Why is Gold Going Up?

[c1ue]

Re: Why is Gold Going Up?

I am not very knowledgeable about economic history, I wonder how "identical" the situation is today with that of the early 90s. Were there two consecutive years of over 9% unemployment? Had the Fed resorted to near 0% interest rates for over two years? Was the economic structure of all of Europe about to collapse? Was the US government creating trillions in bank bailouts and stimulus? Was the price of gold ramping up?

Is the unemployment rate identical? No.

But it isn't the amount of the unemployment rate, it is the change in the unemployment rate that matters.

In early 1990's recession, unemployment increased 2.5% from trough to peak - a very significant jump of somewhat under 50% increase in number of unemployed. For the present recession, unemployment has jumped 5% from trough to peak, a larger jump of nearly 100% in number of unemployed.

The point isn't the absolute value - the point was there was a significant recession then much as there is a (even more) significant recession now.

Did the Fed cut to 0%? No, but then again 0% isn't some magical number. It is the change in interest rates which is supposed to spur credit.

The Fed Funds rate went from 9.85% in early 1989 to 2.92% by the end of 1992 - a drop of 693 basis points.

In contrast the Fed Funds rate this time went from 5.26% in 2006 to this years 0.07% - a drop of 519 basis points.

As for Europe - there were plenty of problems then including: German reunification, mass unemployment in the UK, recessions in every nation in Europe.

And how did gold fare in the early 1990s?


Seems like gold prices went down in a more or less straight line between 1987 and 1993 - closely in alignment with interest rates.

Need I point out this is 100% opposite to what is happening today?

My point is that gold can rise due to other factors than dollar devaluation, and at times, those other factors may be more a more important than dollar devaluation.

In a general sense this is obviously true, otherwise we wouldn't have bubbles such as the gold bubble in 1980.

But merely saying this is true doesn't help - what precisely are you asserting as a factor in gold prices now? And how much of gold's increase can be attributed to these factor(s)?

You're trying to poke holes by asserting some truism, but without in turn providing any actual theoretical or factual support.

I think everyone would be interested in hearing a well considered, well presented, and well supported counterpoint to the iTulip thesis.

Paul Krugman wrote about gold prices again in his blog today. An excerpt:

And this means that it is deeply, deeply wrong to think of rising gold prices when bond yields are low as some kind of symptom of monetary excess.
September 10, 2011, 12:04 pm

It's his 3rd post on the subject of gold in the last week.

For those who think Krugman is a "bullhorn" for the forces of evil, no doubt you will dismiss what he has to say. While I don't agree with everything Krugman says, I read everything he says . . . .

Krugman is a useful idiot.

The mere fact that he's focusing on gold this week merely highlights his somewhat well disguised, but constant, search for the limelight.

[jk]

Re: Why is Gold Going Up?

re krugman's piece today:

krugman: gold has come to be taken as an inflation indicator, whereas it’s actually a low real rates indicator.

i kind of agree with this in a limited way, but he leaves out the fear of a total currency collapse. his statement may hold in a context of low real rates in the last 40 years of american history. but this seems to me a kind of survivor bias - it's like looking at the long term performance of the dow while ignoring the fact that there are substitutions, and that former dow components have shut down or gone bankrupt. the last 40 years is not a long enough period. i would think krugman would agree that the closest analogue to our current situation is the 1930's. but of course then the dollar was pegged to gold. the only way people could play gold was to buy homestake mine. but, lo and behold, homestake went up a LOT. and real interest rates back then were NOT the negative or zero rates of today. somehow he doesn't explain that.

also, i think he needs to look back at currencies that have failed. reinhart and rogoff's book looks at 800 years of history, krugman wants to restrict his lens to 40. if you look at r&r's history lessons, episode by episode, which would you have rather held? bonds issued by the reigning sovereign, or gold?



krugman quoting delong:
"On this interpretation gold is and always has been a super Treasury bond: a very long duration asset that is or at least is perceived to be “safe” in the sense that its price does not trade at a discount (due to risk and default premia) from a Treasury bond of the same duration but instead trades at a premium".


yes, safe. safer than bonds- thus, the premium. krugman writes as if this is saying the same thing he's said, but that's not true. what is the safety of a greek bond, for example? the greeks have very low short rates- set by the ecb, but only the ecb will lend to them at all; and very high long rates, set by the market. but if a greek wants to buy gold with his euros, it costs the same as it costs a german, who has the same short rates and relatively low long rates. this difference highlights the role of the currency, and the freedom of a sovereign bond issuer to manipulate the currency.

