GOLD BUBBLE BUG

when will it pop

March 2012

how can you be so sure

I got my 2012 Illuminati Calendar last week

I mean presumably at some point the economy is sorta bound to regress to the mean, right? Then the price of gold will crash and all the survivalist libertarian gold bugs will be pissed that people traded their precious metals for fiat currency.

I thought it was high at 1500 but it keeps going up - like bitcoins or something

bitcoins and gold: the foundations of the post-scarcity economy

Yeah, I mean what does gold really have going for it besides rarity and tradition? It's not as useful as copper. At some point even gold is a 'fiat currency' inasmuch as its value depends just as much as a fiat currency on the faith of the market in its value. I think a lot of gold bugs are gonna get burned when the economy finally stabilizes and ppl start going after whatever the next hot thing is and try to dump their gold.

one can only hope. if only we could securitize their folly and invest in it.

and I don't mean "short gold futures" I literally want to invest in other people's folly

I wonder if you can short-sell gold shares somehow

I wish you could buy shares of something liek milk at a price that could be redeemed in the future - milk is usefull

xp Yes, apparently!

http://www.google.com/finance?client=ob&q=NYSE:DGZ

Yeah cheerios and gold really weigh one down in the morning.

i will sell today's milk on credit in exchange for the promise to buy the same milk two weeks from now at a significantly reduced price, when it has gone spoilt and green, or been drunk already

no deal T!
money can be a great thing when it works, it doesnt seem to be working lately - hence the gold bug

dammit it was a foolproof plan, except for what to do with all the rotten milk, and violently angry business partners

I wonder if you can short-sell gold shares somehow

gold etfs?

set that up for me baby

Jim Rickards is the most thoughtful goldbug I'm aware of. He notes that a 40% backing of currency reserves (as was law for most of the last century) would imply a gold value of aroud $4000/oz.

You'll note that he regularly consults with some rather important persons in the financial and national security fields if you have an hour for the following presentation:

https://www.youtube.com/watch?v=ckEoUxAjgls

is he saying we should burn the gold?

surely there will be the same issue as in 2000- tech bubble crashed so investors scurry money to mortgage backed securities in hopes of a safe haven but then you know what happened after...

The nature of bubbles is kind of weird. Everybody (or at least many) knows that there will be a 'correction' but if you time it right and switch to something stable you can pull a big profit that's unrelated to the health or prospects of the stocks' issuers or the economy generally.

it reminds me of cutting into the wind in a sailboat - you can go forward wether the wind is from behind of from forward - likewise you can make money if values go up or down if you time it right - churn can cause profit

Oz

The interpretation of the film is clear. Dorothy (Everyman American) is lost in a (financial) storm. She is joined in her endeavours to find a solution by the Scarecrow (farmers), Tin Man (industrial workers) and Lion (pro-silver politicians). The Yellow Brick Road (gold standard) takes her some of the way there. However it leads to the Emerald City (fiat currency) with its false tricks and delusions. The answer to financial salvation lies in her ruby (silver: in the original book Dorothy's shoes were silver but changed to ruby because Hollywood was going technicolour) shoes. Of course the Wizard (President) was a fraud, his gifts were shallow and much of what he said was fantasy. The message is clear at its simplest level - we have the power within us by clicking our heels to make the changes we need. At a deeper level it seems urges a move beyond the constraints of a gold standard to make the economic changes necessary for growth.. in this case silver.

what makes silver any different that gold

atomic weight

nope - they are the same

At the time (1900), there was more of it. Banks weren't lending enough to farmers due to a physical shortage of money, hence the Progressive movement, William Jennings Bryan yadda yadda.

Elsewhere here I've noted that aluminium would make a great trade settlement currency base because its useful and the cost to make it (almost all electricity) is a universal (why should South Africa be a monetary superpower). Alas, the cultural history of China, India, and the Arab states all suggest that gold is the likely winner should there ever be a repudiation of the dollar as trade settlement currency.

take heart - bitcoins! fiat via cryptography!

Two trends that could turn investors away from gold would be higher interest rates or a much stronger economic recovery. tbh, not much chance of either one happening in the next couple of years. Now that the Fed has preannounced low rates for another two years that move should, if anything, accelerate the gold bubble.

Pretty much all commodities look to be on the rise for a while, but the only two that are prime candidates for bubble status are oil and precious metals. Hard to have a true bubble in foodstuffs.

Next week wouldn't be a bad guess as The DOW makes a double bottom with last week's lows and gold is so inflated.

I wouldn't say the gold bubble has really hit its stride until it rises $500/oz in a month. A real bubble situation requires high short term returns and an increasing number of buyers entering the market intending to flip around and sell to the next batch of fools.

I wouldn't be surprised if the gold bubble has a ways further to run. There are lots of market factors that feed into it.

its all becuase of glen beck

I think it's a combination of things: low or negative real interest rates in the US, sovereign debt crisis in Europe, inflation in China and other emerging markets, and the ease of investing in gold through ETFs. So it's kind of been a perfect storm for gold lately. I don't see any of the factors changing any time soon.

I wonder if buying stocks like Johnson and Johnson at this point would be a good idea becuase they will bounce back in a few years or if we are entering a new era of crappy for such stocks

http://www.starmagazine.com/sites/starmagazine.com/files/imagecache/gallery_full_image/photo_gallery_picture_images/44585pcn_usopen01.jpg

buy ice cream

I think JNJ is pretty fairly valued right now - given that it's yielding 3.5%, I don't think it's a bad buy at all. Of course, you have to be prepared for the possibility it could fall another 10% after you buy it, but as long as your investment horizon is a few years, it sounds good to me.

sometimes I get this feeling that technology is changing the world in such fundamental ways that nothing will ever be the same - ie how quickly news travels these days - speculation - the ease of trading online -

On Wednesday, the BBC reported that millions of dollars in gold at the central bank of Ethiopia has turned out to be fake: What were supposed to be bars of solid gold turned out to be nothing more than gold-plated steel. They tried to sell the stuff to South Africa and it was sent back when the South Africans noticed this little problem. This is an amazing story for two reasons. First, that an institution like a central bank could get ripped off this way, and second that the people responsible used such a lousy excuse for fake gold.

http://spectregroup.wordpress.com/2008/03/18/the-fake-gold-standard/

Venezuela also plans to move 211 tons of gold it keeps abroad and values at $11 billion to the vaults of the Venezuelan Central Bank in Caracas where the government keeps its remaining 154 tons of bullion, the document says.

http://spectregroup.wordpress.com/2011/08/18/chavez-wants-his-gold/

so Russia and the Middle East will continue to be economic players for the forseeable future ... lovely.

Honestly I still don't get how moving bricks of shiny metal around is supposed to have anything other than vaguely symbolic importance to state power or economic stability. It's 2011 for crying out loud.

because any such item that people think has value will have a power over them -

I had a funny mini-realization about gold this week when I read that COPPER prices are actually going down right now. Why? Because there are fears of recession. Copper, you see, is useful, and when there's a recession people use less of useful things. Yet gold, which is useless, is somehow more valuable in a recession.

BTW we have some gold jewelry we were thinking about selling anyway, how does one get anything close to a reasonable price for it?

I mean I assume a dealer does not pay you even the spot price of the material let alone the value of the good.

From all I have read about this, my sense is that:
- the Cash 4 Gold people will rip you off vigorously
- 4 out of 5 jewelers will also rip you off vigorously
- the jewelry trade in general is a massive con game

so, presumably you should melt it into an ingot yourself, get it assayed by some sort of old timey wild west guy like at the beginning of There Will Be Blood, and then bring it to the Chicago Mercantile Exchange and offer it around on the trading floor

I am an expert

sell it on ebay

http://www.ebay.com/itm/BIG-1-TROY-OUNCE-999-FINE-ALUMINUM-BULLION-BUFFALO-BAR-/130555200634?pt=LH_DefaultDomain_0&hash=item1e65b2447a#ht_2291wt_754

http://www.bbc.co.uk/news/business-14583201

Gold is crashing already

And bitcoins?

Dude from the BBC uses dangerous chemicals to extract gold from obsolete electronics:
http://www.bbc.co.uk/news/science-environment-14621075

soaring
https://mtgox.com/trade/history

(xp) ...and he only got £56 worth of gold at the end

Should have connected all his obsolete electronics together into a bitcoin mining cluster.

if you don't want to buy actual gold but still want to dabble in trading on the value you can buy gold stocks which mimic the price of gold. i imagine you can short this like any other stock.

http://finance.yahoo.com/echarts?s=GLD+Interactive#symbol=GLD;range=5y

it swould be funny if one day they found some cheap easy way to make gold out of aluminium or something
http://dilbert.com/dyn/str_strip/000000000/00000000/0000000/000000/20000/8000/600/28645/28645.strip.sunday.gif

its weird to think of having money to trhow away like that

There was an old BBC programme called 'Take Nobody's Word For It', where one week the presenter claimed that lead could be turned into gold, by attaching it to the front of a TV screen, and then placing the TV in a freezer.

diamonds are queer

Krugman explains the whole gold price thing:

http://krugman.blogs.nytimes.com/2011/09/06/treasuries-tips-and-gold-wonkish/

I don't buy the Krugman argument there, as transaction volume in gold (and paticularly "paper" gold unbacked by any metal in allocated storage) is orders of magnitude greater than either mining production or industrial/medical demand, and unlike, say, silver, there's no looming deficit at current consumption rates. About an olympic swimming pool full of the stuff has been dug up since the days of Croesus, with about the same amount likely to be mined in the future (albeit from smaller, deeper, lower-grade ore bodies), but nearly all of it is still above ground as either bullion or jewelry.

As far as I can tell, gold is about 20-30% overvalued compared to the all-in price of new production: the 4 largest miners representing a third of production had costs of $857 / oz in 2008 when energy inputs were similar, but thats from mostly fully depreciated legacy mines. Add in acquisition of a junior explorer and new development and the industry needs $1400-$1500 to justify new investment in greenfield deposits. Current price is high, but not in nosebleed bubble territory on supply fundamentals.

Your second paragraph doesn't seem to follow from the first. In the first you say that "mining production" is negligible compared to transaction volumes, but in the second, you say that the price of gold is supported by "supply fundamentals". I don't see how an insignificant factor like mining production could be the determining factor of the current price.

In Krugman's simplified model, he leaves out new supply from mining altogether. His point is rather that if you imagine some eventual future point when all gold will be consumed by industrial/medical demand, then the path of prices between now and then depends on the level of real interest rates. His point is that it's reasonable for gold prices to rise when real interest rates fall. This doesn't imply anything about a bubble or the lack thereof. We could very well be in a bubble, but that's independent of the mechanism described in his model.

I should have emphasized that gold simply isn't consumed, production is greater than industrial/medical uses, but both are small compared to inventory.

So, alternative rational valuations to Krugman's are neccessary. As a commodity, that tends to be around the value required to spur new production ($1400-$1500/oz at current energy/labor costs). As a monetary backing, you have to use something like Jim Rickard's argument above, which yields a value 2-4x times the current one.

There's no doubt low interest rates and central bank moves like Switzerland's recent Euro peg are the real drivers, but mostly by eliminating the opportunity cost of hiding out in gold and removing alternative "safe havens".

I'm not sure that the current cost of production and the target returns of miners provide a floor under gold prices. It would be nice if they did, as that would mean gold miners wouldn't need to hedge themselves. Anyway, I agree that some other way of valuing gold is necessary beyond Krugman's model, at least if you are interested in trading gold today, since his model takes the ultra-long view, and it's probably not terribly helpful in forecasting short-term moves. I think in the short-term, psychological factors probably predominate, and those are hard to quantify, apart from falling back on the dubious lore of technical signals.

We've been buying tons of scrap gold in our shop. It's weird, the last couple of years that has been our main income actually.

Gold is crashing already

lol. Not yet. It's gone up again.

How does that work? Have you been consciously trying to find & buy gold, or does it just get offered to you a lot? Who do you sell to?

Oh we've been buying gold for about 20 years now. We're a jeweller and also deal in second hand jewellery

http://www.npr.org/blogs/money/2011/02/15/131430755/a-chemist-explains-why-gold-beat-out-lithium-osmium-einsteinium

Cool story about gold's sweet spot on the periodic table. And the bubble will burst next time i buy some.

Sold 7oz of silver (in 'collectible coins') last week for $40/oz on Ebay - apparently fine timing on my part.

Yes, the gold went down considerably. but that won't mean it will continue to go down.
Apparently gold is considered to be cheap?!?
Still scary shit. :-(

Strategic gold buyers are looking at the longer term price charts, eg:

http://www.kitco.com/LFgif/au1825nyb.gif

Most chartists would consider a retreat to the long term trend line around $1550/oz (if that trend line isn't volated) to be healthier for a secular bull move than the parabolic rise seen this summer. The former pattern reflects buyers entering or reentering from the sidelines, the later rocket path (like Nasdaq 5000 in 2000) reflects leveraged short term speculators hoping for greater fools.

Despite its safe haven reputation, gold has always tumbled precipitously in panicked markets, mostly because fast money/hedgers must sell their more liquid holdings, preferably those that still realize enough gains to guarantee their Christmas bonuses.

frum dudes are all over this shit today

http://www.frumforum.com/beck-didnt-warn-me-gold-can-fall
http://www.frumforum.com/numbers-dont-lie-gold-has-done-well
http://www.frumforum.com/the-gold-bug-bailout
http://www.frumforum.com/gold-good-for-nothing

Fake gold bars turn up in Manhattan: http://www.myfoxny.com/story/19578206/fake-gold-bars-turn-up-in-manhattan

(apologies for the Fox link)

MYFOXNY.COM -
In jewelry stores on 47th Street and Fifth Avenue in Manhattan, the important trust between merchants has been violated. A 10-ounce gold bar costing nearly $18,000 turned out to be a counterfeit.

The bar was filled with tungsten, which weighs nearly the same as gold but costs just over a dollar an ounce.

Ibrahim Fadl bought the bar from a merchant who has sold him real gold before. But he heard counterfeit gold bars were going around, so he drilled into several of his gold bars worth $100,000 and saw gray tungsten -- not gold.

What makes it so devious is a real gold bar is purchased with the serial numbers and papers, then it is hollowed out, the gold is sold, the tungsten is put in, then the bar is closed up. That is a sophisticated operation.

US has the most tons

United States 8,133.5

Germany 3,351.5

United Kingdom 310.2

Denmark 66.5

I wonder why Germany has so much

https://en.wikipedia.org/wiki/Gold_reserve

maybe from looting Europe during the war?

Timestalkers gold

https://www.youtube.com/watch?v=y4JWdGG8MVs