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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (111380)	5/8/2010 11:18:48 PM
From: vegetarian	1 Recommendation Respond to of 116555

We hit ratio of 4 by 2012 with S&P at 1/2 where it is today (550-600)and gold at 2x today's value (2500) and the ratio goes sideways for next 10 years until 2022 when all excesses are cleared out? Symmetry is a beautiful thing and the outcome takes care of both inflation/deflation and cleansing the system :-). You can pick a year in this time frame for financial reset in this time window. By the way that would seem to be the path of least pain for most people and countries rather than other possibilities e. g. gold goes to 16 X and S&P 500 is 4X and other cartesian products of combinations that uses ranges larger than 2 around quiescent price point today. We need to be optimists and stay positive through the process. I am sure the policy makers would like to take more painful paths to salvation.

To: TobagoJack who wrote (111380)	5/9/2010 7:06:27 AM
From: Dan3	2 Recommendations Read Replies (4) \| Respond to of 116555

Gold is a terrific asset during periods of inflation and currency uncertainty, but otherwise, it can be very risky. Take a look at the federal funds rate for the period during which the chart you presented shows a very brief spike in the price of gold (Volkers response to high inflation): 1980-03-05 16.17 1980-03-12 16.45 1980-03-19 16.24 1980-03-26 17.78 1980-04-02 19.39 1980-04-09 19.04 1980-04-16 18.35 1980-04-23 17.56 research.stlouisfed.org It's at 0.25 now. Official inflation rates in that period were in the low to mid-teens. That's when the price of gold spikes. There are two ways to hold gold; in a fund, or as a physical asset. Either way, there are risks of loss (theft of physical gold or failure of fund) and significant negative interest rates due to holding costs and/or fees. Presently, interest rates on currency are near-zero, meaning that money market and bond account rates of return aren't much better than those of gold holdings (and have much higher risk of loss to inflation). Gold makes considerable sense, right now, due negative real interest rates on savings coupled with a high risk of accelerating inflation. But unless we do enter a period of high inflation (the opposite of Mish's expectation), holding gold has significant risks. The moment we go from negative to positive real interest rates in money market funds and bonds, gold will probably drop very far, very fast. If the economy were to get worse and we moved from inflation to deflation, the price of gold would drop like a rock. Be careful.