Gold Futures Decline to Six-Week Low

businessweek.com/news/2010-07-07/gold-futures-decline-to-six-week-low-as-u-s-equities-advance.html

The average local news broadcast does not cover this. I post this as an indicator that what is happening behind the scenes is really more positive than what I call the Media of Fear presents. Recent publication of the term "double-dip recession" seems to be little more than a scare tactic designed to keep eyeballs on media that can then charge more for advertising if the number of eyeballs stays high. Fear sells.

God bless,
Ed

Well, I don't know. The DOW is still 1100 points off its high for 2010, and massively below its 2007 high.

Gold is a two-edged sword. It doesn't necessarily increase in value if an economy goes south or north. It's just a commodity like any other commodity. I don't think a momentary decline (or increase) in its dollar value tells us a whole lot about the economy generally.

I am, however, disinclined to believe we're going into a severe "double dip". But I do think we're facing high unemployment as far as the eye can see, and business adjustment to a lower level of economic activity. It's going to be very hard to get out of it the longer it goes on.

First, this is the highest gold has ever been. Wall Street, we are told, operates on fear. If someone looks at an oil pipeline the wrong way, Wall Street gets scared and the price per barrel goes up. Gold has been called the safe haven in bad economic times. I'm sure some people who bought gold at 1,000, sold it at 1500.

Economic indicators are pointing to a strong recovery. For example, 200,000 new truck drivers by the end of this year?

money.cnn.com/2010/06/09/news/economy/truck_driver_shortage/index.htm

Unless anyone thinks they'll be hauling government cheese, I think today's media downplays positive news for the reason I mentioned above. I mean, tell the public things will be fine and they'll change the channel, lower their news consumption and might even go out and do something. The fear level drops.

The government knows that consumer confidence and spending will remain low and they know the only way to fix both at the same time, is to free up credit and get those people jobs. But they are waiting for other things to happen first - poilitics, again.

God bless,
Ed

Remember that the price of gold, as a commodity, tends to follow something of a martingale process - a “drunkard’s walk” based around the most recent price. A six-week low may not mean anything other than a reduction in uncertainty or a temporary drop in demand due to higher days’ supply held by manufacturers.

There are a number of things that need to go right for us to truly enter a recovery period, however I think gold will continue to rise in general simply due to scarcity - it’s hard to mine to begin with and there’s only so much of it available. At some point the price will plateau because it’s too expensive for use in industry and so industry will find a substitute or do without (much as what happened with Ford’s stockpile of palladium a few years ago).

I agree in part, but disagree in part. When adjusted for inflation, this is not the highest gold has ever been. It was up around $2,000 (inflation adjusted) in the late 1970s. When Volker later squeezed the money supply with high interest rates, it came screaming down well below $1,000 (inflation adjusted). Lots of people lost lots of money on that.

But I agree news people like “gloom and doom” stories, or some do, depending on their political orientation. Some are touting a recovery that may or may not be real.

Personally, my great fear is that small business people will simply adjust to a lower level of economic activity; something they did in the Great Depression. Lots of them went broke, but a lot of them didn’t; they just adjusted, with less investment, lower inventories, etc, to “fit” the realities of their clientele.

I have discussed this with a number of small business people, and one of the things that rings a bell with all of them is the dampening of the “open options” orientation most small business people (and large business people) have. Business people do a lot of things that cost money but don’t go into immediate use. Classic example would be a store owner who sees the building next to his up for sale. He might think about buying it for future renovation and expansion if he sees good business prospects ahead. If he doesn’t see them, he doesn’t do it. This can cast very long shadows. Presently, this government is seemingly doing everything in its power to make small businesses wary of its intentions. There are, as one business owner expressed it, “too many unknowns to pencil out”. There is always risk in business, and that’s something business people take into account. But they still try to “pencil out” what they do and where they’re going. But right now, small businesses don’t know what their interest costs are going to be in the next 2-3 years. They don’t know what their energy costs will be while “cap and trade” is still on the agenda. They don’t know what their tax rates will be. They don’t know what their medical insurance costs will be. But they reasonably believe all will be more expensive than now.

