Finally time to exit gold

[TWI]

After being long gold in increasing volumes since 2001, the year Enron went down, I fully exited my position 2 weeks ago.
Some old timers on here will remember my posts from years past regarding the merits of this investment, well, until further notice, I believe the ride is over.

 

[Atilla]

After being long gold in increasing volumes since 2001, the year Enron went down, I fully exited my position 2 weeks ago.
Some old timers on here will remember my posts from years past regarding the merits of this investment, well, until further notice, I believe the ride is over.

Hellooooo TWI,

I remember you very well indeed and all your past posts and recommendations to stick with gold. I thought you had left T2W as I haven't seen your posts for quite some time.

That must have been one amazing hell of a ride and one super investment.

I'm still bullish on gold. However, now that I have read your post it may be time for me to re-appraise my view on gold.

My best regards and thank you for the heads up.

 

[ducati998]

After being long gold in increasing volumes since 2001, the year Enron went down, I fully exited my position 2 weeks ago.
Some old timers on here will remember my posts from years past regarding the merits of this investment, well, until further notice, I believe the ride is over.

And you believe this because...?

jog on
duc

 

[Atilla]

And you believe this because...?

jog on
duc

My FA view on the global world economy at this moment in time fwiw is as follows.

I do not believe the trillions of monies pumped in to avert this so called sub-prime banking crises has fed into the real economy as yet. With the contraction in aggregate demand I think of it as a damn with a few pipes for water flow. The damn is well bursting at the seams with money but the flow of money is measured and paced - to coin a phrase.

Moreover, all those monies - in theory anyway will need to be paid back / books balanced. There lies the crunch.

As inflation rises interest rates will have to rise. However, rates rising will raise cost of servicing debt and governments expiring... literally.

Alternatively - I expect inflation to remain well above interest rates for considerable length of time as a means of eroding debt. Hence, leading to a global revaluation of assets.

I suspect all commodities to be impacted by this adjustment.

In all the wash out - the greenback will lose its colour and either other currencies will come to the forefront or gold and silver will take greater predominance.

This fragile recovery is far from a stable global climate. imho.

Shake out from this crises with the impending pensions and aging popullations yet to still hit us.


I'm certainly very bullish on oil and gold for the next 5 - 10 years. I think I am where you perhaps were in 2001 TWI. We'll see as time will reveal all. :whistling

 

[ducati998]

Atilla;

My FA view on the global world economy at this moment in time fwiw is as follows.

I do not believe the trillions of monies pumped in to avert this so called sub-prime banking crises has fed into the real economy as yet. With the contraction in aggregate demand I think of it as a damn with a few pipes for water flow. The damn is well bursting at the seams with money but the flow of money is measured and paced - to coin a phrase.

The money is coming into the economy via Fiscal deficit spending: Welfare [Food Stamps, Expanded/Extended Unemployment benefits, Tax breaks, etc] Aggregate demand is increasing: see attached chart.

Moreover, all those monies - in theory anyway will need to be paid back / books balanced. There lies the crunch.

Unlikely. Government policy is inflationary. Essentially inflation is a default.

As inflation rises interest rates will have to rise. However, rates rising will raise cost of servicing debt and governments expiring... literally.

At some point I agree. Is that point now? I would say it is not. Bernanke et al, still have the backing of Congress, etc. The politicians are a spineless breed.

Alternatively - I expect inflation to remain well above interest rates for considerable length of time as a means of eroding debt. Hence, leading to a global revaluation of assets.

Agreed. Which is why they will continue down this road for some time yet.

I suspect all commodities to be impacted by this adjustment.

In what way?

In all the wash out - the greenback will lose its colour and either other currencies will come to the forefront or gold and silver will take greater predominance.

All fiat currencies are inherently worthless. Their relative worthlessness of course is what holds the system together currently. Politically, gold cannot ever become money again. Whether the government can succeed in its suppression, we shall see.

This fragile recovery is far from a stable global climate. imho.

