Gold Price is Now Higher Than Inflation Adjusted 1980 Price

[Parsad]

The average price of an ounce of gold in 1980 was about $1,825 inflation adjusted dollars, while the single peak price was about $2,350 in 1980.  At $1,900 per ounce, gold is now higher than the average 1980 inflation-adjusted price...during a period when inflation was actually rampant! 

 

While there is elevated inflation right now, it is not running significantly greater than the historical average.  And in actuality, Europe without a package, may be headed into a inflationary/deflationary spiral as the economies slowly seize to a halt and the Euro devalues.  That's alot of interest in gold, during a period of relatively insignificant inflation, a possibility of deflation in certain parts of the world, and stagnant economies in Europe, the U.S. and Japan. 

 

At these prices, gold investors better be right that they expect paper money to all but disappear.  Cheers! 

[ubuy2wron]

Parsad, I have been taking stabs at shorting gold( I covered my last short with a decent profit) because I am of the opinion that it is starting to look a little bubblicious. I think the root of a lot of the imbalances that we are witnessing are because of countires not allowing their currencies to float freely. As an example you could make the arguement that the Chinese buying US treasuries allowed the sub prime mortgage mess and the US real estate bubble. I am of the conviction that a new currency accord will be one of the outcomes of fixing the mess in Europe. It is entirely possible that gold may take a more central role in central banks holdings because of these new currency accords. It is also quite possible that one of the outcomes of the current mess is that gold held in weak countries balance sheets is liquidated. Gold is not cheap when compared to any asset other than fiat currencies and it is starting to even look expensive against those. For the gold bulls congrats you got it right most value guys did not.  Even if you are a gold bull you should at least consider that a lot of the storm clouds that are gathering can produce results that destroy money. A blow up of the Euro can force bullion that has been off the mkt for decades  or even centuries to come onto the mkt it can also result in bank failures and loss of depositers money, the destruction of money can quickly turn what may appear to be a can not lose proposition to just the opposite Mr Bernanke could decide to reverse QE2. The US could raise taxes AND cut spending these seem like impossible futures to the gold bulls right now. I am alos still of the opinion that the new bull mkt in equities will start around the time that this bull mkt in precious is over.

[ERICOPOLY]

This video is great.  An economist by the name of Gary Shilling is explaining to Peter Schiff that QE2 did not print money:

 

http://www.youtube.com/watch?v=E8XUmLdYmXs

 

A lot of gold bulls, if you listen to them, do not understand this.  Or at least if they understand it, they seem to wish to keep it quiet.  They don't shout it from the rooftops to be sure.

[moore_capital54]

Eric did you actually watch the video? Shilling is dead wrong here, he states that the fed creates reserve money (base money) and it's up to the borrowers to increase the money supply as a matter of stating the mechanics of conventional QE. But that is not what QE 2 was, in QE 2 the fed created money out of thin air (printing) and purchased securities from investors who had them for sale. The investor that sells securities to the fed is receiving new money that never before existed, which then circulates in the economy.

 

I don't get why you guys keep trying to bash gold, when you have no exposure to it. You should truly not care about it.

 

And I don't see any logic to the inflation adjusted high of gold argument either. Homes cost more inflation adjusted, cars cost more, burgers cost more and there are about 3 billion more human beings living on planet earth today vs 4 billion in 1980.

 

Here is a good link for historical mine supply of gold: http://www.goldsheetlinks.com/production.htm

 

Stating an inflation adjusted high has absolutely nothing to do with the fundamentals underlying the move in gold, and is purely a technical analysis tool, or a gimick.

 

The fundamentals of gold tell a completely different story. 

[moore_capital54]

 

 

A lot of gold bulls, if you listen to them, do not understand this.  Or at least if they understand it, they seem to wish to keep it quiet.  They don't shout it from the rooftops to be sure.

 

Eric with respect, that post was extremely disappointing, and its quite the contrary. Your post proves you have absolutely no clue about how central banking works in a fiat money system.

[moore_capital54]

Here is a great video for all you guys that have absolutely no clue about central banking (seems like a lot of you)

 

 

Most people get caught up in the verbiage and lose sight of the target. QE = MONEY PRINTING PERIOD.

 

Here is another good one:

 

 

Note the date and how "dangerous" sounding QE was. Who would have even imagined we would resort to two rounds of QE, and now thinking of a third round. This was unheard of in the history of central banking, sans Japan. The rulebook has been thrown out!

[libor.plus1]

Parsad,

 

If memory serves, you sold all your gold position around 1300. I'm not quite sure how your opportunity cost has served you. But that's neither here nor there... and bubbles can go a long time before they pop.

