Topic: Gold: I smell a trap - page 19. (Read 90826 times)

If cypherdoc is correct (I think not) then the short-gold ETFs will lose people a lot of money since the USD will be stored in failing banks. You'd want USD paper notes on your possession.

I haven't read the whole thread but some posts.

As hugolp pointed out, the increase in margin requirements is probably what had caused more damage. Remember the las silver sudden drop (April/may)? They did the same back then, precisely in the middle of a bull run.

Gold hasn't any economic value? Of course it has, it has had monetary value for thousands of years. The worse other moneys do, the better for gold.
It would also be extensively used in industry if it were as cheap as silver.

USD deflation won't hurt gold, because it is cash, not credit. At the bottom of the deflation you sell the gold and buy investments with yields on the cheap.
But will we have deflation? I don't think so. Hyper-inflation and the destruction of the dollar (at least as the world reserve currency) is the most probable outcome in my opinion.

If NATO had not invaded Libya, gold would be even better and USD even worse. But if you suggest you're going to sell your oil for anything different than USD you get a bullet in your head. Gadaffi did it (he even proposed the golden dinar as a supra-national African currency) for gold. Saddam did it for EUR. That's what makes USD the world reserve and not the US economy, which is no longer the soundest in the world.

Anyway, QEn will stop it all. With each iteration they need to print much more to prevent deflation. And exponential functions don't last forever.
I don't plan to sell my silver until the USD has collapsed. And I'm completely certain that will happen sooner or later. The monetary value that the USD contains will move to other places, and precious metals will get a great part of that value.
On the other hand, if they allow deflation to happen, gold won't suffer a great loss, probably rises too.

Deflation should be good for banks. Of course, it's good for no one when deflation leads to default, but bailing out the financial sectors after default has been en vogue. A certain Jeffersonian quote seems appropriate.

Yes. Usually "safer" assets like gold and gov bonds were (more or less) correlated and at the same time inversely correlated to "riskier" assets like stocks. But now everything is almost inversely correlated to the dollar and derivated assets. Its because the market is speculating on the survival of the dollar, and anything else serves as a way to scape the dollar.

Btw, the mainstream media has not commented on this piece of news: The Russian central bank has started to offer gold backed loans: http://af.reuters.com/article/metalsNews/idAFL5E7JQ0Q020110826

For the people that believe that the government is going to let deflation happen, I really want to know: why? why would they want to let deflation happen and force them to default when they can monetize the debt and keep spending? Also, letting deflation happen would bankrupt the banks and until now politicians have done everything in their hands for the survivial of the big banks. Why would the government let their own default happen and let the big banks go broke when they can avoid it by monetizing debt? I dont understand the deflationist position.

EDIT: Im talking mid and long term. I have stated before that we are going to see a lot of volatitility in the next years with recurrent deflationary mini-crashes like the present one. But the trend is inflationary.

to the truly observant that have been following this thread and what i have been saying, its clearly obvious that all markets including pm's are moving inversely to the USD almost on a tick for tick basis.  this is the inverse correlation i have been talking about.  IMO this means the USD is the dog and all other markets including gold are the tails.

this is also a very dangerous situation as the fundamentals of individual companies or markets don't really matter.  in fact, the inherent value of gold/silver doesn't matter either.  if the the USD decides to skyrocket, gold/silver will tank along with everything else and vice versa.

we're due for a correction in markets so you know what i think.

@miscreanity:  you know, i haven't read a post of yours for a long while now that i agree with more.  everything you said in that last post is true and we agree on alot of things.

where we do disagree though is what you said yourself. we're in a new age of volatility where i think markets will prevent the Fed and gov't from walking the thin narrow line you think they'll be able to in order to achieve price stability.  that would be too easy.  i believe in cycles where markets swing from extreme to extreme, ie, boom bust, panic to greed, giddiness to despair.  this is how traders make money.  they will force these swings to strip the little guys of their money.  we're at a price peak now; we'll be at a price trough in a few years.

but whether you invested btwn $9-12 as i did or 20, 30, 40, or $49, the fact that the price has fallen 41% from its top is an invaluable piece of information as to where the long term price is going.

These "defaults" are still occurring agonizingly slowly and at the least painful level for the banks - someone else's wallet. They aren't writing the debt off, they're trying as hard as possible to offload at as little a discount as they can - passing the buck the way a politician hands off a bigger problem than he started with. So until we have multiple trillions in realized losses from financial institutions, I doubt we'll have a sufficient cleansing.


Damn right. To clarify: long-term residential mortgages hit the big-time in the 30's as a way to keep farmers on their properties. Since then, 30+ year home loans have become the norm, allowing for a greatly amplified active debt rise.


Aside from the striked-out sections, I agree. The dynamic wasn't denied. There are some structural elements that create the conditions necessary for hyperinflation. Again, we need to focus on the debt issue - debt had been treated like money instead of debt by the market itself; now that said debt is locked up, it remains as money until it can be unwound. If the debt is merely handed off, it hasn't been unwound. In addition, when the debt instruments are finally deciphered, there will remain such massive distortions that pricing will be still be heavily distorted. That leads us to gold.

Gold is not officially acknowledged as the world's reserve currency, for that would defeat the purpose of US hegemony held in place by the dollar. The dollar is linked to gold whether it's admitted or not. This link is not fixed, but determined by floating exchange in a market environment. Why is it that gold is such a threat to the established financial institutions that gold is persistently manipulated? Why did Volcker suggest that allowing gold to rise too quickly was a mistake? Why is gold held by banks as reserves? Our assumption that the dollar is backed by GDP or government is a half-truth at best.

Gold remains the asset side of money that provides the functions of a store of wealth and metric of value; in extreme situations, also a means of exchange. Banks and governments obviously realize this, or they wouldn't view gold as a threat; actually, it wouldn't even register at all. Yet it certainly does. Save in gold, spend in fiat.

The Federal Reserve is walking a tightrope. Too much deflation or inflation would result in upheaval and its demise, stemming from the entity's failure to maintain the mandates set forth. Self-preservation doesn't work to boost the deflation argument. Bernanke could have boomed from the rooftops that there would never be another QE if outright deflation were being given consideration. No, instead we see him pussyfooting around the elephant in the room (isn't it a little suspicious that Hoenig announced months ago that he's leaving on October 1st and we're now seriously on the precipice of European sovereign default?).

Instead, that self-preservation is seeking to delicately cut a narrow path through a financial and political minefield. Stability is critical to the Fed's survival. Too far in either direction and the angry cries rise to a crescendo. The real problem is that the actions being taken to remain in control are actually making that stranglehold more difficult to maintain. Is volatility not far greater than it was three years ago? Haven't the factors involved in the crises been shown to be larger in scale and scope than previously imagined? What happened to stability?


Hard to tell, plus you were on a roll. Oh, and you're too damned professional with your double spaces between sentences.


If the debt can be unwound quickly enough, yes. That would probably require major banks to effectively self-destruct. The world's myriad legal systems would also have to burn the midnight oil to even make a dent in the case load. If the backlog of RMBS-related foreclosure cases were a priority, would we have people living in houses for 3 or more years? That actually benefits the banks to a degree - the longer a debtor remains in a house (rent-free or making even irregular payments), paying utilities and maintaining the property, the less the banks will have to lay out for the same purpose - until they finally get around to legal proceedings.

The debt won't be unwound in a timely manner for the simple reason that the banks will attempt to muddle through this. It doesn't matter that they'll be so weak on the other side that they probably won't be around for long - they're in survive-at-all-costs mode. Granted, this is an assumption, but does it seem likely that they will? This means that the real key to a raucous deflationary outcome is not the Fed, but the world's major creditors, particularly the big derivative producers. Yes, I acknowledge that there are other factors, but none so overwhelming as this.


Fed mandate: price stability. If massive deleveraging occurs, price stability evaporates instantly. Without price stability, there is panic. Panic causes to civil unrest. That's politically unpalatable - it causes further contraction of business and the economy overall.

One solution: restrict the deleveraging as much as possible to slow the decline. This has been going on for three years now. It's too slow to bleed off a sufficient amount, but the rate can't be allowed to increase or major banks would blow up overnight.

Another solution: inflate the currency just enough to support market prices at or near current levels. Again, this has also been going on for three years. It's worked to a certain extent, preventing extensive defaults in financial instruments and other obligations. The effectiveness is wearing off and cannot be maintained with POMO.