Currently there is no recovery. All that we have is another credit expansion. The credit expansion is fiscal in nature, which makes it significantly higher risk.

Shake out from this crises with the impending pensions and aging popullations yet to still hit us.

It's coming, no doubt, but still a little down the road.

I'm certainly very bullish on oil and gold for the next 5 - 10 years. I think I am where you perhaps were in 2001 TWI. We'll see as time will reveal all. :whistling

Agreed.

jog on
duc

 

[TWI]

Rates will begin to rise and money will find other homes that have had no attraction until now. I do not believe gold is an alternative to fiat currency, although I once did. Supply demand has been favourable and with a very low rate environment there was good reason to keep hold of it, that is now changing. If I had to be in a metal now, it would be silver as the ratio is far more favourable but I will not be in that either. I remain in energy and ags.

 

[arabianights]

Fantastic to see you posting again TWI - one off or will you be about some more?

P.S. Relevantish WSJ article: http://online.wsj.com/article/SB10001424052748703399204576108463818702014.html

 

[scose-no-doubt]

oooh remember that little hf in essex that tried to capture silver? devo'ed

 

[ducati998]

Rates will begin to rise and money will find other homes that have had no attraction until now. I do not believe gold is an alternative to fiat currency, although I once did. Supply demand has been favourable and with a very low rate environment there was good reason to keep hold of it, that is now changing. If I had to be in a metal now, it would be silver as the ratio is far more favourable but I will not be in that either. I remain in energy and ags.

With respect to interest rates: if they [interest rates] were in a free unhampered market, I would agree with you. However, that quite patently is not the case. Governments, due to their deficit spending/bailouts, cannot afford, on the back of plunging tax revenues to allow rates to rise. They must continue to inflate, thus keeping rates far lower, for far longer, than is prudent. Thus on an interest rate argument, there is plenty of run left in gold/silver.

As an alternative to fiat money. Gold/Silver are free market money, and have been for thousands of years. You say that once you believed this to be the case: why not now?

With respect to the Gold/Silver ratio: this ratio was historical, the reasons behind it have changed. It is possible/probable, that a new ratio, in a free market would be established.

jog on
duc

 

[Atilla]

Atilla;




The money is coming into the economy via Fiscal deficit spending: Welfare [Food Stamps, Expanded/Extended Unemployment benefits, Tax breaks, etc] Aggregate demand is increasing: see attached chart.

I don't see trillions of dollars all over the globe coming into the food stamps or unemployed benefits. The numbers simply do not add up.

I've been trying to figure out where the trillions have gone and what the transmission mechanism is and food stamps and unemployed benefits may just about account for 1% with some fat rounding.

Unlikely. Government policy is inflationary. Essentially inflation is a default.

Inflation is not by default but by design imo. What period of time are we looking at until inflation erodes trillions of debt? Not sure what you mean by unlikely - governments will have to balance books. Can't keep selling TBills. Market appetite will turn into puke soon enough.


At some point I agree. Is that point now? I would say it is not. Bernanke et al, still have the backing of Congress, etc. The politicians are a spineless breed.



Agreed. Which is why they will continue down this road for some time yet.



In what way?

All tangibal asset values will have to be adjusted as negative interest rates will be with us for some time. We can see this already happening and ratios will change. eg: Technology products falling in value and food and energy rising. Ratios from 20 years ago likely to show considerable variance to today.

All fiat currencies are inherently worthless. Their relative worthlessness of course is what holds the system together currently. Politically, gold cannot ever become money again. Whether the government can succeed in its suppression, we shall see.

Not sure I agree with these lines. Gold is the ultimate currency - which is why we have seen it rise in value and will do so in the future as fiat currencies become devalued. Gold always rises in uncertainty - we are in the cusp of a new era and not out of the unknown by far.

Currently there is no recovery. All that we have is another credit expansion. The credit expansion is fiscal in nature, which makes it significantly higher risk.

I'm a little confused here my self with US deflation. Japan has been in deflation for some time. I do believe inflation will prevail but have been surprised my self with its slow creep in US. Perhaps stagflation is in the making...

It's coming, no doubt, but still a little down the road.


Agreed.

jog on
duc

I don't know how that chart is drawn up but Demand is certainly down not up. All very well these stats but the supply side doesn't show demand to be up. We have excess capacity and unemployment... Unless ofcourse that is met mostly by foreign imports? Either way the numbers don't stack up and I don't believe the chart. Don't believe much of what comes out the US at all as it happens.

 

[Atilla]

Rates will begin to rise and money will find other homes that have had no attraction until now. I do not believe gold is an alternative to fiat currency, although I once did. Supply demand has been favourable and with a very low rate environment there was good reason to keep hold of it, that is now changing. If I had to be in a metal now, it would be silver as the ratio is far more favourable but I will not be in that either. I remain in energy and ags.

Rates will begin to rise yes but they will be negative by considerable margin imo. Coupled with inflationary and exchange rate movements - gold I believe will continue to become an increasing part of many countries reserves. I can also see public buying gold sovereigns too. Did I read somewhere - Tescos considering selling them???

Japan is about to implode. Greece and Portugal would look like a cake walk in comparison.


However, I think you have a valid point where margin of returns is greater opting for energy and agricultural products. With energy and food stuffs in high demand makes perfect sense. Throw in some climate change and droughts in to make ones portfolio reach for the skies.

 

[ducati998]

Atilla

I don't see trillions of dollars all over the globe coming into the food stamps or unemployed benefits. The numbers simply do not add up.

I've been trying to figure out where the trillions have gone and what the transmission mechanism is and food stamps and unemployed benefits may just about account for 1% with some fat rounding.

First off, observe the growth of government debt: from circa $9.0 Trillion to circa $14 Trillion.

Now you say that Welfare accounts for maybe 1% with generous rounding. Let's look at some breakdowns. In a $16 Trillion economy: government spending now accounts for 36.9% of all spending [see attached chart]

Medicare/Medicaid [12%], Social Security [19%], Other [Unemployment benefits lumped together] + Government salaries etc [38%] [see attached chart]

This has taken Federal spending to $3.72 Trillion/annum from $1.79 Trillion in 2000. That's a significant increase. [see attached chart]

Inflation is not by default but by design imo. What period of time are we looking at until inflation erodes trillions of debt? Not sure what you mean by unlikely - governments will have to balance books. Can't keep selling TBills. Market appetite will turn into puke soon enough.

I disagree. Inflation is exactly that. Expropriation via default. It has been government policy since 1913 and the creation of the Federal Reserve System.

Let's look at US inflation rates:
1774-1890 = +0.10%
1800-1890 = [-0.36%]
1913-2010 = +3.27%
*Note that the 1800-1890 period coincides with the gold coin standard. The true gold standard. Real wealth increased massively in this period.

US
1800 to 1890
Consumer Price Index -0.36%
Unskilled Wage 0.93%
Real GDP 4.27%

Contrasted with:

US
1913 to 2009
Consumer Price Index 3.29%
Unskilled Wage 4.87%
Real GDP 3.25%


US
1980 to 2009
Consumer Price Index 3.36%
Unskilled Wage 3.32%
Real GDP 2.77%

As government grows, the metrics deteriorate.

The government aren't selling T-bills. They are simply creating new money via the Federal Reserve. Look at the growth in debt [see attached charts] and money supply and the Federal Reserve Balance Sheet.

All tangibal asset values will have to be adjusted as negative interest rates will be with us for some time. We can see this already happening and ratios will change. eg: Technology products falling in value and food and energy rising. Ratios from 20 years ago likely to show considerable variance to today.

Tangible Assets are not products: they are the means of production, either capital goods or consumer goods. In an inflation, the legal title to assets rises, which is why the stockmarket is currently a buy. If the government continue to inflate, which they must, the nominal value of the market goes higher.

