Monday, February 22, 2010

Curing the Addiction and Acquiring Some Patience

Gold Bugs have a die-hard sense of expectation that is akin to waiting for the Toronto Maple Leafs to win the Stanley Cup (NHL championship).  It just bloody never seems to happen, and though you start the season with some sense of hope, you realize partway through that there’s no friggin’ way it’s going to happen this time.

And yet you cling to that hope, year after year, and before you know it, it’s been 43 years since sweet victory - and the last time there was one, peace and love, long hair and a widespread disdain for the invention commonly known as the razor were a widespread societal phenomena.

Now, gold did not win the Stanley Cup in 1967, nor can I recall it ever picking up a hockey stick in its multi-thousand-year use in human history.  However, it did win a championship, back in 1980 when it made an inflation-adjusted high (based on dec-2009 dollars) of $2,398.14.  Silver fared even better, with an inflation-adjusted-high of $250.00 per ounce.

Gold now sits down roughly 50% from that high, in real terms - its championship run.  And what a run!  That put gold a moon-shot and a half above its previous average purchasing power all the way back to the early 1700’s.  That massive spike in sentiment in which so many people ran to the metals is what many are counting on to propel the price to new nominal highs in the coming months.  I think we’ve covered what that psychology does to the eventual price of assets.

When you ask a gold bug how much gold should be today, you get as many different answers as there are gold bugs, with only one thing in common – “higher than it is today”.

One major mental note to make on this chart is that the price of gold was in a very long-term downtrend for well over 200 years.

This chart is measured in dollars and thus is also representative of a fixed (or relatively fixed) dollar supply, minus certain wartime eras of fiat money accounting for some of those smaller, near-vertical, post-fiat returns to gold.  So what you are actually looking at is essentially a long-term growth in productive capacity of the United States where industrial output and the volume of goods and services was increasing steadily per person.  Thus, money over time could buy more stuff, which is what happens when real money is used.

That wonderful blue box where prices seem to start going zany is about when the good ol’ Federal Reserve stepped into the batting cage to manage the most intrinsic part of any economy – its unit of exchange.

Two things have essentially happened since the Federal Reserve’s Frankenstein-creation in 1913 – the first is that the entire world has been absolutely flooded by US Dollars.  Trillions upon trillions of dollars are out there, all created via some form of debt and given “intrinsic” value by the fact that they are universally accepted and that they are legal tender (claimable in court).

The second is that the massive and continual flooding and increase in money has done what all long-term fractional reserve banking ventures do – they start lending to the good, capital-producing folks first.  Then, when those folks are borrowed up to the hilt, the FRB system turns its sites on individual consumers using mortgages and other forms of credit.  Finally, when the best of those are all lent up to the hilt, the quality of lender decreases again and again, until finally everyone with a first and last name, and being fully clothed, who appears in a bank is given a massive amount of credit-created fiat currency with which to do whatever their hearts desire.

But this process can only go on for so long.  Eventually, the smartest of these folks wise up to the debt burden and, against the wishes of all their “betters” (you know, the demigods in charge of managing the economy), begin to do something that very few of the living have even seen.

They begin to pay off their debt faster than they take out new debt.  The positive psychology towards debt turns negative very quickly.  It usually takes a loss of some kind, say in real estate and stocks, as in the Post-Roaring-20’s era.  People realize that using credit to speculate is dangerous, that paying interest and principal on something worth less than their credit bought for is like contractual slavery.  The first and most savvy of these folks start erasing their debt in earnest.

Meanwhile, the dead, who have lived through deflation before, shake their heads in pity for what is about to unfold.

Just as, on the way up, the rush is to take on as much credit and get into the stock game, or house game, or commercial property game, as soon as possible, the rush is to get the hell out as soon as you can before you’re holding the bag.

That rush has not yet truly begun.  It has been temporarily shimmied into a structure of seeming stability by those economic managers who think they have a chance in hell of stopping the rush.  They don’t.  When the collective market turns on them they will be swept away in the tsunami along with the crowd they are trying to trick into falling asleep.

Savings rates will be in the double digits again before this deflationary period is over, a most likely a lot higher than the 12% it was sitting at in 1982.   Household debt’s share of GDP will first skyrocket as economic output decreases (if you discount government spending, which just makes matters worse anyway, it has already skyrocketed), before falling rapidly to a level less than half of where it stands today.
Another reason the Gold Bugs will have to hold out just a little longer to break-even on their 1980 splurge in the PM’s, and that generation long wait for redemption.
People aren’t going to “flee” to gold and silver just yet – you can’t pay off debt in gold and silver, the banks won’t take it.  Try asking your employer to pay you in gold and silver coins instead of dollars – not happening.  And with today’s unemployment numbers the way they are, most people are willing to not only get paid in FRN’s, but far less than they were a few years ago.

No, Gold Bugs, there are still some major hurdles to be overcome before a real return to gold and silver can happen.  The catalyst, to this writer’s eyes, is going to be that point when about as much of that private debt has been paid off and written down, and those malinvestments reallocated, so the only ones left holding the bag are… guess who?
You know it – your friendly, neighborhood “I’m from the government, and I’m here to help!” collective body commonly known as the State.  When the majority is out there and free of the debt shackles, and the State is left with the bulk of the liability, that’s when the people should finally wake up and tell those folks to eat it.

In the meantime, psychology is still extremely elevated toward the metals as a capital gains asset - Psychology that should be unwound along with everything else, so the market can pick its money when the time is right. 
And if history tells us anything, there is a good bet that at least one of the PM’s will be waiting nearby to take up that role.

Until then,
Derek Blain

Intraday Update - February 23.

We may be seeing a resumption of the bear market downtrend this morning, although there is still a good chance that the markets could recover intraday and push for a final high through tomorrow.

That being said, if we see the following pattern play out through the afternoon, the chance that this is a bear market trend-resumption increase greatly.

Google's Humorous Inflation/Deflation Bias - February 24th

Many of the messages on my site as well as emails sent to me attempt to tell me that, clearly, the vast majority of people are predisposed to the notion that "deflation is coming".  Funny enough, the vast majority of people I talk to are fully aware of what inflation is, and have come to expect it as a regular occurrence (while you and I know that inflation is, always, a monetary phenomena only capable through direction action on the money side of the economy).  Mind you, they don't put it into economic/cause terms in light of total money etc., however they do put it into symptom terms.  Something like this:  "What is inflation?" A:  "Rising Prices".  "What is deflation?" A:  "Falling Prices?"
Deflation is only a natural occurrence in a natural economy using market selected money that cannot be touched by government or any other monopolistic agency.  However, once you have some sort of entity with a monopoly on the issue of money, you automatically get inflation as part of that package - through actual direct action of that entity.
This is what makes deflation such a rare event in modern history - it can only happen when there is far too much money in circulation that has been introduced steadily and to poorer and poorer recipients over time.  Unnatural deflation, what we are about to really see play out, is what happens when all of that bad money - which has blown asset values sky high and decreased productivity per person over time through mis-allocation of resources - gets reallocated, the savings rate skyrockets, and people do not want to spend in the wake of falling prices.  
On the note of majority inflationists versus majority deflationists out there I did a quick google search for the following terms:  "inflation", "deflation", "money inflation", "money deflation", "Hyperinflation", and "high deflation" and "hyperdeflation" combined because the term hyperdeflation is not a correct one.
Here are how the results stacked up:
"inflation" - 37,500,000 results
"deflation" - 3,570,000 results
"money inflation" - 23,200,000 results
"money deflation" - 2,080,000 results
"hyperinflation" - 5,810,000 results
"hyperdeflation", and "high deflation" - 2,225,000 results
Total for all inflation terms:    66,510,000 results
Total for all deflation terms:     7,875,000 results

Even funnier, when I typed in "deflation 2010", the suggested terms came up as follows:
I know it's a trivial study but I found it a humorous response to those loudly ringing the inflation bell and saying that theirs is a contrary view.

