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Gold prices surge past $522 level
BBC ^ | December 9, 2005 | London BBC

Posted on 12/09/2005 6:01:51 AM PST by DebtAndDelusion

The price of gold has continued to rise in Asian trading, climbing to its highest level since 1981. Gains came despite concerns that the market may be set for a correction and some analysts are now predicting that prices have even higher to go.

Precious metals have been given a boost as investors look to protect themselves against higher inflation and weakening currencies such as the Japanese yen.

Gold climbed as high as $522.70 an ounce, before falling back.

It was hovering around the $521 mark during afternoon trading in Asia.

'Dizzy high'

"There's some profit-taking now, but look at where we are," said Darren Heathcote of NM Rothschild.

"It's broken $520, the target we had yesterday... and it looks like $525 is the next target."

One broker in Tokyo said that: "Gold has been drawing very strong interest from Japanese investors, and I don't think this boom will subside in the near term."

There are a number of factors pushing the price of gold higher.

Gold is seen as a haven from inflation and weakening currencies, although historically, once inflation is taken into account, gold has not proven to be a good investment.

There is also speculation that Asian and European central banks may cut US dollar holdings in favour of gold.

There also is the year-end increase in demand for jewellery, analysts said.

The price of gold has climbed almost 19% this year and has nearly doubled during the past five.

"It's a dizzy high," said Rothschild's Mr Heathcote, but warned that "we are looking at a very overbought market".

"We're looking for a correction. It has to come at some point," he said.


TOPICS: Business/Economy; Foreign Affairs; News/Current Events
KEYWORDS: barkingatthemoon; blingbling; buymygold; evilfeds; gold; goldbubble; goldbug; goldbuggery; goldfarming; goldgeezer; goldgoldgold; goldmineshafted; goldshills; onetrickpony; oughtamentionthejoos; sansabelttootight; yukoncornelius
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Comment #161 Removed by Moderator

To: DebtAndDelusion
Gold shaply up in overnight trading ("overnight," that is, from the US perspective). Nearing $540 at 2:40 AM EST...


162 posted on 12/11/2005 11:43:59 PM PST by southernnorthcarolina (I've upped my standards! Up yours!)
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To: eyedigress

LOL!


163 posted on 12/11/2005 11:52:42 PM PST by endthematrix (Those who despise freedom and progress have condemned themselves to isolation, decline, and collapse)
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To: southernnorthcarolina

I'll bet some gold shorts would prefer that chart be printed upside down.


164 posted on 12/11/2005 11:54:05 PM PST by steve86 (@)
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To: quakeroats
Actually it's worse than I thought

And yet you were wrong.

Inflation is why people keep going further and further into debt to maintain lifestyle.

Well, deflation will certainly teach those silly debtors.

You have yet to explain why a durable consumer good should appreciate in real terms.

You have yet to explain why a durable consumer good should depreciate in real terms.

Prices will drop and employment will eventually suffer. Debtors will default and anyone who holds hard assets will suffer. Business will reduce rather than increase production but that is not a problem according to you.

This on the other hand, are merely your assertions. I do all the explaining and fact finding and all you do is make assertions.

Effects of deflation
In mainstream economic theory deflation is a general reduction in the level of prices, or of the prices of an entire kind of asset or commodity. Deflation should not be confused with temporarily falling prices; instead, it is a sustained fall in general prices, or a sustained reduction in the velocity of money which increases the demand for money versus commodities.

Deflation is generally regarded negatively, as it is a tax on borrowers and on holders of illiquid assets, which accrues to the benefit of holders of liquid assets and currency. In this sense it is the opposite of inflation (or in the extreme, hyperinflation), which is a tax on currency holders and lenders in favor of borrowers and short term consumption. In modern economies, deflation is caused by a collapse in demand, and is associated with recession and long term economic depressions.

In modern economies, as loan terms have grown in length and financing is integral to building and general business, the penalties associated with deflation have grown larger. Since deflation discourages investment, because there is no reason to risk on future profits when the expectation of profits is negative, it generally leads to, or is associated with a collapse in aggregate demand. Without the "hidden risk of inflation", it becomes more productive to hold stores of value.

Deflation is, however, the natural condition of hard currency economies where the supply of money is not kept in line with productivity growth. Improving production lowers the price of goods, and population growth is faster than a slowly-growing money supply, from mining precious metals, means that there is less and less hard currency per person. In such economies, which include the late 19th century, hardship is caused, not by deflation per se, but by a reduction in money stock per person which is greater than the reduction in prices. This is why the long deflationary environment of the late 19th century could lead, simultaneously, to tremendous capital development, and tremendous deprivation for millions of people.

Hard money advocates argue that if there were no "rigidities" in an economy then deflation should be a welcome effect, as the lowering of prices would allow more of the economy's effort to be moved to other areas of activity, thus increasing the total output of the economy. However, there is no instance where this has actually happened, instead, deflation has, in every case, led to reduced investment demand - as holding currency becomes the most attractive and low risk investment, reduced consumer demand, as uncertainty about jobs and income grows, and ruptures to the financial system.

Different people and organizations are hurt by inflation versus deflation. Large debtors like inflation because it reduces their effective debt. For example, if Joe pays $100k for a house at 8% interest with inflation at 3%, he's effectively paying 5% interest on the loan. If inflation jumps to 10%, he's happy, he's now making 2% on $100k instead of losing 5%. However, Joe's bank hates this; they were making 5% but are now losing 2% on the loan!

With deflation, the opposite occurs. Joe pays $100k at 8% with inflation of 3%. Inflation drops to 0 then goes negative to be 5% deflation. Joe finds that more than not making 3% because of inflation, he's losing 5%. Overall, his effective interest rate has shot up to 5%+8%=13%. Joe's bank loves this situation, though, since they're making 13% instead of 5%.

Since deflationary periods favor those who hold currency over those who do not, they are often matched with periods of rising populist sentiment, as in the late 19th century, when populists in the United States wanted to move off of hard money standards and back to a money standard based on the more inflationary metal silver.

Most economists agree that the effects of long-term deflation are more damaging than inflation. Deflation raises real wages which are both difficult and costly for management to lower. This inevitably leads to layoffs and makes employers reluctant to hire new work, increasing unemployment.

Even a source as silly as Wikipedia knows more about deflation than you.

165 posted on 12/12/2005 6:12:32 AM PST by Toddsterpatriot (The Federal Reserve did not kill JFK. Greenspan was not on the grassy knoll.)
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Comment #166 Removed by Moderator

To: quakeroats
It's the inflationary boom/bust that has always been the real threat. 

Wild fluctuations with prices, employment, wealth, etc. were much worse back when dollars could be directly exchanged for a fixed amount of gold. It's been a long learning process, but everyone's been able to do a much better job of earning living during the past few decades of moderate inflation (~3%) than we could during the pure chaos of the pre- WWI gold standard.
167 posted on 12/12/2005 8:46:48 AM PST by expat_panama
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To: quakeroats
Real wages haven't gone up since 1975.

Wrong.

168 posted on 12/12/2005 8:49:03 AM PST by Toddsterpatriot (The Federal Reserve did not kill JFK. Greenspan was not on the grassy knoll.)
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Comment #169 Removed by Moderator

To: AdamSelene235
How do you measure a general price level. How do you determine causality between unmeasured money and credit and prices?

Most Americans are willing to agree on common definitions and measurements --enough to make a living, even get rich.  If you're interested, we'd be happy to share --the nuts & bolts of prices and money are sure as hell no secret.

170 posted on 12/12/2005 9:00:36 AM PST by expat_panama
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To: quakeroats
"Real wages haven't gone up since 1975.  ...they peaked in 1972."

Maybe it's possible to find some off-the-wall wage classification that's actually gone down --say, 8-track tape salesmen.  Back on planet earth, real average disposable income's been soaring for decades.

171 posted on 12/12/2005 9:05:56 AM PST by expat_panama
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To: expat_panama
Sorry, but we haven't learned a thing. A stable money supply is not the "death by deflation" problem that modern economists believe it is. There is no problem in business adjusting for slightly lower prices over an extended period of time. Sure a drastic increase in monetary value is a problem, as it has not been planned for. We had a stable money supply for 100+ years during the "pure chaos of the pre-WWI gold standard" and that allowed for some of the greatest periods of economic growth ever seen.