krugman is a deflationista, and it's clouding his vision. he's been dwelling on gold lately because deep down he knows he hasn't done a good job of explaining it. first it was glen beck. then dentists. now he wants gold to be a super-bond, a super-tip actually, since it reflects real and not nominal rates. and if it is a super-long duration, super safe t.i.p., it must be incorporating not just current low real rates, but expectations of low real rates for a very long time. and that leaves open whether those low real rates in the out years are 2011 style or 1979 style.

the economy is simultaneously in deflation and inflation, depending on which sector or which measure or definition you use. krugman wants to focus on unemployment and the output gap, and so sees it all as deflation. he's ignoring the price of food and fuel, the cost of education and healthcare, and the manipulation and falseness of the official statistics. he's stuck in the either/or paradigm: stimulus or austerity, fiscal or monetary, democrat or republican. all those dualities are bullshit and miss the point. there needs to be systemic reform that removes the finance industry from the center of the economy, there needs to be an end to the policies - especially tax policies - which promote debt and speculation to the exclusion of productive investment, which promote the export of jobs, which promote the excesses in compensation of c-level managers and banksters. and none of those changes fit the dualities i mentioned above.

krugman's a very smart guy, no doubt. but he's caught up in a dead paradigm.

[swgprop]

Re: Why is Gold Going Up?

he's stuck in the either/or paradigm: stimulus or austerity, fiscal or monetary, democrat or republican. all those dualities are bullshit and miss the point. there needs to be systemic reform that removes the finance industry from the center of the economy, there needs to be an end to the policies - especially tax policies - which promote debt and speculation to the exclusion of productive investment, which promote the export of jobs, which promote the excesses in compensation of c-level managers and banksters.

Nicely said jk. The "either/or paradigm". That seems to be the bullhorn meme, yes?

[Milton Kuo]

Re: Why is Gold Going Up?

IMO, I represented the iTulip thesis accurately in my posts above; it all boils down to: depreciation of the dollar = gold up. It is possible that iTulip acknowledges other factors involved in gold price, but the fact that none are mentioned here suggests that, if there are other factors, they are considered of minor significance.
As I have explained in my past posts, I disagree with the thesis, and feel it is imcomplete..

My understanding of the iTulip thesis is this:

Yes, there is going to be dollar depreciation and if there were some certainty that the depreciation would be a controlled process with a known, copasetic endpoint, then gold would not go up very much. For example, if it is relatively certain that the U.S. dollar will depreciate 40% over the next few years before levelling off to the preferred rate of depreciation thanks to the U.S. somehow getting its house in order and, at the end of the process, the U.S. dollar remains the reserve currency of the world, then gold may double and then see no further gains. Most certainly, if the aforementioned hypothetical example were reality, we would not see gold going from $250 to nearly $2,000.

The reality, though, is that it is perceived that there is increasing risk that the Federal Reserve and the U.S. government are not going to be able to control how much the the U.S. dollar depreciates and the dollar's reign as the world's reserve currency is likely to end. We in the U.S. have made a mess of things and, so far, have done nothing towards getting our house in order. If anything, the various attempts to resuscitate the FIRE economy have made things worse.

To paraphrase what EJ has stated somewhere else: gold is the insurance that we keep in case the dollar depreciation does not occur in an orderly fashion. My perspective and likely that of many others who have bought and are buying gold is that the U.S. economy and its role in the world looks to be in a precarious situation.

[WildspitzE]

Re: Why is Gold Going Up?

Paul Krugman wrote about gold prices again in his blog today. An excerpt:

And this means that it is deeply, deeply wrong to think of rising gold prices when bond yields are low as some kind of symptom of monetary excess.
September 10, 2011, 12:04 pm

It's his 3rd post on the subject of gold in the last week.

For those who think Krugman is a "bullhorn" for the forces of evil, no doubt you will dismiss what he has to say. While I don't agree with everything Krugman says, I read everything he says . . . .

a dollar in your pocket (or an oz of gold) doesn’t pay you interest. it’s when we add counterparty risk, for example when we deposit it in (i.e. lend it to) a bank, that we typically “expect” a return for such risk. if the return is not enough, on a risk-adjusted basis, then we start looking at other options – in the case of a currency, we look at other currencies, including gold.

imo, currency counterparty risk includes the demand and supply sides (buyers and sellers) of a currency; this includes the monetary authorities and their actions (expected actions included – e.g. just like CDS widens as a perceived default risk increases).

i think that real rates are a proxy for measuring currency returns on a risk-adjusted basis. however, once one can manipulate nominal rates (via multiple “tools”, including increasing counterparty risk via potential monetary stimulus) we affect the pricing of risk and the returns one can achieve. thus, the reason “why nominal rates are going down” is important and it may have different effects on the currency vs. competing currencies (including gold).

on a macro basis, the general appreciation or depreciation of a currency is reflective of the aggregate views / reactions to the counterparty risk of a currency vis-à-vis the risk adjusted return achievable on such currency. gold and its price, as a currency, is no different.


i may be completely off with the above, but this is kind of how i view it (in summarized and probably not explained thoroughly/properly enough form)

[raja]

Re: Why is Gold Going Up?

this is incorrect.

