If I understand right, you're down on that island buying scrap gold, making coins out of it, and selling them. It looks to me like you're excited, maybe because the value of your inventory is going up and you'll also be able to get more for your coins, if the price keeps rising.vincecate wrote:I sure don't think I am "talking my book". This is the one area where I think you are wrong. I think for making the right investments now this is the most important issue. Time will tell who is right.
Gold is a pimple on the elephant of the world economy, with about 50 million ounces being mined each year. This would amount to $60 billion in new supply per year.
The large volume hard assets are oil and real estate and that's what the Fed needs to inflate. Any hyperinflation or even a whiff of it would send these assets to new all time highs. The oil market is maybe 30-40 times larger than the gold market. With world oil production at 84 million barrels per day, we're looking at $2000 billion in new supply per year, and prices currently well below the 2008 high of $147 per barrel. Even at the current depressed level of housing starts, the residential real estate market is still generating about $100 billion in new supply per year in addition to a huge glut of unsold properties. Despite hundreds of billions of money pumping and incentives, prices have barely budged.
Central banks and government bureaucrats always get it wrong. They sold hundreds of tons of gold multiple times at the lows around 10 years ago and it only stands to reason they will be wrong again if they buy these high prices. I guess a side comment there is just as the Central Bankers were wrong about gold 10 years ago, they will likely be wrong about their perceived ability to prevent deflation.
The Wall Street bubble machine realizes the capability no longer exists to attack the large volume asset classes, so they are now creating what I call "sub-bubbles" because there's simply not enough income and credit to drive the large asset classes higher. They attacked oil and real estate with a vengeance, but now they have to go after the pimples like gold in order to generate any action.
People have tended to believe any story Wall Steet throws out there as long as the price of the attacked asset is rising. We're now at the point where we will see if the public can be sucked in one more time, in similar fashion to how the Connecticut soccer moms, etc., were conned into buying oil ETF's and flipping houses 2-4 years ago before those markets collapsed. Time will tell on that one. The gold market is small enough that's it's definitely doable. There is no hyperinflation, just as there was no imminent $20 per gallon gasoline coming when that story was pumped 2 years ago.
The "problem" with deflation is there's nothing to sell. Yet, at the same time, we still have a supply of con artists on Wall Street who continue trying to pick the pockets of the productive people because that's all they know. Until the public gets fed up and the arrests are made, I suppose it can continue.