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TechGromit
2010 Apr 15, 11:44pm
And Real estate too, after all they are not making more land. But they are still mining Gold. Hmm. Somehow I doubt that gold always goes up.
Gold does not go up or down, paper money does. The "price" of gold is actually a representation of how many dollars it takes to buy an ounce of gold. Example: Eight years ago it took 300 US dollars to purchase 1 ounce of gold. Today it takes 1150 US dollars to purchase the same 1 ounce of gold. Gold did not go up, the dollar went down. It appears that this decline will continue and perhaps accelerate due to additional factors today such as the printing of dollars (more dollars = less value of each), the raising of the debt ceiling, more borrowing and more spending. Hang on, it's going to be a rough ride. Douglas Hess
Actually, there's a bubble brewing in bonds lately. People panicked in 2007-2009 and locked in their losses by selling stocks and transferring to bonds. Of course, most folks don't understand corporate bonds, or even what affects Treasury prices and yields. All that money pumped up the bond market temporarily, but if you look at risk-adjusted yields, things are intuitively too high (yields are too low, bond prices are too high).
People understand that their money is guaranteed in U.S. government bonds. What they don't understand is that heavy inflation or even the expectation of inflation will deteriorate the prices or destroy the long-term value. There's still a lot of money parked in the "safe" option (also in CDs), so demand is still oddly high.
I do agree that the gold supply is expanding, but that doesn't prove anything. Relative rates of change are more important--population growth, expansion of currency supply, industrial usage, etc.
Gold is still about 100% below its inflation adjusted high. The talk of gold in a bubble at this price is complete nonsense and only put forth by people who have zero understanding of the gold market. If you survey portfolio managers, only about 10% of them have exposure to the gold market. Only about 3% of them actually have owned Physical Gold. Gold will be in a bubble when the general public starts to actually buy the stuff.
Gold does not go up or down, paper money does. The “price†of gold is actually a representation of how many dollars it takes to buy an ounce of gold. Example: Eight years ago it took 300 US dollars to purchase 1 ounce of gold. Today it takes 1150 US dollars to purchase the same 1 ounce of gold. Gold did not go up, the dollar went down.
I guess the price of everything else has fallen to about 25% of it's price 8 years ago too. Rents, salaries...everything.
How do you explain this extreme deflation?
I don't see how that is a useful way of looking at things.
Gold does not go up or down, paper money does. The “price†of gold is actually a representation of how many dollars it takes to buy an ounce of gold. Example: Eight years ago it took 300 US dollars to purchase 1 ounce of gold. Today it takes 1150 US dollars to purchase the same 1 ounce of gold. Gold did not go up, the dollar went down.
I guess the price of everything else has fallen to about 25% of it’s price 8 years ago too. Rents, salaries…everything.
How do you explain this extreme deflation?
I don’t see how that is a useful way of looking at things.
I don't agree with his simple representation of Gold but I do believe you are taking his point and looking at it backwards. According to his point, the price of everything should have gone up 400% in dollar terms. Not down 75%.
I've been hearing a number of news stories that gold is in a bubble and sooner or later the price will collapse. I believe this really all depends on how stable you believe your currency is. If you have faith in your Dollar, Euro, Yen or Peso, than I say sell your gold now and reap your profits before the market goes bust. But if you have less faith in your money, than I say it better to hold onto your gold, and perhaps obtain some more.
Personally I believe the dollar is way overvalued, the slick guys in Washington are printing money fast as they can and are trying to claim there are buyers for the treasury bonds that are suppose to back up the issue of new money. I highly doubt the Chinese are increasing there portfolios in U.S. Treasuries, were just lucky they are holding on to what they have already. They want to keep the dollar some what stable so they can sell us more imports. My concern is what happens when the real estate bubble that's growing in China busts? If it leads to high unemployment and business failure like here in the U.S. I'm betting that China will start to sell those U.S. treasure securities to raise capital to stabilize there economy which will sink the dollar like the Titanic striking an Iceberg.
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