You would figure more people would be aware of a worried about deflation, since the Federal Reserve sits shaking it its booties at the mere thought of it (and well they should, because they will be powerless to stop it).  And yet, fellows like Larry Kudlow on CNBC have been talking inflation for months now - I especially remember a Peter Schiff interview where Peter was talking up hyperinflation and Larry was nodding vigorously.  They ended up ganging up on a bond trader who thought yields would be below 5% on the 10-year T-Bond for the next couple of years.

People have come to expect inflation as a normal way of life - they are soon to discover that nothing could be further from the truth, as we experience a historical phenomena over the coming years.



  1. So Derek, What's your best guess as to when the bottom will come? "The Bottom" meaning, of course, when deflation has run its course and the inflation in general prices, and of course PM prices will begin. Six months, six years?

  2. Oh, one more question: if this coming deflation is to be caused by the shrinking amount of dollars loaned by the banks, and the sucking of money from the economy caused by debt repayment, what about the huge amount of money created by the Fed? Why does THAT not enter the equation? Does it not exceed the amount of retired debt, meaning a net INflation?

  3. Derek, thank god I sold all my gold and silver so I can pay by debt with dollars, is this really your reasoning for lower gold and silver prices? Why is gold making all time highs in euros? I guess they just don't know any better, paper is better than gold in this enviornment, I will not take that chance.

  4. Good assessment Derek. I'll just keep riding the 'short' bus until the awakening as occurred.


  5. Derek, I don't know if you follow the Nasdaq Bank Index (BANK), but real close to possibly forming a double top today and extremely over bought in the 1768 area, your thoughts?? If this is the case, the banks should lead the general market lower the rest of the week or so.......

    stay tuned........

  6. Thank you Mr. Mahendra Sharma with pretty charts.

  7. Derek,
    Thanks for the LIGHT shone on the board.
    You can take some solace, and unspoken THANK YOU's from the one's who will heed that advice, and save their collective butts.

    That said, I have an obs to make, and want your take, pls sir.

    As you are more than well aware of, our OLD economy was driven by Consumer Spending.
    To whit, we have TWO huge problems.( I know, way more than two!).

    But, as I see it, #ONE......BOOMERS.

    I am one, my loose spending, and buying, and toy/trinket day's are past..........

    And there are a LOT of Boomers in my bracket.

    #2- Couple that, with a much lower population growth, the destruction of our manufacturing (blue collar base), from the good old days........

    WHO, is going to take up the slack, and right the ship of state?.

    As a Service Economy...........we have NO chance.
    The amount of debt accrued,and being accrued by the BHO Administration is totaly off the charts, and I see NO way(mathematically) it can ever be repaid (even brought under reason) IF it were stopped today.

    So, as for Old Glory.................

    Who is going to take up the slack, and correct these virulent spending errors?.
    How does the Land of the Free, and Home of the brave, aright itself THIS time?.

    We never have faced an enemy this voracious, or damning.

    I know what needs to be done, but, I know, NO ONE in Gv't will allow it to BE DONE.

  8. Terry,

    some excellent questions.

    To be honest, my view on the economy is that it cannot ever be managed, via tax breaks/increases, subsidies, monetary policy, etc. In fact, any attempt whatsoever to "manage" the economy only leads to the misallocation of resources and as such it dampens the overall efficiency and productivity, and destroys the wealth within the economy.

    I'm not calling for an "end of the world" scenario, as so many are - it might feel like it for a while, but it certainly has in the past and we are just experiencing an historic correction such as few generations ever see.

    What we are looking at is a multi-generational misallocation of vast swaths of economic output that will take some time to reallocate. It can, and mostly likely will, be done, as the population grows further and further disenchanted with the spend-happy government mentalities that exist today, where governments are five years or more behind the psychology of the masses.

    I think that there will be a resurgence of the production power of North America, but it will take a vast reduction in the size and scope of government intervention, abolition of the Federal Reserve, and a downsizing of the financial sector akin to that of the Great Depression before such a thing happens.

    Lucky for us, the market definitely wants to make these things happen - the existence of these interventions and misallocations by default are contrary to market forces and a natural economy (the sum of all participants). As such, with even a half-willing population, many of these things will most likely become fact over the next 10 years.

    I expect deflation to last for several years, with a massive wave of it occurring for the first 6-12 months and a slower petering out as the financial sector is pared and chopped down to size and people's behavior adjusts accordingly.

    Your kids, Terry, are going to be like my grandparents, who always hated bankers - I never fully understood that until I studied Mises and Hayek and remembered that they lived through the great depression, and the history of what really happened throughout it.

    Thanks again for the great questions.


  9. Vic again
    I think there's one chart everyone should look at. In 2003 the Fed stopped reporting the M3 money supply (printing). Now compare the price of gold and silver to that time until now. Was gold a fad? I don't think so, the more they printed, the higher it went.

    The IMF just put 191 tons for sale of gold,and sold 212 tons to INDIA, just in time to help flood the market and drive prices down. Possibly to help stocks look good.

    Wave 2 in the commercial real estate market forclosure is underway.

    If we use the 1984 inflation gidelines it's 9.7%, not 2.1%. Unemployment using 1994 measurements is 21.7%, not 10% that news people (spin doctors) report.

    Freddy Mac, and Fanny Mac, What? Get all the funding they want and put it on the American Tax payer?

    Yes I still think gold is going to drop and there will be buy times. If we look 3 or 4 years down the road, do you think dollars are going to be worth anything?

    As for buying a car with gold, No but you can trade in gold for the currency value when that time comes.

    Please think about that.

  10. Derek, could you please answer one question for me so I could understand your argument? The economic vectors you mention are all true and valid and you deduce that we will have a 30's style deflation as the economic factors are all the same only far more severe. That is all true and pretty strait forward. However in 1930's the Fed did not have the power to print money endlessly as it does now. Thus everything is the same but one thing, the dollar is different today than it was in 1930. For every dollar that each American pays back as dept and for every dollar that each American saves the Fed will print $100, or $1000 or more. Why would they not? What will stop the Fed from printing its way out of a deflationary fall?
    The answer is important to me so just in case you do answer, bear with me... Big B can out print any deflation now, no matter what the number is. We simply will not have the dept shrink faster than Ben can hit keys on the keyboard. The Congress will not stop him because they won't have to. During a proper deflation prices fall right? So that would mean that all the printing will not push the prices up. Which would mean Ben can print as much as he wanted and no one will say boo until prices start rising. The only thing that can stop Ben is inflation, not deflation. So my question is that if deflation is ahead why would the Fed stop printing?
    I would really appreciate an answer as I have been following your writing for a while and I definitely like what you have to say but I just can’t put these two and two together… The Fed and deflation.


  11. Derek,
    Thanks, my kids are likely older than you.........if that's a recent photo.

    You said exactly what I wrote here........

    "I know what needs to be done, but, I know, NO ONE in Gv't will allow it to BE DONE."

    "I think that there will be a resurgence of the production power of North America, but it will take a vast reduction in the size and scope of government intervention, abolition of the Federal Reserve, and a downsizing of the financial sector akin to that of the Great Depression before such a thing happens."

    The WON'T let us, is where the Gv't has to be taken control of by smarter people than they have on the dole now.

    Danka, appreciate the info.................I agree it's a biatch, I have been thru almost everything as far as America goes, but I never in my wildest dreams thought I would see a Fascist POTUS,with a Marxist,Socialist Admin/CZARS.

    For those that have not been to Jesse's today, go watch the interview with Elizabeth Warren.....before it's taken down.

    Derek, after watching it, hating Bankers is a X's 1,000,000,000............

  12. Anon,
    "The IMF just put 191 tons for sale of gold,and sold 212 tons to INDIA, just in time to help flood the market and drive prices down. Possibly to help stocks look good."

    The RBC sale, caused prices to go UP, not down.
    The Left overs, their pushing now, w/ no apparent PUBLIC takers at $1,112.00 an oz, is hurting...just the opposite of what you thought.
    Unless the Mkt crashes, and I mean BIG time, the floor is at $1k, IMHO...........
    Had RBC wanted to, ONE week after purchase, they could have dumped the 200 metric tonnes they bought and made a tidy $800,000,000 profit.

  13. Hi, Some very great points in this blog and the comments! A point to consider, is gold may actually become the "ultimate" bubble. As other assets look to underperform, and, like the investment rational in the real estate bubble, "Gold they arent making any more of it" may turn gold into another mania. I
    believe prices will technicaly retreat short term, but I do not believe we will see the collapse of Gold/silver prices as in 2008 per se. Once we move down from this D cat bounce, and as the sobering realization of the depression unfolds, money may move to low cost to maintain hard assets. I hate to sound like doom and gloom, but the facts are the facts, and I agree with Terry on the "facts". Remember, there was no appreciable rise in gold prices in the "great depression" as gold prices were fixed, and the depression came in waves, not in one monster drop.
    Hoping for the best, preparing for the worst.

  14. I meant to say I agree with Vics facts, and in fact you are all correct, what it really just boils down to is the most important factor in investing or buying anything, and that is timing.

    "what about the huge amount of money created by the Fed? Why does THAT not enter the equation? Does it not exceed the amount of retired debt, meaning a net INflation?" Yes, but the Fed is not injecting that money directly into the economy, it is and will remain for sometime, in the smaller banks coffers to protect them from more toxic asset write downs, in a game of survival. So the "street" is seeing the sudden lack of liquidity, and deflation just as the author says, and will be the near term observable effect. Actually I believe we have both going on at the same time, as we had a huge amount of money injected already in the last two bubbles of the past ten years. Somewhere I read it as two tug of war teams opposing on a rope, at first nothing really happens at first, but then eventually, suddenly, one side just gives in....

  15. So, it seems to me, we should not but gold-- yet, no Stocks/Bonds. Where to put money (such as 401k or IRA) that does not allow shorting? Please answer that question. Thanks.

  16. In 1920s, gas was 10c/gallon, now it is $3. Gold was $20/oz back then, which can be translated to $600/oz in today's oil-based price. Is oil simply too cheap or is gold inflated?

  17. A good suit of clothes (Mens) was 10-20 dollars. Now a good suit is 800-1500. Bread was five cents now it is $3.50 plus etc. (Gold would be 1400 plus) You have made a typical rookie move. Picking just one item and trying to force a value model on this one item. Part of oil's price is manipulated. Remeber there was no opec in 1920.

  18. At the moment, we have in the UK, London Fashion week. Already I can hear some of you say 'what the H*ll has that got to do with our interest here'.

    I will explain. It was referred to on the news that all the prime seats, normally filled by regular, 'professional', journalists of the media, are now being seized by 'bloggers' who claim to be 'reporters'. Their only claim to fame being their own blogging website.

    So what, you say? I will continue

    Defaulting, and economically troubled nations (more in the pipeline) are being requested (forced) to curb spending, and get their financial house in order.

    The US, the largest offender will have to show similar restraints. We cannot have in today's world where we have so many 'bloggers' as self styled journalists, and financial analysts. a blatant 'do as I say, not as I do (unless you are doing the right thing).

    Therefore watch for the, at present, mere rhetoric being turned into some action in the US in the form of increased interest rates. Also other belt tightening measures.

    How should increased interest rates under normal conditions affect gold? It should make interest bearing accounts more attractive than holding gold.

    Well, if gold was not providing you any capital gain, even if it were not falling, and you could draw interest on your cash, would you not move some, or all, to a position of gain?

    But then these are not normal times.

    I include a quote from Kitco's 'resident' analyst.

    "...Easing apprehensions about an imminent hike in the fed funds rate helped gold climb to a one-month high overnight in overseas trading.

    On the other hand, the speculation that the withdrawal of various government spending programs will reignite the erosion in the value of the US dollar was seen as once again augmenting the quest for precious metal exposure......"

    Well, first let me say that I took him to task for the use of 'on the other hand' which when used correctly infers an opposing view. But here they both support each other. (at least as I read it).

    But also note how it gives rising interest rates as a plus for gold.

    Kylie, and anyone else interested, watch closely now the action. I never act on rhetoric, but action we cannot ignore.

    I feel a lot is going to happen sooner, rather than just later.

    'Keep your powder dry, and be ready to fire, if necessary, before you see the whites of their eyes. We have longer range weapons today, and the enemy can come on fast, and without much warning (watch out for those pesky roadside bombs though)

    Footnote: If we don't like what is happening, we all can make a difference by using blogs. Did not Napoleon say that 'I would rather face a thousand bayonets, than a writers pen' ? (I'm sure he must, he said so many sparks of wisdom. Wonder what he would have said had there been computers and internet?)

  19. When are you going to be ready for subscribers?

  20. What an idiot. Yes, thousands of countries, cultures, tribes and peoples throughout the ages thought gold to be the ultimate medium of exchange or store of wealth, but you know better. Wow, congratulate yourself, you must be the smartest person that ever lived! Yes, an unbacked, intrinscally worthless piece of paper, which can be made at whim and supplied endlessly, will be ultimately much more valuable than the best ever historically proven ultimate wealth preserver.

  21. @ Ray Newton

    Thanks for the heads up. Are you going to play the Gold Futures or what should I keep my eye on?

  22. Kiley,

    You watch everthing at the moment, that is - main market, Gold, Oil, and dollar. Even watch Walmart (from where does it buy most of its goods? That gives you an eye on China ) Walmart is an indication of inflation signs where it will hit the US shopper.

    It's the little indicators which add up to the big one.

    Things are brewing (being set up) Patience is needed.

    You ask what I will do

    I will probably first pick up some mid tier mines (low cost) which I will view as 'options' without time (timeless 'leaps;) I believe these, picked right, will return the biggest percentage profits, when gold resumes its climb. And they are generally a low risk.

    Take care

  23. I hope you don't mind but in case some of your readers have not yet read this brilliant essay.

    I believe this should be mandatory reading for all people. After reading this I wonder why Greenspan is not held accountable for his contrary actions during his two decade "reign of terror"? By his own admissions he knew full well what the consequences of his "easy credit" paradigm would bring.

  24. @Anonymous 4:30pm

    It is a great read and shows you just how deeply corruptive giving someone a monopoly power over anything really is.

    We recommended that as a read back in November, here:

    However thanks for the re-post as it really should be mandatory reading.


  25. Derek,

    You are talented and bring a fresh/unique perspective. Thanks so much for sharing. But you have a small mistake and then a major mistake.

    More accurately than the reason you stated, the reason gold declined in inflation-adjusted terms is because the supply of gold increased. Gold does increase in purchasing power (i.e. deflation) during times where annual growth in real production exceeds the annual growth in gold supply. As you see on Derek's chart, this was the case during a big chunk of the gold-standard of 1800s before the enough debt circulated into the economy to start interfering. This is true on a gold standard, and is also true on a fiat standard, except in the latter case there is more near-term distortion to the price of gold, due to the fact that near-term value is based on what society says money is, not what it will be for eternity.

    And this brings us back to the astute point of Derek's missive. Derek's astute point is that society won't let the gold holders sit on their gold and reap an increasing value (purchasing power in inflation adjusted terms) as real production exceeds the mining rate of gold, thus debt is the way society dislodges capital from gold but the payback is the entire society suffers from mis-allocation and exponential ramp into debt saturation peak and implosion. So there is this ying-yang between gold as regulator of mis-allocation and gold as mis-allocting hoarder of capital. Imho, this is why the bible says for the rich man to enter the narrow gates of heaven, he must give it all away. And why the parable of the talents reprimands the man who buries his silver (talents) and God takes it from him and redistributes it to those who know how to keep capital re-invested for maximum good of society. And this is what I wrote about in my comments in Derek's prior article "Another day in bull land" that gold could be a trap, and rather as Derek points out, the masses will win and they will only support a gold as money when they have paid off their debt and have gold too.


  26. ...continued from prior post...

    However, Derek's chart is in "inflation-adjusted" terms, but his chart is wrong from 1982 forward, because shadowstats dot com CPI calculator will show you that since 1982 we've had 3.2 times more inflation than reported, and thus on his chart the $300 low for gold was under $100 and the recent $1200 high was below $400. So we can see the current price of gold is still within that downward channel and not as overpriced as Derek thinks.

    Also the State is determined to prevent price deflation on leveraged assets, so although the "inflation-adjusted" price of gold may continue to fall, the nominal price will continue to rise.

