Thursday, January 14, 2010

An Inflationist's Worst Nightmare

I quite often receive many emails and comments from readers all over the world that are something to this effect:

"You are (insert preferred insult) for thinking that there could be anything but hyperinflation after the Federal Reserve increased the monetary base by 100%.  You are an even bigger (insert preferred insult) for thinking that gold or silver could dare to go down, because of (insert random exogenous occurrence that said person is attempting to apply to an already existing price movement) - you are crazy!"

Many emails as such.  Others simply suggest to me a creative means of dying or killing myself, others seem to have the "Oxford Dictionary of The Nastiest Names to Call People Who Dare to Question Your Choices, Even Unknowingly" sitting right at hand.

Of course I get the odd "nice" communication whereby someone will simply state - hey, I think you're wrong and here's why.  I appreciate those - I generally will reply to those.

Anyway, I have been picking my brain to answer a question for myself.  Even though I do provide evidence that - to my own financial decisions - is very compelling, why would someone vent off in a violent rage and resort to name calling or sending some piece of data which I have just refuted not 2 weeks ago (but it MUST be right because they send it in all caps!) to try to cancel out the existence of my argument?

I think I've got it figured out.  Sort of.

One of the largest areas of study I focus on is investor psychology, and more specifically, investor mood.  heightened/overextended levels of optimism tell me to watch out if I would think of trading to the upside, and extreme levels of pessimism tell me to look for a good long entry.

I think investor psychology has a lot to do with the type of email which I receive, and is a reflection of overall investor mood.  Think of it like this:

Generally people come to a conclusion about something very early on, and even just having such a conclusion mentally can be extremely hard to change.  However, if you add in the emotional element of money plus the innate anxiety created by lack of information in finance markets (which causes herding), and you have your answer.

The majority of people who are making such comments are those who long ago decided to commit to the long side of gold or silver - and most likely made their major entry somewhere mature in the uptrend and are hoping/relying on someone to come along after them who will be willing to pay a higher price.  Not nearly as overextended as real estate in 2006 or dot-com stocks in 1999, but the concept is similar (and please, future over-reactors, don't attempt to argue this by saying "This is nothing like those times" - No, it isn't to the same level, but the same elements of investor psychology are there).

As such, I believe that most investors are stuck in this sort of pattern:  Getting some information, drawing a conclusion on that information, making a decision (i.e. buying or selling), going to as many places as possible to validate that decision.

The majority of investors out there who read Kitco and various other online publications are not looking for a new idea - those type of people give their money to a fund manager and usually let them worry about "new ideas".  These investors are going to these places to find validation for a decision that is already concretely established in their head, and they have generally already acted on it.  I can literally feel their relief when they read yet-another-gold-bug's article on how gold will be $5,000.00 /oz by 2011.  Even if the evidence is the exact same as the evidence of the person who yesterday said "gold will be $2000.00 / oz by 2011". 

And so when some compelling evidence is presented that shows that said decisions might actually be wrong, or mis-timed, etc, the defense mechanism immediately kicks in and a reaction takes place.  Generally the reaction correspondence will include at least one of the reasons that led them to the initial decisions (in their mind) to buy or sell - i.e. "the Fed is printing too much money", or "Gold doesn't go down during depressions", etc.  That is why the reaction is very heated and defensive, even though it is not as though I have specifically directed my content towards them, only indirectly towards their idea.

In conclusion, I have come to realize that I rather enjoy receiving these emails as it simply re-affirms the overwhelming strength of the herd mentality that exists in the various markets which I study.  As such, each correspondence of such a heated degree is simply another notch of emotional-extremism which tells me that my contrarian views are thus, still contrarian.  Again, it is a small affirmation, but one that brings a smile to my face nonetheless.

And finally, I must address the title of this post, because it hasn't really been much of a nightmare for inflationists so far.

I read a very interesting article this morning about Obama proposing a new and higher tax on financial institutions.  It goes by the name of "The Financial Crisis Responsibility Fee".  The short of it is, any financial institution with over $50 Billion in assets (including insurance companies, not just banks) would have to pay this additional fee.  Even if they didn't receive TARP directly.

This is highly deflationary, just as all government interventions in banking policy eventually become.  If you add this on top of heightened FDIC fees, another new proposal linking risk (i.e. too much credit versus assets) to bank executive pay, and government forcing banks to reduce banking fees, the end result will be this:  With or without the Federal Reserve's direction or force, interest rates on loans will go up to make up for lost revenue from these government programs.  As a result, defaults will increase, total new loans will dramatically drop, and the deflation of total money will accelerate.

Come to think of it, we are already seeing some of that now.....

