Monetary Policy

Get Back to Those Gold Soundz

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…as the price has stayed above $1,300 all month, Reuters reporting on big-money investors buying physical gold "by the ton," and Howard Ruff pointing out this list of commodity price inflation that threatens looming retail price inflation (though he gives the reader not a clue as to over what time period these percentage price rises have occured):

For example, Agricultural Raw Materials are up 24%, The Mineral Index is up 25%, The Metals Price Index is up 26%,Coffee is up 45%, Barley is up 32%, Oranges are up 35%, Beef is up 23%, Pork is up 68%, Salmon is up 30%, Sugar is up 24%, Wool is up 30%, Cotton is up 40%, Palm oil is up 26%, Hides is up 25%, Rubber is up 62%, Iron Ore up 103%. Those are prices at the wholesale level.

As Reuters reports, a lot of the buying may be less inflationary expectations or protection but merely the usual leaping of dumb money into whatever seems to be going up:

Anthony DeChellis, managing director of Credit Suisse's Americas private banking unit, said at the Reuters summit in New York that clients are more interested in capitalizing on the rise in gold prices than using the precious metal as a safe-harbor investment.

"They're asking, 'If it's a bubble, how far can I ride that bubble,'" he said. "I cannot say we've seen a spike in gold interest, but there's an interest in the phenomenon of it."

I appear to like blogging about gold.

NEXT: Guess Which Became the Largest Circulation California Daily to Editorialize in Favor of Prop. 19?

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  1. Seems like a bubble in gold going on.

    1. No such thing. Gold is a universally accepted currency. The price of gold isn’t going up, gold has consistently held its value for decades, the value of the world’s paper currency is going down.

      Gold, Bitchez.

      The bubble is in the bond market.

      1. Gold is a commodity. Like any commodity, it can be under- or over-priced relative to other commodities.

        And yes, the price of fiat money — another commodity — is going down, the question is whether the price of gold is too high or too low right now relative to those eventually worthless scraps of paper.

        1. Not really. Gold is different than other commodities. It’s practically universally accepted as currency.

          Of course, the value of gold fluctuates, but like I said, gold has held it’s value pretty consistently. I think Freidman predicted that gold would fall when Nixon closed the gold window. Man, was he wrong. Gold fell when Volker choked the supply of cash.

          I suppose that the “rush” for gold could be pushing the prices up, but what also matters, is how leveraged the paper gold to physical gold really is. That’s the key. And if it is leveraged at 100:1, like some people think, will that cause a huge spike, or a complete collapse, or all out war?

      2. Gold is a universally accepted currency.

        Hmm, I wonder if you wandered down to Publix or 7/11 with a bar of gold or even a gold coin of some sort and tried to buy a Snickers with it if you’d find gold to be universally accepted….

        1. Seriously? Ever hear of “Legal Tender Laws”?

          1. Yep, but try reality laws. How much change would they give you? The same ppl who can’t make change from a $20 bill without the cash register to tell them can accurately change a gold bar/coin???

            1. I bet a lot of those people at 7-11s know a lot more about gold than you may give them credit for. I bet they all have little scales behind the counter, just in case. It’s Americans that need to learn the metric system.

          2. Also, just a quick FYI from wikipedia (which God knows is never wrong): On the other hand, coins made of gold or silver may not necessarily be legal tender, if they are not fiat money in the jurisdiction where they are preferred as payment. The United States Coinage Act of 1965 states (in part):

            United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes and dues. Foreign gold or silver coins are not legal tender for debts.
            ?31 U.S.C. ? 5103

            This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor in the U.S. There is, however, no Federal statute that requires private businesses, persons, or organizations to accept it as payment for goods and/or services.[18]
            [edit]

            1. I heard a story about someone who was actually minting gold coins in the US, and locals were using them. The guy was raided by the Treasury or some gov agency.

