Gold

[carseller]

Do you think or do you know? Can we still have deflation or will we still have deflation? This language is all very wishy washy.

You need to think with real conviction which way we're heading as your financial future will depend on this.

I am hedged for both, I think it's to dangerous to bet on one of the outcomes.

The federal reserve and most central banks will not welcome deflation, since they are fighting so hard to avoid it, the FED are loosing the battle I think, simply because they can't get people and businesses to lend, and banks to lend out. That will cause the money supply to contract.

If you look at the bond market, this market is pricing in deflation, and a very big wave of bankruptcies. At the Dow Jones, I think the stocks often yield a 1-2 %, while the company bond yields you a huge bankruptcy premium. It's as the stock market and bond market completely disagree.

However, the government can spend, and the federal can start to print, not only lend out out money nobody take, and really trash the dollar. But I think the political will to committing to being irresponsible will first happen after the deflation actually have occurred, and the effects felt. I don't think it will be possible for the central banks to do "what they need", before the need to do it are "felt".

Edited March 28, 2008 by carseller

[narco]

If you look at the bond market, this market is pricing in deflation, and a very big wave of bankruptcies.

I'd say this is more of a flight to safety rather than quality. If banking failures are a possiblity, they are the last place investors will want to keep their cash.

I do see a massive shift out of treasuries at some point and the commodity market is sure to be a major beneficiary.

[carseller]

I'd say this is more of a flight to safety rather than quality. If banking failures are a possiblity, they are the last place investors will want to keep their cash.

I do see a massive shift out of treasuries at some point and the commodity market is sure to be a major beneficiary.

But if the money supply start to contract, as in the 2001-2002 recession, then gold will also go down, and I think it will only be a matter of what currency is the most trusted.

[narco]

I am hedged for both, I think it's to dangerous to bet on one of the outcomes.

I am hedged for banking failures. It is important to have immediate access to cash in this event.

I'm not holding too much though because that cash is sure to become quickly worthless. The government can only honour deposit guarantees with the printing press. They certainly don't have the savings to back those losses.

[carseller]

I am hedged for banking failures. It is important to have immediate access to cash in this event.

I'm not holding too much though because that cash is sure to become quickly worthless. The government can only honour deposit guarantees with the printing press. They certainly don't have the savings to back those losses.

I don't think that matter because if things get that bad, then so much money will be destroyed that this printing don't really influence the value.

It's fully possible that gold will only go up from here, and reach 10000 dollars, or more, and we will have 20 % interest rates again. But I think it is just more likely that the money printing process by banks, turn into reverse, as the domino's fall, causing deflation, gold at 250 dollar, and a condition where cash is king.

Edited March 28, 2008 by carseller

[narco]

But if the money supply start to contract, as in the 2001-2002 recession, then gold will also go down, and I think it will only be a matter of what currency is the most trusted.

Gold went up over 50% from April 2001 to April 2002.

I can kind of see where you're coming from as gold did decline for an entire year during the 1974-5 recession.

[narco]

I don't think that matter because if things get that bad, then so much money will be destroyed that this printing don't really influence the value.

If it was backed by savings (exisiting money) then I'd agree imagine what it would do to the actual value of sterling on the international markets if the goverment prints it.

We'd be the next Argentina, Zimbabwe or Iceland in no time.

Edited March 28, 2008 by narco

[carseller]

Gold went up over 50% from April 2001 to April 2002.

I can kind of see where you're coming from as gold did decline for an entire year during the 1974-5 recession.

I am not talking about the kind of decline that comes from a stock market rally and thoughts of a strong economy, that probably were the case in 74-75, after the 73-74 bear market in stocks / bull market in gold, I am talking about the low in gold in 2001, 2001-2002 was not precise, and that low occurred as a result of the money supply contracting and the dollar strengthening because of that, together with the stock market declining.

[narco]

It's fully possible that gold will only go up from here, and reach 10000 dollars, or more, and we will have 20 % interest rates again. But I think it is just more likely that the money printing process by banks, turn into reverse, as the domino's fall, causing deflation, gold at 250 dollar, and a condition where cash is king.

But then we're back to the old debate of hard backed currency versus fiat currency. As a massive importer nation, I cannot see how our fiat currency can gain any strength in that environment.

[carseller]

If it was backed by savings (exisiting money) then I'd agree imagine what it would do to the actual value of sterling on the international markets if the goverment prints it.

We'd be the next Argentina, Zimbabwe or Iceland in no time.

So then you see the dilemma, an economy where nobody wants to borrow at 0 % interest rates? And the whole debt system collapsing because this system needs people to lend to function? The inflation crowd seems to assume people will borrow like crazy at 0 % interest rates, something I think is not the case.