This will, as I have said many times previous, bolster the current USD rally which should take it over 90 on the index before a major corrective period.  If you haven't, we suggest selling all risk assets (US stocks, corporate bonds, etc) and moving them into cash for the mid-term as the largest credit contraction in human history begins its long journey.  I'm not selling my PM's, which I stopped accumulating over a year ago, but I'm sure as hell not buying right now...  When I am, you'll be the first to know (besides my metal broker!)

Be Well!



  1. I sent you an email stating Norton did not rate your site safe. I am at the library using their computer. PLease add my email address to your mailing list. Current statistics show bank lending decreasing at around 16% a year. This is a decrease in the money supply since most of M1 is demand deposit accounts in banks. Also banks are restricting new credit card issuance and people are paying down their debts. This also adds to deflation. However, too much debt exists. Except for Federal government debt, most other debt could be at risk for default.

    My concern, how do I preserve my purchasing power in this deflation, yet because of the Federdal government policies, what is the best asset in a posible inflationary future?

  2. Derek. What do you see happening in the us stock market right now. Investor sentiment is almost all bullish which should be the contrarian indicator to go short at some point. could you give some reflection on this topic?. Thanks, Kevin

  3. Arnold, please refer to the reply email I sent you. Also, the last several months of articles have outlined our various positions.

    Kevin, if you read back over the past few months I had an ideal target in mind for the S&P 500. The article is below. We have met and just slightly exceeded the ideal target and are, according to my analysis, due imminently for a reversal.

  4. Hey Derek,

    Just came across your blog all the way from sunny Australia and have enjoyed reading your posts on gold and the markets (even if I do disagree with you on the gold market). I have a couple of questions / observations if you dont mind:

    1. In one of your earlier blogs this year about gold, you mention ‘Remember trade WITH the trend’…Gold is in a major uptrend, and has been for many years, yet you’re suggest it’s about to halve in value. Same goes for the USD, it’s been in a constant downtrend on the index from 120 to 77ish… I just struggle to see what is going to happen in the coming weeks / months to set gold / USD on a different course. Everything that has contributed to Gold / USD to be where they are at present seems set to continue to the foreseeable future.

    2. It seems you suggest the USD will only bounce back to 90 or so on the index and then resume it’s downward trend, meaning long term, you are still bullish on precious metals…is that correct?

    3. If you believe Gold and the markets are about to take a huge dive, why wouldn’t you sell your PM’s to buy in at a lower price?

    4. I do share the view that the broader stock markets are set to decline in the near future. The Dow and S&P500 both appear to be forming large (bearish) rising wedges on the charts, so I’ll be looking to short them when breached to the downside.

    Anyway mate, glad I found your blog and look forward to your updates in the future.

    Enjoy your weekend.



  5. Derek B,

    US index to 95 late 2010 or by June 2011, then US index down to 41 in 2012. "It is written so shall it be done."

    ES (S&P 500) futures to 420-380 late 2010 or June 2011. YM to 4200-3800 same time frame.

    Gold to $640 by June 2011 Silver to $8.00/7.40 by same time frame.

    "The future is known to those that believe."

    Gallieo stated Earth was round....ALL including the Rulers thought it was flat and they knocked him off.....see the point YOU FOOLS !!

    Derek B ( he may have stolen my is right on.

    "It is written so shall it be done."

    The best forecaster who foresaw the future is in jail.....

    The future is known if you can read a chart...spend 10,000 hours, best 20,000 hours. Make it simple...spend 10,000 on ONE CHART YOU PEASANTS who criticize Derek.

    Then you will SEE the Rythm of the commodity/stock...stocks are fools gold as a stock will and can go to zero but a commodity NEVER will.

    Finally, YOUR American gov't is robbing the good american people blind, but they too confused with the Democrats vs Republican debate, Black vs White..while the 2 illuminates ( one Christian One Z*****) control you serfs. Just see who is controlling your media, movies, finance, jobs and foreign policy.

    You need a revolution in your country to get back to "backing" the little guy...Good jobs, good pay for the masses not the uber rich ripping you off with 9/11, Terrorism...BS.

    " Think it aint illegal YET."

    WAke up....just like making money....listen can you hear the Ground running....UNCHAINED ( Van Halen) !!!

    "Flashlight"( Parliament/ Funakadelic) you peasants in America need one to realize how you been HAD so BAD.

    Depression in 2032/2040-44...NOT BEFore.

    NOw is like 1900 ( 2000) and or 1946...

    Globalization dead by 2032-2040..rumbling start in 2024/2029...

    YM to 24-28,000 and ES to 3200-3600 by 2015...The ride up starts in 2011...YOU FOOLS YOU....OOH THAT SMELL....can you feel that smell ( Lynrd Skynrd) Whisky bottles, brand new cars...thats what you gov't doing with your money...with the bailouts.

    So "Not just knee deep" ( Funkadelic) and don't be a "Muffin Man" ( Frank Zappa)...for Uncle Remus( FZ) is how you should proceed.....unless You are like "Bobby Brown" ( FZ)


  6. Derek, I did want to also ask you, as someone else did, how do you see gold going to $650? Expecting it to go that low might mean that when it hits $950 you'll hesitate to buy. Isn't that a danger, missing the bottom of this correction by a lot?

  7. This is one of the few sensible articles that I have read concerning herd mentality in the commodities markets since the latest recession began. I look forward to future articles here.

  8. E.D.

    Please review past articles for my take on gold and why its price movement should hit below $700 (optimal range $600 - $650) before a resumption of its long-term bull market. As per the $950 or lower bounce - I suspect we shall see a very rapid unwinding of positive sentiment once this puppy gathers up steam, and it should take the metal all the way down to even $900 or lower. However, once that major leg has been completed I'm anticipating a fairly large trading range of sideways action followed by a final breakdown to extremely negative psychological levels (i.e. we should see >90% bears and <5% bulls towards the very end, as well as producer hedging picking up and open contracts at a lower level than fall of 2008. However if any technical anomalies occur in the meantime I will be letting readers know.

    I am planning on setting up a subscription service as well as completely revamping the site within the next 3 months or so, which should be plenty of time to get the word out on when to be buying precious metals.

    to The Paddy: Thanks for the compliment, and hope to see you back :)


  9. I just posted on a more recent article of yours. I don't see how a few small attempts to soak up money through credit default is going to offset so much reckless creation of money. In any case, the government still has to pay on its own debt... which is over $12 trillion and growing almost daily (not including interest.) I really just don't think this or any prospective US government has the courage(?) to give the finger to countries holding $3.5+ trillion in debt or domestic holders of $9 trillion. They can either say 'sorry bout your luck' to some major global players and most US citizens and corporations OR just keep doing what they're doing and inflate it all away. Besides that, they very openly state that they will not allow deflation to occur. Deflation, of course, means it is that much harder to pay on a debt that they already can't pay on with inflationary means. The official CPI is plainly not a true indicator of overall inflation. And then there's one other tiny problem... around USD 9 trillion in foreign countries. Does your deflationary scenario include that much cash coming home to roost?

  10. I see technical probability 50% below $1000, 20% below $900, 5% below $660:

    What Blain is missing is that the Deflation is Inflation, and that the govt have no choice but to QE. The liquidity decrease can not be sustained without blowing up the entire financial system. Of course the QE will make it worse in the longer term, but shorter term it avoids immediate end of the fiat system.

    There is about a snowballs chance in hell that anyone will ever buy a PHYSICAL ounce of gold again at $660 (unless buying scrap from someone ignorant), even with a 5% chance the paper price might get there.

    I wrote about how Deflation is Inflation (read the math!), and before predicted current rope whipsaw since August:

    And I am widely published on gold-eagle, financialsense, silverbearcafe, etc..

  11. Influence can be defined as the power exerted over the minds and behavior of others. A power that can affect, persuade and cause changes to someone or something. In order to influence people, you first need to discover what is already influencing them. What makes them tick? What do they care about? We need some leverage to work with when we’re trying to change how people think and behave.

  12. Hello Derek,

    Back in the 1990's I was one of those who laughed at those who dared speak negatively about "my" tech stocks. Didn't these fools realize that we are now in a new uhh paradigm where P/E's did not apply to these new era stocks? I was on full margin, cashed out my IRA invested in crummy Vanguard Index funds that were only bringing me 15-20 percent, etc. and plowed everything into my beloved techies.

    I watched as we crashed down 10 percent but then bounce back again, then down, then back up. Ahh, now these fools will see as we zoom up from here to da moon Alice. Well on the third time (no charm here baby) we went down, down, down and me still on full margin. Well my wife, whose name is not Alice, didn't kill me or even divorce me (what a bloody Saint) stood by me as we lost almost everthing. Since those times in 2001 etc. we have rebuilt and learned much but perhaps the biggest thing I have learned is to never allow myself to be so smug in ANY one position because as you say...

    "One of the largest areas of study I focus on is investor psychology, and more specifically, investor mood. heightened/overextended levels of optimism tell me to watch out if I would think of trading to the upside, and extreme levels of pessimism tell me to look for a good long entry."

    Thankfully my mind today is open to this simplest of concepts. Haven't these people who hurl insults at you not heard of "Buy when there is blood in the streets"?

    I read your column in Kitco a few weeks ago among other sources and decided to sell some of our silver (about 20%). I sold around $18.35 and will know wait until I see "blood in the streets" before I purchase more silver or perhaps gold as we don't have any. I see where you recommend a 70%Ag-30%AU for personal possession.

    I was angry at myself before but never sent hate mail to my detractors as they proved to be right. Your current detractors will mostly I believe some day apologize to you and hopefully forgive themselves their arrogance.


  13. Hi Derek, that was a great call on selling silver. you can't ignor someone you makes great calls.

    I'd to get your thoughts on the Gold mining shares. a scary place right the 29 crash that was the place to be and for the life of me I can't figure out why they don't respond in a like manner this time around.I agree this is a deflation and Gold is cash.


  14. Derek, you are complete idiot, and only posting on
    Kitco while Gold is down, saying "I told you so"
    Right, Silver going below $8. I don't think you
    even understand the Economics, only Photoshop.
    Stop bombing Kitco with your nonsense, go back
    to school.

  15. @ - there is a very simple reason that gold shares increased in value during the great depression: The price of gold was fixed, so while the money supply contracted its dollar value stayed the same.

    Therefore the entire operating costs of any mine or producer decreased dramatically as deflation set in, and yet they could sell their product at the same price by law.

    This is called a market distortion - even with gold it can be a very bad thing.

    @ Anonymous, I was going to refer you to, except I realized that you had already just finished reading it! Please refer to my posts prior to golds top if you'd like to see my forecasts pre-exponential-gains.

    Secondly, I'm surprised you would send such a message after reading the very article that lets you know it just puts a smile on my face and re-enforces my own position. Interesting.


  16. Derek,

    This is the first article I read from you, but I have to say, your points are well articulated. I am not sure I agree that gold will fall that much below $1000. The reason I say this is because of the IMF purchases recently by several nations. That would give them an interest in keeping it close to those levels (about $1000/oz) I would think. With that said, public sentiment could push it down, especially if people abandon the ETFs, but I think it will be a fight and won't go lower than $800/oz and maybe $10/oz on the silver front.

    With this in mind, I have this question: How do you feel about buying gold and silver in numismatic form (coins, rounds, etc.) I have been going this route as it seems that the coins seem to hold price a little better because they always seem to stick to either melt or numismatic value (whichever is higher), meaning that if one drops, it doesn't necessarily make the coins go south. Anyway, what are your thoughts?


  17. <<@ - there is a very simple reason that gold shares increased in value during the great depression: The price of gold was fixed, so while the money supply contracted its dollar value stayed the same.

    Therefore the entire operating costs of any mine or producer decreased dramatically as deflation set in, and yet they could sell their product at the same price by law. >>

    This explantion is incorrect. Gold stocks did indeed fall in price during the initial severe downdraft in stocks from 1929-1932. But sometime in 1932 Homestake Mining started moving up initially due to the deflationary effects noted but this was also the same time that the SM bottomed in 1932. Gold miners accelerated in mid-1933 when FDR put inflation in motion by pumping the money supply as he was planning to devalue the dollar by raising the official price of gold by 70%. The main stock market also picked up in mid-1933 and ran strong until 1937...because of inflationary effects. Gold stocks ran even stronger from 1933-1935 increasing some 5X to 8X in the end. One should note that with gold now illegal to buy the only way for the public to invest in gold was to buy the gold miner stocks (that gold bullion buying restriction was lifted in 1974). The money supply was once again contracted in 1937-1938 which resulted in another strong bout of recession.

    In summary the gold stocks prices rose in the 1930's due to simple asset inflation (more money chasing goods) and the fact that they were the only game in town if one wanted to "own" something gold.


  18. Please refer to the following chart, DJIA compared to Homestake Mining - goldstake mining already rose over 100% while the major deflationary effects were taking place and stock market crashed - it wasn't until the market turned and sentiment towards stocks in general began to recover that it increased in even greater magnitude.

    However, HomeStake mining increased by 80% at the same time that the DJIA lost 60% - this was due to the previously mentioned reason - the price of gold being fixed.

  19. Deflation is good for savers, especially when they save in gold, when the govt is determined to fight deflation by pushing on a fiat string:

    Google "How Deflation Is Inflation"

    I have called the last several price turns:

    Google "goldwetrust Shelby"

  20. Google also "Rope to the Hyper-inflationalists"

  21. Greetings Derek

    This is the first time I've read your blog and have to say that I like it. I've learned that people react with an amount of hostility that is directly proportional to the amount of insecurity they feel about the subject.

    We have also learned that paper stocks are subject to a number of other factors besides the market and lost many dollars through corporate infighting, executive changes and golden parachutes. As a result, we started investing in gold coins when gold was $426/oz.

    So here is my question for you. We have paid off our debts and are now in the process of saving money. I don't trust the banks, as they have 'closed' the doors in other countries for currency changes etc. and with the doors closed, you're beat until they open them again and then you get what they want to give you for what you had. I don't like the thoughts of that too much.

    So what do we do with our cash now? We intend to buy silver and gold bullion, but why buy it now if it's on the way down? How much value will our dollars lose during the same time? I believe that the U.S. dollar will devalue vis-a-vis other global currencies and precious metals are valued in U.S. dollars, so will that artificially drive up the price of PMs to counter the reduction in demand?

    We're looking forward to your response and suggestions and always take responsibility for our own invetments.

    Thanks for a great blog, it's on my Favourites now.

  22. $650 gold $8 silver..

    Derek assumes the economy and dollar will get stronger, good luck Derek.

  23. The Fib support values for the Gold trend are around 850, and even if those are achieved this summer I don't think Gold's gonna spend a lot of time down there. Silver's Fib is similar. Maybe around $10 or so, say that with reservation because we all know silver's volatility. I never buy at absolute lows anyhow. I usually wait until an uptrend has announced itself. Helps me sleep at night.

  24. I have been in this Gold / Silver market before 1980, and to read what you are saying... My thoughts are you need to live about another 30 years of life... then you might have some "good suggestions" as to whats going on, and where the future is heading...
    This is all expected.... Europe is sinking, so everyone there are buying Dollars... with a side effect of driving down the gold and silver market ( notice the "side effect").. once it becomes the US Dollar time to finish rolling over and die... with in "days" both Gold and Silver will shoot to the skys... Right now Europe is "going Broke".. buying dollars as fast as they can... what they are thinking about... is the Dollar is Dieing also
    You only called this "short Dollar ralley... because of Greece going down the tubes..... and like most of "US investors"... We knew there would be a dollar rally..and theres a few other countries to fall after Greece... so this Dollar rally could be here for a short while... But it "WILL END"... and thats when Gold and Silver will Kick Butt...

  25. Gold isn't a trade, it's an investment. All you need to know as an owner of gold is when to cash it in. THAT day is when one ounce of Gold will get you one share of the Dow. Whether that's at Dow 1000 or Dow 100,000 is irrelevant. When the Dow-Gold ratio hits 1-1, start looking at selling and your gold will have preserved your savings well.

    But don't go rushing out just yet guys. This process may well take the next ten years. Maybe more. So these little hiccups in the market are just another EXCELLENT buying opportunity.


  26. Derek,

    This is the first article of yours I've read but I found it quite interesting. I think I understand your points re: the deflationary effects of the widespread collapse of bad debt. However, the fact that the Fed has expanded the money supply ~100% in the past year still bothers me. Could you direct me to an article that resolves the conflict these competing pressures have on the long term outlook for PMs?



  27. Hi Derek

    I don't agree with you on precious metals prices but I certainly admire your courage in 'going against the herd' ! In this case though, I think the gold herd is itself going against a much bigger herd, and being contrarian-to-the-contrarians is not being a contrarian at all.

    I came to the conclusion some time ago that there is (currently) an underlying upward trend in PMs. When the day-to-day price goes well above the trend-line it will, after a short while, snap back to the line; and if it's gone too far above, it will rebound to below the line (like a stretched elastic band), before coming back to the main line. You can see this by looking at the five-year gold chart on Kitco - it went well above the imaginary line from July 07 to August 08, then dropped below until about Feb 09. In the last two months it shot well above again, so I've been thinking for ages that it *ought to* return to about $1050/oz, which it now seems to be doing, but the general upward movement is still intact.

    I believe the gold price may drop to $650 *if* Osama bin Laden says it was all a huge mistake AND scientists crack cold fusion on the same day, but for now I'm not at all concerned about having 70% of my assets in gold (& a further 25% in silver, platinum & palladium).

    Happy investing !!


  28. Derek,
    I have searched for a month trying to find a voice of reason telling me it's okay to resist gold and silver. Your article was just the ticket. I can't understand people allowing emotion to influence their own well being.

    It seems practical to me our goverment would use gold as an indicator of her citizens economic confidence. If so, what hypothetical situation would best benefit their sinking ship?

    If gold skyrockets thats bad. Unless of course it then plummetts, the naysayers are dealt with and the market revived, that would be good. If this market is a paper tiger, that is still bad but gold is cheap, really free if you have access to the printing press so buy up the market at fire sale prices, that would be good.

    Some day soon that 800lb. goverment gorilla living beyond his means will face a tough love diet. Since the gorilla will be the first to know when the tough love is scheduled, wouldn't it make sense if he went out and bought up as many snacks with a proven shelf life as possible? To pay down his debt he would be willing to part with some, at a handsome profit of course.

    Then, gold worth it's weight in gold. I have no reason to hope this happens but to me it is not beyond believable.
    If you would respond and rip apart any possibility this can happen I would be grateful.


  29. Robert,

    As for political forecasting, we tend to try to stay away from it as much as possible - our aversion for politicians and their profound ability to mess things up like no other group, and then convince people they need to vote for them to do it again (successfully, I might add), is rivaled by few things on this earth.

    Our forecast is that in the mid-term, high deflation will actually benefit the US government as it will cause a mass exodus from assets into cash, specifically short term treasuries, making the government extremely liquid for the time being. This will benefit our readers especially who are not short-sellers, and have parked some of their cash in short term treasuries - yields should go even more negative than in 2008. We are anticipating the yields on longer term treasuries to drop fairly drastically in the coming months in a panic rush to "safety", as well.

    While this will be great in the mid-term for those holding cash, as soon as the credit markets start to show the first signs of healing (on a ballpark estimate 4-5 years out), investment allocations and savings allocations must already be in place. This will be 4-5 years out, but only because of continued government meddling which is actually long term and net deflationary in the immediate sense - i.e. forcing lower overdraft fees etc. which will cause banks to raise interest rates on credit to make up for losses on the fee side - higher rates = higher debt service = less debt = less total money.

    At this point, the piper will certainly have to be paid, and many of the things that gold "prophets" have been shouted from the proverbial soap-box for decades will most likely come true.

    But the switching over from one world reserve currency to another is no easy task, and given that society as a whole will be extremely negative, as evidenced by the stock markets in a quantifiable way, there is actually a chance that the world will opt to return to some sort of metal standard to avoid favoring a new single political entity. Unity will be a much more distant and neglected concept worldwide than it is today, and as such the world may actually benefit by moving to its most default and neutral option - a money that benefits no single country because no single country can "print" it.


  30. Hi Derek,

    Well, I guess you lose. Watching todays action, GOLD was actually scrambled

    Off the Market at 1050, that where Indians bought their GOLD from IMF and Chinese


    As well paying over $1000/oz. Next week Dow going up, and GOLD over $1100, so you can

    Finally stop spreading your BS. I can Actually post here what your twin Brother

    J.Nadler from Kitco “ forecast” in 2008, look familiar?

    Oct 24 2008 4:21PM

    “Jon Nadler: Where Might Gold Go?

    JN: We may not see that for some time.

    If deflationary pressures really take hold, we may have a case of
    “reverse hedge” developing, whereby gold might still fall to the mid-$600s
    or even as low as the low $500s, but still fall less in percentage terms than other assets might.
    In that case, investors would still be better off holding some gold and lots of cash rather
    than equities or real estate and such. Hopefully we don’t head into that deflationary
    spiral because that could hurt a lot of higher-priced producers of gold. Certainly a
    lot of the mining companies would have to reconsider what projects to mothball if that happens.”

    Still have that link for the record:

    You know where the GOLD went after his: “still fall to the mid-$600s”

    Accidentally GOLD “falls” over $1200.

    Get real, ok? And don’t delete this Blog, I’ll be posting here later when Gold will hit

    $1300/oz later this year. Keep pumping up worthless Dollar, - charts won’t help you

    In that matter.

    Have a nice day.

  31. Here's to gold at $650! And free beer!

  32. Derek,

    If you genuinely believed Gold would fall to $650, then you would have sold by now, as I have, and buy back in when the price is at a low in the market, which is what I plan to do.

    I reckon that it will fall back to about $850-900 range due to the deflationary pressures you have outlined, and then resume its bull market run. I can't see it falling below what it did in October/November 2008, as there are a lot more reasons to buy gold now then there were back then, so I would definitely buy back in the 900 dollar range.

    In short, there will be deflation, followed by inflation/hyperinflation. All the excess liquidity created has not gained velocity in the markets yet, hence the current deflationary pressures, but it will eventually. And at that moment, the Gold bugs will finally have their day.


  33. The "normal" view of inflation is by printing more "money". True enough but the fed has come up with a twist this time and that is to allow only those they want to benefit to really get any of the "money". Inflation will not be the disaster of the 1930s Germany that has been broadly predicted due to the fact that the newly printed "money" wont be circulating down to those that would be most hurt by hyper inflation. It will only be going to those that created this mess in the first place.
    To a great degree they will be paying the bill but repaying it in inflated and borrowed money. Government is supposed to prevent such but infact it actually creates these types of scenes. Perhaps this because most elected officials come from the exec structure of the private sector and come armed with the various excuses for and plans to benefit themselves. Public service is a nom deplume for legislating and accepting automatic pay rasies in the face of situations where numerous othres suffer and the Aristocraticly self righteous attiude currently demonstrated by congress and the president. Party be damned the attitude is universal and therefor so is the plague of dishonesty. For those that disagree with this view ask one question: "what product has been acheived by_______Senator, congressman, president recently".
    That is the same question that will be asked by them of you!

  34. The best guide to the future is the recent past, what happened to gold/silver and stock prices in the crash ending in March last year. If you believe markets will revisit those lows, then gold/silver will probably revisit their lows as well. If that is a worry, then at the same time you go long gold/silver, hedge your position with put options on whatever you think will fall even faster and lower than the metals, and close out your puts when you think the bottom is in.

    Myself, I bought puts on the S&P500 when it hit 1100. It went a little higher but now those puts are protecting as the S&P500 drops below 1100. On the big down days, I ease into gold and silver, and I mean EASE. I plan to make bigger purchases as the market drops farther. If the market actually gets as low as you predict, I'll be there with at least 20% of my funds, part of which will go into call options.

  35. Derek,

    I agree with your contrarian stance on a short term basis only. I would be interested to see your wave counts on gold. Have you ever considered we might just be at the bottom of a W2 of major 3? If so this would be the worst possible place to sell.
    And how about a move to 1300-1350 to make a run for the target projection from the big H&S ...i would at least expect that to happen still before we go into any major correction. The weekly key reversal marked this top nicely but the current move to me looks corrective even if it broke the trendline it didn't on a monthly basis and feb just started. Lastly, the monthly MACD is telling me we are going higher before we go lower. What do you think about this? Also i believe guessing what the govt will do is a crapshoot, for all you know those clowns might be sitting on a ton of personal gold and be shaping policy to make it rise while pretending they are against it. Like your page, interesting reading here. Jerry

  36. Well if I were the critics on here I would do some second thinking in regards to what I said about Derek. Now I love gold and silver as much as any of the bugs on here and bought and sold it for years back in time where it was $5 dollars an ounce. Now we have seen the stock market crash and the herd flee to precious metals for safety and protection against inflation. Since the USA INCORPORATED in 1871-72 in London England is now in debt up to its eyeballs and foreign countries have about quit buying up more debt- US BONDS AND TREASURY NOTES and the country incorporation is facing an upcoming 5 Trillion in rollovers IT MUST START SELLING ITS Government INCORPORATE BONDS GET IT? The foreign countries and buying it so they got to get the sheeple in this country to start buying them or else the ponzi shell game is over with! So since just a stock market crash did not acheive that as domestic citizens fled from it to the precious metals market - NOW THEY WILL crash both the stock market and the precious metals market prices to get their domestic investors to run to the government bond market for safety sakes! AS far as the dollar is concerned they will crash it slowly as well, and there will be a new currency for this side of the pond. If you think the Nafta and Cafta trade deals and superhighway is finished think again cause they are building a super train track from southern Brazil all the way to Texas, which will tie into a eastern Texas corridor right into I-49 in Lousiania as I write this, and I-49 will cross over I40 near Fort SMith Arkansas and run up to the Minnesota / Canadian border. They already got the bridges under construction for this new routed NAFTA HIGHWAY. So though Oklahoma might declare they stopped it at the Red River, IT is simply rerouted. KSU- Kansas City Southern Railroad/ Kansas city de Mexico has the rail rights all the way down into central America. China put up most the billions to build the supertrack in South America. THere will be a new currency to replace the dollar I would say by 2013 at the latest. But if you don't believe what Derek is telling you about the price of metals dropping - have at it and wind up losing 40 to 50% percent on it! No name needed --- Indian Tribal Treasurer

  37. The dollar is going to collapse, there will be a new global currency, those in charge (the bansters) have declared this over and over, they want a global currency. Thinking with this is mind, I really don't see them waiting until the next recession/despression, they are going to do it THIS depression, and odds are it will be loosely backed by gold. China made it legal now for it's citizens to buy gold and silver, and illegal for them to export it, India, China and Russia are all building reserves greatly, why? to get ready because they know what's going to happen, they want to retain as much wealth as possible when we go through the shift into the new currency. I believe it will either happen in 2010 / 2011, or it will be very soon after 2012 elections (like within a year or after). But I don't really see things being drawn out that long. There cannot be a currency change if the economy fully recovers, so you have to think, it won't be long until the dominoe effect of all the countries defaulting, including the US. Then there will be the new currency and gold and silver will be supreme for the time. They say that the whole ETF and comex system will collapse once things start skyrocketting, because everyone will want physical delivery of their bullion, but there are major shortages of actual physical bullion... most of the comex, etf paper system is built on the loaning of gold... it's way over the top of how much actuall gold there is.. built up paper really... so when everyone wants the gold, and they want physical delivery, yet there is none to deliver because of the run on the gold/silver market that will happen. In short, many will be screwed, even gold bugs, unless you go with bullion, in your actual posession.

  38. There can't be a sustained hyper-deflation nor hyper-inflation without terminating the financial system. The dollar has lost -97% of its value relative to gold since 1913 creation of Fed. When a trend with that much inertia is in motion, do not expect it to stop. The trend is your friend. That trend had stalled from 1980 to 2008. It is getting ready to continue and these deflation ripples are the final futile attempts to stop the resumption of the trend. The logarithmically plotted chart of gold in a straight line since 2001 (the 2008 dip hardly deviates from the line's slope), as it is ramping up inertia to break forward to continue the 96 year dollar death dance trend.

    The reason the trend is unstoppable is because the current financial system can not survive deflation nor inflation, so the only option is for the system to oscillate wildly which is the sign of instability before it fractures and we end up in chaos with the gold price parabolic to finish off the remaining 3% of the 96 year dollar death dance.

    Yes we will get a deflation dip here, because the end game of the fiat system is not quite upon us yet, and the bottom in silver will be $12.50 in April and gold just under $1000. I will make a new analysis at that time of whether we will go lower than that. I doubt it, and certainly not for the physical metal as premiums over spot will be be increasing. And it will be getting increasingly dangerous to stay in paper trading vehicles, as we approach the end of the dollar death dance. I urge you to search at gooogle "SilverBearCafe Think Like a Banker". You can search "goldwetrust Shelby" to see all my charts and posts. Good luck.

  39. Derek Blaine is refusing to allow us to put links in his blog. And since the last time I posted here, he added a block on the word 'gooogle' (spelled with two 'o's). So I added 3 'o's. I suppose he will keep trying to find ways to block us from sharing any outside links and web pages. He wants to build an exclusive control over his readership. Derek you can not achieve both a place for people to post comments and censorship. No matter what filter you add, I can always find a way around it. I can spell gooogle about 1000 different ways, e.g. 'g'o'o'g'l'e. Your efforts at censorship are futile. Although I really don't care about your blog. You have some interesting thoughts to share. You would be better served by allowing open dialogue. all the best.

  40. The government should hire you.

  41. @ Anonymous

    The comment section does allow links of any kind, whether you post them or I do.

    See here:

    This is not out of some malicious need to control my readership (if you saw some of the messages that pop up on here I'm sure you would agree that is out of the question). It is the way this comments system functions, and I'm not sure if there is a way to turn on links.

    Thanks for the thoughts, though.


    P.S. for the record it doesn't look as though you actually tried to put in a link, just typed "gooogle", which would just be treated as a word also in a html or php program - without the "http://" and ".com" on it, it's not a link anyway!

  42. How's you target doing? getting closer everyday,

    haah? Derek, I think you you meant Gold will


    to $1650/oz and Silver to $28/oz,

    that's very much

    likely, considering Whole world dying under big

    pile of DEBT, which never going to be paid back.

    Keep shoring please, I'll take your money soon.

  43. Derek, it is nice to hear that you are not the one setting the rules for the Comment box. I assure you that if I enter the word "google", then submit the comment, then the server side is returning a red error message. In any case, it could be due to the fact that I am submitting as Anonymous or that my IP address is in Asia, or innumerable potential factors that the server program is using to try to prevent "spam".

    Apologies for the false assumption/accusation.

    Btw, I called the break down in silver from $16 to $14.50ish the day before it occurred. I am looking for the drop to below $14 to start anew next week. Been looking for shorting opportunity at $15.75 and see it occurred after market hours on Thursday. Will try to lock in the short on Friday.

  44. Derek.
    The flaw in your approach is in the value of debt vs the value of gold/silver and other real assets. It presumes all the obvious debt in the world is somehow going to be viewed as just wonderful, particularly in the US. The math does not work even if 90 on the USD is achieved.

    And what if you are wrong? Will you admit it?

    Good luck.

  45. you done loss yo mind

  46. FYI, I increased my short enter price to $16.50 on silver, based on another chart pattern I posted to my goldwetrust blog. If that fills, then after a brief re-test of $15, we may see a rally to April, then the final plunge bottoming some 5 - 6 months from now.

    Or the possible scenario still stands that everything crashes fast now into an April bottom for precious metals.

  47. "I increased my short enter price to $16.50 on Silver"

    Great, I'll gladly separate you from your money as well. Keep shorting please, don't forget to set
    stop loss at $30/oz ;)

  48. That is only a short term short. Of course silver will go to $30 eventually. But +4% in one day during a larger downwave, I will take that on a quick short trade. Down waves don't end all at once. They break out, then come back and test resistance, which then becomes support.

  49. So ya got filled at your 16.50 short i guess?

    Are you ready to feel the burn???