On The Misguided Interpretation of Historical Gold Prices
Gold bears are on the prowl again, having apparently recovered from their 10 year scorching, and it looks like some are launching a new counter-offensive.
Exhibit A:
The gold chart below was included in a recent post by John Ameriks of Vanguard. It shows gold prices over the last 139 years (1871-2010), adjusted for inflation.
The intent behind these types of charts is clear. It makes gold look very bubbly indeed.
Mr. Ameriks furthers his bearish gold argument thusly:
Bottom line: Any value that gold has as an investment appears, historically, to have accrued to investors who had a position prior to certain episodes of economic or financial distress. And to generate truly eye-popping returns from a gold-based strategy, you’d have needed to be selling at the peaks of these past price spikes, not buying.
The basis for making an investment in gold now is a conviction that the worst is yet to come. I’m not saying it can’t happen. But looking at how far these prices have come already, and thinking about the kinds of truly disastrous events that are included in this 140-year period, I’m skeptical.
First off — Yes, of course the worst is yet to come. Have you heard about the state of state governments? The double dip is getting rolling, and QE 2.0 is right around the corner. For more on that see this must-read piece from DoctorHousing Bubble.
And regarding the use of long-term charts to predict future prices, it is folly. In 1472 the inflation adjusted price of silver is around $800/ounce. Is it headed back there any time soon? No, though I would welcome the move.
9 Comments
Reagan insider: ‘GOP destroyed U.S. economy’
Commentary: How: Gold. Tax cuts. Debts. Wars. Fat Cats. Class gap. No fiscal discipline
Stage 3. Wall Street’s deadly ‘vast, unproductive expansion’
Stockman continues pounding away: “The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector.” He warns that “Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on leverage and speculation.” Wrong, not oblivious. Self-interested Republican loyalists like Paulson, Bernanke and Geithner knew exactly what they were doing.
They wanted the economy, markets and the government to be under the absolute control of Wall Street’s too-greedy-to-fail banks. They conned Congress and the Fed into bailing out an estimated $23.7 trillion debt. Worse, they have since destroyed meaningful financial reforms. So Wall Street is now back to business as usual blowing another bigger bubble/bust cycle that will culminate in the coming “American Apocalypse.”
Stockman refers to Wall Street’s surviving banks as “wards of the state.” Wrong, the opposite is true. Wall Street now controls Washington, and its “unproductive” trading is “extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives.” Wall Street banks like Goldman were virtually bankrupt, would have never survived without government-guaranteed deposits and “virtually free money from the Fed’s discount window to cover their bad bets.”
http://tinyurl.com/2ddcgt5
John Hathaway
Tuesday, August 10, 2010
John Hathaway has almost 4 decades of market experience and is known internationally for his writings about the U.S. economy, gold, silver, commodities and much more. He is one of the most respected institutional minds in the world today regarding gold.
http://tinyurl.com/28xop4r
Hinde Capital On Whether GLD Is A New CDO In Disguise
http://tinyurl.com/2bn38cv
Exchange Traded Funds – Accounting Risks
All material is compiled from sources believed to be accurate, but no accuracy can be guaranteed. The presentation is for information purposes only and is not a solicitation to
invest. Unauthorized reproduction or distribution is strictly prohibited.
Accounting Standards (for gold) – inconsistent gold accounting by System of National Accounts (SNA), IAS, Balance of Payment Manuals, illustrates how double accounting of gold is endemic, leading to ‘encumbered’ (ie without full ownership rights) gold in the financial system. This is often not stated
There is a problem- swapped or loaned gold that has been sold into the financial system has led to
multiple counting of titled gold
? It is evident that gold with multiple owners has entered into unallocated and more importantly
allocated accounts. We see it as highly likely that encumbered or leased gold could thus be in
ETF products.
http://www.scribd.com/doc/35798662/Hinde-Capital-8-12-10-Report
.
Gresham’s dynamics….remember that word…will be reason gold soars
Max talks to former banking regulator William K. Black about rackets and fraud in the financial sector.
http://maxkeiser.com/2010/08/12/kr68-keiser-report-markets-finance-tier-terra/
Ben Davies
Thursday, August 12, 2010
Ben Davies gives a tremendous interview which is a must listen for anyone looking to increase their understanding of the gold market.
http://tinyurl.com/28cengf
Techno-Thriller: Why Was Goldman Sachs So Worried About One Nerdy Sentence?