Not sure I agree with these lines. Gold is the ultimate currency - which is why we have seen it rise in value and will do so in the future as fiat currencies become devalued. Gold always rises in uncertainty - we are in the cusp of a new era and not out of the unknown by far.

Gold is currently an asset class: it is not legal money, though it is real money. There is likely a speculative premium in gold, although knowing what that is, is not really calculable, being that money itself is an ordinal value.

I agree that gold will continue to rise for the basic reason: should fiat currencies fail, specifically the US dollar, then pricing the conversion to gold will necessitate an anchor to the current nominal numbers of dollars.

I'm a little confused here my self with US deflation. Japan has been in deflation for some time. I do believe inflation will prevail but have been surprised my self with its slow creep in US. Perhaps stagflation is in the making...

US inflation is increasing rapidly now. Once it takes hold, it becomes very, very difficult to reverse, as the policies required are always unpalatable.

jog on
duc

 

[Atilla]

Atilla



First off, observe the growth of government debt: from circa $9.0 Trillion to circa $14 Trillion.

Now you say that Welfare accounts for maybe 1% with generous rounding. Let's look at some breakdowns. In a $16 Trillion economy: government spending now accounts for 36.9% of all spending [see attached chart]

Medicare/Medicaid [12%], Social Security [19%], Other [Unemployment benefits lumped together] + Government salaries etc [38%] [see attached chart]

This has taken Federal spending to $3.72 Trillion/annum from $1.79 Trillion in 2000. That's a significant increase. [see attached chart]




I disagree. Inflation is exactly that. Expropriation via default. It has been government policy since 1913 and the creation of the Federal Reserve System.

Let's look at US inflation rates:
1774-1890 = +0.10%
1800-1890 = [-0.36%]
1913-2010 = +3.27%
*Note that the 1800-1890 period coincides with the gold coin standard. The true gold standard. Real wealth increased massively in this period.

US
1800 to 1890
Consumer Price Index -0.36%
Unskilled Wage 0.93%
Real GDP 4.27%

Contrasted with:

US
1913 to 2009
Consumer Price Index 3.29%
Unskilled Wage 4.87%
Real GDP 3.25%


US
1980 to 2009
Consumer Price Index 3.36%
Unskilled Wage 3.32%
Real GDP 2.77%

As government grows, the metrics deteriorate.

The government aren't selling T-bills. They are simply creating new money via the Federal Reserve. Look at the growth in debt [see attached charts] and money supply and the Federal Reserve Balance Sheet.



Tangible Assets are not products: they are the means of production, either capital goods or consumer goods. In an inflation, the legal title to assets rises, which is why the stockmarket is currently a buy. If the government continue to inflate, which they must, the nominal value of the market goes higher.



Gold is currently an asset class: it is not legal money, though it is real money. There is likely a speculative premium in gold, although knowing what that is, is not really calculable, being that money itself is an ordinal value.

I agree that gold will continue to rise for the basic reason: should fiat currencies fail, specifically the US dollar, then pricing the conversion to gold will necessitate an anchor to the current nominal numbers of dollars.



US inflation is increasing rapidly now. Once it takes hold, it becomes very, very difficult to reverse, as the policies required are always unpalatable.

jog on
duc

Sorry Duc I don't think I made my point very well. Defence, social and medical etc., government expenditure was always there and before this crises. Twin defecits etc. In fact we are told salaries and wages have gone down or remains supressed. Whilst prices for foodstufs and energy rise disposable incomes fall.

The distinction I was trying to make is that the extra billions borrowed have not gone into food stamps or unemployed benefits. Yes unemployment benefits have risen along with other social costs no doubt but vast amounts of the money has been consumed where?

Re inflation and moving away from the gold standard over time yes I agree with the stats and your explanations.

Our living standards did increase during the gold standard (but it was not due to it). Backing currencies with gold helps maintain stable prices - but could not keep up with increase in transactions to maintain global trade. Money facilitates transactions.

