HOW WILL GOLD PERFORM DURING DEFLATION?

Despite being a highly misunderstood asset (in my opinion) regular readers know I have no hatred of the yellow metal.  In fact, I love any asset that has potential for appreciation regardless of its tangible “value”.  Like a good view, this precious metal carries a certain intangible value.  Of course, as a form of currency, I think investors are sorely mistaken, but that doesn’t mean it won’t continue to act like a currency as I am in an overwhelmingly small minority who believe a return to gold as a currency is nothing short of absurd.  Nonetheless, in the midst of this endless deflation vs. inflation debate I did a bit of homework on gold’s performance during deflation (since we all know it will outperform in an inflationary period).  The results were a bit surprising.

Gold performance during deflation is difficult to come by since it’s such an unusual event, but JP Morgan did a bit of time traveling back to the Great Depression to study the price action in silver (since gold prices were fixed):

“How can the decreed gold price of the 1930s help us now that the gold price is floating? We decided to seek a proxy. Until relatively recently, silver was a partner monetary metal to gold, with very large tonnages in circulation. The advantage of silver is that a market price is available for the 1930s.”

What they found was interesting.  Silver performed well in relative terms:

“Figure 7 shows how, after peaking in 1929, the DJIA fell sharply to less than a quarter of its peak value. Gold, because of its fixed price, was unaffected. Silver fell too, but it significantly outperformed the reported DJIA on the way down. What is also encouraging is that after the deflation bottomed in 1932-1933, silver bounced back quickly, and by 1934 it was higher than its 1929 level. Intriguingly, gold seems to parallel this with its repricing to $35/oz in 1934. This seems to suggest that even after a very tough pre-Keynesian (deficit spending) deflation, the bounce back significantly helped the precious metals. With modern economists already pointing to the money presses as the best medicine against deflation, any postdeflation precious metals bounce is likely to be more vigorous.”

Interestingly, commodity linked metals were not so fortunate.  Copper prices, being very economically sensitive, performed more in-line with equity prices:

“As a check, we also looked at copper’s performance during the depression to differentiate between monetary and commodity metals. However, this test showed that copper’s price performance was very similar to that of the Dow.”

All of this bodes well for gold and silver prices in a deflationary period (as early 2010 has clearly shown us):

“The performance of silver gives us confidence that precious metals are likely to outperform the general markets in a downturn. In a really tough deflation, the absolute price levels of the metals could weaken, even as they outperform most other sectors.”

Updated: It should be noted that the recovery in silver prices were primarily due to government intervention as opposed to natural market forces.  Therefore, the period prior to 1932 is a better proxy for silver price performance, which, was still down dramatically.  On a relative basis (compared to equities), however, silver prices clearly outperformed.  Sorry for any confusion.

Source: JPM

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Unsalted

    What were the DJIA’s dividends? What was the cost of carry for the metals?

    C’mon PC, you know better than to post this wooly thinking.

  • tooearly

    “I am in an overwhelmingly small minority who believe a return to gold as a currency is nothing short of absurd”

    You are kidding right? Can you name 3 economists in print who have suggested this as a possibility?

  • F. Beard

    I won’t buy silver and I won’t buy gold because they are barbaric when used as money. Copper sounds OK, though.

  • boatman

    rogers just playing the EUR dead cat bounce…..not that i would……and his 15 yr. EUR unwind wayyyyyy off.

    5 stars to you lluv

  • boatman

    oh, this will be the 50 comment topic today………religon,politics,then gold…..oh, and MMT

    i will try to restrain myself unless IB can put the heater down long enough to type at work.

    lluvatar-put some hamiltons down on tiger not making the cut at pebble……..most of me wishes it wasn’t true.

  • ovtrading

    “but JP Morgan did a bit of time traveling back to the Great Depression to study the price action in silver (since gold prices were fixed)”

    Gold prices were fixed? Really?

  • Sven

    That jump in 1934 exactly mirrors the increase in the official fixed US gold redemption rate:

    “In early 1934, Roosevelt increased the official mint price of gold, which had been $20.67 per ounce for 100 years, to $35 per ounce.”

    Thus this chart is meaningless. It’s like saying that the dollar held value against the dollar.

  • b

    silver rose because of the “American silver purchase act” of 1934. Look it up!

  • Selles McKee

    I love to buy the hated metals (at least up to 35% of my assets). You all can keep your paper and you faith in this administration and the Fed.

  • F. Beard

    “You all can keep your paper and you faith in this administration and the Fed.” Selles McKee

    No, my faith is in God. One hundred Africans died recently from lead in their water supply from a near-by gold mine. The Amazon and other places are being polluted with mercury used to extract gold. So, as silly as it sounds, I’ll stick with paper and electronic bits over gold. The question is not paper vs gold but how and by whom shall money be created. We need liberty, not gold.

  • In Banking

    Hahaha, nice zinger!

    I’m thinking of investing in cigarettes. Seems that their relative value goes up in both good and bad times. I mean, you can’t argue with a product that has a large sized font stating it will kill you right on the wrapper – and yet people keep buying them up despite price increases in the 100s of %. Now if only I could find a way to store them without going stale..

    Just jokes of course. Perhaps Johnny Walker Blue, Louis XIII, or McCallan 55 would be better choices – and guaranteed to increase in value over time!

  • boatman

    already buried enough friends from those things,i guess i never understood em…..i got my bad habits tho……but i ain’t tellin you.

    gotta get a laugh outta u somehow,afterall.

  • LQ

    How can JPM possibly claim this with a straight face?

    “Figure 7 shows how, after peaking in 1929, the DJIA fell sharply to less than a quarter of its peak value. Gold, because of its fixed price, was unaffected. Silver fell too, but it significantly outperformed the reported DJIA on the way down. What is also encouraging is that after the deflation bottomed in 1932-1933, silver bounced back quickly, and by 1934 it was higher than its 1929 level. Intriguingly, gold seems to parallel this with its repricing to $35/oz in 1934. This seems to suggest that even after a very tough pre-Keynesian (deficit spending) deflation, the bounce back significantly helped the precious metals. With modern economists already pointing to the money presses as the best medicine against deflation, any postdeflation precious metals bounce is likely to be more vigorous.”

    Under a gold standard, “price deflation” is a de facto increase in the gold price. I mean, duh.

  • LVG

    Relative performance pre-1933 was still good though.

  • http://www.pragcap.com TPC

    Thanks for the comments everyone. It’s quite clear that this article does not point out the government intervention in the silver market in 1932 so yes, that chart is misleading. Sorry about that.

  • LQ

    Further, the gold price is always “floating” unless prices of everything are fixed by decree in gold terms. Even under a gold standard this is true and is measured by the floating prices of all things in a free market.

    “How can the decreed gold price of the 1930s help us now that the gold price is floating? We decided to seek a proxy. Until relatively recently, silver was a partner monetary metal to gold, with very large tonnages in circulation. The advantage of silver is that a market price is available for the 1930s.”

    If you really want a clue as to what the gold price does in a deflation, you first need to define “deflation”.

    Is it,

    1) Price deflation? If so, the price of gold is merely the reciprocal measure of the deflation rate.

    2) Monetary deflation? Under a gold standard, a relative decrease in the stock of gold will lead to price deflation. Under a fiat currency system, a reduction in the stock of base money relative to gold with lead to a lower gold price.

    3) Unreserved credit deflation? This is the phenomenon which is truly pertinent to today’s events and discussion. Under a fiat currency system, central banks are pressured during such credit deflations to increase the stock of base money. The primary reason for the market dislocations today is merely that the current stock of base money is tiny vis-a-vis the stock of outstanding debt. As central banks create more base money, the stock of gold remains relatively constant. Thus, this logical and repeated chain of events leads to a higher nominal gold price. Risk assets do well during credit inflations while gold does well (whether under a gold standard or not) during base money inflations. I don’t think there’s much more to it than that.

  • Angry MBA

    This is the answer. The federal government intervened in the silver market in 1934, deliberately propping it up and inflating the price. This was done to protect silver producers who had been harmed by falling silver prices in the free market.

    The feds aren’t going to be doing this again, so I don’t see how the 30’s provides much insight to our current situation with precious metals prices.

    Of course, as a form of currency, I think investors are sorely mistaken

    I question whether the smart money sees gold as a currency, so much as it sees it as a trade that can benefit from the fear factor. The dumb money certainly does see it as a currency, but the traders are bidding this up based upon the greater fool trade, just as they bid up oil 2-3 years ago. The smart ones won’t ride it down, but you know what will happen with the dumb money…

    Gold clearly isn’t an inflation hedge, as it doesn’t track inflation rates. Since Nixon’s closing of the gold window and the creation of floating currencies, gold appears to track fears of US instability, particularly over conflicts or potential conflicts over oil.

    It rose in the late 70’s when Iran took hostages and when OPEC was squeezing the wold economy, and fell apart when OPEC collapsed and the hostages were released. This cycle, it began to climb when Iraq began to look like a quagmire and when China became the focal point for an oil bubble trade. If this cycle follows the last one, gold should tank when the oil bubble fully pops (which won’t take much — most of that is already baked in) and when the US situation looks more stable.

  • http://www.pragcap.com TPC

    I should add:

    It should be noted that the recovery in silver prices were primarily due to government intervention as opposed to natural market forces. Therefore, the period prior to 1932 is a better proxy for silver price performance, which, was still down dramatically. On a relative basis (compared to equities), however, silver prices clearly outperformed. Sorry for any confusion.

  • F. Beard

    “The primary reason for the market dislocations today is merely that the current stock of base money is tiny vis-a-vis the stock of outstanding debt” LQ

    Yep, so how about we payoff that debt with new legal tender fiat and raise reserve requirements to prevent the problem from reoccurring?

  • http://www.pragcap.com TPC

    I’m not so certain. I would attribute the price action in gold to a few things:

    1) With continuing disinflation bordering on deflation the price of gold appears to be reacting to its potential as a future currency of some sort.

    2) Investors are wrongly assuming that all this government intervention will ultimately lead to inflation.

  • Johnny`

    Gold will continue to rise to the 1300 level, and then the rising wedge will bust, sending the prices down to perhaps as low as 700 eventually.

    There may be an overthrow of the wedge temporarily, but that should just be to sucker more investors into a “blow off top” before the dump happens.

  • LQ

    Totally agree FB. Now, if the path to base money inflation flows to the IMF’s balance sheet to “collateralize” the issuance of newly-minted SDRs, I’m afraid that that is akin to simply pushing the reset button. If, on the other hand, a coordinated remonetization of gold were the solution, I’d be much more confident that a fair and sustainable system was being implemented.

    Either way, the imbalances and uncomfortable reconcilation pressures today require two forms of restraint going forward in my view:

    1) a credible and stable stock of base money (yes for gold, no for SDRs) and, as you highlight,

    2) much more meaningful constraints on the issuance of unreserved credit going forward

  • http://www.pragcap.com TPC

    MAYBE IF I TYPE LIKE I AM SCREAMING YOU WILL STOP WRITING THAT RESERVE REQUIREMENTS SHOULD BE CHANGED! CHANGING R REQS IS NOT A SOLUTION. MANY DEVELOPED NATIONS HAVE NO RESERVE REQUIREMENTS.

    THIS DEBT PROBLEM IS AT THE PRIVATE SECTOR LEVEL. NOT THE PUBLIC SECTOR LEVEL. THE US GOVT HAS NO “DEBT”. THIS PROBLEM IS ROOTED IN A DEREGULATED FINANCIAL SYSTEM, INEFFICIENT GOVT SPENDING, MISGUIDED MONETARY POLICY AND A RECKLESS PRIVATE SECTOR.