              1. Well they do sell Disney bucks in Orlando and Disney World merchants do take them as payment. But YMMV.

          3. Ever hear of “Legal Tender Laws”?

            Yes, but I’m not sure if you have. Aside from Golden Eagle coins (which you’d be insane to spend at face value), regular gold is not included in those laws. And for good reason; transactions in gold require a microgram scale and sensitive calipers to protect against counterfeiting. Especially when you’re talking $1300/oz.

        2. Hmm, I wonder if you wandered down to Publix or 7/11 with a bar of gold or even a gold coin of some sort and tried to buy a Snickers with it if you’d find gold to be universally accepted….

          I would take a gold coin for a snickers bar any day of the week.

          Anyone who wouldn’t is a fucking idiot.

          1. Ok, but that totally misses the point that most institutions in the US and elsewhere are not set up to take gold in exchange for goods, thus gold is not a universally accepted method of payment. Not to mention Tulpa’s point of how difficult it would be to tell if you are getting real gold. But if you want to trade Snickers bars for possible gold coins, have at it. I would expect some difficulty at the bank when you try to deposit it, though.

            1. “Method of payment” at the 7-11, no… Gold isn’t that anymore thanks to laws preventing that from being the case.

              But accepted as “Currency”? Absolutely YES it is!

              Gold enjoys a unique place among other commodities because it is the currency people flock to when they are worried about their paper money becoming worthless, and the government recognizes that too, which is why they tax it as a capital gains even when you sell physical gold or silver instead of just having the one-time sales tax applied.

              1. The sale of real estate is also taxed at a captial gains rate instead of having sales tax applied, but I wouldn’t call real estate a currency. Gold may enjoy a unique place among commodities as far as investors are concerned, but it has no more intrinsic value than any other commodity, and actually in certain ways maybe less. If things go wahoonie shaped you can eat the pork bellies.

          2. I would be willing to give you a whole bag of snickers bites for a gold coin. No questions asked.

        3. “Hmm, I wonder if you wandered down to Publix or 7/11 with a bar of gold or even a gold coin of some sort and tried to buy a Snickers with it if you’d find gold to be universally accepted….”

          You guys make it sound like it’s hard to buy.

          You can buy it online. Hell, you can buy gold mining stocks easy as anything. …or gold ETFs.

          It’s easier for me to buy and sell gold than it is to go to the 7-11 and buy a candy bar…

          Mouse clicks. How hard is that?

          1. But buying physical gold isn’t as easy as they make it sound. Most sellers want you to finance a fucking bar of 100/1000 troy oz. or whatever at a pretty high interest rate. They make the money off of transaction fees, the interest they’re charging you to buy the commodity, and any holding fees at their ‘vault’. Trying to buy it out right to have it delivered to you normally means having to pay much higher than the going market price, plus shipping fees. If it’s worth it to you to pay an extra 20/30 an oz. I guess it’s a good option. I’m just kind of iffy with gold because I was looking at purchasing a few ounces in 2008. Now silver, OTOH.. there’s going to be some interesting developments in that market in the next few years.

            1. You’re better off finding a gold dealer locally, if possible. Obviously they’re going to charge you above the commodity price (they do have to make a profit) but you don’t deal with the cost (and more importantly the worries) that comes with shipping.

            2. Why do you want to own physical gold?

              That’s like two steps away from moving to Montana and wearing nothing but camo.

              Ticker GLD.

              Easier than buying a candy bar.

              1. Just for the record, I don’t own any gold and I wouldn’t advise anyone to buy any gold.

                Investments can and do involve risks which may not be suitable for you in your situation. Past performance, furthermore, is no indication of future results. For good investment advise, please seek out the advice of a licensed professional. Any reuse or rebroadcast of this comment without express written consent from the NFL and Washington Redskins is strictly prohibited.

          2. Not the dreaded ETF…..

            Did somebody switch on CNBC?

        4. I’ll happily sell you a snickers bar for an ounce of gold.

      3. This is an odd picture for “consistently held its value for decades”.

        http://www.pensions.gold.org/a…..Chart1.jpg

  2. Thank God I got out of gold before the bubble bursts. I just mailed all of mine to Cash4Gold.

    1. Should have mailed it to Cats for Gold

      1. Cat shit is a known hedge against inflation during times of recession or depression. Plus, you can cheese to get through the rough times.

