The GOLD scream room

[Kshartle]

Get some Preparation H 

If I drink the Prepartion H, will it take my mind off worries about the price of gold? 

You own a lot of clothes, a car, computers, a cell phone, maybe a boat etc.

If the price drops on them does it cause you worries?

Buy more. All the economic news coming in looks dismal. The stock market is looking completely irrational. The bond market isn't even a market. 75% of the buyers don't even care what price they pay (central banks, pensions, balanced funds etc).

The gold market is pricing in deflation or growth/prosperity. The stock market is pricing in prosperity or inflation.

They both might be wrong but they can't both be right.

Throw prosperity out the window. Massive debt, socialism, regulation, boomber retiree deluge, massive unfunded liabilities, rising input costs, declining labor participation etc. will all prevent that.

You're left with inflation or deflation.

Gold looks like it's priced in deflation to a large degree which means if it happens......it's a lot safer than stocks at this level. The bubble looks far bigger now than in 2007 and stocks got chopped in half. In the last deflation gold dropped 30% or so from it's all-time high before the fed printed. Well......it's already down 35%!

Also remember....the main central banks of the world, Fed, BOJ, BOE, ECB are all sworn to fight deflation. They have promised to print to keep prices rising no matter what. It is their number one goal on Earth to prevent paper money supplies from shinking because the governments have so much debt. I trust them.

Now if it's inflation for the future, and gold has priced in deflation......the turnaround will be spectacular when it comes. The market has to realize this atsome point (though I don't know when). There are huge short positions that have to cover and mafor pessamissim to fight through.

Gold is a deal right now. It might get even cheaper. I personally will buy more. I see no signs from the central bank they care one bit about inflation or intend to have real interest rates anytime soon. Bernanke said he didn't think the fed funds rate would get to 4% in his lifetime. Until they turn into inflation fighters gold is a screaming buy with both fists.

I just put in an order for another 500 shares of GDX at $22.33  I hope it fills today.

[buddtholomew]

Get some Preparation H 

If I drink the Prepartion H, will it take my mind off worries about the price of gold? 

You own a lot of clothes, a car, computers, a cell phone, maybe a boat etc.

If the price drops on them does it cause you worries?

Buy more. All the economic news coming in looks dismal. The stock market is looking completely irrational. The bond market isn't even a market. 75% of the buyers don't even care what price they pay (central banks, pensions, balanced funds etc).

The gold market is pricing in deflation or growth/prosperity. The stock market is pricing in prosperity or inflation.

They both might be wrong but they can't both be right.

Throw prosperity out the window. Massive debt, socialism, regulation, boomber retiree deluge, massive unfunded liabilities, rising input costs, declining labor participation etc. will all prevent that.

You're left with inflation or deflation.

Gold looks like it's priced in deflation to a large degree which means if it happens......it's a lot safer than stocks at this level. The bubble looks far bigger now than in 2007 and stocks got chopped in half. In the last deflation gold dropped 30% or so from it's all-time high before the fed printed. Well......it's already down 35%!

Also remember....the main central banks of the world, Fed, BOJ, BOE, ECB are all sworn to fight deflation. They have promised to print to keep prices rising no matter what. It is their number one goal on Earth to prevent paper money supplies from shinking because the governments have so much debt. I trust them.

Now if it's inflation for the future, and gold has priced in deflation......the turnaround will be spectacular when it comes. The market has to realize this. There are huge short positions that have to cover and mafor pessamissim to fight through.

Gold is a deal right now. It might get even cheaper. I personally will buy more. I see no signs from the central bank they care one bit about inflation or intend to have real interests anytime soon. Bernanke said he didn't think the fed funds rate would get to 4% in his lifetime. Until they turn into inflation fighters gold is a screaming buy with both fists.

I just put in an order for another 500 shares of GDX at $22.33  I hope it fills today.

The only investments in my portfolio that have lost value over the last 3 years are GDX and GLD. We're all waiting on precious metals and mining's turnaround, but I sure am not willing to fight the last battle.

[goodasgold]

Now if it's inflation for the future, and gold has priced in deflation......the turnaround will be spectacular when it comes. The market has to realize this atsome point (though I don't know when).... gold is a screaming buy with both fists.

I just put in an order for another 500 shares of GDX at $22.33  I hope it fills today.

Thanks, Kshartle. I share your faith in that "old-time PP religion." I bought gold at its abyss in the summer of 2013 and will do so again if the rebalancing band is reached. In the meantime, pass the Preparation H so I can drown my (temporary) sorrows. While the price of gold is bound to rise eventually, I just hope it doesn't linger in the cellar for years. All angst will be instantly forgotten if we finish the year with the PP CAGR in double figures. 

