Replies to post #9069 on GOLDBUGS AMEX Goldbugs Index (GOLD)

[tr8dervic]

Because the market is a barometer, not a thermometer.

[al44]

First, no one knows what gold will do in deflationary times. The price of gold has never been unregulated in any defaltionary period in US history. If we have a deflationary period in the future it will be a first with gold trading freely. Second, you are correct that a period of inflation will follow. In fact considering the amounts of dollars being created, it may be an inflation like no one in America has ever seen before, far eclipsing the late 70s and early 80s period. Fundamentals are quite different now than they were then. Everyone is eyeing gold right now because they believe, and I agree, that it has bottomed in this price range. Demand is exceeding supply the world over and spot price seems to be only reflecting paper prices at the comex. Silver is doing much the same. Precious metals "bugs" are a different breed from paper investors for the most part. They (we) tend to look longer term and like the fact that gold and silver have no 3rd party claims or guarantees upon them. I hope that helps a little.

..........al

[OldPro]

got it backwards - printing massive...

amounts of money is inflationary by definition. Deflation is occurring, but many who predicted this crisis believe it is only temporary and will soon shift to not only inflation - but hyperinflation.

Here's a quote from Peter Schiff: "Gold's financial role is unique. Money gravitates to gold as a safe haven, a store of value when the purchasing power of currencies is threatened by inflation or economical instability. The United States has both problems in spades."

[4Godnwv]

>If the government is printing massive amounts of money, then this would create DEFLATION and GOLD doesn't do well
in deflationary times. Then after the deflationary period, inflation will follow - but not until summer or fall.
So why is everyone eyeing gold now?<

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Hmmm... First of all printing massive amounts of money creates inflation not deflation.

Deflation is created, at least in part, by lack of liquidity. Supply and demand. If there are more dollars than ounces
of gold, then gold value goes up. If there are more ounces of gold than dollars available, then gold value goes down.

Secondly, you assert that gold doesn't do well in deflationary times. That might be a hard case to make. We've never experienced
a season like the one we are entering.

Gold is either a commodity, a currency, or both. If it acts like a commodity it behaves somewhat differently
than if it acts like a currency, but not entirely, and that said, all things can be bartered and the law of supply
and demand applies to both commodities and currencies.

Is gold a currency or a commodity?

At one time you could use gold and silver as direct payment of taxes. You can no longer do that, i.e. the US government
has declared that gold is no longer a currency. They will not accept gold (or cattle) as payment. The US government has
forced us for the 1st time in history to hold gold (and silver) as a commodity.

You can no longer walk into a bank and demand silver for dollars. Silver certificates are a thing of the past. Gold is NOT money.
At least not on the eyes of the state.

The rub is that gold ACTS like money! This is primarily because of the way we treat commodities. We burn oil in our cars,
we drink orange juice, we eat pork bellies, i.e we consume commodities. We store gold, we mold it, melt it, and mold it again,
but we conserve it rather than consume it. There is one big difference however in gold and most other commodities. I can take
gold out of the market, put it in my safe, and force the value to rise.

If the supply of dollars stayed the same and the supply of gold stayed the same, then the values would stay the same indefinitely.
Unfortunately for dollar fans, The US government (remember, the entity that won't take gold as money any longer?) has an ingenious
little device called a printing press.

They can fire it up anytime they want and print off an many dollars as they want. By doing so, they can inflate the value of
the dollar anytime they want and at any rate they want. Increasing the number of dollars against the number of ounces of gold
in the world (or the number of eggs in the world) causes the prices of those commodities to rise and the value of the dollar to fall.

We are currently experiencing deflation because, through a series of blunders and miscalculations, we are facing a credit crunch.
More accurately, we have spent all the dollars in circulation (several times over) and are severely illiquid.

Since there are less dollars available, consumers simply cannot buy the same amount of commodities they could last year. But retailers
need to sell in order to make a living, so they must lower their prices. If you think about it, anytime you trade dollars for a commodity
you are shorting the dollar and going long the commodity. Buying gold is no different.

If you are already 'short' dollars (from buying other items) you cannot afford to buy gold. If you have too many dollars, you need to get
rid of some, so you 'short' those dollars and go 'long' gold. Timing is essential to trading. Everyone wants the best trade they can get,
but how low does the POG have to get before you are willing to go short that amount of dollars? Those that are buying gold at current levels
have reached that point.

Going back to thinking about gold as a commodity I want to make one final point. Not all commodities move in sync. Gold is much
slower to react to deflationary pressures because it ACTS like money, even if the state says it is not. Look at the following charts of
the $CRB, $WTIC and $GOLD. Gold has held it's value fairly well all things considered.

$CRB -- $WTIC -- $GOLD:


The combination of storage of gold, (less supply and more demand) and the need for the FED to accommodate business with cash infusions
(more supply and less demand) will cause inflation to replace the current deflationary season and goldbugs will have all that gold in the safe.

Trillions of dollars coming into the system over the next couple of years will inflate the price of all commodities. Those who are long the dollar
will need many more of them in coming years to buy products and services, while those short the dollar (long gold) will cover.

4God