what is up (down) with gold

Nothing you've stated here is anything I would disagree with. However, by examining the very high interest rates of the 80's vs. the negative real interest rates we have today, that goes a long way in explaining the lack of movement then and the high price of gold we currently have. If interest rates go to 15% or even 5% I might consider selling some metal, but they're taking it as low as it can go with no end in sight. In 2008 I was racking my brain trying to figure out what they'd do when it got to 0%. Lo and behold, QE was announced, and as such we've seen the highest gold prices ever.

 

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Please show it then. Silver did not break out of it's trading band of $14-$18 until Sept 2010, only 12 months ago. It actually dropped in price from mid 2009 to mid 2010.

 

Just be careful. There is no single factor you can look at that will correctly forecast future gold prices. Someday gold prices will drop and stay down, and if history is any guide, most people will be taken completely by surprise.

 

The US government used to hold silver until they ran out their stockpile, which is in part due to artificially suppressed prices. Maybe silver isn't functioning as a monetary metal in today's banking system, but it was used as money for thousands of years and I have little doubt it is returning to that role. If it were strictly an industrial metal it doesn't make sense that people are buying this dip to the point of supply being unavailable. If you don't believe what my local coin dealers told me (I'm not 100% sure I do either), try looking at the online retailers. Their supplies are not nearly what they used to be. APMEX alone was selling over 2000 Canadian Cougars a day over the weekend. You can freely look at their supply levels by exceeding how many they have in stock in the order box.

Well for the record I am 98% silver and 2% gold So I took a risk from the get go, and I'm comfortable with that because as I've said I don't plan on selling. Nothing is shorted quite like silver is. Nothing has margin requirements as high as silver does. I'm not trying to squeeze a profit. I'm looking at the end result, and silver stands the most to gain IMO because of these factors. I do believe you are correct though about being taken by surprise. I have been before, and I'm sure it will happen again.

 

Indeed. That chart proves exactly what I said. All during QE1 and until QE2 Silver had no movement from it's traditional trading pattern that has gone on for years as the chart proves prior to that. The other portion you miss was the US Debt run up that went with it. Then all of a sudden silver rises 250% in 6 months. There is no corresponding monetary activity that warrents such a rise. It's speculation, nothing more and nothing less and has nothing to do with either QE.

 

You said the price dropped from mid-2009 to mid-2010, which is obviously not the case. Sure it was within the trading range you said, but that doesn't dispute what I was getting at, which is that the price went up after QE. It's easy to see that both times as soon as QE initiated the price began a new upward trend. Also, QE cannot happen without money printing, which is where a lot of the debt went. They go hand in hand.

 

The Kitco chart you provided is pretty crude. I did miss it by 5 months however. Silver peaked at very beginning of December 2009 at ~$19.25 then by Summer 2010 it had dropped by ~10% to 17.25 by the beginning of June. During this same period the price of gold had a slight 0.5% rise.

Interestingly, if you look at a chart for spot oil pricing, it follows the silver trend very well. QE does make cash available to speculators which I don't deny, but I've always contended (you can see my post history) that silver is a speculator's metal.

 

I'm not sure what's crude about it. It's just data points. One could argue that oil is also a monetary commodity since oil can only be traded in dollars, and it should reflect that same relationship. The world is on a petro-dollar after all. Silver is a speculator's metal in the paper markets, but I'm not speculating with it, and a lot of people are just holding like myself. That doesn't mean I'm not speculating about it though The physical market and the paper market are entirely different, and I'm hoping that one day the physical market will be free to be itself. Of course as the monetary supply expands, all commodities should rise in price, and they have. I don't know that there's any definitive way to use price action as a basis one way or the other on this.

 

We talked about this before. If the government is irresponsible with the expansion of the money supply and the economy falls apart, as this one has, then industrial demand and even consumption falls and hence commodity prices will very likely fall. You brought up oil. Even though the money supply has expanded a great deal, oil prices are way down from even the first of the year. How does this affect silver? I have no idea except that there is no industrial short supply of the stuff. Beyond this nobody can explain how it is affected by much else, just like oil.

On the other hand, a monetary asset (not commodity) which I define as showing up on an asset sheet of a sovereign government or central bank as a backing for the currency. (Yes I know it isn't directly redeemable, but this is a different topic) does rise when the currency is being destroyed by that fact alone. Industrial demand is irrelevant. Many of the central banks of the world are doing what they can to acquire gold by the multiple tons and given that there is at most only ~165K tons in the world it should be very easy to see where this is headed. There is no equivalent with silver.

 

You brought up oil, I was just adding my 2 cents on it Nothing else you said in this post is anything I would patently disagree with. But to say that just because banks don't hold it means it isn't a monetary metal, well that's a leap of faith in my book. You are coming from the standpoint that banks determine asset class. I am of the mindset that this is decided by the people who are willing to accept it as such. That is our fundamental difference of opinion, and there's really nothing that can be said to prove which one is correct. Banks have only been around for 500 years or so, but silver has been money for 5000 years. So I do not look to banks as my source of determination, even though I certainly can't fault you for doing so because it is logically sound by today's standards.

 

Just a side note, banks have been around much longer, it depends on your definition. The Knight's Templar made their fortune taking deposits in Europe and giving them back in the Holy Lands during the crusades, earlier Romans had banks where you depost your money for a fee for safety, even before, and close to the dawn of coinage, moneychangers have verified authenticity of coinage and provided money changing into other donominations and currencies.

Don't mean to derail the topic, but concerning banks you first need to establish what your definition of one is first, then see how long they have been around. If you are talking about fractional reserve, interest bearing deposits and loans, then your 500 year timeframe in Europe at least would be about right.

 

I will be specific on this. I am talking about the central banks that issue the very currency that we are talking about. This would be the Federal Reserve, Bank of Japan, European Central Bank, Bank of China (well I'm not sure if this is the correct name), Bank of England, etc. These are semi-quasi fiat currency operations of their respective governments and for the most part set the monetary policy for each of these areas. They all will directly claim that gold is a relic from the past but collectively hold multiple 10s of thousands of tons of the stuff and many of them are not very discretely trying to acquire more of it.

Because these central banks must reconcile with each other, they more or less have to operate on a balance sheet basis and gold they hold is listed as an asset in regards to the backing. Furthermore, the gold is NOT listed in terms of the fiat currency they produce. This is even true even with the Federal Reserve. They all know that should they have to go back to the days of something like Brenton Woods, then it will be the tonnage of gold that will in part determine the worth of the currency. This is why gold is very different in how it is valued, priced and ultimately is the hedge against fiat failure.

 

Excellent distinctions. Thanks for the added perspective guys. Ultimately society will determine what is what. For example, gold moves as a monetary metal because of the central banks, but if people are willing to treat silver as money they could potentially function as numerous, tiny-scale standalone central banks and create the same effect. Whether that will be the case is anyone's guess.