Gold: I smell a trap

[hugolp]

this whole thread is filled with my rationales as to why i think the USD can rise and gold go down from here so i won't bother to repeat.  as long as Ben has the power to screw all gold holders by squelching liquidity i remain cautious.  you truly have to believe in armageddon if you think that no matter what, deflation or inflation, gold MUST go up.

Bernanke can certainly influence in a major way as to create corrections that makes people go into dollars and increase its value and make the rest decline (stocks, commodities, gold, etc...) The problem is if Bernanke mantains it, it would bankrupt the USA government and the banks. So it can produce short term corrections, but it can not do it long term.

[MatthewLM]

you truly have to believe in armageddon

Pretty much. Financial armageddon.

[cypherdoc]

this whole thread is filled with my rationales as to why i think the USD can rise and gold go down from here so i won't bother to repeat.  as long as Ben has the power to screw all gold holders by squelching liquidity i remain cautious.  you truly have to believe in armageddon if you think that no matter what, deflation or inflation, gold MUST go up.

Bernanke can certainly influence in a major way as to create corrections that makes people go into dollars and increase its value and make the rest decline (stocks, commodities, gold, etc...) The problem is if Bernanke mantains it, it would bankrupt the USA government and the banks. So it can produce short term corrections, but it can not do it long term.

what would a default on UST's do?  we've done it twice before that i can identify.  once in 1933 when FDR revalued gold from $20 to $35 and in 1971 when Nixon depegged.  the question is, what would that type of default do to gold and the USD?  i could see it driving the USD up and gold down.  less virtual debt USD's lying around...

[bitcool]

Making prediction is difficult, but if I had been consistently wrong on gold for the last 10 years, I'd feel guilty about my followers' financial loss, apologize, or at least keep my mouth shut. 

Apparently it's not the case for the president of the Elliott Wave International:
 
http://www.reuters.com/article/2010/06/07/us-investment-summit-prechter-gold-idUSTRE65652L20100607

http://truthingold.blogspot.com/2011/04/robert-prechter-aka-mr-elliot-wave-is.html

[MatthewLM]

A default on US treasuries in surely a long way off. It's true they'd take money from pension funds etc. before they get to the bonds.

Also defaulting on anything, from pensions to bonds would not (necessarily at least) mean the end of debt.

If US treasuries are seen as a safe haven, one safe haven destroyed in good for gold.

I would expect by the time that would happen there is a major chance the US gov would revert to gold as money but perhaps a larger chance that some new fiat would be invented. Its scary when I hear about the ideas of a world central banks and perhaps a world fiat currency.  

Also if it is shown to people the results of the failed fiat debt experiment, they will want to go into gold, and not back into fiat just because it seems they've stopped inflating the currency for now.

[cypherdoc]

Making prediction is difficult, but if I had been consistently wrong on gold for the last 10 years, I'd feel guilty about my followers' financial loss, apologize, or at least keep my mouth shut. 

Apparently it's not the case for the president of the Elliott Wave International:
 
http://www.reuters.com/article/2010/06/07/us-investment-summit-prechter-gold-idUSTRE65652L20100607

http://truthingold.blogspot.com/2011/04/robert-prechter-aka-mr-elliot-wave-is.html

yeah thats true.  he's been really wrong on gold.  i'm glad i didn't listen to him until i sold at the silver top in May and gold starting a month ago.  and i'm glad i'm not a financial advisor either with clients.  but he did get the 2008 deflation call right and called the bottom in 3/09.  has been wrong again since 10/09 when he thought stocks would roll once again.  but his overall deflation theory makes sense to me altho i freely admit this could go the other way and could regret the gold selling.

[cypherdoc]

A default on US treasuries in surely a long way off. It's true they'd take money from pension funds etc. before they get to the bonds.

Also defaulting on anything, from pensions to bonds would not (necessarily at least) mean the end of debt.

If US treasuries are seen as a safe haven, one safe haven destroyed in good for gold.

I would expect by the time that would happen there is a major chance the US gov would revert to gold as money but perhaps a larger chance that some new fiat would be invented. Its scary when I hear about the ideas of a world central banks and perhaps a world fiat currency.  

Also if it is shown to people the results of the failed fiat debt experiment, they will want to go into gold, and not back into fiat just because it seems they've stopped inflating the currency for now.

i really disagree with the prediction of a one world currency.  you'd have to totally disregard whats happening to the Euro AND you 'd have to believe we'd end all wars between countries.  remember, countries inflate their respective currencies to pay for war so you'd have to believe we are going into a period of extended peace which is just the opposite of what i think will happen.

[MatthewLM]

I didn't predict it would happen. At most I'd expect some form of fiat which is used in many countries but obviously not all. An extension to the Euro idea under one central bank.

More likely to see return to gold standards.

[cypherdoc]

I didn't predict it would happen. At most I'd expect some form of fiat which is used in many countries but obviously not all. An extension to the Euro idea under one central bank.

More likely to see return to gold standards.

i meant i really don't see a imposed one world FIAT currency occurring.  this would make it impractical for wars which i don't think the human race could do without.  i could however see an involuntary world currency like Bitcoin gaining prominence.

[MatthewLM]

You mean we could do without war but people wont choose it?

I don't predict a single world fiat currency either. I never meant that with whatever I said.

[cypherdoc]

You mean we could do without war but people wont choose it?

I don't predict a single world fiat currency either. I never meant that with whatever I said.

wars have been part of the human race for longer than gold as real money so thats saying a lot.  as long as you continue to believe this won't change i don't see an imposed one world fiat currency by the plutocrats.

[kjj]

what would a default on UST's do?  we've done it twice before that i can identify.  once in 1933 when FDR revalued gold from $20 to $35 and in 1971 when Nixon depegged.  the question is, what would that type of default do to gold and the USD?  i could see it driving the USD up and gold down.  less virtual debt USD's lying around...

Er, hang on.

You list two examples of UST defaults, both of which happened by changing the value of gold in relation to the dollar.  So, a bond holder got back the right number of dollars, but not the right mass of gold.  This type of default has been ongoing for like 40 years now, with no sign of ever stopping.

The other kind of default is the kind where the Treasury just declares some bonds to be worthless, or at least worth less than their face value.  In this type of default, bond holders don't even get back the right number of dollars.

The second type of default hasn't ever happened, and probably never will happen.  This kind of default would be apocalyptic, and would probably instantly create hyperinflation.  UST and USD are widely considered to be different instances of the same thing, so a loss of faith in one is the same as a loss of faith in the other.

I really can't imagine any possible way for the treasury to default in a way that actually increases the value of the dollar.

[MatthewLM]

The US treasuries are being defaulted on now in the sense that the federal reserve is devaluing the dollar. The yields on treasuries are negative in real terms. US treasuries are nice if you like to lose wealth. 

[cypherdoc]

The US treasuries are being defaulted on now in the sense that the federal reserve is devaluing the dollar. The yields on treasuries are negative in real terms. US treasuries are nice if you like to lose wealth.  

this is not true.  UST bond holders do not invest in them for the yield.  they invest for bond appreciation.  this has been the best trade since 1980 of ALL except for perhaps gold the last 11 yrs.  Remember, everytime the Fed jacks down interest by half the value of the bonds double.  he's been halving the interest rate for decades and its theoretically infinite.  there's also whats known as sliding down the yield curve as a bond ages.  can't exactly remember the term for it.  but it essentially the same concept; as the bond decreases in age from say a 10 yr down to a 5 yr, the interest rate drops and the value  of the bond rises.  this has been a fascinating trade of which i've never taken part but which expert UST investors have taken advantage of since 1980.  this is why muni bond issuers have gotten killed by Wall St selling them interest rate hedges.  it seems so obvious that interest rates would rise with all the debasement of the USD but in fact what is going on as explained best by Antal Fekete is that the more the Fed pushes interest rates down the more the UST bond speculators buy UST's to front run their buying schedule creating a virtuous circle of increasing bond prices and further decrease in rates.  this took me a long time to understand but Fekete explains it beautifully.  this is why i've explained the UST market as a vortex black hole sucking most available capital into it at the expense of the real economy.  muni bond issuers have paid a dear price for their hedges which went against them.

if we go into a Depression, UST bond values are likely to increase even more in value which is why so many investors paradoxically dive into them during troubled times.