    THE RESERVE REQUIREMENTS DO NOT MATTER. THE SYSTEM WORKS. 75 YEARS OF U.S. PROSPERITY PROVE THIS. THE LAST 10 YEARS ARE NOT A CONDEMNATION OF THE U.S. MONETARY SYSTEM, BUT RATHER, EXOGENOUS FACTORS.

  • F. Beard

    No, you don’t have to scream. As for reserve requirement they should either be 0% or 100%. Anything in between is intellectual dishonesty. You think they should be 0% apparently and I believe they should be 100%. Now, a 0% reserve requirement allows unlimited creation of credit money otherwise know as counterfeiting and a 100% reserve requirement allows NONE. You wish to regulate the counterfeiting process and I wish to eliminate it or better yet let a truly free market keep it in check.

    Don’t get upset, I just advocate for liberty in money creation on a level playing field after a just reset with legal tender fiat. After that, anyone could practice FRL all they wanted to but without government privilege.

    I suppose I confuse because I advocate two things, a reset using legal tender to bailout EVERYONE followed by essentially free banking and money creation which would allow any or no reserve requirement.

  • LQ

    Silly me – and I thought the last 65 years of global reserve currency privilege had something to do with the relative prosperity of the US. Thanks for the insightful clarification. :)

  • http://www.pragcap.com TPC

    Look, my point is that fiat money is not the problem here. Inflationists can talk about hyperinflation and how the dollar has lost 90% of its value all they want, but there is one undeniable fact over the course of this 90% devaluation – the USA has experienced an unprecedented period of prosperity. Our standard of living has not declined 90% over the last 100 years, has it? No, it has increased to an absurd level. A level so absurd that we feel that it is our right and not our privilege to own every single gadget, McMansion and new car under the sun.

    Yes, the last 10 years have been difficult, but the recent problems are not a reflection of the currency system we utilize.

  • F. Beard

    Well, we are not in so much agreement as you might think. First, gold as money is barbaric and I won’t change my mind about that. Second, who needs the IMF? Just let the US Treasury create a sufficient amount of new legal tender fiat and give it to every US citizen. Announce that the banking and money system is flawed and will be reformed. Meanwhile forbid the banks from creating more credit. With the new legal tender they should have plenty of genuine money to lend. Let the US Treasury err on the side of generosity to insure that credit money is fully replaced with real legal tender.

    We don’t need the IMF and we don’t need gold. We need justice followed by liberty. Also, another Andrew Jackson might be helpful. I can’t wish for another Lincoln, though. Sorry Abe.

  • F. Beard

    “Look, my point is that fiat money is not the problem here.” TPC

    Who says it is? Not me. The problem is unchecked credit creation. You wish to limit it with regulation, I suppose, and I wish to limit it with a true free market.

  • LQ

    Direct legal tender issuance by Treasury will reconcile imbalances in the near term I agree. What then prevents Treasury from being the demand side for everything in the global economy? I clearly lack the confidence in that concentration of economic power that you seem to possess. Too slippery a slope to totalitarianism for my taste.

  • http://jessescrossroadscafe.blogspot.com/ Jesse
  • http://www.pragcap.com TPC

    This is the chart that kills me: http://2.bp.blogspot.com/_H2DePAZe2gA/TBlOlMDaENI/AAAAAAAANOA/-T3HXQUs_Rw/s1600/dollar_USD_Purchasing_Power-753629.gif

    It implies that the US standard of living has been on the decline since the Great Depression. That we have been robbed by our government. That we have not prosperred over this period. That the currency system has failed. Nonsense.

  • In Banking

    FB,

    I think you have some good ideas. However, I would say you vastly diminish you case by being repetitious and religious (and I’m a religious guy myself). Calling people thieves and counterfeiters simply because they are using a proven system (as opposed to an experimental one that has never been proven over a lengthy time period) also works against you. Its only a suggestion as I frequently have many political hurdles to overcome in order to get things done – regardless if I’m right or wrong.

    That being said, there’s no way that a large banking institution can have 0% or 100%. Moreover, now (as credit spreads are growing) would be the worst time to impose such (unless of course, the alternative would be overly restrictive and reactionary financial reform). Its too drastic a change and you just simply cannot hit the “reset” button – not going to happen. Moreover, you would need to have the GLOBAL banking system agree to this, not just the US. Good luck getting Europe on that bandwagon as they’re forced to go in the complete opposite direction at this moment. Finally, you cannot have a segregated private currency system – it defeats the whole purpose of a currency! How would one gauge the conversion ratio of TPC nickles to Zerohedge Pennies to FB crucifixes (sorry couldn’t resist)?? In the end, you’d have to base this on the underlying products and services which can be purchased with those currencies. This is a logistical nightmare – beside the fact that securing such segregated currencies from counterfeiting would render such a system infeasible.

    BUT, since you seem very vehement on this front, perhaps I can help you. You see, Federal Reserve Limits vary a bit based on the type and size of deposit accounts. You can go ahead and start your own bank and so long as you:
    A. Maintain less that $10.7 million in deposit accounts
    OR
    B. Accept non-personal time deposits
    OR
    C. Accept eurocurrency liabilities

    Well then guess what, your reserve requirements are 0%! However, exercise care with this limitless ability to create money (which is actually not limitless because you’d depend on other larger institutions which do have limits, including the FRB…see the problem here?) – because if you get in over your head, no one will bail you out….and those who lose money they deposited with you would be firing up their torches and pitchforks before you could even try to explain.

    FYI, the limit for $10.7 million to $55.2 million is 3% and over $55.2 million is 10%. Looking for ideals where its limitless or none is simply not realistic.