Edited March 28, 2008 by carseller

[narco]

I am not talking about the kind of decline that comes from a stock market rally and thoughts of a strong economy, that probably were the case in 74-75, after the 73-74 bear market in stocks / bull market in gold, I am talking about the low in gold in 2001, 2001-2002 was not precise, and that low occurred as a result of the money supply contracting and the dollar strengthening because of that, together with the stock market declining.

Which contraction would this be?

[narco]

So then you see the dilemma, an economy where nobody wants to borrow at 0 % interest rates? And the whole debt system collapsing because this system needs people to lend to function? The inflation crowd seems to assume people will borrow like crazy at 0 % interest rates, something I think is not the case.

But thats the old chestnut of money supply only being able to increase via consumer lending. Even if you discount the actual cash printing press, there are other ways to keep money supply positive. We're already seeing this in action, 8 months after the credit crunch.

[carseller]

First a picture of deflation

From argentina. It's how I imagine it can look like in the US in the future.

Then you see the contraction I talk about, that caused the low gold price, here:

It's not deflation really, but quite close. In this system a falling expansion rate seems to work deflationary, even it if don't move below 0.

Edited March 28, 2008 by carseller

[narco]

First a picture of deflation

It's not deflation really, but quite close. In this system a falling expansion rate seems to work deflationary, even it if don't move below 0.

I guess it will be interesting to see what M3 and M4 look like in the coming months.

Edited March 28, 2008 by narco

[carseller]

I guess it will be interesting to see what M3 and M4 look like in the coming months.

I think the markets are used to lower rates giving higher stock prices, and higher inflation. But what when the economy becomes so soaked with debt, that consumers simply will not take on more debt, then interest rates don't matter, in the chart I gave, you will see the money supply expanding from what was the bottom in the stock market, not from when Greenspan lowered rates. The reason is that it took almost 1,5 year for the rate cuts to work. Many people blame him for holding the rates to low, but when you see the contraction at the chart, you will understand that he really had to keep them low.

Now I think Bernanke will have used up his bullets before he get the contraction, because when he don't have any more fixes to give the market, the contraction will start, a contraction like on the chart, and he will be unable to expand away from it.

US M3:

See the contractions, that were recessions, when there will be a recession now, I believe there will be a recession, and that should happen as Bernanke loose the abillity to move the curve upwards. Between all his rate cuts ,the economy have started to shudder and contract, and ultimately he could run out of bullets.

Here the contraction, in the monetary base, that goes together with the gold price at 250 dollars.

http://bp2.blogger.com/_nSTO-vZpSgc/RvdDqf...-2007-09-21.png

Edited March 28, 2008 by carseller

[carseller]

At this page: http://globaleconomicanalysis.blogspot.com...-us-dollar.html

There is some information, on the M3, in the chart of the US m3 on that picture, you will see the contractions that have caused the rate cuts. They are seen as inverse V's in the chart. http://bp0.blogger.com/_nSTO-vZpSgc/RxRSEo...s1600-h/m3a.png You see one of these inverse V's with the circle around and and M3 written in red. That is the deflation beast Bernanke is fighting.

[carseller]

Here is a good chart, that I think shows what is going to happen. Things are simply going to fall off a cliff.

http://research.stlouisfed.org/fred2/data/...Max_630_378.png

Here is the wave of bankruptcies that are priced in. The bond market is waiting for Armageddon.

here is a chart hinting towards what's cheap, and what's not. It's an old chart, but by reading it, the yen, and the dollar look cheap, the rest expensive.

http://bigpicture.typepad.com/.shared/imag...rts_graphic.gif

Edited March 28, 2008 by carseller

[carseller]

Here is a good article saying why the gold price should decrease written by someone following the Austrian School of Economics.

http://www.garynorth.com/public/3263.cfm

Another thing, what are the difference between gold bugs blaming any move they can't explain in the market on central bank sales, or some traders blaming the Arabs ? None. Only a lack of understanding.

[Errol]

I still think some people here have not quite understood the purpose/properties of gold.

The value of gold does not go up or down. The number of dollars/pounds etc. required to buy it merely goes up or down. This is why gold is the best thing to hold in a deflationary environment as well as an inflationary environment.

If we get deflation (which I am almost certain is not going to happen any time soon) then the value of the dollar will rise (haha) and therefore the dollars you recieve in exchange for your gold will be able to purchase more goods (but still, essentially, the same goods you could have purchased when the dollar value of gold was $1000+).

Gold is a store of value.

[tinecu]

Here is a good article saying why the gold price should decrease written by someone following the Austrian School of Economics.

http://www.garynorth.com/public/3263.cfm

Another thing, what are the difference between gold bugs blaming any move they can't explain in the market on central bank sales, or some traders blaming the Arabs ? None. Only a lack of understanding.

Deflation/inflation...moot point.

Diversification offers extraordinary 'protection' of your assets....eggs and baskets etc.

Recent events suggest there is a challenge being mounted to the supremacy of paper money (esp. GBP and USD).

No one really knows what might transpire hence diversifiaction is the key to preservation of our savings. Some investment decisions will turn out to be 'dumb' but others will be 'wise' ...on balance the diversified portfolio will avoid catastrophy.

[tinecu]

I think the markets are used to lower rates giving higher stock prices, and higher inflation. But what when the economy becomes so soaked with debt, that consumers simply will not take on more debt, then interest rates don't matter, in the chart I gave, you will see the money supply expanding from what was the bottom in the stock market, not from when Greenspan lowered rates. The reason is that it took almost 1,5 year for the rate cuts to work. Many people blame him for holding the rates to low, but when you see the contraction at the chart, you will understand that he really had to keep them low.

Now I think Bernanke will have used up his bullets before he get the contraction, because when he don't have any more fixes to give the market, the contraction will start, a contraction like on the chart, and he will be unable to expand away from it.

US M3:

See the contractions, that were recessions, when there will be a recession now, I believe there will be a recession, and that should happen as Bernanke loose the abillity to move the curve upwards. Between all his rate cuts ,the economy have started to shudder and contract, and ultimately he could run out of bullets.

Here the contraction, in the monetary base, that goes together with the gold price at 250 dollars.

http://bp2.blogger.com/_nSTO-vZpSgc/RvdDqf...-2007-09-21.png

Please could you plot the gold price alongside your M3 graph

Also where is the latest M3 data from?

[carseller]

Please could you plot the gold price alongside your M3 graph

Also where is the latest M3 data from?

Actually I have been curios to why the M3 is rising, and I have found the answer. It's a flight to safety. The M3 includes international money funds. And people are running to these funds, like heading for the exits, and these funds buy t-bills, that's why the rate is less than 0,5 %

http://research.stlouisfed.org/fred2/data/...Max_630_378.png

So there you have it, the M3 running wild, is just a flight to safety, not central bank "pumping".

[Loggy]

Under 900 !

[carseller]

Under 900 !

I think there is support for gold around 650-700. That is in todays macro situation, but when we get there, that can have gotten so bad that gold could get to 450 what I see as the next level. The trend line provide more long term support at around 550-600 in around 2010, it was when gold was at 450 that it somehow started to disconnect the firs time, the second time was at around 650.

What is missing is that wild vertical disconnect, when everyone go crazy. If we get it later or not, I don't know, it's not a real bubble before prices get really mad.

Edited April 1, 2008 by carseller

[R K]

Nadler is even more bearish than usual today and he works for Kitco haha

http://www.kitco.com/ind/Nadler/mar312008B.html

That fairytale is about as credible as the other back-channel talk that some kind of 'squeeze' must be on in the silver market as evidenced by the shortage of small fabricated products among silver retailers. And, naturally, as this so-called squeeze unfolds, the price of the white metal heads towards the basement. It just...sort of follows, doesn't it? As of this writing, you can call Kitco and buy ounces of silver pool on demand, 100 ounce silver bars, and American Silver Eagles. I have personally called several primary distributors today and found that evidently silver Maple Leaf coins may be in a tight supply mode, but silver bags are plenty available.

Aside from short-term, spot shortages of certain small fabricated items, there appears to be no problem. The real holdup is simply a matter of less than adequate supplies of coin blanks from which to mint one-ounce product. Call it poor planning. It has been seen before. Some mints did not figure that buyers would rush out to get their hands on small, high-premium coins at $20 per ounce silver (another sign that prices are possibly topping out). So, where is the squeeze? Only in the arteries of the brains of some very ill-informed casual market observers. Depositories are practically choking on 1,000 ounce silver bars crowding their floor space. It's amazing what tales some bored people will spin when it comes to markets they do not comprehend. Even more amazing, some of their readers actually believe what they have to say. Now, here is something that - on the other hand- is fairly easy to grasp, if not all that pleasant to ponder: Bloomberg reports that:

"Overall commodity prices may decline by half as the value of products such as corn, wheat and copper tend to "overshoot" on speculative buying, Barron's reported, citing independent analyst Steven Briese.

Briese's analysis of positions by commercial hedgers such as farmers, food processors, energy producers and others who trade commodities daily suggested these investments were fully valued in early September, the weekly newspaper said.

Briese estimates index funds, which account for 40 percent of all investments expecting the price of commodities to gain, hold about $211 billion worth of long positions in U.S. markets, the newspaper said in its March 31 issue.

Short positions held by commercial commodities investors in the 17 commodities tracked by the Continuous Commodity Index were 30 percent higher than the previous net-short record in March 2004, Barron's said."

More active and likely more volatile conditions will develop as we get into April and the reviews of Q1 start filtering into markets. Defensive posturing might not be unwise. It certainly was the case today.