 

The thing is, it's not really gold bulls that need to  "better be right that they expect paper money to all but disappear." It's the other side that needs to better be right that the very obvious, very significant cracks that are starting to show despite the most lax monetary stimulus in history are only temporary blips.

 

And I think you're viewing gold through the wrong optics. It's not about a hedge against inflation. It's a head against the breakdown of the global economy, about the end of a major currency, and about significant structural problems that no amount of QE infinity seems to be able to solve.

 

 

 

 

[moore_capital54]

And another video - This one is actually the best and more straightforward. The Central Bank uploaded it and says "QE = CREATING MONEY ELECTRONICALLY"

 

How anyone can argue that QE is not money printing is insane.

 

 

Actually I prefer if everyone just watch this video for simplification and time.

 

[bmichaud]

I know MMT is often times met with resistance, but I believe it answers a lot of macro questions - specifically, why interest rates have remained so low over the past three years despite much-espoused hyperinflation fears, why the economy has not snapped back as in other deep recessions, and why gold has performed well in the face of low inflation.

 

That being said, I would refer anyone who wants to know why swapping dollar bills for treasuries is a NON EVENT (as oppose to swapping dollars for MBSs - QE1) to Cullen Roche of pragcap.com.

 

http://poseidon01.ssrn.com/delivery.php?ID=368001093110095119002019021065004085042059070013063074028008085113118000123125097005124031048107005109046064028007067099112119062013094005002085106002077086006094079061073003013091096100102089086114077074&EXT=pdf

 

[moore_capital54]

Parsad,

 

If memory serves, you sold all your gold position around 1300. I'm not quite sure how your opportunity cost has served you. But that's neither here nor there... and bubbles can go a long time before they pop.

 

The thing is, it's not really gold bulls that need to  "better be right that they expect paper money to all but disappear." It's the other side that needs to better be right that the very obvious, very significant cracks that are starting to show despite the most lax monetary stimulus in history are only temporary blips.

 

And I think you're viewing gold through the wrong optics. It's not about a hedge against inflation. It's a head against the breakdown of the global economy, about the end of a major currency, and about significant structural problems that no amount of QE infinity seems to be able to solve.

 

I just don't understand why the vanilla equity value investors on this board care so much about Gold's rise. If they can fundamentall state why it's overvalued (which they cannot) than short it and call your position. Otherwise, I enjoy debating the fundamentals as I have plenty on this board.

 

I consider myself first and foremost an equity investor , a follower of Graham & Dodd, I have applied their methodology and it has worked fabulously for almost two decades. I would much rather prefer spending my time on this board debating equity ideas such as BAC, and sharing value themed videos etc. But the problem is that I feel as though I am the only one that "get's" it when it comes to gold here, and I have to respond to some of the nonsense. I apologise if I am coming off too strong!

[ubuy2wron]

I do not want to get dragged into arguements about money but if V is dropping like a stone then printing dollar bills is NOT inflationary. Learn about V and how it impacts M and then you can make comments about someone not knowing what they are talking about.

[moore_capital54]

Bmichaud if it is such a non-event why did equity markets bottom exactly when it started and peak exactly when it ended. That paper is nonsense. I sold some treasuries to the fed during the time they were buying which formed part of the cash which was then paid out to me personally as part of my quarterly incentive allocation. I then used that cash to buy a new home, how is that a non-event? I don't necessarily have to re-purchase treasuries with this new money. I can do whatever I want. At some point it all becomes inflation.

 

The problem is that there aren't many people in my position that needed a home and have no existing debt. There is little demand for new assets which historically were fuelling the previous boom cycle. That is the issue. When housing bottoms fundamentally we can start to see the light at the end of the tunnel.

[moore_capital54]

I do not want to get dragged into arguements about money but if V is dropping like a stone then printing dollar bills is NOT inflationary. Learn about V and how it impacts M and then you can make comments about someone not knowing what they are talking about.

 

So now the argument has shifted to"QE is printing but not inflationary"  LOL That post too was pathetic, again with respect.

 

Debate me on the fundamentals, I've got all night, lord knows I am waiting for the European open tonight.

 

 

[ERICOPOLY]

 

 

A lot of gold bulls, if you listen to them, do not understand this.  Or at least if they understand it, they seem to wish to keep it quiet.  They don't shout it from the rooftops to be sure.

 

Eric with respect, that post was extremely disappointing, and its quite the contrary. Your post proves you have absolutely no clue about how central banking works in a fiat money system.

 

You may or may not be right.  I am humble with respect to my knowledge and abilities.  But I think Gary Shilling is right!

[moore_capital54]

Eric please watch this video, its not rocket science and given your post history it will "click" in two seconds.

 

 

If you still think Shilling was right, please let me know.

[moore_capital54]

And you can bet your arses the US Central Banks would NEVER put out a video like that. Remember these are the same guys that wouldn't disclose to their citizens (owners) who they leant money to for almost 3 years. IT took Bloomberg personally backing a lawsuit and freedom of information act request until finally congress stepped in and ruled that they need to make everything public.

 

To Bloomberg's credit he has done a wonderful job of parsing all the data. It was quite ugly.

 

Central Bankers in the US are elitist, it is a culture that was instilled from the GreenSpan era. Their speak is ambiguous and they genuinely think they are smarter than everyone else. They sit their in the mahogany room on the top floor of the federal reserve and get to act out g-d.

 

In reality most of them are huge narcissists with napoleon complexes that have no clue about the real world. Be it human interaction or actual capitalism. I urge you all to watch this video for example:

 

 

Mishkin exemplifies the typical US Central Banker.

 

 

[moore_capital54]

http://www.goldsheetlinks.com/capita.gif

 

A wonderful graph.

 

In 1980 there was about 0.7 ounce of gold per capita and today there is about 0.7 ounce of gold per capita.

 

The perfect money! Truly a shame we went off the gold standard.

[ubuy2wron]

I do not want to get dragged into arguements about money but if V is dropping like a stone then printing dollar bills is NOT inflationary. Learn about V and how it impacts M and then you can make comments about someone not knowing what they are talking about.

 

So now the argument has shifted to"QE is printing but not inflationary"  LOL That post too was pathetic, again with respect.

 

Debate me on the fundamentals, I've got all night, lord knows I am waiting for the European open tonight.

The reason for QE2 was to offset the huge drop in V which occured if V drops by 50 % and the money supply remains constant then you will experience a large decrease in economic activity. The experiment is that when bank loans increase the fed reverses the QE, if the money sits on the banks balance sheet and is not loaned out you experience no growth in economic activity. It is not the feds action with QE2 that determines the future it is how the fed responds when the economy does if the fed does nothing then inflation is a certainty if they reverse their QE then the result is neutral. We can argue about what the feds future activity may or may not be but we can not argue about their response to the unprecedented drop in Velocity it was the correct one and in no way  is inflationary.

[Packer16]

There were many times in history when the money supply went up and there was little or no inflation.  The Renassiance, the Enlightenment and the the Victorian era.  See the "Great Wave" for details.  The assumption of inflation assumes constant velocity.  The other side of the equation is the demand for money.  When you have a debt/deflation scenario, the demand goes down (as folks pay down thier debts) so increases in money supply lead to little or no inflation.  Debt is future consumption consumed today.  Paying off the debt is the reverse forgoing consumption to payoff past consumption.  This is what history has shown.  So what has happened is there is more money available and some of it has bid up asset prices but most of it has ended up back on deposit at the Fed.  The gold run-up is a function of a portion of the $ driving all commodity prices higher.  As soon as the excess liquidity is gone, gold and every other commodity will decline.  The only scenario I see gold retaining its value is if the world gov'ts/bankers agree to a new gold standard (a long shot in my estimation).

 

Packer

 

 

[ERICOPOLY]

moore_capital,

I recognize it can be painful for others to listen to me at times, but here me out:

 

The Fed swapped the private market some cash for their assets.  Then the private sector did what with that money?  Created a bank deposit.  This didn't increase the amount of loans out there.  It didn't increase the amount of assets out there either.

 

It just made things more liquid.

 

I commented before that if this is money printing, then they're using disappearing ink (the printing unwinds automatically as the Treasury bonds held by the Fed mature).  And any time they want to reverse it, they can just dump the stuff back onto the market which is a way of putting the brakes on inflation given the effect that would have on interest rates.  Now, they may not get the same price they paid for it -- at that time I'll concede it's certainly money printing to some degree.

 

 

 

[libor.plus1]

There were many times in history when the money supply went up and there was little or no inflation.  The Renassiance, the Enlightenment and the the Victorian era.  See the "Great Wave" for details.  The assumption of inflation assumes constant velocity.  The other side of the equation is the demand for money.  When you have a debt/deflation scenario, the demand goes down (as folks pay down thier debts) so increases in money supply lead to little or no inflation.  Debt is future consumption consumed today.  Paying off the debt is the reverse forgoing consumption to payoff past consumption.  This is what history has shown.  So what has happened is there is more money available and some of it has bid up asset prices but most of it has ended up back on deposit at the Fed.  The gold run-up is a function of a portion of the $ driving all commodity prices higher.  As soon as the excess liquidity is gone, gold and every other commodity will decline.  The only scenario I see gold retaining its value is if the world gov'ts/bankers agree to a new gold standard (a long shot in my estimation).

 

Packer

 

You do ofcourse realize most commodities are wayyyy off their highs, right? In fact, a lot of them are trading at yearly lows.

[moore_capital54]

Ubuy, so now the argument shifts to, QE is printing money, and QE is inflationary, unless the fed sells back these securities when times get better to prevent inflationa nd does so with iscar blade like precision :)

 

You are fooling yourself sir, those securities will NEVER get sold back. It's never gonna happen.

 

Packer, I enjoyed the book very much and am familiar with this cycle, but you have to understand that in the end the fed will get it's inflation. We are going to see QE3, very shortly here.

 

Your comemnts relating to gold are disappointing, gold is not a commodity it is a currency or financial asset. I completely disagree with your assessment of what drives the price of gold, I suggest this essay for you sir:

 

http://mises.org/daily/3593/Does-Gold-Mining-Matter

 

If gold was a true commodity it sure as hell has never acted as one. In 2008 the price of all commodities collapsed while the price of gold went up.

[ubuy2wron]

Ubuy, so now the argument shifts to, QE is printing money, and QE is inflationary, unless the fed sells back these securities when times get better to prevent inflationa nd does so with iscar blade like precision :)

 

You are fooling yourself sir, those securities will NEVER get sold back. It's never gonna happen.

 

Packer, I enjoyed the book very much and am familiar with this cycle, but you have to understand that in the end the fed will get it's inflation. We are going to see QE3, very shortly here.

 

Your comemnts relating to gold are disappointing, gold is not a commodity it is a currency or financial asset. I completely disagree with your assessment of what drives the price of gold, I suggest this essay for you sir:

 

http://mises.org/daily/3593/Does-Gold-Mining-Matter

 

If gold was a true commodity it sure as hell has never acted as one. In 2008 the price of all commodities collapsed while the price of gold went up.

[moore_capital54]

moore_capital,

I recognize it can be painful for others to listen to me at times, but here me out:

 

The Fed swapped the private market some cash for their assets.  Then the private sector did what with that money?  Created a bank deposit.  This didn't increase the amount of loans out there.  It didn't increase the amount of assets out there either.

 

It just made things more liquid.

 

I commented before that if this is money printing, then they're using disappearing ink (the printing unwinds automatically as the Treasury bonds held by the Fed mature).  And any time they want to reverse it, they can just dump the stuff back onto the market which is a way of putting the brakes on inflation given the effect that would have on interest rates.  Now, they may not get the same price they paid for it -- at that time I'll concede it's certainly money printing to some degree.

 

First off I want to say its never painful listening to you. You are definitely one of my favourite posters on this board. From your post history I infer that you apply mathematics, and do it well, when assessing the value of securities. Something most people don't. For that I am impressed.

 

My response to your last post is that, I am satisfied you agree that QE is money printing.

 

With regards to the disappearing ink, it is a naive comment. First, the fed did not just buy 6 month securities. In some cases they bought very long-dated securities.

 

Great piece on this here:

 

http://www.nytimes.com/2011/01/11/business/economy/11fed.html?pagewanted=all

 

Second the seller of securities may turn and buy other assets and does not necessarily have to keep the funds on deposit.

 

The argument about the Fed being able to sell back the long-dated securities is BS. It won't happen.

 

And the leakage you speak of (the difference between what they buy and sell) is in fact an absolute increase in the money supply that is given in the form of a "gift" to wall street intermediaries or investors.

 

I seriously believe that a more effective QE would be to buy shares in SP500 companies and retire them. It sounds insane, but I bet the results would be much better.

 

We need capital formation which is derived from equity markets nowadays not more debt infused economic expansion.

[Packer16]

I agree the Fed will get its inflation (it may not happen until much of the consumer debt is paid off) but it will be offset to a large extent with the debt deflation we are experiencing.  I think deflation is beyond most peoples experience because we have lived in an inflationary world as "The Great Wave" describes.  I think Irving Fisher's "Debt Deflationary Theory" best describes the situation we are in with no Fed action.  The additional Fed action is trying to do what was done in Sweden in that paper (trying to offset the deflation with money supply or at least not making the deflation worse with tight money).   

 

At one time, gold was a currency officially accepted as a store of value (coins were minted in gold) but unless I missed the press release I can't go out and buy my food with gold I need $ in the US and unless gold becomes a standard of exchange again I still view it as a commodity.  None the less, I think undervalued equities will provide the best store of value in either case (gold is a commodity or it becomes a currency). 

 

Packer