Gold: Bull or Bear?

Gold set a record on September 5 at $1,895 an ounce (London PM Fix) and to date has fallen as low as $1,531 (December 29), a decline of 19.2%. In order to determine how long it might take to breach $1,895 again, I measured how long it took new highs to be mounted after big corrections in the past....

Once gold breaches its old high, you'll probably never be able to buy it at current prices again.
That's a rather obvious statement, but let it sink in. Buying now at $1,600 and then watching the price fall to, say, $1,500, wouldn't be fun – but it'll probably hit $2,000 or higher before the year's over, never to visit the $1,600s again this cycle. If that turns out to be correct, the next four months will be the very last time you can buy at these levels. You'll have to pay a higher price from then on.

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40th Anniversary of the Closing of the Gold Window

• The Nixon Shock -Bloomberg/BusinessWeek

• The Nixon Shock Heard ‘Round the World – WSJ

• Nixon’s not-so-happy gold legacy 40 years on – Mineweb

• Nixon Showed What Not to Do in an Economic Crisis – Bloomberg

• August 15, 1971: President Nixon’s Golden Error – Real Clear Markets

• August 15, 1971: A Date Which Has Lived In Infamy – Forbes

• We are now paying for abandoning the gold standard – Telegraph

• Road to downgrade began 40 years ago – Des Moines Register

• Gold Standard or Nixon Standard – Lew Rockwell

• Gold-standard debate back, 40 years after Nixon – MarketWatch

• Gold Standard: Forty Years Gone — And Good Riddance – WSJ

• Nixon’s Colossal Monetary Error: The Verdict 40 Years Later – Forbes

• 50-Fold Gain for Gold Price 40 Years After Gold Standard Ends – Bullion Vault

• Fiat Money: The Root Cause Of Our Financial Disaster – Forbes

• Forty Years of Paper Money – WSJ

Marc Faber on the Economy

Marc Faber the Swiss fund manager and Gloom Boom & Doom editor spoke Tuesday about the Fed's decision to keep interest rates low for a prolonged period of time and the prospects of QE3. He says the Treasury market is a gigantic bubble and long-dated T-bonds are the short of the century. Faber suggests that sometimes the best the Fed can do for markets is to do nothing!...

Faber, who predicted the stock market crash in 1987, turned bearish shortly before the 2007-2009 bear market and called the 2009 lows, believes the markets will now test the July 2010 lows for the S&P 500 at 1,010 and "after that we'll get a QE3 announcement."...

What can the Fed do to support the economy?

"The best they could do for markets would be to collectively resign," Faber suggested.

"Everybody in the world has become a Keynesian, everybody thinks the government should do this and that, the Fed should do this, the Treasury should do that.....I think sometimes the best is to do...nothing!

Reiterating his views on the prospects for another asset purchase program, Faber asked: "What has QE1 and QE2 done for the labor market? Nothing at all, and nothing for the housing market."

"It [QE] has lifted stocks and it created wider wealth inequality in the sense that people who own assets have done well and people who are in the lower income recipient groups are getting hurt from rising energy and food prices," he added.

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Gold Recent Run

Gold reached a new intraday high of $1,782.50 per ounce in electronic trading before backing down to $1,746.20. That's an increase of $33, or about 2%, compared to its Monday close. On Monday, gold broke $1,700 for the first time...

Gold is also still far from its true peak, when adjusted for inflation. The metal hit its real record on Jan. 21, 1980, when it rose to $825.50 an ounce. Adjusted for inflation to 2011 dollars, that translates to an all-time record of $2,261.33 an ounce.

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Gold v Dollar

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Gold Standard

Peter Schiff on Bernanke's Gold Comments

Bernanke further disputes the facts by claiming that the only reason people are buying gold is to hedge against uncertainty, or "tail risks" as he calls them. My advice to the Chairman is to ask the people who are actually buying it. As someone who has been buying gold myself for a decade, I can assure him that my gold buying has nothing to do with "uncertainty." In fact, it's just the opposite. I am buying gold because of what is certain, not what is uncertain. I am certain that Mr. Bernanke's incompetence will destroy the value of the dollar and unleash runaway inflation.

read the essay

Gold or Cash?

Doug Casey on Gold

Casey writes:

Historically – actually just up until the decades after World War I, when world governments started issuing paper currency with no relation to gold – the metal was cash, and it was used as money everywhere, on a daily basis. I believe that will again be the case in the fairly near future.