Case in point: Oil, Copper and Corn to name a few.

From May to the present, crude oil went from over $100/barrel to around $82/barrel.

[raja]

Re: Why is Gold Going Up?

Is the unemployment rate identical? No.

But it isn't the amount of the unemployment rate, it is the change in the unemployment rate that matters.

In early 1990's recession, unemployment increased 2.5% from trough to peak - a very significant jump of somewhat under 50% increase in number of unemployed. For the present recession, unemployment has jumped 5% from trough to peak, a larger jump of nearly 100% in number of unemployed.

Unemployment rate from the BLS:

1989	5.3
1990	5.6
1991	6.8
1992	7.5
1993	6.9
1994	6.1
1995	5.6
1996	5.4
1997	4.9
1998	4.5
1999	4.2
2000	4.0
2001	4.7
2002	5.8
2003	6.0
2004	5.5
2005	5.1
2006	4.6
2007	4.6
2008	5.8
2009	9.3
2010	9.6

No only is the absolute rate higher now, the rate of change has been much more dramatic in the last 3 years than in the 90s.

Did the Fed cut to 0%? No, but then again 0% isn't some magical number. It is the change in interest rates which is supposed to spur credit.

The Fed Funds rate went from 9.85% in early 1989 to 2.92% by the end of 1992 - a drop of 693 basis points.

In contrast the Fed Funds rate this time went from 5.26% in 2006 to this years 0.07% - a drop of 519 basis points.

Zero is a magical number . . . because it is the point where the Fed has nowhere left to go. It is the abyss of interest rates.

As for Europe - there were plenty of problems then including: German reunification, mass unemployment in the UK, recessions in every nation in Europe.

Yes, those are problems . . . but not of the same magnitude that exist now: the threat of muliply national bankruptcies and the dissolution of the European currency.

And how did gold fare in the early 1990s?

Given the differences between now and the 90s, I do not see that anything can be gained by comparing the gold price in the two eras.

. . . what precisely are you asserting as a factor in gold prices now? And how much of gold's increase can be attributed to these factor(s)?

You're trying to poke holes by asserting some truism, but without in turn providing any actual theoretical or factual support.

I think everyone would be interested in hearing a well considered, well presented, and well supported counterpoint to the iTulip thesis.

In my reply to EJ in a later post, I believe I answered what you are asking here. If anything is unclear in that post, I would be happy to elucidate and/or elaborate.

Krugman is a useful idiot.
The mere fact that he's focusing on gold this week merely highlights his somewhat well disguised, but constant, search for the limelight.

Krugman says, "As some readers may have guessed, I’m having some fun thinking about gold price economics — nothing like a good intellectual puzzle to keep you occupied while the world collapses."

[jk]

Re: Why is Gold Going Up?

krugman keeps returning to gold because he knows he doesn't understand it. the glen beck theory was really beneath him. then he moved on to dentists and hotelling. now it's duration, safety and rates. if he keeps at it, maybe he'll figure it out.

[c1ue]

Re: Why is Gold Going Up?

No only is the absolute rate higher now, the rate of change has been much more dramatic in the last 3 years than in the 90s.

Which I noted. You still haven't explained why the degree of mass unemployment and voter anger is different this time than last.

The last time, they booted out Bush I in favor of some hick from Arkansas.

Zero is a magical number . . . because it is the point where the Fed has nowhere left to go. It is the abyss of interest rates.

Wrong.

1) The Fed can easily engineer effective negative interest rates.
2) The degree of interest rate deductions is what causes credit creation to speed up. This was greater in the past than now.

There are reasons why this time may be different, but they're not due to specifically to the interest rate being close to zero. The difference is that government/Fed policy in the past was to treat recessions via the heroin addict monkey pushing down on the interest rate reduction lever. With interest rates at zero, the monkey doesn't get a reaction anymore when banging on the lever. There are many other levers, however.

Yes, those are problems . . . but not of the same magnitude that exist now: the threat of muliply national bankruptcies and the dissolution of the European currency.

Again, wrong.

The past problems were the UK and Germany - two of the 3 largest economies in Europe.

The problems today are the PIIGS - which comprise many of the smallest economies in Europe. Italy is big, but Italy's problems are nothing compared to the relative scale of problems in Ireland and Greece, or for that matter the scale of the problem facing Germany after reunification.

