- * not PMs

 

 

I'm impressed! Usually folk get risk averse by the time they are drawing a pension, but if your pension income is safe, then what the heck!

 

Good luck then, from a fellow peasant.

 

 

 

[bitbigt]

It's OK wrongmove. I'm a big girl. I wont be shouting at you if gold falls off a cliff, but thxs

I've lost a pile before* so the second time around should be a breeze.

Being of pension drawing age helps; one can afford to be more philosophical with less long term pain.

Plus I live like a peasant anyway......

Thxs GF, I can see the wisdom of averaging; even though it goes agin my natural instincts.

Edit:- * not PMs

Hi LauraB - I second everything people have said in response to your posted question, and you're clearly on the ball!

 

But for whatever its worth (and this is NOT investment advice) I think the bottom is in for gold in Sterling, and there or thereabouts for silver.