WatchLots of arguments, charts showing that gold could already be in a bubble.
Now, I know for sure that we're not there yet, its a long way to go before we reach the bubble state in gold and it will be turbulent way, rest assured.
I thought I'd post two links to show why gold has a lot of potential upside.
What we have today is a debt-based monetary system. How money gets created in such a system will really surprise a lot of people.
Death by debt: http://www.chrismartenson.com/blog/death-debt/58941
Why gold has a lot of upside (directly ties in with how the system is impacted by debt): http://dailycapitalist.com/2011/06/07/why-gold-above-15000-per-ounce-by-2020-is-realistic-without-hyperinflation/
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austrian_man says
I think savers in this economy are misinformed.
The United States is not going to default on Social Security. Likewise the Untied States is not going to strip medical care coverage from the baby boomer generation. Since a 100% tax would not be sufficient, there's only one possible end to this tale.
Furthermore rich people will abandon ship once it becomes clear the working people of this nation are broke and there are no more jobs left. Moving wealth around the world to greener pastures is going to require a lot of gold.
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iwog says
Any saver of dollars in this economy should realize that his wealth is getting stolen and they should move to gold/silver...in a strategic way.
What I meant was that you seem to advocate printing money is good. I am opposed to it by principle because printing money is as worse as stealing, its a stealthy way of confiscation of wealth.
The global monetary system is in need for a serious reform, I don't see that happening without a full-blown disaster.
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austrian_man says
A society must confiscate and redistribute wealth. The fairest way of doing this is to return the money to society after death, but that is under attack too. Profits from capitalism is like a river flowing out of a lake. Unless you have a process for returning water to that lake, it will dry up and your economy will fail.
Printing money can be an effective way to take wealth from the hoarders and redistribute it to the producers. Unfortunately that's not how it's being used now, but we don't have an FDR-style government in power either.
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iwog says
The capitalism that you see in America today is not the real deal. What we have today is crony capitalism, where a bunch of oligarchs control most of the nation's wealth, dictate nation's policies etc.
A truly capitalistic society will not lose the meaning of 'capital', which comes from a sound monetary system.
iwog says
So...you say hoarding is a bad thing? Not necessarily. If my government was engaged in runaway deficit spending -- in a sound monetary system (where the money is in control of the public), people can hoard and rein the government.
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The money is worthless!
The gold is worthless!
Protein is priceless!
EAT A BANKSTER!
EAT A REALTOR®!
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austrian_man says
Hoarding wealth is what caused the Great Depression. Rich people remained rich but their gold remained locked away in vaults. Poor people were willing to work, yet no one was willing to give them a job.
Coal mines were abandoned with equipment in place. There was a huge demand for coal, there was a huge cheap experienced unemployed labor force, and there were millionaires hoarding tons of money. Government regulation and environmental laws were unheard of.
WHAT HAPPENED????????
The Great Depression is a catastrophic failure of Austrian school of economics. You have no answer for it, yet the answer is found in the simplest of forms. An economy that resembles a game of Monopoly will have the same outcome as a game of monopoly.
Capitalism is a one way street. Profits are predatory. Unless a nation has a mechanism to return wealth to consumers, the economy will be forced into a depression time and time again as the working classes run out of money and thus demand is destroyed.
FDR fixed this. The United States had a system of taxation that prevented the growth of wealth disparity. It also prevented depressions, widespread bank failures, speculative bubbles, and most corruption.
It was all torn apart by Reagan and the free-market marauders who came after him. Next comes widespread suffering and poverty.
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austrian_man says
You think so? How do you compete with WalMart in a completely 100% unregulated economy?
Answer: You don't. In the end, everything becomes a commodity and larger ALWAYS = lower prices. A small fish cannot compete with a big fish. It either dies of starvation or is consumed by it.
America figured this out 100 years ago and took steps to fix it. The result was a stronger country and a better standard of living for everyone. It's pretty sad that it's all going away, but then propaganda works.
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iwog says
Wrong Iwog. It is an effective way from stealing from the responsible (savers) and giving more to debt consumers, not producers. Exactly what the hell have banks and people buying Wal-Mart crap produced?
