Is this an argument for $USD strength ??

[Guest]

Re: Is this an argument for $USD strength ??

You are spot on icm63. This is the cruel paradox for gold in 2009. What you describe has a high possibility of occurring. The turn coming up real soon.

If you are LONG GOLD, take profits NOW, But back under $700...

There may be a $25 to $50 momentum still to the upside, but thats it.

Scary 2009 will bring down gold as funds need monies from somewhere as more deleveraging goes on.

[mcgurme]

Re: Is this an argument for $USD strength ??

So long as the US dollar buys more with each passing day, this is a deflation, and the case for gold is still suspect. First and foremost, gold is an inflation hedge, not a deflation hedge.

One more thing that keeps bothering me: Bernanke keeps tipping his hand that a de-valuation lies ahead. Why would he tip his hand if a de-valuation and a print-a-thon lies ahead? In other words, the case for gold is too obvious, just like the case for oil was too obvious at $147 per barrel..... Something smells.

Here is the case against gold: Trillions of dollars in wealth has been wiped-out in the commodities markets, the stock markets, the real estate markets, and everyone is getting poorer. Even the Saudis are getting poorer.

Who is buying? Just the gamblers in the commodities markets, not the jewelers; there is not much action in the soukes to buy gold, and the soukes tell all.

I like gold for the simple following reasons:
1. Wikipedia says there are 470,000 tons of gold in existence. That works out to less than one ounce per person on the planet.
2. There is no other store of wealth that has the history and reputation of gold
3. All currencies are fiat, in a race to the bottom
4. Following deflation, then what? The money supply will still far outstrip the supply of physical resources (gold, oil, copper, etc)

I agree with the other folks here - gold is not an investment. It is insurance.

[llanlad2]

Re: Is this an argument for $USD strength ??

Lukester- I respect your opinion on many things but I think gold has gone from acting as insurance against inflation to acting as insurance against the collapse of any number of currencies. You have called for the USD dollar to strengthen significantly and I think it will but this will not result in gold going down as it has in the past.
People, investors, institutions and governments the world over are finally beginning to recognise the scale of the crisis and are getting scared. This fear is increasing daily and the gold price goes up with it along with the USD. Not until fear subsides and faith in the economic system returns will we see the gold price drop back to 700. And I personally don't see that happening in the near future.

[Guest]

Re: Is this an argument for $USD strength ??

I would only suggest being intensely suspicious of those "core beliefs" one holds at present to be "self-evident". The idea that the global picture is so disastrous that "it's obvious" that gold is the only safe haven **appears** at present to be 99%-100% rational. But the mass fear can turn around on a dime. This is the treachery of markets - they contain a very large component of mass human emotion. And emotion, unlike fundamentals, can turn collectively with lightning rapidity. Gold is sitting on top of a highly emotional consensus.

As it climbs higher, it can indeed become intensely vulnerable as emotion can come to represent 75%++ of the market's "price" in the more extreme markets - just like today.

Compare that with 60 trillion (or however many they are) in notional derivatives going into a real melt-down. What do the counterparties in this ongoing liquidation need? They need the greenbacks to settle. They can't "settle" in gold. This pile of derivatives melting down **cannot** complete it's melt-down overnight. It is by definition going to last a year or two, right?

So you have: on the one hand gold, with supremely good fundamentals, but vulnerable to a large quotient of "human emotion". It's likely the only honest bet out there in a swamp of festering rot in all other assets. And on the other hand you have crappy USD, with horrific fundamentals. Yet one of these is entirely plausibly going to be underpinned by a quite obvious demand for the next 12-24 months. You can't settle derivatives in anything other than the crappy greenbacks, and you can't deflate this pile of derivatives overnight.

So with these two horses in the race, for the next 24 months, you can see that these factors shift the odds of which one will be more widely bid upon in an interesting and entirely counterintuitive way. I'm well hedged in gold, but I'm getting skeptical that the USD is not going to see a frantic bid in the next 24 months. Gold may actually lose ground to this frantic, synthetic bid. If it starts to lose ground due to the pressure that's being placed on USD demand, this may tip the highly emotional "crowd" into acting irrationally and selling gold off.

Lukester- I respect your opinion on many things but I think gold has gone from acting as insurance against inflation to acting as insurance against the collapse of any number of currencies. You have called for the USD dollar to strengthen significantly and I think it will but this will not result in gold going down as it has in the past.
People, investors, institutions and governments the world over are finally beginning to recognise the scale of the crisis and are getting scared. This fear is increasing daily and the gold price goes up with it along with the USD. Not until fear subsides and faith in the economic system returns will we see the gold price drop back to 700. And I personally don't see that happening in the near future.

