and what if they do like nixon did? or make ownership of gold illegal? why will it be different this time?
Well, it's not possible anymore for them to do like Nixon did, who took the USD off the final vestige of a gold standard. Clearly, since we're already off the gold standard, what are "they" going to do? Likewise, because we are no longer on a gold standard, there is no incentive for the government to make gold ownership illegal, at this point, gold is simply another commodity which responds to the increase or decrease in the value of fiat currency. And while we're on that subject, many people mistakenly think that when FDR outlawed gold ownership in 1933 that it prevented people from continuing to own gold. This is false. In fact, not a single person was ever arrested or fined for not turning in their gold, and given the fact that there are plenty of pre-1933 gold coins still out there for sale and in people's possession, many citizens did not turn in their gold. But let's do a thought experiment and imagine what would happen to the price of gold if owning it suddenly was made "illegal" (which it won't, because we're no longer on a gold standard, but anyhoo..) What happens to the price of anything that is made illegal and therefore harder to obtain? Yep, it goes through the roof.
If you had gold in a safety deposit box, it was gone. But if you hid it at home, short of someone specifically pointing you out, nothing happened. Under FDR, numismatics & jewelry were allowed to go on as before.
And until this financial tsunami is over, and who knows when that will be........ gold will be the go to asset for wealth preservation.
I keep coming back to this thread because even a year ago the call ($600 oz.) seemed a stretch. Who would have thought after the debacle in world financial markets since that time gold would be under 1000 oz.? So, in a way this has been a timely call.
It was just a gold bashing thread. He never gave any particular reason whatsoever, so my opinion is that the purpose was to cause fear, uncertainty, and doubt in the mind of anyone long. I added today. I guess we'll see.
Shorting Gold: 12 Reasons Making The Case For This Contrarian Investment by Louis Basenese, Advisory Panelist Senior Analyst, The Oxford Club If youâre a self-professed âGoldbug,â feel free to read no further. Or at least spare me your hate mail. Because no matter what I say today, I know youâll cry foul⦠or something much more colorful. But for those of you with an open mind - especially after my last three contrarian predictions proved dead accurate, read on. Because itâs time to start shorting gold! You wonât find many, if anyone else, making this case. But as the first reason of 12 below reveals, thatâs precisely why you should give it more credence. 12 Reasons To Start Shorting Gold Itâs decidedly contrarian. If a contrarian investor is someone who deliberately decides to go against the prevailing wisdom of other investors, shorting gold certainly fits the bill. Right now, everyone else is buying gold, or at least recommending it. If you have any doubt weâve reached such fever pitch levels, consider No. 2. The infomercial factor. The best indicator of a turning point for any investment, in my experience, is infomercials. If an investment gets so popular it invades the pre-dawn hours with non-stop but-wait-thereâs-more offers, itâs time to get out. And thatâs exactly whatâs happening now. So much so companies like Cash4Gold.com are invading primetime television. They even splurged for a Super Bowl ad spot. And they recruited washed-up celebrities Ed McMahon and M.C. Hammer to boot. In case you forgot, the Hammer filed bankruptcy in 1996. And Eddie boy almost lost his 7,000 square-foot, $6.5 million Beverly Hills pad to foreclosure. No offense, if you take investment cues from these two, you deserve to lose money. There is always some truth in a rumor. Recent news reports suggested Germany, the worldâs second-largest holder of gold, was selling some from its vaults to trim its deficit. It turned out to be a rumor. But you gotta wonder if thereâs some truth behind it. After all, high gold prices would be an easy way to raise cash. In other words, the scenario is completely plausible. And if Germanyâs considering it, even remotely, so, too, are plenty of other deficit-ridden governments. It goes without saying that a government dumping supply on the market will send prices lower, quickly. The gold-to-oil ratio is out of whack. Historically, an ounce of gold will buy you about 14 barrels of oil. But with oil around $40 per barrel, an ounce of gold gets you almost 23 barrels - a whopping 64% above the historical mean. If you believe in statistics, a reversion to the mean is imminent! So is the gold-to-silver ratio. Historically, an ounce of gold will buy you 31 