Let's be clear: the issue with the PIIGS right now is primarily political. The cause is an economic one, but the solution as well as the problem getting to the solution is political.

Given the differences between now and the 90s, I do not see that anything can be gained by comparing the gold price in the two eras.

What differences? Rising unemployment. Radically falling interest rates. Printing of money. Recessions in Europe and the US.

Completely different gold price behavior.

In my reply to EJ in a later post, I believe I answered what you are asking here. If anything is unclear in that post, I would be happy to elucidate and/or elaborate.

No you haven't.

You've said that you believe that there are other reasons for the present gold price behavior.

You haven't elaborated on this beyond belief.

All you've done thus far is attempt to show that gold prices aren't inverse linearly correlated with the USDX.

This is fine for an attack on the iTulip thesis, but doesn't actually communicate a different theory, mechanism, or data set.

What I'm asking is that you communicate something besides not iTulip.

This way everyone can understand exactly what you are saying, as opposed to what you don't agree with in the iTulip thesis.

Krugman says, "As some readers may have guessed, I’m having some fun thinking about gold price economics — nothing like a good intellectual puzzle to keep you occupied while the world collapses."

When he says world, he means his entire economic school of thought. Of course he must attack the head that stands above the rest - all as an 'intellectual puzzle'.

[metalman]

Re: Why is Gold Going Up?

My understanding of the iTulip thesis is this:

Yes, there is going to be dollar depreciation and if there were some certainty that the depreciation would be a controlled process with a known, copasetic endpoint, then gold would not go up very much. For example, if it is relatively certain that the U.S. dollar will depreciate 40% over the next few years before levelling off to the preferred rate of depreciation thanks to the U.S. somehow getting its house in order and, at the end of the process, the U.S. dollar remains the reserve currency of the world, then gold may double and then see no further gains. Most certainly, if the aforementioned hypothetical example were reality, we would not see gold going from $250 to nearly $2,000.

The reality, though, is that it is perceived that there is increasing risk that the Federal Reserve and the U.S. government are not going to be able to control how much the the U.S. dollar depreciates and the dollar's reign as the world's reserve currency is likely to end. We in the U.S. have made a mess of things and, so far, have done nothing towards getting our house in order. If anything, the various attempts to resuscitate the FIRE economy have made things worse.

To paraphrase what EJ has stated somewhere else: gold is the insurance that we keep in case the dollar depreciation does not occur in an orderly fashion. My perspective and likely that of many others who have bought and are buying gold is that the U.S. economy and its role in the world looks to be in a precarious situation.

this is also my understanding of the itulip thesis & id' say of all of us who are not trolling these boards.

[metalman]

Re: Why is Gold Going Up?

troll exhibit #22

If someone can come up with an iTulip quote that says something like, "The price of gold is affected by many factors . . ." or "Gold price is driven by multiple causes . . . ", then I will admit my error and henceforth shut my mouth on this topic.

ej did point you to many factors of the gold price but you did not 'admit my error and henceforth shut my mouth on this topic' as promised.

[raja]

Re: Why is Gold Going Up?

troll exhibit #22
ej did point you to many factors of the gold price but you did not 'admit my error and henceforth shut my mouth on this topic' as promised.

Two or more relatively sane people can look at the same set of facts and come up with entirely opposite conclusions.
That's where we are now.

I don't see anything to be gained by continuing . . . so I will shut my mouth and not "troll" on this thread anymore.

Except that I'm still chewing on jk's insightful and deep post about Krugman, and I may post on that . . . if I am able to fully understand it.

[we_are_toast]

Re: Why is Gold Going Up?

krugman keeps returning to gold because he knows he doesn't understand it. the glen beck theory was really beneath him. then he moved on to dentists and hotelling. now it's duration, safety and rates. if he keeps at it, maybe he'll figure it out.

I fully agree. I listen very carefully to what Krugman has to say, but like everyone else I listen to, I never agree 100% with their conclusions.

Krugman wants to be able to draw a graph that explains precisely why gold is where it is. He really thinks very reasonably and thinks he can treat economics like a hard science. The science of gold is more closely related to psychology than to any data that can be produced by the FED or BLS. Gold is not only the ultimate currency, in some ways it's the ultimate fiat currency. It's only value is the faith that the holders have that it has any value at all.

I think Krugman will eventually start talking about fear, and will express puzzlement that something should have such value based on the psychology of fear.

this is also my understanding of the itulip thesis & id' say of all of us who are not trolling these boards.

Uncalled for metalman. If everyone who disagrees with EJ on something is going to be labeled a troll, it's going to change the character of this forum. I would look at the forums very differently if I thought there were some who were intimidated from expressing a contrary opinion to EJ's or anyone else's. I think this may have already occurred here, and it diminishes the quality of the discussions.