If businesses don’t buy or hire or expand, there won’t be improvements in employment. During the depression, there were times little worse than now, notwithstanding that there were also times that were much worse. Right now, we’re on a sort of “plateau”, just as there was at times then. Whether we get changes from that is going to depend on whether the government stops presenting those who hire with uncertainties and threats.

Anyway, that’s how I see it, and I’m sure not alone in thinking it. I don’t get those thoughts from anybody on TV. I get it from what other business people (and community bankers) tell me, and what I know to be true myself. I’m a businessman, and I can’t pencil out future costs either, for the reasons I mentioned above.

I hate to follow myself, but I will. :slight_smile:

Gold is a commodity, for sure, and it has uses as a commodity.

But nobody knows how much gold there is. It is an old saw, for example, that there’s more gold buried in the backyards of France than there is in Fort Knox. I remember back in the early 1980s when Bunker Hunt and some Saudis tried to corner the silver market. Silver went to $40. But what they didn’t know was how much silver there really was in the world. Know what broke their dream? The staggering amount of silver on the arms of women in India. Traditionally, women in India keep silver bracelets (sometimes lots of them) as their “bank”. They have to be cut off. Well, it took $40 to get them to cut them off and sell them. Silver fell to $4 and hasn’t seen $40 since. Right now, it’s $17 or so.

You guessed it. I’m scared of investing in gold at these prices. Maybe people buying it today will make a fortune, and more power to them if they do. I’m skeptical, myself.

As a former small business owner, I understand what you’re saying. As I’ve noted, the problem is political and that’s it. Period. I’m tired of reading newspaper editorials whose writers act as mouthpieces for the rich and threaten the government. “Give us tax breaks or we won’t create businesses” is the gist of it. Threats come from both sides, not just one. The ones who get hurt are the average person.

This is nothing more than playing hardball between business and government. The current Administration will be milking this for political bonuses later.

You might find this interesting:

youtube.com/watch?v=3_ex0sTsb_I

God bless,
Ed

[quote="edwest2, post:7, topic:204539"]
As a former small business owner, I understand what you're saying. As I've noted, the problem is political and that's it. Period. I'm tired of reading newspaper editorials whose writers act as mouthpieces for the rich and threaten the government. "Give us tax breaks or we won't create businesses" is the gist of it. Threats come from both sides, not just one. The ones who get hurt are the average person.

This is nothing more than playing hardball between business and government. The current Administration will be milking this for political bonuses later.

You might find this interesting:

youtube.com/watch?v=3_ex0sTsb_I

God bless,
Ed

[/quote]

Hardball it may be; probably is. But it's a lovers' quarrel nonetheless. Never have I seen an administration so firmly in bed with big business. I suppose this government wants us to think it's saving us from Robber Barons. But it is just as big a thief as they are.

Meanwhile, unemployment blips up and down, but remains within a fairly narrow, and high, range.

Gold isn't the only indicator. And don't get too excited about that drop. Six weeks isn't very long. People are just cashing in on the gains already made, it doesn't mean that gold is no longer attractive. All commodities are down a bit right now, which supports my theory.

http://www.monex.com/images/charts/GBX_LINE_365DAY_BIG.PNG

Considering that the Chinese (our largest foreign creditor) are going on an international spending-spree to get rid of their dollars, I think we can safely assume that they know something we don't know about how much of our worthless paper they will continue to purchase.

I wouldn't be holding my breath for that recovery. It's going to be a long, slow grind with deflation. Everybody needs to pay off their credit ASAP.

It won't get really ugly until some states or nations go bankrupt. Then it could get really ugly, really fast. My bet is on Illinois. Their current budget indicates that they're praying for it to begin raining money anyday now.

Furthermore, private companies are hoarding cash (they, not private citizens, are responsible for the increase in the savings rate). That means they're not investing.

[quote="edwest2, post:3, topic:204539"]
The government knows that consumer confidence and spending will remain low and they know the only way to fix both at the same time, is to free up credit and get those people jobs. But they are waiting for other things to happen first - poilitics, again.