[cjppjc]

Re: Is this an argument for $USD strength ??

I take heart in the fact that the gold & silver stocks have been going up in down market days. Previously they sold off with the whole market. So

"MAYBE IT'S DIFFERENT THIS TIME."

I hope. Because I hardly ever sell. Actually sold some CEF on Thursday because the Nav was 12% higher than the holdings. Pure genius.

[rabot10]

Re: Is this an argument for $USD strength ??

I take heart in the fact that the gold & silver stocks have been going up in down market days. Previously they sold off with the whole market. So

"MAYBE IT'S DIFFERENT THIS TIME."

I hope. Because I hardly ever sell. Actually sold some CEF on Thursday because the Nav was 12% higher than the holdings. Pure genius.

MAYBE IT IS. I have been getting in and out of some PM stocks for the last 8 weeks trying to scrape out a little profit. Then something seemed to change PMs and PM stocks were not moving with the Stock Market. Stayed in the last several weeks and hope to just let they ride. I'm tired of trading.

good luck

[cjppjc]

Re: Is this an argument for $USD strength ??

Good luck to you as well. Good luck to us all.

[Thailandnotes]

Re: Is this an argument for $USD strength ??

So with these two horses in the race, for the next 24 months, you can see that these factors shift the odds of which one will be more widely bid upon in an interesting and entirely counterintuitive way.

It's been suggested on other threads the dollar could strenthen to 120 Euros in 18 months. That's a 50 % increase. With inflows and outflows htting records aren't we in for sudden currency controls?

[llanlad2]

Re: Is this an argument for $USD strength ??

I am aware that markets can behave irrationally for long periods of time. The last 10 years for example. That time is now over.
You are making your call based on the belief that people can't behave rationally at all! I am aware of the massive deleveraging that will continue to take place but that hasn't led to gold falling significantly recently so what makes you think it will now? In my post I stated that I believe the USD and gold will increase at the same time. I never claimed gold to be the only safe haven.
I agree the psychology of crowds is important where investment is concerned. Psychologically the question you have to ask is this. Is gold being brought as insurance or as an investment at the moment? I believe it is the former and this is why there won't be a sell off. After all are you planning on ditching your insurance on the belief that gold will go to 700? I know I'm not selling my insurance at the moment and don't believe anyone who has really significant amounts of gold will in the near future.

[Guest]

Re: Is this an argument for $USD strength ??

You make good arguments llanlad2 -

but you'd be surpised how many people buy assets like this swearing it's going to be "for the long haul, as insurance" and then as soon as they start to go DOWN, they get the heeby-jeebies and sell. ;) Lotsa those kinds of people around. You think herd behavior stopped at the door where gold was involved? Think again. Your arguments are solid. They are the rational arguments. That does not mean they will be the majority's arguments if things start getting even more squirrely. Look what happened when the markets were plunging last October / November. How many people were hanging onto their "insurance" then? I know I was actively resisting the impulse to sell any of my PM's, particularly platinum, silver etc, as they were doing an impersonation of an Olympic diver off the high-board. Metals can do that.

I am aware that markets can behave irrationally for long periods of time. The last 10 years for example. That time is now over.
You are making your call based on the belief that people can't behave rationally at all! I am aware of the massive deleveraging that will continue to take place but that hasn't led to gold falling significantly recently so what makes you think it will now? In my post I stated that I believe the USD and gold will increase at the same time. I never claimed gold to be the only safe haven.
I agree the psychology of crowds is important where investment is concerned. Psychologically the question you have to ask is this. Is gold being brought as insurance or as an investment at the moment? I believe it is the former and this is why there won't be a sell off. After all are you planning on ditching your insurance on the belief that gold will go to 700? I know I'm not selling my insurance at the moment and don't believe anyone who has really significant amounts of gold will in the near future.

[llanlad2]

Re: Is this an argument for $USD strength ??

I'm impressed Luke that you are able to maintain the Gold down DOW up thesis on so many fronts.
But ultimately if you are very rich and have 90% USD and 10% gold I don't believe you will be scared into selling gold.
Small fry like us (I'm assuming you're not a SWF!) don't influence markets greatly but if you're right you will get my vote as the King of Contrarians.

[GRG55]

Re: Is this an argument for $USD strength ??

I'm impressed Luke that you are able to maintain the Gold down DOW up thesis on so many fronts.
But ultimately if you are very rich and have 90% USD and 10% gold I don't believe you will be scared into selling gold.
Small fry like us (I'm assuming you're not a SWF!) don't influence markets greatly but if you're right you will get my vote as the King of Contrarians.

I can't be certain, but I doubt Lukester is a Single White Female...;)

More likely a DICE [Displaced Italian Connoisseur Esq.]