Gold

[elZorro]

Goldbugs are trumpeting the value of gold in AUD, because the USD is appreciating against it.

Hold on, isn't the USD, according to goldbugs and JBMurc supposed to be imploding with the debt-plagued 'fiat money' headed for extinction?

I think you're confused Skol..investors are probably selling off overseas forex positions in favour of US ones, so the US$ is appreciating relative to overseas currencies.

But gold, and even oil, is at the same time appreciating against the US$. An interesting post the other day had a clip relating how oil and gold have stayed linked up in value over the last 100 years or so. Both have climbed hard against the dollar.

While there is some talk of deflation, recent history notes the use of inflation as a way of paying off debt. Doubling the price of gold won't do it, but over time inflation would erode the world's debt. As long as everyone tries to earn more than they purchase, for a few years. IMHO.

[peat]

Goldbugs are trumpeting the value of gold in AUD, because the USD is appreciating against it.

Hold on, isn't the USD, according to goldbugs and JBMurc supposed to be imploding with the debt-plagued 'fiat money' headed for extinction?

Time will tell but at this stage deflation is the main issue
deflation is destruction or liquidation of debt
most debt is denominated in USD so at this stage of the scenario the USD actually attracts support during crises

Rodney Dickens (a good NZ economist) latest raving talks about inflation but at this stage only being an issue for long term investors to be mindful of if they are investing in long term bonds etc

see http://www.sra.co.nz/pdf/NextCrisisMay10.pdf.

[Lego_Man]

Time will tell but at this stage deflation is the main issue
deflation is destruction or liquidation of debt
most debt is denominated in USD so at this stage of the scenario the USD actually attracts support during crises

Rodney Dickens (a good NZ economist) latest raving talks about inflation but at this stage only being an issue for long term investors to be mindful of if they are investing in long term bonds etc

see http://www.sra.co.nz/pdf/NextCrisisMay10.pdf.

Deflation may be an immovable object, but quantitative easing and money debasement is an irresistable force. It will win out in the end, and when it does the results will be stunning.

[Skol]

Deflation may be an immovable object, but quantitative easing and money debasement is an irresistable force. It will win out in the end, and when it does the results will be stunning.

We're all waiting.

[elZorro]

Thanks for the link in your post, Peat. (I'll have to learn more about deflation). A bit worrying how the FED is warming towards inflationary-type policy perhaps.

Our local bastion of quality business reporting, the Waikato Times has an article from Tony Alexander (most of the good articles are from outsiders) headlining "Scary Risks as Euro Founders". He ends with two words: "Scared yet?"

Makes more sense than Skol's three words...

[Skol]

Thanks for the link in your post, Peat. (I'll have to learn more about deflation). A bit worrying how the FED is warming towards inflationary-type policy perhaps.

Our local bastion of quality business reporting, the Waikato Times has an article from Tony Alexander (most of the good articles are from outsiders) headlining "Scary Risks as Euro Founders". He ends with two words: "Scared yet?"

Makes more sense than Skol's three words...

My 3 words make more sense than Tony Alexander's.

A while back about 30 economists were asked their opinion on a particular subject and 29 or thereabouts agreed.
The convenor decided that they would all be wrong and the odd man out was right, and so it proved.
I've been hearing about this inflation for years. Where is it? The same place peak oil is.

Read Hot Copper. Half the goldbugs can't spell, but use big words like quantative easing, predict hyperinflation and other nonsense.

[elZorro]

My 3 words make more sense than Tony Alexander's.

A while back about 30 economists were asked their opinion on a particular subject and 29 or thereabouts agreed.
The convenor decided that they would all be wrong and the odd man out was right, and so it proved.
I've been hearing about this inflation for years. Where is it? The same place peak oil is.

Read Hot Copper. Half the goldbugs can't spell, use big words like quantative easing, predict hyperinflation and other nonsense.

Skol, I think you're wrong there. Our world cannot continue on this path, and gold is simply one of the indicators that is putting a brake on overspending, overuse of resources etc. Compared to other industries like the oil industry, gold mining is a relatively clean business - the end product is inert, stable, transportable, and is monetarily dense.

It's been calculated numerous times, there are not enough resources on this planet to allow all humans the living standards of the western world, even now. In the same way that climate change is almost certainly sheeted home to human activity, peak oil is either with us or soon to get here, and the many millions of Chinese and other people who would like to buy their first car and other normal luxuries, will have to pay more than we did for the privilege.

There aren't many easy answers for this rather troubling situation.

[Skol]

There aren't many easy answers for this rather troubling situation.

I've got an idea, you worry about this troubling situation.
I've been told for decades about peak oil, hyperinflation, atomic war, overpopulation, et.al.
If I'd listened to the experts I'd be broke, actually I'd have put all my money into gold around 1979, then been broke.

'Transportable'? Next time you go on holiday slip a KG or 2 of gold in your wallet and take it on the aircraft, and then see what Customs say at the other end.

Collectively, the goldbugs are saying "it's different this time".

I'm going to watch as lots of them go broke.

Everybody (goldbugs, Tony Alexander, hedgefunds) all say don't buy Euros. Might be time to buy some.
Bought some USD when JBMurc advised me not to and I'm up a few bucks.

You'd be better off going to your local racetrack and betting on an outsider than buying gold.

[Skol]

From the WSJ.
You'll notice no mention of hyperinflation, quantative easing, 'fiat money', world financial collapse, chaos, Weimar Republic, Song dynasty etc.


Why I Don't Trust Gold
by Brett Arends
Thursday, May 27, 2010
provided by


This is a very sad day for me.

In Part One of this series, when I argued that gold might be about to go vertical, I made a whole bunch of new friends among the gold bugs.

And now I'm going to lose them all.

That's because even though I think gold might be about to take off, I don't recommend you rush out and put all your money into gold bars or exchange-traded funds that hold


And this is for one simple reason: At some levels, gold, as an investment, is absolutely ridiculous.

Warren Buffett put it well. "Gold gets dug out of the ground in Africa, or someplace," he said. "Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

And that's not the half of it.

Gold is volatile. It's hard to value. It generates no income.

Yes, it's a "hard asset," but so are lots of other things—like land, bags of rice, even bottled water.


It's a currency "substitute," but it's useless. In prison, at least, they use cigarettes: If all else fails, they can smoke them. Imagine a bunch of health nuts in a nonsmoking "facility" still trying to settle their debts with cigarettes. That's gold. It doesn't make sense.

As for being a "store of value," anyone who bought gold in the late 1970s and held on lost nearly all their purchasing power over the next 20 years.

I get worried when I see people plunging heavily into gold at $1,200 an ounce. What if the price goes back to where it was just a few years ago, at $500 or $600 an ounce? Will you buy more? Sell?

My concerns about gold go even further than that.

Let's step inside the gold market for a moment.

Everyone knows the price has risen about fivefold in the past decade. But this is not due to some mystical truth or magical act of levitation. It is simply because there have been more buyers than sellers.

Banal, but true—and sometimes worth repeating.

If the price rises you'd think there must be a shortage. But data provided by the World Gold Council, an industry body, tell a remarkable story.

Over that period the world has produced—or, more accurately, recovered—far more gold than anyone actually wanted to use. Since 2002, for example, total demand for gold from goldsmiths and jewelers, and dentists, and general industry, has come to about 22,500 tonnes.

But during the same period, more than 29,000 tonnes has come on to the market.

The surplus alone is enough to produce about 220 million one-ounce gold American Buffalo coins. That's in eight years.

Most of the new supply has come from mine production. Some, though a dwindling amount, has come from central banks. And a growing amount has come from recycling—old jewelry and the like being melted down for scrap. (This is a perennial issue with gold. I never understand why the fans think gold's incredible durability—it doesn't waste or corrode—is bullish for the market. It's bearish.) So if supply has consistently exceeded user demand, how come the price of gold has still been rising?

In a word, hoarding.

Gold investors, or hoarders, have made up all the difference. They are the only reason total "demand" has exceeded supply.

Lots of people have been buying gold in the hope it would rise. But the only way it can rise is if still more people buy it, hoping it will rise still further. And so on.

What do we call an investment scheme where current members' returns depend entirely on new money brought in by new members?

A Ponzi scheme.

Yes, as I wrote earlier, gold may well be the next big bubble. And that may mean there is big money to be made in speculation.

But I don't trust it as an investment

[elZorro]

You'll have to do better than that Skol, to keep your agument alive

I'm not a fan of gold hoarding either. I'm looking at this thread to understand the dynamics of gold.
That article picks on old facts to support a lame argument. Gold has risen for the last 10 years and will keep going for a while yet, if there is anything to the TA system most use on the stockmarket. Its chart has a huge correlation, would have to be 95% of the variation explained. A scientist would use that data no problem.

Gold is necessary for electronics, has always been prized for jewelry, etc. And it may return as the backbone of the financial system. Like other materials, gold is getting harder to find, more equipment is needed, bigger risks. Miners will be wanting at least US$750 per oz from now on to break even and pay off gear, looking at the info from lots of mines.

Setting up a mine brings heavy equipment into a country like NZ. It can later be used to extract other materials the country might need. Locals are trained up, local communities are boosted, immigrants arrive, etc. Those are good economic outcomes, and a lot more intensive and even tidier than say the agricultural sector.

Re the big picture, probably a combination of cheaper and safer energy from fission, fusion, and biofuels will rescue us all, with cheap power we could desalinate seawater and pump it anywhere it is needed, for example.

But gold will probably remain expensive to extract.