  3. Of course, this isn’t about gold per se.

    Amid the price of all those commodities, it’s about the value of the dollar.

    This is what everybody should be looking at…

    “The move came as the dollar fell against many major currencies on expectations the Federal Reserve would resume adding cheap money to the system to give the weakened U.S. economy a jolt. The dollar fell against the euro, hit a 15-year low against the Japanese yen, and sank to a record low against the Swiss franc.”

    http://online.wsj.com/article/…..:b38146544

    15 year low against the yen? Check

    Record low against the Swiss franc? Check

    Falling against the Euro? Check.

    Let’s not be stupid people–there’s no need to listen to anybody’s take on what Obama and Geithner think. The world is telling us that they don’t know where the cliff is exactly, but we’re getting closer…

    See, there’s this thing called “reality” that inserts itself into the conversation periodically–it seems to creep up behind Obama and his supporters periodically, always seems to grab them by surprise!

    But, just for the record, reality doesn’t react to opinion polls–and it doesn’t care how we vote either. It doesn’t care who’s in Obama’s economic team. Reality just is.

    That’s tomorrow’s news today.

    1. Reality is influenced by votes. If the Democrats lose both chambers of congress in November, and the House by a landslide, that might move gold prices down in the expectation of a slightly less insane fiscal policy due to gridlock.

      1. “that might move gold prices down in the expectation of a slightly less insane fiscal policy due to gridlock.”

        Uh huh, and just how much real money are you willing to bet on THAT!

        1. I’m continuing to bet several million dollars on broadly diversified stock mutual funds and several houses, held for the long term.

          Gold is not an appreciating asset, but rather a mildly depreciating asset (it earns no interest, and it costs money to store it somewhere secure where it won’t get stolen.)

          Bonds, given all the money the Fed recently created out of thin air, seem like they are WAY overpriced given the risk of inflation resurging.

          1. I’m looking at the price of TIPS.

            Those buyers aren’t worried about the effects of inflation on their investment–so why are rates so low there?

            Looking at the currency markets, my guess is that rate may be about to change. I’m not putting any money on it, but there’s no question that currencies and commodities should be the leading indicator here.

            I’ve been around here for a year makin’ fun of Ron Paul being all crotchety about inflation when the bond market was telling us that inflation was the last thing we should worry about.

            …but hell’s bells, broken clocks and twice a day–when all the major currencies and commodities start makin’ big moves in the same direction? It’s time to start paying attention.

      2. Reality may reflect political realities, but how we vote won’t change reality.

        How we spend changes reality. What we actually do changes reality.

        Some people don’t understand that. They think it’s the other way around–that if you vote a certain way? Reality will change…

        Healthcare will become less expensive. Imports will become unattractive. Greentech jobs will magically appear.

        I think it’s true that Republicans at presently constituted are a little more in touch with reality–which is why they’re often associated with being the bad guy…

        But even then, reality won’t change because of how we voted–but it might change because of what the people we voted for actually do.

        1. But even then, reality won’t change because of how we voted–but it might change because of what the people we voted for actually do.

          Who we elect is part of reality. In the short term, it can move the prices of some commodities.

          In the medium to long term, though, yes you’re right, what those scum actually do will be reflected in the prices of stuff.

          1. My point was that no matter what Obama thinks or Geithner thinks or Bernanke thinks or anybody else thinks…

            Reality’s gaining some momentum, and it’s being reflected in the currency as well as the price of gold and various commodities listed above. And no matter what anybody says or thinks, we are begging for some inflation if things keep goin’ the way they are.

            The worm’s starting to turn.

            Which doesn’t necessarily mean Warren was right about anything, and even if he was, it’s at least partially his fault anyway.

