Gold Price Collapses - Is the Fed Printing Too Much Money?

[August1991]

In January 2000, the price of an ounce of gold was about $300. In mid 2011, it rose to over $1800 an ounce. In the past few days, it has fallen to around $1400, after staying at about $1600.

The American Right argues that Bernanke is wrong to print money, and Obama is wrong to spend it. The European Right, more influential - since politicians have listened - makes a similar argument. Whether in Europe or America, the Right's main argument is that government deficits, printing money and borrowing, will cause inflation or impose a burden on future children.

There is ample evidence that the Right is wrong on this economic argument. Inflation is not an issue. Long term (30 year!) bond prices have remained high. (And these are nominal rates.) Real interest bonds have done OK, but the result is not spectacular.

People, the market, no one - is worried about inflation.

This recent fall/collapse in the price of gold should make this fact obvious to everyone, Right or Left.

-----

So, if you're a Leftist facing someone on the Right who argues that it is bad to print money, or it's bad for a government to borrow and spend money. Remind them of this time, in the early 21st century. The US Fed printed gazillions amounts of cash, the President spent it, had humungous deficits and yet - there was no inflation. In fact, the price of gold fell!

But if you're someone on the Right, facing a Leftist, here's your response: It is wise to take an antibiotic when you are sick. But taking more antibiotics when you are healthy will not make you an Olympic athlete. Indeed, too many antibiotics may endanger your life.

Edited April 17, 2013 by August1991

[Guest Derek L]

I don’t know about your argument fore or against, but I just bought a couple of ounces of both gold and silver………And if it drops further over the months ahead, I’ll buy even more….

[August1991]

I don’t know about your argument fore or against, but I just bought a couple of ounces of both gold and silver………And if it drops further over the months ahead, I’ll buy even more….

Buy gold if you wish, Derek, but you're betting against a multitude of other traders in the market of 30 year bonds. Edited April 17, 2013 by August1991

[Pliny]

What a buying opportunity!!

August, printing money is inflation, plain and simple. The result, or symptoms, of inflating the currency is a general

rise in the price level. There is no argument about that, it's an established natural law.

Where's the inflation? One might better ask, "Where's the money?". You are telling me that printing money has not

created inflation, so tell me, where is the money, August? I would contend that the general populace has yet to see it

in their pocket.

[Guest Derek L]

Buy gold if you wish, Derek, but you're betting against a multitude of other traders in the market of 30 year bonds.

For the most part, I have the utmost faith in my broker over at Wood Gundy……But I will add my own personal input from time to time…….taking the Longview, the bulk of my metal holdings have dramatically increased in value since I bought them over ten years ago……A dip in metals today? I see it as an opportunity.

Perhaps a kick in the junk to those that bought into the market over the last couple of years…….

Edited April 17, 2013 by Derek L

[GostHacked]

Even without the gold question the answer is still yes. The Fed is still printing too much 'money'. Printing money out of thin air and then entering a couple digits on a computer does not make the problem of debt/deficit go away.

Gold overall is still a safe investment. It's still worth holding on to. Unless you want to get into something with high volatility like Bitcoin.

[Guest Derek L]

And already:

http://economictimes.indiatimes.com/markets/commodities/Gold-prices-rise-physical-buyers-emerge-from-lows/articleshow/19596499.cms

Get it well it's hot......

[GostHacked]

It's too expensive for me to get into gold, but I am seriously looking at silver. Any other good metals to get into?

[Guest Derek L]

It's too expensive for me to get into gold, but I am seriously looking at silver. Any other good metals to get into?

Brass……5.56 & 7.62 carat

Copper futures are rather low risk......

[Pliny]

I'd like to really know who started the panic. Banks and countries like Russia and China are buying it. France wishes to

repatriate all of its gold. It isn't like demand has dropped. Was there some influence that wished to create a buying

opportunity and scoop it up for cheap? George Soros comes to mind. He is the kind of heartless capitalist that wouldn't have any qualms about destroying people's lives thinking that it's just the name of the game. I don't know him at all except for his politics and his desire to be politically influential. He made a billion dollars on a currency trade and the last time gold dropped he sold in the neighborhood of a ton of it that he held, a small portion of his total holdings.

[Pliny]

Even without the gold question the answer is still yes. The Fed is still printing too much 'money'. Printing money out of thin air and then entering a couple digits on a computer does not make the problem of debt/deficit go away.

Gold overall is still a safe investment. It's still worth holding on to. Unless you want to get into something with high volatility like Bitcoin.

I haven't read much about Bitcoin. Who's buying what with it? I doubt it will go too far as I don't see anything backing

it that would make people confident or feel content holding. Besides, $140 per Bitcoin seems high and risky.

[GostHacked]

I haven't read much about Bitcoin. Who's buying what with it? I doubt it will go too far as I don't see anything backing

it that would make people confident or feel content holding. Besides, $140 per Bitcoin seems high and risky.

For everything I am looking at Bicoin is just not worth getting into. This may lay a path for future digital currencies. Bitcoin is the first and will fail simply because of it. The next generations of digital currencies maybe be designed to be more stable, but the market will determine it's value. I've seen bitcoin go to 150, and down to 30 ... it is a high risk investment and only invest what you are willing to lose.

The computer set ups people are running to mine the coins, that means calculating the algorithm code to unlock a coin. At intervals when a certain amount of the coins have been found, the algorithm get more complex. So as more coins are found, the ability to mine them gets harder and longer. It has an arbitrary cap of 21 million coins. I am still confused on how this number was reached.

But with those huge computer rigs mining the coins, what is it costing in hardware and electricity to run those kinds of set ups? And will the profit be worth it?

[Pliny]

For everything I am looking at Bicoin is just not worth getting into. This may lay a path for future digital currencies. Bitcoin is the first and will fail simply because of it. The next generations of digital currencies maybe be designed to be more stable, but the market will determine it's value. I've seen bitcoin go to 150, and down to 30 ... it is a high risk investment and only invest what you are willing to lose.

The computer set ups people are running to mine the coins, that means calculating the algorithm code to unlock a coin. At intervals when a certain amount of the coins have been found, the algorithm get more complex. So as more coins are found, the ability to mine them gets harder and longer. It has an arbitrary cap of 21 million coins. I am still confused on how this number was reached.

But with those huge computer rigs mining the coins, what is it costing in hardware and electricity to run those kinds of set ups? And will the profit be worth it?

I think you are right that they will fail. Right now they are only used to trade for fiat currencies. I doubt they will

ever broach the real world of trade.

[Bonam]

The computer set ups people are running to mine the coins, that means calculating the algorithm code to unlock a coin. At intervals when a certain amount of the coins have been found, the algorithm get more complex. So as more coins are found, the ability to mine them gets harder and longer. It has an arbitrary cap of 21 million coins. I am still confused on how this number was reached.

But with those huge computer rigs mining the coins, what is it costing in hardware and electricity to run those kinds of set ups? And will the profit be worth it?

I have a BTC miner running on my gaming rig. You don't have to do any figuring out of the algorithm yourself, you can download utilities that all you gotta do is basically hit "start" and enter the info for your bitcoin account and it will mine. With a typical mid-high range consumer GPU like a radeon 6970 (which is what I have), you're probably making about $60/mo in bitcoins at the current price levels. Subtract from that your electricity costs (about $5/month in my case to run my GPU 24/7) and that's your profit. I've made about 1.2 bitcoins having had my miner setup run for just under 3 months. People with dual radeon 7990 setups make about $200/month. ATI cards seem to significantly outperform nVidia cards for bitcoin mining computations.

However, dedicated miners can now buy ASICs that will mine about 50-100x faster than a top end GPU, but a miner ASIC is a purpose-built device with no other functionality than mining bitcoins, whereas a high end GPU is useful for a lot of applications including gaming, numerical simulation, 3d modeling and rendering, etc. Nonetheless, someone that buys an ASIC for $2500 right now can make the investment back in just 2 weeks and then be making $5k/month in profit, but that won't last long as computing capacity dedicated to bitcoin mining increases and the difficulty is increased correspondingly. Proliferation of ASICs will also put GPU miners essentially out of business, so right now is probably the last few months that anyone without specialized equipment will be making any money on bitcoin mining (since the first miner ASICs just shipped this month).

Edited April 19, 2013 by Bonam

[August1991]

What a buying opportunity!!

August, printing money is inflation, plain and simple. The result, or symptoms, of inflating the currency is a general

rise in the price level. There is no argument about that, it's an established natural law.

Where's the inflation? One might better ask, "Where's the money?". You are telling me that printing money has not

created inflation, so tell me, where is the money, August? I would contend that the general populace has yet to see it

in their pocket.

"Where's the inflation?" That's a good question. In particular, why are 30 year bond prices so high? If smart traders were worried about inflation, they would not be buying 30 year bonds at such prices.

For several years now, since 2008, the American right has said "printing money creates inflation". Well, where's the inflation?

The following is the text of Canada’s consumer price index report for March released by Statistics Canada.

The Consumer Price Index (CPI) rose 1.0% in the 12 months to March, following a 1.2% increase in February.

So, Canada's CPI rose by 1% and the price of gold fell by about 10%. Inflation? What inflation?

