Lepista

Gold strategy in the current economy

12,404 posts in this topic

:D "It's Bernanke's fault"

errrrr.........no. It's his fault.

Tanzanian Gold's "I've had lunch with some big players and there's going to be a mid-March event with gold going to $2100" Sinclair will no doubt be blaming someone else for his woeful call too.

$500 wrong. I guess that's why he's a self-proclaimed guru.

I don't take notice of Jim Sinclair's views of what the market is going to do in the short term. IMO Sinclair never has a day off and is feeding people the get quick rich story, that so many want to hear.

I take note of the opinions of the likes of Dominic Frisby, who is a gold bull, but is very level headed, always looking for the chink in armour and is not constantly on about gold going up as Sinclair does. Frisby has been so right in the past about realistic targets and about the 12-18 month consolidation periods after a new high. He is expecting to see gold to hit $2,000 at the earliest by the end of the year.

Edited by Take Me Back To London!

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Same old, same old ...

Interesting (in a boring sort of way) to see how low it can go this time.

I asked a question earlier that you missed....

So just to clarify.

Saying you "would really jump in" means you have access to either lots of cash, non gold things things you could turn into cash or you would leverage up, at £600 - but - you would need a 40% drop in price to get so excited about gold?

Do you have a house? If so, is it mortgage free?

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I asked a question earlier that you missed....

So just to clarify.

Saying you "would really jump in" means you have access to either lots of cash, non gold things things you could turn into cash or you would leverage up, at £600 - but - you would need a 40% drop in price to get so excited about gold?

Do you have a house? If so, is it mortgage free?

Too complicated (and personal) to go into detail here. But cash is key. Would never use leverage. Regular purchases all the way to zero if needs be.

And many believe the paper market will disconnect completely (see FOFOA), sending gold prices to next to nothing - but by that time actual physical will be impossible to get.

Edited by Errol

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Too complicated (and personal) to go into detail here. But cash is key. Would never use leverage. Regular purchases all the way to zero if needs be.

And many believe the paper market will disconnect completely (see FOFOA), sending gold prices to next to nothing - but by that time actual physical will be impossible to get.

I was just trying to make sense of your "really jump in" and wondered what with, after seeing you as bullish about gold for so long. I couldn't understand why someone who I assumed had such a large position, was willing it to fall so much.

Just to be clear I am not knocking gold and have held some but don't hold any at the moment.

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And many believe the paper market will disconnect completely (see FOFOA), sending gold prices to next to nothing - but by that time actual physical will be impossible to get.

Oh dear....

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Too complicated (and personal) to go into detail here. But cash is key. Would never use leverage. Regular purchases all the way to zero if needs be.

And many believe the paper market will disconnect completely (see FOFOA), sending gold prices to next to nothing - but by that time actual physical will be impossible to get.

So basically you are a gold bull sitting on a load of cash. And you have such faith that gold will go to the moon as a one way bet you wouldn't want to use leverage. Which is bizarre, given you believe the leverage should be inflated away as gold rockets, right?

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So basically you are a gold bull sitting on a load of cash. And you have such faith that gold will go to the moon as a one way bet you wouldn't want to use leverage. Which is bizarre, given you believe the leverage should be inflated away as gold rockets, right?

I said nothing of the sort. I would never use leverage because in this market gold volatility will be extreme (we've seen nothing yet - I'm talking drops/rises of $500 a day +) and I'm taking no risks.

Also, if the paper price drops to zero on the COMEX/paper exchanges it would create a large problem for those using debt/leverage to buy.

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lets be realistic, the huge government debts are never going to be paid off "honestly" are they? populations simply wont stand for the increased taxes and decreased spending needed to pay off the debts, which in my mind leaves 2 options

1 = default

2 = inflating the debts away

what do both of these options mean for the price of gold? my meagre understanding is that in both scenarios the price of gold will skyrocket

have i missed options out?

Interested to hear opinion from both gold bulls and bears

Thanks

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Interested to hear opinion from both gold bulls and bears

The biggest problem on this thread seems to be a mis-understanding between short-term gold bulls who are trying to a make money and the long-term bears who wouldn't sell their gold if the price trippled tomorrow morning. And then we have the critics trying to attack the reasoning of both sides.

Most bears, like myself, are not looking to make a quick buck. We distrust the banking system and need something physical as a safe-haven in times of need.

1 = default

2 = inflating the debts away

I don't feel that either of these scenarios is possible. Look at Greece for an example of the International community and above all the Greek politicians refusing to allow a default on the debts at any cost. The politicians have too much to lose from a defult.

have i missed options out?

My view is that when the dollar collapses it will drag down many other currencies, sterling especially, and you will no longer be able to price an ounce of gold or siver in any currency. Precious metals (along with other commodities) will become as rare as hen's teeth because people will be trying to rid themselves of fiat money to aquire anything that will preserve their wealth. Who would sell their gold for $1,000,000 if you cannot buy anything with the money?

And where would you buy silver and gold safely without the threat of being robbed? The Police and Army will not be protecting us as you when they are not paid they will not work.

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populations simply wont stand for the increased taxes and decreased spending needed to pay off the debts, which in my mind leaves 2 options

1 = default

2 = inflating the debts away

what do both of these options mean for the price of gold? my meagre understanding is that in both scenarios the price of gold will skyrocket

have i missed options out?

Interested to hear opinion from both gold bulls and bears

Option 3

Gold is set free , & is allowed to go to its "off the books price $20,000 per ounce

This will allow banks / countries to pay of their debts

& backup their currencies.

It might also allow gold held in strong hands to come back to the open market , which might help the flow of gold to

Continue like it did in the 70's.

Because without flow, we might have to sell off more gold, or continue to empty fort Knox

; )

Edited by Crashman Begins

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lets be realistic, the huge government debts are never going to be paid off "honestly" are they? populations simply wont stand for the increased taxes and decreased spending needed to pay off the debts, which in my mind leaves 2 options

1 = default

2 = inflating the debts away

what do both of these options mean for the price of gold? my meagre understanding is that in both scenarios the price of gold will skyrocket

have i missed options out?

Interested to hear opinion from both gold bulls and bears

Thanks

1. Debt is only one side if the balance sheet. Govts are generally always in deficit and debt. I posted a chart on the pinned favourite charts thread illustrating this.

2. Only govts who borrow in foreign currency (ie eurozone countries) can possibly default.

3. Gold price does not invariably rise in price during inflationary times. One of the gold bulls posted a chart a few pages back inadvertently illustrating this. It showed real falls during the 80s and 90s where inflation was running at much higher rates than today.

4. Even if you reject point 3 inflation is, by historic standards, extremely low. This is occurring despite massive stimulus programmes.

5. People do not accept payment in gold, they accept it in fiat. In any rush for liquidation caused by excessive debt, gold should get liquidated along with everything else.

I therefore don't agree with the fundamental gold argument and don't believe the bull arguments are strong enough to argue this is a one way bet. If you want to speculate in the short term go for it, but understand you are gambling.

I am currently entirely in cash.

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1. Debt is only one side if the balance sheet. Govts are generally always in deficit and debt. I posted a chart on the pinned favourite charts thread illustrating this.

2. Only govts who borrow in foreign currency (ie eurozone countries) can possibly default.

3. Gold price does not invariably rise in price during inflationary times. One of the gold bulls posted a chart a few pages back inadvertently illustrating this. It showed real falls during the 80s and 90s where inflation was running at much higher rates than today.

4. Even if you reject point 3 inflation is, by historic standards, extremely low. This is occurring despite massive stimulus programmes.

5. People do not accept payment in gold, they accept it in fiat. In any rush for liquidation caused by excessive debt, gold should get liquidated along with everything else.

I therefore don't agree with the fundamental gold argument and don't believe the bull arguments are strong enough to argue this is a one way bet. If you want to speculate in the short term go for it, but understand you are gambling.

I am currently entirely in cash.

I recall a couple of times people positing that house prices rise fastest when rates are at their highest.

I think this may be the same sort of effect. Rates are used to control prices by pricing out lending. So - during inflationary times one would expect rates being raised to squeeze out inflation, but it acts with a lag. So peak inflation is also marked by peak rates (if they get it right). However, in terms of gold, it is more to do with 'real rates' and as a market acts more quickly. So inflation high, rates high, gold falls.

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inflation is, by historic standards, extremely low. This is occurring despite massive stimulus programmes.

Erm, no. Currently running above 10% (ignoring the laughable official figures).

sgs-cpi.gif?hl=ad&t=

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I am currently entirely in cash.

Good luck with that. Paper money collapse (papermoneycollapse.com) is now inevitable - I wouldn't want to sit in cash for too long.

Edited by Errol

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What kind of cash?

I don't see how it is especially relevant but sterling and yen. I have only left the sterling where it is in the UK due to current weakness not any kind of hedging strategy.

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I recall a couple of times people positing that house prices rise fastest when rates are at their highest.

I think this may be the same sort of effect. Rates are used to control prices by pricing out lending. So - during inflationary times one would expect rates being raised to squeeze out inflation, but it acts with a lag. So peak inflation is also marked by peak rates (if they get it right). However, in terms of gold, it is more to do with 'real rates' and as a market acts more quickly. So inflation high, rates high, gold falls.

I see so a better argument is real rates, rather than inflation. In that case I still remain bearish as I expect inflation to continue to fall and rates to go positive, with the same deleterious effect on gold prices.

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Erm, no. Currently running above 10% (ignoring the laughable official figures).

sgs-cpi.gif?hl=ad&t=

That shows peak inflation as being prior to QE. Even if we accept shadowstats, it is more effective presumably as a measure of the squeeze on incomes rather than a motor of market sentiment. I'd be surprised if advisory papers for the big boys reference shadowstats rather than official inflation figures when making investment arguments or describing real returns to investors.

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Good luck with that. Paper money collapse (papermoneycollapse.com) is now inevitable - I wouldn't want to sit in cash for too long.

Thank you. I suspect I will be just fine. I think we should probably avoid being in the same room as the resulting explosion may wipe out the known universe.

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I see so a better argument is real rates, rather than inflation. In that case I still remain bearish as I expect inflation to continue to fall and rates to go positive, with the same deleterious effect on gold prices.

Gold's correlation with real interest rates was modeled by Eddy Elfenbein - A Possible Model for the Price of Gold

A little tweaking and a 95.52% fit is arrived at:

Gold-vs-Model2.png

Model projection based on 4.44% inflation

Whilst the natural course of events would be deflation, what will Mr Bernanke do?

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