    Also the State actions are destroying real production, which will drive the price of goods higher, which will thus drive gold higher in price in order to keep it within the channel on Derek's chart. This is the classic stagflation.

    That is why I say we will never see $650 again.

    And on top of that, the global economy is so far mis-allocated and out-of-balance, with China having a near monopoly over industrial production via a currency peg and mutual debt dependence model, that in real terms the indebted westerners can not pay down debt, instead what is happening is transferring the debt from the individuals balance sheet to the State. The individuals can not walk away from this State obligation without an implosion of the global debt system. This is most surely chaos beyond imagination, and Gold thrives in such chaos.

    Yeah we will probably get a pullback here on precious metals, but only a pullback.

    Now mining shares that is another story, because gold has to rise faster than input costs and sovereign risks have to be factored.


  27. And remember your puts are not inflation adjusted. You can lose everything betting against a nominal decline in the era unlimited power to create digits. Not wise.

    Yes there is deflation, but only relative to the price of gold. Gold and silver are the only assets that can retire debt.

  28. Even cash is not inflation adjusted, whereas gold and silver are inflation adjusted. They help you retain wealth in all possible actions the State can do. Even if the State moves to indirect modes of confiscation, i.e. taxation, this will merely drive the price of gold higher as fewer people will sell (openly), thus rewarding those who make the efforts and take the risk to find the black market.


  29. Let me simplify my conclusion about ying-yang above. Debt is the regulator of gold hoarders and misers, and gold is the regulator of debt staturation of the State. When either gets way out of norm, expect the other side to assert itself in the market (in real terms, i.e. purchasing power).


  30. Lastly, I thought you were talking directly to me about 43 year drought for the Toronto hockey team, because my hometown New Orleans Saints finally won their 1st Superbowl after 43 painful years of being the "Aints". :D

    I am trying to save you from some pain. Keep your stops tight on those gold and silver shorts below $1044 and $14.64. We may not even reach $1000 and $14, with a long shot to reach $900s and $12s.

  31. We have had many unprecedented. more than valid, reasons for some time now that before we experienced the causes, we could have expected gold, at any one point, to have shot up to the heavens, even if the price then came down but levelled off say at, at least $2000 plus.

    It did not happen. It did not happen because those who control gold ensured it did not happen. There is much more at stake than messing with gold just to make a few bucks on selling their gold; then buying it back cheap when they burst it.

    We are in 'interesting times'. We do not realise the changes we have experienced already, many to our detriment, which we have accepted without a whimper. The big ones which are still to come, we don't see (most don't) so no one worries. Anyway, they feed us lots of 'tittle tattle' about celebrities we can suck on as a pacifier. It keeps our mind off the real issues that they do not want us to focus on.

    Even 'sport mania' is a drug for the masses. Rome introduced the gladiator sports to keep the masses occupied with 'entertainment'while the Empire declined.

    Sport is being used for
    mass hypnotism. Of course you will never see it as such. Nothing wrong with sport, or TV, or movies, all other things being equal. It is how something is used, and why, that brings it into question.

    If you believe there is any hope that things will improve - take a look around you at what occupies the minds of the sheeple. Do we really deserve any better?

    The masses cheer, whoop and holla, in the stadium, then when they want to take a simple air journey they permit people to peer at their wives and daughters naked bodies through their

    What we few who think, and 'see' must note is that gold's rise has been steady, and long, with the usual shakeouts one expects with this, at times, highly volatile commodity.

    We must also note that there are companies who know the market well, who, in spite of the present 'lull' in proceedings, and cries from doomsayers that it's all over, still want us to sell them our gold. They are spending millions in advertising every day. Why, to pay considerably more for it than they could if gold had reached its high and was now on its way down?

    Don't listen to what media, Government, and analysts say, watch what is happening. Stop filling your head with garbage. Garbage in, garbage out.

    If you understood gold, you would know it can go up in a depression should there really be one. Gold foresees change be it inflation, or deflation,
    way down the road. There are genuine reasons for this. When we have full blown inflation, or hyperinflation, that is the time to be ready for selling.

    Look at gold's last high, then ask yourself, is this the highest we are going to see it in say the next twelve months? If the answer is no, then backing it now, even if it went down further, you are going to make money, far more than any bank pays, in the next twelve months.

    That is how I view it, and back it. You will do as your belief directs you.
    Go in peace

  32. This guy has it right on bro.

  33. Derek, If deflation is the unbeatable force that many think, Ben still has one more tool in his toll box. He could do what was done in the 1930's, fix the price of gold.

    This would solve many issues, backs the dollar with gold, elimates much of the debt, help bring back jobs to the U.S., the only people who would suffer would be fixed income.

    Bottom line, we could wake up one morning and find that Ben has set the price of gold at 5000oz, at that point, you either have gold, or a lot of worthless paper, I am not taking that chance in the hope of cheaper prices down the road.

  34. Some things to consider

    Only a very low percentage of Americans have passports, and most of the ones that do are foreign born.

    The US because of its size, and varied
    geography has many large attractive areas that even many Americans have never enjoyed.

    Also, after many years in which the US has dominated the world in many ways, where it appeared so many wanted to come and live there to enjoy the seeming high standard of living that. at least, it appeared to offer everyone.

    Consequently, and understandably, the US nation is a comparatively insular one by nature. Many see America as the 'first world' and that everything
    outside it is third world, or at best, second.

    Please bear with me, I am not being disparaging, and it doeas have relevance.

    This is not only what is changing, it has changed, and there is no returning in our life time, if ever, to the status quo that existed before.

    When the previous poster talks about what Bernanke, or anyone else placed in that position, might, or could do, is a product of that inward thinking.

    You should have seen by now, well I know you have when you think about it, that The US administration (note I don't limit it to Government) appear to be doing many things which you can't understand because to you, they are not in America's best interests.

    It is the same with all countries. America is not alone.

    If we want to UNDERSTAND OUR NEW WORLD and ADAPT, then we have not only to acquire and use the lastest technology, we have to change our thinking.

    We haven't had computers that long but how they have changed, and especially the sofware. When did you last change YOUR software, I mean, in your head.

    It is no use hearing the words global, international, unilateral, bilateral, etc., and not understand what they mean.

    Though sometimes, with the rhetoric that media highlight for sensationalism. it is easy to overlook that world governments are working more and more together. Why?
    For one - THEY HAVE TO. And they are tied at the hip whether they like it or not.

    I must get quickly now to the point. The US, or any nation can no longer
    do something to solve its own problems at the obvious expense to another. Not without severe repercussions.

    The price of gold affects all nations. It is the root of all prices, and currencies, either directly, or indirectly. It is invoved in more areas than one realises.

    One false move (relax, it won't happen) could send our world back to the stone age, at least, metaphorically.

    The Germans have a wonderful word - Gestalt, meaning whole, that is seeing something as a whole, in order to understand its parts.

    And that is how we must view our world.

    In other words, keep 'nationalism' for the sports field (if you must)

    It has no part in our modern 'financial' world. (and that includes, business, economic, and political. All the barriers have been, are being, or will be removed.

    Good and Bad, are merely points of view.

    I do not mind if you do not agree. I am only like you, trying to come to terms with a changing world, in a way that will allow me to adapt and prosper

  35. High Inflation to Plague the West

    The big problem going forwards is going to be high inflation in the West, especially in countries like the UK and U.S., but not in Asia, according to Hennecke.

    "This development now with the start of sovereign bond crisis across the Western countries that we have seen in Greece and are starting to see in Spain… across the euro zone there's absolute disasters there," he said.

    "In this development we are going to see a sovereign bond crisis probably leading to very high or even hyper inflation in most Western countries and that could actually ironically, theoretically even, drive up the markets because if you have high inflation, anything with any tangible assets behind it via commodities, companies … could even rise," Hennecke said, adding that volatility could definitely increase sharply again.

    His company focuses more on stock markets in Asian than on Western ones, he said.

  36. Sorry for the many errors. I did not edit, and trying to put something together in that small window is a trial.

    As they say - 'Trial and error'.

  37. Once again, another WHIPLASH kind of day.......

  38. YES
    is a minority opinion!! People like Derek are the Majority.

    March 1, 2010 up up DOW 11,000 S&P 1,200 by October.

