Just a mathematical response:
The US has about a $14 TRillion dollar economy. $14 Tr divided by 365 days equals about $38.4 Billion per day.
My $0.02
As the goverment continues to print billions everyday and soon to default on thier 14 trillion dollar loan, it will be no bubble when both gold and silver spike!
One can't argue a point such as this without understanding the underlying impetus behind the commodity move over the past couple of years. Metals don't function like like housing, or the tech market and create a bubble. They are a response to the massive debt of our country and the world. The bubble is government spending... gold is the defensive action taken by those to combat this.
The U.S. (the Fed) borrows (i.e. prints money) at $6billion a day. How much do we produce in GDP per day? About 1/6th of that. See the problem? The only answer people know is to purchase these metals.
Can't blame them.. As our currency falls and erodes the purchasing power of a dollar, gold continues to rise. I am not a gold 'bug' or profit if one buys gold, frankly I don't care if one sticks his head in the sand, but I am around the wall street rat race so try to point out the truth.. the truth is governement spending and how do you protect yourself, not whether gold is in a bubble.
As the government spends (and they are forced to, there is no other way until there is REAL job creation) what is your defense?
Gold up from $200 in 2001 to $1540 now is the RED flag something is wrong in the country... 250k people lost their job last month, only 54k created (minus 40k from Mcdonalds).. no recovery, massive debt climbing.. how do you defend? For me, that it is precious metals and buy'n'hold properties.
I don't see people preaching gold, why do they care if you buy gold? That's not what is moving the price. Regular folk suggest gold because they want other folks to wake up to the problems in the country.
Just a mathematical response:
The US has about a $14 TRillion dollar economy. $14 Tr divided by 365 days equals about $38.4 Billion per day.
My $0.02
I remember the run up in gold/silver starting in the late 70's to the peak in 1980. People argued against the rise all the way up. "$400 gold? That's absurd! The bubble will pop soon! Trust me!"
It ain't over until the market tells you it's over. Namely, by making a lower high, followed by a lower low. And no people, I'm not talking on an intra-day chart. I'm talking on a weekly bar chart. Right now we've yet to see it.
Damn, wish I had bought some though! :-)
The US has about a $14 TRillion dollar economy. $14 Tr divided by 365 days equals about $38.4 Billion per day.
My $0.02
Blasphemy Kevin...now fall in line and learn to run around like a chicken with its head cut off :D
The US has about a $14 TRillion dollar economy. $14 Tr divided by 365 days equals about $38.4 Billion per day.
My $0.02
Blasphemy Kevin...now fall in line and learn to run around like a chicken with its head cut off :D
Not following your math. The US does not have a $14t economy when you have 14t in debt
We will miss our debt "allowance" by an additional $2t this year, that is an extra $6b a day ($5.4 to be exact) of additional debt a DAY! Estimates are we only produce an income as a country of $1b a day.
So yes, you may want to run around and scream :mrgreen:
I guess I am not seeing WHY gold is THE hedge against the inflation. What I see is a lot of hype and speculation on the rising cost of gold. People bet on capital gain (just like they did in the early 2000's when buying houses). