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Old 06-28-2013, 08:30 AM   #1
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don't think KD likes gold very much

For those who had gold fever in their eyes and were picking out the interior options on their yacht for the day that Gold went to $5,000/oz -- you may wish to downsize your intended purchase to a used Yugo, especially if you were out there on margin.


a couple of good comments though:


I'm a gold bug now. Talking price on this subject is like owning insurance on your house. Every year you don't have a fire, your insurance premium is wasted. (you can throw in the other crap that insurance pays, like hail and windstorms, but the only time you really need insurance is a total or near total loss). When the house burns down, it is too late to get insurance.

Price doesn't matter too much if you need insurance. The $5000 price is nonsense as much as the current price on stocks is nonsense. $5000 won't buy a silver eagle when the house burns down. I see candies that were a penny when I was a kid, going for 30 cents now. 16 OZ cokes were a 10 cents to 12 cents when I was a kid. They are generally $1.50 in a convenience store now. Snickers can sometimes be bought for .65 to .70, but the regular price is a dollar or more now. Those were 5 cents in the 60's. Gas was in the low 20's when I started driving and I bought it for as low as .169 in a gas war. 9 cents of that was tax, so the gas was going for 8 cents. Today the gas is going for $3 plus tax. With history like that, the $5000 price is a guarantee at some time.

Which side of the coin do you trust KD? The only thing there is to trust about American money is the "In God We Trust" stamped on it. Do you trust the banks? Do you trust Bernanke? Do you trust the world is going to continue to take our money when there isn't even a pretense the government is going to perform on the debt, other than to continue to borrow more to pay the interest and operating costs? Do you trust the politicians or the FSA? When this side of the equation breaks down, there won't be any gold and silver for sale on the broad market.

We have over $2 million in cash, 21 houses and 3 commercial properties and about $30,000 in gold and silver, most of it silver bought at $22.60. There is a clear loss there. Housing has bubbled here this time and I guess we should have bought more, if we were looking at the current situation. Even as inflated as AAPL was at the top, buying it at $100 in 2008/2009 still looks like a stroke of genius, even though it had been lower earlier.

I have viewed gold and silver in a bubble for years. There is plenty of my writing on the net over the years to verify that view. It is probably still in the bubble range and I wouldn't be shocked to see it go lower. I never envisioned Ben Bernanke and the rest of the central banks on Earth, printing money where no money is needed to cover up the massive insolvency around the world. I didn't account for the refusal of governments to act, even remotely in a fiscally responsible way. In the past couple of years, I have felt naked without the protection metals would provide to my liquid assets.

Everyone in financial assets is going to take a haircut. Bonds at 2%, while the central banks are trying to push inflation to 3%, risking zero on one side and hyperinflation on the other. If the debts aren't going to be paid, currency is worthless. It has no other value. Think the Chinese and the ROW going to sit by while the US takes a $1 trillion a year free ride forever? think the banks are going to remain solvent, when the debt is unpayable?

The recent moves in the bond market are because of QE, not because it is going to end. The system doesn't lack for funds today, unless we are going to have a good old fashion bank run. Even if we have a bank run, every dime is owed back to the Fed, with interest. Bonds go to 8%, the Fed is insolvent, the stock market crashes and all other financial assets fall apart. Bonds go to zero, the game is up.
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Old 06-28-2013, 09:24 AM   #2
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A few amusing comments:

"How is the price of gold calculated? I'm so confused on this. If the spot price is $1200, but no dealer will sell it to you for less than $1400, then how can anyone say that gold is worth $1200 an ounce?"

"Investing in gold without understanding gold is not a great idea. The price of gold is determined by the Comex, there is very little gold backing the futures and they will settle in cash not gold.
The big holders of gold are bullion banks. If you don't understand that term completely stay out of the gold market you will get slaughtered.
Briefly a big buyer can go to the bullion bank and buy gold which is then stored for them in the vaults. The buyer gets a piece of paper which entitles them to the gold. HOWEVER, the small print states that they can be given either gold or cash equivalent by the bank, and the price is determined by the Comex. It is clear that bullion banks have sold much more gold then they have in the vaults, so they are essentially short gold. During the Cyprus crisis large depositors began to demand their gold. The easiest way out of that dillema is clearly to short gold on the Comex, and amazingly enough that is when gold started dropping like a stone.
This is why the price of gold is going down, but physical gold is simply not available at that price.
One other little known fact (I have not personally checked on this, I read about it) is that the fund GLD holds some physical gold, and those who have 100K shares can redeem them for the actual gold. I read bullion banks have been gobbling up GLD shares on the way down.
If you don't understand every nuance of this stay out of the gold trade."
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