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Poll_Blind Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:28 AM
Original message
Is gold rising because America is broke?
From International Business Times:
Gold prices shot up to a new record of $1,512.50 an ounce in New York late on Friday, posting a record weekly gain and maintaining a six-week winning streak. While a lot of gold investors are laughing all the way to bank the world over, gold's super cycle rally could have ominous meanings for the Us economy.

Analysts have pointed out that gold's advance into what is termed as a super cycle does not bode well for the US economy. A sustained gold and oil boom indicates that the dollar is slipping into grave danger and the economy closer to collapse, according to Daily Markets analyst Michael Snyder. "... when these commodities go up in price it is a sign that the U.S. dollar is dying and that our country is getting closer to economic collapse," Snyder wrote recently.

--snip--

And the prospects for the dollar are bleaker in the months to come. Interest rates are at a record low and the Fed has still not looked like they are going to rise any time soon. Besides, the federal budget deficit puts added pressure on dollar, precipitating its possible fall towards the 2008 lows.


What do you folks think? Is this analysis (generally) accurate or inaccurate in your opinion and why? I've been seeing a lot of articles like this recently and this seems like the most reasonable explanation.

PB
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Cassandra Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:30 AM
Response to Original message
1. I think it's partially a weaker dollar...
and partially speculation and a flight to something of value.
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Poll_Blind Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:49 AM
Response to Reply #1
14. And right now, and this is me trying to pick apart whether it is a bubble or not, gold and silver...
...seem to much more "real" than dollars, if that makes any sense.

Or, as I put it in a response downthread, "Well, it's only a bubble if there's some better place to invest their dollars."

In other words, a bubble won't pop if there's no better place to put the cash, will it? I mean, outside of keeping the dollars in cash form, which doesn't seem as wise as keeping them in silver or gold in the first place.

:shrug:

PB
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Poboy Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 12:32 PM
Response to Reply #1
25. University of Texas Takes Delivery of $1 Billion in Gold Bullion
University of Texas Takes Delivery of $1 Billion in Gold Bullion
April 17th, 2011 9:56 am

The University of Texas took delivery of $1BILLION in gold bullion and had it stored in a vault in New York (we can only hope it is NOT a JPM affiliate so the bullion will still be there). The UT Endowment is the second largest behind Harvard. This move signifies that those Financial Experts responsible for the health of the Endowment Fund have lost confidence in the U.S. Dollar and the future of the American Economy.

http://www.examiner.com/precious-metals-in-national/uni...
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roamer65 Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:34 PM
Response to Reply #25
29. Delete.
Edited on Sun Apr-24-11 08:35 PM by roamer65
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sendero Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:31 AM
Response to Original message
2. In a word..
.. yes. You can't print dollars forever without debasing your currency.
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geckosfeet Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:38 AM
Response to Reply #2
6. And in that vein, the lower dollar value means you need more of them to buy the same oz of gold.
Edited on Sun Apr-24-11 08:50 AM by geckosfeet
A more complete analysis would compare the price of gold across a number of currencies.

An interview with Midas Letter publisher and editor James West to get his take on the situation. It seems that he sees investment opportunity here - not global economic meltdown.

James West: What's with $1,500 Gold and $42 Silver?.... read more

America was founded on the principles of free enterprise, and on the concept of no taxation without representation. The current regime in the United States, whereby the democratic process has been hijacked by the financial services industry, is directly and reprehensibly undermining those twin key American principles. That is anti-American. By identifying it as such (although I am a Canadian by birth), I consider myself a patriot to humanity first and foremost, and to a lesser extent, to national interests.

snip...

But in terms of fundamental, market-centric drivers, many people are under the mistaken impression that the higher gold and silver prices go, the more negatively demand is impacted. I think that the higher the monetary metals go, the greater their demand is in terms of capital preservation strategies. That's because the higher they go, the stronger the correlation to and proof of an increasingly unviable dollar, thereby spurring demand

snip...

But central banks are seen to be accumulating gold and silver now, and that is because there is a tacit consensus that gold and silver have a role to play in the globalized monetary future. That concept not only enhances demand for these metals, but it legitimizes their value as investments for the general public. I am personally of the opinion that, contrary to conventional conspiracy theory suggesting that the United States has no gold, the government is using a portion of its fabricated ersatz capital to accumulate gold and silver surreptitiously, fully cognizant of the fact that the U.S. dollar is doomed.

It's fraudulent, and criminal. Not to harp on and on, but this government should go to jail. I don't include Obama in that, because I think he's a good man who has inherited a viper's nest and lacks the deep economic savvy to forge a solution. That is evidenced by his appointment of the same incumbent economic advisors and managers who have overseen the willful destruction of the American economy.


James West: What's with $1,500 Gold and $42 Silver?.... read more
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Poll_Blind Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:41 AM
Response to Reply #2
10. See, that, in a nutshell, is how I see it.
It just makes sense to me on that level.

PB
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HereSince1628 Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:32 AM
Response to Original message
3. What do the SELLERS know?
They know that this price is unprecedented and they are cashing in.

The buyers are just buying believing that this bubble is better than the last bubble.
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Taitertots Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:40 AM
Response to Reply #3
9. The Sellers know how to short gold when it crashes
Just like they knew how to short tech stocks in 2001 and housing in 2007.
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HereSince1628 Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:48 AM
Response to Reply #9
13. Something like that, I'm guessing at least profit taking
Hoping to avoid the inevitable slaughter of the pigs who stay too long inside the bubble.

All that trickle down from the gold market has sure created a lot of jobs so far.
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ThomWV Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:33 AM
Response to Original message
4. It is amazing to me that when people are confronted with a bubble they can't see a bubble.
Edited on Sun Apr-24-11 08:34 AM by ThomWV
And sooner or later all bubbles go "Pop!"
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Poll_Blind Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:46 AM
Response to Reply #4
11. I could be wrong about this, so be patient with me, but in a situation where...
...there is a bubble, you have a great deal of currency sunk into one particular thing that people (usually) think is a safe and profitable investment.

Because I could agree that gold and silver are bubble-like at the moment. Except for the possibility that the people controlling the investment dollars don't know of anything else in which to invest their dollars which they believe would be as safe or as profitable as those precious metals.

For instance, I've been reading about the "education bubble", in which college tuitions are too expensive for what a college graduate is getting out of the degree. It seems like there are a lot of things in America like that- over-valued, grossly overvalued.

Do you, by any chance, think that people should be putting their investment dollars into something else? I mean something specific? Heh heh, I'm not an investor but, again, I'm thinking "Well, it's only a bubble if there's some better place to invest their dollars."

Any thoughts on that?

PB
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geckosfeet Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:54 AM
Response to Reply #11
15. See this interview -
Edited on Sun Apr-24-11 08:56 AM by geckosfeet
James West: What's with $1,500 Gold and $42 Silver?

West still seems to see metals as investment opportunities.


Gold just put on in 30 days what it normally does in one year. Considering the macro economic factors in the world right now, and the steepening appreciation curve in both gold and silver, I think you're going to see an incremental average increase in the price of gold throughout the summer, with very high potential for corrective drops by as much as $100/oz. But gold is heading for $1,600/oz. this year, and silver is going to be $90/oz. within 24 months at the latest, if not sooner.


Not that I don't think that he wants to drive more money into metals so that he and his company can cash out. But then the corporate investor class has a much different take on investing ethics don't they?
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ThomWV Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 10:09 AM
Response to Reply #11
19. Sure ...
Edited on Sun Apr-24-11 10:10 AM by ThomWV
It is always better to put your money into Concrete Factories, and Libraries, and Steel Foundries, and Colleges, and Rail Roads, and Observatories, and Roadways, and Hospitals. And the very worst place you can invest your money is into rare metals or wars, neither of which ever do society any good at all.
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Andy823 Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 09:52 AM
Response to Reply #4
18. +1,000,000
Yep, and the higher they can push it up before the "pop" the more those who are pushing it up will make! It's all about greed, one way or another!
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mmonk Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:35 AM
Response to Original message
5. Lots of reasons.
Debt fears, speculation, fears of inflated money supply, etc. Also the rise of the gold bugs again with the spread of libertarian ideology. We tied our currency to oil in the 70's so as to not have to stock pile gold and have debt recalled.
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Taitertots Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:39 AM
Response to Original message
7. The gold price keeps raising because the mindless herd investors are flocking to it
Institutional investors are going to ride the bubble up and short it on the way down, exactly like they did during the tech bubble and the housing bubble.
Hedge Funds and the Technology Bubble
Author(s): Markus K. Brunnermeier and Stefan Nagel
Source: The Journal of Finance, Vol. 59, No. 5 (Oct., 2004), pp. 2013-2040
Stable URL: http://www.jstor.org/stable/3694815

IS THE 2007 U.S. SUB-PRIME FINANCIAL CRISIS SO DIFFERENT? AN INTERNATIONAL
HISTORICAL COMPARISON
Carmen M. Reinhart
Kenneth S. Rogoff
http://www.nber.org/papers/w13761


This is exactly what is happening in gold right now.
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Canuckistanian Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:39 AM
Response to Original message
8. Partly because the $USD is going down
Canada


Euro
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Jim__ Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:47 AM
Response to Original message
12. Is gold rising because it is constantly being pushed by various media people?
I don't know and I can make all the guesses about it that I want. If IBT really wants to know, they ought to be able to do a better analysis of the situation than they've done in that article.
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Poll_Blind Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:55 AM
Response to Reply #12
16. I agree about the article. I don't think IBT is a particularly sage source of...
...wisdom about anything- beyond anyone else at least- but I've been seeing a lot of articles about this, touching on this, and after seeing IBT's article I decided to post an OP about it. But their core point is basically a decent question to pose.

And, as I posted upthread a bit- is the following statement basically true, in your opinion: "It's only a bubble if there's some better place to invest their dollars."?

IMO, investors don't really have many other secure options which is driving this unusually big move to gold and silver. A great deal of insecurity in both the dollar and the euro, then yen (for obvious reasons) and the Chinese yuan. Hesitance about the yuan struck me as surprising but the Chinese are lost in their own economic morass, so there really doesn't appear to be a currency or security right now which is as attractive as gold or silver.

That's my hypothesis, anyway. The higher that gold and silver climb, the more it tells me that investors have very little faith in all other currencies at the moment.

Any thoughts? I don't know jack squat about any of this stuff, just trying to piece some of it together.

PB
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Jim__ Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 03:06 PM
Response to Reply #16
27. I think the statement:: "It's only a bubble if there's some better place to invest their dollars...
Edited on Sun Apr-24-11 04:05 PM by Jim__
..." is meaningless. There is no information in the statement.

We never know the best place to invest our dollars. In terms of security, T-Bills are better. In terms of appreciation, right now silver is better. The statement: "It's only a bubble if there's some better place to invest their dollars has as much meaning as the statement: it's only a bubble if it pops.
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Yo_Mama Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 09:15 AM
Response to Original message
17. The dollar is declining
That raises the cost of imports for us, but reduces the cost of exports.

The Fed is a major culprit; it is basically printing money in QE2. But China and the ECB are raising rates, so in comparison the Fed's rock-bottom policy further lowers the dollar.

As to "economic collapse".... Well, there is a natural counterbalance, although it is brutal for most citizens. Consumption declines as we can afford to buy less and as the real value of our savings decline, but exports tend to be advantaged. Ultimately, once the working class has been reduced to poverty and the middle class has been reduced to the working class-basic subsistence, the dollar will stabilize because we become the cheap labor/production zone.

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Loge23 Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 11:48 AM
Response to Reply #17
24. Yes, it's not like the country will disappear!
These matters, of currencies and trade, are cyclical after all.
For those who see an economic collapse, try to remember that there are still hundreds of millions of people who consume things here.
There is still huge expanses of land given to farming, and there will always be something grown or made here that some other country wants. Hate to say it's too big to fail, but collapse - if it happens at all - won't look as bad as some prognosticators suggest.
That said, there are significant imbalances that have to be corrected (combo of raising revenue and cutting spending) and the empire that we built and maintain clearly needs to be downsized.
There's absolutely no reason why one of the most prosperous countries the world has ever seen cannot take care of it's own citizens when their time of need comes.
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Yo_Mama Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:20 PM
Response to Reply #24
28. Yes, but we could see a deflating domestic economy
Maybe 20 no-growth years like Japan.

So this is not an optimistic trend if allowed to continue.
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MineralMan Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 10:13 AM
Response to Original message
20. Gold Is So Last Week! The Really Smart Investors are Buying
DINARS.

Yes, Dinars - the currency of the Middle East that is taking the country by storm.

Sell That Gold Before it Crashes!

Buy Dinars with the proceeds. Your investment is bound to pay off when the Dinar recovers its TRUE VALUE. It's the only real hedge against the coming collapse.

Our motto, here at DINARS 'R' US, is: You can't burn gold to heat your house, now, can you?

Jump on the Dinar Bus before gold goes bust. Follow the madding crowd to Dinars. They're the NEW GOLD!
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madrchsod Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 11:04 AM
Response to Reply #20
22. i heard through the grape vines that tulips are the next big investment
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MineralMan Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 11:05 AM
Response to Reply #22
23. Really. Where can I buy some hot bulbs?
:rofl:
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madrchsod Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 11:02 AM
Response to Original message
21. no..it`s speculation based on greed
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DFW Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 12:43 PM
Response to Original message
26. There are several factors to consider. Gold is high, but not a bubble
Physical demand out of China and India is huge, and the amount being traded on paper is well above
the amount really available for delivery.

Yes, the dollar is in bad shape, but with Greece, Portugal, Ireland and Spain in worse shape, and
being essentially propped up by heavily burdened taxpayers in Germany and France, the euro is hardly
a safe haven either. Oil may look good now, and it's below its all-time high, but in summer 2008 they
all saw $200 oil by Christmas, too. You could have locked in positions at $40 that fall if you dared.

When a commodity has a big rise solidly in one direction, it's easy to be an expert, saying it will
rise further. I remember all the gold bugs in 1980 saying gold, then at $850, would hit $1000 an
ounce by 1981. I took almost 30 years for it to break $1000. Gold at $850 in 1980 was a really bad
investment. Factoring in inflation, gold is still way below its 1980 high. In 1980, putting your cash in
a savings account and waiting for Jobs and Gates to take Apple and Microsoft public--now THERE would have
been an investment!!

In summary--beware of jumping on a bandwagon after it is overloaded. It will slow down sooner rather than
later. I bought some gold with a small unexpected windfall in 2004 because I was sure Cheneybush would
ruin our economy and currency. Gold was around $425 then. When Clinton left office, gold was under $300.
It hit $1000 for the first time in March 2008, Cheneybush's last year. Don't look for it to double from
that level too soon, much less from the current level.

It could be called a bubble, but that's too simple. Granted, you can't eat it, heat your house with it, or
make your car run with it. But that's only looking at things from Mr. Spock's point of view. Logic doesn't
always govern people's actions (just witness the 2010 midterms for proof of that). Besides, different from
tulips or even Las Vegas real estate, gold is always liquid, always salable at a fair market price. So even
if it declines from where one bought it, there is always a worldwide market where one can dump it for cash
of some sort. It won't become worthless overnight, or drop 50% overnight either. It can be bought in small
units, so that an investor can add to or sell whatever bits of his gold holdings for cash that he wants or
needs. Just make sure you don't buy from a Goldline/Glenn Beck ad, selling you junk gold coins at an 80% premium
over the gold spot price. Anything over a 10% premium for any non-numismatic gold investment is a huge premium
these days. There ARE collector coins that have bigger premiums that are worth buying, but if you know
nothing about them, and don't know anyone who does, don't get involved.
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roamer65 Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 08:36 PM
Response to Original message
30. Rampant monetary inflation is the reason for high gold.
Gold isn't going up. One ounce is still one ounce. The dollar is going down against that one ounce.

The Fed is simply creating too many dollars.
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