-----

"Where's the money?" I suggest that you read a macroeconomic textbook or two. But here's a hint: people have massively deleveraged. Like you Pliny, they are looking to reduce debt, save, hold something predictable. Inflation is low, investment opportunities are risky: "money" balances are understandably high.

Keynesians would argue that, in such a liquidity trap, we need a larger fiscal stimulus. I'm not so convinced. But I have no doubt whatsoever that Bernanke did the right thing by massively increasing the money supply in 2008-09.

Everyone wants money, but money is only one of the many financial instruments we use in life. "Rich" people have many financial instruments. In 2008, afraid, many "rich" people wanted to change various financial instruments into money. Bernanke made that possible.

======

I think the bottom line here is that people don't just spend money, they also hold on to it - just as you presumably do with your gold. Keynes addressed the interesting question of why and when do people spend money, and why and when do they just hold on to it.

Pliny, why are you holding on to gold?

Edited April 20, 2013 by August1991

[Pliny]

"Where's the inflation?" That's a good question. In particular, why are 30 year bond prices so high? If smart traders were worried about inflation, they would not be buying 30 year bonds at such prices.

Are they buying them?

For several years now, since 2008, the American right has said "printing money creates inflation". Well, where's the inflation?So, Canada's CPI rose by 1% and the price of gold fell by about 10%. Inflation? What inflation?

I've explained this to you but maybe someone else can do a better job.

Here is a quote form a recent article from an Austrian Economist,

"First, Austrians do not believe that inflation necessarily is measured in a government statistic; it is the increase of money in circulation, period, and the effects of inflation are not always easily captured in the Jane and Joe Average numbers. Instead, we find streams of money following assets such as stocks today. (The current bull market is touted as resulting from President Obama’s economic genius, just as the stock bubble in the late 1990s was attributed to President Clinton’s savvy. George W. Bush bragged about housing during his administration until the whole bubble collapsed.)"

The whole article is here: http://mises.org/daily/6405/The-Price-is-Wrong-and-So-is-Krugman

-----

"Where's the money?" I suggest that you read a macroeconomic textbook or two. But here's a hint: people have massively deleveraged. Like you Pliny, they are looking to reduce debt, save, hold something predictable. Inflation is low, investment opportunities are risky: "money" balances are understandably high.

And has the US Government massively deleveraged? Not with a trillion dollar annual deficit. What good is a macro-economic

textbook? You are talking Keynes when you are talking macro-economics.

Yes, people are being cautious. They are not spending. Money on Main street is mostly staying in the bank - to the consternation of macro-economists attempting to stimulate the economy.

Keynesians would argue that, in such a liquidity trap, we need a larger fiscal stimulus. I'm not so convinced. But I have no doubt whatsoever that Bernanke did the right thing by massively increasing the money supply in 2008-09.

I hope the above article sheds some light for you.

Everyone wants money, but money is only one of the many financial instruments we use in life. "Rich" people have many financial instruments. In 2008, afraid, many "rich" people wanted to change various financial instruments into money. Bernanke made that possible.

No argument there. The term is a bail-out.

I think the bottom line here is that people don't just spend money, they also hold on to it - just as you presumably do with your gold. Keynes addressed the interesting question of why and when do people spend money, and why and when do they just hold on to it.

Pliny, why are you holding on to gold?

Are you talking about "saving" that horrid word equated with "hoarding" by the Keynesians. You will notice the economy is rather stagnant. Somehow Obama has to get people to part with their money. It is Un-American to save.(sarcasm) Edited April 20, 2013 by Pliny

[Pliny]

Bonam, on 19 Apr 2013 - 10:05, said:

I have a BTC miner running on my gaming rig. You don't have to do any figuring out of the algorithm yourself, you can download utilities that all you gotta do is basically hit "start" and enter the info for your bitcoin account and it will mine. With a typical mid-high range consumer GPU like a radeon 6970 (which is what I have), you're probably making about $60/mo in bitcoins at the current price levels. Subtract from that your electricity costs (about $5/month in my case to run my GPU 24/7) and that's your profit. I've made about 1.2 bitcoins having had my miner setup run for just under 3 months. People with dual radeon 7990 setups make about $200/month. ATI cards seem to significantly outperform nVidia cards for bitcoin mining computations.

However, dedicated miners can now buy ASICs that will mine about 50-100x faster than a top end GPU, but a miner ASIC is a purpose-built device with no other functionality than mining bitcoins, whereas a high end GPU is useful for a lot of applications including gaming, numerical simulation, 3d modeling and rendering, etc. Nonetheless, someone that buys an ASIC for $2500 right now can make the investment back in just 2 weeks and then be making $5k/month in profit, but that won't last long as computing capacity dedicated to bitcoin mining increases and the difficulty is increased correspondingly. Proliferation of ASICs will also put GPU miners essentially out of business, so right now is probably the last few months that anyone without specialized equipment will be making any money on bitcoin mining (since the first miner ASICs just shipped this month).

Thanks for that knowledgeable input. I agree it will be short-lived.

[Pliny]

Just listening to Michael Levy on Michael Campbell's radio show "Moneytalks" on what's happening with gold.

What people sold off in the market was paper gold bonds and stocks. The demand for the physical asset is out the roof.

Michael Levy has line-ups at his store and there is a six-eight week wait for delivery.

The drop in the price of gold was from people who held paper assets as an investment who are selling those paper assets as they cannot be guaranteed.

Michael Campbell is saying that cash is king, as you suggest August, people are selling paper assets to get the cash but they are turning right around and abandoning it for the hard asset.

We're in for a ride.

[Pliny]

Gold continues to tumble and the US dollar continues to be strong. Looks to me like someone really wants to buy up gold (the real thing not the paper) at bargain basement prices. Perhaps while everyone is focusing on the stock market and the bond market, pulling their cash out of gold and gold stocks, and making easy profits in the Wall st. and Washington bubbles is what is driving gold down. When those bubbles burst the pendulum will swing. Only those who pull their cash out of the bubbles will have any to buy gold at its premium price.

Entirely speculation on my part of course.

[Argus]

Joseph P Kennedy famously said he knew it was time to get the hell out of the market when his shoeshine boy started giving him stock tips. That was why he didn't get hammered in the great crash. While others were jumping out windows his fortune went from $4 million to $180 million in six years.

Last fall, I was in a cab with some colleagues on the way back from a meeting. The taxi driver was quite loquacious, and listening to business radio, bragging about all the money he was making in gold, and advising me that I had to get into gold. I demurred.

Benjamin Graham had no time for gold. Warren Buffet disdains it.

[Bonam]

Doesn't really matter if it's gold or anything else. Buy low, sell high. People were buying gold at $1700 but are wary of it now? Doesn't make sense. If it falls back down to ~$600 you'd be pretty stupid not to buy in, as you're all but guaranteed to triple your investment soon as the next recession hits. Current prices are still part of the recession spike, though, and it still has further to fall as economies recover and people shift capital back to stocks and real estate.

Edited May 18, 2013 by Bonam

[Pliny]

Joseph P Kennedy famously said he knew it was time to get the hell out of the market when his shoeshine boy started giving him stock tips. That was why he didn't get hammered in the great crash. While others were jumping out windows his fortune went from $4 million to $180 million in six years.

Last fall, I was in a cab with some colleagues on the way back from a meeting. The taxi driver was quite loquacious, and listening to business radio, bragging about all the money he was making in gold, and advising me that I had to get into gold. I demurred.

Benjamin Graham had no time for gold. Warren Buffet disdains it.

Didn't Kennedy make a lot of money on IG Farben in Germany and running moonshine?

[Peter F]

Sounds like the gold bubble is bursting

[Pliny]

Sounds like the gold bubble is bursting

Where is money going to from there?

[Pliny]

"Where's the inflation?" That's a good question. In particular, why are 30 year bond prices so high? If smart traders were worried about inflation, they would not be buying 30 year bonds at such prices.

For several years now, since 2008, the American right has said "printing money creates inflation". Well, where's the inflation?So, Canada's CPI rose by 1% and the price of gold fell by about 10%. Inflation? What inflation?

-----

"Where's the money?" I suggest that you read a macroeconomic textbook or two. But here's a hint: people have massively deleveraged. Like you Pliny, they are looking to reduce debt, save, hold something predictable. Inflation is low, investment opportunities are risky: "money" balances are understandably high.

Keynesians would argue that, in such a liquidity trap, we need a larger fiscal stimulus. I'm not so convinced. But I have no doubt whatsoever that Bernanke did the right thing by massively increasing the money supply in 2008-09.

Everyone wants money, but money is only one of the many financial instruments we use in life. "Rich" people have many financial instruments. In 2008, afraid, many "rich" people wanted to change various financial instruments into money. Bernanke made that possible.

======

I think the bottom line here is that people don't just spend money, they also hold on to it - just as you presumably do with your gold. Keynes addressed the interesting question of why and when do people spend money, and why and when do they just hold on to it.

Pliny, why are you holding on to gold?

More on answering your question about inflation.

http://www.moneynews.com/Advani/dollar-currency-war-Fed-currency/2013/05/15/id/504561?s=al&promo_code=1386A-1