Comments on: Still bearish on the yellow metal http://sovereignspeculator.com/2009/01/24/still-bearish-on-the-yellow-metal/ Thoughts on the markets and the decline of the west Sun, 28 Nov 2010 14:33:11 +0000 http://wordpress.org/?v=2.6 By: GoldMarket Paul http://sovereignspeculator.com/2009/01/24/still-bearish-on-the-yellow-metal/#comment-3665 GoldMarket Paul Tue, 16 Jun 2009 16:30:09 +0000 http://sovereignspeculator.com/?p=2279#comment-3665 Gold has a long way to go before it reaches its peak. Deflationary fears may be over, but we are headed for a period of heavy inflation (it may take a while to reach, but I think it's coming) and that will reignite people's awareness of having to protect their savings. Gold has a long way to go before it reaches its peak. Deflationary fears may be over, but we are headed for a period of heavy inflation (it may take a while to reach, but I think it’s coming) and that will reignite people’s awareness of having to protect their savings.

]]> By: Clarium http://sovereignspeculator.com/2009/01/24/still-bearish-on-the-yellow-metal/#comment-1188 Clarium Fri, 30 Jan 2009 11:57:15 +0000 http://sovereignspeculator.com/?p=2279#comment-1188 I do not know if there will be a massive sell-off in gold because the key question is who is buying it, and how leveraged they are. I doubt the people who are buying the gold now are likely to sell it in a few years, and these people, I speculate, are generally wealthy so they could take a "paper" loss if gold falls in "value." It is unlikely that this would faciliate panic selling (you did not argue for this though.) I doubt those people would sell gold now due to a lack of liquidity, since they presumably have other assets with the necessary liquidity. The gold market would be illiquid, and its price would be decided by a few number of bidders and sellers as most of the people who are holding gold or rolling over the futures (they might pay a small premium if there is a contange) because they hold it for diversification reasons to hedge against certain non-trivial outcomes where gold would have more utility. Of course, those people probably have flatter discount curves so they are willing to hold the gold. Basically my argument against your hypothesis is that these people do not struggle to pay debt or bills so they do not have an immediate need to convert gold to cash. (Taxes might be somewhat different.) I do not know if there will be a massive sell-off in gold because the key question is who is buying it, and how leveraged they are. I doubt the people who are buying the gold now are likely to sell it in a few years, and these people, I speculate, are generally wealthy so they could take a “paper” loss if gold falls in “value.” It is unlikely that this would faciliate panic selling (you did not argue for this though.)

I doubt those people would sell gold now due to a lack of liquidity, since they presumably have other assets with the necessary liquidity.

The gold market would be illiquid, and its price would be decided by a few number of bidders and sellers as most of the people who are holding gold or rolling over the futures (they might pay a small premium if there is a contange) because they hold it for diversification reasons to hedge against certain non-trivial outcomes where gold would have more utility. Of course, those people probably have flatter discount curves so they are willing to hold the gold.

Basically my argument against your hypothesis is that these people do not struggle to pay debt or bills so they do not have an immediate need to convert gold to cash. (Taxes might be somewhat different.)

]]> By: Bridget http://sovereignspeculator.com/2009/01/24/still-bearish-on-the-yellow-metal/#comment-1140 Bridget Mon, 26 Jan 2009 15:04:34 +0000 http://sovereignspeculator.com/?p=2279#comment-1140 Thanks, Mike. Thanks, Mike.

]]> By: GG http://sovereignspeculator.com/2009/01/24/still-bearish-on-the-yellow-metal/#comment-1138 GG Sun, 25 Jan 2009 20:18:58 +0000 http://sovereignspeculator.com/?p=2279#comment-1138 Hey Bjorn, Sorry to butt-in here. Your first option should be to get out of the USA (and yes, you are right - US/UK is the frying pan/fire situation). Now I don't have any experience buying Gold inside the US, but if you can't relocate outside the US, I'd try to go buy the gold in person using cash so as to leave no paper trail/evidence of me buying it. Then I'd try to hide it someplace where the govt. physically won't be able to find it. And don't think your home is safe from illegal searches either. I have ABSOLUTELY NO DOUBT in my mind that the US govt. will steep so low as to literally steal people's Gold - AGAIN - and using WHATEVER means necessary. Also, I wouldn't trust ANY third party with my Gold no matter how well deserved their reputation. Hey Bjorn,

Sorry to butt-in here. Your first option should be to get out of the USA (and yes, you are right - US/UK is the frying pan/fire situation).

Now I don’t have any experience buying Gold inside the US, but if you can’t relocate outside the US, I’d try to go buy the gold in person using cash so as to leave no paper trail/evidence of me buying it. Then I’d try to hide it someplace where the govt. physically won’t be able to find it. And don’t think your home is safe from illegal searches either. I have ABSOLUTELY NO DOUBT in my mind that the US govt. will steep so low as to literally steal people’s Gold - AGAIN - and using WHATEVER means necessary. Also, I wouldn’t trust ANY third party with my Gold no matter how well deserved their reputation.

]]> By: GG http://sovereignspeculator.com/2009/01/24/still-bearish-on-the-yellow-metal/#comment-1137 GG Sun, 25 Jan 2009 19:28:23 +0000 http://sovereignspeculator.com/?p=2279#comment-1137 "hcrosby" gets it. I agree that dollar denominated debt is akin to a short position on the dollar and since now everybody is rushing to cover that HUGE short position, it is leading to a rise in dollar demand and hence propping it up. But - and these are the kinds of things that are going to make the so-called "Great" depression look like a walk in the park - henceforth the defaults and bankruptcies are going to take place with blazing speed, as will a lot of other stuff. The speed and depth of the events will surprise a lot of enlightened commentators as well. I don't remember where I read it but, being an engineer, I liked the mathematical analogy - the change we have witnessed so far was just the first derivative, we will now be entering the SECOND derivative. “hcrosby” gets it. I agree that dollar denominated debt is akin to a short position on the dollar and since now everybody is rushing to cover that HUGE short position, it is leading to a rise in dollar demand and hence propping it up. But - and these are the kinds of things that are going to make the so-called “Great” depression look like a walk in the park - henceforth the defaults and bankruptcies are going to take place with blazing speed, as will a lot of other stuff. The speed and depth of the events will surprise a lot of enlightened commentators as well. I don’t remember where I read it but, being an engineer, I liked the mathematical analogy - the change we have witnessed so far was just the first derivative, we will now be entering the SECOND derivative.

]]> By: Mike http://sovereignspeculator.com/2009/01/24/still-bearish-on-the-yellow-metal/#comment-1136 Mike Sun, 25 Jan 2009 18:37:14 +0000 http://sovereignspeculator.com/?p=2279#comment-1136 Yes, the costs are going down for miners. This is very good in the long run. Gold's value is going up versus most other assets, sure, but that can happen even as its nominal value falls, reducing the gains in margin that might otherwise be seen. Earnings are still scarce in the industry, even among the larger companies. As the stock market as a whole tanks, people will look for high and sustained dividends as the only justification for the risk of capital loss. Miners rarely pay dividends, and earnings ratios are very high. The GDX trade is short-term, though. I just think it is overbought after doubling in a few weeks, and stands to suffer with either another stock market or gold decline. Yes, the costs are going down for miners. This is very good in the long run.

Gold’s value is going up versus most other assets, sure, but that can happen even as its nominal value falls, reducing the gains in margin that might otherwise be seen.

Earnings are still scarce in the industry, even among the larger companies. As the stock market as a whole tanks, people will look for high and sustained dividends as the only justification for the risk of capital loss. Miners rarely pay dividends, and earnings ratios are very high.

The GDX trade is short-term, though. I just think it is overbought after doubling in a few weeks, and stands to suffer with either another stock market or gold decline.

]]> By: Tom http://sovereignspeculator.com/2009/01/24/still-bearish-on-the-yellow-metal/#comment-1135 Tom Sun, 25 Jan 2009 17:09:32 +0000 http://sovereignspeculator.com/?p=2279#comment-1135 Mike, Are you not worried about betting against the GDX given these two conditions?: 1) One of the larger cost components in gold production is energy. 2) The relative purchasing power of gold tends to rise during deflation. The two combined should push earning of the GDX higher in the next two years, I would think. Tom Mike,
Are you not worried about betting against the GDX given these two conditions?: 1) One of the larger cost components in gold production is energy. 2) The relative purchasing power of gold tends to rise during deflation. The two combined should push earning of the GDX higher in the next two years, I would think.
Tom

]]> By: Mike http://sovereignspeculator.com/2009/01/24/still-bearish-on-the-yellow-metal/#comment-1134 Mike Sun, 25 Jan 2009 16:49:03 +0000 http://sovereignspeculator.com/?p=2279#comment-1134 Again, the timing is uncertain on all of this, but the bailouts are actually serving to prolong the deflation -- they make it milder, but longer, since it drags out the default process. We would probably be at least halfway done by now if it weren't for the Fed, but they are keeping us locked into this perverse condition of misallocated resources. Again, the timing is uncertain on all of this, but the bailouts are actually serving to prolong the deflation — they make it milder, but longer, since it drags out the default process. We would probably be at least halfway done by now if it weren’t for the Fed, but they are keeping us locked into this perverse condition of misallocated resources.

