Will Gold Prices Double Five Years from Now ?

[SIUYA 11]

Um .. For one it will end in a devaluation of the said money. more dollars in an economy lessens the value of those dollars. simple supply and demand. Then you factor in peoples perception of value of a currency and that affects its purchasing power. all this results in inflation of goods and services...i.e. because the currency has less value it takes more to buy the same good or service...now, unless, i suppose, they just flip the computers off and make all these digital dollars ..disappear...thus taking them off the market :rofl: :rofl:

 

So in other words....if you see it as much the same thing.. and getting past basic economics 101.....then if the Fed is maybe not actually printing any more money than was already in the economy as a result of the inflated balance sheets using leverage than was before.....it was merely a transfer or circulation from the banks to the Fed (- the Fed basically agreeing to underwrite the banks and the economy...instead of the banks)

 

Hence if this is the case then there will have been no extra money printing - hence no extra inflation, and little reason for gold to rise in the future - whereas it did rise in the period of debt growth and money printing by the banks in the previous decade.

 

Additionally - if the Fed is acting responsibly and the banks are seen as being irresponsible then surely this increases the 'trust' in the system....because any paper currency (or any form of exchange for that matter including gold) is only worth what others trust it to be worth as a means of exchange with others.

(Where the Fed exits and sells back to the functioning economy may in fact be the next bubble we have to be more worried about)

 

If this is the case then the fear of printing dollars is simply that - fear.....

(Just a thought experiment )

[SunTrader 10]

....

...it was merely a transfer or circulation from the banks to the Fed (- the Fed basically agreeing to underwrite the banks and the economy...instead of the banks)

 

Hence if this is the case then there will have been no extra money printing - hence no extra inflation, and little reason for gold to rise in the future - whereas it did rise in the period of debt growth and money printing by the banks in the previous decade.

....

That is what an article I read a couple of weeks ago stated. I'd post the link if I still had it.

 

Fed added mortgages and treasuries to its balance sheet. So it was just asset switch. No additional money printed - digitally or otherwise.

[Ammeo 10]

One thing im sure of is that Gold is going to achieve its 1500-1600 level again. 2014 may start as the correction year for gold taking it back to the 1500-1600 levels in the coming 2-4 years.Demand is going to be the biggest question.Many countries and banks are on a very thin demand for gold but that may change with gold going to be at such bargain prices.

[sergso 10]

One thing im sure of is that Gold is going to achieve its 1500-1600 level again. 2014 may start as the correction year for gold taking it back to the 1500-1600 levels in the coming 2-4 years.Demand is going to be the biggest question.Many countries and banks are on a very thin demand for gold but that may change with gold going to be at such bargain prices.

 

+ good post. I think there is also possibility that something else will replace gold as inflation hedge/safe heaven status soon.

[Patuca 13]

I am too busy predicting the ES on the gold bullish thread so can't respond at this moment to this thread but capt bob and mr suiya can carry on with suntrader interjecting to keep things going...

[SunTrader 10]

One thing im sure of is that Gold is going to achieve its 1500-1600 level again. 2014 may start as the correction year for gold taking it back to the 1500-1600 levels in the coming 2-4 years.Demand is going to be the biggest question.Many countries and banks are on a very thin demand for gold but that may change with gold going to be at such bargain prices.

One thing I'm sure of is that I am never sure of WHAT IS GOING HAPPEN.

 

Also what is exactly is bargain prices?

 

Some thought 1800, then others 1700, then ...........

[SIUYA 11]

That is what an article I read a couple of weeks ago stated. I'd post the link if I still had it.

 

Fed added mortgages and treasuries to its balance sheet. So it was just asset switch. No additional money printed - digitally or otherwise.

 

If you find the article it would be great....its one of the things that has puzzled me for a couple of years....and the only answer people seem to give is that - the FED is printing money....without extra thought, or discussion etc. It usually is trotted out by the gold bulls....and fair enough they have to have a basis for their belief.

 

I have seen it all and at one stage believed it - I even helped represent a gold fund once :doh: long story.....but you know when you have a question and you just cant seem to get a satisfactory answer.

 

Re Gold - yep it probably will at some stage go back up to 1500-1600 as over the long term it is a reasonable inflation hedge....but it can also dislocate for a long long time. In the meantime trade it.

Bargain prices at 1200, expensive at 1300?

The more you spend the more you save! If you liked it at 1500, you must love it at 1200, and must want to take it home and make luvvvv to it all night at 900, and at 700 - you will probably want a divorce....right at the bottom.:haha:

 

Sergso - replacing gold.....what with - a basket of commodities. Its a tough one.

I agree in part - its another thing I have also pondered. Gold has been an inflation hedge because you cant just print more of it (yet they keep mining it), its historical uses, and its relatively easy transport, recognized around the world.....jewelry is often disguised as the way to keep wealth. (assuming all is in USD of course!)

 

These days, most wealth is easily transportable at the touch of a button, govts can still take away your assets of any sort (be it cash, land or gold - harder to find) - if the SHTF then gold will be back at it again....but is it really necessary given the ease of moving other assets these days.

 

But hey - having a job with rising wages, investing in the stock market, having a balanced portfolio, buying a house and investing in land rather than ipads and caffe lattes is not a bad way to beat inflation as well??? (Yes I know the downsides - nothing is perfect - not even gold.)

 

There are still not many substitutes for gold for many people - I would prefer diamonds up my asssss if i have to leave a country that a gold brick.....:haha: or diversifying with an extra passport.

Edited June 29, 2013 by SIUYA

[henry1000 10]

+ good post. I think there is also possibility that something else will replace gold as inflation hedge/safe heaven status soon.

 

Hello sergso:

 

I'm curious. What do you think could replace gold as an inflation hedge/safe haven soon ?

 

[MightyMouse 12]

There is no need to replace gold.

 

Why do you want to replace gold? Is it not going up and you want something else that should be going up to match your inflation expectations?

Are your inflation expectations correct?

Why do you want to hedge against inflation? If you are wrong, your hedge will go down in value, stagnating and offsetting your growth in assets.

 

Why not just buy assets? Your government (if you are a US citizen or resident) has virtually guaranteed that it will stop at nothing to increase the value of your assets. You can act like a peasant and be pissed at them every day, or take advantage of the opportunities they create for Americans. Don't miss the obvious and plentiful opportunities to make money that are right under your nose.

[henry1000 10]

There is no need to replace gold.

 

Why do you want to replace gold? Is it not going up and you want something else that should be going up to match your inflation expectations?

Are your inflation expectations correct?

Why do you want to hedge against inflation? If you are wrong, your hedge will go down in value, stagnating and offsetting your growth in assets.

 

Why not just buy assets? Your government (if you are a US citizen or resident) has virtually guaranteed that it will stop at nothing to increase the value of your assets. You can act like a peasant and be pissed at them every day, or take advantage of the opportunities they create for Americans. Don't miss the obvious and plentiful opportunities to make money that are right under your nose.

 

Hello MightyMouse:

 

So which assets for US citizens are you referring to that the government has virtually guaranteed it will increase the value of ?

 

Henry1000

 

PS:

You have a great avatar. Mighty Mouse was always one of my favorite cartoon characters.

[MightyMouse 12]

Hello MightyMouse:

 

So which assets for US citizens are you referring to that the government has virtually guaranteed it will increase the value of ?

 

Henry1000

 

PS:

You have a great avatar. Mighty Mouse was always one of my favorite cartoon characters.

 

real estate (land), stocks, especially bank stocks. I suppose you could buy art, collectibles cars, but I tend to have a hard time thinking they are not fakes. Keep your money in anything but bank accounts and cash and you'll be safe from inflation. When you need fixed income then inflation will hurt you, but hopefully by then you will have a fortune in assets to sell and more than enough to get your through 30-40 years of wishing you were still young.

[Patuca 13]

real estate (land), stocks, especially bank stocks. I suppose you could buy art, collectibles cars, but I tend to have a hard time thinking they are not fakes. Keep your money in anything but bank accounts and cash and you'll be safe from inflation. When you need fixed income then inflation will hurt you, but hopefully by then you will have a fortune in assets to sell and more than enough to get your through 30-40 years of wishing you were still young.

sorry stock market will crash....second real estate bubble has yet to burst banks will crash.. What is coming will make 2007 to 2010 look like a sunday afternoon stroll in the park.

[MightyMouse 12]

sorry stock market will crash....second real estate bubble has yet to burst banks will crash.. What is coming will make 2007 to 2010 look like a sunday afternoon stroll in the park.

 

Markets have crashed and will continue to crash. Your attitude would have left you out of the best market moves ever and possibly been, worse, short.

It is a bad, bad bet to bet against the USA.

[Larry1234 10]

Hi Patuca

We are all importing deflation by buying cheaper and cheaper goods from Asia.

Cheaper goods improve our lifestyle but corrode our manufacturing jobs.

And it will get worse

The easiest way to raise GDP is to print more money, thus causing inflation.

The FED WANTS inflation.But everyone else caught up and inflation never happened

Now the FED has a new trick. .... a very strong dollar

The strong $ will increase the price of imports and maybe bring the jobs back home.

How they will ever pay off the debt is another story.Your idea of making the dollars disappear is not so far fetched.In 1932 Germany chopped off 9 didgets and saved their economy. The middle class lost everything so a little war was a nice distraction.

I think I will have to store some silver coins somewhere. :2c:

regards

bobc

 

Printing money is not at all a solution to increase the inflation, and this is what Japan is doing now and due to this, their currency (Yen) has been depreciated more than 20% which makes imports costlier and exports competitive.

[Patuca 13]

Markets have crashed and will continue to crash. Your attitude would have left you out of the best market moves ever and possibly been, worse, short.

It is a bad, bad bet to bet against the USA.

we shall see now won't we?

[henry1000 10]

Hi Patuca

We are all importing deflation by buying cheaper and cheaper goods from Asia.

Cheaper goods improve our lifestyle but corrode our manufacturing jobs.

And it will get worse

The easiest way to raise GDP is to print more money, thus causing inflation.

The FED WANTS inflation.But everyone else caught up and inflation never happened

Now the FED has a new trick. .... a very strong dollar

The strong $ will increase the price of imports and maybe bring the jobs back home.

How they will ever pay off the debt is another story.Your idea of making the dollars disappear is not so far fetched.In 1932 Germany chopped off 9 didgets and saved their economy. The middle class lost everything so a little war was a nice distraction.

I think I will have to store some silver coins somewhere. :2c:

regards

bobc

 

Hello bobcollett:

 

How exactly did Germany save their economy in 1932 by chopping off 9 didgets ? If the middle class ended up losing everything which means 99% of the people are wiped out, then who exactly got saved. Seems to me that their economy was just wiped out end of story.

 

Henry1000

[henry1000 10]

So in other words....if you see it as much the same thing.. and getting past basic economics 101.....then if the Fed is maybe not actually printing any more money than was already in the economy as a result of the inflated balance sheets using leverage than was before.....it was merely a transfer or circulation from the banks to the Fed (- the Fed basically agreeing to underwrite the banks and the economy...instead of the banks)

 

Hence if this is the case then there will have been no extra money printing - hence no extra inflation, and little reason for gold to rise in the future - whereas it did rise in the period of debt growth and money printing by the banks in the previous decade.

 

Additionally - if the Fed is acting responsibly and the banks are seen as being irresponsible then surely this increases the 'trust' in the system....because any paper currency (or any form of exchange for that matter including gold) is only worth what others trust it to be worth as a means of exchange with others.

(Where the Fed exits and sells back to the functioning economy may in fact be the next bubble we have to be more worried about)

 

If this is the case then the fear of printing dollars is simply that - fear.....

(Just a thought experiment )

 

Hello SIUYA:

 

I find this sentence in your post indecipherable:

“.then if the Fed is maybe not actually printing any more money than was already in the economy as a result of the inflated balance sheets using leverage than was before.....it was merely a transfer or circulation from the banks to the Fed (- the Fed basically agreeing to underwrite the banks and the economy...instead of the banks) ”

 

If the Fed is not printing any money than before but just transferring it from the banks to the Fed or vice versa then what's the point ? You are back where you started. Please explain.

 

Henry1000

[MightyMouse 12]

we shall see now won't we?

 

There is nothing to see. We will both be right, but at different points.

 

But, for a bull market to end, there are certain characteristics that need to be present. They are not present in equities, but they are present in many of the commodities.

 

In order for a bear market to continue, there needs to be certain characteristics as well.

 

If one knows what he is doing, then he knows what those characteristics are in each case.

[SIUYA 11]

Hello SIUYA:

 

I find this sentence in your post indecipherable:

“.then if the Fed is maybe not actually printing any more money than was already in the economy as a result of the inflated balance sheets using leverage than was before.....it was merely a transfer or circulation from the banks to the Fed (- the Fed basically agreeing to underwrite the banks and the economy...instead of the banks) ”

 

If the Fed is not printing any money than before but just transferring it from the banks to the Fed or vice versa then what's the point ? You are back where you started. Please explain.

 

Henry1000

 

That is the point......you are back where you started....in other words is the Fed printing money or simply underwriting what was in the economy beforehand.

With the fractional reserve banking system being what it is......and the fact that Japan has tried to do the same, shows that simply transferring from businesses/private balance sheets to the Feds balance sheet does not mean that there will be rampant inflation.

 

All we every hear about is how the Fed is printing money and the effect it will have on inflation....and yet in this day and age - what is the difference between what we experienced with the banks creating and offering credit everywhere and everyone else for that matter when they offered credit to everyone and it was all money in digital form.

 

'Supposedly' people are finding it harder to get loans, businesses are struggling etc....because the banks are not lending to the real economy.....in other words. The reduction of any money previously supplied to the economy from the banks balance sheets has simply been transferred to the Feds balance sheet....hence no difference in the money in the economy - hence no real inflation from the evil Fed, hence one less reason for why gold 'must go up' as a lot of people claim.

 

Its simply looking a bit more at the assumption that people often make that the "fed is printing money we are all doomed".

(A bit like saying "A company is investing money - therefore it will make more money down the track" or "A company is laying people off, there will be no more jobs around again" - there are a lot of factors in play that can determine the outcome)

[MightyMouse 12]

QE1,2,3,4... is quite similar to normal open market operations. The major difference is the scope of the securities that it purchases. Open market operations traditionally were conducted using short term tnotes. QE involved MBS. and longer term tnotes and tbonds.

 

The fed bought securities from banks not the treasury. The purchase of securities by the fed is an asset swap that changed the composition of bank assets, moving money into bank reserves. More reserves means that a bank can lend more. But in practice, given the risk cycle that parallels the business cycle, banks have tightened lending practices. QE did increase assets on the fed balance sheet but it also increased liabilities.

 

 

QE did drive down longer term rates. No question there.

 

Now that there is more data on QE, we can certainly expect that QE will be a tool that the FED continues to use in the future as it sees fit.

[bobcollett 10]

QE1,2,3,4... is quite similar to normal open market operations. The major difference is the scope of the securities that it purchases. Open market operations traditionally were conducted using short term tnotes. QE involved MBS. and longer term tnotes and tbonds.

 

The fed bought securities from banks not the treasury. The purchase of securities by the fed is an asset swap that changed the composition of bank assets, moving money into bank reserves. More reserves means that a bank can lend more. But in practice, given the risk cycle that parallels the business cycle, banks have tightened lending practices. QE did increase assets on the fed balance sheet but it also increased liabilities.

 

 

QE did drive down longer term rates. No question there.

 

Now that there is more data on QE, we can certainly expect that QE will be a tool that the FED continues to use in the future as it sees fit.

 

Hi MM

There is one part left out of this .....

Banks dont make money by increasing their reserves. (Capital)

They make money investing their reserves.

So they swapped their reserves for equities

They bid up the markets, and their reserves , now in the form of equities, went up.

And us poor retailers are buying the top.

But there is risk to the banks .If the market had to fall by 10% (guess),the banks would scramble to get out to preserve their capital.Thats when the proverbial hits the fan.

How do I profit from this? Watch volume. Volume preceeds price , so a big fall in volume over a period tells me the banks have stopped buying.

 

I think the market is going up because the Bond market has callopsed, so my idea is not imminent.

regards

bobc

PS If the market falls , the biggest losers will be the banks. Comments please.

[MightyMouse 12]

Hi MM

There is one part left out of this .....

Banks dont make money by increasing their reserves. (Capital)

They make money investing their reserves.

 

PS If the market falls , the biggest losers will be the banks. Comments please.

 

Yes, with more capital they can invest more. Where they invested is unclear to me. The intent was to invest in the USA so that the money could be used to build plants, factories, etc and create jobs. That probably didn't happen to the extent that the Fed hoped.

[SIUYA 11]

FWIW - a simple site i stumbled across talking about Gold and its correlation to inflation - they link to the more detailed explanation in their post.

Not sure if i agree 100% with it but its another opinion.

 

 

(Also talks about why QE wont work for those interested in the blog)

 

I liked the fact they dont blog every day...only when they have something to say despite it being from an academic. :haha:

[Enigmatics 10]

'Supposedly' people are finding it harder to get loans, businesses are struggling etc....because the banks are not lending to the real economy.....in other words. The reduction of any money previously supplied to the economy from the banks balance sheets has simply been transferred to the Feds balance sheet....hence no difference in the money in the economy - hence no real inflation from the evil Fed, hence one less reason for why gold 'must go up' as a lot of people claim.

 

It is my belief that as rates rise, the banks will begin lending again. All the fence sitters will now rush in so as not to get caught on the high-end of that increase and credit restrictions will open up so all the rest of the sidelined people can finally get a loan. Nifty game played. Sucks for the public, but in a strange way it's purely business.

[SunTrader 10]

The world has excess factory capacity.

 

All the major central banks are printing money

 

Many euro nations as well as China, and until recently the U.S., have excess residential housing stock.

 

And then on top of that most of the multinationals are flush with cash on their balance sheets.

 

 

So who is left for the banks to loan to?

 

:shrug: