About the only thing he got wrong was his prediction that the financial collapse would be inflationary, but of course he called gold correctly (it was about $300 at the time).
Ron Paul’s amazing predictions from a 2002 speech
Reply
Category Archives: gold
A look at the real value of gold on an historical basis.
I like making random gold ratio charts in stockcharts.com since it lets you chart the ratio of anything: gold:oil, gold:copper, gold:SPX, etc:
-
If you do this kind of analysis on a longer-term basis, you see that gold is getting a bit expensive relative to other commodities, capital goods or labor (or you could say that each of those things is getting cheap when priced in gold). What is clear is that gold is no longer cheap by any measure. I don’t think this type of analysis has anything to do with where gold price goes in the near-term (technicals and sentiment drive that), but it’s helpful to think about where gold is on an historical basis.
- The Gold:Oil and Gold:Copper ratios are moderately high, and would be off the charts if oil and copper were to crash.
- Rent on a nicer 1BR apartment in Manhattan has fallen from 8 ounces in 2001 to 2 ounces today. This is about what it cost in the 1920s-60s.
- 10 ounces in 2001 bought a 12-year-old Honda Civic, and now it gets you a brand new one with extras. A Model T Ford cost 15 ounces by the 1920s. The VW Beetle cost 30-50 ounces in the ’50s.
- Median family income in was about 50 ounces in 1920, 90 ounces in 1955, over 100 in 1965, 70 in 1975, 75 in 1985, 95 in 1995 and way over 100 in 2000. Today, it’s about 30.
On a purchasing power basis, gold is adequately priced – it is certainly no longer cheap. Of course, markets don’t care about this on anything but the longest term – gold was overvalued at $500 in 1979, but it still spiked over $800 and then fell to a ridiculously low level in 2000. In the scenario where the dollar goes to zero, everything will soar in dollars, not just gold, so you’d still have to evaluate gold in terms of goods and services.
I’m still in the dollar bull camp for the foreseable future. Treasuries are pointing the way (record low 10-year yields, 3.5% on the 30-year, almost like Japan), and it looks like another bout of deflation is underway, if you define deflation as a contraction in money and credit (if credit is marked to market). Europe’s soveriegn debt implosion is deflationary. The same goes for the Australian real estate collapse and the pending RE collapses in China and Canada, and the US muni and junk market troubles.
I don’t see the dollar as any worse fundamentally than the euro or yen, and much better technically. Japan’s history since ’89 is proof that printing and spending and running up huge public debt doesn’t necessarily kill your currency. When there is too much private debt going bad but not being written off, it overwhelms the mismanagement of the currency and props it up. It doesn’t matter what you think of the fundamental value of the dollar if you’re in debt and can’t find enough dollars to make your payments. And until asset and labor prices and demand for goods and services can justify borrowing costs, there’s no credit expansion so no inflation.
Sentiment-wise, we’ve still got a great long-term case on the long-dollar trade. Fear of the dollar has been widespread since early 2008, but the DXY has just bounced around sideways – no crash. The crash happend from 2000-08, while nobody but old-school Austrians noticed.
Iranian central bank dumps euros for gold and dollars.
Remember when Iran started pricing its oil in euros instead of dollars? It was April 2008, a few months after supermodel Gisele Bunchen refused payment in dollars. The euro touched $1.60 that month and had nowhere to go but down:
Yahoo! Finance
Having missed out on the dollar’s spectacular comeback, the expert timers in Iran are switching again:
The Central Bank of Iran (CBI) intends on converting about €45 million of its reserves into dollars and gold, Tehran’s media reported.
According to reports, the new monetary policy will be carried out in three phases, with the first phase – converting euro reserves into dollars – already underway.
CBI Chief Mohammad Bahmani hinted of the move in April, saying the Islamic Republic will turn to dollars in view of the euro’s poor performance.
Iran has been converting its currency reserve into euros since 2006 – a move meant to meet both Iranian President Mahmoud Ahmadinejad’s anti-US policies, and the American currency’s weakness.
The recent change stems from the financial crisis which hit the eurozone bloc following Greece’s financial struggles.
The euro-dollar rates have devalued by 20% since the beginning of 2010. Iran’s foreign currency reserves, which are estimated at $100 billion – half of which are in euros – had to sustain the loss.
I’m bullish on the euro, CHF and pound in the short term, but long-term bullish on the dollar. Here’s a nearly 30-year historical chart of the dollar index, showing that it has miles of room to run:
bigcharts.com
Gold & silver stocks still looking toppy
Here’s GDX, 1-hour bar:
TD Ameritrade
Bill Fleckenstein, gold and silver bull, says no manipulation conspiracy
Here’s the interview with Eric King.
Fleckenstein makes excellent points about the “jihad” against the bullion banks, explaining the ridiculousness of the GATA-type theories. He points out that they are often net short futures simply to hedge their long positions in physical, and that lots of people who work on those desks are PM bulls. He knows a few market makers at the big banks, and says they have been bullish all the way up.
Despite the supposed manipulation, gold is up 4-5X since these theories took hold in force. Why haven’t the supposed shorts “blown up”? As for the central banks, they thought gold was worthless and sold tons near the lows, but now they supposedly think “it’s so magical” that they have to keep the price down?
The futures manipulation theories are just a “loser’s lament,” as Jim Grant says. Get this: he says that big-time short seller Jim Chanos is on the PPT! I can’t confirm that, but would be very interesting and put to bed a lot of nonsense if true.
The discussion of manipulation starts about 3/4 of the way through (to jump to it, place the marker over the “t” in Fleckenstein).
Fleckenstein seems to be a huge silver bull, expecting physical demand to soar. He entertains the possibility of silver reaching some “silly” price level. The wealthy have not taken big physical positions in silver, but if they did, the market could go “wacko.”
Also discussed: the US health care bill, inflation, bailouts, Greece, and home foreclosures.
Jim Rogers discusses his euro long and stock shorts
I happen to have similar positions at the moment, though unlike Rogers, I’m a bear on commodities and China, which he seems to be perpetually long. Here’s today’s Bloomberg interview.
Take-aways:
- Long euro as a contrary position. Too many shorts out there.
- All these countries (Spain, Portugal, UK, US) are spending money they don’t have and it will continue.
- ECB buying government and private debt is wrong.
- EU is ignoring its own rules about bailouts from Maastricht Treaty.
- Governments are still trying to solve a problem of too much debt with more debt.
- Fundamentals are bad for all paper currencies. Good for gold.
- Is “contagion” limited now? Well, for those who get the money…
Here’s a longer interview from a few days ago on the same topics as well as stocks:
-
- Rogers has a few stock shorts: emerging market index, NASDAQ stocks, and a large international financial institution.
- Rogers owns both silver and gold, but is not buying any more. He’s not buying anything here, “just watching.”
- Optimistic about Chinese currency. Expected it to rise more and faster, but still bullish.
- Thinking of adding shorts in next week or two if markets rally (my note: they have now).
- “Debts are so staggering, we’re all going to get hit with the problem,” no longer just our children and grandchildren.
Double top in Gold, like July-March ’08?
-
Very high sentiment readings last week, up to 20:1 bulls:bears. Quite a change from a few weeks ago, when traders were bearish by 4 or 5 to 1.
If the tide is turning back to the deflation trade, expect a rout in commodities like the second half of 2008. Yes, gold rose as stocks and other commodities fell last week, but it did the same thing when it first broke $1000 in early 2008 as stocks fell into the Bear Stearns crisis. The corellation with stocks could easily switch positive again as it did in ’08.
Gold stocks
Nice entry with a clear stop for a short on GDX. Might have a channel forming off the highs:
Prophet.net
Prechter interview
This is a good one from Feb 9th, from Frisby’s Bulls and Bears. Hat tip to Pej.
Gold
Look at the similarity between the March 2008 peak and immediate aftermath and what we’ve seen since the December high in gold:
Prophet.net
Sure, there could be a little more oomph here for a push like that close second peak in ’08, but just because gold hasn’t dropped like a stone doesn’t mean the mania will go on without a hiccup. Each high was accompanied by extremely high and sustained bullishness, which tends to exhaust the upside for at least a few months, since after such an event everyone has already bought all the gold they want for the time being.
Also, if the euro’s run is over, why not gold’s? For all its timelessness, the markets still treat it like another currency, a highly-speculative one at that. Here is a euro chart where I’ve highlighted the same periods as above:
-
I am going to view any near-term upside with an eye towards taking a short position in each of these, though of course I own physical gold for safety’s sake.
