Gold Bubble Bursting

[mts]

"Gold has nearly tripled in price since 2006. Yet the dollar has not fallen to 1/3 of its value in the same time frame. The bread, coffee, beer, bullets, and cereal that I bought in 2006 do not cost three times as much today"...................In 1969, the Washington quarter in my pocket would buy me a gallon of gas. Today that same quarter will buy me 2+ gals. of gas. Compare the growth of stock prices over the last 10 years, adjusted for inflation, stocks would have given you a flat to moderate yield over that period. Gold (adjust for inflation) would have given you around a 440%, or increase in buying power for your money. But what we are really talking about is the inevitable effect of printing such a high percentage of paper money, that it becomes worthless. Gold/silver is not printed, so it's really like comparing apples to oranges. I'm not saying just having PM's on hand will take care of all your future problems, I'm just saying it is one of several things that you need to do to start preparing. Food, water, shelter, security, are all good investments because those things will sky rocket in price, too. Just put a good portion of cash reserves in PM's, and for Gawd;s Sake, don't leave it in a bank, even a safety deposit box. Or have we already forgotten the lesson we learned about banks last time we went through a great depression? Pull the 10 year chart on Gold, it is a thing of beauty.

No one here is arguing that the value of the dollar has been decreasing. That is a given.

You made the claim that gold's "value" never changes. Instead, the value of the dollar simply goes down. I showed that this is not true. It is true that if the value of the dollar goes down, the "price" of gold will likely go up. However, the "value" of gold is only partially related to the value of the dollar.

And for the record, I have guns, gold, silver, food, water, shelter, cash, and hopefully my health. I'm not trying to bash PM's in any way. I just want to make sure that people are making informed decisions. I have no more ability to predict the price of gold or silver than a fish does. But that's because I've come to the realization that many of the claims I used to base my past predictions on were fallacies. Today, what I know for sure is that I really don't know anything.

 

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[mts]

MTS where have you been? Welcome back and Happy New Year, Charlie

Thanks Charlie, Happy New Year to you too. I've been spending time with the family. I've checked in now and then but haven't really posted anything because I didn't want to stir up too much trouble.

 

[Marchas45]

MTS where have you been? Welcome back and Happy New Year, Charlie

Thanks Charlie, Happy New Year to you too. I've been spending time with the family. I've checked in now and then but haven't really posted anything because I didn't want to stir up too much trouble.

I don't mind you stirring the pot I have thick skin. I appreciate yours and Jim's posts.

 

[Cleetus]

Well, I meant, in a general way, Gold spot price tends to move in relation to the value of the dollar. In the short term there are swings either way, but in the long term this holds much truer. I'm not an expert, and no one is or they would always buy 1 second before Gold hits it's lowest low, and one second after Gold hitting it's highest top. I do know:, that when you have a currency price that is manipulated, it's going to skew the results of the ratio. I'm sure everyone is aware that presently, he U.S. buys almost half of it's own Treasuries, which tend to set interest rates. China and Japan buy the lion's share of what's left. I read last week that Japan and China are hammering a deal, to start taking one another's debt instead of so much of ours. Not only that, but they are going to accept only Yuan as payment. This trend away from the USD will continue, and will affect the pricing of the dollar.......I think we can all agree though, that the only really good price to get Gold at, is the Free price when it is found...

 

[mts]

Well, I meant, in a general way, Gold spot price tends to move in relation to the value of the dollar. In the short term there are swings either way, but in the long term this holds much truer. I'm not an expert, and no one is or they would always buy 1 second before Gold hits it's lowest low, and one second after Gold hitting it's highest top. I do know:, that when you have a currency price that is manipulated, it's going to skew the results of the ratio. I'm sure everyone is aware that presently, he U.S. buys almost half of it's own Treasuries, which tend to set interest rates. China and Japan buy the lion's share of what's left. I read last week that Japan and China are hammering a deal, to start taking one another's debt instead of so much of ours. Not only that, but they are going to accept only Yuan as payment. This trend away from the USD will continue, and will affect the pricing of the dollar.......I think we can all agree though, that the only really good price to get Gold at, is the Free price when it is found...

Amen!

 

[ivan salis]

1 oz of gold is 1 oz of gold - that does not change ever * what changes is how many worthless dollars one has to dole out to obtain that 1 oz of gold * --the weaker (less desirible in trade ) the dollar the more of them you must "trade' to get the 1 oz of gold -- higher gold $ value is due to a very weak near worthless dollar that no one wants , theres a "gult" of unwanted dollars in the market due to over printing to try to pay of huge debt owed----as the dollar gets stronger (more desirible in trade) -- the number of dollars needed to get 1 oz of gold drops . thus gold drops in $ value.

quite simple really --basic supply and demand trading

if you got something few if any people want ( current us dollars )--it takes a lot of em to get stuff that lots of people do want ( oil, food and other "real world" goods) --when it gets bad enough due to massive over printing of dollars by the US govt --hyper inflation will set in -- thats where you will need massive amounts of the "monoply money" valued cash to get a loaf of bread -- germany tried the "print more money / spend your way out of debt by printing and passing out more money " and use it to pay off their massive WW1 war debts they occured when the surrendered at the end of WW1 in the early 1920's -- hyper inflation followed wrecking their economy -- million mark notes and higher were issued as the money became worthless -- print and spend will not help but will instead wreck the us just as it did germany in the 1920's

money only has "value" if its backed by something * --if you got 1 oz of gold backing say $1000 of paper money -- vs say 1 oz of gold backing $10,000 -- you can expect a 1 to 10 exchange rate -- the more money you print with the same "backing" , the less "trade" value its got.

foreign people who bought US debt notes from the treasury back when there was less overall US money in the market (high value dollar bills due to their being less of them)--are very pissed that the US govt just printed up lots more cash -- now that their treasury notes are due for repayment --they will now be paid off in much less valuible mass produced money -- due to the now lowered foreign exchange value of the current "over printed" US dollar --their profiets will have "dried" up.

 

[mts]

...quite simple really --basic supply and demand trading ...

As I've already pointed out in this thread, yours is an overly simplistic explanation and does not tell the whole story. You are merging the two concepts of "price" and "value".

In 2006 I could buy 166 loaves of bread with an ounce of gold. Today, I can buy 500 loaves of bread with the same ounce of gold. Yet the price of bread in dollars has barely changed. And the value of a loaf of bread has not changed. Thus, the value and price of gold are not necessarily one and the same.

Now some of you might be saying... "Well yeah, but in general I'm right.". But you would NOT be right in a situation where gold was in a "bubble" when the perceived "value" of gold is higher than it has been in the past. And isn't that the whole point of this thread? So some of you are making generalizations that in the past were reasonable, but in today's market don't have much bearing on the current price trend. And that's the whole problem with predicting gold prices based on simplistic models. Usually they work.... except when they don't.

 

[Cappy Z.]

The false flag Iranian crisis will keep the gold bubble stabilized for awhile. But later this year...mid summer..when the oil still flows..and the American economy picks up...the price of gold will drop like a lead sinker in a fishing contest...I see gold as low as $1250. an ounce by June 1st.

 

[Marchas45]

The false flag Iranian crisis will keep the gold bubble stabilized for awhile. But later this year...mid summer..when the oil still flows..and the American economy picks up...the price of gold will drop like a lead sinker in a fishing contest...I see gold as low as $1250. an ounce by June 1st.

Ok Cappy here's what I read this morning so be happy sitting on your cloud.

Seven Reasons The Slump Continues

So why am I guessing it will be lower? Let me count the ways:

1. Gold is a wonderful inflation hedge. But the metal is up more than five-fold over the last 12 years and inflation is still not a problem. Is it not conceivable that inflation could tick up and gold - having already discounted this - moves lower?

2. Gold is a great performer in an economic crisis. But we already had the crisis. It ended in 2008. Things are getting slowly better, not worse.

3. With gold prices still in the stratosphere and the value of the rupee falling, India - the world's biggest consumer of gold - is likely to experience a pronounced drop-off in demand this year. Not good.

4. Gold is now well above the marginal cost of production. New mines are opening and old mines are re-opening. It's Economics 101. Greater supply depresses prices.

5. If you believe the gargantuan debt load that Washington has run up will cause gold to rally from here, you may want to think again. Japan's debt load as a percentage of GDP is more than twice ours and the end result has been disinflation, not inflation. Why will it be different this time? Indeed, George Soros and several other major speculators are openly forecasting outright deflation. That would not be good for gold.

6. Note that while gold ended the year up in 2011, gold shares dropped 16%. Already, equity investors are taking a dim view of the sustainability of gold's advance. I think they're right.

7. Investment demand for gold has soared in recent years. Seven years ago, it made up just 16% of total demand. Today it's more than 40%. But hedge fund managers who piled into gold, unlike Mom and Pop, have no emotional commitment to the metal. These are hair-trigger traders. When the primary trend turns unequivocally south, you can bet these guys will dump gold faster than a freshman girlfriend.

I'm not suggesting that anyone bail out of gold. You should hold at least 5% of your liquid assets in gold and gold stocks, and perhaps more. But if you're one of those folks I meet who has 30%, 50% ... even 80% in the barbarous relic, you're really sitting at the roulette table at 3 AM.