  39. You can't google search words like deflation and inflation because there is no such thing a Consumer Price Deflation index. People use the CPI hence more inflation hits.

  40. Sorry, Derek you are still in the majority!!!!!

  41. Google search minus consumers

    -consumer inflation 2010 (hits 13,100,000)
    -consumer deflation 2010 (hits 7,070,000)

  42. We are in a Delationary Cycle, no doubt.
    Exceptions, Food / Fuel.

    Fuel, basically caused by the markets.
    Food, shortages,( we will see this on a scale none here have ever endured, before this party is over).

    QE as BARNA-kEy CALLS IT, IS A joke.

    There is no way to remove excess surrency,liquidity, once it's in the system..............Worldwide.............

    Derek is spot on, but, for now............

    Soon we will have inflation, and I laughed( why I do not know), when a talking head Gv't type refered to the Carter years as Hyper Inflation..

    No, that was just High inflation.I lived thru it, and if you were Flush, you made a killing.......

    If a working stiff, it HURT bad.

    As we all know Hyper, means OUT of control.....
    That is where we are going, after the deflationary period runs it's course,and, we WILL get there, no way out.

    Just be aware of both, prepare for the latter.....both Hyper deflation/inflation, are murderous...........if I had a choice I would take hyper inflation over deflation.

  43. The tug of war has begun, I agree deflation is first, housing prices have fallen tremendously, and probably will continue, which will trap owners who had not previously tapped into their equity which is erroding daily. Saving/paying down debt is causing a shortage of money we usually use to fuel our service economy.

    One point I would like to make here, is the gold standard has been called the "cause" of the great depression, because the fed could not print enough money for quantitive easing. Now, the fed got the US into the mess to begin with, and then blamed gold for not allowing them to make a bad situation worse, and we still had huge inflation during/after that time. So lets just say Benny is right, and we pull out of this depression and into a new bubble, someone tell me where inflation will end with no Gold to cap money printing this time?

  44. Any suggestions for investements in a Roth IRA?

    Seems there are limitations but am looking at GRZZX as a shorting vehicle and perhaps trading in and out of SLV, etc.

  45. Some fair points are made here. Especially about the state of the US economy and the possibility of deflation here. But...

    Gold is not unique to US. The two largest consumers of gold are India and China. You would need to do this kind of analysis on a world wide scale to get a complete picture of Gold demand going forwards.

    Then there are the central banks... the Europeans have stopped selling their gold, the Indian, Chinese, Russian and Middle Easterners are buying.

    Then there is the question of the inflation figures. Look deeper and it is fairly clear these numbers have been manipulated by govt since the 80's. ( has a detailed analysis). By consistent inflation calculations the peak for gold in 1980 was over $6000 in 2010 dollars not $2300. So gold is still a long way from that in real terms.

    The argument that you can't pay off debt with gold or silver is not meaningful. You can't pay off debt with a stock, a bond, a physical asset, a T-bill, etc... You have to sell it to convert it into cash before paying off the debt. So all investments are the same in this regard.

    There is a danger in reading too much into the 1930's as a model for what is going to happen next. The world is a very different place and hyper-inflationary busts are many times more frequent than deflationary ones. Not least we have a government that has an unlimited virtual printing press for money and they are deathly afraid of deflation and have stated they will do all in their power to fight it.

    Also now US is a massive net importer of resources, not the case in the 30's and oil is trading at $80/barrel it was at $25 8 years ago.

    So prolonged deflation is possible in US but it's not a certainty and world gold demand is not very dependent on the US consumer anyway. How many US people do you know who were buying gold five years ago - not many.

    I don't have a crystal ball - I don't know if gold will climb or fall but I find your analysis to be incomplete and very US centric.

  46. I believe I brought this up before, if so, some have just not grasped this very important fundamental where GOLD is concerned,

    THE GOLD MARKET IS HIGHLY SECRETIVE you cannot accept ANY published sstatistics. That includes a nations holdings, who is buying, selling, how much, in fact anything.

    The WGC (World Gold Council) only know what they are told which they have to take at face value. How do I know?
    Because I suspected something some years ago (I have followed this market a very long time) and they admitted this to me in their explanation, when I took them to task.

    The only use this information has is that 'amateurs' believe it, and act on it.
    BUT! Amateurs do not move this market, they can't. They just provide easy pickings for professionals.

    So forget this China is buying, China is not buying, India this, India that. Dubai this, Dubai that. They help to fill and sell analysts newsletters to the gullible. And it acts as a facade to the whole business. If they didn't publish any 'news' or stats, whatever, it would look mighty fishy, and give the game away - n'est ce pas?

    There is a very valid reason why all the big traders especially nations, have to play this market secretively and deceptively, and if you really understood gold, and its place in the system, you would know that reason.

    There are ONLY TWO FIGURES YOU CAN BELIEVE and those are, the price you can buy it for, and the price you can sell it at.

    Now, if you want to believe otherwise, I cab't stop you. But with this mentality you will be very lucky to make any serious money in the gold market, or have an understanding of REAL ECONOMICS.

    On that, I will bet my last cent. (It's tough enough when you understand)

  47. Amid all the doom and gloom, and talk of financial Armageddon, London is booming, not just enjoying the last days of a dying economy, and nation, like dancing on the deck of the Titanic, but building for a new future.

    Huge skyscrapers, at least by UK standards are going up and on the drawing boards.

    A new US Embassy is being built - a huge impressive building being termed 'the Castle' because it will have a moat around it (How English can you get?) Got that, a US embassy, you know that other nation they are trying to right off.

    A new runway is scheduled for Heathrow, the gateway to Europe

    These are the tell tale signs we have to note. This is not rhetoric, we can see this with our eyes.

    London is like a nation within a nation. It's a land unto itself. The actual 'City' that is the financial district, is only one square mile. New luxury apartments for the high flyers of the financial world are going up.

    But no nation can thrive on its own. It indicates a thriving world, even though a changed one.

    The UK like the USA is owned by its creditors. But they have bottomless pockets, and they look after that which is valuable to them. Stop worrying about facts of life. We can't change it, and life is too short to waste fighting lost causes.

    To me, Paris is just 'down the road'. I can be in the heart of Paris or Brussels in around 2 hours after an extremely smooth ride. By the time you've finished breakfast, and stretched your legs, you are there. We are no longer an island.

    So why is this important. To me, it tells me that people with imagination, power, and money, are not doomsayers. They see a bright future.

    Yes, a changed one, and a big divide between the 'haves; and the 'wish they had'. But there will be great opportunity for those with vision, belief in themselves, and willing to change their thinking to adapt to a changing fast paced world.

    As for CCTV security. That I do not mind. They do not bother me one bit. However, I do not like anything that sees through my clothes like they are bringing in at airports. I mean, I don't mind for myself, if the 'male operator doesn't mind being made to feel inadequate, or if female getting over excited (smile), but for women, including children, it is disgusting. But, I suppose we were all naked once.

    We are living in interesting times. There is a great future ahead.
    My advice - STOP digesting that media rubbish, and get on with life. The Chinese say 'Crisis spells Opportunity'
    Let the force be with you .

  48. Btw, I suspect the IMF gold does not exist, and is already around the necks of Indian women, via leasing to bullion banks over the past decades to keep the gold price suppressed. I suspect this announced sale is nothing more than an entry in an accounting ledger, with no physical movement of gold. I mean to say there is no more gold in the basement of the New York Fed. The Fed has admitted this, as they have classified that gold as "deep storage" and valued it is at a fractional of its value. See other research at GATA for more on this.

    We have now deflation of leveraged asset values, and inflation of basic commodity (non-leverage asset) values. In fact, the values of commodities, and especially gold/silver were suppressed via producer hedging and central bank leasing/sales over the past 30 years.

    Those who are myopically looking at one asset class to say whether we have deflation or inflation, are going to miss the train in gold/silver as it leaves the station.

    ...continued in next post...


  49. ...continued from prior post...