[netrin]

I equally dislike defining debt repaid with devalued currency as a default. However, when a note is redeemable for gold and then in an instant that note is no longer redeemable for anything, I'd have to call that a default, just as if a UST returns nothing.

[MatthewLM]

US treasury yields surely aren't going to go lower or much lower? 'Til now it's been the federal reserve that has been sustaining them ultimately. Now they are expensive and give almost no yield, so I think US treasuries are now the way to kill wealth if you wanted to.

You would agree with this as you think everything is going into deflation. I am fine with the idea that treasuries have maxed out.

But wait!

if we go into a Depression, UST bond values are likely to increase even more in value which is why so many investors paradoxically dive into them during troubled times.

Oh dear. Your words are either very contradictory or it is true that markets are completely illogical which isn't true. There is a reason why gold has been going up and it will continue!

[cypherdoc]

US treasury yields surely aren't going to go lower or much lower? 'Til now it's been the federal reserve that has been sustaining them ultimately. Now they are expensive and give almost no yield, so I think US treasuries are now the way to kill wealth if you wanted to.

You would agree with this as you think everything is going into deflation. I am fine with the idea that treasuries have maxed out.

But wait!

if we go into a Depression, UST bond values are likely to increase even more in value which is why so many investors paradoxically dive into them during troubled times.

Oh dear. Your words are either very contradictory or it is true that markets are completely illogical which isn't true. There is a reason why gold has been going up and it will continue!

no, go study the UST market.  imagine this; a 0.5% drop in yield to 0.25% is a doubling in price!  this is the paradox in deflation that most ppl don't understand and why professional bond investors dive reflexively into UST's.

[netrin]

Head and shoulder reversal?

[MatthewLM]

US treasury yields surely aren't going to go lower or much lower? 'Til now it's been the federal reserve that has been sustaining them ultimately. Now they are expensive and give almost no yield, so I think US treasuries are now the way to kill wealth if you wanted to.

You would agree with this as you think everything is going into deflation. I am fine with the idea that treasuries have maxed out.

But wait!

if we go into a Depression, UST bond values are likely to increase even more in value which is why so many investors paradoxically dive into them during troubled times.

Oh dear. Your words are either very contradictory or it is true that markets are completely illogical which isn't true. There is a reason why gold has been going up and it will continue!

no, go study the UST market.  imagine this; a 0.5% drop in yield to 0.25% is a doubling in price!  this is the paradox in deflation that most ppl don't understand and why professional bond investors dive reflexively into UST's.

Paradox in deflation? No, you lost me completely.

You think people would buy up treasuries but not gold in troubled times?

Now are troubled times.

[cypherdoc]

US treasury yields surely aren't going to go lower or much lower? 'Til now it's been the federal reserve that has been sustaining them ultimately. Now they are expensive and give almost no yield, so I think US treasuries are now the way to kill wealth if you wanted to.

You would agree with this as you think everything is going into deflation. I am fine with the idea that treasuries have maxed out.

But wait!

if we go into a Depression, UST bond values are likely to increase even more in value which is why so many investors paradoxically dive into them during troubled times.

Oh dear. Your words are either very contradictory or it is true that markets are completely illogical which isn't true. There is a reason why gold has been going up and it will continue!

no, go study the UST market.  imagine this; a 0.5% drop in yield to 0.25% is a doubling in price!  this is the paradox in deflation that most ppl don't understand and why professional bond investors dive reflexively into UST's.

Paradox in deflation? No, you lost me completely.

You think people would buy up treasuries but not gold in troubled times?

Now are troubled times.

this is exactly what ppl are doing.  again, its not a bad investment when you think of it in terms of bond value not yield.  this is TLT the 20 yr UST