]]> By: Mike http://sovereignspeculator.com/2009/01/24/still-bearish-on-the-yellow-metal/#comment-1133 Mike Sun, 25 Jan 2009 16:44:35 +0000 http://sovereignspeculator.com/?p=2279#comment-1133 The key difference between the US and a Zimbabwe or Weimar situation is debt. When a system has this much debt outstanding (50 trillion, vs. 2.5 trillion in cash) and the bubble bursts, that debt load props up the currency. Regardless of how much confidence people have in the dollar (and it is very little right now, just as it is going up against everything, ironically), they still desperately need dollars to pay their debt. Until the vast majority of debt is forgiven by edict or defaulted on, it will keep everyone locked into the currency. The lack of savings and earnings, as opposed to Japan, actually makes the deflation more severe, since currency is even more scarce. Yes, the Fed has printed up a fresh 1.5 trillion and counting, but it is just sitting in banks that are still way too insolvent to start making loans again. Responsible people don't want loans now, and banks are done making loans to the irresponsible. The key difference between the US and a Zimbabwe or Weimar situation is debt. When a system has this much debt outstanding (50 trillion, vs. 2.5 trillion in cash) and the bubble bursts, that debt load props up the currency. Regardless of how much confidence people have in the dollar (and it is very little right now, just as it is going up against everything, ironically), they still desperately need dollars to pay their debt.

Until the vast majority of debt is forgiven by edict or defaulted on, it will keep everyone locked into the currency. The lack of savings and earnings, as opposed to Japan, actually makes the deflation more severe, since currency is even more scarce.

Yes, the Fed has printed up a fresh 1.5 trillion and counting, but it is just sitting in banks that are still way too insolvent to start making loans again. Responsible people don’t want loans now, and banks are done making loans to the irresponsible.

]]> By: hcrosby http://sovereignspeculator.com/2009/01/24/still-bearish-on-the-yellow-metal/#comment-1132 hcrosby Sun, 25 Jan 2009 16:08:43 +0000 http://sovereignspeculator.com/?p=2279#comment-1132 It seems clear that the deflationary collapse is happening much faster than most predicted. Real unemployment numbers are already approaching 20%....not the phony gov't number of 7.3%. But I believe this mess will move directly from the deflationary collapse we are now experiencing into a hyperinflationary spiral, without any intervening "recovery". Economies do not transition from rosy little recoveries into hyperinflation. That's not what happened in Wiemar Germany, and it is not what has happened in modern day Zimbabwe, either. Rather, they move rapidly from high unemployment, weak economies into hyperinflation almost overnight. In December of 1922, it took 3 marks to buy a dozen eggs (Germany was in a post Great War depression), by September of 1923 (nine months later) it took over 1 billion marks to buy those eggs. The modern day mega state has inflationary tools available that were unknown in the 1930's. (USA was constrained by a gold standard). Who is going to buy the two trillion worth of bonds the USA will have to issue to fund its current 2009 deficit? The Chinese? No, the FED will monitize it, along with bank bailouts, mortgage bailouts, auto bailouts, insurance bailouts and God knows what else. Hyperinflation will be with us very soon, in my view. It seems clear that the deflationary collapse is happening much faster than most predicted. Real unemployment numbers are already approaching 20%….not the phony gov’t number of 7.3%.

But I believe this mess will move directly from the deflationary collapse we are now experiencing into a hyperinflationary spiral, without any intervening “recovery”.

Economies do not transition from rosy little recoveries into hyperinflation. That’s not what happened in Wiemar Germany, and it is not what has happened in modern day Zimbabwe, either. Rather, they move rapidly from high unemployment, weak economies into hyperinflation almost overnight. In December of 1922, it took 3 marks to buy a dozen eggs (Germany was in a post Great War depression), by September of 1923 (nine months later) it took over 1 billion marks to buy those eggs.

The modern day mega state has inflationary tools available that were unknown in the 1930’s. (USA was constrained by a gold standard). Who is going to buy the two trillion worth of bonds the USA will have to issue to fund its current 2009 deficit? The Chinese? No, the FED will monitize it, along with bank bailouts, mortgage bailouts, auto bailouts, insurance bailouts and God knows what else.

Hyperinflation will be with us very soon, in my view.

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