There has been a collosal redistribution of income and resources in this heist of the century and there is not much transparency, accountability or knowledge of how it will impact the economics or politics of the new generation. I don't think anything like this has ever been encountered in the history of the World...

Addenda...
http://www.youtube.com/watch?v=IcEkCUmo47A&feature=player_embedded#

 

[ducati998]

Atilla

Sorry Duc I don't think I made my point very well. Defence, social and medical etc., government expenditure was always there and before this crises. Twin defecits etc. In fact we are told salaries and wages have gone down or remains supressed. Whilst prices for foodstufs and energy rise disposable incomes fall.

The distinction I was trying to make is that the extra billions borrowed have not gone into food stamps or unemployed benefits. Yes unemployment benefits have risen along with other social costs no doubt but vast amounts of the money has been consumed where?

Let's take one concrete example: Unemployment.

Unemployment has risen to circa 15 million, with a mean duration of 35 weeks. This has several flow through consequences:

*Social Security payments are no longer made: government must make payments
*Unemployment benefits are paid by government
*Tax revenues are severely impacted: government expenditures are not cut

Simply from these three consequences, the deficit has expanded tremendously, which, the government either prints or borrows by which to make payments. There is already negotiations underway to raise the debt ceiling, which means further inflation.

The expansion of debt, is the Federal Reserve monetising the debt via QEII.

Our living standards did increase during the gold standard (but it was not due to it). Backing currencies with gold helps maintain stable prices - but could not keep up with increase in transactions to maintain global trade. Money facilitates transactions.

Stable prices are one of the biggest fallacies in economics. Stable prices mean inflation. Under capitalism, and a gold standard, prices fall. As capital is invested in higher stages of production.

This is due to a changing time preference whereby savings increase, reducing demand for consumer goods: this causes a price reduction to clear the market. Savings are recycled to the most efficient producers, who invest in capital goods, that increases their production.

The higher cost producers go out of business. Their demise, contracts supply, adding market share and profitability to the remaining producers.

Price Stability is one of the core functions of the Central Bank. They try to maintain steady or stable prices, by creating an inflation to prevent this fall in prices. The Central Bank is an exercise in Socialism and Central Planning.

There has been a collosal redistribution of income and resources in this heist of the century and there is not much transparency, accountability or knowledge of how it will impact the economics or politics of the new generation. I don't think anything like this has ever been encountered in the history of the World...

Indeed there has.

The government has grabbed ever increasing power, largely through their monopoly of the money supply, which they have used to gain additional power and influence through the corruption of technocrats, legal system and education, never mind increases in the arms of coercive power.

jog on
duc

 

[ducati998]

Atilla

Our living standards did increase during the gold standard (but it was not due to it). Backing currencies with gold helps maintain stable prices - but could not keep up with increase in transactions to maintain global trade. Money facilitates transactions.

Your statement raises another interesting point: Schumpter is largely credited with explaining the improvement in living standards as being due to innovation.

Schumpter was wrong. Innovation is not responsible for the progress of society. Capital is. I'll expand on this point, as of course I wouldn't expect you to accept it at face value.

With regards to the volume, or quantity of money being important in facilitating transactions: this is another economic fallacy that has propagated.

jog on
duc

 

[Atilla]

Atilla



Let's take one concrete example: Unemployment.

Unemployment has risen to circa 15 million, with a mean duration of 35 weeks. This has several flow through consequences:

*Social Security payments are no longer made: government must make payments
*Unemployment benefits are paid by government
*Tax revenues are severely impacted: government expenditures are not cut

Simply from these three consequences, the deficit has expanded tremendously, which, the government either prints or borrows by which to make payments. There is already negotiations underway to raise the debt ceiling, which means further inflation.

The expansion of debt, is the Federal Reserve monetising the debt via QEII.




Stable prices are one of the biggest fallacies in economics. Stable prices mean inflation. Under capitalism, and a gold standard, prices fall. As capital is invested in higher stages of production.