Gold is just reacting to what the FED and government debt. Even after QE2, the prime rate will still be zero, so gold will continue to be strong for a long time. A collapse in the dollar and bonds is inevitable, so gold will be the only safe place to go.
I think we are headed toward a sort of bi-flation on steroids. Gold, food, clothing, fuel and other commodities way up the next few years. Housing and luxury items will stagnate or deflate. The dividing line will be what people need versus what they want. The exception is gold, because it will be the way to save. We are seeing that now and it will strengthen.
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Year 2020 is 9 years from now. Too slow to get rich quick.
Recently, I read a book called "Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market".
The book is written in 1999 and predicts that Dow 36,000 in a few years. In other words, Dow could reach 36,000 any day now.
If you buy Dow today at 12,000, you could make 3x money overnight.
Seriously, the tech stock in 1999, real estate in 2005, oil and gold in 2008 are all the same.
However, people will convince you that oil and gold are different this time.
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What's the difference between printing money and stamping gold goins with a cheap metal center? Nothing but name. They both increase the money supply. That's it. And they're both theft.
Governments from Rome on up have been running the same scam for centuries.
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Underdark says
That might be the way it works in your universe, but in my universe the responsible people are the ones who go to work every day while the irresponsible people are those who hoard wealth and sleep until noon and hang out in clubs because they don't have to work.
What have people buying Wal-Mart crap produced? A great deal in most cases. I was at the Martinez WalMart on Wednesday and I saw mostly blue collar hispanic people who work their ass off every day. Many work at multiple jobs.
The legitimate purposes of saving are to:
1. prepare for retirement
2. prepare for a rainy day
3. save enough wealth for an expensive purchase
4. concentrate enough wealth that one can launch a profitable business
The illegitimate purposes of saving are:
1. so your children can be completely useless like Paris Hilton or millions of American trust babies.
2. so you can swing the biggest cock at the club
3. so you can speculate in commodities and make life difficult for others
4. so you can corrupt the political process with legal or illegal bribes
60 years ago, most rich people lived their lives according to category 1. In 1929 and today most rich people live their lives according to category 2.
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xenogear3 says
During hyperinflation, gold effectively becomes priceless. $1,000,000 an ounce would seem like a bargain. Are you saying hyperinflation never happens?
It's not different this time, it's the same this time. Same as Russia, same as Mexico, same as Zimbabwe, same as Argentina, and dozens of other nations throughout history.
I'm a big fan of bubbles and investing in them, that's why when silver got near $50 I posted a thread about silver becoming a bubble and getting ready to crash. However bubbles are a short term phenomenon that grow and resolve over about 5 years. Hyperinflation caused by government recklessness is a 100-year event. Obviously bubbles are more common, but people shouldn't ignore what's happening to government finance right now. It's not going to end well.
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Anything over $300 is a bubble, for Gold
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iwog says
Exactly, and these are the majority of the people who will be screwed over by the constant devaluation of the dollar. I am glad we agree. The trust fund babies and Paris Hilton's are in the extreme minority.
On one point I should have been more clear. How does people buying more stuff while at Wal-Mart with their credit card or home quity help America? We have done enough of that and the fed should not encourage even more borrowing. I was not making fun of people who go to Wal-Mart. Then again, have you seen peopleofwalmart.com?
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The only thing that creates jobs is consumption. Everything else is a casino.
At the point people become too poor or too much in debt to go shopping at WalMart, the whole thing breaks down and we go into a prolonged depression.
What we're seeing now is something that hasn't occurred in America since the 1930s. There are millions of Americans who WANT to work, but cannot work because the jobs aren't there.
Part of this is skills mismatch. You had a housing bubble demanding construction and other skills that rapidly expanded for nearly 10 years before crashing and putting those people out on the street. However even if these people are retrained, where is the new demand? Consumers are broke.
I'm open to a solution that doesn't involve inflation or wealth redistribution, but there isn't one. WE MUST put money back in the hands of consumers before job growth can begin again. Unless the government does something radical like in 1933 or something even more radical like it did in 1942, things do not get better. Ever. We're just another 3rd world country with an entrenched upper class and everyone else scraping by.
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Either gold is in a major bubble, or it was devalued for quarter of a century.
The arguments and counterarguments for gold are:
1. The increase in the price of gold is due to inflation. It’s not that gold is rising in real dollars; it’s that the dollar is being debased.
This is partially true, but also false. Gold has been rising in terms of real dollars. Compare the price of gold in dollars vs the price of silver, copper, coltan, zinc, etc. in dollars over time. Gold has been rising faster. Compare the price of gold in silver, copper, etc. and gold is still rising. This means that inflation, the increase in the money supply, is not the sole or even dominate cause of the rise in gold prices.
2. Gold retains its value over time.
Also partially true, but also false. Gold has historically fluctuated greatly in price as it has been manipulated by major buyer/sellers. All the gold that has ever been mined is approximated to fit in a cube measuring 82 feet per side. That’s a pittance to the amount of silver, copper, corn, steel, etc. produced. Being such a small market, gold prices can be easily manipulated or driven up by a bubble.
3. Gold prices cannot fall as long as countries like the U.S. continue to debase their currencies.
Not true. The nominal price of gold could plummet even during a high inflationary period if the price of gold has previously outpaced inflation, which it has for the past 6 years or more. The price of gold in real, not nominal, dollars is just as likely to fall during inflation as deflation. The real value of gold can be measured relative to other commodities like cars, airplane tickets, silver, etc.
4. The price of gold today reflects an increase in its value due to it being used or the expectation that it will be used as an alternative to fiat currency. There is a “money” premium added to the value of gold when it is used as money.
Peter Schiff makes this argument in his book Crash Proof. It’s possible he’s correct on this one. However, any such premium would vanish if the expectation of gold as a currency diminishes.
Also, there is one argument against gold that is often overlooked. Regardless of how much merit the increase in gold’s price over the past decade is, even if it’s fully justified, the fact remains that there is an inherit feedback systems built into human economics. Whenever the price of a commodity increases greatly over a period of time, speculators expect the price increases to continue; so the speculators buy the commodity in bulk, which causes the price of that commodity to increase; wash and repeat.
This positive feedback system ensures that if gold isn’t in a bubble, yet. It will be, and consequentially, there will be a crash as well. Just because we can’t time the crash closely enough to profit from it, doesn’t mean the crash won’t happen.
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DAN8267,
Name one asset besides Cash that Central Banks around the World own substantial amounts of.......Gold
Here is the Report from the US Treasury
http://www.fms.treas.gov/gold/current.html
IMF Bank - Holdings of Gold
http://www.imf.org/external/pubs/ft/ar/2010/eng/pdf/webbox51.pdf
This past year Central Banks were Net Buyers of Gold Bullion.
There will be a point in time that it makes sense to move from Gold into other Assets.
As long as our Federal Reserve maintains artificially low Interest Rates and is forcing additional Cash into Banks - Gold will maintain its value and rise.
How long have you had expertise in Bubbles? I prefer to read commentary by people like Eric Janszen at iTulip.com - who as been accurately calling Bubbles since 1998.
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I like the post by Dan8267. But I think maybe we should make a distinction between gold and other asset bubbles. Maybe the differences are subtle, maybe you don't believe they are different.
The reason gold is not such a bubble is it's bought mostly with cash, not credit. The house bubble was fueled by easy credit. In 1929, margin rates on stock trades were much more liberal than today (which are regulated by the Fed).
If I had a much higher net worth, I would buy some physical gold ETFs or gold coins that were not rare nor cost more than their weight in gold.
But, you could accomplish the same thing by owning a bank account in Swiss Francs probably also.
One friend of mine has nagged me over and over that stocks stink, and I am a fool to have stock mutual funds. I asked him once "what is the dividend paid by gold?" He thought I was a nut.
I think gold is for preserving your purchasing power, preserving capital. But, since I am not so rich yet, I want to get either interest or dividends from my extra money, and hope for capital appreciation also before I am an old geezer.
If I had a lot of gold, I would wonder when it was time to sell it. But I don't think it's going to collapse since they can't make it very quickly.
