$1700: Some Thoughts For The Gold Bulls

Forbes ^ | 09/23/2011 | Jerry Bowyer

[SeekAndFind]

I suggested in my last column that using the monetary aggregates which have increased the most in recent years would point towards a gold price in the mid $1700s per ounce. Using other money supply measures which have not expanded as much would point towards gold prices around $1400 per ounce.

On the other hand, it seems likely that money supply measures will, in fact, increase going forward. After all, the general mood in the country is malaise, and the head of the central bank is a Keynesian. With unemployment rates north of 9% and GDP growth rates south of 2% and a full bore European credit crisis, how in the world could Bernanke not end up pumping money into the system? When the mobs are restless, you put Prozac in the water supply.

But, on the other hand, the water department isn’t working properly and the Prozac doesn’t seem to be reaching the masses. So we end up with a monetary policy which has highly inflationary levels of monetary base creation, and slightly deflationary levels of money multiplier. Washington DC is arm wrestling with itself. No wonder markets are confused. No wonder even people who have the right economic principles are gyrating back and forth between inflation and deflation calls. The schizophrenia is at the top of social hierarchy: inflationary monetary policy pushing against deflationary regulatory policy.

So which will win?

Inflation will win.

The Fed has an infinitely expandable balance sheet. They can add as many zeroes as they want to adjusted monetary base. And, in the long run, that flood can overcome bank hoarding, overseas euro-dollar hoarding and low loan demand. The Fed has the power to do it, and most of Washington wants them to do it,

[cuban leaf]

And silver below $33?!

Wow! I’m hittin’ the coin shop today.

[SeekAndFind]

The key quote to all of you potential traders out there:

“Right now monetary aggregates are pointing towards an equilibrium price of gold at about 1400 per ounce. But pre-monetary aggregates are pointing towards gold prices at 1700 to 1800. Yield curve distortions (which would be too complex to get into in this article) are pointing towards money supply growth over the next five years of roughly 45%. Interestingly, gold mining companies’ values are pointing towards a gold valuation at roughly 1400 per ounce as well.”

[cuban leaf]

This is sort of a PM “eye of the storm”.

It’s almost like the price “breather” before everything falls off a cliff. Wanna know why all this is happening? Read Minyonville here:
http://www.minyanville.com/businessmarkets/articles/equity-markets-ezra-klein-fomc-announcement/9/23/2011/id/37030?camp=syndication&medium=portals&from=yahoo

It’s like the markets are now feeling the pain the rest of us are. But don’t worry. They’ll come up with a new “QE”, since this “seems” to have made things worse. ;-P

I now just see PM’s as a huge bargain. Huge!

[agere_contra]

When I get paid, me too.

Thank you Bernanke for this brief deflationary pause. In a month it will be forgotten, but in a few days time I will be able to buy 20% more Silver than I expected.

[panaxanax]

I, too, will be buying silver today. Time to buy another tube of Silver Eagles.

[cuban leaf]

I paid $40 each for the last batch of eagles. Wonder what I can get them for now...

[agere_contra]

You guys, leave some for the rest of us!

[cuban leaf]

On a side note, I bought my eagles at a sort of “antique mall” that is really more like a “Garage sale” mall. Right after I bought them (for $40 each) I went to a coin dealer here and asked what his price was. His sell price was $45 and his buy price was $40.

In my state you have to pay sales tax though. 8-(

[Roccus]

BD has ‘em 36.80, a little more on nucleo.

[cuban leaf]

Sorry to be so ignorant. I’ve never bought silver over the internet. What is “BD”?

[agere_contra]

In the UK we have to pay 20% VAT. Arggghh.

[Roccus]

http://www.bulliondirect.com/index.jsp

I’ve found them to be good, but READ THE TUTORIAL!!

[cuban leaf]

—In the UK we have to pay 20% VAT. Arggghh.—

That is absulutely unbelieveable. And you are using money you’ve already paid income tax on, I assume?

It is amazing people still work in the UK. Oh, wait...

[Repeal The 17th]

bookmark

[panaxanax]

I’ve got a friend that owns a small refinery that buys my scrap gold/silver jewelry etc. at 92% spot. He sells me uncirculated Silver Eagles at spot price, while coin shops are charging a premium of $3-4 each. It’s a sweet deal for me.

I just got off the phone with him and bought 40 at $33.07 ea!

Might double that order in a few minutes.

[agere_contra]

It’s OK. I still don’t pay as much tax as Peter Schiff.

I don’t know if you saw the recent Congressional Q&A session, but he itemized his taxes: they summed to about 45% of his income.

[cuban leaf]

Yeah. That was pretty amazing, actually.

[agere_contra]

Oh man that meat-head Dr Boushey next to him.

She obviously believed that checking for e-coli in food was somehow a brilliant counter-example when posed against Schiff’s chapter and verse about the crushing financial regulations he has to labor under.

Best bit: when Schiff spoke about all the jobs lost from stimulus - the ones you never see because over-taxed wealth-makers can’t create them.

[Paine in the Neck]

It seems to me that the answer to which will win - inflation or deflation - depends on how the debt problem is attacked. There are tens of $trillions in debt out there -hundreds of $trillions if we count unbooked promises. That debt, absent economic growth, cannot be serviced honestly. If the debt is defaulted on, we get deflation. If the debt is QE'ed, we get inflation. Since politicians won't face up to the hard choice, we'll get both - inflation on necessities, deflation in everything else. I'm still scratching my head over whether that makes gold a good parking spot.