This is due to a changing time preference whereby savings increase, reducing demand for consumer goods: this causes a price reduction to clear the market. Savings are recycled to the most efficient producers, who invest in capital goods, that increases their production.

The higher cost producers go out of business. Their demise, contracts supply, adding market share and profitability to the remaining producers.

Price Stability is one of the core functions of the Central Bank. They try to maintain steady or stable prices, by creating an inflation to prevent this fall in prices. The Central Bank is an exercise in Socialism and Central Planning.



Indeed there has.

The government has grabbed ever increasing power, largely through their monopoly of the money supply, which they have used to gain additional power and influence through the corruption of technocrats, legal system and education, never mind increases in the arms of coercive power.

jog on
duc

Hi Duc,

Still no explanation on where all the billions went? This is just simply an explanation of the defecit US is running.

Moreover, Obama seems to be going ahead with the Republicans calling for more tax cuts.

I broadly agree with your blogs but the point remains we have had a tremendous increase in Money supply to bail out the banks with reduced output. The monies raised have not gone to unemployed, industry or pensions but to financial institution and unknown enterprises.

Now we are seeing round of bonuses (which we are told we should be happy with as 50% suppose to go back to the inland revenue - supposedly). Mystery as to here the profits or remainder 50% have come from to justify bonuses. Why is the bailout money not paid back but taken from tax payers to balance books. Total redistribution of wealth - effective theft imho.


Can't see USD rebounding with the twin defecits ballooning... No end in sight. USD will fall, price of oil will rise, gold will also continue to rise until someone pulls the plug on US debt.

 

[Black Swan]

I agree, started buying physical back when it was $500 an ounce. Stopped buying when it crept over $1000. The gold bug very latecomers will protest too much but IMHO it's over as a ride and they were way, way too late in getting the wake up call. I'll keep what I have until you need a panda or krug to fill up at the Shell garage whilst fighting off the baying angry mob...

Agree with Dave, I got a lot out of your posts, still come across a few in the archives, so if you post again it'd be good news.

 

[ducati998]

Atilla

Hi Duc,

Still no explanation on where all the billions went? This is just simply an explanation of the defecit US is running.

Moreover, Obama seems to be going ahead with the Republicans calling for more tax cuts.

I broadly agree with your blogs but the point remains we have had a tremendous increase in Money supply to bail out the banks with reduced output. The monies raised have not gone to unemployed, industry or pensions but to financial institution and unknown enterprises.

The original bailout money is sitting on the Federal Reserve Balance Sheet as assets purchased from the banks in the form of MBS etc.

The banks, hold the cash as reserves and excess reserves.

The point I am making is this: the money creation since, far exceeds the original bailout money, and is growing constantly, everyday. To focus on the bailout money is to focus on the tree while ignoring the forest.

jog on
duc

 

[new_trader]

I agree, started buying physical back when it was $500 an ounce. Stopped buying when it crept over $1000. The gold bug very latecomers will protest too much but IMHO it's over as a ride and they were way, way too late in getting the wake up call. I'll keep what I have until you need a panda or krug to fill up at the Shell garage whilst fighting off the baying angry mob...

Agree with Dave, I got a lot out of your posts, still come across a few in the archives, so if you post again it'd be good news.

What is that supposed to mean BS? That you think the price of gold will go down while the prices of all other commodities go up? From what you've just written, I don't think you even understand the reason for owning gold.

 

[Black Swan]

What is that supposed to mean BS? That you think the price of gold will go down while the prices of all other commodities go up? From what you've just written, I don't think you even understand the reason for owning gold.

Tongue in cheek ref. to the 'end of days' gold horders that exist on the web...Gold for me was a hedge, a physical one + it was an interesting hobby of sorts. I got turned onto gold by a friend in 2005-6, his compelling argument encouraged me to buy. However, there came a tipping point of value where I didn't see the sense in acquiring anymore. If/when it collapses back to sub $800 per oz I may go back in and acquire what I need, but I'm not interested in bars, only coins. Maples next..but I can wait...no rush...a couple of coins a month would be nice.