GOLD

[romans holiday]

My problem with gold (and oil) is the component parts of its fundamentals are so very very complicated, its not like say, Northumbrian water shares, where you can spot insider trading a couple of months in advance of a taker over bid, or NRK/LEH shares, where you can pull up their balance sheet and get a good idea of the impact of the credit crunch on their bottom line.

Its all flaky ifs, maybes and 1st/2nd/3rd order derivatives of the entire global economy.

I just see gold as a hedge against uncertainty. As long as investors/ CBs remain uncertain about the economy, trade and currencies, gold will continue to perform well. Also, I see even Sarkozy has been talking about a new Bretton Woods lately.

[mSparks]

I just see gold as a hedge against uncertainty. As long as investors/ CBs remain uncertain about the economy, trade and currencies, gold will continue to perform well. Also, I see even Sarkozy has been talking about a new Bretton Woods lately.

But its much more than that.

Whos uncertainty?

Your governments?

The IMF?

The third world?

China?

TPTB?

trade?

savings and loans?

reserve requirements?

thermonuclear war?

border hostilities?

The dollar?

All currencies?

 

The list is endless, all of which play significant roles in its movement, but all of which are so inter-related, that its [currently] impossible to see what the effect of one will have on the other.

e.g. say people decide to save a higher percentage of their income.

That should increase the price of gold.

But if that saving results in lower national income, the actual amount saved could decrease, reducing the price of gold.

 

Exactly the same applies to oil, sometimes there are massive forces, which drive it one way or the other, and you can get some sort of hold they are about to happen (e.g. last November), but even these are usually buried in gigs and gigs of misinformation.

[carbon junkie]

If he'd selected october 08 it would look even further away, He's actually being quite generous, a big blow out is always (in my experience) preceded by a high level of chaotic price movement, I think he's probably being a bit too generous even continuing the trend, Its probably going to end up something like oil, drop some high double digit percentage through its lower support, rebound back to it (oil support, via Russia, was and still is $70 last time I checked) and sit there for a couple of years.

You didn't answer my question and obviously RH is incapable of answering it!!

 

Why not 2000 and why not a log chart?

 

And sit there for a couple of years - that is funny!! nothing is going to sit at a steady price for a couple of years.

 

 

[mSparks]

You didn't answer my question and obviously RH is incapable of answering it!!

 

Why not 2000 and why not a log chart?

 

And sit there for a couple of years - that is funny!! nothing is going to sit at a steady price for a couple of years.

Well, if you start a trend analysis from 2000, a log chart is a really bad idea, log charts are only really useful when comparing different assets over a fairly short time period.

If you use a log chart over a long period the kind of corrections you need to make become insane, and you will always adopt a "bubble" mentality since that log chart will hide what has happened recently and place to much emphasis on what happened early on.

 

If you can give me a reason why it should start from 2000 (e.g. What Ben Bernake was up to in 2000 ) I can throw some of the corrections that need to be made your way.

[carbon junkie]

I got the same smell see previous post.

Cheers FK there is a distinct lack of a sense of humour on this site I think it is too many paper bugs worried about their investments.

 

I tnink we go up to $1,500 from here however I would never bet the house on it - especially as I sold it three years ago!!

 

Onwards and upwards.

[carbon junkie]

If you can give me a reason why it should start from 2000 (e.g. What Ben Bernake was up to in 2000 ) I can throw some of the corrections that need to be made your way.

Bernanke Greenspan same difference same Fed same philosophy same problems no difference.

 

2000 onwards is what it is all about gotta put things in context.

 

What and why are you going to throw something at me? and whateever it is I don't think I want it - ta very much tho'

 

ps I have noticed that you never actually seem to answer any questions.

[romans holiday]

But its much more than that.

Whos uncertainty?

There are so many factors, complexities... not too mention swans.. that it remains irreducibly uncertain. Given the dominance of uncertainty, investors will not be sure how to value assets... and currencies for that matter... this is the prime reason capital will continue to flow, in the aggregate, into gold and out of other currencies and assets.

 

As a skeptic myself, I am quite comfortable with uncertainty. Bye bye rationalism.... with all its silly certainties

[Methinkshe]

I found the following article by Willem Buiter very thought-provoking.

 

Gold - a six thousand year-old bubble

 

Here is a an excerpt from the article but it's worth reading the whole.