  • F. Beard

    “What then prevents Treasury from being the demand side for everything in the global economy? I clearly lack the confidence in that concentration of economic power that you seem to possess. Too slippery a slope to totalitarianism for my taste.” LQ

    I certainly share your concern; I am a libertarian. However, I read the Bible and there is such a thing as justice too (note: The Bible is for liberty too; see 1st Samuel 8:10-22). The banks have gotten US into trouble via their government backed privilege to issue credit pyramided onto legal tender. We can all be fixed if that credit is replaced with new legal tender.

  • LQ

    The fruits of our “exorbitant privilege” have no doubt reached our shores but have been distributed very disproportionately is what some might argue. The chain of events you highlight is indeed nonsensical.

    In this sense, it’s neither you, the US government, nor I that determines the success of our fiat currency system. It’s those who accept Federal Reserve Notes or claims on them in exchange for articles and services of real value to us.

    As a net-debtor nation, the decline in real exchange value of the “US dollar” is an ongoing transfer of wealth to the US in the aggregate. For those who have been net long dollars for the last 95 years, the system has indeed been a disappointment.

  • In Banking

    There is definitely some inflation which is required (I think people forget even the basic fact that the population grows…pretty rapidly in fact). But most of the inflation talk is hoopla (right now). There will be a price to pay the piper at some point, but not in the near future (ie. 10 years or more).

    However, I do find it funny that people can post such things for hundreds or thousands of others to read…in seconds….on the internet….from their laptop or cellphone or ipod….or even for FREE at a public library…and still believe such things. I wonder how many people they could communicate this to in 1929…

  • http://www.pragcap.com TPC

    That’s nonsense in my opinion. As long as we continue to produce goods and services that are in high demand there will be demand for our dollars. In addition, as long as we have a govt that is able to tax sales of those goods and services there will be demand for the national currency.

    Do you honestly see any of those trends changing in the coming years? We still have the very best corporations on earth. And we certainly have a govt that can enforce taxation. Destruction of the currency would involve destruction of both of the above. It’s not happening people. Be realistic.

    As for the real exchange value of the dollar – the trade weighted dollar has barely budged in 20 years. YTD it is up 10% – MORE THAN GOLD!

  • LQ

    Do we really need a “new” dollar or just more of them? I think the latter via a concerted and discrete devaluation “against some external standard” is indeed the tonic. Restricted unreserved credit creation from that point on will prevent the need yet again for more dollars.

  • In Banking

    It’s all in good fun, boatman. I can definitely take a joke – and certainly dish them out as well. I take my job and my work very seriously – which can elevate stress levels quite high. You may actually find it surprising that the only time I smoke is during the working day. Then again, I don’t own a McMansion or a McMobile or wear a McRolex or even use any McMoney (this is the first time in my life I’ve ever held any debt and I’m only doing it so I can haggle my credit card company for a better rate). So at least I’m getting some things right.

    But I have an offer for you. When the USD implodes and everyone turns into Morlocks and Eloys, you’re certainly invited to bring your yellow metal over to my place to enjoy some rare old cognac and/or scotch while we discuss which was a better investment. I bet my commodity investment tastes better than yours! ;)

  • F. Beard

    IB,

    Thanks but I won’t drop the religious references. If I have any good ideas it is because I take the Bible seriously even (Well, i do seem short of kindness so maybe I should take that more seriously) in economics and money. I think we are going to need some Miracles to escape what may be coming and I won’t try to steal the Lord’s Glory.

    As for calling bankers thieves and counterfeiters, it’s just where the logic leads me. And to tell you the truth, I don’t see what else will get through to people. It is the pet virtue of Americans that they are honest. Sorry but it just isn’t so.

    Look. All I suggest is a just reset followed by genuine liberty in money creation. What true capitalist could object to that? Most everyone seems to believe in a free market EXCEPT in money. That is absurd as current events show once again.

    As for me wishing to practice 0% reserve banking, you misunderstand me. I conceive of a new form of money where banks or corporations simple buy assets with their newly created common stock. Without being able to borrow from the government backed counterfeiting cartel, banks and corporations would be forced to share wealth to gained control of other wealth. No borrowing and lending is even required much less at interest. Fulfilling this?

    “You shall not charge interest to your countrymen: interest on money, food, or anything that may be loaned at interest. You may charge interest to a foreigner, but to your countrymen you shall not charge interest, so that the LORD your God may bless you in all that you undertake in the land which you are about to enter to possess. ” Deuteronomy 23:19-21 (New American Standard Bible)

  • Angry MBA

    Our standard of living has not declined 90% over the last 100 years, has it?

    Out in the wacky wilderness that is the fringe internet, there are numerous revisionist/ conspiracy types who want to pretend the 19th century, with its tenement housing and brutal factory conditions, was some sort of economic paradise.

    You have to accept that they are hysterical and don’t know what they’re talking about. They want to act as if there was no government involvement even though the United States was involved in its largest land giveaway program in history (homesteading), directly benefited Sears Roebuck (Rural Free Delivery), actively picking winners and losers (Jim Crow), and creating public-private infrastructure projects (the Eric Canal and transcontinental railroad, to name two).

    The only for them to believe this stuff is for them to remain willfully ignorant of facts and data. They share a faith based upon their hopes and fears, and actively reject intelligent analysis. After a while, replying to them and their infantile rants becomes a waste of resources; pragmatic capitalism means making money, not trying to explain to nutters why being crazy isn’t such a good idea…

  • F. Beard

    “As long as we continue to produce goods and services that are in high demand there will be demand for our dollars.” TPC

    A slight quibble. What if the US simply responsibly managed the money supply for the world in exchange for its goods and services? In effect, our national product would be a responsibly managed money supply. Of course we must get our house in order or we will be incapable of that responsible management.

  • F. Beard

    Well, I am at least a somewhat ex-nutter in that I follow logic and can learn although slowly. Surely there is a principled solution out of this mess if we will work together. As for making money, can’t that wait? In fact, if we figure out what is going on I suppose we could all get rich (or richer) as a reward for public service. Meanwhile, might it not be very pragmatic to consider how to avoid GDII and WWIII?

  • http://www.pragcap.com TPC

    It’s simply mind boggling how this massive propaganda machine has fooled so many people into believing that the USA has been on decline for the last 100 years. I mean, even in the last 10 years GDP has surged 50%. Equity markets have been weak, but this a cyclical period of weakness mainly due to digestion of the massive run-up during the 80s/90s. This is not unusual at all and certainly not representative of the end of civilization as we know it.

    I have yet to read a single inflationist argument from a writer who has expressed a sound knowledge of how our monetary system actually works. They all resort to these phony stats or facts that are hardly relevant.

    I am not saying we don’t have HUGE near-term problems, but this idea that we are on the verge of a societal collapse due to the US govt is absurd. It’s just sensationalist BS promoted by people with an agenda. America will get thru this and when we do we will experience another great period of prosperity.

  • F. Beard

    “America will get thru this and when we do we will experience another great period of prosperity.” TPC

    Yea, maybe. However, anti-free trade sentiment is growing, immigrants are being made to feel unwelcome and the gold-bugs are gaining ground. And if we don’t fix the boom-bust cycle or at least localize it, it will one day kill a lot of US,IMO.

    Look, isn’t it ridiculous that the economists and central bankers with all their math geniuses and supercomputers still haven’t figured out how to do money correctly? How can that inspire confidence?

  • prescient11

    TPC,

    I am more concerned with when we get to Act III though brother.

    Eventually balance sheets matter. The idea that the US has no “debt” is true, but conceivably, I think if we do not change course in about 20 years there may come a point when the dollar is a joke the world over.

  • boatman

    i’m not a big dollar “implosion” guy actually(more like a slow down),gold’s just a good long right now….. since i’m older than u, my “certain” longs feel better than my lost wages-vegas bets as most shorts really are…we all know deepdown we are trying to read tealeaves here. thank god or whoever TPC is good at it.

    glad to get together when i sell my yellow n short it down, and contrary to popular belief, we don’t eat OR drink it……….so your commodity trade is cognac?….well, if it pans out(doubtful) i’ll help u drink it, and i guarrantee u i can laugh at myself at least as good as you can laugh at IB.i’m more about fun than few others.

    if i can take the place of acoupla those heaters relieving your stress, i’ll be reminding St. Peter of it….. just might get me over the bar.

    i didn’t ever figure u for a MCmansion guy……i live in a 1000 sq ft house ibuilt myself n heat w/wood cause i like it…..highest elec bill ever had was 57$………in fla. and its cool in here in august.

    to each his own investments….always a pleasure….yo later

  • F. Beard

    Rothbard is a favorite of mine and a great starting point but he could not see the absurdity of letting the mining rate of a precious metal determine the economic growth rate? I was once somewhat in the cult of gold till a kind-heated Australian lady expressed concern to me for the plight of South African gold miners. It took a while but I will have nothing to do with gold as money now.

  • prescient11

    Exactly right. And the “bond vigilantes” have been trying to scalp Japan for 20 years!

    My only concern is that, with these crazy entitlements, we are adjusting the curve towards a parabolic collapse. Of course, that likely won’t hit for sometime, but the more we start heading down the hill, the harder it’s gonna be to hit the brakes…

    And when that happens, own guns, land and ammo and have lots of food on hand. Until then, I guess we’ll just keep kicking the can.

  • Andrew P

    The main value of precious metals in a deflationary bust is that physical metals provide a means to transport wealth through the political turmoil of the bust and come out the other side. Currency, stock, bonds, annuities, ETFs, and anything else whose value depends on being recorded on some institution’s books is subject to easy government taxation and confiscation, or can be taken through inflation. Gold and Silver can of course be confiscated also (as was done with Au in the Depression), but only if the government knows you have it. Of course, if the US decided to confiscate gold again, you might be able to hide your gold eagle coins, but you wouldn’t be able to sell or trade them without going to prison (or worse). Based on history, you would probably not live long enough to be able to legally sell them again (confiscated in 1933, legalized again in 1973 – 40 years). Your gold would become a means to transfer hidden wealth to heirs, but that’s it.

  • Silence Doogood

    Wow, who is this lluvatar guy? Has anyone bothered to explain why there is a G/S ratio of 65/1 ? Has anyone let him know what the current above ground ratio is and what will happen once jp morgan & co is no longer in business? Has anyone ever asked the people ( like PC ) why they find it important to warn the masses of potential irregularities of gold during deflation? Could it be that not unlike other manipulators on wall street, gold and silver as currency cannot be manipulated as easy as their beloved fiat fed. reserve paper? Not important, just let me say thank you pc for all your concern regarding the absurdity of gold/silver as currency. Now I can trade gold / silver for those trillions of crisp frn’s !!! Gee thanks Wally………. Sincerely,
    Silence

  • boatman

    one of the reasons coins are for chumps…….bars are a commodity….hellloooo

  • http://pragcap.com/fitch-warns-on-british-debt jacksonaction

    Of course the brits people will pay for it, you cant expect the queen to pay for their follies.

    The “ukase” has been laid down by the royals, “cut cut cut”- period.
    And the resulting shouts from the U-knighted states Tories on the royal owned medias, watch how they spend hours on talking heads “protecting” the royals oil com=bp(owned by the royals), cover , cover cover, I am not fooled.

    Their recent call to “cut cut cut” are echoed by their unwitting agents, Democrats AND “republicans” (SIC).
    keep in mind they NEVER call for cuts in the continuous war/police states they promote, and demand we fund, promoting fear etc.
    “cut the teachers, cut the code enforcement officers, cut regulations, cur gov workers( they just spend on main street), cut welfare(der arnolds latest..those landlords living off 801 welfare housing went straight to the bar!),
    but NEVER cut the military or the over bearing police states that has been created.

    (not cut their bp/royal dutch shell/china oil, their looted oil leases in Iraq, after installing a “brit” democracy” HA HA>
    the u-knighted states pays for the royal wars, in troops and cash( thereby decreasing possible good uses for available Capital).

    We get:
    dead troops, and the ‘right ” to pay for their royal oil wars.

    foxnoose(owned by his lordship-murdock) highlighting bp all day,

    and W will get his knighthood,(as his father his lordship G.W.H. Bush-was) on his knees to be touched by her sword, just like sir rubert Murdock, sir Kissinger, Sir rudy G. sir Reagan, sir colin Powell, etc, all for their “fine service to the crown”.
    (this will be blocked out by the tory controlled medias…they focus on bowing, not getting on yr knees before a royal power…, thereby giving up their rights to run for ANY office…as it is in our Constitution.

    http://www.usconstitution.net/const.html#A1Sec9
    “No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince or foreign State.

    (pretty clear)
    we get;
    their lifetime seats in the house of LORDS, ( as tho!).

    Obama may be next…even with sarin palin jumping him for “being un-american” for speaking against the royals oil company=bp present activities.

    If he continues to follow the cfl(royal institute for foreign affairs in all other nations), and Hillary’s plans for war in Iran, to get re-elected as W did, then he too be on his knees to be knighted…for his fine service to the crown in destroying the nations living standards. ( green (bp)energy anyone?-check Spain’s economy).

    Truth in Banking, and a new bank, directed for the Republics interests(Industrial Capitalism), and a moratorium on debt for 20 years, a new currency based upon gold.

    Or, we can continue to be self destructive and cut cut cut our people( these ARE humans!)FEED the never ending wars and be in full-out NAKED LUNCH time,
    ( we we are all on the ends of our OWN forks)>

    do not come running to me when you eat yr toes off….

    If you can’t get yr (small is beautiful=Eco’s-big is bad=Torys) minds around these thoughts,
    then pray as the Americans did in the Revolution, for your GOD given rights to do so.

    Now, a way out is back to the basics…back to the formation of a New National Bank,( a total end to the fed).
    back to Hamilton, a DEBT moritorium for twenty years, for all debts personal and private.the jailing of the fed members, and a new bank based upon gold and Industrail Capalism, and a awareness of the forces played agasinst the American Republic–the ecos( funded by the royals..the prince may have to give less to WOrld wildlife funds…he the FOUNDER, and and awarness of the tories hding in ” free enterprise” covers,( i have options in how many going out of biz signs the chamber maids of commerence will sell to day in LA, what a Deal!!).
    ( i think we fought a few wars over the their “rights” to buy or sell anything, including people).
    IF these forces in any form(eco,tea parties, cfr, ann rynd, and asutru text toting tories) interfere with the development of the new NAtional BANK, they will not be paid. you can ciritse, but do not interfer with the new bank and it’s gold based economy. ( the government has the gold, fear not).
    Those bond holders/republics who support the new bank, and the new currancy will be paid, their T-bills are good.

    This new National Bnk will not have the peoples support UNTIL they tell the truth, and have open books, something the preent bankers are loath to do,
    massive education( and a “purge of those University proffs who have mislead the Republic down this road, will be needed, and the rise of real AMEICAN bankers to can use banks to help the main streets and the people as a hole.
    ( there is no need to nurn down banks, or take them to be hanged in the steets as in 1930). Just show them the door, they will not ask for recommendations, as they will hide their past dirty work expericens themselves.
    This wil free up the neccesary capitoal for the repubic to get back to producing Capital goods, infused with intellengence, say, fusion nuke plants, and mag lev trains for export, instead of blindly following the orders to royal oil wars( and the resulting depressions, killing of mareicans, etc), and allow peace to be exported with the above like goods.
    The resulting proserity will lift all nations into peace and local rises in the standard of living, casusing even more exports.(rising tide lifts all ships).
    (the export of war, police state materials, and has brought the Republic to the present ruin- that is clear to me…)

    Until the brits rise up and overthrow the worlds largest landlords( ground rent anyone?),throwing the Roayls and their “PREFERED formsofgovernments into the “dustbin” of history, then they will have to suffer, too bad.

  • http://pragcap.com/fitch-warns-on-british-debt jacksonaction

    please delete the above,mis spellings!
    jacksonaction

  • http://pragcap.com/fitch-warns-on-british-debt jacksonaction

    Of course the brits people will pay for it, you cant expect the queen to pay for their follies.
    The “ukase” has been laid down by the royals, “cut cut cut”- period.
    And the resulting shouts from the U-knighted states Tories on the royal owned medias, watch how they spend hours on talking heads “protecting” the royals oil com=bp(owned by the royals), cover , cover cover, I am not fooled.
    Their recent call to “cut cut cut” are echoed by their unwitting agents, Democrats AND “republicans” (SIC).
    keep in mind they NEVER call for cuts in the continuous war/police states they promote, and demand we fund, promoting fear etc.
    “cut the teachers, cut the code enforcement officers, cut regulations, cur gov workers( they just spend on main street), cut welfare(der arnolds latest..those landlords living off 801 welfare housing went straight to the bar!),
    but NEVER cut the military or the over bearing police states that has been created.
    (not cut their bp/royal dutch shell/china oil, their looted oil leases in Iraq, after installing a “brit” democracy” HA HA>
    the u-knighted states pays for the royal wars, in troops and cash( thereby decreasing possible good uses for available Capital).
    We get:
    dead troops, and the ‘right ” to pay for their royal oil wars.
    foxnoose(owned by his lordship-murdock) highlighting bp all day,
    and W will get his knighthood,(as his father his lordship G.W.H. Bush-was) on his knees to be touched by her sword, just like sir rubert Murdock, sir Kissinger, Sir rudy G. sir Reagan, sir colin Powell, etc, all for their “fine service to the crown”.
    (this will be blocked out by the tory controlled medias…they focus on bowing, not getting on yr knees before a royal power…, thereby giving up their rights to run for ANY office…as it is in our Constitution.
    http://www.usconstitution.net/const.html#A1Sec9
    “No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince or foreign State.
    (Pretty clear)
    we get;
    their lifetime seats in the house of LORDS, ( as tho!).
    Obama may be next…even with sarin palin jumping him for “being un-American” for speaking against the royals oil company=bp present activities.
    If he continues to follow the cfl(royal institute for foreign affairs in all other nations), and Hillary’s plans for war in Iran, to get re-elected as W did, then he too be on his knees to be knighted…for his fine service to the crown in destroying the nations living standards. ( green (bp)energy anyone?-check Spain’s economy).
    Truth in Banking, and a new bank, directed for the Republics interests (Industrial Capitalism), and a moratorium on debt for 20 years, a new currency based upon gold.
    Now, a way out is back to the basics…back to the formation of a New National Bank,( a total end to the fed).
    back to Hamilton, a DEBT moratorium for twenty years, for ALL debts personal and private.
    .the jailing of the fed members, and a new bank based upon gold and Industrial Capalism, and a awareness of the forces played against the American Republic–the ecos( funded by the royals..the prince may have to give less to World wildlife funds…he the FOUNDER, and an awareness of the tories hiding in ” free enterprise” covers,( i have options in how many going out of biz signs the chamber maids of commerence will sell to day in LA, what a Deal!!).

    ( i think we fought a few wars over the their “rights” to buy or sell anything, including people).

    IF these forces in any form(eco,tea parties, cfr, ann rynd, and Austria economy text toting Tories) interfere with the development of the new National BANK, they will not be paid. you can criticise, but do not interfere with the new bank and it’s gold based economy. ( the government has the gold, fear not).

    Those bond holders/republics who support the new bank, and the new currency will be paid, in twenty years, their T-bills are good.
    This new National Bank will not have the peoples support UNTIL they tell the truth, and have open books, something the present bankers are loath to do,

    We will need massive education( and a “purge of those University professors who have mislead the Republic down this road, and the rise of real AMERICAN bankers to can use banks to help the main streets and the people as a hole.
    (there is no need to burn down banks, or take them to be hanged in the streets as in 1930). Just show them the door, they will not ask for recommendations, as they will hide their past dirty work experience themselves.

    This will free up the necessary capital for the Republic to get back to producing Capital goods, infused with intelligence, say, fusion nuke plants, and mag lev trains for export, instead of blindly following the orders to royal oil wars( and the resulting depressions, killing of Americans, etc), and allow peace to be exported with the above like goods.

    The resulting prosperity will lift all nations into peace and local rises in the standard of living, causing even more exports.(rising tide lifts all ships).
    (the export of war, police state materials, and has brought the Republic to the present ruin- that is clear to me…)

    Or, we can continue to be self destructive and cut cut cut our people( these ARE humans!)FEED the never ending wars and be in full-out NAKED LUNCH time,
    ( we are all on the ends of our OWN forks)>
    do not come running to me when you eat yr toes off….
    If you can’t get yr (small is beautiful=Eco’s-big is bad=Torys) minds around these thoughts,
    then pray as the Americans did in the Revolution, for your GOD given rights to do so.
    Until the brits rise up and overthrow the worlds largest landlords (ground rent anyone?), throwing the Royals and their “PREFERED forms of governments(anti Republican world wide) into the “dustbin” of history, then they will have to suffer, too bad.

    I’m in rgld,ego,svm,SA 1/2 cash..watching….

  • http://pragcap.com/fitch-warns-on-british-debt jacksonaction

    Boatman, i disagree,
    the one thing the U.S. government is doing right is issuing PURE gold coins f/ the Treasury in West Point, I like the Buffalo’s…
    It says they are worth $50.00, you pay going gold spot rate.
    Just me…

  • Sodit

    Branded whiskey should be made currency. It is already distilled under security conditions (for tax reasons). It takes 12 years to mature so the supply couldn’t be inflated on a fiat basis by shyster politicians, and inflation wouldn’t be a problem, because it is always in demand (unlike pieces of green paper) and it’s supply will naturally diminish over time.

    I look forward to a grateful nation granting me a generous pension… (payable in cases of Famous Grouse)

  • OTOMAN

    Apparently you chaps have not learned about the fact that silver is no longer just a metal that once was used as a form of money. It is now used for everything from A-Z. The latest being a catalytic convertor that uses silver in place of platinum or palladium. The bugs are still being worked out for wide scale use but once it is then the world silver stocks will be quickly depleted. There is actually about 80% less silver aboveground stockpiles available than gold. Silver mining shortfall is about 150 million ounces per year which is gained from recoverable scrap. This has been going on for about 15 years. The US govt. has been net buyers of silver for a couple years now. At current rate of use all silver stockpiles will be depleted in approximately 5 years. Check out http://www.silverinstitute.org/supply_demand.php#demand and learn the truth about silver and it’s importance in todays world. We may never go back to the gold standard and we may never use silver as money again, but contrary to the ignorance being posted concerning this metal, it is the most important metal on the face of the earth. Many would say that copper is. But copper is rapidly being replaced in the plumbing industry. Silver is a byproduct of mostly copper mining. When copper mining slows down, the silver supply will decrease even faster. Gold is used for what??? In any great degree that is??? Jewelry and coins and ???? There is about 1/2 oz. of silver in every LCD screen. NON-RECOVERABLE. 5 billion oz’s of mined gold available and only 1 billion ounces of silver. With 1.5 million ounces of mining shortfall every year on silver. WHAT DOES THAT TELL ALL OF YOU WILL HAPPEN IN 5-6 YEARS TO THE PRICE OF SILVER??? In 5-6 years there will still be 5 billion ounces of gold available, as there has been for decades. Silver, ALL GONE!!!

  • Wall St Sucker

    There is however a massive net surplus in silver. One of it’s largest uses until recently was in in photography. That has almost completely dried up. It will some time before that hole is filled.

  • Wall St Sucker

    Gold Fundamentals:

    Under ground miners 2009 – 2500 tonnes

    Above ground miners – 2009 – 1500 tonnes

    Jan.1st 2010 Surplus – 500 tonnes

    GLD Technicals:

    First high in December = 185 million shares traded

    Second high May 14th = 158 million shares traded

    Last high June 18th = 75 million shares traded

    People are coming into the store, nobody’s there, and they’re paying higher prices anyway.

    We’ll see 200 down before 50 up.

  • Silence Doogood

    A massive net surplus in silver? Where? Photography…. Diversity is silver’s primary asset. Its unique properties include beauty, strength, sensitivity to light, malleability and ductility, electrical and thermal conductivity, reflectivity and the ability to endure extreme temperature changes. These properties allow groundbreaking research to be conducted by scientists and engineers that effect the way we live and without silver our lives would be upside down. If tomorrow gold was wiped off the face of our world we would still continue on with life but the same cannot be said with the loss of silver…. There are now many uses in the following: Coinage, Jewelry, Silverware, Batteries ( Silver oxide / zinc batteries, which have twice the electrical capacity of lead-acid batteries of the same size, have long found extensive use by television crews carrying portable battery packs, in aircraft, and in submersibles where weight is critical. Silver has long been known for its unrivaled performance at high temperatures; it is the only battery, for instance, that can provide reliable power for instrumentation at the high temperatures found at the bottom of oil wells) Bearings, brazing & soldering, catalysts, electronics ( Silver contacts in membrane switch panels are now standard in control panels for machinery, chemical industry processes, railway traffic controls and elevator call buttons, to name a few) Medical applications, Clothing, mirrors & coatings, solar energy, water purification and last but not least photography ( Radiography, the use of photographic film to record the internal condition of materials, including stainless steel castings, is the major non-destructive evaluation technique for the discovery of structural fatigue and flaws………… Have a good day…….
    Silence

  • Juno

    Silence,

    Add to that the recently popular use as an antibacterial coating on computer keyboards and other high frequency contact surfaces.

    Prescient11,

    Look at the the dow hit the bottom of the 50d today and reverse. Look out below!

    My own two cents: Anyone notice the rising wedge form in gold since 2007? It has pretty much been maintained all the way to today, and closing up at right about …. 1265? You’ll see it nicely here. Am I just seeing things, or did I screw this up? Asking… -In all seriousness.

    http://www.kitco.com/charts/livegold.html

  • OTOMAN

    OOPS! Correction to my post! “””With 1.5 million ounces of mining shortfall every year on silver.””” Should have been 150 MILLION ounces of mining shortfall per year. Here is the scoop, in short. It is estimated that at the very utmost there is 1 billion ounces of refined silver stockpiled, probably more like 1/2 billion ounces. Approx. 15 years ago, there was a solid, educated estimate of a refined and stockpiled 2 billion ounces of silver available for whatever and whoever. Ever since, there has been about a 150 million ounce mining shortfall. DO THE MATH!NOOOO, it does not add up. But that is because all of this is estimates (especially after our government has decided to keep such numbers more secret) and over a 15 year period the amount of discrepency is not all that much. THE POINT BEING, we are about out of above ground silver considering the 150 million ounce mining shortfall that has taken place every year over the past 15 years. If silver mining were to cease today, which will not happen, (but is this not the way that our government considers our food supply?)we would be out of refined silver in a little over a year, and that is at the higher estimate of 1 billion ounces stockpiled. Think about. But my bet is still on silver. A note to Wall St. Sucker….. Obviously you did not look at the report published by the Silver Institute??? The shortfall in photography usage is rapidly being made up in other areas and has been since the beginning of the demise in silver usage for photography. More and more non-recoverable uses for silver are being created everyday. If copper mining slows down, as it should since we are continuing into a global recession(depression), that will further strain silver mining production. The usage of silver has not declined significantly into the recession we have been in for years now. China, India, and Brazil will prop up the need for silver. But I beleive the need for copper will decline simply because plastics are replacing much of its usefulness. Of course that is my opinion. Copper will also be used less in coinage since there will be no need for coinage due to rapid inflation ahead. Good old paper will suffice, or plastic (charge cards that is!)

  • http://royaced658@clear.com deloy randolph

    use of silver -shortage -rare earth minerals-controled by others could make much use of silver in our country -no electric tv s -computers or electic items . we don’t have these trace metels d.r.

  • Willy2

    Take a good look at the Gold to CRB ratio !

  • Albinoni

    … and isn’t silver now an industrial commodity metal now?
    That get’s me worried about investing in silver now, but even more interested in it than gold for after a deflationary episode. Any ideas how best to judge the bottom, or the start of inflation?

  • nico

    Only 1 % of the current gold production is used in industrial applications. The remaining 99 % is stored (jewelry is a form of storing and not a form of usage). The current stock of gold exceeds 6000 years of real consumption. What will be the price evolution of this yellow metal when the current buyers (essentially speculators) are going to get a harder access to liquidity because of the necessary financial system reforms ??? Can we suppose that the current modialised market will perform just like the confidential 1929-1935 market ? I’m not sure at all.

    JPM and other bankers finally understood that the “precious” metals price increse would serve their needs. Unfortunately I believe that their current desire comes too late. Theur corrupt behavior and thinking seems to be also responsible for their intellectual mediocrity.

    We are headed towards the most violent deflation that modern world knew during centuries. And gold / silver prices will not survive the next crisis since they are :
    1. almost useless
    2. available in large quantities

    It’s all about “the final bubble” as g soros recently stated. They are now testing the market just to see if there is still any up potential out there. And when they will understand that there is no more up they will crush the “precious” metals market (just as they crushed the other inflated markets).