No one can say unequivocally that the bet won't pay off. But there could be a steep price to pay if it doesn't. The last time gold was a bubble, investors were down more than 60% two decades later.

As Mark Twain said, "History may not repeat itself. But it rhymes."

 

[mts]

...I see gold as low as $1250. an ounce by June 1st.

I hope so! I'll buy more!

 

[jim4silver]

...I see gold as low as $1250. an ounce by June 1st.

I hope so! I'll buy more!

I was thinking the same thing!

The false flag Iranian crisis will keep the gold bubble stabilized for awhile. But later this year...mid summer..when the oil still flows..and the American economy picks up...the price of gold will drop like a lead sinker in a fishing contest...I see gold as low as $1250. an ounce by June 1st.

Ok Cappy here's what I read this morning so be happy sitting on your cloud.

Seven Reasons The Slump Continues

So why am I guessing it will be lower? Let me count the ways:

1. Gold is a wonderful inflation hedge. But the metal is up more than five-fold over the last 12 years and inflation is still not a problem. Is it not conceivable that inflation could tick up and gold - having already discounted this - moves lower?

2. Gold is a great performer in an economic crisis. But we already had the crisis. It ended in 2008. Things are getting slowly better, not worse.

3. With gold prices still in the stratosphere and the value of the rupee falling, India - the world's biggest consumer of gold - is likely to experience a pronounced drop-off in demand this year. Not good.

4. Gold is now well above the marginal cost of production. New mines are opening and old mines are re-opening. It's Economics 101. Greater supply depresses prices.

5. If you believe the gargantuan debt load that Washington has run up will cause gold to rally from here, you may want to think again. Japan's debt load as a percentage of GDP is more than twice ours and the end result has been disinflation, not inflation. Why will it be different this time? Indeed, George Soros and several other major speculators are openly forecasting outright deflation. That would not be good for gold.

6. Note that while gold ended the year up in 2011, gold shares dropped 16%. Already, equity investors are taking a dim view of the sustainability of gold's advance. I think they're right.

7. Investment demand for gold has soared in recent years. Seven years ago, it made up just 16% of total demand. Today it's more than 40%. But hedge fund managers who piled into gold, unlike Mom and Pop, have no emotional commitment to the metal. These are hair-trigger traders. When the primary trend turns unequivocally south, you can bet these guys will dump gold faster than a freshman girlfriend.

I'm not suggesting that anyone bail out of gold. You should hold at least 5% of your liquid assets in gold and gold stocks, and perhaps more. But if you're one of those folks I meet who has 30%, 50% ... even 80% in the barbarous relic, you're really sitting at the roulette table at 3 AM.

No one can say unequivocally that the bet won't pay off. But there could be a steep price to pay if it doesn't. The last time gold was a bubble, investors were down more than 60% two decades later.

As Mark Twain said, "History may not repeat itself. But it rhymes."

With so many different pundits spouting different views on PMs, it can really make one's head spin. I have gotten to the point where it is not even worth debating the pros and cons of PMs anymore. It usually seems that the events that happen which cause big moves in particular markets are such that are not widely known or accepted in the general market community until they actually take place. Like the financial events in 2008 that led to the meltdown. I am sure somewhere, somebody knew it was coming, but you didn't hear the pundits talking about it until after it happened. I am sure if somebody came out before it happened and starting make predictions about it, the general consensus would have been that the guy was crazy or a tin foil hat wearer, etc, much like gold and silver bugs are thought of by many today.

For PMs to hit the ultra high levels that some predict, it is going to take an event or events that right now are not widely discussed or believed to be possible- what I would call "really, really bad types of events not generally anticipated" (ie, euro collapse, dollar collapse, mass financial institutions collapsing, hyperinflation, nuclear war, societal breakdown, etc). Although these things are mentioned on certain sites, the general consensus is they will not happen (the Euro collapsing is becoming more accepted as of late). If none of them happen and the various world situations improve, then PMs will likely fall in time and not rally again for decades. While I hope the various world situations improve, my personal belief is that one or more of those really bad type of events will happen in the next year or few years. Hope I am wrong and folks like Cappy Z here turn out correct. My PM holding would lose value but with everything going well in the world my business situation would flourish and life would go on as usual so to speak.

What I think shows that PMs still have further up to move though without being a psychic forecaster is that in virtually all past bull markets (whether it be stocks, commodities, etc.) they end with a final, parabolic type upward movement where there are gains that are far greater (percentage wise) than at any other point during the same bull market (often called stage 3 of the bull market), then after that they crash down. So far we have not had this if we define the term "parabolic" as in the past. If you adjust the 1980 high price in gold for inflation (around $2300), we are still below that peak by quite a bit. Only time will tell.

Just my opinion.

Jim