[Kshartle]

Now if it's inflation for the future, and gold has priced in deflation......the turnaround will be spectacular when it comes. The market has to realize this atsome point (though I don't know when).... gold is a screaming buy with both fists.

I just put in an order for another 500 shares of GDX at $22.33  I hope it fills today.

Thanks, Kshartle. I share your faith in that "old-time PP religion." I bought gold at its abyss in the summer of 2013 and will do so again if the rebalancing band is reached. In the meantime, pass the Preparation H so I can drown my (temporary) sorrows. While the price of gold is bound to rise eventually, I just hope it doesn't linger in the cellar for years. All angst will be instantly forgotten if we finish the year with the PP CAGR in double figures. 

I'm prepared for it to linger for years since my income and expenses let me save 2-4k a month. That means I'll just keep buying unless fundamentals change.

I think if this latest sell off doesn't break to new lows.....(below 1180) it will be a clear signal to the smarter shorts that it's time to cover.

Imagine being short gold. There's a clear double bottom. If you can't even get back there with stocks and bonds surging and the dollar rallying, you have got to cover. As bad economic reports keep piling in the imputus for more stimulus will come in. That's all bullish for the yellow "religion".

I would rather never own gold in my lifetime except as backing for slips of paper money. If we had capitalism stocks and bonds would be long-term investments and gold hoarding would only be for the completely risk averse. Pitty that's not the case.

[Kshartle]

I just put in an order for another 500 shares of GDX at $22.33  I hope it fills today.

Lowered the order price to $22.30 since we were so close to the close I wanted to get in and thought it would pop higher. Strong finish, got the shares at $22.30 and caught a nice 25 cent rally in minutes. It actually broke the high of yesterday and closed above it. Bullish.

Now I'm ready for the huge gap down on Monday


That rally felt like shorts wanting to cover before the weekend and Drahgi speaks on Sunday.

Strong closing rally for gold also.

[MachineGhost]

You own a lot of clothes, a car, computers, a cell phone, maybe a boat etc.

If the price drops on them does it cause you worries?

It's not the same.  Depreciation is inherent in consumption.  Its part and parcel of being a consumption item.  But investing isn't to invest in depreciating investments; quite the contrary.  And worse, an investment always relies on other people recognizing the value for you to profit; there's no expectation of making a future profit when buying consumptions items.

[MachineGhost]

I'm prepared for it to linger for years since my income and expenses let me save 2-4k a month. That means I'll just keep buying unless fundamentals change.

The problem, however, is that due to your arrogance and hubris you're envisioning that you'll be among the first to actually notice the fundamentals changing and get out before incurring steep losses and before everyone else.  That's how bubbles work.  And yet here you are buying gold when the fundamentals changed to negative (THREE YEARS AGO!), so color me skeptical you can walk the talk.  You will hold on.

[Ad Orientem]

I'm prepared for it to linger for years since my income and expenses let me save 2-4k a month. That means I'll just keep buying unless fundamentals change.

The problem, however, is that due to your arrogance and hubris you're envisioning that you'll be among the first to actually notice the fundamentals changing and get out before incurring steep losses and before everyone else.  That's how bubbles work.  And yet here you are buying gold when the fundamentals changed to negative (THREE YEARS AGO!), so color me skeptical you can walk the talk.  You will hold on.

I vote that we put Kshartle and MG in a cage, throw in some raw meat, and observe.

As the resident reactionary, I would prefer a more civilized approach...

[Kshartle]

I'm prepared for it to linger for years since my income and expenses let me save 2-4k a month. That means I'll just keep buying unless fundamentals change.

The problem, however, is that due to your arrogance and hubris you're envisioning that you'll be among the first to actually notice the fundamentals changing and get out before incurring steep losses and before everyone else.  That's how bubbles work.  And yet here you are buying gold when the fundamentals changed to negative (THREE YEARS AGO!), so color me skeptical you can walk the talk.  You will hold on.

arrogance and hubris? I counter with "You're a doo-doo head!"

What changed fundamentally about gold three years ago to make it negative? Please explain.

[MachineGhost]

What changed fundamentally about gold three years ago to make it negative? Please explain.

What changed fundamentally is people stopped buying it.  What, supply and demand is not a fundamental? 

[Kshartle]

What changed fundamentally about gold three years ago to make it negative? Please explain.

What changed fundamentally is people stopped buying it.  What, supply and demand is not a fundamental? 

Is that really it MG or is there more to your idea that the fundamental picture for gold changed 3 years ago? Why do you think the price has declined? Can you go beyond anything other than "supply and demand"?

People haven't stopped buying it. For every seller there's a buyer 

And the supply of gold changes only by a tiny fraction every year. Price changes are almost exclusively driven by demand.

If you think a person holding gold and wanting to sell counts as a supply increase this is a misunderstanding. It's actually a drop in demand, their demand to hold some of their gold or any gold. The total supply available hasn't changed and all above ground gold is available supply.

The question is why is demand lower? Unless you think there is paper "supply" manipulation of the market giving the false impression of more supply.

[MachineGhost]

The question is why is demand lower? Unless you think there is paper "supply" manipulation of the market giving the false impression of more supply.

Demand is lower because there are more sellers than buyers.

But seriously, its because China's commodity bubble peaked three years ago.

[rickb]

The question is why is demand lower? Unless you think there is paper "supply" manipulation of the market giving the false impression of more supply.

Demand is lower because there are more sellers than buyers.

But seriously, its because China's commodity bubble peaked three years ago.

You're not suggesting China is selling gold are you?  My understanding is Chinese demand for gold is running at an all time high, and has at least stayed constant if not increased over the past several years.  Eric Sprott (not unbiased) has asserted the price has been dropping not because of weak demand but because of deliberate manipulation (involving artificially high supply) by Western central banks (see http://www.sprott.com/markets-at-a-glan ... -part-iii/). 

[Kshartle]

The question is why is demand lower? Unless you think there is paper "supply" manipulation of the market giving the false impression of more supply.

Demand is lower because there are more sellers than buyers.

But seriously, its because China's commodity bubble peaked three years ago.

Circular reasoning.

People are more inclined to sell because they are bearish.

The question is why and do you honestly believe globally people want less gold than a few years ago?

[MachineGhost]

The question is why and do you honestly believe globally people want less gold than a few years ago?

Beats me.  All we can say is that supply is outpacing demand, or there is lack of demand relative to supply.  That's why the prices are going down unless you believe in conspiracy theories which are so very convenient to believe in when you're losing money in a falling asset.

The cause matters not.  You don't make money if an asset is going down in price.  It's a simple as that.

[Kshartle]

The question is why and do you honestly believe globally people want less gold than a few years ago?

Beats me.  All we can say is that supply is outpacing demand, or there is lack of demand relative to supply.  That's why the prices are going down unless you believe in conspiracy theories which are so very convenient to believe in when you're losing money in a falling asset.

The cause matters not.  You don't make money if an asset is going down in price.  It's a simple as that.

So buying a house in 2006 here in Florida was a good idea because the prices were going up? There are no other fundamentals or they're not important when making an investment decision apart from current price movement?

It would have been foolish to look at why people were buying and how interest rates were playing into it or what the likely outcome was going to be when rates moved up? Just buy huh, don't think about the causes of demand shifts...they don't matter? 

[buddtholomew]

I just put in an order for another 500 shares of GDX at $22.33  I hope it fills today.

Lowered the order price to $22.30 since we were so close to the close I wanted to get in and thought it would pop higher. Strong finish, got the shares at $22.30 and caught a nice 25 cent rally in minutes. It actually broke the high of yesterday and closed above it. Bullish.

Now I'm ready for the huge gap down on Monday


That rally felt like shorts wanting to cover before the weekend and Drahgi speaks on Sunday.

Strong closing rally for gold also.

I no longer purchase GLD or GDX based on a hunch and will loathe the day when I am required to re-balance into either of these assets.

[Kshartle]

I just put in an order for another 500 shares of GDX at $22.33  I hope it fills today.

Lowered the order price to $22.30 since we were so close to the close I wanted to get in and thought it would pop higher. Strong finish, got the shares at $22.30 and caught a nice 25 cent rally in minutes. It actually broke the high of yesterday and closed above it. Bullish.

Now I'm ready for the huge gap down on Monday


That rally felt like shorts wanting to cover before the weekend and Drahgi speaks on Sunday.

Strong closing rally for gold also.

I no longer purchase GLD or GDX based on a hunch and will loathe the day when I am required to re-balance into either of these assets.

budd what is your track record for not buying at the bottom?

I'm hoping it's unblemished by success. 

[buddtholomew]

Lowered the order price to $22.30 since we were so close to the close I wanted to get in and thought it would pop higher. Strong finish, got the shares at $22.30 and caught a nice 25 cent rally in minutes. It actually broke the high of yesterday and closed above it. Bullish.

Now I'm ready for the huge gap down on Monday


That rally felt like shorts wanting to cover before the weekend and Drahgi speaks on Sunday.

Strong closing rally for gold also.

I no longer purchase GLD or GDX based on a hunch and will loathe the day when I am required to re-balance into either of these assets.

budd what is your track record for not buying at the bottom?

I'm hoping it's unblemished by success. 

Just fine. What is your track record from buying assets that continue to decline?