[/quote]

Ed, the people are already up to their eyeballs in debt. How can the government increase consuming? More credit? There's a limit somewhere. And the government can't extend credit without borrowing the money first, themself.

There's a lot of comparison with the Great Depression, and there are parallels. But we used to have a youthful, growing population, and we pulled ourselves out with a war and credit. Neither of those options look feasible right now. If anything, we'll be pulling out of war soon, because we can't afford the credit to finance one anymore.

[quote="CatholicGerman, post:9, topic:204539"]
Gold isn't the only indicator. And don't get too excited about that drop. Six weeks isn't very long. People are just cashing in on the gains already made, it doesn't mean that gold is no longer attractive. All commodities are down a bit right now, which supports my theory.

http://www.monex.com/images/charts/GBX_LINE_365DAY_BIG.PNG

Considering that the Chinese (our largest foreign creditor) are going on an international spending-spree to get rid of their dollars, I think we can safely assume that they know something we don't know about how much of our worthless paper they will continue to purchase.

I wouldn't be holding my breath for that recovery. It's going to be a long, slow grind with deflation. Everybody needs to pay off their credit ASAP.

It won't get really ugly until some states or nations go bankrupt. Then it could get really ugly, really fast. My bet is on Illinois. Their current budget indicates that they're praying for it to begin raining money anyday now.

Furthermore, private companies are hoarding cash (they, not private citizens, are responsible for the increase in the savings rate). That means they're not investing.

Ed, the people are already up to their eyeballs in debt. How can the government increase consuming? More credit? There's a limit somewhere. And the government can't extend credit without borrowing the money first, themself.

There's a lot of comparison with the Great Depression, and there are parallels. But we used to have a youthful, growing population, and we pulled ourselves out with a war and credit. Neither of those options look feasible right now. If anything, we'll be pulling out of war soon, because we can't afford the credit to finance one anymore.

[/quote]

[quote="Ridgerunner, post:6, topic:204539"]
Gold is a commodity, for sure, and it has uses as a commodity.

[/quote]

I'd even argue that the commodity use (ie, industry) has been the majority, at least until recently. On one hand I'm kicking myself for not buying into gold in 2004 when it was around $700/oz. On the other, I'm kicking myself more for buying BAC shares at $3, selling at $9, while my co-workers sold at $16.

[quote="Ridgerunner, post:6, topic:204539"]

But nobody knows how much gold there is.... But what they didn't know was how much silver there really was in the world. Know what broke their dream? The staggering amount of silver on the arms of women in India.

[/quote]

Absolutely right - suppliers will respond to price as an incentive. We're seeing some similar behavior now with folks who are hard up for cash selling their 'old gold', but that there hasn't been a correction so far tells me either:
* There is ample gold and owners are waiting for the price to rise sufficiently to sell
* Those who are willing to sell have sold, and it's not enough to make a dent in demand for gold as investment

I'm more inclined to believe the latter - due to the price of gold alone, people tend to own much less of it. The only gold in our house is our wedding rings, though my wife has a few trinkets of silver (gifts, prior to when she told me "I'd rather pay off the car").

I still think the single largest correcting factor (ie price-dampening) will be industries substituting less expensive metals.

[quote="Ridgerunner, post:6, topic:204539"]

You guessed it. I'm scared of investing in gold at these prices. Maybe people buying it today will make a fortune, and more power to them if they do. I'm skeptical, myself.

[/quote]

My money would go into utilities and health care providers right now. I can't imagine utilities becoming much more regulated - realistically, they're ordered to charge a given price and still manage to make a profit - and whatever shape health care reform takes, the hospitals will have more customers.

At the same time it probably makes the most sense to just pay down debt, at least from a present value perspective.

[quote="Ridgerunner, post:5, topic:204539"]
But I agree news people like "gloom and doom" stories, or some do, depending on their political orientation. Some are touting a recovery that may or may not be real.

[/quote]

That's the question in economic circles (I'm trained as an economist, though I work as a statistician) - do we expect to see a recovery like recoveries past, or do we expect to see a game-changing permanently-higher level of unemployment? One night I couldn't sleep and started working through a model we had in grad school, one designed by an economist named Wright. It was pretty frightening. Granted, I didn't have the type of data needed to fully calibrate it, but on a relative level it made the case for higher unemployment, gradually higher prices and ultimately a modest level of inflation, mostly stemming from insufficient business investment.

