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MiddleAgesMan
05-14-2010, 07:10 AM
From Reuters via the NY Times: http://www.nytimes.com/2010/05/14/business/economy/14views.html?emc=tnt&tntemail1=y

The authors seem to have a rather conservative view of the world, but not, apparently, about gold.

It scares me...just placed an order to sell at the open about 85% of my gold stocks/funds.

SMARTINSEN
05-14-2010, 07:19 AM
Sounds like they are just getting you to buy so that they can sell short.

MiddleAgesMan
05-14-2010, 07:32 AM
It seems to be working with a bunch of folks. Gold is up about $17 in overseas markets this morning. Maybe I'll pull off the impossible--sell at the top, for a change! :)

peb
05-14-2010, 08:18 AM
$5,000/ounce? Mayber, but that would probably constitute a bubble price. The metrics in the article are not quite valid. Viewing gold as a currency is valid, and it will be more so in the future as people trust soverign debt less and less. The other thing to keep in mind is that we are entering some unknown waters. Normally, if one currency is bad, there is something else that will make up for it. China has been hoping for years they could walk the tight rop of slow yuan valuation changes while they slowly shifted their hoard of dollars to a different reserve currency. Now with the Euro falling apart and European countries in just as much trouble as the US, that looks like it may have been a failed strategy. They have got to be sweating a little.
Like I have said on two previous threads, the soverign debt/deficit situaion will not have a pretty ending. But it is very difficult to guess the ramifications. There will be many forces tugging in different directions. The necessary, severe fiscal policy changes will likely drive several countries into recession. This is not inflationary, so gold may not jump up in price as soon as people thing. On the other hand, when the bond markets hit a breaking point w.r.t. t-bills, interest rates could spike quite suddenly. This will be inflationary and it seems like it will occur before the fiscal policy changes are made.
All of this forecast against a backdrop of near record high prices for us treasuries. Which of course seems to suggest that all of this forecast is completly absurd. Of course, when oil was 150/ounce people predicted continual increases in that price instead of a more reasonable and stable 70-90 dollar price. People project current market conditions into the future by nature.

For the record, I have started to use various types of gold securities as a "safe haven" investment as a diversification to t-bills when needed. But I will continue to invest in equities and other bonds, foriegn and international, as I feel the markets dictate. Selling 85% of equities at this time seems a little premature.

Here is my most "far-out" idea of one event that could happen. A private, electronic, gold-backed currency. State Street could certainly attempt this move. We must remember that for a long time, paper money was normally privately issued, and governments were not involved. Could it go back to this.

I do not want to sound like a "gold bug". While I have believed for a long time that gold is nature's currency and is a natural store of money, that did not mean that I felt any need to stuff my matresses with gold any more than any other type of currency. All I am saying is that the major currencies in this world are likely to be under extreme duress, all at the same time.

paladin
05-14-2010, 08:27 AM
I wouldn't invest a dime in paper....keep the metal, dump it in a deep dark hole....

leikec
05-14-2010, 11:31 AM
It's okay to take a profit. You can always jump in again later.

Jeff C

Kaa
05-14-2010, 11:44 AM
Viewing gold as a currency is valid

Huh? In which particular way is gold a currency? I can't pay for goods with it.

It can be used as a store of value, of course, but so can a great variety of things.


The necessary, severe fiscal policy changes will likely drive several countries into recession. This is not inflationary, so gold may not jump up in price as soon as people thing.

Since depressions are considered to be a Bad Thing, it's a pretty good bet that central banks (aka people who control the money spigots) will be pursuing loose monetary policy to contain the deflationary elements of the fiscal tightening.

Besides, the traditional response to overwhelming amount of debt is to inflate it away. Greece is in such trouble precisely because it cannot do this.


Here is my most "far-out" idea of one event that could happen. A private, electronic, gold-backed currency.

Nah. The governments will never tolerate that huge loss of control. Just look at current anti-money-laundering regulations :D

Kaa

MiddleAgesMan
05-14-2010, 12:47 PM
I wouldn't invest a dime in paper....keep the metal, dump it in a deep dark hole....

No room.

All my deep dark holes (and closets) are full of skeletons. ;)

paladin
05-14-2010, 01:25 PM
Back before gold was legal in the U.S. I would take a partial paycheck and have a 1 kilo solid gold I.D. bracelet made...cost of gold plus 5%.....every payday for quite a while it was the same....when I'd go home I'd be wearing one and the others in my bag...got a lot of lifted eyebrows from customs...I played that trick until 1969 when I left the last one home and went back over. Gold was going from (with the piaster exchange rate) from $26 an ounce to $28 an ounce......I sold most all of it at $612 an ounce and bought silver at $1.38/$1.68 an ounce....

John of Phoenix
05-14-2010, 03:49 PM
Originally Posted by peb http://forum.woodenboat.com/images/buttons/viewpost.gif (http://forum.woodenboat.com/showthread.php?p=2593418#post2593418)
Viewing gold as a currency is valid
Take a Krugerrand to Safeway and see what you can buy with it. Even if they took it, what do you think get as change?

peb
05-14-2010, 04:23 PM
Huh? In which particular way is gold a currency? I can't pay for goods with it.


Gold has been used for some time not in the markets as a currency hedge. A way to hedge against one's own currency without having to select another currency. This trend is accelerating.

BTW, Of course I can pay goods with gold. It is actually incredibly simple. All I have to do is log onto my schwab account, sell a GLD, and transfer the proceeds to my bank account and go to the store and write a check. It only takes one more minor step than using dollars in my schwab account to buy goods.



Since depressions are considered to be a Bad Thing, it's a pretty good bet that central banks (aka people who control the money spigots) will be pursuing loose monetary policy to contain the deflationary elements of the fiscal tightening.

Besides, the traditional response to overwhelming amount of debt is to inflate it away. Greece is in such trouble precisely because it cannot do this.


I am pretty sure you are simply pointing out the same thing as I am. A recession will likely result in loose monetary policy to make up for a decreased velocity of money and protect against deflation. But inflation normally is not associated with recessions. They are overwhelminly deflationary in nature. It is not apparent that the fed can print enough money to make up for a severe drop in velocity. The last recession left the infamous "drop money out of a helicopter" Bernanke solution in doubt.

All I am saying is the order of these events is not as apparent as may be seen. My main point is the results of our next economic crisis is really hard to predict. In general, I am speculating that the crisis will come as a spike in interest rates caused by the bond market not wanting treasuries. This will be out of the federal reserve and the treasury department's control. The fed can control short term rates, but we may see an extremely steep yield curve.



The governments will never tolerate that huge loss of control. Just look at current anti-money-laundering regulations That is probably correct. I had said it was a far-out prediction. But when the euro and the dollar and the pound all become questionable at the same time, you never know.

Lew Barrett
05-14-2010, 04:26 PM
I like gold. It's shiny and stays that way!

peb
05-14-2010, 04:29 PM
Take a Krugerrand to Safeway and see what you can buy with it. Even if they took it, what do you think get as change?

I always find debates about gold interesting. There are the inevitable gold bugs who think the world is coming to an end and the only good investment is gold. The other half think of gold as a shiney metal that gives no return on investment and is a useless investment. THere is rarely a middle ground.

I have always maintained a middle ground. Gold is a much better long term store of value that any other commodity. The value of other commodities is dependant on the usage demand. That is not the case with gold. Gold does appear to be mankind's "natural money". I don't know why, but that is what history teaches us. There are times it makes just as much sense to hold gold as to hold dollars or pounds or yen, etc. There are times it doesn't.

The Bigfella
05-14-2010, 07:44 PM
I like gold flavoured paper. I like it very much.

paladin
05-14-2010, 08:20 PM
Darn...I never seemed to have a problem.....I went to buy an airplane...dude sez who are you financing with, and I said "me".......we argued price...we agreed...I asked to check the current price of gold and I stacked the appropriate number of Krugerrands on the table....and he walked away after signing the title......
I walked in to buy a 4 wheel drive van for the business...same deal....we went to bank.....I opened the box and took out coins...handed them to bank manager who brought back a cashiers check and my change duly deposited to my account....and when I had to send a check...the bank advanced me money for 24-48 hours until I could open the box and hand them the coins.....

The Bigfella
05-14-2010, 08:45 PM
Yeah.... but I like the appreciation rate with paper.... Got some that cost 20.5 cents a sheet.... it's just shy of $5 a sheet now

paladin
05-14-2010, 08:49 PM
well...I got little pieces of silver for $2 each and sold them at $53 each after a few meals at the local pizza parlor...gold at less than 38 an ounce and sold for more than 600......I gots some paper that I bought at about $16 a sheet, they chopped it in two several times and now each piece is worth about $75 each...and I got some paper with Overland Stage Company written on it and it's next to worthless......but...I also got a pile of Confederate money and the South Shall Rise Again one of these days.

Kaa
05-14-2010, 09:31 PM
Gold has been used for some time not in the markets as a currency hedge. A way to hedge against one's own currency without having to select another currency. This trend is accelerating.

Any reason you can't apply same reasoning to copper, pork bellies, oil, etc. etc.? Or, say, a basket of commodities if you are not partial to pork bellies or frozen OJ? Or a basket of currencies?


BTW, Of course I can pay goods with gold. It is actually incredibly simple. All I have to do is log onto my schwab account, sell a GLD, and transfer the proceeds to my bank account and go to the store and write a check. It only takes one more minor step than using dollars in my schwab account to buy goods.

Ah, so then I can pay for goods with IBM stock and Nikkei 225 futures :D Guess that makes them currency...


I am pretty sure you are simply pointing out the same thing as I am. A recession will likely result in loose monetary policy to make up for a decreased velocity of money and protect against deflation. But inflation normally is not associated with recessions. They are overwhelminly deflationary in nature. It is not apparent that the fed can print enough money to make up for a severe drop in velocity.

That's where the term "stagflation" comes in :-)

Sure the Fed can print enough money. It can just buy outright each new issue of Treasurys and thus get rid of any fiscal difficulties. There's a rather large price to pay, of course, but the Fed can enable the government to spend rather large amounts of money which is sure help with the recession.


I am saying is the order of these events is not as apparent as may be seen. My main point is the results of our next economic crisis is really hard to predict.

That is, of course, true.


In general, I am speculating that the crisis will come as a spike in interest rates caused by the bond market not wanting treasuries. This will be out of the federal reserve and the treasury department's control. The fed can control short term rates, but we may see an extremely steep yield curve.

Well, a spike in Treasurys interest rate is pretty sure to be driven by inflationary expectations. And if the market ever decides that the Treasurys represent a credit risk and are not the baseline for the rest of the interest rates any more... well, it's going to get mighty interesting at that point :-)


That is probably correct. I had said it was a far-out prediction. But when the euro and the dollar and the pound all become questionable at the same time, you never know.

In such a situation the governments will be under severe pressure NOT to let the investors "escape" to alternate currency-equivalents and I'm sure any attempts to launch a private currency will be squashed. Probably with much overkill to teach a lesson, too.

Kaa

peb
05-15-2010, 02:11 AM
Any reason you can't apply same reasoning to copper, pork bellies, oil, etc. etc.? Or, say, a basket of commodities if you are not partial to pork bellies or frozen OJ? Or a basket of currencies?

Well, I don't know of anyone who does so. A lot of people do what I described.




Ah, so then I can pay for goods with IBM stock and Nikkei 225 futures :D Guess that makes them currency...

I never claimed that being able to buy something with gold made it a currency. You claimed it couldn't be done, all I did was describe how you were wrong.





Sure the Fed can print enough money. It can just buy outright each new issue of Treasurys and thus get rid of any fiscal difficulties. There's a rather large price to pay, of course, but the Fed can enable the government to spend rather large amounts of money which is sure help with the recession.


Ok




Well, a spike in Treasurys interest rate is pretty sure to be driven by inflationary expectations. And if the market ever decides that the Treasurys represent a credit risk and are not the baseline for the rest of the interest rates any more... well, it's going to get mighty interesting at that point :-)


Well, traditionally inflation expectations is a key driver when it comes to treasuries. But interest rates on many other bonds is very sensitive to changes in the perception of the creditor to pay of the debt. This is what I think will happen with US treasuries.



In such a situation the governments will be under severe pressure NOT to let the investors "escape" to alternate currency-equivalents and I'm sure any attempts to launch a private currency will be squashed. Probably with much overkill to teach a lesson, too.


Could be. Of course, it very well could be out of any one government's hands.

varadero
05-16-2010, 05:06 AM
An ATM machine that exchanges gold for currency, starting to look like money to me!
http://www.dailymail.co.uk/news/worldnews/article-1278165/Ultimate-vending-machine-dispenses-gold-cash-surprise-surprise-located-Abu-Dhabi-hotel.html