http://goldswitzerland.com/why-gold-will-erupt/ All the king's horses and all the king's men Could never hold gold down, Amen! by Egon von Greyerz July 2012 WHY GOLD WILL ERUPT Intervention, manipulation and suppression We have gold intervention, manipulation and suppression by governments, banks and hedge funds. We have a paper market in gold which is around 100 bigger than the physical market, facilitating this market intervention. Governments dislike gold since it reveals their deceitful actions in destroying the value of paper money by printing unlimited amounts of it. The media don't understand gold. Financial TV ridicules gold and even the most respected newspapers, like the FT, don't appreciate that gold is money. But in spite of all the adversity that gold has encountered in the last 12 years, the yellow metal has still appreciated over 6 times since 1999. And even with the major investment demand that we have seen in the last few years, only 1% of world financial assets are in gold. So why is gold likely to erupt in the next few weeks? After a strong move into late August 2011 we have had a correction/consolidation for almost 11 months. During this time, every single fundamental factor in the world economy has deteriorated. The Eurozone countries are in a complete mess and can never recover. The UK economy is in a terrible state but they are just lucky that they can print money which Eurozone countries can't do. The same is the case with the US. Debts are increasing at an exponential rate and there is no attempt by government to stop the spending of money the country doesn't have. Total debts and exposure in the US is approaching $500 trillion. This includes unfunded liabilities and derivatives. The latter are likely to become worthless when counterparty fails, something which is very likely to be the case. Most economic figures are deteriorating in the US. The US has had the fortune of all the focus being on Europe but that will soon change. Japan has massive debts and the economy is extremely weak. And China with its major credit explosion will also suffer badly when the whole world stops buying their goods. Deus ex Machina & the Dark Years Sadly as I have been writing, only Deus ex Machina (EvG article Dec 2011) can save the world and this is an unlikely event. Governments will continue to apply the only method they know (with the blessing of economists like Paul Krugman and Martin Wolf) which is issuing unlimited amounts of worthless paper that they call money. This is of course no solution and only adding insult to injury. But this is the only way that governments believe they can appease their voters. But in spite of the handouts in most European countries, governments are thrown out at every election by their people which is used to the its leaders taking care of them from cradle to grave. The free market economy exists no more but has turned into a socialist monstrosity based on paper. We are on the way to "The Dark Years Are Here" as I wrote in 2009. Bonanza A concerted (ECB, FED, IMF etc) money printing bonanza is likely to start in 2012. This will lead to all currencies collapsing in real terms. Collapsing currencies will lead to a hyperinflationary depression. But many assets will deflate in real terms, especially the ones that were inflated by the credit bubble. This includes stocks, property and bonds as well as debt which have all been in a massive bubble for at least four decades. Gold will be a major beneficiary. Distrust in governments Gold will also appreciate because there is a total distrust in governments' ability to govern. The more governments fail, the more they will want to control the system and the citizens and the more regulation they introduce. There is also distrust in the financial system. Lehman, MF Global and PFG amongst others are only the very beginning of a serial collapse of banks and finance houses. There is also distrust in a system that prints money with the beneficiaries primarily being bankers and the financial system. Bankers and banks keep failing and keep on being rewarded more for each time they fail. No banker is ever penalised for losing billions which the tax payers ultimately are responsible for. There is a distrust in a financial system that manipulates most financial instruments to the benefit of the manipulators be it Libor, CDSs, other derivatives, stocks, gold/silver, gold/silver stocks etc. Consequences The financial system is rotten in its core and bankrupt governments have no chance of saving it. But they can and will prolong the pain and suffering for the world by incurring even more debt that can never be repaid with normal money. This will guarantee the "final or total catastrophe of the currency system involved" (von Mises). There is no precedent in history to what we are about to encounter. All crises or collapses in history have been limited to one country or region. But this time we are looking at all major economies drowning in debt and decadence with no Deus ex Machina to save them. For a world that has been used to governments handing out printed money every time there was a need we are about to have a horrible shock. Unemployment is already 25% in many countries (USA 23%) with youth unemployment in many areas at 50%. This will get a lot worse. But this time around there will be no government handouts. The social security system will collapse under its own weight and so will the pension system. Most pension plans worldwide are non-existent, unfunded or massively underfunded. Very few people will be able to rely on a pension and whatever is paid out will be worthless due to hyperinflation. The social and human effects of this will be horrendous and very long lasting. Gold For the relatively very few privileged individuals who have wealth to protect, gold will be one of the few assets that will maintain its purchasing power and reflect the destruction of paper money. But remember that gold must be held in physical form and stored outside the banking system. Gold has moved from $255 in 1999 to $1,823 in 2011(monthly closing high) This 8% correction in dollar terms since the monthly closing high is miniscule compared to the 615% rise. In most other currencies the correction is only around 3%. The minor consolidation in gold is likely to end soon. The next move could be explosive and take gold to $3,500 to $5,000 in the next 12-18 months. My long term target, set several years ago, that gold is likely to exceed $10,000 could be reached within the next 3-4 years. (I expressed these views in an interview with Eric King of King World News on 15 July 2012) Egon von Greyerz 18th July Gold Switzerland - Matterhorn Asset Management
It's weird, because whilst i generally agree with the logic, the 'gold to the moon' calls have made me think the opposite for the short-term. If every gold-owner is expecting gold to the moon, then you just know there are some savvy traders (erm, market makers?) out there wanting to fleece them. Lately i've seen a lot of testing of weak hands - and yet the bullish calls keep coming. Maybe if gold gets smacked down proper to $1400 or something (AUD?), enough to have people questioning their investment choices, then maybe the fleecing will be over - for a while. My opinion of course. Edit: And i've also wondered whether there are some people that need the gold price to be low, but not for the "gold reflects confidence" reason, but rather something like keeping oil prices in check before the US elections or something.
I think there is too much of a deflationary mindset at the moment for PMs to turn up yet. If that changes, from QE or what ever, then we might see so more positive action. Still worried that if it doesn't start up again soon we are in for weak year for PMs.
Man I hate charts with weird log scales on them. What the hell is the chart above proving? I reckon you could draw the same lines and fit many charts to them if you're going to mess with the scale like that.
Source: The Economist the opening line should be - I have a chart made in excel (p.s. thanks to someone here at SS who first showed me this cartoon)
The main reason for using log scales is that mathematically a constant rate of change shows up as a straight line. That is is something grows by, say, 3% a year every year then in natural units it is an exponentially growing curve but is a straight line on a log scale.
+1 this. Log scales are good for long term charts as they depict percentage gains, not dollar value gains. If you don't use log scales over the long-term, you will always end up with an exponential gain that indicates all prices "going to the moon" (very popular for permabulls).
Yeah I do understand why people use log scales - they can be really handy. But they can also be misleading, particularly if the log scale they use is a bunch of crap? Eg, what is 'Monthly HLC Log Scale?' It's not exactly a ^10 log scale or anything conventional that I know of. Is technically anything that grows on a curve greater than a linear extension of the first two data points (man I explained that poorly... an upwards curve, not a line ) a logarithmic curve? Learning that stuff was so long ago I don't recall. It just seems to me that the curve was designed to fit the data in biased way.
It's the exponential log or natural log (log e) that straightens the effects of compounding over the long term.
What is it's growth rate? It's a compounding growth rate, like inflation? And if so, is it a set amount, or did they just get the gold high minus the gold low and calculate a log scale based on the remaining (about 1600 over 13 years). Like a reverse engineered log rate or something? I ask questions because that's how I learn
Time to put my Nerd hat on e is a constant, e = 2.71828... e is the base rate of growth shared by all continually growing processes. Just like every number can be considered a "scaled" version of 1 (the base unit), every circle can be considered a "scaled" version of the unit circle (radius 1), and every rate of growth can be considered a "scaled" version of e (the "unit" rate of growth). Thus, e represents the idea that all continually growing systems are scaled versions of a common rate. The number e (2.718) is the maximum possible result when compounding 100% growth for one time period. For example, if you were to grow $1.00 at %100p.a. compounded daily, you would not end up with $2.00 at the end of year 1, but instead, you would end up with $2.72 (e). Thus, e is the maximum, ie. it is what happens when we compound 100% as much as possible. e describes how fast you can possibly grow using a continuous process. It's a reference point: you can write every rate of growth in terms of this universal constant. The general growth formula is: growth = e^(rate*time), so e merges growth and time. It is a scaling factor showing how much growth is achieved after x units of time. So, the Natural Log (log e) or (ln) or (log base (e)) is the amount of time needed to reach a certain level of continuous growth (as opposed to representing the compounding effects). Eg a doubling of the price will always be represented by the same distance on the y-axis, whether price rises from $300 to $600, or from $600 to $1200. Hope this helps? :|
Wow wrcmad's answer is awesomely simple Not sure if I'm helping to answer your question, but it looks like the scale uses a base 2 rather than a natural log. Using a different "base" still has the exactly the same outcome of turning any exponentially growing line into a straight line (and of the same slope) but simply creates different Y-axis labels and grid lines. For any novices reading (not you): Monthly HLC => each bar on the chart is the (open) High, Low and Close prices for each month.
Wow thanks wrcmad, as bordsilver said, it's an awesomely simple explanation, I appreciate it I understand now that the variable was time. It's clever really, although the time series can still be manipulated to give the results you're after, but that has always been the case even with linear charting. Edit: So according to that chart we're headed for $2000-2100 gold in 2013 if it maintains it's rough range of growth within those two lines. Whilst $2000-2100 gold would be roughly a 15-20% change from where we are, is that 'erupting'? I'm probably being facetious. I think there is a lot of upside potential.
That's the way I read it too. At best, the top channel line intersects mid-2013 at around $3000? So maybe $3500 by end of 2013? No. I agree, not very explosive. But $3500 is about 120% - this could be considered explosive. I'm not sure of the relevance of the depicted channel lines to the prediction of "$3,500 to $5,000 in the next 12-18 months"? I think the predicted prelude to this "explosive move" is the indicated consolidation pattern (pennant)?
Can you do a pennant on a logarithmic scale? I'm thinking maybe no? Even if the behaviour of the dip and rebound of 2008 was replicated, i don't see the chart telling us that it will explode. I'm far from a chartist though and have only covered some charting basics. I'm just not sold on the idea that a chart like this can somehow factor in the a global financial upheaval. It's like saying that everything will stay range bound, until it's not. So until the upheaval, it stays rangebound, fine, but afterwards it's anyones guess? If that's the case what's the point of having the chart at all if you're only talking about the after effects of financial armageddon? Or if you're treating gold like a commodity and using the chart, then why predict an outcome outside of the range!? Seems a bit like Egon got his wires crossed a bit in a frenzy to publish something that would stand out amongst the rest of the 'PMs to the moon' predictions.
That was both interesting, and like listening to someone scrape their nails down a blackboard... once I recover I may check to see how much you've used that hat in the past.
The facts are when all this debt goes down (possibly after U.S election) the last resorts to maintain wealth (PM's) will be realised by many, and there will be a massive PM rush until all the physical is literally gone....Only the very hard, long holding stackers will survive this time...no matter what the cost of the PM's will be.... This IS the last resort!