Yes, I do simulations when I can't sleep. I've also been known to pull out my calc and theoretical stats books for fun. That's just how I roll. Although sometimes I turn off the Excel and play Mount & Blade for three hours.

[quote="Ridgerunner, post:5, topic:204539"]

Personally, my great fear is that small business people will simply adjust to a lower level of economic activity; something they did in the Great Depression. Lots of them went broke, but a lot of them didn't; they just adjusted, with less investment, lower inventories, etc, to "fit" the realities of their clientele.

[/quote]

You're absolutely right. On the one hand, I'm optimistic that Americans in general are over the crazy spending and living off paying the minimum balance on our debts every month. We're learning to do more with less.

At the same time, that means we're losing a lot of inefficiencies, and so much employment comes through inefficiency. Restaurants are replaced with eating at home, packaged meals with cooking from scratch, Even here in St. Louis, there's a growing movement towards keeping chickens in your backyard (city allows up to four small animals, which can include poultry) for eggs and fertilizer.

And now that many families have gone from dual- to single-income you're seeing an almost grassroots rise of homespun production - canning foods, sewing, etc - because folks have the time and incentive to do so. Not to mention that it has been greatly impressed upon us that freedom means getting out of debt. In 2000 the ideal was SUV, McMansions and fat IRAs. In 2010, it's mortgages paid off, getting off the grid, growing food in your backyard and cutting waste everywhere you can.

[quote="Ridgerunner, post:5, topic:204539"]

He might think about buying it for future renovation and expansion if he sees good business prospects ahead. If he doesn't see them, he doesn't do it. This can cast very long shadows. Presently, this government is seemingly doing everything in its power to make small businesses wary of its intentions. There are, as one business owner expressed it, "too many unknowns to pencil out".

[/quote]

We ought to have coffee sometime, I agree with you completely. Business hates uncertainty even more than it hates bad news, because bad news can be planned for. You can't plan a contingency for an unknown unknown.

I work for a business-to-business provider and it's hard, man. We've lost 12% of our workforce in the past two years and we finally had our salary reinstated (after suffering a 5% cut). One of my coworkers had to get a job baking bread at a Bread Co. from 4 to 7 in the morning just to make ends meet after his wife got laid off. If we had more certainty:
* Our clients would make more definite plans and we could go back to 1- and 2-year contracts from the 3-month contracts we have now
* Our working capital loans would be cheaper because we could present a definitive flow of revenue and a longer-term cash flow analysis to our creditors
* We'd be willing to buy more technology because we know we could meet an ROI with it.
* We'd be able to make better decisions on salary and benefits changes because we would know, as a company, how much revenue we could depend upon, and how our costs would be impacted.

[quote="Ridgerunner, post:5, topic:204539"]

Whether we get changes from that is going to depend on whether the government stops presenting those who hire with uncertainties and threats.

[/quote]

Supporters of the Administration keep citing Keynesian economics, which holds that government spending can increase demand. This is true - except that the flip side of Keynes isn't so much to increase demand as to hold demand steady, and that requires government cutting back and raising taxes during times of expansion in order to keep demand at a constant level. Few politicians (especially the liberal democrats in control now) are willing to hamper a good economic period, so that when we're faced with a downturn, we end up borrowing and spending.

Keynes would certainly not advocate presenting a business-unfriendly environment as we have today. While there's not much a government can do to boost business (other than removing barriers, ie taking action against negatives rather than encouraging through positives), there's plenty a government can do to destroy business.

[quote="CatholicGerman, post:9, topic:204539"]
Considering that the Chinese (our largest foreign creditor) are going on an international spending-spree to get rid of their dollars, I think we can safely assume that they know something we don't know about how much of our worthless paper they will continue to purchase.

[/quote]

China has its own worries - including rampant inflation (due to its recent economic boom and the shift in population from agrarian peasants to urban laborers) for which their currency has yet to be fully adjusted. It is interesting though, because on the one hand China can buy U.S. assets cheap due to our economic malaise. On the other hand, buying means increasing the supply of dollars, which in turn depresses dollar-denominated interest rates and reduces the value of their Treasuries (and other dollar-denominated interest-bearing assets).

[quote="CatholicGerman, post:9, topic:204539"]

I wouldn't be holding my breath for that recovery. It's going to be a long, slow grind with deflation. Everybody needs to pay off their credit ASAP.

[/quote]

Freedom from debt is true economic freedom.

[quote="CatholicGerman, post:9, topic:204539"]

It won't get really ugly until some states or nations go bankrupt. Then it could get really ugly, really fast. My bet is on Illinois.

[/quote]

Illinois - my home state - has been in trouble for a long, long time. When I was in 4th or 5th grade (20+ years ago!) my parents attended a special PTA meeting to discuss fee increases because the State wasn't coming through with funding. It was supposed to fund something like 40% of operating costs but was coming up with 33%. By the time I was graduating high school, the State was funding around 12%. Now, locally (East of St. Louis), the State is not only funding less than 10% but it's months' late on payments and schools have consequently laid off teachers, stopped paying into the TRS, and shortened the school year by two to three weeks. Illinois, like many states, tried crafting a Great Society off largesse and vast social programs. In the end, all this will have to be substantially cut back. We're re-entering the era of private consumption because of necessity.

[quote="CatholicGerman, post:9, topic:204539"]

Furthermore, private companies are hoarding cash (they, not private citizens, are responsible for the increase in the savings rate). That means they're not investing.

[/quote]

To which I'd say "let's move to dividend-yielding stock!" except that taxes will go up from 5% to 39.6% in 2011, at which point dividend-payers will drop like stones.

[quote="CatholicGerman, post:9, topic:204539"]

Ed, the people are already up to their eyeballs in debt. How can the government increase consuming? More credit? There's a limit somewhere. And the government can't extend credit without borrowing the money first, themself.

[/quote]

Liquidity Trap, anyone? Although here, to borrow more, the government will eventually have to raise interest rates to entice investors, which could have massive ripple effects across the economy. Too much money, too high an interest rate, it's just untenable.

[quote="CatholicGerman, post:9, topic:204539"]

But we used to have a youthful, growing population, and we pulled ourselves out with a war and credit. Neither of those options look feasible right now. If anything, we'll be pulling out of war soon, because we can't afford the credit to finance one anymore.

[/quote]

Our recovery began prior to our entry into the Second World War, though the increased exports of defense goods did help tremendously. You're right about demographics, though, as health care isn't so much a growth industry as a money pit because health care can only get people to healthy again, at best. It doesn't create efficiencies like building roads did, but even that only helped where there were no roads or the roads were too small. And health care for the elderly is a human need but, other than fostering the hiring of care providers and production of goods and drugs, it doesn't create wealth.

[quote="losh14, post:12, topic:204539"]
That's the question in economic circles (I'm trained as an economist, though I work as a statistician) .

[/quote]

What a coincidence! I'm trained as an engineer and work as a housewife. ;) I still have the audacity to comment, despite being generally clueless on the subject. I just find it interesting because I am in charge of managing the family's finances. And I used to work as a statistician, so I enjoy discussing numbers.

Losh,

China has its own worries - including rampant inflation (due to its recent economic boom and the shift in population from agrarian peasants to urban laborers) for which their currency has yet to be fully adjusted. It is interesting though, because on the one hand China can buy U.S. assets cheap due to our economic malaise. On the other hand, buying means increasing the supply of dollars, which in turn depresses dollar-denominated interest rates and reduces the value of their Treasuries (and other dollar-denominated interest-bearing assets).

Yes, China is in increasingly bad shape. And their potential is severely weakend by their low birth rate, aborted females, and lack of respect for property rights. Their wages are beginning to rise as cheap labor is exhausted, and many companies are already moving on to Vietnam or wherever.
I see India rising, if they can finally get their corruption, internal strife, and statism under control. A big “if”.

