Gold

[Skol]

Dec

1




Fool's Gold - available for sale now!

ATTENTION INVESTING: DECODED READERS

THE CONTENT CONTAINED IN THIS ARTICLE IS FOR MATURE AUDIENCES ONLY


ANYONE WHO DIDN'T GRADUATE FROM THE 5TH GRADE IS FORBIDDEN FROM READING THIS ARTICLE

Ok. Good. We have the kids out of the room.

Now. since you've a part of the elite group of 5th grade graduates. I have a question to ask, have you ever seen a grocery store that accepts gold as payment? I certainly haven't.

Have you ever used gold for your own personal use? I certainly haven't. Most people certainly haven't.

Yet many people own gold, both in their retirement accounts and in their college planning accounts. Why?

Well... If you ask gold bull Peter Schiff he'll give you a plethora of reasons on his website. Here's his "philosophy" on Gold:


In a world where all governments have encouraged the use of paper currencies and then debased them to finance reckless spending policies, we believe that gold remains the most honest and accountable form of money.

When financial uncertainty abounds, it becomes increasingly important to hold assets with value that cannot be diluted by government monetary policy. Gold has been chosen as a store of value and unit of exchange since the dawn of civilization due to its inherent properties: rarity, durability, fungibility, divisibility, and portability.

Paper Currencies Increasingly Shaky

I believe the U.S. dollar, the world's reserve currency, is in long-term decline, and there isn't a suitable replacement on the horizon. The Euro, the only other currency with enough liquidity and financial backing to challenge the dollar, now looks very fragile. China, America's chief competitor, fixes its currency against the dollar to boost exports.
Ultimately, as the current global financial crisis runs its course — the worst of which is yet to come — the value of a gold-based monetary system may once again gain favor with productive nations looking to safeguard the value of their savings. In such a scenario, gold would spike in value as central banks became net-acquirers of gold, rather than net-sellers. Of course, private citizens are already leading the way to this future.

The Global Debt Bomb

The Western world is facing unprecedented levels of sovereign debt. The worst of them — including Greece, Spain, Iceland, the UK, and the US — have funded and unfunded liabilities greater than the yearly output of their entire economies. Governments around the world have assumed debts and made promises they simply cannot afford.
When the major banks faced bankruptcy in 2008, Washington bailed them out; but we have yet to see what happens when Washington itself faces bankruptcy. Rather than default, or "restructure" its debt, I believe the United States will take the politically less painful way out.
It will simply print more and more dollars, and pay back its bonds with cheaper dollars, until its creditors receive the nominal value printed on the front of their bonds. This does not erase the debt, but rather pays it back by stealing purchasing power from every investor, worker, and saver with dollar-denominated assets. This is called inflation.

The worst part is that nearly every wealthy Western country in the world is mired in debt, and every one is devaluing its currency along with the US. It's a race to the bottom, and many conservative investors feel there is no safe place to turn. But history provides us with a safe haven from all government paper — gold.
Let's analyze Schiff's thesis on gold.

He begins by saying that all governments have encouraged the use of paper currencies to encourage reckless spending policies and that gold is the only form of currency that is "honest" (IE, not subject to government manipulation). This is statement, on the surface, holds some merit. However, once again, I ask, can you use gold as currency? Can you repay your debts using gold? Can you pay for groceries using gold? (Hopefully all of you know the answer to this. You did finish 5th grade after all.)

Tom. You're wrong. I can sell my gold, convert it into dollars and bam I can pay for my groceries.

This is true. But what happens when everyone sells their gold during a huge drop in these fiat currencies. It would still retain it's value?

No. It wouldn't.

So this refutes the doomsday value of gold, as the market could not support everyone selling their gold. This actually makes Gold a horrible safe-haven asset. Schiff's argument that gold has "rarity, durability, fungibility, divisibility, and portability" is irrelevant, as it holds no intrinsic value to you and me. It's not as if Gold is a perpetual food source. It's not as if I can buy food with gold. The fact that gold can sit in my safe forever and be easily split and moved is irrelevant as we do not live in a medieval economy that uses gold as a currency.

Moving on to Schiff's next argument, "Paper Currencies Increasingly Shaky." We see assumptions that are even further away from reality. Schiff claims that the financial crisis unfolding in Europe is about to spill over to the United States. This is a strong assumption, but not impossible.

Schiff then assumes that when the Euro-Zone crisis expands to the United States, the US dollar will collapse in value. Again, this is a strong assumption, but not impossible.

Schiff then assumes that as the US dollar is collapsing in value, central banks in "productive nations" will revert to a gold standard (even though he just called all governments currency manipulators in pursuit of reckless spending). This reversion to a gold standard will lead to a spike in the price of gold. According to Schiff, private citizens are already leading the way to this new reality!

This assumption is absurd, to say the least. Governments, both productive and non-productive, will continue to move away from a gold standard as it makes no sense (unless, of course, you happen to own gold). The United States lead the way in the 1850's "greenback" movement and the rest of the world will continue to follow. The idea of a currency backed by gold is absurd, since gold holds just as much intrinsic value as a piece of paper. You can't eat gold. You can't sustain on gold.

Gold is very much the world's first fiat currency. It was a fiat currency for so long, people like Schiff believe it's the real thing. It's not.