The question is: At what price will that occur, relative to other things? It’s not just a question of picking a dollar price, because the relative value of many things – houses, food, commodities, labor – have been distorted by a very long period of currency inflation, increased taxation and very burdensome regulation that started at the beginning of the last depression. Especially with the fantastic leaps in technology now being made and breathtaking advances that will soon occur, it’s hard to be sure exactly how values will realign after the Greater Depression ends. And we can’t know the exact manner in which it will end. Especially when you factor in the rise of China and India.

A guess? I’ll say the equivalent of about $5,000 an ounce of today’s dollars. And I feel pretty good about that number, considering where we are in the current gold bull market. Classic bull markets have three stages. We’ve long since left the “Stealth” stage – when few people even remembered gold existed, and those who did mocked the idea of owning it. We’re about to leave the “Wall of Worry” stage, when people notice it and the bulls and bears battle back and forth. I’ll conjecture that within the next year we’ll enter the “Mania” stage – when everybody, including governments, is buying gold, out of greed and fear. But also out of prudence.

The policies of Bernanke and Obama – but also of almost every other central bank and government in the world – are not just wrong. These people are, perversely, doing just the opposite of what should be done to cure the problems that have built up over decades. One consequence of their actions will be to ignite numerous other bubbles in various markets and countries. I expect the biggest bubble will be in gold, and the wildest one in mining and exploration stocks.

When will I sell out of gold and gold stocks? Of course, they don’t ring a bell at either the top or the bottom of the market. But I expect to be a seller when there really is a bubble, a mania, in all things gold-related. There’s a good chance that will coincide to some degree with a real bottom in conventional stocks. I don’t know what level that might be on the DJIA, but I’d think its average dividend yield might then be in the 6 to 8% area.

The bottom line is that gold and its friends are no longer cheap, but they have a long way – in both time and price – to run. Until they're done, I suggest you be right and sit tight.

read the entire essay

Gold and Hyperinflation

HYPERINFLATION WILL DRIVE GOLD TO UNTHINKABLE HEIGHTS

by Egon von Greyerz

We now live in a world where governments print worthless pieces of paper to buy other worthless pieces of paper that combined with worthless derivatives, finance assets whose values are totally dependent on all these worthless debt instruments. Thus most of these assets are also worth-less...

Let us be very clear, this financial Shangri-La is now coming to an end. The financial system is broke, many western sovereign states are bankrupt and governments will continue to apply the only remedy they know which is issuing debt that will never ever be repaid with normal money.

So why does the world still believe that the financial system is sound?

• Firstly, because this is what totally clueless governments are telling everyone and this is what investors want to hear.
• Secondly, whether governments apply austerity like in parts of Europe or money printing as in the US, investors want to believe that any action by government is good, however inept.
• Thirdly, market participants are in a state of false security due to shortsightedness and limited understanding of history.
• Fourthly, as long as they can benefit from inflated and false asset values, the market participants will continue to manipulate markets.
• Fifthly, there has been a very skilful campaign by the US to divert the attention from their bankrupt economy and banks `to small European countries like Greece, Ireland or Portugal. These nations, albeit in real trouble, have problems which are miniscule compared to the combined difficulties of the US Federal Government, states, cities and municipalities.

Bearing in mind that we are likely to see hyperinflation in the US, the UK and many European countries, the $6-10,000 target for gold is much too low. The dilemma is that it is absolutely impossible to predict how much money will be printed by governments. In the Weimar republic gold reached DM 100 trillion. But it is really irrelevant what level gold and other precious metals will reach in hyperinflationary money.

What is much more important to understand is that physical gold (and silver) will protect investors against losing virtually 100% of the purchasing power of their money. Whatever real capital appreciation gold will have in the next few years is of less importance. But what is vital, is that physical gold (stored outside the banking system) is the ultimate form of wealth protection both against a deflationary collapse and a hyperinflationary destruction of paper money.

read the entire essay

Gold and Guns video

http://www.xtranormal.com/watch/7570703/

"Gold is Money"

Nathan Lewis writes:

Changes in the “gold price” represent changes in the currency being compared to gold, while gold itself is essentially inert.

This is why gold was used as a monetary foundation for literally thousands of years. You want money to be stable in value. The simplest way to accomplish this was to link it to gold. Today, we summarize this quality by saying that “gold is money.”

From this we can see immediately, that if gold doesn’t change in value – at least not very much – then it can never be in a “bubble.” There may be a time when many people are desperate to trade their paper money for gold, but that is because their paper money is collapsing in value. It has nothing to do with gold.

Let’s take a look at some of the great gold bull markets of the last hundred years:

• From 1920 to 1923, the price of gold in German marks rose from 160/oz. to 48 trillion/oz.

• From 1945 to 1950, the price of gold in Japanese yen rose from 140/oz. to 12,600/oz.

• From 1948 to 1967, the price of gold in Brazilian cruzeiros went from 648/oz. to 94,500/oz.

• From 1970 to 1980, the price of gold in US dollars went from 35/oz. to 850/oz.

• From 1982 to 1990, the price of gold in Mexican pesos went from 8,000/oz. to 1,025,000/oz.

• From 1989 to 2000, the price of gold in Russian rubles went from 1,600/oz. to 8,120,000/oz.

Each of these situations was an episode of paper currency depreciation. Today is no different. The rising dollar/euro/yen gold price is simply a reflection of the Keynesian “easy money” policies popular around the world today...

The “price of gold” may reach five thousand, ten thousand, a hundred thousand, a million, or a billion dollars per ounce. The gold bubble-callers will be frothing at the mouth, until they finally have the realization that there was never a bubble in gold, but only a crash in paper money.

Gold is money. Always has been. Probably always will be. This time it’s different? I don’t think so.

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Peter Schiff on Gold and the Dow

Ludwig: Before this rally in gold is over, would you venture to guess how high it can go?

Schiff: I like to quote it in terms of the Dow, because you just don’t know how much inflation there’s going to be. So my target is for a relationship that’s close to 1-to-1 between gold and the Dow. I’ve had that target since the Dow was worth more than 40 ounces of gold. Right now it’s worth 8 or 8-1/2 ounces, so I think it’ll get down to 1-to-1. But you don’t know where that’s going to be. It could be Dow 5,000-gold $5,000, it could be Dow 10,000-gold $10,000; it could be Dow 20,000-gold $20,000; it could be Dow 2,000-gold $2,000. I don’t know where it’s going to be, but I think it’s going to happen.

Ludwig: Why 1-to-1?

Schiff: That was the low of the bear market of the 1930 and that was the low of the bear market of the 1970s. The Dow was worth one ounce of gold in 1932 and the Dow was worth one ounce of gold in 1980.

read the interview

Gold, Currency Crash, and Debt Collaspe

I believe the life cycle for the central banking fiat currency Ponzi scheme is about over. After the coming dollar and debt collapse, government and hopefully competing private alternatives will eventually require some form of precious metal or commodity backing guarantee in order to restore faith and trust in currencies. As always, private alternatives will buy gold etc. on the open market while governments will likely confiscate and steal what they need to create a new dollar after hyperinflation and currency collapse.

If you trust the gold reserves are in Fort Knox then just buy more gold from time to time on price dips. But, if you believe "it’s not just the beer talkin," then take actions while you still can to secure your gold now before we have a crisis and a repeat of Roosevelt’s confiscation program.

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Gold: Time to Sell?

“. . .we shall urge the greatest of caution upon everyone, everywhere regarding gold. It is not just over-extended to the upside; it is hyper-extended. It is not just overbought; it is hyper-overbought. We cannot strongly enough urge everyone to avoid buying gold here and we shall go so far as to suggest that those who are long begin the process of quietly heading for the exits and to reduce their positions to the most minimal ‘insurance’ positions possible. Everyone should have perhaps 5% of their liquid assets in gold, but at this point anything beyond that level is excessive.”

–Dennis Gartman, September 29 2010

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My thoughts: In the next 3-5 years (10 years at the most), I expect expect gold to double or triple in value. Despite gold being at all time high (nominal) prices, Don't underestimate the ability of Bernanke to destroy the value of the dollar with his printing press. I think gold remains a bargain anywhere under $1500.

Gold Prices: $1318

Investing Advice

The Mogambo Guru writes:

But, back to business, I gently remind you to buy gold, silver and oil stocks against the idiocy of your government deficit-spending so much money and the inflationary calamity of the Federal Reserve creating the money.

And if you don’t buy gold, silver and oil after I gently reminded you, then I will not so gently remind you that you are an idiot! You are worse than an idiot! You are a lowlife imbecile! And you will grow old and die in penniless misery because you act like an idiot, and your children will curse you for being so stupid as to not buy gold, silver and oil when it was obviously the correct thing to do, and they will drive you from their doors when you beg for crusts of bread.

So, think about it; gold, silver and oil, or begging for crumbs from your own children who hate your guts. Seems like a no-brainer to me! Whee!

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Gold Reserves and Producers

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