    What we have now is not deflation nor inflation, we have the implosion cycle of the "money is a debt" fiat system, where the banksters grab all the leveraged assets, then reset with a new fiat and a new region devoid of debt to use as their tool (i.e. developing world). This is the final stage to bring us to world govt and the grand finale debt bubble (30 years more?) that ends with "Pay in Blood" system in Revelation. Yes I figured out 666 is "Pay in Blood" mark.

    Socialism and debt will deliver the cattle to end times. It is undeniable for the masses. I will choose my own path (beheading) as Revelation advises.

    Some of you commenting here will never learn. You continue to salivate over speculation and margin.

    You can see my suggestions in the comments of Derek's prior missive "Another day in bull land".


  50. No nation has true Socialism, Communism, Fascism, Capitilasm. At least, I do not know of one.

    There are mixtures of tenets which are often associated with these media touted epithets. Some may have a little more of one than another, but all are far from pure in any sense of the word.

    To get hung up on any 'ism' only indicates how much media garbage has been digested. It is more a problem in the US than anywhere I have lived or travelled to.

    We all fall victim to it from time to time. Well, it is hitting us all day and every day, and twentyfour hours a day. There is no escape unless we become hermits far from the maddening crowd.

    The US media, especially, just loves to exite and scare the people. And to their chagrin they will continually suffer mental torment, and confusion.

    From what I have seen so far, we are being steered and conditioned to a form of 'inverted'(or distorted) communism. It's too comlicated to explain here, so please do not ask.

    But eventually the whole world will have the same system. Relax, not in your time, or at least if it is, you will be far too old to care one way or the other.

    These are all my beliefs (there are others but thin on the ground) So don't feel I insist you dump yours. Whatever makes you happy, go with it.

  51. When I write "socialism", I mean the pooling of objectives, i.e. that means any government whatsoever is socialist. As is interest bearing banking, insurance, and any other form of pooling resources that is not based on individual reward for individual risk.

    As for not being concerned about the final outcome for myself personally because I am already 44 and it might not come for say 30 years, would mean that I think my life ends where my body does. I do not believe that. I think those who whorEship the material world and the flesh will pay with their flesh eternally. Whereas, those who value only the freedom, will be released from the limitations of flesh.

    Once you reach that level of understanding, making money is too easy, because you do not need it.


  52. Shelby

    I understand. These 'isms'so easily roll of the tongue, and they have a variety of meanings to a variety of people.

    Incidentally,30 years is not very long, in fact it is no time at all.

    The 'final solution', I feel, is much farther away.

    And 44 plus 30 is only 74. That is no age today if you keep yourself healthy.
    We have 80 plus year olds in the London Marathon.

    What lies beyond our life here, I have no answers. I keep an open mind on such matters.

    The life here and now keeps my mind occupied enough.

    The one observation that gives me hope is that from my study of history I have concluded that there is no other period of the past in which I would have preferred to have been born, and spent my life. To visit, perhaps, but that is all.

    Which means, to me, that in spite of any 'ills' we are better off today than at any time in history. That is considering everthing.

    That has been the trend for millions of years, why should it not continue?

    All it requires is adapting to change.

    Just my opinion. I do see and understand yours, and everyone elses that has been reflected in their posts

    The real value of these sites is the pooling of thoughts. Especially ones that make you think, and sometimes re-think.

  53. Ray, I also find these to be interesting and fulfilling times to live.

    My point is each of us chooses our slavery or freedom.

    Derek appended some interesting new comments to this article on Feb. 24. I just noticed them.

    I agree with his logic that leverage can not expand indefinitely. However, it is important to note that most americans are bankrupt, once their leveraged asset values will be marked to market. So they have nothing to save. Thus for the people that want to increase their savings, they are not going to be able to do it dollars, because the masses are going to demand the creation of more dollars, else there will be a complete breakdown with massive hunger and riots. No matter which way you slice it, gold is where the savings must go. So yes, we will get a deflation, but it will be relative to the value of gold.

    Will the dollar price of gold go up or down? I do not care. Because the deflation will be reflected in an increasing purchasing power for gold either way. Whereas, if you bet on dollars, you are betting that the bankrupted masses and their socialism will lose immediately against the wisdom of few savers. Not likely! We are likely to get stagflation instead, as the central banks try for as long as they can to chart a course between hyper-inflation and hyper-deflation. The end comes when they can't avoid that choice any longer, then we go off in chaos. That is certain.

    The nations that have capital and are not bankrupt will dictate the outcome more and more. They can save, and they are increasing reducing their dollar savings and increasing their precious metals. And the hedge funds started to make their big moves in 2008-9, taking big positions and taking physical delivery.

    To invest in the dollar or bonds instead of gold, you have to assume that most americans are not bankrupt and unable to service cash flow needs to eat once their leveraged assets are marked to market and their jobs are gone. Corp tax revenues are down -63% whereas personal income tax revenues only down -21%. The savers are the minority and they will have to protect themselves against the majority.

    Has any fiat in the world every failed with nominal hyper-deflation? No! They are always hyper-inflated away to 0 value. Even if we do go for the stagflation or hyper-deflation out on the nominal dollar, this will drive gold higher because of the chaos it will create with riots, hunger, war...


  54. It is important that you realize that this coming deflation can not be compared to the Great Depression, because at that time the USA was a big creditor nation. In fact, all the gold was coming into USA in the 1920s from Europe (to escape the worsening fiscal situation in Europe), creating the roaring 20s bubble.

    Instead we have now a retiring boomers population depending on unfunded liabilities + debts that exceed 800% of GDP. And our annual deficits are way beyond the historical 3% of GDP are way beyond the point-of-no-return for the national currency approaching 10%. And these imbalances will accelerate as first of boomers just started retiring in past year or so.

    The point is the majority in USA can not save. There can not exist a functioning currency and society where more than 50% of the people can not eat. One might argue that severe austerity program could save the dollar and provide deflation in dollars and drive the gold price down. Well I don't see it happening. Corporations have suffered 63% loss of revenue, while they only passed 21% on to the personal income sector, probably because the govt is subsidizing the personal income by preventing real estate defaults, mark-to-market, etc. Sure the Fed has to give a deflation scare periodically to keep the world from running to gold (the deflation being relative to gold) and forcing hyper-inflation in fiat terms.

    But the Fed does not have a choice. If they don't keep subsidizing personal income, then we have implosion and chaos and if they do keep subsidizing, ***PHYSICAL*** gold is going to get out-of-control.

    The chaotic period is unavoidable...there is reason they took away our civil rights after 9/11.

    Again search for "Think like a banker silverbearcafe" and you will read how the bankers plan out towards the chaos at the end to finish the asset theft.


  55. Let me make it simpler.

    For the dollar to survive with the current level of standard-of-living, the USA govt must be able to pay off debt that is 8 years of total national economic production! That is impossible. Even 100% tax rate won't do it.

    So the only way the dollar to survive is to ELIMINATE (not reduce but eliminate!!) those promises to retirees. Even then you will have a 300% debt-to-GDP ratio that will spiral upwards in the deflationary spiral of unemployment that eliminates tax revenues.

    In short, the USA is headed for MadMax. It is mathematically unavoidable. The only choice is hyper-inflation or hyper-deflation. But in the latter case, no body is going to accept your "dollars" or pay out your bonds any way, because the entire society is going to stop functioning.

    That is mathematically guaranteed, unless there is found some way to take capital from the developing world. So war is another likely option. Hope you are prepared.


  56. Derek made the point that there will deflation until the savers are the majority and then there could be a shift to gold as money (or other honest money).

    It doesn't work that way and hasn't been working that way since USA peaked in 2001, with average annual price of gold up every year hence. The reason there is a problem is because most people are in debt (bankrupt because they are too old and have no capacity to earn their way out, especially give the level of the implosion necessary to clear the debt).

    Thus the majority is not going to opt to move to an honest money, they have no choice but to have their value deflated, relative to those who have capital. But the question is the dollar a viable store-of-value for capital in this scenario? You would have to argue that the masses admit they are bankrupt and will accept it without any demands for their "rights" (i.e. their Social Security payments, their medicaid payments, their FDIC insurance, their housing aid, etc).

    As I can see, the Americans (and other Westerners in bankrupt countries such as UK) ar not even close to capitulating on their "rights".