            1. Ben B isn’t ignoring reality … he wants inflation.

              Ben is an old-school Keynesian. He believes in the Phillips Curve. Be believes that if he can reduce unemployment if can just ignite price inflation, and he’s doing his damnedness to do just that.

              1. I believe, brother!

                1. But you need to believe even more.

    2. I agree with Ken that trying to ignore reality doesn’t work out, and that we have been getting closer to the cliff.

      Currency exchange rates are influenced by many factors. I think the dollar has lost value compared to other currencies mostly because of the massive trade deficit the US have run for decades.

      The massive trade deficit is, for once, not caused by Washington, but mainly by the fact that the US are the largest homogeneous market. The EU is approximately the same size, but to compete there one has to support at least German, Italian, French, and Spanish languages, accept Pounds and Swiss Franks in addition to Euros, and cope with the different local cultures and local laws of dozens of individual countries, rather than merely with different nuances in different US states.

      For example, Walmart invested heavily trying to enter just the German market.
      They quite predictably got their butt whipped, lost billions, and went home weeping. Walmart management simply failed to understand that the way they run their business in the US cannot possibly work in Germany. And, once they finally noticed, they were unable to adapt.

      1. Just for the record, when inflation comes, it’ll come because of our spending–not because of our trade deficit.

        The rest of the world has bought up our debt with every crisis going back to 9/11 like there wasn’t anything else safe to do with their money…

        Some auctions actually went negative interest rate over the last few years.

        If foreign buyers of dollar denominated debt aren’t getting the return they want because our currency is losing value relative to theirs, then they won’t be willing to finance our debt without being compensated for the change in the value of the currency…

        DEMAN KURV!

        It’s as simple as that.

        The only wrinkle is that the Obama Adminsitration is so in bed with the UAW and other unions, they may think screwing the American consumer is a good thing.

        They already screwed the American taxpayer on behalf of the UAW, why wouldn’t they screw the American consumer too? And the alternative–slashing the budget?

        That’s for suckers. That’s something to leave for the bad guys to do–and when they do it? The Obama Administration can score political points by calling them “bad guys” for doing it.

        1. Both the national debt and the trade deficit end up, to a significant extent, being held by foreigners. That leads to essentially the same effects.

          Any reduced value of the dollar by itself triggers some inflation, as it makes imports more expensive. Say, the massive dependency on imported oil.

          The difference I see between the trade deficit and the national debt is that the trade deficit will always cause dollars being owned by foreigners, whereas the national debt could also be held by Americans if Americans should change to a lifestyle where they save up before spending, rather than spend first and then try to pay down their private debt.

          1. Inflation is about there being more dollars out there than dollar denominated stuff that people want to buy, but for at least a decade or two, that’s been about investing in our stock market and investing in our debt…

            This isn’t about our trade deficit. It’s about potentially issuing more dollar denominated debt than people want to buy.

            That’s all it’s about at this point.

            1. Inflation is about there being more dollars out there than dollar denominated stuff that people want to buy

              Yes. Or, at least it is good enough for a discussion forum on the internet.

              The trade deficit makes it necessary to print additional green bucks. The fact that both the Bushed administration and the O’Bummer administration spent like they were run by KGB agents instructed to bankrupt the US does not change that.

              It’s about potentially issuing more dollar denominated debt than people want to buy.

              That is the interest rate, which is only loosely related to inflation. It is bad because the interest rate individuals and businesses will have to pay will be increased, and that can suffocate the economy. But it is not inflation.

  4. Silver is where it’s at, foo’.

  5. I heard a report that JP Morgan is opening up their vaults to the public for personal gold storage. I don’t think I would want my physical gold in JP Morgan’s vaults, but that’s just me.

    If the rumors of the paper gold to physical gold is being leveraged at 60 – 100:1 are true, and people start demanding delivery, there could be a huge problem.

    1. Would this be the same JP Morgan that reached an out of court settlement in a class action lawsuit for charging customers storage fees for silver that they didn’t have in storage?

      1. Ummmmmmm, yes, I believe so. Wasn’t there also some funny business about manipulating the silver market, as well? McGuire, I think the guy’s name was. The CFTC is still sitting with their heads up their asses on that.