[metalman]

Re: Why is Gold Going Up?

troll exhibit item #23

http://goldprice.org/gold-price-history.html

So in those two decades, about the same amount of dollar depreciation, yet vastly different performance in gold price.

you insist on using the wrong chart.

wrong...



right...



it shows the exact phenomena that itulip forecast in 2001.

why do you persist in using the discredited chart, i wonder?

You provide three reasons why gold is going up:

1. A process you described as: "Each cycle lowered the US fiscal position, depreciated the dollar, and caused the exchange rate value of the dollar to decline against other currencies and against gold." In other words, dollar depreciates = gold up.

2. Dissolution of the "US-centric US$ Treasury based monetary system". In other words, when lenders believe depreciation of the dollar has already or will occur, and they stop investing in Treasuries, gold goes up. In other words, dollar depreciation, or the fear thereof = gold up.

3. Peak Cheap Oil causes government subsidies and additional fiscal stimulus . . . which depreciates the dollar, and gold goes up.

IMO, I represented the iTulip thesis accurately in my posts above; it all boils down to: depreciation of the dollar = gold up.

i can go down the list of fallacies & check them off for each paragraph. for this one...

Description of Confusing Cause and Effect

Confusing Cause and Effect is a fallacy that has the following general form:

1. A and B regularly occur together.
2. Therefore A is the cause of B.

This fallacy requires that there is not, in fact, a common cause that actually causes both A and B.
This fallacy is committed when a person assumes that one event must cause another just because the events occur together. More formally, this fallacy involves drawing the conclusion that A is the cause of B simply because A and B are in regular conjunction (and there is not a common cause that is actually the cause of A and B). The mistake being made is that the causal conclusion is being drawn without adequate justification.
In some cases it will be evident that the fallacy is being committed. For example, a person might claim that an illness was caused by a person getting a fever. In this case, it would be quite clear that the fever was caused by illness and not the other way around. In other cases, the fallacy is not always evident. One factor that makes causal reasoning quite difficult is that it is not always evident what is the cause and what is the effect. For example, a problem child might be the cause of the parents being short tempered or the short temper of the parents might be the cause of the child being problematic. The difficulty is increased by the fact that some situations might involve feedback. For example, the parents' temper might cause the child to become problematic and the child's behavior could worsen the parents' temper. In such cases it could be rather difficult to sort out what caused what in the first place.
In order to determine that the fallacy has been committed, it must be shown that the causal conclusion has not been adequately supported and that the person committing the fallacy has confused the actual cause with the effect. Showing that the fallacy has been committed will typically involve determining the actual cause and the actual effect. In some cases, as noted above, this can be quite easy. In other cases it will be difficult. In some cases, it might be almost impossible. Another thing that makes causal reasoning difficult is that people often have very different conceptions of cause and, in some cases, the issues are clouded by emotions and ideologies. For example, people often claim violence on TV and in movies must be censored because it causes people to like violence. Other people claim that there is violence on TV and in movies because people like violence. In this case, it is not obvious what the cause really is and the issue is clouded by the fact that emotions often run high on this issue.
While causal reasoning can be difficult, many errors can be avoided with due care and careful testing procedures. This is due to the fact that the fallacy arises because the conclusion is drawn without due care. One way to avoid the fallacy is to pay careful attention to the temporal sequence of events. Since (outside of Star Trek), effects do not generally precede their causes, if A occurs after B, then A cannot be the cause of B. However, these methods go beyond the scope of this program.
All causal fallacies involve an error in causal reasoning. However, this fallacy differs from the other causal fallacies in terms of the error in reasoning being made. In the case of a Post Hoc fallacy, the error is that a person is accepting that A is the cause of B simply because A occurs before B. In the case of the Fallacy of Ignoring a Common Cause A is taken to be the cause of B when there is, in fact, a third factor that is the cause of both A and B. For more information, see the relevant entries in this program.
Examples of Confusing Cause and Effect