    Counter-points any one?

  57. China and India to buy remaining IMF gold.

    Drerk, surely you cannot ignore the fact that India and China have now bought all 400 tons of the IMF gold. Do you really think they'd do this thinking their investment is going to 1/2 in the next 6-12 months as you suggest?

    Central banks are now turning from net sellers to net buyers on the gold market.

    Bullish developments in my opinion.

    Plus gold still continues to trade over $1100 despite the European turmoil.



  58. it ain't easy to find an entry to post a comment, but maybe that has something to do with the settings of my computer.
    not really related to your last blog nor to other comments, but to what i read before on this site, namely your preference to short FAS rather than buying FAZ because of the following mechanism :
    100 - 10% = 90 , + 10 % = 99
    100 + 10% = 110, - 10 % = 99
    at 5% this results in a loss of 0.25 %
    at 1 % it's about nothing, a merely 0.01 %
    the risk involved in such a strategy is an explosion of FAS or when it goes down dramatically : missing an explosion of FAZ.
    one has to be certain to be near the top of the market, especially the prices of financial shares.
    i do not know but wonder how much interest one pays on borrowing FAS in order to short it, unless one has the dubious privilege of naked shorting.
    concerning dividends, i suppose one pays these double while shorting FAS ( reflected in an increase of the share-price and also directly to one's broker).
    buying into FAZ or in fact any ETF seems foolish since the chances to loose on it are too obvious.
    however i'm not yet convinced that shorting FAS is such a good idea.
    any comments will be appreciated.

  59. Total value of all gold every mined in history of world is roughly $5 trillion, and apparently the total world M3 money supply is $60 trillion roughly:

    news dot goldseek dot com/GoldSeek/1231778551 dot php

    Yet most central banks do not even have 10% of their reserves in gold, and reserves are just a fraction of the total fiat money supply. I've read they hold 12-18% of the world's gold.

    So thus the current backing of fiat is roughly < 1% in gold. Derek how can you classify that as a bubble. That is more like the bottom of "gold is not money" fiat bubble. Probably the bottom was in 2007 before the developing world central banks started announcing purchases. And GATA and I suspect that many of the western central banks do not even have their claimed big reserves of gold. So it likely much less than 1%.

    ...continued in next post...


  60. ...continued from prior post...

    The bubble is perhaps the number of people buying paper imaginary gold promises (ETFs, etc) and paper leveraged plays on gold (Options, Futures, OTC derivatives, certificates, IRAs, etc), which is like 100-to-1 of those who physical gold.

    Before this epoch is finished, I suppose we will see physical gold reserves 10 - 100 times higher than they are now in order to re-capitalize the society, and thus the purchasing power of gold significantly higher.

    You can confirm gold is not in a bubble, just walk on the street and ask random people if they bought gold lately, and you will find less than 1 in 100 have. Most people have been selling gold "to take advantage of the high price".


  61. P.S. to the posting of 1.06 p.m. :
    skip the supposition concerning dividends ;)

    i read a lot about gold here, it seems a clever idea to diversify, there's little fysical gold in relation to all existing fiat-money these days, although confiscation/forced selling may happen this will likely be at higher prices, most people don't understand as yet how rotten and blown up the financial markets are.
    silver appears also to be a smart investment because it gets used and lost, it's a bet on two horses, increasing future demand and investment vehicle.
    rather than precious metals do i have some self-supporting land though, with a nice house and some trees on it, in a more or less stable environment.

  62. Thanks Derek for all your very useful insight and perspective. For the record: I'm not a "gold bug"...I'm just interested in getting it right - whatever that may be.

    With all of the usual deflation trades back on today and with traders moving towards the risk aversion plays, e.g., the equity markets dropped sharply, bonds ran strongly higher in a flight to safety, the Dollar was marginally higher, crude oil dropped nearly $3.00 barrel, and copper was hit hard, gold still refused to break down and is actually up over $8.00 on the day. It is obviously beginning to trade on it's own merits and behaving like the safe haven that it has always been historically.

    Then you consider the news that "China (is) To Purchase Half of IMF's Gold" (link below) and, well, it all sort of doesn't paint the picture of a impendig significant break-down in gold, regardless of whatever level of deflationary pressure manifests down the road.

  63. Derek,

    If China buys the remaining IMF Gold at todayss gold price are you still going to hold on for $650.00 gold. What do you know that the Indian's, Sri lanka, and the Chinese are missing. Open your eyes! You made a wrong call.

  64. Alot of Buzz around the Net tonight re: PMs
    having or about to bottom. Be prepared for a
    takeoff!! Derek may be right later in April but meanwhile something big could be brewing!! If so
    don't miss out!!

  65. Chart worshipers will die!

  66. I hope you realize that the 400 tons of IMF gold being sold is only 0.25% of all the gold ever mined, and the 191 tons is less than 1/800 of all gold ever mined.

    Chinese middle-class buy condos instead of gold.

    Where is the speculative behavior in physical gold? I think the speculation is in paper and leveraged assets still. As people start to run from these, what will they run to? A bankrupted dollar? A non-free market Yuan (pegged to the dollar for exports, otherwise highly suspect)? A euro that has defacto defectors (arbitrage) such as German euro bonds paying lower interest than Greek euro bonds?

    Gold (silver is too small of marketcap) is the only store-of-value that people can run to.

    ...continued in next post...


  67. ...continued from prior post...

    Silver is such a small marketcap, that either its price need to go up 10 times faster than gold, or it falls away from the traditional role as store-of-value for the masses. I have calculated that is probably 5x more rare than gold so I suspect it will go up about 50 more than gold from here but this is not assured:

    coolpage dot com/commentary/economic/shelby/Silver Up To 5x More Rare Than Gold dot html

    The industrial component of silver demand is really nothing compared the potential monetary demand, with current annual production of silver only valued at $0.015 trillion ($15 billion).


  68. Lastly I would be careful about assuming gold and silver are about ready to blast off now until April. Today could have been a head fake.

    The short-term is very difficult to call.

    2009 was the first year that silver's average annual price (source historical prices) had declined since 2003.

    We may have hit bottom already, or as I suspect we may have more deflation scare coming with Bernanke's promise to withdraw QE in March.


  69. You lie not such buzz

    "Alot of Buzz around the Net tonight re: PMs
    having or about to bottom. Be prepared for a
    takeoff!! Derek may be right later in April but meanwhile something big could be brewing!! If so
    don't miss out!!"

  70. McClellan of The McClellan Market Report.

    "...In a recent note to clients, the technician pointed out that, when gold prices move upward but GLD ounces move downward, it's a sign that the gold rally isn't likely to continue. When GLD ounces move up along with gold prices, he emphasizes, that provides confirmation of the move........"

    Wow! How profound ! Why did we never see that. It took my breath away. It has changed my life. I now have the key to making truly serious money with gold. I will send him a donation from my soon to be fortune.

    Ray Newton London UK

    (How much do his clients pay him for such wisdom? )

  71. Another wonderful piece of 'enlightening' wisdom.

    ".....Let’s hope the Chinese IMF gold rumor turns out to be true. The market could use an adrenalin boost right about now......."

    WHY? Those with the clout in this sector are ones that can separate fact from fiction and would already know the outcome before it became news to the sheeple, who include you and the other analysts, Jon.

    So, anything meaningful would be factored in.

    No one except the 'core insiders' who know how to keep 'stumm', would know whether it was China per se that bought the gold anyway. Trading is often done by proxy to deceive.

    The IMF may not even be selling the gold, it can be effective just to say it is if the objective is to apply breaks on the POG. Then say that China, or India, bought it if, and when, they want to let the trend up continue. No one can be any the wiser.

    All, and I mean ALL, central banks are owned by the same company, and are controlled by the International banking 'brotherhood' who own the 'Fed' and thereby control the world's purse strings.

    You are no doubt one that really believes the UK sold its (and I mean 'its') gold at a give away price not long before the price went up. Whatever you think of George Brown, he is no idiot, just someone trapped in the 'puppetry' of all world 'leaders'. If he looks dour, that is because he is a man with a conscience, unlike Blair the grinning Cheshire cat, whose face though now is reflecting his troubled mind,and years of 'spin' and falsehoods. and his hands stained red with blood. He hardly dare show his face in the UK.

