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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (54761)	2/26/2006 6:46:36 PM
From: Wyätt Gwyön	Respond to of 110194

Add to this the fiat-currencies-printing argument. that means the same thing as what i said, or: what you said is what i meant -g-. How do you explain that gold in the past year has decoupled from USD and also ignored higher interest rates? probably the same way you explain everything else that has decoupled from USD (including oil, which has far outperformed gold) and ignored higher interest rates. note that oil is the only asset Grantham has indicated as having undergone a "paradigm shift" in its price. Contrary to oil, copper etc, if gold doubles nobody will suffer also contrary to oil, copper, etc., if nobody buys gold nobody will suffer (except goldbugs). from 1980 nobody bought gold and the world had its greatest growth of wealth and prosperity. we should all hope for a world where gold does poorly. a world where gold does well is a bad world. of course, we may have just such a world ahead, so i do not mean this by itself to be a counterargument. there are plenty better ones. of course, if it does well over the next few years (which i do not deny is a possibility, since gold is a speculative plaything in the short run), we would all like to own it in retrospect. but we also know, 100 years from now, gold will basically keep up with inflation, and its real value will be similar to its real value today. an ounce will buy you a decent suit, just as it does today. it will not buy you a house. it will probably not even buy you a barrel of oil -nfg-. remember, gold is, long term, just a store of value. it is not like timber or the US stock index of the past 200 years, which actually grow in value. of course, given all the corruption of the stock market (expropriation of shareholder profits by managements through stock options and share buybacks), i have no confidence that it will outperform even gold by the year 2100. but timber should. timber can't be corrupted any more than gold can. as to whether gold outperforms USD, i am sure it will be higher than its current $554 nominal value, but it remains to be seen whether it will outperform the value of $554 compounded at the cash rate. the cash rate is typically 0.5% real over long periods like a century. offering a real rate of return is what goldbugs always forget about currencies, since gold has no yield. maybe USD cash stays at -1% for 15 years and gold goes to $2000 by 2020, but then we get another Volcker type in the Fed and have 10% real cash rates for 10 years. then gold goes back to $600. a yoyo. the best hope for gold outperforming the cash rate is if USD is completely destroyed, like Weimar DM. if you believe that happens, then i don't think gold will be much help if you stay in the USA. i would consider leaving the US to be a more important "asset allocation" in this event. of course, all the other developed countries are as screwed as the US is in terms of their poor fiscal outlook in terms of future obligations. i think it is inevitable that the US and other developed countries renege on their social welfare obligations, through smoke and mirrors (chainweighted CPI, etc.) to the extent possible, and by moving the goalposts (changing retirement ages, taxation, and other rules on an adhoc basis) when necessary. the one sure thing is that many folks will have a hard time retiring on Uncle Sam's nickle. i think the best answer may be to go clown long catfood futures -g-. timber, copper, and oil are much more important to the long term welfare of Chindia (and the US) than gold is. i tend to side with russ in thinking that right now, gold is just another leveraged momo trade. in the event of a liquidity-break-driven selloff of risk, i believe gold will be included in the victims and may provide a better entry point. i'd say the same about most other risk assets.

To: ild who wrote (54761)	2/28/2006 11:39:02 AM
From: aknahow	Respond to of 110194

Today GLD may trade at a 10 b.p. premium or higher. If so it will trigger a delivery of physical gold into the GLD ETF. Yesterday, Feb. 27 the premium reached only 5 b.p. but that was higher than we have seen for a long time. Today with the dollar down and gold up it would seem there could well be enough interest in gold to create a premium which will lead to additional deliveries of physical gold. I agree with another poster who said the premium concept is a lagging indicator. Or at least as far as the short term goes. Gold must be in a bull mode for a premium to be generated, so the premium is not leading one to the conclusion that gold is going up. But in the longer term a steady addition to the visible investment stockpile of gold still, leads me to conclude that a base is being built for further future moves. If the stock pile was going down I would fell less confident about further upward moves, despite any short term up moves.