    2. It just so happens that an ancestor of mine–a silver magnate–was ruined by that no-good J.P. Morgan. So screw his company for depriving me of my own space program.

      1. There are some that believe that it was JP Morgan, himself, that started rumors of bank insolvencies in 1907 just before the Panic. He was the one who set up the Jekyll Island meeting, right?

      2. Too bad William Jennings Bryan didn’t kick his ass, PL.

  6. You can never quarantine the past…

    1. Why aren’t more people picking up on the Pavement reference here. Why isn’t Pavement more popular among Libertarians? Anyone? Lonewhacko?

      1. Big Fan of the Pavement – not sure how popular they are of other libertarians…

        1. fuck libertarians, why isn’t pavement more popular among everybody?

      2. Probably because the name evokes public works projects.

    2. Is it a crisis or a boring change?

  7. a lot of the buying may be less inflationary expectations or protection but merely the usual leaping of dumb money into whatever seems to be going up:

    Huh?

    you just listed a ton of commodies going up in price….

    Perhaps you should check the value of US currency…

    Yup it has lost value.

    Looks like inflation to me.

  8. Pictures are good. Per your time frame issue. (futures, not wholesale prices, but you can get a good idea of what is moving where over a 1 year time frame.

    http://www.finviz.com/futures_charts.ashx

      1. With a few exceptions, it looks like most of the commodities (and yes gold is a commodity!) are an inverse of the USDollar. So … that means inflation.

        1. The only exceptions are lean hogs and feeder cattle, for which prices have recently trended down.

          There’s good reason for this. The cost of feed is going through the roof and farmers are afraid that fattening these animals up will cost too much in the future.

  9. Barley is up 32%

    Well, Goddamnit. That fucks up my plan to live on cheap beer as an inflation hedge.

    1. Not if you can figure out a way to substitute powdered eggs for barley.

      1. Kind of like the Bureau of Labor does with its chain-weighted calculation of the consumer price index.

  10. list of commodity price inflation that threatens looming retail price inflation

    Price controls, Bitches.

    Looming price inflation? What, he believes the 2-3% numbers they’re giving us? If you use the old method for calculating inflation, according to Jim Rodgers, it’s more like 8-10%, currently.

    1. It wouldn’t be the first time Obama imitated Nixon.

  11. Commodities are notoriously cyclical. If you buy gold today, understand there’s a real possibility you may lose 80% of your investment.

    1. If you hold fiat currency long enough, there’s 100% certainty that they will lose virtually all of their purchasing power. The US $ has already lost over 96% of its purchasing power since 1933.

      Relative to gold, the US$ has lost about 98.5% of its value since Roosevelt’s Executive Order 6102.

      $20.67/$1350 * 100% = 1.53%

    2. That’s true, but some commodities are more manipulated than others. And some commodities are manipulated by entities with far more power than anyone else in the market.

      It’s possible gold has been kept low, and the manipulation to keep it low is becoming harder. There are, of course, a million other tin hat scenarios.

  12. Howard Ruff pointing out this list of commodity price inflation that threatens looming retail price inflation (though he gives the reader not a clue as to over what time period these percentage price rises have occurred)

    I believe those increases are in the last 12 months.

    Gold (of which I own a modest amount of actual gold coins) isn’t an investment. Its savings or insurance. Given the current policy of dollar devaluation/inflation, I doubt we’ll see gold below $1,000 an ounce, ever again. And I would be modestly surprised if it went south of $1200/0z, to tell you the truth.

    I have about 5% of my net worth in gold coins. Next time I see a correction, I’ll probably buy another 5%.

    I’m also into gold and a few silver mining stocks.

    I don’t own ETFs. They don’t actually have much gold, for the most part (SGOL may be an exception). Instead, they trade futures and derivatives.

    ETFs are for speculation. Only a fool speculates on gold with their own money. Buy gold to hold indefinitely, or don’t buy it at all, is my position.

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