Yet another option: lie, cheat, steal, cover up and deceive. If only the truth were so easy to hide. Time is running out; the next stage of retreat will soon be necessary.

On top of domestic problems, the rest of the world's issues are exacerbating those in the US. Think non-linearly.


There's now a daily backup of this thread just in case any Cosby-style craziness should happen again.

i just did.  that inflationary bubble was built on debt expansion, not printing.  we've topped out and cannot take on anymore debt as individuals and as nations.  that is why you're seeing all the financial turmoil over the last decade.  2 stock mkt and one ongoing housing mkt crashes. 

we've entered the Age of Deleveraging where that debt will be written down.  it can no longer be marked to model and will soon have to be marked to market and with that will come a great contraction in the USD money supply (currency plus debt) driving UP the value of the USD and all asset values DOWN.

As much as possible, would be my strategy.

If you can explain to me how this can turn around:



Then I'd reconsider my position.

http://globaleconomicanalysis.blogspot.com/2011/09/china-loan-shark-market-crashes-scores.html

if these loan defaults pick up speed, just how much discretionary Chinese income do you really think will be able to go into gold?

those are yearly graphs.  are you not now detecting a change?  you're thinking linearly but fail to consider whats happened to overall markets since Feb of this year.  ALL markets are rolling over one by one as i've outlined ad nauseum in this thread.  sure you can just look at yearly charts as the forest and refuse to look at the trees inside.  but if you did you'd see rot forming on the trunks and branches.  its spreading fast and soon the forest will get consumed.

Are Chinese citizens really scrambling to sell their investments in physical gold?



What about the average American? Are they panicking that gold is about to collapse?

ask yourselves this:  for much of the 40yr since the US depegged, the Fed's balance sheet stayed relatively the same size and was mostly composed of UST's.  yet the USD kept dropping.  why?  b/c of the debt expansion, not printing.  since 2008 the Fed has only added 2T to that same balance sheet, a mere pittance vs the total amt of USD denominated debt accumulated over those same 40 yrs. 

now if that debt starts contracting via defaults as the graphs clearly show AND the Fed cannot or will not monetize it, what will the USD value do? 

Gold markets are debt based too, didn't you know?


All that was expected was to keep the banks afloat and the debt condition stable.

Potential future money:

http://www.doctorhousingbubble.com/

we are getting widespread defaults worldwide.  inflationists like FOFOA like to poo poo the housing bubble dynamic.  but  think for a minute just how did the world develop such a large overhang of debt the last 4 decades?  it was due primarily to residential real estate.  for the average person a house is the first and only investment of a significant size in his lifetime.  as GDP started its inexorable decline in the 1980's, banks had to figure out how to get the avg Joe, and not just corporations, into the debt game in a big way.  that way was thru mortgages.  by keeping a cap on interest rates, Greenspan slowly encouraged an ever expanding housing bubble during his reign that accelerated exponentially btwn 2002-2007 after the NASDAQ crash.  secretaries were taking out USD million dollar loans to finance a house flip.  that drove housing prices to the moon as well as leverage.  Wall St leveraged these same instruments up even more in the form of CDO's, CDO squared's and all other forms of derivatives.  now that the housing bubble has burst defaults are happening worldwide thus contracting the USD money supply.  Ben already did his best to try to reinflate the bubble but it didn't work.  he cannot do anymore due to self preservation and political constraints.  this is why there has been no more QE.   we have hit the debt ceiling limit.

with those same low interest rates, speculators took cheap money and speculated in all other forms of assets including gold.  and even you yourself admits gold is an asset.  it is not the worlds reserve currency.  the USD is and 60% plus debt in the world is USD denominated.  as the Age of Deleveraging sets in all assets will get hit and repriced lower.  its inevitable.

both Weimar and Zimbabwe did not have developed debt markets like the UST market.  they had to print.  the UST market is the largest and biggest debt market the world has ever seen.  but its debt based and not currency based.


This connection is absurd. Do you really think the currency matters? Would a drug dealer care what he's paid in, so long as it's usable? The answer is: no. The USD doesn't cause this any more than asphalt causes hot temperatures when the sun shines on it.