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Julius- Thoughts on precious metals FFTA


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#301 TakeAStepBack

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Posted 21 February 2013 - 02:00 PM

Precious metal is the bubble that never was, yet is always ready to burst.



#302 TakeAStepBack

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Posted 21 February 2013 - 02:10 PM

http://www.marketwat...ulls-2013-02-21

 

The Fed spooks gold, stock and bond bulls

By Nigam Arora

The Federal Open Market Committee (FOMC) meeting minutes from January 29 -30 were released yesterday afternoon. Within the Federal Reserve System, the FOMC is responsible for making key decisions about money supply and interest rates.

One paragraph in the minutes spooked gold and silver bulls, as well as stock and bond bulls. Here is the paragraph that caused concern:

"However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability. Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy. A few also raised concerns about the potential effects of further asset purchases on the functioning of particular financial markets, although a couple of other participants noted that there had been little evidence to date of such effects. In light of this discussion, the staff was asked for additional analysis ahead of future meetings to support the Committee's continuing assessment of the asset purchase program."

Gold and silver fell out of bed

Gold and silver bulls have been assuming that QE will last forever. Further, the assumption by the momo crowd that QE3 is inflationary has been proven erroneous as fully explained here.

The momo crowd was disheartened in that there is a discussion in the Federal Reserve about ending QE.

As shown on the updated chart, gold fell through the major support. The major support zone on gold ETF /quotes/zigman/41663/quotes/nls/gld GLD +0.36% was at $153 - $156. Next there is a minor support at $145 - $146.

Please click here for the chart.

Support in silver ETF /quotes/zigman/417006/quotes/nls/slv SLV -3.01% $27.80 to $28.00 was broken. Also broken was the support in gold miner ETF /quotes/zigman/420125/quotes/nls/gdx GDX +0.53% at $38.00 - $38.20.

Our response was fourfold. We were correctly positioned as described in “gold is at a critical juncture ”. First, we took profits on our short position in silver miner Silver Wheaten /quotes/zigman/32540/quotes/nls/slw SLW -0.25% by exiting the last tranche at $32.22; our highest short was from $41.00.

Second, we decided to maintain our short position in the silver miner Hecla Mining /quotes/zigman/229110/quotes/nls/hl HL -7.78% as our analysis showed more gains are yet to come.

Third, we took advantage of price levitation in First Majestic Silver /quotes/zigman/3144611/quotes/nls/ag AG +0.47% with a short at $17.82. First Majestic had entered into an agreement to acquire Orko Silver. Orko received a better offer from Coeur d'Alene /quotes/zigman/43169/quotes/nls/cde CDE -7.52% for about C$35 million. First Majestic decided not to exercise its option to match the price. First Majestic will receive a breakup fee of C$11.6 million. The analysis is that ultimately First Majestic stock will be pulled down with the group.

Finally, we upgraded gold and silver in the very, very short-term to neutral. We had downgraded gold and silver on February 11th just before the recent drop.

Stocks addicted to QE

The stock market is addicted to QE. For some market participants, the extent of the discussion in the FOMC about changing QE was a shock.

The stock market is very overbought and needed an excuse to sell off.

No new defensive action was needed for our portfolios because we are already short SPDR S&P 500 ETF Trust /quotes/zigman/714403/quotes/nls/spy SPY -0.24% , have hedged positions, and have raised cash.

For those interested in short selling the market for hedging or speculative purposes, at this time we don't recommend PowerShares QQQ /quotes/zigman/105934/quotes/nls/qqq QQQ -0.36% . The reason is that Apple /quotes/zigman/68270/quotes/nls/aapl AAPL -0.56% is a large part of QQQ. Lately Apple stock direction hasn't shown a good correlation with the stock market direction.

The bond bubble

At the prospect of QE withdrawal by the Fed, bonds first sold off and so did the popular bond ETF iShares Barclays 20+ Year Treasury Bond /quotes/zigman/1480195/quotes/nls/tlt TLT +0.44% . Later losses in TLT were reduced as the bond players saw that QE withdrawal was sometime in the future but not now.

Since a lot of our subscribers are financial advisers who are managing retirement accounts and short selling is prohibited in retirement accounts, we are long inverse bond ETF /quotes/zigman/1529548/quotes/nls/tbf TBF -0.26% . This inverse bond ETF /quotes/zigman/12174022/quotes/nls/tbt TBT -.00% is very popular, but we don't recommend it for long-term investors because it exhibits tracking errors.

What to do now?

According to our models, any correction in the stock market will be a buying opportunity; bonds are likely to fall further; and gold at this time is suitable mostly for traders.

Disclosure: Subscribers to The Arora Report are long TBF, are short SPY, HL, and AG.



#303 concert andy

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Posted 21 February 2013 - 02:17 PM

I think ithere is some kind of bubble, government forced, fear base, or whatever.

 

The price of gold on 1/1/2006 was 530.00.

Today 1570.00  (this is a 196.22% increase)

 

The highest price being $1,896.50. (this is a 257% increase)

 

 

 

Here is more to support that, the price of gold was pretty stable for 15 years (1990 - 2004), and prior to that, very little fluctuation in price.

 

The demand is WAY up.  With Asia and India consuming most of the gold today.

 

gold.png?w=819&h=614

 

 

8d2c2d9f.gif



#304 TakeAStepBack

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Posted 21 February 2013 - 02:24 PM

In the graph directly above this post, look at the point in time in which the increase in the price of gold happened. DO you think there si any correlation between that sharp increase, and the end of Bretton Woods?

 

A steady climb until the triangle at the end of Carter's presidency.. Where it dipped again, then gained some consistency through the 80s - 90s. Could there be a correlation between government extracurricular war spending and relative peace time, until 2001, when it seemd to soar?



#305 concert andy

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Posted 21 February 2013 - 02:43 PM

Upon reading the wikipedia page about Bretton Woods NH, I found the tid bit that tells me there is more to it than just a bubble.  That last sentance is a thorn in your side.  I can not help you with that part.

 

 

 

On 15 August 1971, the United States unilaterally terminated convertibility of the US$ to gold. This brought the Bretton Woods system to an end and saw the dollar become fiat currency.

 

 

Could there be a coorelation, sure but I think you are reaching, and stuck on the FIAT currency part of this issue. 

 

Why do I not see it?  Because we were not at war from 1977-1980 (first spike), yes Iran hostage was out there, but we never were at war.  Another question?  Why was there no Spike in 1991 (no spike) when there was the Dessert Storm war?



#306 concert andy

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Posted 21 February 2013 - 02:46 PM

The reason the price is so high now, is almost every citizen of India (including the very poor) own gold.  It is part of the tradition.

 

Then China becoming a large consumer of gold also.

 

This with the market tanking in 2007-2008, has led to the extremely high gold prices, IMO.  Because historically when the market does porrly, gold prices rise.

 

It is all about Economics.  Limited supply, demand at its highest point ever.

 

 

60 Minutes looks at India's gold obsession

Great video in here about their culture and how the more gold you have, the more of a status symbol it is.  But it permeates the entire countru and culture.  



#307 TakeAStepBack

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Posted 21 February 2013 - 03:12 PM

Really? Price inflation on gold remained almost completely steady until around 1971-1973, then it began a massive upward trend. Did India's culture begin the tradition with their obsession over gold starting in the 1970s?

 

We were not at war in the late 70s, no. Unless you count what was happening economically with petro, the cold war and middle eastern affairs.

I think the energy crisis of the 70s, along with pressure from floating international currencies (currency wars) pushed gold up, not that I have a hard analysis as proof of that.

 

Then you have Reaganenomics and the beginning of more controlled interest rate suppression.



#308 concert andy

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Posted 21 February 2013 - 03:19 PM

Really? Price inflation on gold remained almost completely steady until around 1971-1973, then it began a massive upward trend. Did India's culture begin the tradition with their obsession over gold starting in the 1970s?

 

We were not at war in the late 70s, no. Unless you count what was happening economically with petro, the cold war and middle eastern affairs.

I think the energy crisis of the 70s, along with pressure from floating international currencies (currency wars) pushed gold up, not that I have a hard analysis as proof of that.

 

Then you have Reaganenomics and the beginning of more controlled interest rate suppression.

 

 

I am talking about the in general price increase from 2001, that is when India got involved more than we realised.  I was only countering your logic of "government extracurricular war spending and relative peace time, until 2001".

 

You seem to tie a lot of effect and cause of the government and the Fed.

 

The fluctioation of the 70's through 2001 seems pretty normal to me.  Since 2001, sure I can agree with you to some extent that government activitiy has some influence, but I think the greater cause is supply and demand.  Simple economics, IMO.



#309 TakeAStepBack

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Posted 21 February 2013 - 03:23 PM

The fluctioation of the 70's through 2001 seems pretty normal to me.  Since 2001, sure I can agree with you to some extent that government activitiy has some influence, but I think the greater cause is supply and demand.  Simple economics, IMO.

 

I suppose it seems pretty normal if you completely ignore the fact that price inflation on gold up until around 1971-73, when out monetary policy made some serious changes, was completely stable. Then it became completely volatile. Doesn't seem so simple to me.

 

So India started their affair with gold in 2001?
 



#310 concert andy

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Posted 21 February 2013 - 03:26 PM

I suppose it seems pretty normal if you completely ignore the fact that price inflation on gold up until around 1971-73, when out monetary policy made some serious changes, was completely stable. Then it became completely volatile. Doesn't seem so simple to me.

 

So India started their affair with gold in 2001?
 

 

No India started its love affair with gold a LONG time ago.  Only around 2001 did they have enough spending power to purchase gold, or it became more readily available.



#311 TakeAStepBack

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Posted 21 February 2013 - 03:34 PM

Nixon Shock

Main article: Nixon Shock

By the early 1970s, as the Vietnam War accelerated inflation, the United States as a whole began running a trade deficit. The crucial turning point was 1970, which saw U.S. gold coverage deteriorate from 55% to 22%. This, in the view of neoclassical economists, represented the point where holders of the dollar had lost faith in the ability of the U.S. to cut budget and trade deficits.

In 1971 more and more dollars were being printed in Washington, then being pumped overseas, to pay for government expenditure on the military and social programs. In the first six months of 1971, assets for $22 billion fled the U.S. In response, on 15 August 1971, Nixon issued Executive Order 11615 pursuant to the Economic Stabilization Act of 1970, unilaterally imposing 90-day wage and price controls, a 10% import surcharge, and most importantly "closed the gold window", making the dollar inconvertible to gold directly, except on the open market. Unusually, this decision was made without consulting members of the international monetary system or even his own State Department, and was soon dubbed the Nixon Shock.

The surcharge was dropped in December 1971 as part of a general revaluation of major currencies, which were henceforth allowed 2.25% devaluations from the agreed exchange rate. But even the more flexible official rates could not be defended against the speculators. By March 1976, all the major currencies were floating—in other words, exchange rates were no longer the principal method used by governments to administer monetary policy.



#312 concert andy

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Posted 21 February 2013 - 03:42 PM

Nixon Shock
Main article: Nixon Shock

By the early 1970s, as the Vietnam War accelerated inflation, the United States as a whole began running a trade deficit. The crucial turning point was 1970, which saw U.S. gold coverage deteriorate from 55% to 22%. This, in the view of neoclassical economists, represented the point where holders of the dollar had lost faith in the ability of the U.S. to cut budget and trade deficits.

In 1971 more and more dollars were being printed in Washington, then being pumped overseas, to pay for government expenditure on the military and social programs. In the first six months of 1971, assets for $22 billion fled the U.S. In response, on 15 August 1971, Nixon issued Executive Order 11615 pursuant to the Economic Stabilization Act of 1970, unilaterally imposing 90-day wage and price controls, a 10% import surcharge, and most importantly "closed the gold window", making the dollar inconvertible to gold directly, except on the open market. Unusually, this decision was made without consulting members of the international monetary system or even his own State Department, and was soon dubbed the Nixon Shock.

The surcharge was dropped in December 1971 as part of a general revaluation of major currencies, which were henceforth allowed 2.25% devaluations from the agreed exchange rate. But even the more flexible official rates could not be defended against the speculators. By March 1976, all the major currencies were floating—in other words, exchange rates were no longer the principal method used by governments to administer monetary policy.

 

 

I know about this.  

 

But to tie the entire fluctuation of a commodity to 1971-73 is way to small a sample to call it a trend or a cause IMO.



#313 TakeAStepBack

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Posted 21 February 2013 - 03:43 PM

Why was it a problem that the US had depleted it's gold coverage so severely if gold is just a commodity?



#314 concert andy

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Posted 21 February 2013 - 03:56 PM

Why was it a problem that the US had depleted it's gold coverage so severely if gold is just a commodity?

 

That is the label the stock market gives it.  I am only countering your arguments.

 

Nixon was awful, no doubt.

 

 

I suppose it seems pretty normal if you completely ignore the fact that price inflation on gold up until around 1971-73, when out monetary policy made some serious changes, was completely stable. Then it became completely volatile. Doesn't seem so simple to me.

 

 

Let's go back to this.  This implies that 1971-1973 was way more influential than I tend to think.  

 

Gold did not become completely volatile until 2001.

 

So why does it tie back to then?  Because of the Fiat currency portion of this, that led us down hill, snow balling?  

 

I am saying that in 2001 The US government may have had some influence, but the larger factor was supply and demand, IMO.



#315 TakeAStepBack

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Posted 21 February 2013 - 04:19 PM

Then why didn't the price of gold begin its upward trend in price starting in 2001? Why did that occur around 1973?

 

What difference would it make to the price of gold if the US began depleting gold reserves substantially in the early 70s, and began printing money? Is the price of gold tied to currency, and does it make motion on that relationship, or is it simply a supply and demand relationship as a commodity?



#316 TakeAStepBack

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Posted 21 February 2013 - 04:25 PM

That is the label the stock market gives it.  I am only countering your arguments.

 

Nixon was awful, no doubt.

 

That isn't the label the stock market gives it. That's a dodge to answer if i ever saw one. The reason that reserves are important is because it is 6,000 years of known economic law that currency must be anchored with a store of value in the physical world. Gold reserves show that, in this case, nations have the wealth to back the currency they wield in international trade (and even in domestic markets).

 

Gold is far more than a commodity.



#317 concert andy

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Posted 21 February 2013 - 05:10 PM

That isn't the label the stock market gives it. That's a dodge to answer if i ever saw one. The reason that reserves are important is because it is 6,000 years of known economic law that currency must be anchored with a store of value in the physical world. Gold reserves show that, in this case, nations have the wealth to back the currency they wield in international trade (and even in domestic markets).

 

Gold is far more than a commodity.

 

 

 

A cop out answer?

 

 

 

Barter is the exchange of a good or service for another good or service, a bag of rice for a bag of beans.

 

 

This is the applied definition of a commodity.  Something of value that could be traded.  The stock market applied it to this when ever it became a tradable commodity.

 

Jeebus.  :facepalm:

 

Sorry I got you on the Fiat currency.  I know it is a touchy subject for you.

 

 

As for the volatility you refer to.  There were two small spikes from 1970 to 1990.  That does not make a bubble.  

 

A bubble is when a price of whatever is over valued.  And the market eventually corrects it.

 

 

Ugh now I have to answer questions. ???

 

 

 

Why did that occur around 1973? 

 

I do not know.  May be because the US government had an lnfluence, but this did not create a bubble, as prices stabalized, until 1975, then stabalized again for 20 years.

 

 

 

Then why didn't the price of gold begin its upward trend in price starting in 2001?

 

Supply and Demand.

 

 

What difference would it make to the price of gold if the US began depleting gold reserves substantially in the early 70s, and began printing money?

 

Fiat Money?  I do not know.  Please tell me.

 

 

 

Is the price of gold tied to currency, and does it make motion on that relationship, or is it simply a supply and demand relationship as a commodity?

 

The price of gold is not tied to the US currency, there are a couple of countries in the world that do, but not many.

 

I think it is all supply and demand.  The market has corrected bubbles in the past, just like in 1973, and the early 1980's when there was a spike in gold prices.  



#318 TakeAStepBack

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Posted 21 February 2013 - 05:23 PM

http://www.investope...c/commodity.asp

 

Definition of 'Commodity'

1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade. 

2. Any good exchanged during commerce, which includes goods traded on a commodity exchangeicon1.png.

OR

 

http://www.merriam-w...onary/commodity

 

commodity
: an economic good: as
 
a : a product of agriculture or mining
 
b : an article of commerce especially when delivered for shipment <commodities futures>
 
c : a mass-produced unspecialized product <commodity chemicals> <commodity memory chips>
2
a : something useful or valued <that valuable commodity patience>; also : thing, entity
 
b : convenience, advantage
3
obsolete : quantity, lot
4
: a good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors (as brand name) other than price
5
: one that is subject to ready exchange or exploitation within a market <stars as individuals and as commodities of the film industry — Film Quarterly>

 

THAT IS THE DEFINITION OF COMMODITY, NOT:

 

 

Barter is the exchange of a good or service for another good or service, a bag of rice for a bag of beans.

 

That is a description of barter. A lack luster one at that.

 

This is the applied definition of a commodity.  Something of value that could be traded.  The stock market applied it to this when ever it became a tradable commodity.

 

OK, and I never indicated that gold wasn't a commodity.

 

 

 

Sorry I got you on the Fiat currency.  I know it is a touchy subject for you.

 

 

As for the volatility you refer to.  There were two small spikes from 1970 to 1990.  That does not make a bubble.  

 

A bubble is when a price of whatever is over valued.  And the market eventually corrects it.

 

 

Ugh now I have to answer questions. ???

 

Except you didn't get me. You're trying to tell me that an almost 600% increase in price from around 1971 to 1980 is "normal". And that the true "bubble" (which Im saying annd this all started from me saying there is no metals bubble) began in 2001. What I'm saying is that monetary inflation of floating fiat is the reason the price of gold has gone up so drastically int he last 40 years. In fact, it isnt the price of gold that went up at all, it's the purchasing power of the dollar that has significantly declined.

 

 

I do not know.  May be because the US government had an lnfluence, but this did not create a bubble, as prices stabalized, until 1975, then stabalized again for 20 years.

 

Maybe? I've already shown that US monetary policy, directly effected the price of gold. And how the hell do you come up with a destabilized price on gold in 1975? Is this a big joke to run me in circles. Your own graph completely destroys this assertion. It never restabilized. It had some periiods of relative stability, but ultimately has been volatile since 1973ish.

 

 

 

The price of gold is not tied to the US currency

 

Really? So if the US dollar hyperinflated, the price of gold would remain the same, based on supply and demand?



#319 concert andy

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Posted 21 February 2013 - 07:16 PM


 

http://www.investopedia.com/terms/c/commodity.asp

 

Definition of 'Commodity'

1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade. 

2. Any good exchanged during commerce, which includes goods traded on a
commodity exchangeicon1.png.

OR

 

http://www.merriam-webster.com/dictionary/commodity

 

commodity
: an economic good: as
 
a : a product of agriculture or mining
 
b : an article of commerce especially when delivered for shipment <commodities futures>
 
c : a mass-produced unspecialized product <commodity chemicals> <commodity memory chips>
2
a : something useful or valued <that valuable commodity patience>; also : thing, entity
 
b : convenience, advantage
3
obsolete : quantity, lot
4
: a good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors (as brand name) other than price
5
: one that is subject to ready exchange or exploitation within a market <stars as individuals and as commodities of the film industry — Film Quarterly>

 

THAT IS THE DEFINITION OF COMMODITY, NOT:

 

 

 

That is a description of barter. A lack luster one at that.

 

 

OK, and I never indicated that gold wasn't a commodity.

 

 

 

Except you didn't get me. You're trying to tell me that an almost 600% increase in price from around 1971 to 1980 is "normal". And that the true "bubble" (which Im saying annd this all started from me saying there is no metals bubble) began in 2001. What I'm saying is that monetary inflation of floating fiat is the reason the price of gold has gone up so drastically int he last 40 years. In fact, it isnt the price of gold that went up at all, it's the purchasing power of the dollar that has significantly declined.

 

 

 

Maybe? I've already shown that US monetary policy, directly effected the price of gold. And how the hell do you come up with a destabilized price on gold in 1975? Is this a big joke to run me in circles. Your own graph completely destroys this assertion. It never restabilized. It had some periiods of relative stability, but ultimately has been volatile since 1973ish.

 

 

 

Really? So if the US dollar hyperinflated, the price of gold would remain the same, based on supply and demand?

 

Red:

When you barter, you trade something of value.  That thing of value has been gold, through out history.  The semantics around here.  Wow!

 

Violet:

We got here by me countering you, not by me trying explain what it is.  

 

 

Green:

This is the cruxt of our issues here.  You assume I know what you are talking about, and we end up with a "you did not get me".  Then please do not be so passive aggressive, and become sarcastic.  Please just lay out the facts of your argument instead of trying to tie it all together, that is where I get lost in your points.

 

And as I said from the jump, this has nothing to do with a bubble or gold prices, it is about the FIAT MONEY.  Which I refuse to argue with you.  You have one opinion here, and I have one.  We can agree to disagree, but to try and justify it. We will get back to the Ratt song, round and round.:

What you showed is your belief in FIAT money being a root cause of many things, including the price of gold.

 

The 600% drop from 1975 - 1980, was followed by a drop in price of 50%.  Then for 20 years it was a pretty stable price.

 

This is what I am talking about.  You refer to two spikes, 73 and 80 where it was huge, and I do not disagree.  

 

Again, from 1990 to 2006 the price was pretty stable.  Meaning it was trading where it was suppose too.

gold.png?w=819&h=614

 

 

Oranage:

John Williams Forecasts U.S. Dollar Hyperinflation Before End of 2014

 

 

I disagee, and if I am wrong I will deal with it like every other ameican if it ever it does.



#320 Karen

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Posted 21 February 2013 - 07:47 PM

After the drop in gold price this week, do you think it'll go back up?  Stabilize?



#321 TakeAStepBack

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Posted 21 February 2013 - 07:54 PM

This is what I am talking about.  You refer to two spikes, 73 and 80 where it was huge, and I do not disagree.

 

 No, i am not. I'm talking about 70 years (longer, really) of almost complete stability in gold price, to a massive flux beginning in around 1973. You are choosing to ignore that stability and call what happened from around 73, until a period of relative stability in the 80s-90s, "Normal". Which is absolutely laughable, Andy. Then say that gold is in some kind of bubble beginning in 2001, when the price soared upward unrelentlessly. :lmao:



#322 TEO

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Posted 21 February 2013 - 07:57 PM

I'm telling you the big $$ are in cornering the market on potable water.



#323 concert andy

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Posted 21 February 2013 - 07:58 PM

 No, i am not. I'm talking about 70 years (longer, really) of almost complete stability in gold price, to a massive flux beginning in around 1973. You are choosing to ignore that stability and call what happened from around 73, until a period of relative stability in the 80s-90s, "Normal". Which is absolutely laughable, Andy. Then say that gold is in some kind of bubble beginning in 2001, when the price soared upward unrelentlessly. :lmao:

 

No i did not ignore this, and have been trying to research when Gold hit the stock market.  That was my initial thought of why the price of gold was below 100 dollars prior to 1970.

 

I do not know the history beyond 1970, that is why I ignore.  Because it was far to low, to even consider. 

 

 

 

 

Just say Nixon never took us off the gold standard, I will play along.

 

Would the price of gold still be $100 today?  I do not think so.  My point all along is that prior to 1970 is the price was far too low.  So that does not mean I ignore it.  I just do not know enough to comment on it.

 

Since you are the expert here.  Please explain why the price of gold was under 100 prior to 1970?



#324 Karen

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Posted 21 February 2013 - 08:00 PM

After the drop in gold price this week, do you think it'll go back up?  Stabilize?

 

 

This is a serious question BTW....You all seem quite knowledgable on the subject.   I have an interest in where the price could be going. 



#325 TakeAStepBack

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Posted 21 February 2013 - 08:05 PM

After the drop in gold price this week, do you think it'll go back up?  Stabilize?

 

Yes, it will go back up IMO.



#326 Karen

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Posted 21 February 2013 - 08:05 PM

Yes, it will go back up IMO.

 

:thup: 



#327 TakeAStepBack

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Posted 21 February 2013 - 08:08 PM

Since you are the expert here.  Please explain why the price of gold was under 100 prior to 1970?

 

Because Bretton Woods.

 

Fixed exchange rates

The rules of Bretton Woods, set forth in the articles of agreement of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), provided for a system of fixed exchange rates. The rules further sought to encourage an open system by committing members to the convertibility of their respective currencies into other currencies and to free trade.

What emerged was the "pegged rate" currency regime. Members were required to establish a parity of their national currencies in terms of the reserve currency (a "peg") and to maintain exchange rates within plus or minus 1% of parity (a "band") by intervening in their foreign exchange markets (that is, buying or selling foreign money).

In theory, the reserve currency would be the bancor (a World Currency Unit that was never implemented), suggested by John Maynard Keynes; however, the United States objected and their request was granted, making the "reserve currency" the U.S. dollar. This meant that other countries would peg their currencies to the U.S. dollar, and—once convertibility was restored—would buy and sell U.S. dollars to keep market exchange rates within plus or minus 1% of parity. Thus, the U.S. dollar took over the role that gold had played under the gold standard in the international financial system.[9]

Meanwhile, to bolster faith in the dollar, the U.S. agreed separately to link the dollar to gold at the rate of $35 per ounce of gold. At this rate, foreign governments and central banks were able to exchange dollars for gold. Bretton Woods established a system of payments based on the dollar, in which all currencies were defined in relation to the dollar, itself convertible into gold, and above all, "as good as gold". The U.S. currency was now effectively the world currency, the standard to which every other currency was pegged. As the world's key currency, most international transactions were denominated in US dollars.[citation needed]

The U.S. dollar was the currency with the most purchasing power and it was the only currency that was backed by gold. Additionally, all European nations that had been involved in World War II were highly in debt and transferred large amounts of gold into the United States, a fact that contributed to the supremacy of the United States[citation needed]. Thus, the U.S. dollar was strongly appreciated in the rest of the world and therefore became the key currency of the Bretton Woods system.

Member countries could only change their par value with IMF approval, which was contingent on IMF determination that its balance of payments was in a "fundamental disequilibrium". The concept of 'fundemental disequilibrium' was however never determined.


 



#328 TakeAStepBack

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Posted 21 February 2013 - 08:09 PM

And then:

 

On 15 August 1971, the United States unilaterally terminated convertibility of the US$ to gold. This brought the Bretton Woods system to an end and saw the dollar become fiat currency.[1] This action, referred to as the Nixon shock, created the situation in which the United States dollar became a reserve currency used by many states. At the same time, many fixed currencies (such as GBP, for example), also became free floating.



#329 concert andy

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Posted 21 February 2013 - 08:26 PM

So we foolishly negotiated the value of gold.  When in reality it was worth FAR more.

 

 

So basically we low balled our selves, and then we sold our future.

 

Smart decisions.



#330 MeOmYo

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Posted 21 February 2013 - 08:30 PM

I want a gold grill



#331 MeOmYo

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Posted 21 February 2013 - 08:32 PM

tumblr_m1picjCQ1u1r1c4tuo1_500_zpsef6e25



#332 MeOmYo

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Posted 21 February 2013 - 08:32 PM

I'd have to beat chicks off with my wizard staff



#333 concert andy

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Posted 21 February 2013 - 08:37 PM

Yes, it will go back up IMO.

 

I also agree, especially if there is any kind of market volatility.



#334 TakeAStepBack

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Posted 21 February 2013 - 08:38 PM

So we foolishly negotiated the value of gold.  When in reality it was worth FAR more.

 

 

So basically we low balled our selves, and then we sold our future.

 

Smart decisions.

 

Simple unseen consequences of central economic planning.



#335 TEO

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Posted 21 February 2013 - 09:12 PM

Sweet grill   :naughty: