Today vs Weimar Germany

[Unobtanium]

I came across a chart today that showed the price of gold over a several year time frame in Weimar Germany. That spurred my thinking about where we might be today compared to the Weimar graph.

Below is the Weimar Germany graph:

So we can see the following action in the price of gold in Weimar Germany:
1) An initial price run of ~10x over a ~ 2 year period.
2) A consolidation phase of ~ 2 years.
3) A final dramatic run up of over the last 2 year period.

Today we have:
1) An initial price run of almost 10x since the 2001 price of gold of ~$250/oz, over a 10 year period.
2) The present consolidation phase that is now 2 years in progress.
3) The final run up occurring...?????

If we consider the Weimar era as broken into three equal time periods of two years each, and apply that to today of equal time periods of 10 years each, then that means that the present consolidation has another 8 years to go. But the fundamentals (posted in various recent threads in this forum) say that this is extremely unlikely. It would take a massive effort by tptb to pull that scenario off.

If we consider that today's first 10x leg just simply took longer to develop than the Weimar 10x leg, and also assume that the last two legs match the Weimar legs, then that means that the consolidation period is nearing an end (supported by the fundamentals), and also means that we are on the brink of the massive final run up. Below is a graph that shows where this would put us today on the Weimar graph.

Of course during the final massive run, the price of everything goes up, people's paper assets and savings become worthless, and those that own PMs retain their nominal amount of wealth. However, there may be a short period during the final massive run where the price of gold briefly leads the inflation rate of some tangibles, allowing PM owners to profit nicely when it comes to purchasing tangibles with their PMs.

One key in the inflation picture is the Velocity of Money, which is at historic lows right now. The massive recent injections of fiat have not made it into the markets, keeping inflation at "reasonable" levels.

Here is a historic USD velocity of money chart, which shows that the USD velocity of money has been range-bound for decades, even though it is at historic lows presently in 2013, even lower than it was back in the 1920s. However it is still fairly range-bound.

From: http://jugglingdynamite.com/2012/04/17/debt-fueled-rescues-killing-global-economy/

Below is an estimated velocity of money for Weimar Germany. Note that it was fairly flat also until the final massive run up.

From http://nowandfutures.com/weimar.html

So one conclusion from this is that we are close to the brink of the final massive run up in the POG, and one precursory indicator to this final run up could be when we start to see an increase in the velocity of money. Keep your eye on that chart! I would love to hear other Bugs thoughts on this.

 

[DSAbug]

I think we are on the verge of an explosive move, don't get me wrong.. I just think trying to use charts from Weimar to project the price advance is a waste of time. I don't think things are playing out in a similar fashion to that period. It's following the 1970s much better.

Either way, there is going to be a point where you'll still want to trade in your gold for some other asset class. Dare I say it might even be bonds or stocks. We are no where near that point yet, but I don't think you want to have the expectation that gold will keep going up forever or someone is going to announce the end game on a loud speaker.

 

[Potemkin]

Interesting thoughts. But if we'd see hyperinflation, you should read about Hungary's hyperinflation scenario, it was way worse than Weimar Germany's, way worse than Zimbabwe's!

They had like 200 % daily inflation. Imagine that!

Imagine your wealth halved every day...

And I think if we consider the real estate bubbles of the USA/EU/China/UAE, the credit bubbles in the entire World, the Fed's QE, the Japanese easing, the ECB's easing and the immense debt accumulated, we could probably hit the highest hyperinflation rate in the World - EVER!

 

[DCFusor]

None of these examples are from countries that printed the world's reserve currency like the US (currently, but less credibly all the time) does. That only makes ALL THE DIFFERENCE.

We are in fact losing reserve currency status, bit by bit (see recent deals by China and Russia with various other countries). When that happens, these examples become relevant. Till then "this time is different". If we really lose reserve status in a snowball, instead of bit by bit (probably at some point) then we're Weimar, and it's not a matter of years, when all those benny bucks flow home uncontrollably and all at once, since other banks no longer need to maintain a balance of our bucks to do commerce. That could happen practically overnight - the only issue is which night.

I hate to say "it's different this time" - but it is different - for the moment.

In other news, my dumb trading system - buy when gold crosses above a rising 50 sma, slap on a stop and fuggedaboutit, was just almost triggered. But instead, this time it rose above a falling 50 sma. In the past (look at Dec, Jan, Feb on a year chart - when it rose above the falling 50, even if it was just barely falling, it went right back down again, sometimes hard, and the 50 became resistance. I use this chart for it, since everyone computes the SMA a little differently...
http://quotes.ino.com/charting/index.html?s=FOREX_XAUUSDO&t=&a=&w=&v=d12

We're not there yet - and this system has worked great for 10 years so far at least (as far back as I have the data). No, you don't get the exact bottom, which is likely in due to mining costs etc, and you lose a little going over the top (the % of your trailing stop), but it makes good money if you follow it with discipline. And it says "don't buy now" right now - but it's looking better. This spike might cause the 50 to start an upslope if it holds a couple days, and if it crosses that again - and stays there for a day or few - time to buy. Not now.

This of course is for paper, and despite some slight disconnect with phys, it's not a serious disconnect yet. If that happens, this system is worthy of the trashcan of history, frankly. But as long as the markets track fairly closely, it works quite well, and I put my money where my mouth is here - for paper. For silver, I don't really have a "foolproof" system like this - too much beta for it to work very well.

For phys, well, we buy that for other reasons than trading - and hold till we need it, regardless of current pricing, and it's a whole different story. I buy some, a little at a time, more or less trying to time DCA'ing, but never get in so deep as to have to redeem any phys in the reasonably foreseeable future, eg most of my resources are in other things, including other hard assets (like the farmstead, electric cars, solar power). And soft - my trading stake stays in fiat, and FWIW, it's 90% "out of the market" right now, I'm taking a break from trading at the moment - I don't see any juicy setups, everything is overbought, but not to the point where it's looking like I make quick money shorting either -

Like a famous trader once said, one of the most important skills you can have is the ability to NOT trade when there's nothing worth trading. I feel like that time is now. Sure, we'll probably have one more run-up to a blow-off - I'll just wait for that, then go short unless my worldview totally changes for some reason.

I keep watching anyway - trading is a perishable skill I don't want to lose. I just can't get a good feel for the tape right now, so I'm not acting on judgements I don't feel confident in making. I think "the herd" has gone nuts picking up pennies in front of a steam roller so close they're gonna get squished, and I feel sorry for those who have a mandate to be "in" all the time, frankly.

 

[Potemkin]

I can only hope we'll have enough time and fiat to get ready for it. If it hits the fan...