Gary North, who you always have to take with a grain of salt, has an excellent article on gold out: http://www.garynorth.com/public/4857.cfm

I read that and basically thought, "My thoughts exactly." The take away point from the article is that gold is still dirt cheap, and central banks & the IMF are taking measures to try to keep it that way that you can take advantage of. People probably know that it is my opinion that fiat money is completely unstable, and one of the main tools that central banks and the IMF have used to stabilize it for the past 36 years or so has been gold sales/gold dumping/gold "leasing"/whatever you want to call it. Unfortunately for them this is unsustainable because they are running out of gold. 40 years ago these entities held over half the world's gold stock. Now they own at best 20%, and perhaps as little as 8%. In the meantime, they are disgorging what will eventually become the medium of exchange again, in order to suppress its price and protect the fiat currencies.

I believe this is very, very important. Gold plays several roles that contribute to its value, industrial (small), ornamental, as a store of value, and as money. The last use, as money, currently does not exist. This is important, because the value of gold as money is more than its value as a store of wealth, which is more than its ornamental value. There is no way to measure these things, of course. But what seems to be the case to me is that when the world went off the gold standard, the value of gold became depressed due to its lack of use as a money. Particularly the gold price was greatly suppressed for essentially two decades. This means that the supply of gold did not keep up with what it would have been, had gold been money. I believe that when the fiat system collapses and gold remonetizes, this means that gold will be very valuable indeed.

Of course, when the fiat system collapses and gold remonetizes, gold will go essentially to infinite dollars/ounce.

I've had the discussion with Zygote where we talked about CBs and the IMF selling gold. I believe they will, but at some point they will reach a point of diminishing marginal returns on how much they can effect the gold price. It would become foolhardy to get rid of all the gold. After all, it's going to be the money, and it's going to be extremely valuable. I will make the prediction that, at some point in the future, there will be gold heists, inside jobs, where the last remaining gold will vanish from the vaults of the central banks and end up instead in the vaults of the former central bankers. 12 +/- 8 years. You heard it here first.

Flame on.

YEY!

Look at this graph:



Why don't you go and market time an asset that has a positive real expected return?

Because I suck at market timing?

Also, LOL at graph ending at 1997.

Gary North is a world-class nut, but if he, Boro and I all agree on something, maybe we're all right about it.

FWIW (17 Quatloos at current exchange rates), I'm even more bullish about silver than I am about gold as I think that when the margin squeeze that North mentions hits, the smaller silver market (there are several gold miners like NEM, ABX or GG that by themselves have much higher market values than all silver miners combined) make it likely that silver (spot metal and equities alike) will explode.

im on board with overall move, but still see complications arising in the short term from public sales, hedge funds deleveraging as many go broke, etc. This will provide some short term support for currency, but the currencies are so fundamentally flawed that a huge shift of balances to gold or something of the sort is very likely at any point.

I can't ever believe those stock and bond stats. Are they talking about all bonds and all stocks? If I bought $1 worth of every stock that was for sale in 1802 I would be up that much, even though 99.99% of the companies are gone? Or do I have to have magic and only buy the ones that will still exist?

Is it that they pay way more dividends than I'm imagining before they go bust?

Anyway, even if those are the real returns on capital in the past a collapsing dollar is going to wreck many current companies anyway.

Thanks Boro, +1 Gold imo. Who keeps stats on governmental gold sales?

All the more reason to not invest in gold. If you have no market timing skill, then on average you will get the average return of ...nothing.

Its a logarithmic graph, notice the scale on the y-axis. The outperformance of stocks remains to the current day, and would look even more impressive if it was on a standard scale.

the best thing that could happen to you on this trade is to lose your shirt. Otherwise, you might fool yourself into believing that you can make great macro calls.

Bonds are long term treasuries. Yes a lot of the original companies are gone, but through mergers, owners of the original stocks end up with a piece of newer stocks.

I'm not talking about making trades or getting a return over 2 years, 5 years, whatever. I don't think you really read the OP. I'm talking about the collapse of the fiat monetary order and the remonetization of gold. This is years down the line.

Plus it is shiney.

I don't think this is a very likely scenario.

But thankfully, as the owner of a suitable amount of shiny rocks, I don't have to worry about or think about the possibly of it happening.

Exactly ^

1997 cutoff date, awesome.

What do you say to people who argue that a massive deflation is coming and all commodity prices are going to fall?

Their basic argument, I think, is that the government cannot continue indefinitely with the bailouts because foreigners will eventually stop lending and the FED and other central banks will not engage in hyper inflation because they will lose their power as runaway inflation is a form of insolvency. In either scenario, deflation is inevitable and the price of gold and all commodities will fall dramatically.

?

Why would that result in deflation?

Borodog have you read this article? I remember reading that a few years back, your old posts on gold from last year or the year before seem somewhat similar.

Can you please comment on this graph you posted in this thread.

When the FED and the treasury are not able to prop up zombie companies there will be a gigantic decline in the economy i.e. deflation.

Pretty self explanatory, yes? Gold fell off it's highs (relative to the dollar anyway), but I think that's temporary, and gold is going north of $2k/oz once inflation kicks in.

Please explain it in a detailed causal way because I don't see how A leads to B, particularly when you start mixing in complex concepts (decline in "the economy" ?).

Could be. The main problem of course is that the Fed will not allow banks to fail any more, so the money supply never shrinks significantly any more. So while real prices will fall (they must), the Fed will fight like he'll to prevent/mitigate nominal price declines. The only way to do that is inflation. A massive deflation would bankrupt the government. Of course there are drastic scenarios where the government does that, but believe me, they would much rather inflate the debt away than explicitly default.

Just curious, and feel free to point me to another thread if you've already laid this out, but do you have an over/under prediction on when you think this would happen? Does your opinion change if the US resumes sustained positive growth over the next few years?

Edit: NM, unless you'd like to make it different than your gold heist prediction.

I'm trying to make the basic argument Robert Prechter makes for deflation. I'm not sure if I agree with it but I wanted to get borodog's opinion on it. The argument goes like this:

The treasury will find that it cannot borrow anymore money from abroad because foreigners will see that with over $60 trillion in debt the US government will probably never pay them back.

The FED will not hyperinflate the currency (in the event of more bank failures or FDIC insurance payments) because they do not want to lose their status as a cartel of force over the banking industry.

When these two scenerios unfold (both the borrowing by the treasury and the inflating by the fed to bailout banks and businesses that overextended themselves) there will be a sharp decline in the quantity of money and credit in the US financial system because of bank failures which will cause the prices of all commodities to fall including gold.

Barring some drastic scenario, the Fed will not allow banks to fail, and it will not allow a decrease in the money supply.