If We Have Inflation, Why Gold

[admin]

[img_assist|nid=1596|title=Annual Change in CPI and Gold, ’60-’90|desc=|link=node|align=left|width=400|height=219]

If you think we’re going to have inflation, get into gold.

[Anonymous]

[img_assist|nid=1598|title=Gold and Gold Mining Stocks|desc=|link=node|align=left|width=400|height=219]

And, if you think gold is good, mutual funds (e.g., UNWPX, VGPMX) that largely hold gold mining companies are even better.

[powayseller]

Yes, gold is correlated with inflation, we’ve discussed this here before. Gold mining stocks leverage the gold price. That’s why Bill Fleckenstein is long Newmont Mining. But I don’t recall anyone ever posting the charts here to prove it. Way to go, jg!

[masayako]

Yes, as a matter of fact, I’m adding more Gold the coming Monday (IAU) to my portfolio. Unlike Mr. Market, I’m bullish in gold and I believe the central banks DO manipulate the gold supply to keep the U.S. dollar up. So, the cheaper the gold, the more I’m buying. That’s just my humble opinion. =) Gold is the way to go in inflation time. I believe Federal reserve has not done enough to fight inflation and, at the same time, they have ‘potential’ recession to worry about (Housing bubble/High oil). So, I don’t have confidence with the USD. They will just keep printing more and more paper bills, getting us higher and higher in debt and, at the same time, try to manipulate Gold market by adding more gold to the pool and keeping supply high. It’s just an illusion to keep USD afloat.

Masayako

[rseiser]

Gold and mining stocks have both their advantages. Mining stocks might do even better when gold rises faster than oil. So far oil got ahead of gold, and the large-cap mining stocks could have done even better otherwise. Also, way down the road, when everyone gets really scared and a shortage develops, the physical gold could to better too and go vertical, while miners might already price in a lower average price.

[Anonymous]

Before the panic starts and gold skyrockets, I want to identify my exit plan/trigger points.

You traders and other skilled market operators (or insightful wannabes!), what will trigger you to get out of gold?

For gold to regain its peak price in early ’80s, it will have to reach $2,000 per ounce, in inflation-adjusted dollars. Pipe dream or possibility?

Thanks for your thoughts, folks!

[rseiser]

Here just a few anectotal tips (no trading knowledge, sorry).
One is that you probably will be too scared to sell, because you think the dollar will drop further, and only gold will keep the value….-> then sell.
Other investments will also look risky, and nobody will have any confidence in stocks, even though they will sell at P/Es of 5 (solid forward earnings)…-> your chance to shift from gold into stocks, real estate, or if you trust your politicians: bonds.
People will go absolutely crazy about buying gold to protect their hard earned dollars, since they haven’t bought any gold yet. In 1980 the coin store in La Jolla had a line of 100 people waiting….-> sell your gold to some of these fanatics.
The inflation adjusted price of $850 (in 1980 dollars) is probably a good target. But use your own inflation statistics, not the government’s, haha.
If you notice that you missed the peak, e.g. after a huge price reversal, I suppose it’s better to sell, too. Better late than ride it all the way down again. (Like real-estate now with 10-20% below the peak).
Any other suggestions?

[lewman]

I think it’s really difficult to spot the ultimate peak and to mitigate this risk I’m learning to trade gold both on the way up and down and hopefully I’ll be more often right than wrong, and also hopefully when I’m right the gains would be more (or better yet much more) than the losses when I’m wrong.

[poorgradstudent]

Could inflation prop up the real estate market?

In the doomsday scenarios some of you are predicting, where inflation could hit something like 10%, people would want to put more money into hard assets, like Gold and, well, Real Estate.

I suppose in order for that to happen the price of Gold would have to rise enough to make the currently inflated prices of real estate relatively cheap?

[Anonymous]

PGS, I don't think inflation will save real estate. Yes, in inflationary times, folks want to put their money in hard assets, such as gold, to protect them from decreasing in value.

If one could pay 100% cash for a home, sure, that would be a fine strategy in inflationary times. But most folks buy homes on 'margin', via mortgage, and in inflationary times interest rates go through the roof, killing the ability to pay high prices.

http://www.research.stlouisfed.org/fred2/series/MORTG?&cid=114

 

[Anonymous]

Weird times, the late '70s/early '80s.

I'm trying to identify predictors of peak gold prices. Annualized changes in monthly CPI looks like a good one:

[img_assist|nid=1802|title=
Month End Gold vs. Annualized Change in Monthly CPI|desc=|link=node|align=left|width=466|height=311]

But, monthly charts of prices don't do gold justice. Look at this daily chart of gold over '78-'82:

[img_assist|nid=1803|title=
Daily gold over ’78-’82|desc=|link=node|align=left|width=466|height=311]

Look how quickly gold moved from mid 400s to mid 800s: one month!

Gold closed at $473 on Dec. 21, 1979.

The next trading day was Dec. 28, 1979, when it closed at $512.

It closed above $600 ($634) on Jan. 3, 1980.

It closed above $700 ($760) on Jan. 16.

It closed above $800 ($835) on Jan. 18.

It peaked (intraday) at $875 on Jan. 21, and closed at $850.

The move down was quick, but not as rapid: two months from mid 800s to back below $500.

It closed below $800 ($737.50) the next day, Jan. 22, 1980.

It closed below $700 ($695) the following day, Jan. 23.

It closed below $600 ($585) six weeks later, Mar. 10.

It closed below $500 ($484) on Mar. 17.

What caused the one month rocketing in price? I certainly don't remember (I was a senior in high school), but per this website, it appears that it may have been the Soviet invasion of Afghanistan:

http://www.spiritus-temporis.com/december-1979/

I assume that folks moved to gold en masse due to the great uncertainty:  horrible inflation in the U.S., onward march of communism, no confidence in the U.S. president.  Weird, ugly times.

[powayseller]

Gold is linked to inflation. Chris Johnston has done research on this, and it was in one of his newsletters (subscription only). I believe we will see very high inflation. Eric Jantzen, venture capitalist and dot com millionaire founded the itulip.com site in 1999 to warn people of the internet bubble. Read his KaPoom Theory, about inflation and deflation. He was one of the authors of the just -released Wiley book The Bubble Economy, which was just released and shipped to me yesterday. His charts is from the disinflation and deflation leading to the Great Depression, and he believes that gold will be the only store of value when Poom hits.

[Wiley]

Like it or not gold is money. Current monetary policy supports much higher gold price. If and when you see a radical change in monetary policy its probably time to exit. I doubt we’ll see that anytime soon. Probably see gold re-enter the the monetary policy in some form when it gets out of hand.

Not to hijack the thread but I’m curious if everyone is inclined to believe we are in an inflationary times why so much focus on equities and not commodities (in general no just pm’s)?

[4plexowner]

Wall Street doesn’t make $$$ when intelligent people protect their wealth by purchasing real money (physical silver and gold). Wall Street will do everything they can to discourage/prevent us from doing so.

The recent introduction of silver and gold ETFs is Wall Street’s attempt to capture some of the smart money moving into commodities.

The silver iShares ETF has filed with the SEC to increase their holdings by 150% (from 100 mil oz to 250 mil oz). Some analysts question whether there is that much silver available – it certainly isn’t available on the COMEX.

I agree that silver and gold will re-enter the monetary picture at some point in our future. Probably when gold passes $1500/oz.

Yes, I am a silver and gold BULL! We are in a long-term bull market for silver and gold. Based on past commodities bull markets, this one will run until at least 2011 and probably much longer. My exectations are for $80/oz silver and $1650/oz gold – I am hoping for much higher numbers and I favor silver over gold because the % gain will be much higher.

Silver and gold may go lower from here but I have been buying both for the last few weeks. This could well be our last chance to buy gold under $600/oz and silver under $12/oz.

Sorry for climbing up on my soap-box again: if you want to understand how we are all being screwed by the banking cartel and their fiat currency you must read “Creature from Jekyll Island: A Second Look at the Federal Reserve”, by Edward Griffin.

[bub]

4plexowner you’re preaching to the choir here. But keep on preaching!

Creature from Jekyll Island is an excellent read. btw I think Financial Sense / Jim Puplava is doing an interview with the author in the near future. Possibly next week.

[Author]

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