1. Bill and Joe are having a debate about music and moral decay:
   Bill: "It seems clear to me that this new music is causing the youth to become corrupt."
   Joe: "What do you mean?"
   Bill: "This rap stuff is always telling the kids to kill cops, do drugs, and abuse women. That is all bad and the kids today shouldn't be doing that sort of stuff. We ought to ban that music!"
   Joe: "So, you think that getting rid of the rap music would solve the drug, violence and sexism problems in the US?"
   Bill: "Well, it wouldn't get rid of it all, but it would take care of a lot of it."
   Joe: "Don't you think that most of the rap singers sing about that sort of stuff because that is what is really going on these days? I mean, people often sing about the conditions of their time, just like the people did in the sixties. But then I suppose that you think that people were against the war and into drugs just because they listened to Dylan and Baez."
   Bill: "Well..."
   Joe: "Well, it seems to me that the main cause of the content of the rap music is the pre-existing social conditions. If there weren't all these problems, the rap singers probably wouldn't be singing about them. I also think that if the social conditions were great, kids could listen to the music all day and not be affected."
   Bill: "Well, I still think the rap music causes the problems. You can't argue against the fact that social ills really picked up at the same time rap music got started."
2. It is claimed by some people that severe illness is caused by depression and anger. After all, people who are severely ill are very often depressed and angry. Thus, it follows that the cause of severe illness actually is the depression and anger. So, a good and cheerful attitude is key to staying healthy.
3. Bill sets out several plates with bread on them. After a couple days, he notices that the bread has mold growing all over it. Bill concludes that the mold was produced by the bread going bad. When Bill tells his mother about his experiment, she tells him that the mold was the cause of the bread going bad and that he better clean up the mess if he wants to get his allowance this week.

also...

Description of Hasty Generalization

This fallacy is committed when a person draws a conclusion about a population based on a sample that is not large enough. It has the following form:

1. Sample S, which is too small, is taken from population P.
2. Conclusion C is drawn about Population P based on S.

The person committing the fallacy is misusing the following type of reasoning, which is known variously as Inductive Generalization, Generalization, and Statistical Generalization:

1. X% of all observed A's are B''s.
2. Therefore X% of all A's are Bs.

The fallacy is committed when not enough A's are observed to warrant the conclusion. If enough A's are observed then the reasoning is not fallacious.
Small samples will tend to be unrepresentative. As a blatant case, asking one person what she thinks about gun control would clearly not provide an adequate sized sample for determing what Canadians in general think about the issue. The general idea is that small samples are less likely to contain numbers proportional to the whole population. For example, if a bucket contains blue, red, green and orange marbles, then a sample of three marbles cannot possible be representative of the whole population of marbles. As the sample size of marbles increases the more likely it becomes that marbles of each color will be selected in proprtion to their numbers in the whole population. The same holds true for things others than marbles, such as people and their political views.
Since Hasty Generalization is committed when the sample (the observed instances) is too small, it is important to have samples that are large enough when making a generalization. The most reliable way to do this is to take as large a sample as is practical. There are no fixed numbers as to what counts as being large enough. If the population in question is not very diverse (a population of cloned mice, for example) then a very small sample would suffice. If the population is very diverse (people, for example) then a fairly large sample would be needed. The size of the sample also depends on the size of the population. Obviously, a very small population will not support a huge sample. Finally, the required size will depend on the purpose of the sample. If Bill wants to know what Joe and Jane think about gun control, then a sample consisting of Bill and Jane would (obviously) be large enough. If Bill wants to know what most Australians think about gun control, then a sample consisting of Bill and Jane would be far too small.
People often commit Hasty Generalizations because of bias or prejudice. For example, someone who is a sexist might conclude that all women are unfit to fly jet fighters because one woman crashed one. People also commonly commit Hasty Generalizations because of laziness or sloppiness. It is very easy to simply leap to a conclusion and much harder to gather an adequate sample and draw a justified conclusion. Thus, avoiding this fallacy requires minimizing the influence of bias and taking care to select a sample that is large enough.
One final point: a Hasty Generalization, like any fallacy, might have a true conclusion. However, as long as the reasoning is fallacious there is no reason to accept the conclusion based on that reasoning.
Examples of Hasty Generalization

1. Smith, who is from England, decides to attend graduate school at Ohio State University. He has never been to the US before. The day after he arrives, he is walking back from an orientation session and sees two white (albino) squirrels chasing each other around a tree. In his next letter home, he tells his family that American squirrels are white.
2. Sam is riding her bike in her home town in Maine, minding her own business. A station wagon comes up behind her and the driver starts beeping his horn and then tries to force her off the road. As he goes by, the driver yells "get on the sidewalk where you belong!" Sam sees that the car has Ohio plates and concludes that all Ohio drivers are jerks.
3. Bill: "You know, those feminists all hate men."
   Joe: "Really?"
   Bill: "Yeah. I was in my philosophy class the other day and that Rachel chick gave a presentation."
   Joe: "Which Rachel?"
   Bill: "You know her. She's the one that runs that feminist group over at the Women's Center. She said that men are all sexist pigs. I asked her why she believed this and she said that her last few boyfriends were real sexist pigs. "
   Joe: "That doesn't sound like a good reason to believe that all of us are pigs."
   Bill: "That was what I said."
   Joe: "What did she say?"
   Bill: "She said that she had seen enough of men to know we are all pigs. She obviously hates all men."
   Joe: "So you think all feminists are like her?"
   Bill: "Sure. They all hate men."

next...