Now comes the part of the movie where we place our sentence, that
jigsaw puzzle piece, into context so that we get its full meaning:
” The Goldman Sachs risk system is called SecDB (securities
database), and everything at Goldman that matters is run out of it.
… Database replication was near-instant, and pushing to production
was two keystrokes. You pushed, and London and Tokyo saw the change as
fast as your neighbor on the desk did (and yes, if you fucked things
up, you got 4AM phone calls from some British dude telling you to fix
it). Regtests ran nightly, and no one could trade a model without
thorough testing … Unbeknown-st to most of the non-strategists, you
could see basically every position and holding across the company,
whether you were supposed to or not. The whole thing was so good …”
That brings us to Goldman’s plans to shut down its proprietary trading unit and spin it off into an independent hedge fund — or move it into Goldman’s asset management arm. Here’s a question that probably hasn’t been asked yet: Do they plan to use Goldman’s SecDB, or any other Goldman systems, in that asset management firm? If this trading unit is moved into a hedge fund, will that fund ‘rent’ its computer systems from Goldman? Will all the traders and ‘quants’ at these various organizations be able to ‘see’ deals happening in real time? That could trigger calls for an SEC investigation or other actions to prevent Goldman from improperly using computer data. And it could raise questions about the other big banks’ systems, too.
http://tinyurl.com/26djfap
The suppression of the gold price is achieved in three main “theaters of war”:
1) The LBMA unallocated gold dealing is a fractional reserve operation with a reserve of probably less than 3%. This is largely a paper gold market that masquerades as a physical gold market. Palming off the unsuspecting investor with unallocated gold with a very low reserve ratio prevents the investor’s money from chasing real physical bullion which inherently acts as a price suppression mechanism (see my recent article Proof of Gold Price Suppression for more details).
2) For the investors who insist on having physical bullion it is important to suppress the price to dissuade them from thinking it is a good investment. As demonstrated in this article this is done by selling gold into the PM Fix to counter the rise in the price that occurs in the physical markets of Asia. This is exactly the same tactics as employed by the London Gold Pool of the 1960’s.
3) The large bullion banks, most notably JPMorgan Chase and HSBC sell short on the Comex inviting other commercials to join in the short selling binge to create frequent waterfall drops that wipe out speculators and serve as a cold shower for those who are bold enough to make leveraged bets that gold prices will rise.
http://gata.org/node/8919
‘Banging the close’ is illegal in commodities, unless you bang it down
As part of a settlement agreement, the commission fined Moore Capital Management L.P. of New York $25 million for attempting to manipulate the platinum and palladium futures markets in 2007 and 2008. The CFTC found that a former portfolio manager for Moore Capital engaged “in a practice known as ‘banging the close.’ Specifically, the former portfolio manager’s orders were entered in a manner designed to exert upward pressure on the settlement prices of the platinum and palladium futures contracts.”
Many market observers and particularly gold and silver market observers may laugh at this CFTC enforcement action, insofar as “banging the close” often can be found in various markets in the United States and particularly in the gold and silver futures markets. It’s also called “tape painting.”
http://www.gata.org/node/8923
The Great American Disaster: How Much Gold Remains In Fort Knox?
Financial newsletter writer Chris Weber’s new essay, published today at Lew Rockwell’s Internet site, describes the efforts of the late industrialist Edward Durrell to ascertain the true status of the U.S. gold reserve in the 1970s. Superficially, Durrell’s efforts didn’t yield much — but they did expose the U.S. government’s refusal to fully account for the metal and did produce a written acknowledgement from the Government Accounting Office that in 1975 less than a tenth of the gold claimed to be stored at the Fort Knox depository constituted “good delivery” gold, gold of the purity usually required in international transactions.
Weber, who in 1988 published a book, “‘Good As Gold?’: How We Lost Our Gold Reserves and Destroyed The Dollar,” which he hopes to make available on the Internet soon, believes that any honest audit of the U.S. gold reserve “would shock the nation.” His essay is headlined “The Great American Disaster: How Much Gold Remains In Fort Knox?” and you can find it at the Rockwell site here:
http://www.lewrockwell.com/orig11/weber-c1.1.1.html