Inflation, deflation, gold and currencies

[Witchiepoo]

Yes but people won't have money to buy gold

I agree. Last summer people were predicting $8 per gallon gasoline. I knew it wouldn't happen.

Right now, gold prices are shooting up, based on similar psychology. It won't last.

[bujjai]

The "sheeple" wont, yes you're right. Those who are holding and liquidating their cash positions will certainly have something left and it will find its way into the PMs.

[Witchiepoo]

The "sheeple" wont, yes you're right. Those who are holding and liquidating their cash positions will certainly have something left and it will find its way into the PMs.

People looking to invest their cash in the bottom of the pit, like myself, would choose deflated stocks over inflated gold.

[bujjai]

But if you read and subscribe to generational theory then you would know that there is no bottom to the deflation....and if you possibly think about where we now are financially, do you truly beleive that there is a bottom? When will you start buying and what is the likelyhood that it will go up from there, given the situation of the US in the world economy. I mean do we even make anything anymore? where are we when it comes to making cars vs the other economies? do we have the tech know how intellectual capital or is india/russia/china eating our lunch?

[John]

To those of you who are investing in gold, I have to (re-) emphasize
what a dangerous game you're playing.

First, let's repeat what I've said many times before: For decades
gold has remained in the range of $300-400 per ounce, except for the
1980 bubble, and the current bubble.

The "real" value of gold is therefore $300-400 per ounce, whether you
like it or not. If you want to throw in something for inflation,
then maybe it's $500 per ounce, so let's say $500.

At some point, the Law of Mean Reversion will strike. At that point,
the price of gold will fall, possibly crash, and it will overshoot
it's "real" value. So at some point, the price of gold will fall to
the $300 per ounce range.

That's the trend, but what we can't predict is when that crash will
happen. Between today and the time it crashes, then it's possible
that gold will spike up some more, say, to $1200 (as one
correspondent assures me).

OK, fine. But when it reaches the top, then you're going to have to
sell. Because if you miss the top, then you'll get caught in the
crash.

I've been castigated many times by a number of people for saying
this.

"Gold will double or triple," I'm told.

The people who make this argument always support their claim in the
following way: The value of the dollar will crash, so the price of
gold will spike in terms of cheaper dollars.

This argument is a failure. The dollar CANNOT crash, because we're
in a deflationary spiral. The dollar ISN'T crashing. It's revaluing
upward. That is what is expected in a deflationary spiral.

Therefore, those of you who are investing in gold have to face the
fact that your principal assumption is failing. You've placed all
this faith in gold by assuming that the dollar would inflate, but
instead it's deflating.

That's why I'm telling you again: You're playing a very dangerous
game with gold, and you could potentially lose a lot of money.

On the other hand, I'll add this: There's going to be a major war
pretty soon, and when that happens, the price of gold WILL spike up
for a while. However, you'll have to sell at that time, because even
that spike will be only temporary.

Sincerely,

John

[Witchiepoo]

But if you read and subscribe to generational theory then you would know that there is no bottom to the deflation....and if you possibly think about where we now are financially, do you truly beleive that there is a bottom? When will you start buying and what is the likelyhood that it will go up from there, given the situation of the US in the world economy. I mean do we even make anything anymore? where are we when it comes to making cars vs the other economies? do we have the tech know how intellectual capital or is india/russia/china eating our lunch?

My cousins, Indians in the tech industry, don't see India taking over the world economy any time soon. In their opinion, Americans still own the majority of tech companies, so even if Indians are doing the work, Americans are making the profits. Furthermore, the tech industry is entirely dependent on other businesses, as those are their customer base, so if the economy suffers as a whole, then the tech industry also suffers.

As for finding the bottom, who knows. I don't like the whole idea of owning stock anyway, but if the market keeps dropping I'm definitely going to investigate my options. I'll be a lot more likely to buy stocks than gold at least. Somebody in our country has got to start making SOMETHING again! We'll have to wait and see what that is, I suppose.

[bujjai]

Let's define inflation: it is the price of goods in terms of Dollars.

The price of goods never should change, and there should never be inflation. After all, raw materials are raw materials, and and it takes the same effort every time to make something.However their price should increase ONLY with the element of scarcity. The only reason inflation exists is because the dollar, acting as the reserve currency as well as any other FIAT currency is not backed by anything intrinsic, ie gold. Dollars and other currencies used to be backed by gold now they are not and "things" simply inflate, or rather dollars become LESS valuable as the dollars in the system increase. And the dollars in the system have been increasing ever since the money masters, the FED started out lending more money that they had reserves for.

So coming back to the gold argument, in inflationary terms, gold should actually be priced at .....$30,000+-...why? just divide the number of dollars in the system by the number of total ounces of gold in the US...if you can find all the dollars that is. That's inflation.

John, Where do you get the $1200 #? is it simply "because you say so"? as you present no calculation or basis for this number, just like the pundits on tv that you chastise. The only way to get gold back down to 300 is to simply goto gold as the reserve currency, but life then will be so different than it is now and that my friend will cause a world war infringing on the lifestyles so cherished by the elite.

[axis_of_evil]

Oh yeah, and at the time of the Great Depression the American government confiscated all gold from its citizens.

I hope you guys know what this implies.

[bujjai]

Oh yeah....that's why I moved out!

[mannfm11]

John, if this is your website, I find it as informative as any I have found. Thanks for your work on this subject. Not much can be proved and this is kind of like Elliott Wave, which is also a generational theory of sorts. I have written for a long time on the Prudent Bear board and my opinion on gold and deflation is pretty much like yours. The only problem I have with it is the way Bernanke is running this game, kind of like the boy with his finger in the dike and he might just bankrupt the Fed and the government before we deflate. I am looking for gold at about $500 an ounce and I think speculation is still rampant and gold is just one of the speculations. Existing home sales are still at a pre 1997 record, which doesn't reflect a bust in housing in a conventional way. If someone had told Realtors 15 years ago they would be selling almost 5 million existing homes per year and there was a bust going on, they would have called you a liar on both accounts. I really like the main page post you had from Wednesday, where you mentioned all the guys that say the news is so bad there has to be a bottom. The bullish percentage is low, but they are all in the market trying to catch the rally and beat their competition. I saw Ken Heebner, a long term top hedge fund and mutual fund guy on CNBC today and when asked if he was going to get in the market, he said he was all in. This is an old guy. You can bet the young whiz kids are plunging on every government move. The sell off during and after the government bail out vote wasn't bears selling, it was the guys that bought the rumor and there wasn't anyone to sell to. They were all in. Money on the sidelines? Where? Those accounts aren't liquid. They have to expand credit to actually have money move markets upward as money can only change accounts. This is where the hyperinflation guys are way out on the limb, as there isn't credit to expand demand. I do believe there is still rampant speculation in stocks to the upside and oil as well, as it appears to me that someone is hoarding crude, as if we are suddenly going to see the supplies disappear. Maybe I am going to be wrong, but I will be in the minority as will you and in times like these, that is where most of the right answers are. http://mannfm11.blogspot.com/2008/10/excessive-speculation.html