[Kshartle]

I no longer purchase GLD or GDX based on a hunch and will loathe the day when I am required to re-balance into either of these assets.

budd what is your track record for not buying at the bottom?

I'm hoping it's unblemished by success. 

Just fine. What is your track record from buying assets that continue to decline?

Still running that race!

I thought the PP was designed to buy the assets that decline (at least on a relative basis).

[MachineGhost]

Here is why I think the 1970's may not representative of gold's long-term performance:

[img width=800]http://i62.tinypic.com/2nol8n.png[/img]

As you can see, the dollar may be flunctuating in a 20% range after the initial gold pop was worked out.  So while it may sound fantastic to say dollar has lost 97% of its value relative to gold since 1971, it's not been a continual debasement of death by a thousand cuts as goldbugs love to imply.

And from memory, we should keep in mind that there was a successful transition plan for dealing with the Continental debts when we went to a Federal currency.  There's no reason we cannot do the same thing again without turning the demise of the dollar into a black or white dichotomy.

[Kshartle]

Here is why I think the 1970's may not representative of gold's long-term performance:

[img width=800]http://i62.tinypic.com/2nol8n.png[/img]

As you can see, the dollar may be flunctuating in a 20% range after the initial gold pop was worked out.  So while it may sound fantastic to say dollar has lost 97% of its value relative to gold since 1971, it's not been a continual debasement of death by a thousand cuts as goldbugs love to imply.

And from memory, we should keep in mind that there was a successful transition plan for dealing with the Continental debts when we went to a Federal currency.  There's no reason we cannot do the same thing again without turning the demise of the dollar into a black or white dichotomy.

Ummmm.......

The difference between 99% loss and 100% is theoretically infinate, not just 1%.

The scale on the right should start at 0 (dollars having zero value relative to gold) and go up to 100 for the base year ($35 an ounce).

It should also be log based to demonstrate that a move from -80% to -90% is a 50% reduction or havling of the value of the USD, not a 10% loss.

Can you redo it with 0-100 scale in logrithmic fashion and see if it makes more sense?

Regarding the large move of the 70's......that's a reaction to decades of debasement finally being recognized, not just a sudden plummet, as you maybe know.

[Kshartle]

Ummmm.......

The difference between 99% loss and 100% is theoretically infinate, not just 1%.

The scale on the right should start at 0 (dollars having zero value relative to gold) and go up to 100 for the base year ($35 an ounce).

It should also be log based to demonstrate that a move from -80% to -90% is a 50% reduction or havling of the value of the USD, not a 10% loss.

Can you redo it with 0-100 scale in logrithmic fashion and see if it makes more sense?

Regarding the large move of the 70's......that's a reaction to decades of debasement finally being recognized, not just a sudden plummet, as you maybe know.

The point here MG is that a move from -95% to -97.5% will only look like a tiny little move on your chart but it represent a real loss of 50%!!!!

The chart is deceptive. It is not death by a thousand cuts. These are samurai Hatori Hanzou slashes. The dollar could lose 50% of it's value realative to gold for the next 10 years and presenting it like this would make it seem like no big deal. Gold would be at 1.3 million an ounce though and we'd be saying "oohhhhh it sure hasn't moved like in the 70s".

[MachineGhost]

That's a good point re: log scale, but my emphasis wasn't really on the chart so much as the concept of decades of debasement "baked into the cake" suddenly bursting forth in less than a decade in the 70's.  So say the dollar after depegging lost exactly 90% at the final peak in 1980; so extrapolate the loss back to 1933 and it'll more or less be the average debasement of the dollar per year: 1.37%.  Zzzzzzzz.  With a slow debasement like that and China's economy growing slower compared to 1998-2010, it really does not look that bullish for gold going forward.

[Kshartle]

That's a good point re: log scale, but my emphasis wasn't really on the chart so much as the concept of decades of debasement "baked into the cake" suddenly bursting forth in less than a decade in the 70's.  So say the dollar after depegging lost exactly 90% at the final peak in 1980; so extrapolate the loss back to 1933 and it'll more or less be the average debasement of the dollar per year: 1.37%.  Zzzzzzzz.  With a slow debasement like that and China's economy growing slower compared to 1998-2010, it really does not look that bullish for gold going forward.

The point is the debasement is much much greater than that.

Even at 50% per year it never gets to 100% worthlessness (in theory). When you measure it from some base value even these 50% annual drops appear to be nothing and add nothing to the average loss.

A hundred years of 50% per year will still only get you to 99.9% loss. When you extrapolate that back to 1933 you'll no doubt have an average of 1% or less loss per year even though in reality it's losing 50% per year.

That stat has no meaning since it's a function of the original value not the current value.