In Schiff's final argument, "The Global Debt Bomb", Schiff makes a very accurate assumption that government deficits will continue to run away and these run away deficits will be financed by Central Banks printing more money. By printing more money, the Central Bank will decrease the value of the currency and will cause runaway inflation. This is true and I believe we will see very high inflation in the future. The problem is that Gold will not increase in value during this period of runaway inflation.

As I calculated in my March 24th post, if the GLD etf where to decrease to $53.97(it's currently at $166.05), it would have been even with inflation since 2004. Gold has far outpaced inflation, as speculators like Schiff drive the price up. Even when gold drops in value, nothing says it should move with the value of inflation. After all, do you need gold to survive?

It's becoming obvious that Gold is slowly becoming the biggest ponzi scheme of all time. This time no one will be locked up, no one will go on trial and millions of investors will have their investment portfolios hit hard.

[skid]

Once again,IMO this is one dimensional thinking.
You are looking at gold as a separate entity.
For the most part,it is a reaction to outside forces.
If the big economies gain a stable footing,pick up,and start humming along,reducing debt as they go-then much of what you say is most likely true.
But if they stall,or continue their downhill spiral,INCLUDING RUNAWAY INFLATION-then gold will continue to appreciate in the long term.
Being optimistic on gold is being pessimistic on the economy.
I would love to be optimistic on the economy and pessimistic on gold--but I just dont see that happening at this stage.
There will certainly be bumps along the way,like the one we have just seen,but until more economies bite the bullet ,like Iceland,I believe the downward spiral for the large economies will continue and gold will react accordingly.

[Skol]

Gold could be in for a steep fall.

www.cnbc.com/id/100282664/page/5

[skid]

So are they talking about a ''this is it '' steep fall or an ''anomaly along the way'' steep fall.
If there is one.
Gold and the $US have been tracking along with each other of late which,I guess shows that
anythings possible these days in the short term.
Most are looking to the federal reserve meeting for guidance this coming week.

[JBmurc]

Gold could be in for a steep fall.

www.cnbc.com/id/100282664/page/5

with some bond markets at 300yr highs.....and you think gold is going fall bubble etc ...like you said on the last major pullback @ 1000-700oz ....big wake up call coming

[Skol]

'Friendless' gold. From The Age.


The most defensive of all sectors - the ultimate fear trade - gold has become friendless in recent times despite the likes of hedge fund guru George Soros publicly declaring his overweight position. The bellwether of Australian gold stocks, Newcrest, has dropped 15 per cent since early September.

Read more: http://www.theage.com.au/business/to...#ixzz2EZ7ys7eh

[Skol]

Darling of the goldbug set, John Paulson gets creamed (again).

'A slide in gold prices during November, however, weighed on both the Advantage fund and the Gold fund. Advantage fell 4.66 percent last month and is now off 16.68 percent for the year while the Gold fund dropped 11.56 percent and is off 20.57 percent for the year.'

[elZorro]

Darling of the goldbug set, John Paulson gets creamed (again).

'A slide in gold prices during November, however, weighed on both the Advantage fund and the Gold fund. Advantage fell 4.66 percent last month and is now off 16.68 percent for the year while the Gold fund dropped 11.56 percent and is off 20.57 percent for the year.'

Hi Skol. What about this July 2012 interview with Daniel Brebner from Deutsche Bank.. http://www.hardassetsinvestor.com/in...ral-banks.html

Even now it seems he was very accurate. Any rise to about US$2,000 per ounce won't be until early 2013. He also said that a useful marker to the end of the US bull run for gold will simply be higher interest rates backing fiat currencies. That should be easy enough to watch out for.

Four or five predictions for the gold price by the end of 2013 were all in the range $2,000 to $2,500.

[Skol]

EZ,

The prognostications of the 'experts' including JBMurc, have come to nought, the party's well and truly over, I expect a fall in the gold price very shortly, not even more QE can make a difference, you guys are flogging a dead horse. I've diarised heaps of gold predictions for 2012 and 90% of them are wrong, by miles.

Here's a few prophecies from the serious gold 'analysts'.LOL


3 Analysts See Gold Reaching its Parabolic Peak Sometime in 2011!
1.Bob Kirtley: $10,000;
2.Patrick Kerr: $5,000 – $10,000;
3.Taran Marwah: $3,000;

10 Analysts See Gold Reaching its Peak By the End of 2012
1.Arnold Bock: $10,000;
2.Porter Stansberry: $10,000;
3.Taran Marwah: $6,000+;
4.Greg McCoach: $5,000+;
5.Robert McEwen: $5,000;
6.Mary Anne and Pamela Aden: $3,000 – $5,000;
7.John Paulson: $2,400 – $4,000;
8.Ian McAvity: $2,500 – $3,000;
9.Peter Hambro: $2,500;
10.Charles Nenner: $2,500

[elZorro]

Thanks for the colourful phrases, Skol. I can see you're in fine form.. But a group of 700 gold experts with all their varying opinions were also cautiously optimistic about gold for 2013.

http://www.ft.com/intl/cms/s/0/7e1fb...#axzz2F5reYMut

In this case the price was below $2,000, but it's not predicted to drop like your mama's souffle when the oven is bumped.