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The run up in the gold price does not resemble a bubble. The chart is substantially different and has not turned parabolic nor has the media gone crazy with gold stories.
Bubbles are a lot more complex than a given commodiety/investment getting expensive.
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Kitco under Fraud investigation.
Read more: http://www.montrealgazette.com/news/Kitco+denies+fraud/4929975/story.html#ixzz1P0TzAwDM
We shall see what we shall see. Kitco's gold is unallocated, meaning it's fair game when the Canadian Tax Authorities are looking to seize assets.
Physical or allocated and audited accounts people. The less you have, the more physical it should be. And diversify, just like you would do with cash - when you have a lot, you're nuts to keep it all in one bank.
I should point out the Jon Nadler, Kitco's founder and President, is not a perma-gold bug type; he's actually been warning about a correction for quite a while now.
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iwog says
The central banking monetary policy decisions were the causal factor of the great depression, hoarding wealth is a consequence of the depression. Money supply was loose in the early 20's leading to a stock speculative bubble, which crashed spectacularly in 1929. Fed then tightened the monetary policy, which caused people to hoard.
iwog says
lol, that's complete misrepresentation. Read 'Economics in one lesson' by Henry Hazlitt. Economics is a much abused subject because there are too many selfish interests surrounding the field. Austrian Economics is the only school of thought that can explain the macro-economic factors that lead to a bubble (be it stocks, housing, whatever).
iwog says
FDR stole the American wealth and then he revalued it. Plain and simple.
iwog says
The tearing apart was done by Nixon, by closing the gold window in 1971. Reagan and others who followed after him continued the deregulation in an economy where there is unsound money (fiat currency, backed by nothing other than the faith and credit of the government, which I think we all agree is under serious doubt).
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iwog says
You're looking at a giant, which has the Government in its back pockets that will do anything the giant wants -- under an unsound monetary system. A sound monetary system and small Government will lead to a fair competition in the free enterprise.
iwog says
lol, Americans figured the true idea of liberty in 1776. It is just that the Constitutional ideas were too good, too idealistic and human nature is fickle -- subject to greed and malfeasance.
It started going away since 1913, since the inception of the Federal Reserve.
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Tenouncetrout says
lol, you say this as your bank balance is continuously getting eroded in purchasing power through the insane monetary policies. You have to be blind to make such a statement.
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Dan8267 says
Dan,
Overall your points are convincing, but at the end of the day -- we need
to ask some hard questions: how much faith does the public have on the fiat currency? how long can these fiat currency regimes last, when the tower of debt is insurmountable? when people cannot put food on the table for their families, what happens? (e.g., Greece, Egypt etc.)
I think the rise of gold answers these questions. Rise of gold is not really a happy news, because it rises only when there is too much market uncertainty.
Nevertheless, it can enter a bubble phase. I think we're years away from it. Sure, there will be hard corrections, but I think the direction is up for a significant period of time.
Mike Maloney has these Wealth Cycles videos that I find interesting. Essentially, we need to jump to the assets that will be undervalued when there is a bubble in gold/silver.
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I just received an email from eBay today touting the opening of the new Bullion Center - a contrarian indicator??
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Dan8267 says
That's exactly true and I have posted some charts on my blog pertaining to this point:
http://libertyingold.blogspot.com/2011/06/measuring-wealth-effect.html
I think we can see median house prices correct even further than 100 ounces, may be to 70 ounces are so. Markets are prone to overcorrect.
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austrian_man says
By listing the causes of the Great Depression as speculation and tight money supply, you effectively end the conversation because you're making the entire topic too complicated to analyze. How do you simplify speculation? You want to assert people are too scared to invest so they hoard? Or tight money supply. Are you going to tell us there weren't enough rich people to invest in jobs?
It's a fraud. It's a diversion. It's a deliberate attempt to hide the truth.
The truth is extremely simple and can be understood by an 8 year old. An economy will function as long as consumers have wealth to spend. An economy will crash when consumers run out of cash. The End.
If you want to break it down further, you can examine the reasons why consumers might have MORE money to spend. A war where everyone is paid to be non-productive for example. A government work program like FDR used when he cut unemployment in half.
You might also want to examine why consumers have LESS money to spend, but it really isn't required. The natural flow of wealth in a capitalist system is from the consumer to the capitalist. There's no inherent process to put money back in the hands of workers.
You might say "investment in jobs" but it's a lie. A capitalist expects to take MORE out of a worker than he puts in. There are no exceptions. Therefore the sum total of wealth held by consumers in a pure capitalist economy is reduced each time a profit is made.
What I said was true. You cannot explain the Depression which is why you didn't even try. You had a skilled labor force. You had rich capitalists. You had abandoned coal mines. You had modern equipment rusting on site, and you had near limitless demand for coal.
WHAT HAPPENED????? I can answer this question but you cannot. The consumers had no more money. I can also solve the problem. Print lots of money and give it to the consumers.
You can neither explain the reality of what actually existed in 1933 nor can you provide a solution to get the coal mine working again. My example is static and self-contained and quite flawless and I challenge you to apply the Austrian remedy and get the coal mine running again. I know you cannot.
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iwog says
I did not complicate anything. Explain why the hell did we have a housing bubble? Wasn't the interest rates artificially kept low for too long? Greenspan's monetary policies had a direct impact in malinvestment (both in human resource jobs and oversupply in housing).
iwog says
I'm just saying the risk of losing capital was too high, so people decide to hoard.
iwog says
You're being completely ignorant to the fact that centrally planned monetary policies will have a direct impact on how capital gets allocated. So I'm not deliberately attempting to hide anything here, you're deliberately choosing not to look at the problems the Fed is causing.
iwog says
Economics is human action...humans exchange goods for other goods. Barter is still economics in the most crude form. So no, if you run out of cash economy does not halt. People can still exchange things of value for other things that they want.
iwog says
All government programs (war, putting people to work, welfare programs etc.) all involve taxes. So Government is intentionally allocating people's capital (taxes) to something that the people may not really want. Put the money supply also in the control of the government, they can do anything they want. Why should "more money" be of any importance at all? You can have the same level of money stock, but the prices of goods adjust according to the level of money stock.
Here I shall quote from Murray Rothbard's classic text on "What has the Government done to our money?
"An increase in the money supply, then, only dilutes the
effectiveness of each gold ounce; on the other hand, a fall in
the supply of money raises the power of each gold ounce to
do its work. We come to the startling truth that it doesn’t
matter what the supply of money is. Any supply will do as
well as any other supply. The free market will simply adjust
by changing the purchasing power, or effectiveness of the
gold-unit. There is no need to tamper with the market in
order to alter the money supply that it determines."
iwog says
Wealth is not money. Wealth is in producing useful goods that people want. By producing useful goods, the standard of living for the overall society will improve. So a capitalist (or let's say an investor) is putting money into a productive enterprise which produces goods that people want. By this production, the capitalist earns a profit whereas the consumer earns the benefit from the produced good. You cannot be blind to the other side.
This is the fundamental problem in all of economics. People do not look at the entire picture. They also do not have the ability to look at what could have happened if the Government did not intervene. Let's say the Government did not intervene for this housing bust, what could have happened? Prices will gravitate to reality. They are gravitating now, the market wants to correct but the Government does not want to. Why? Because the Government serves special interests.
iwog, you really need to look at this differently. You can, if only you can understand the true meaning of money.
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iwog says
lol that will cause inflation and prices of goods to rise to commensurate the increase in money supply. Congrats for not solving anything.
iwog says
Reality can be twisted and misrepresented which is exactly what you are doing. Your explanation is indeed flawless from the Monetarist point of view, but that point of view itself is fundamentally wrong. Austrian remedy is - "do not centrally plan the economy and do not control the money supply". If that were to be the case, then if the coal mine has to work for the free market, it will start working again -- because a private enterprise will see the entrepreneurial opportunity in the same.
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I just have one simple question. Are you going to explain how the coal mine starts production or not?
I've already answered the question. You haven't. How do you turn people who have nothing into consumers? Your obsession with the fed has nothing whatsoever to do with this.
austrian_man says
Austrians are horribly wrong, misinformed, and cannot accurately model any economy let alone one as broken as the Great Depression. The entire house of cards breaks down at the point where too many people cannot participate because they can neither function as consumers nor producers.
In an economy such as ours, where productivity is at an all time high and a few individuals working on weekends can feed millions, you will never have enough jobs for everyone who is willing to contribute. You have no answer for this either.
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iwog says
I've just explained it. Leave it to the free market and do not artificially set interest rates.
iwog says
I'm not obsessed, I'm just stating the facts. There's no point in arguing with someone who chooses to be an ignoramus to the fed's policies and its direct impact to malinvestment.
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iwog says
lol, excellent defense.
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austrian_man says
That's not an explanation. That's a cop out. "Leave everything alone and someone will magically show up and invest a lot of money to sell coal to..........no one." Right?
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austrian_man says
That's a summary of my defense. My actual defense was explaining how you start a coal mine during a depression while you on the other hand failed (and still fail) to do so. I'm waiting for a bit more detailed explanation than "do nothing".
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iwog says
Look. you are looking at one problem in isolation, whereas you are ignoring the effects of money supply not being in control of the people and not allowing the free market to allocate capital. You have to consider the problem as a whole and see what is fundamentally wrong for the enterprise to not start up.
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iwog says
As I said, you choose to be blind for a lot of macro-economic problems that the Fed is causing. I cannot offer you a solution by being blind to those problems, because they are the root of all malinvestment bubbles..
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iwog says
People becoming consumers/producers themselves is dictated in today's economy through central planning. Why did so many people consume houses? Cheap credit. Who is at fault for allowing credit to be so cheap and unqualified buyers entering the market to become consumers? The Fed.
Why did so many people become real estate agents, construction builders etc.? Because there was money to be made in this forcefully, intentionally juiced up market. Who is at fault for all this mis-allocation of labor and capital? The Fed again.
It's amazing that you can be blind for this long, even after so many explanations.
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austrian_man says
No, I am simplifying the economy to the most fundamental parts. Manipulation of the money supply is not a fundamental part! There were thousands of years during which gold and silver served as money and lending was practically unheard of. (lenders were sometimes killed outright) Yet many cultures were VERY efficient at commerce and REMARKABLY economic cycles continued.
Now let me start again. This is an actual real example reported by an observer during the Great Depression. I don't remember all the details, but here was the situation:
"During the winter, hundreds of people came out to the tailings every day to try and find a few overlooked pieces of coal to heat their homes. Lurking over them were the rusting hulks of silent machines, which if fueled and operated, could dig out enough coal in a day to warm these people for the entire Winter."
This is not a fucking game, this is reality. You have a product. You have practically unlimited demand. You have a skilled workforce. You have an almost fully capitalized coal mine which was shut down because of slow sales, and you have rich people hoarding millions of dollars.
WHAT HAPPENED? Again.....this is a TOTAL failure of the Austrian school. Screw monetary policy by the fed. Why didn't someone dig out the coal and keep people from freezing to death?
I have the answer.........these people wanted the coal but they couldn't buy the coal. Investing money would have been pointless because all the customers were broke. It was the end of the Monopoly game. My example has been modeled by every child in America and ALL OF THEM know how it ends!
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iwog says
How can you treat this as a failure of the Austrian School? It is your failure to be blind not to see the confiscation of wealth that has happened through artificially engineered bubbles.
Someone can dig out the coal and give it to the people, if the people had something useful for exchange in return. Does not have be dollars, can be anything else. But the Government won't allow that either, through forced legal tender laws.
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austrian_man says
Once again you're refusing to answer my question. Someone can dig out the coal and give it to the people if they had something useful in exchange in return. What would that be exactly? Everyone is broke and unemployed. They want to work, but there are no jobs. You keep on trying to address little snippets of the problem. Stop dancing around and look at the reality of the Great Depression.
Do you know what would work? Doubling the money supply and paying all those people to go throw rocks at seagulls. (or shoot bullets at Nazis, from an economic standpoint it's exactly the same)
Then they all come home and buy coal and go back to work. Genius eh? If only someone bothered to try that.................