ounces of silver. But now the ratio stands at 73 - an unbelievable 134% above the historical mean. Here, too, a reversion to the mean is imminent. And Iâd rather place my bets on a 57% decrease in the price of gold, than silver more than doubling to make it happen. The HGNSI index is too high at 60.9%. For the past 25 years, Hulbert Financial Digest has tracked the average recommended gold market exposure among a subset of gold-timing newsletters. It usually fleshes out around 32.6%. But now it rests at 60.9%, a level itâs only exceeded 13% of the time. The key - Hulbert found an inverse correlation exists between his proprietary index and the short-term market direction of gold. In other words, if the index is high, like now, gold is headed lower. Trinkets drive demand, not governments or speculators. Nearly 75% of gold demand comes from the jewelry market. And if Indian brides balk at buying above $750 per ounce as the Bombay Bullion Association reports - Indiaâs gold imports cratered 81% in December - look out below. And donât be fooled into thinking investors (governments or speculators) will pick up the slack. As HSBC reports, rising demand from investors, particularly from ETFs, only offset half of the 33% decline in jewelry market demand since 2001. What makes now âdifferent?â If the global economic crisis keeps getting worse, as goldbugs like to point out, why hasnât gold tested last Marchâs high of $1,030.80 per ounce? Or blown right by it? After all, gold is supposed to increase in value as economic conditions worsen. But it hasnât lived up to expectations, not one bit. And I donât think it ever will. Ultimately, when you factor in the massive amounts of stimulus being injected into the markets, on a global level, weâre close to the worst of times⦠and the peak for gold. Analysts love it. According to Bloomberg, 16 of 24 analysts surveyed by the London Bullion Market Association believe gold will reach a minimum of $1,032 per ounce this year. As we all know, analystsâ track records are deplorable. Instead of just ignoring them, why not bet against them? The odds are definitely in our favor. Hedge fund buying dried up. Institutional speculators (hedge funds) played a large part in goldâs run-up. But 920 of them went Kaplooey last year, according to Hedge Fund Research, Inc. Not to mention, hundreds of others hemorrhaged capital as investors demanded their money back, while those left standing ratcheted down borrowing to close to nothing, according to Rasini & C., a London-based investment adviser. In the end, gold prices will eventually reflect the absence of these former heavyweights. Gold is schizophrenic and the wrong personality is in control. Multiple motivations exist to buy gold including the desire for a safe haven, currency, adornment, raw material, or inflation hedge. But much like Treasuries, the bulk of buyers come from the safe haven camp today. And once the economy shows any signs of perking up, we can expect these same investors to flee for more risky assets. And donât be so quick to rule out a second half recovery⦠The Fed, the President, history and the Baltic Dry Index concur - the economyâs on the mend. Despite dismal data, both the Fed and President Obama point to the current recession ending by the second half of 2009. Moreover, the average recession only lasts 14.4 months. So even if this one is longer than usual, weâre still near the tail end of it. A fact underscored by the recent 61.4% rally in the Baltic Dry Index from its early December low. As I wrote in November 2008, the index is the first pure indicator of an uptick in global activity. And once the economy gets back into gear, the Fed will act quickly to reign in the money supply and curb inflation. Cleary the gold rush is on. But thatâs all the more reason to move in the opposite direction, against the herd. I realize this might be the most unpopular recommendation right now, but that means it could also be the most profitable. And before you brandish me a fool for recommending shorting Treasuries and gold in the span of two months, hereâs the intersection. The driving force behind both assets in recent months has been safe haven buying. And it will remain the dominant variable in determining price in the months ahead. So when investors go back on the attack for more risky assets, prices for both assets will fall. Itâs already happening for Treasuries. And Iâm convinced gold is next. Good (and contrarian) investing, Lou Basenese http://www.investmentu.com/IUEL/2009/February/shorting-gold.html
Oh, I guess the economy will be fine by the end of the year if Obama says so. She does make some good points, though, and I agree with her about treasuries, which is why I am long TBT. However, if this is a bear market rally and it ever rolls over, gold will gain favor again.