 

Because to a reasonable first approximation gold has no intrinsic value as a consumption good or a producer good, it is an example of what I call a fiat (physical) commodity. You will be familiar with fiat currency. Unlike what Wikipedia says on the subject, the essence of fiat money is not that it is money declared by a government to be legal tender. It need not derive its value from the government demanding it in payment of taxes or insisting it should be accepted within the national jurisdiction in settlement of debt. Instead the defining property of fiat money is that it has no intrinsic value and derives any value it has only from the shared belief by a sufficient number of economic actors that it has that value.

 

The “let it be done” literal meaning of the Latin ‘fiat’ should be taken in the third sense given by the Online Dictionary: 1. official sanction; authoritative permission; 2. an arbitrary order or decree; 3. Chiefly literary any command, decision, or act of will that brings something about.

 

The act of will in question is the collective attribution of value to something without intrinsic value. Being declared legal tender by a government may help achieving that status, but it is neither necessary nor sufficient.

 

Gold is very close therefore to the stone money of the Isle of Yap. This stone money, known as Rai, consists of large doughnut-shaped, carved disks, consisting usually of calcite, that can be up to 4 m (12 ft) in diameter, although most are much smaller. Apparently, the total stock of Rai cannot be augmented any further. It also depreciates very slowly. This intrinsically useless form of money in the Isle of Yap is in all essential respects equivalent to gold today in the wider world. Another example would be pet rocks, as long as the rock in question is rare and costly to get into its final shape.

 

Gold has become a fiat commodity or a fiat commodity currency, just as the US $, the euro, the pound sterling and the yen (and a couple of hundred other currencies) are fiat paper currencies. The main differences between them are that gold is very costly to produce, while the production of additional paper money has an extremely low marginal cost. If we count the deposits of commercial banks with the central banks, which together with currency in circulation make up the monetary base, as fiat money, then the incremental cost of fiat base money creation is zero.

 

 

It is controversial and has attracted quite a few indignant comments which are also worth reading, imo.

 

I'm not saying I agree or disagree, only that I find the article thought-provoking. And I have to admit that I'm still wary of gold as a hedge against either inflation or deflation and even against a crisis although I can see the value of holding 10% of one's wealth in gold or silver. But I cannot quite put my finger on the cause of my disquiet.

 

I suppose it would depend on how deep a crisis became; gold as a store of wealth is very much a construct of society thus if society breaks down, one wonders whether gold would retain any value.

 

I was thinking of Zimbabwe and Mugabe's land grab (white owned farms) and was reminded of communism and similar land grabs. It seems to me that the ultimate store of value is productive land together with breeding herds of livestock, a comprehensive seed-bank, and availability of human labour, plus essential tools, to farm that land. Which is why, perhaps, totalitarian states always make a land grab and not a gold grab.

 

All other forms of wealth, including gold, are essentially derivatives of this ultimate store of wealth - the means of survival.

 

And I wonder whether, in a crisis, any amount of gold could tempt a landowner (farmer) to sell his land.

 

 

 

[mSparks]

Bernanke Greenspan same difference same Fed same philosophy same problems no difference.

 

2000 onwards is what it is all about gotta put things in context.

 

What and why are you going to throw something at me? and whateever it is I don't think I want it - ta very much tho'

absolutely not.

Ben Bernake was the one spun as the money printer (helicopter ben) Greenspan and Greenspeak was well understood and largely approved of by everyone outside of the tin hat brigade.

 

I meant with regards to the corrections, e.g. the kind of alterations that need to be made to a graph for a long term trend analysis.

 

[aliveandkicking]

There are so many factors, complexities... not too mention black birds.. that it remains irreducibly uncertain. Given the dominance of uncertainty, investors will not be sure how to value assets... and currencies for that matter... this is the prime reason capital will continue to flow into gold and out of other currencies.

 

As a skeptic myself, I am quite comfortable with uncertainty. Bye bye rationalism.

 

RH you are just guessing using all of your logically constucted ideas.

 

Gold if overvalued unless you construct some ideas that say it is special

 

Houses are special. They are one of the most important things in our lives.

 

Income is special

 

There are a number of things we can reason are special.

[romans holiday]

RH you are just guessing using all of your logically constucted ideas.

 

Gold if overvalued unless you construct some ideas that say it is special

 

Houses are special. They are one of the most important things in our lives.

 

Income is special

 

There are a number of things we can reason are special.

Not at all. I have posted a lot of theoretical stuff on why gold will perform well.... looking for links....

 

http://www.greenenergyinvestors.com/index....t=0&start=0

 

http://www.greenenergyinvestors.com/index.php?showtopic=8203

 

http://www.greenenergyinvestors.com/index....t=0&start=0

[mSparks]

There are so many factors, complexities... not too mention swans.. that it remains irreducibly uncertain. Given the dominance of uncertainty, investors will not be sure how to value assets... and currencies for that matter... this is the prime reason capital will continue to flow, in the aggregate, into gold and out of other currencies and assets.

 

As a skeptic myself, I am quite comfortable with uncertainty. Bye bye rationalism.... with all its silly certainties

In that case, there are many, many better forms of insurance than holding gold receipts, why will the money prefer gold and not these?

[romans holiday]

In that case, there are many, many better forms of insurance than holding gold receipts, why will the money prefer gold and not these?

Insurance? I don't think gold is insurance. I think it is in the process of monetization... capital will got to gold as the strongest currency. If the global economy became unstable enough, there is a very good chance that this would be formalized in a new world currency, to which increasingly unstable currencies are pegged... but I am going over old ground here.

[carbon junkie]

absolutely not.

Ben Bernake was the one spun as the money printer (helicopter ben) Greenspan and Greenspeak was well understood and largely approved of by everyone outside of the tin hat brigade.

Sorry are you trying to tell me there is a fundamental ideological difference between Alan Printsalot Greenspan and Helicopter Ben?

[aliveandkicking]

Not at all. I have posted a lot of theoretical stuff on why gold will perform well.... looking for links....

 

http://www.greenenergyinvestors.com/index....t=0&start=0

 

http://www.greenenergyinvestors.com/index.php?showtopic=8203

 

http://www.greenenergyinvestors.com/index....t=0&start=0

 

So you are the kind of person who is guided by theories while you talk about the end of rationalism??

 

 

[carbon junkie]

Gold is very close therefore to the stone money of the Isle of Yap. This stone money, known as Rai, consists of large doughnut-shaped, carved disks, consisting usually of calcite, that can be up to 4 m (12 ft) in diameter, although most are much smaller. Apparently, the total stock of Rai cannot be augmented any further. It also depreciates very slowly. This intrinsically useless form of money in the Isle of Yap is in all essential respects equivalent to gold today in the wider world. Another example would be pet rocks, as long as the rock in question is rare and costly to get into its final shape.

 

This is utter nonsense the reason these stones were valuable is that it took a great deal of skill and labour to fashion these stones the embodied energy and skill was known to all and so these stones had value. He alludes to this then completely ignores it.

 

So long as Fiat money is easier to create than gold then gold will be worth more. As long as alchemists fail to turn lead or others in to gold then gold will be worth more than paper money.

 

There is a concerted effort building to try and prop up fiat money by discrediting gold

 

China

Buiter

Soros

 

Ever get the feeling some of the paper shills are working for the paper printers.

 

I suspect there are one or two paper trolls on this forum also working for the paper printers they tell you they love gold and silver and then spend most of the time trying to put people off buying it.

 

We know who you are.

[romans holiday]

So you are the kind of person who is guided by theories while you talk about the end of rationalism??

Well, skepticism is a view which is critical of rationalism. In philosophy, this is perfectly valid... philosophical thought is much bigger than modern theory which springs from Cartesian rationalism. Ideas are interesting things, and I certainly wouldn't want to be too attached to my own. I hold them as provisionally true... a useful fiction until they are falsified by real events. I started a thread on this here:

 

http://www.greenenergyinvestors.com/index.php?showtopic=7019

[mSparks]

Insurance? I don't think gold is insurance. I think it is in the process of monetization... capital will got to gold as the strongest currency. If the global economy became unstable enough, there is a very good chance that this would be formalized in a new world currency, to which increasingly unstable currencies are pegged... but I am going over old ground here.

Insurance is the process of removing uncertainty, you may not be able to remove the risk, but you can remove the uncertainty.

-> Given the dominance of uncertainty, investors will not be sure how to value assets... and currencies for that matter... this is the prime reason capital will continue to flow, in the aggregate, into gold and out of other currencies and assets.

 

I 'almost' agree with.

But I would put it as:

Given the dominance of uncertainty, investors will not be sure how to value assets ... and currencies for that matter... this is the prime reason capital will continue to flow into goods and products that remove that uncertainty.

 

Sorry are you trying to tell me there is a fundamental ideological difference between Alan Printsalot Greenspan and Helicopter Ben?

maybe, maybe not.

That is entirely irrelevant when compared to the difference between peoples expectations of their behaviour.

Its expectations that define what people plan for.

People were not planning for helicopter Ben in the Greenspan era, inflation was all but forgotten by the masses and deemed under control by TPTB.

 

It was this caricature that kicked off the hyperinflation debate.

 

Which, among many other things triggered a seismic shift into gold buying.

 

The US crash started in 2005.

So there is two very good reasons to look at it from these dates.

 

What could possibly be affecting the price of gold that started and continues from 2000 that can compare to these two issues?

[romans holiday]

Insurance is the process of removing uncertainty, you may not be able to remove the risk, but you can remove the uncertainty.

-> Given the dominance of uncertainty, investors will not be sure how to value assets... and currencies for that matter... this is the prime reason capital will continue to flow, in the aggregate, into gold and out of other currencies and assets.

 

I 'almost' agree with.

But I would put it as:

Given the dominance of uncertainty, investors will not be sure how to value assets ... and currencies for that matter... this is the prime reason capital will flow into goods and products that remove that uncertainty.

Yes, but we are looking at systemic uncertainty here. How certain can you be of collecting on your insurance if there is systemic failure in institutions [not to mention what it is denominated in]; that the capital is simply not there to cover liabilities.... hmmm the CDS debacle comes to mind.... and Katrina.

 

I think globalization will need to be rebooted, recapitalized on gold and a new Bretton Woods. No certainties but.

[mSparks]

Yes, but we are looking at systemic uncertainty here. How certain can you be of collecting on your insurance if there is systemic failure in institutions; that the capital is simply not there to cover liabilities.... hmmm the CDS debacle comes to mind.... and Katrina.

 

I think globalization will need to be rebooted, recapitalized on gold and a new Bretton Woods. No certainties but.

"that the capital is simply not there to cover liabilities"

That's not resolved by "recapitalizing on gold" (if the gold was there, there would be capital to cover liabilities)

That's resolved by sending in the bailiffs.

Big Bailiffs with tanks and bombs if necessary, higher taxes either way.

[romans holiday]

"that the capital is simply not there to cover liabilities"

That's not resolved by "recapitalizing on gold"

That's resolved by sending in the bailiffs.

Big Bailiffs with tanks and bombs if necessary, higher taxes if you can.

The problem is value, a very contingent thing, is eroding from both assets and currencies today [i've referred to this as hyper-deflation], jeopardizing the global economy. If the process is not arrested [and I think gold/ a new Bretton Woods can play a role here] then, as you suggest, we may be looking at tanks and bombs. Personally, I think governments are a bit more inventive than that.

[mSparks]

The problem is value, a very contingent thing, is eroding from both assets and currencies [i've referred to this as hyper-deflation] today jeopardizing the global economy. If the process is not arrested [and I think gold/ a new Bretton Woods can play a role here] then, as you suggest, we may be loking at tanks and bombs. Personally, I think governments are a bit more inventive than that.

examples?

[romans holiday]

examples?

Housing markets, equity markets, peripheral currencies. Also, if we continue to see chronic instability between currencies in the centre and on the periphery this does not bode well for a stable global economy. It is also interesting to see how gold has appreciated against currencies during this period of instability. If, for the sake of argument, you decided to price assets and currencies in gold, then this tends to show a hyper-deflation.

 

Exter's inverse liquidity triangle is interesting in this regard. In a hyper-deflation, in which currencies could also be caught up, a price-centric approach is problematic. Prices would become deceptive, as a measure of inflation/deflation, due to the fact that the currency itself is moving. For example, a currency depreciates against other major ones putting upward pressure on prices, but then demand destruction may in turn put downward pressure on prices. Conceivably, the two could cancel eachother out.. even though we have deflation here. The well-known ratios of gold to assets and currencies would then be a better measure than prices.

 

 

[G0ldfinger]

Ever get the feeling some of the paper shills are working for the paper printers.

 

I suspect there are one or two paper trolls on this forum also working for the paper printers they tell you they love gold and silver and then spend most of the time trying to put people off buying it.

 

We know who you are.

CJ, let's not throw nasty suspicions around. We all have suspicions of some sort, but often it turns out to be better to keep them private. Also, I am a great believer in "$h1t happens", meaning that not everything that looks like a conspiracy actually is one.

[mSparks]

Housing markets, equity markets, peripheral currencies. Also, if we continue to see chronic instability between currencies from the centre to the periphery this does not bode well for a stable global economy. It is also interesting to see how gold has appreciated against currencies during this period of instability. If, for the sake of argument, you decided to price assets and currencies in gold, then this tends to show a hyper-deflation. Exter's inverse liquidity triangle is intersting in this regard:

The "hyper deflation" you talk of is absolutely real, it doesn't even need a "for the sake of argument"

Its called depreciation, and it happens as much because of technological advancements as from wear and tear (neither of which affect gold much).

 

It seems very easy here to go off topic, but I really cannot see how these markets are examples of eroding value. If anything my GBPs EURs and USDs are more valuable than they were two years ago.