I chuckle at the recent cockiness of Canada and Australia, because of their more-sound economies. Don’t they realize that they are profiting off the very American consumers that they are sneering at for their profligacy? Australia is just doing so through the proxy of Asian commodity purchases. But why are the Asians making those purchases? To produce for the Americans (and, to a lesser extent, the Europeans), of course! If Americans stop buying the gig is up for everyone. It’s an international pyramid-scheme.

Freedom from debt is true economic freedom.

Agreed. It is the only thing that provides freedom to react in the most efficient manner. Otherwise, the debt ties you down, and limits your agility. We’re grinding away on our mortgage, but it’s a big hump and it’ll be a while.

Illinois, like many states, tried crafting a Great Society off largesse and vast social programs. In the end, all this will have to be substantially cut back. We’re re-entering the era of private consumption because of necessity.

Agreed. The era of Big Government is either over, or we will have to resort to totalitarianism (and even greater impoverishment and decline) like Venezuela or Argentina.

To which I’d say “let’s move to dividend-yielding stock!” except that taxes will go up from 5% to 39.6% in 2011, at which point dividend-payers will drop like stones.

:smiley: Exactly. Stuck between a rock and hard place. They get us coming and going. Darn.

Liquidity Trap, anyone? Although here, to borrow more, the government will eventually have to raise interest rates to entice investors, which could have massive ripple effects across the economy. Too much money, too high an interest rate, it’s just untenable.

Perhaps they will instigate a civil war to keep things going? Arizona looks like a good place to start.

C'mon guys. Instead of guessing, why not access a little scholarship?

blogs.worldbank.org/eastasiapacific/node/2901

God bless,
Ed

Never let a good crisis go to waste.

Obama certainly learned that one well.

India will get there, but its form of capitalism is much more crony than what we’re used to. Their banking system will have to reform to really let the nation take off, as well. China grows only because of brute force of potential.

I’m generally a genial and loving person, but there are some days I just really want to see the world burn and an Arizona-L.A. shootout has been something of a dark fantasy lately. Call it residual pain from my parents’ divorce, or a combination of middle-class angst and desensitization to violence, but every so often I harbor fantasies of a real revolt. In reality, though, a despot can control the people by giving them what they want while depriving them of what they need, so to take up arms risking the loss of the dole and largesse in the hopes of weaning the nation from government dependency is a losing calculation in most minds.

We won’t come to arms until and unless it’s something beyond the pale - ie, the forced shutting down of Catholic hospitals, euthanization of the sick under rationing, or government violence against a visible and unifiable group of citizens.

[quote="edwest2, post:16, topic:204539"]
C'mon guys. Instead of guessing, why not access a little scholarship?

blogs.worldbank.org/eastasiapacific/node/2901

[/quote]

:) Fair enough. But they don't take China's declining population of youth into account. China's decline is written in the stars because of that.

[quote="losh14, post:18, topic:204539"]
We won't come to arms until and unless it's something beyond the pale - ie, the forced shutting down of Catholic hospitals, euthanization of the sick under rationing, or government violence against a visible and unifiable group of citizens.

[/quote]

Do you really think that would be enough? I think most people would eat their firstborns before they'd risk losing their "bread and circuses". I've developed a steadily-declining opinion of my fellow citizens, unfortunately. I'm just waiting for them to arrest the Pope, or something equally horrid. Then I will watch fascinated while everyone makes a concerted effort to pretend not to notice. I've noticed that people are astonishingly good at that.

Imagine if our Founding Fathers had issued a call to arms and been greeted with, "What? Start a revolution? But then I'll miss American Idol!" :rolleyes: I try to not let it get to me too much, and I keep our passports renewed, just in case we need to emigrate. I'd rather stay and fight, though. But it seems I'm part of a tiny minority.

They started a revolution, but everybody stayed home and played Nintendo, instead. :o It's sad what American men have degraded to. It's as if they've been collectively neutered. All the fight has gone out of them. The Church Militant is now The Church Pacifist.

DISCLAIMER: The views and opinions expressed in these forums do not necessarily reflect those of Catholic Answers. For official apologetics resources please visit www.catholic.com.