    You will either believe anything, or are prepared to publish that which you don't believe. You know which.

    I can make money in this market because I believe in what I write, though it isn't easy. However, it would be a darn site nore difficult, if not impossible, if I did not see behind the facade.


    If you make money, thank your luck, If not then change your thinking.

    Best wishes to all

    Ray Newton London UK

  72. Is Derek on vacation?

  73. Do some of you not remember those old black and white movies, in particular the old 'Westerns'.

    They often inluded a bank scare. Most of the movies were made during or just after the 'Depression' but they still come up occasionally on TV.

    One of the tricks used to cool the 'run' down, and assure them the bank was solvent, was to put what bags of gold they had, or something that would look like bags of gold, or money. and stack them in the bank window.

    DECEPTION! It is endemic in the banking and gold (real money) business.

    It has to be. If prople knew the truth, there would be riots. The truth is there, it is just that people are too THICK to see it.

    IT IS NOTHING NEW. The sheeple have such poor memories, have no positive imagination, only the negative one of seeing FEAR, and are like putty in the hands of the banking brotherhood.

    Now if this does not sink in, and stop you from getting excited, and responding to every piece of economic 'news' you pick up as though it is some great revalation you saw by chance, then you are going to get creamed. (if you haven't been already and are hoping to get it back.)

  74. I don't think he is on vacation. Hopefully he is trying to figure out his next recommendation. He made a brilliant call before silver made a move down but both shorting FAZ and the call for a general market downturn were just dead wrong. I hope he regroups and lets us know what he is thinking now.

  75. Robert Pretcher of EWI (the deflationist) has stated that the reason the dollar will gain value is because there will be less supply of money (actually liquid net worth) in the semi-money forms of bonds that default (or otherwise become illiquid, e.g. as houses have). He means corporate and municipal bonds, not US Treasuries. This means there will be less "dollars" chasing goods and services. This is why he says to hoard those kinds of cash that can not default, e.g. short-term treasuries, but for some reason he doesn't include gold as cash and that is his big mistake.

    I assume he also expects a declining velocity of money as people hold tightly to what they have and become more frugal.

    However, this assumes that the dollar isn't losing value against other currencies and other forms of cash. The USA is by far the most indebted of any major nation on earth right now. Other nations are much less leveraged and thus will suffer less from defaults. Thus the value of the dollar will decline against these nations. Even if their curriencies are inflated (e.g. higher inflation in China, SE Asia, etc), the salaries keep pace here, because the labor of these Asian people is under-leveraged and under-valued.

    So the Asians (who are much more populous than the westerners) will continue to drive demand for commodities and thus gold will be rising in dollars and other over-leveraged currencies.

    ...continued in next post...


  76. ...continued from prior post...

    So yes, we will get deflation in the over-leveraged countries, but this will seen as rising raw material costs and gold, and declining or stagnant wages and leveraged assets (real estate, automobiles, and anything else bought by westerners on excessive credit).

    Pretcher assumes wrongly that the dollar is the world's money supply and that there can't be any arbitrage because the entire world is coupled to the deflation equally. This re-balancing of the world is all about remembering what is the real money supply and the fact that there has been an imbalance in labor value where the westerners borrowed from the developing countries. Now that value will reverse in the deflation.

    It is so simple to see that what went too far one way, has to reverse.

    Nevertheless, we might get a reasonably more deflation scare here that could give us a little bit lower price to buy gold and silver. Or maybe not.


  77. I wouldn't pay a dime for Derek's advice. I'm in a big sink hole thanks to his recommendation to short the market. You sleeping well at night, Derek? You probably went long after advising us to short.

  78. @Anonymous - For the record, our short recommendation actually went out the day before the market top, and as such if you took the original entry that we did, your position (without leverage) should still be in the money by about 250 points on the Dow.

    On a second note, we have repeatedly mentioned that this is an initial move down in the next leg of the bear market, and therefore might be subject to almost a full retracement of the initial move from 10,728 down.

    One reason I have mentioned on many occassions that any reader should make sure to do their own due diligence is that any forecaster is an information filter, and might draw a different conclusion from data than you might draw looking at the exact same analysis.

    Finally, many investors have pre-conceived notions when reading such forecasts and therefore use it as a re-affirming tool - instead of an objective tool - to justify a decision they have or are about to make anyway. These decisions are generally made in an emotional state and are therefore subject to terrible timing elements as they are made interim with the crowd.


    To clear things up as well, we are still short and our stop-out point is set just above the market top. There is a lot of upside (positive downside) potential here so we are willing to risk a virtually break-even trade (minus fees and a percent of a percent loss) to maximize potential gains.

    If the situation changes, I will post a chart before I close out my position.


  79. Just how bad is the debt crisis (which ties into my point that there can't be a orderly deflation, only chaotic one sending gold up in value relative to western economies)...

    See the chart of countries:

    kitco dot com/ind/willie/feb182010 dot html

    Well that isn't even the entire data. When you included Federal unfunded liabilities the USA owes $64 trillion, and another $14 trillion in private debt:

    davemanuel dot com/2009/06/01/638-trillion-dollars-in-us-federal-government-debt-and-unfunded-obligations-ouch

    With USA GDP at $14 trillion, that is 78/14 = 557% ratio to GDP. Once you include all the States and cities and everything, then it tops 800%.

    Well Europe isn't that much better, with average 434% ratio, but I doubt that includes everything and it is worse for the worst countries in EU:

    ncpa dot org/sub/dpd/index dot php?Article_ID=17483

    This is a crisis of epic proportions. This is a re-balancing of the world, an indirect way that the west will repay all it stole (ahem borrowed) on the backs of the 3rd world.

    Got gold yet (most do not)?


  80. Bullcrap. Derek, you are a liar.

    On January 29, 2010 you stated:


    Officially, we are short JPM at 39.65.

    It will be many, many years before we will see DJIA above 10700."

    We should be able to sue your ass.

  81. "Many many years before we will see DJIA above 10,700".

    As well it should be many years, on a probability basis.

    However, as I have also explained in detail many many times in my posts, one can never invest with 100% certainty. One has to use probabilities as it is the only means of actually coming up with good trading scenarios.

    Secondly, I post what I do, where I enter a trade, and when I close it out. You're more than welcome to follow along, however if you are one of those people who is willing to share in profits (STD, CDE, SST.TO, Silver Top in December, etc., for example) but not share in losses.... well, enough said there.

    You are obviously in a highly emotional state right now and I courteously ask that you refrain from pointing accusations without some solid evidence and with perhaps more tactful language.

    Finally - that particular article was specifically about shorting JPM and GS. You mentioned earlier you are short "the market", so if you shorted when I did then you are still in the money. If you are talking about these specific stocks then we are still short as they have not come anywhere near our stop-out points.

    Not to mention that the high on the retracement in this market has thus far been at 10,440, nowhere near 10,700.


  82. Lay off Derek. You are responsible for your own trading decisions. Nobody can predict the minute gyrations of the fractal nature of the future with 100% accuracy. NOBODY except JP Morgan, because they control the casino levers where you are gambling. And yes, all of you are gambling and you will get the same result that 99.9% of gamblers receive.


  83. One more point, then I will try to shut up for a long while if I can.

    If go to my prior post about Pretcher (and other deflationalists, see link in post above), the mistake of their analysis is that they assume the is the possibility of stabilizing the economy with deflation on bonds and dollar, but in fact there is no possible deflation that can render the US govt solvent. Every road (money printing or not) renders the US govt insolvent and in default. That is why gold will outperform in this deflation.


  84. Why silver is leverage and gold is not:

    Refers back to a lot of my prior research and thought process.

  85. A ha!

    Actually the best possible outcome would be a falling fiat price for gold, and everything else falling even more so, i.e. a deflation relative to gold but with falling prices for everything more so.

    That would be preferred, as we gold bugs would increase our purchasing power and pay no capital gains taxes.

    So obviously that will not be the outcome, because the system will not want to let the gold bugs win with their idle capital. I covered this in more detail in the link my prior post just above.