The problems with a gold standard are 2 fold. Firstly, govts. can print as much of it as they like and therefore are loathe to return to such a constraining system. Inflation of the fiat money supply is like a universal tax on all dollar holders. Each newly created dollar makes each existing dollar worth just a little bit less. Secondly, banks don't make nearly as much money on a 100% backed gold standard. The "chaos" you mentioned previously was not an inherant feature of the gold standard. It was caused by the loaning out of more paper gold receipts (money of the day) than they had the gold to back. When the public began to realize this (usually at economic slowdowns) they rushed to the bank to convert their paper into he gold that it promised. Of course not everyone could redeem for gold that simply didn't exist and panics ensued.

Under a 100% backed gold standard, depositors who wish access to their money (gold)on demand, were not paid interest for their deposit, in fact they usually paid a storage fee. This made up for the lack of ability on the part of the bank to loan this money out. The only time a bank could make a loan, was if it had received a time based deposit from a customer. Thus the customer would agree to not demand his deposit until a certain date (much like CDs today). In exchange for this he would be paid a percentage of the interest charged to whomever borrowed the money. When there was greater demand for loans, the interest rate charged would increase and the amount paid to time depositors would follow until there was an equilibrium reached. It was only when deposits were not 100% backed that bank runs and financial panics ensued.

172 posted on 12/12/2005 9:15:11 AM PST by getsoutalive
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To: Toddsterpatriot
Then why are you busting balls about M3 reporting?

If special government privileges are granted to entities purporting to manage the money supply, I would at least like them to explain what exactly it is they think they are managing.

173 posted on 12/12/2005 9:27:51 AM PST by AdamSelene235 (Truth has become so rare and precious she is always attended to by a bodyguard of lies.)
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To: AdamSelene235
If special government privileges are granted to entities purporting to manage the money supply, I would at least like them to explain what exactly it is they think they are managing.

I guess you'll just have to be satisfied with M1 and M2.

174 posted on 12/12/2005 9:31:14 AM PST by Toddsterpatriot (The Federal Reserve did not kill JFK. Greenspan was not on the grassy knoll.)
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To: getsoutalive
We had a stable money supply for 100+ years ...

It's good to know you've been studying the money supply over the past 100+ years --please share your numbers/sources with us.  All that I've been able to dig up are employment, price, income, and gdp numbers-- all of which have been relatively flat in recent decades compared to the bonkers gold standard era.

175 posted on 12/12/2005 9:34:29 AM PST by expat_panama
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To: getsoutalive
There is no problem in business adjusting for slightly lower prices over an extended period of time.

Would a new gold standard cause slightly lower prices over an extended period?

We had a stable money supply for 100+ years during the "pure chaos of the pre-WWI gold standard"

You have any back up for this claim?

Each newly created dollar makes each existing dollar worth just a little bit less.

Not necessarily.

176 posted on 12/12/2005 9:35:41 AM PST by Toddsterpatriot (The Federal Reserve did not kill JFK. Greenspan was not on the grassy knoll.)
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To: Toddsterpatriot

Actually, I'm fairly satisfied with $540 this morning.


177 posted on 12/12/2005 9:37:14 AM PST by AdamSelene235 (Truth has become so rare and precious she is always attended to by a bodyguard of lies.)
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To: AdamSelene235
Yeah, gold is up 20% in the last 12 months. No investment has ever done that before. LOL!
178 posted on 12/12/2005 9:47:40 AM PST by Toddsterpatriot (The Federal Reserve did not kill JFK. Greenspan was not on the grassy knoll.)
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To: Toddsterpatriot
We had a stable money supply for 100+ years ...   ...You have any back up for this claim?

Maybe we need to step back and see this from getuso's point of view.  Imagine for minute if you were the one who had to explain to the wife just why it is that the family's life savings just got spent on a stack of gold coins.  I mean, wouldn't you be making up numbers like crazy too?

179 posted on 12/12/2005 10:02:16 AM PST by expat_panama
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To: expat_panama
I mean, wouldn't you be making up numbers like crazy too?

LOL! I'm just amazed at all the freepers who bought gold at the bottom. What brilliant foresight they all had. And can you believe gold is up 20% this year? Unheard of returns. LOL!

180 posted on 12/12/2005 10:18:51 AM PST by Toddsterpatriot (The Federal Reserve did not kill JFK. Greenspan was not on the grassy knoll.)
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