CokeSnortingTory

Denninger On Gold

92 posts in this topic

He thinks the goldbugs are being taken for a ride: http://market-ticker.denninger.net/archives/2361-Listen-To-The-Hucksters,-Lose-Your-Ass.html

(You'll need to copy and paste the above url, rather than just click it)

Salient points:

i) Gold is not an effective inflation hedge, but is an effective geopolitical instability hedge
ii) It functions as credit, but not as money
iii) It offers less utility, and thus price stability, than silver
iv) The last time there was an inflation scare in the early '80's, gold holders were wiped out when the price crashed
v) The only free lunch is the sun

Obviously, I can't be ars[i][/i]ed to debate the article, because I think goldbugs are loons who are not able to be debated with, but it's worth a read for its contrarian standpoint, if nothing else.

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As I always say it is just something of value, an asset that can be traded internationally, and benefits from a high value to weight ratio meaning it is transportable.

It is no better or wose than other things such as rare paintings or star wars figurines.....

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An alternative view ...

[b]Mr. Denninger and Gold or Why the Dollar-Deflationists Are Wrong[/b]

http://www.zerohedge.com/article/mr-denninger-and-gold-or-why-dollar-deflationists-are-wrong

[i]Gold is the currency beyond Governments. It is the most liquid form of money accepted throughout the world – the true reserve currency of the world - whereas Dollars, Yuans and Euros etc. are only guaranteed to be accepted within their own respective countries, and as long as their respective governments last. Why would you want to tie yourself down to the paper currency of a particular nation, especially in times of such turbulence? It points to a very limited sphere of thinking when you advocate that holding only dollars is the best strategy. It is a fallacy to believe that there is no refuge outside the system; that you have to be trading paper tickets all the time to “keep up” with the dilution of your purchasing power or just stand by idly holding dollars while the government rapes you. Gold is your refuge outside the system.

[b]Got Gold, Mr. Denninger?[/b][/i]



Keep the image below at the forefront of your mind:

[img]http://www.zerohedge.com/sites/default/files/images/user176/imageroot/exter-inverse-pyramid.jpg[/img]

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[quote name='Errol' date='31 May 2010 - 12:46 PM' timestamp='1275306379' post='2547772']
An alternative view ...

[b]Mr. Denninger and Gold or Why the Dollar-Deflationists Are Wrong[/b]

[url="http://www.zerohedge.com/article/mr-denninger-and-gold-or-why-dollar-deflationists-are-wrong"]http://www.zerohedge...nists-are-wrong[/url]

[i]Gold is the currency beyond Governments. It is the most liquid form of money accepted throughout the world – the true reserve currency of the world - whereas Dollars, Yuans and Euros etc. are only guaranteed to be accepted within their own respective countries, and as long as their respective governments last. Why would you want to tie yourself down to the paper currency of a particular nation, especially in times of such turbulence? It points to a very limited sphere of thinking when you advocate that holding only dollars is the best strategy. It is a fallacy to believe that there is no refuge outside the system; that you have to be trading paper tickets all the time to "keep up" with the dilution of your purchasing power or just stand by idly holding dollars while the government rapes you. Gold is your refuge outside the system.

[b]Got Gold, Mr. Denninger?[/b][/i]



Keep the image below at the forefront of your mind:

[img]http://www.zerohedge.com/sites/default/files/images/user176/imageroot/exter-inverse-pyramid.jpg[/img]
[/quote]

change the word GOLD for HOUSE and I think we are there.

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[quote name='Pedro for the Fed' date='31 May 2010 - 12:43 PM' timestamp='1275306200' post='2547766']
I like Denninger,he says what he thinks and isn't afraid of being as contrarian as Prechter-who in Feb 2010,made a Gold $200 call.
[/quote]

True. He's also been wrong alot of the time. (Denninger and Prechter - His double shorts on the SPX got stopped out months ago - before the April correction). I don't know if he recommended new double shorts subsequently but I guess his followers would still be smarting from being wrong from last August.

I agree with all the points in the OP link though. Most gold buyers will get creamed, eventually and for the very reasons they think they won't.

[quote]tins of beans and gallon of fuel trump gold.that chart is wrong [/quote]

Nukes trump beans and fuel. Edited by Red Kharma

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[quote name='Red Kharma' date='31 May 2010 - 12:51 PM' timestamp='1275306708' post='2547789']
True. He's also been wrong alot of the time. (Denninger and Prechter - His double shorts on the SPX got stopped out months ago - before the April correction). I don't know if he recommended new double shorts subsequently but I guess his followers would still be smarting from being wrong from last August.
[/quote]
I always think it is a good idea to mentally picture market commentators wearing John McCririck-style deer-stalker hats.

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Might want to bear this in mind ...

pie chart below, which depicts the fate of 786 paper currencies that have been issued in the course of history (excluding Chinese paper currencies prior to 1935):

[img]http://www.acting-man.com/blog/media/2010/05/paper-currencies.png[/img] Edited by Errol

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[quote name='Errol' date='31 May 2010 - 01:04 PM' timestamp='1275307469' post='2547814']
Might want to bear this in mind ...

pie chart below, which depicts the fate of 786 paper currencies that have been issued in the course of history (excluding Chinese paper currencies prior to 1935):

[img]http://www.acting-man.com/blog/media/2010/05/paper-currencies.png[/img]
[/quote]


What conclusion do you think that implies?

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Average lifespan of a fiat currency is around 40 years, btw. Edited by Errol

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[quote name='Pedro for the Fed' date='31 May 2010 - 12:44 PM' timestamp='1275306294' post='2547768']
or 1970's Wonder Woman dolls.
[/quote]
Oh aye? ;)

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[quote name='Cogs' date='31 May 2010 - 01:08 PM' timestamp='1275307727' post='2547823']
What conclusion do you think that implies?
[/quote]

The answer is to pick the correct one.

The problem arises when there are no "correct ones" left.

When there are no correct ones left, it seems that the best way to hold on to real value includes :

- Company shares for well managed businesses that make things rather than provide services.
- Things (gold, silver, coal, oil, agricultural land etc)
- Education
- Etc etc
- And at the very bottom of the pile : houses. I think it was Dr Bubb who showed how badly housing costs were damaged relative to the value of just about everything else during the hyperinflation in the Weimar Republic.

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[quote name='CokeSnortingTory' date='31 May 2010 - 12:27 PM' timestamp='1275305264' post='2547742']
He thinks the goldbugs are being taken for a ride: http://market-ticker.denninger.net/archives/2361-Listen-To-The-Hucksters,-Lose-Your-Ass.html

(You'll need to copy and paste the above url, rather than just click it)

Salient points:

i) Gold is not an effective inflation hedge, but is an effective geopolitical instability hedge
ii) It functions as credit, but not as money
iii) It offers less utility, and thus price stability, than silver
iv) The last time there was an inflation scare in the early '80's, gold holders were wiped out when the price crashed
v) The only free lunch is the sun

Obviously, I can't be ars[i][/i]ed to debate the article, because I think goldbugs are loons who are not able to be debated with, but it's worth a read for its contrarian standpoint, if nothing else.
[/quote]


In 1980 interest rates went to 20 percent - then gold fell.

Anyone using the term "goldbug" is a VI or a loon.

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[quote name='Timak' date='31 May 2010 - 12:41 PM' timestamp='1275306095' post='2547761']
As I always say it is just something of value, an asset that can be traded internationally, and benefits from a high value to weight ratio meaning it is transportable.

It is no better or wose than other things such as rare paintings or star wars figurines.....
[/quote]

So the Spanish weren't seeking gold at the fabled El Doraldo in South America but Cabbage Patch dolls? The Aztecs and Incas were wiped out for a Dinky Toy Collection?

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He's right about gold, but oh so wrong on the dollar.

Still, he'a a patriot and that's to be expected.

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[quote name='Errol' date='31 May 2010 - 12:46 PM' timestamp='1275306379' post='2547772']
An alternative view ...

[b]Mr. Denninger and Gold or Why the Dollar-Deflationists Are Wrong[/b]

http://www.zerohedge.com/article/mr-denninger-and-gold-or-why-dollar-deflationists-are-wrong

[i]Gold is the currency beyond Governments. It is the most liquid form of money accepted throughout the world – the true reserve currency of the world - whereas Dollars, Yuans and Euros etc. are only guaranteed to be accepted within their own respective countries, and as long as their respective governments last. Why would you want to tie yourself down to the paper currency of a particular nation, especially in times of such turbulence? It points to a very limited sphere of thinking when you advocate that holding only dollars is the best strategy. It is a fallacy to believe that there is no refuge outside the system; that you have to be trading paper tickets all the time to “keep up” with the dilution of your purchasing power or just stand by idly holding dollars while the government rapes you. Gold is your refuge outside the system.

[b]Got Gold, Mr. Denninger?[/b][/i]



Keep the image below at the forefront of your mind:

[img]http://www.zerohedge.com/sites/default/files/images/user176/imageroot/exter-inverse-pyramid.jpg[/img]
[/quote]
Bilge.

Sorry but gold is just another commodity, albeit one that trades like religious icons due to the poorly thought through quais mysticism that surrounds it.

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[quote name='Errol' date='31 May 2010 - 01:04 PM' timestamp='1275307469' post='2547814']
Might want to bear this in mind ...

pie chart below, which depicts the fate of 786 paper currencies that have been issued in the course of history (excluding Chinese paper currencies prior to 1935):

[img]http://www.acting-man.com/blog/media/2010/05/paper-currencies.png[/img]
[/quote]
Reading comprehension fail.

Nm me, I need more beer. Edited by Injin

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The value that has been assigned to gold this morning is $1216. A decent '59 Les Paul is around $70,000.

But the values so ascribed may change dramatically in the next few days such that the declared value of gold may dip to $850 and the iconic Axe could fall below $50k.

Meanwhile, the value ascribed to the paper currency that you can exchange for these commodities or things that can be bought and sold on the market, will rise as the value of gold and Axes falls.

I therefore have to agree with the following statement:

[i]"The most dangerous myth about gold, or any other metal or precious stone for that matter, is that there is no intrinsic value apart from the mood of the market at any given moment. Values are dictated by market forces and there is no difference between a commodity or a currency as the relationship between the two must always remain relative to the market." [/i] Phenwick Gruber, 1932 Edited by Realistbear

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[quote name='Realistbear' date='31 May 2010 - 01:44 PM' timestamp='1275309866' post='2547900']
The value that has been assigned to gold this morning is $1216. A decent '59 Les Paul is around $70,000.[/quote]

no value has been assigned to gold.

no value has been assigned to a les paul either.
[quote]
But the values so ascribed may change dramatically in the next few days such that the declared value of gold may dip to $850 and the iconic Axe could fall below $50k.[/quote]

Values aren't ascribed. Why comment on markets if you have no idea how they work?
[quote]
Meanwhile, the value ascribed to the paper currency that you can exchange for these commodities or things that can be bought and sold on the market, will rise as the value of gold and Axes falls.[/quote]

how do you know?
[quote]
I therefore have to agree with the following statement:

[i]"The most dangerous myth about gold, or any other metal or precious stone for that matter, is that there is no intrinsic value apart from the mood of the market at any given moment. Values are dictated by market forces and there is no difference between a commodity or a currency as the relationship between the two must always remain relative to the market." [/i] Phenwick Gruber, 1932
[/quote]
Yes......but if you agree with this then why did you make the first two statements which are clearly against both the letter and the spirit of this final quotation?

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[quote name='Pedro for the Fed' date='31 May 2010 - 01:37 PM' timestamp='1275309448' post='2547883']
and then it was a great inflation hedge through to the millenium.
[/quote]

i think the price from 1980 to 2000 only makes sense if the price was managed by the Fed through the derivatives market....
there is a motive and the means for this action, but likely no direct proof.

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[quote name='Realistbear' date='31 May 2010 - 01:44 PM' timestamp='1275309866' post='2547900']


[i]"The most dangerous myth about gold, or any other metal or precious stone for that matter, is that there is no intrinsic value apart from the mood of the market at any given moment. Values are dictated by market forces and there is no difference between a commodity or a currency as the relationship between the two must always remain relative to the market." [/i] Phenwick Gruber, 1932
[/quote]

I have a few friends from Zimbabwe with a different experience

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[quote name='Injin' date='31 May 2010 - 01:42 PM' timestamp='1275309735' post='2547896']
Bilge.

Sorry but gold is just another commodity, albeit one that trades like religious icons due to the poorly thought through quais mysticism that surrounds it.
[/quote]

western people (not central banks who store it by the tonne) seem to have forgotten thousands of years of experience which say something different

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The value of gold ascribed to an ounce is around $1216. You can take your currency and exchange it for this particular commodity or slightly less of another metal (Platters for example).

The "market" has decided on the value of gold for this morning. It is based on perceived value as reflected by demand, mood, fundamentals and a few technicals all mixed together to come up with today's value.

eBay values are driven by the value of any given thing at recent closing prices. I have tried to shift the value of Marshall Amps slightly higher this week by ascribing my own value to one. However, the market disagrees and ascribes a different value.

Gold is not a unique commodity which is why its value changes constantly. It crashes when enough people ascribe a lower value and the price will accelerate one was or the other depending on sell or buy pressure. Much like a '59 Les Paul.. the big difference is that the Les Paul has higher value "intrinsically" because there are not many of them around whereas gold is in limitless supply if demand makes difficult mining viable.

I think Phenwick Gruber is right:

[i]"The most dangerous myth about gold, or any other metal or precious stone for that matter, is that there is [b]no intrinsic value[/b] apart from the mood of the market at any given moment. Values are dictated by market forces and there is no difference between a commodity or a currency as the relationship between the two must always remain relative to the market." Phenwick Gruber, 1932[/i]

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[quote name='sharpe' date='31 May 2010 - 01:58 PM' timestamp='1275310717' post='2547921']
I have a few friends from Zimbabwe with a different experience
[/quote]

Zim dollars collapsed because the value ascribed to them collapsed due to the viability of the nation that was behind them. World demand for Zim goods was non-existent as there was no economic system in that nation to sustain a viable import export balance.

IF the Zims had invested in viable paper currencies or bonds before hyperinflation they would have escaped the effects of their currency collapse. Its all relative and the value ascribed to any paper currency must be based on the relative strength of demand for that nations goods and services. Equally, if the Zims had exchanged their pre-valueless Zim$ for gold they would have also escaped the loss of value in their currency. US$, Norwegian Kr, Gold any would have done the job. But if a Zim had bought gold with their pre-crash Zim$ and gold then dropped to $500 in September of this year ou could say that the safer haven would have been US paper $.

This is the essence of Gruber's thesis. A sort of relativity in fiat values of all things that can be bought or sold in a market. Edited by Realistbear

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[quote name='Realistbear' date='31 May 2010 - 02:12 PM' timestamp='1275311542' post='2547946']
Zim dollars collapsed because the value ascribed to them collapsed due to the viability of the nation that was behind them. World demand for Zim goods was non-existent as there was no economic system in that nation to sustain a viable import export balance.

IF the Zims had invested in viable paper currencies or bonds before hyperinflation they would have escaped the effects of their currency collapse. Its all relative and the value ascribed to any paper currency must be based on the relative strength of demand for that nations goods and services. Equally, if the Zims had exchanged their pre-valueless Zim$ for gold they would have also escaped the loss of value in their currency. US$, Norwegian Kr, Gold any would have done the job. But if a Zim had bought gold with their pre-crash Zim$ and gold then dropped to $500 in September of this year ou could say that the safer haven would have been US paper $.

This is the essence of Gruber's thesis. A sort of relativity in fiat values of all things that can be bought or sold in a market.
[/quote]


how many commodities have fallen to zero value? how many paper currencies have fallen to zero value?

in this case are commodities fundamentally different from fiat currencies?

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[quote name='sharpe' date='31 May 2010 - 02:15 PM' timestamp='1275311715' post='2547949']
how many commodities have fallen to zero value? how many paper currencies have fallen to zero value?

in this case are commodities fundamentally different from fiat currencies?
[/quote]


Blue asbestos.

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