Gold Price - Where is it heading?

[explod]

the gold bears look at current low inflationary figures coming out because of the massive money destruction and commodity price falls of the past year.

Gold is not part of the commodity scene. Gold (and silver to a lesser degree) are seen as a store of wealth in times like these. In the last week postings have explained this in more detail.

 

[sinner]

can you expand your point? im not sure who mike shedlock is nor his views or what his logic behind them is.

Try these on

http://globaleconomicanalysis.blogspot.com/2008/11/i-like-gold-here.html

http://globaleconomicanalysis.blogspot.com/2008/12/no-fever-like-gold-fever-response.html

Mish is a subscriber to the views of Peak Credit and Peak Earnings

http://globaleconomicanalysis.blogspot.com/2008/06/peak-credit.html

http://globaleconomicanalysis.blogspot.com/2008/11/peak-earnings.html

His main point is that the US has been exporting inflation for decades, now they will export deflation for a long time, much longer than any of the gold bulls will be waiting for inflation, so buy gold, treasuries and save your cash!

 

[Stormin_Norman]

Gold is not part of the commodity scene. Gold (and silver to a lesser degree) are seen as a store of wealth in times like these. In the last week postings have explained this in more detail.

yes. i wasnt talking about gold in relation to commodity prices; i was talking of commodity price falls putting downwards pressure on inflation.

gold is a currency, not a commodity; unless u like rings.

 

[Stormin_Norman]

His main point is that the US has been exporting inflation for decades, now they will export deflation for a long time, much longer than any of the gold bulls will be waiting for inflation, so buy gold, treasuries and save your cash!

im reading your links.

what do u mean that gold bulls will have to wait for inflation; but you then say buy gold?

 

[GumbyLearner]

im reading your links.

what do u mean that gold bulls will have to wait for inflation; but you then say buy gold?

Hey SN

Many Central Banks have generated a lot of cash to bailout Wall and Fleet Streets lately. Now these same banks (recipients of government dollars) are hoarding a lot of this newly generated cash. This is why people like miners, farmers, businesses cannot obtain loans to survive.

But once this money is released into the market, then we will witness an inflationary consequence. BUT until this money is in public circulation the inflation problem will not be apparent.

To give a layman's example.

I work with a fella from Saskatchewan and he asked me
"Hey Buddy, do yo know whats going on with the ecomony?"

So I basically said there has been too much credit and people living on material things that are beyond their net worth.

So then he asked me about the future. I told him Inflation. He asked "Ohhh, what's inflation?"

So I said, do you remember Wayne Gretzky's first season with the Edmonton Oilers? He said "YUP". I said well imagine you still have a mint edition NHL first season rookie Wayne Gretzky card. What would it be worth today? He told me it would be thousands of dollars today.

So I told him, what if the Card company just decided to print more of the exact same cards today and circulated them in the market. Would the original card you collected still be worth thousands of dollars today?

He knows nothing about market economics but he understood what I was getting at! :

 

[Stormin_Norman]

Hey SN

Many Central Banks have generated a lot of cash to bailout Wall and Fleet Streets lately. Now these same banks (recipients of government dollars) are hoarding a lot of this newly generated cash. This is why people like miners, farmers, businesses cannot obtain loans to survive.

But once this money is released into the market, then we will witness an inflationary consequence. BUT until this money is in public circulation the inflation problem will not be apparent.

To give a layman's example....

i agree with what you said. hence i couldnt follow why sinner was saying deflation would continue but to buy gold. i found that confusing.

btw i have a honours degree in economics. not being pretentious, just wanted to let you know the level of discussion can be a bit above trading cards

 

[GumbyLearner]

i agree with what you said. hence i couldnt follow why sinner was saying deflation would continue but to buy gold. i found that confusing.

btw i have a honours degree in economics. not being pretentious, just wanted to let you know the level of discussion can be a bit above trading cards

Cheers SN!

Not trying to sound condescending but many cannot fathom this basic concept.

 

[kransky]

He probably means buy some gold just incase things dont go in the deflation direction.. cos some are saying gold will hit 20k, 30k even. You dont need a large amount to do well

If they are prepared to "do what it takes" to "save the economy".. doesnt that mean that are going to keep pumping money into the system until the real value of the massive debt's that exist are greatly reduced..

i am thinking aloud here to some degree.

take average Joe Sixpack living somewhere in the US. he owes 500k on his house that he bought for 500k... house prices are falling where joe lives and the house is "worth" 400k now.... joe is inclined to walk away from the house...

BUT if there is enough cash given out to people/institutions then there will surely come a point where the price of houses start to rise back up again... keeping joe in his house.. stopping the losses on the bank balance sheets...

The effect of this is that it punishes the savers. Any cash you had is now worth a lot less than before.

To me this outcome seems plausible. Punish the good/responsible and help the greedy/irresponsible...

The deflation alternative... those with cash will prosper.. no one else as banks will get raped with more mortgage losses... as well as commercial property etc...

do you think its unlikely that enough money can be pumped into the system to reflate the house prices? Cant say i am completely convinced its possible...

 

[GumbyLearner]

The effect of this is that it punishes the savers. Any cash you had is now worth a lot less than before.

To me this outcome seems plausible. Punish the good/responsible and help the greedy/irresponsible...

The deflation alternative... those with cash will prosper.. no one else as banks will get raped with more mortgage losses... as well as commercial property etc...

do you think its unlikely that enough money can be pumped into the system to reflate the house prices? Cant say i am completely convinced its possible...

You have raised some great hypotheticals Kransky.

Lets imagine that the house prices were re-inflated. What about a re-inflated depreciating structure (ie. buildings, plant/equipment etc..) where the cost of the materials to replace them will be exponentially higher in the future in an inflationary scenario? Not to mention the cost of raw materials to build or maintain that same structure. Will building materials become cheaper with all these small to mid cap miners going to the wall? Surely the question of available supply has to enter the equation at some point?

Does deflation EQUALLY apply to the land the structure is actually standing on?

 

[Stormin_Norman]

i think sinner also mentioned the USA has been exporting inflation for years; i suggest theyve been importing deflation.

importing foreign capital, importing cheap foreign goods. both of which have kept prices low (especially given the undervaluation of the chinese currency)

the usa has a real problem in financing its debt, both short term and long term. atm treasury bonds are going ok, but it seems there is a huge bubble in those atm.

if their government starts to struggle for foreign capital to fund its deficits then there is no other option but to print the money (or create it on balance sheets - same difference).

more USDs = lower currency value. lower currency value means imports are more expensive and the world price of goods rises to the american consumer. (ie inflation).

because gold is quoted in USD, if the USD drops, gold rises. add into that the rest of the world's expansionary monetary policy as they try to reflate the economy and it seems two factors will push gold upwards.

as all currencies suffer from an over supply in an attempt to make people spend their cash holdings to kick start the economy the more attractive gold is as a storer of wealth.

definitely interesting times. but not unprecedented. 1930 and 1974 bear many similarities.

 

[Stormin_Norman]

Will building materials become cheaper with all these small to mid cap miners going to the wall? Surely the question of available supply has to enter the equation at some point?

exactly. prices never come down. once companies leave the industry and excess stock removed from the market the remaining competitors will rise their prices.

 

[explod]

You have raised some great hypotheticals Kransky.

Lets imagine that the house prices were re-inflated. What about a re-inflated depreciating structure (ie. buildings, plant/equipment etc..) where the cost of the materials to replace them will be exponentially higher in the future? Does deflation apply to the land the structure is actually standing on?

A house can depreciate and delapidate, but land is always land, it has tangible value. Although they are probably paying a premium in my area a lot of people are land banking. Putting thier cash into vacant lots. We live near the beach and a new freeway has just been given the nod which ends here.

Same with a block of gold, its a block of gold. But a US dollar being diluted is going to cause a problem. I am running with gold at the moment but will be looking for the right entry into property later on. I experienced the exponential climb in property prices of the late 1970s, early 80s, it was great and set many of us codgers up for life. Funny gold went up then too?

 

[GumbyLearner]

A house can depreciate and delapidate, but land is always land, it has tangible value.

So true explod. Land like gold is a tangible asset. Not a speculative promise of future gain!!

You know I think a lot of these deflationist arguments stem from the media of which none will address the OTC derivatives nightmare that is about to unfold. Yeah sure there will be deflation thats because the market is claiming an inflated value of stocks where that value clearly doesnt exist. IMHO!

Of course this will cause deflation in the market, but propping these same over-leveraged fools up will also cause inflation in the long run. Its analogous to someone drinking instant coffee for the sole reason that they dont want to wait an hour to brew one. Get your hit now, just dont be willing to wait a while.

Deflation is immediate, inflation is conseqential!!!

 

[boyley]

definitely interesting times. but not unprecedented. 1930 and 1974 bear many similarities.

Well let me begin my first offering with hello:xmaswave, then let me give you the number 34, please tell me it's signifiance here, if not its coincidence??

Secondly Stormin Norman your pun was intended I suspect?

Cheers Boyley

 

[Stormin_Norman]

haha it wasnt actually! but ill claim it

1934 the USdollar was devalued against gold?

 

[boyley]

haha it wasnt actually! but ill claim it

1934 the USdollar was devalued against gold?

Yes and its 34 years since 1974.

 

[GumbyLearner]

Yes and its 34 years since 1974.

In 1974 two things happened: the Yom Kippur war and double digit inflation.

 

[boyley]

In 1974 two things happened: the Yom Kippur war and double digit inflation.

And thats it.......... Surely there was some consumption of some sort

BTW I like gold but not the commodity. I am pro gold miners as they have followed the market where gold has stayed steady(ish). Therefore I sumise the miner have more to gain than gold does when it goes north.

My picks are ASX:NEM TSE:ABX

 

[Stormin_Norman]

BTW I like gold but not the commodity. I am pro gold miners as they have followed the market where gold has stayed steady(ish). Therefore I sumise the miner have more to gain than gold does when it goes north.

sounds logical. if only markets were too.

 

[boyley]

sounds logical. if only markets were too.

So true SN but without logic we have kaos, hence the current 'panic driven' position our markets are in now, but alas, it provides the astute a once in a generation opportunity.