It is possible that iTulip acknowledges other factors involved in gold price, but the fact that none are mentioned here suggests that, if there are other factors, they are considered of minor significance.
As I have explained in my past posts, I disagree with the thesis, and feel it is imcomplete..

set up a straw man, knock him down. tried & true trolling method.

Description of Straw Man

The Straw Man fallacy is committed when a person simply ignores a person's actual position and substitutes a distorted, exaggerated or misrepresented version of that position. This sort of "reasoning" has the following pattern:

1. Person A has position X.
2. Person B presents position Y (which is a distorted version of X).
3. Person B attacks position Y.
4. Therefore X is false/incorrect/flawed.

This sort of "reasoning" is fallacious because attacking a distorted version of a position simply does not constitute an attack on the position itself. One might as well expect an attack on a poor drawing of a person to hurt the person.
Examples of Straw Man

1. Prof. Jones: "The university just cut our yearly budget by $10,000."
   Prof. Smith: "What are we going to do?"
   Prof. Brown: "I think we should eliminate one of the teaching assistant positions. That would take care of it."
   Prof. Jones: "We could reduce our scheduled raises instead."
   Prof. Brown: " I can't understand why you want to bleed us dry like that, Jones."
2. "Senator Jones says that we should not fund the attack submarine program. I disagree entirely. I can't understand why he wants to leave us defenseless like that."
3. Bill and Jill are arguing about cleaning out their closets:
   Jill: "We should clean out the closets. They are getting a bit messy."
   Bill: "Why, we just went through those closets last year. Do we have to clean them out everyday?"
   Jill: "I never said anything about cleaning them out every day. You just want too keep all your junk forever, which is just ridiculous."

next...

I do agree that dollar depreciation and the fear thereof can lead to gold going up, but there are other reasons for gold's rise that are, at times, more significant than dollar depreciation. Can I prove that? No. But can the converse be proved? No. Aside from relying on some kind of polling, how could anyone possible measure fear of dollar depreciation or the lack thereof. It is a psychological factor, not amenable to measurement with financial statistical measures.

Description of Burden of Proof

Burden of Proof is a fallacy in which the burden of proof is placed on the wrong side. Another version occurs when a lack of evidence for side A is taken to be evidence for side B in cases in which the burden of proof actually rests on side B. A common name for this is an Appeal to Ignorance. This sort of reasoning typically has the following form:

1. Claim X is presented by side A and the burden of proof actually rests on side B.
2. Side B claims that X is false because there is no proof for X.

In many situations, one side has the burden of proof resting on it. This side is obligated to provide evidence for its position. The claim of the other side, the one that does not bear the burden of proof, is assumed to be true unless proven otherwise. The difficulty in such cases is determining which side, if any, the burden of proof rests on. In many cases, settling this issue can be a matter of significant debate. In some cases the burden of proof is set by the situation. For example, in American law a person is assumed to be innocent until proven guilty (hence the burden of proof is on the prosecution). As another example, in debate the burden of proof is placed on the affirmative team. As a final example, in most cases the burden of proof rests on those who claim something exists (such as Bigfoot, psychic powers, universals, and sense data).
Examples of Burden of Proof

1. Bill: "I think that we should invest more money in expanding the interstate system."
   Jill: "I think that would be a bad idea, considering the state of the treasury."
   Bill: "How can anyone be against highway improvements?"
2. Bill: "I think that some people have psychic powers."
   Jill: "What is your proof?"
   Bill: "No one has been able to prove that people do not have psychic powers."
3. "You cannot prove that God does not exist, so He does."

next...

There are other investors in gold who had different rationales, and they also made money.
Outcome does not always prove theory . . . .

Description of Burden of Proof

Burden of Proof is a fallacy in which the burden of proof is placed on the wrong side. Another version occurs when a lack of evidence for side A is taken to be evidence for side B in cases in which the burden of proof actually rests on side B. A common name for this is an Appeal to Ignorance. This sort of reasoning typically has the following form:

1. Claim X is presented by side A and the burden of proof actually rests on side B.
2. Side B claims that X is false because there is no proof for X.

In many situations, one side has the burden of proof resting on it. This side is obligated to provide evidence for its position. The claim of the other side, the one that does not bear the burden of proof, is assumed to be true unless proven otherwise. The difficulty in such cases is determining which side, if any, the burden of proof rests on. In many cases, settling this issue can be a matter of significant debate. In some cases the burden of proof is set by the situation. For example, in American law a person is assumed to be innocent until proven guilty (hence the burden of proof is on the prosecution). As another example, in debate the burden of proof is placed on the affirmative team. As a final example, in most cases the burden of proof rests on those who claim something exists (such as Bigfoot, psychic powers, universals, and sense data).
Examples of Burden of Proof

1. Bill: "I think that we should invest more money in expanding the interstate system."
   Jill: "I think that would be a bad idea, considering the state of the treasury."
   Bill: "How can anyone be against highway improvements?"
2. Bill: "I think that some people have psychic powers."
   Jill: "What is your proof?"
   Bill: "No one has been able to prove that people do not have psychic powers."
3. "You cannot prove that God does not exist, so He does."

etc, etc, etc...

i don't recall seeing anything like this before ej kicked mish up one wall & down the other.

[lektrode]

Re: Why is Gold Going Up?

getting off the trash-krugman-express/raja-vs-itulip-challenge train for a bit (even if it does leave some of us in awe of the intellectual fire... uhh... pardon me - intellectual _horse_ power on display here...
with mr c1ue, displaying unusually good form, in full 'battle' mode... you guys really are riveting, to the point my S/O is getting jealous of my attentions being diverted ;)

ok - heres my question, based upon jk's historical observation here:

.... the closest analogue to our current situation is the 1930's. but of course then the dollar was pegged to gold. the only way people could play gold was to buy homestake mine. but, lo and behold, homestake went up a LOT. and real interest rates back then were NOT the negative or zero rates of today. somehow he doesn't explain that.

why doesnt this appear to be happening now: ie, the miners dont appear to be on the same trajectory as the metal itself?
while hesitant to use dowjones 'smartmoney' mag, sept issue as a point of reference (my galpal subscribes, doesnt understand why i make fun of the stuff they put out), brett arends covers the 'conventional wisdom' re the gold vs etf's and funds and mentions "5% of portfolio in PMs" - but sums up the article by making a case for gold mining stocks:

Enticed by Gold? Try Mining Stocks Instead
By some measures, miners are unusually cheap right now.

all the usual bullhorn propaganda snipped from the top of:
http://www.smartmoney.com/invest/str...=SM_mag_invest

What are your options? Maybe this is overcomplicating matters, and maybe you should just buy the Gold Trust ETF and forget about it, but I hate to leave value on the table. Dylan Grice, an investment strategist for SG Securities in London, has been bullish on gold for a long time. But when I asked him which he preferred, bullion or the mining stocks, he replied sensibly: "Whichever is cheaper!"

At the moment, that may be the big gold-mining stocks. Every so often, I run some analytical charts to compare different subcategories within precious metals: large mining stocks, small miners, gold, silver and platinum. And right now the big miners look cheapest, in relative terms. (Platinum also looks cheap.)

Some savvy metals investors track the value of the Philadelphia Gold & Silver index, the best-known index of precious-metals mining stocks, in relation to gold bullion.

(and hey! my 1st attempt at chart construction with screenshots & PS7.0, maybe someday i'll be 1/2 as good as zoog, bart & 'fred' ;)

[ATTACH=CONFIG]4066[/ATTACH]

By this measure, the major mining stocks are close to 25-year lows.
(or at least they were when this went to press, sometime b4 the current runup to near 365day high, guess its oldnews already)

Fundamental valuations tell a similar story. Newmont is currently trading at 13 times forecast earnings; Barrick, just 10 times. These are fractions of their recent averages -- in 2003 Barrick traded at 70 times forecast earnings. Analysts at Canaccord Genuity reckon the mining stocks, in relative terms, are "nearing an all-time low." Naturally, there are risks. Mining stocks are often more volatile than bullion, especially in a crash. And as Adam Strauss, comanager of the Appleseed mutual fund, puts it, mining stocks also involve "management risk, exploration risk, environment risk and political risk." Rising production costs will shave profits. And political risks -- like the danger that miners will get hit with windfall taxes -- are highest when gold booms.

anybody think this is still good info - or are we back into nosebleed valuations?

assuming we see the predicted (even deeper) downstroke in the equities markets, might there be a particularly good moment to short this index? or conversely, after the slump that will likely be used to justify further QE - what miners look good? and what might be best way in (or to short) ?

hope i'm formatting the question appropriately, as this stuff is all 'greek' to me, but i'm trying and you guys are a great source of inspiration

comments?

krugman's a very smart guy, no doubt. but he's caught up in a dead paradigm.

+1
and i also admit to reading him when/where-ever eye find him, if for no other reason because i'm drawn to economic discussions, but his POV always seems politically-driven, why it gets easy to pick on him, as mr c1ue noted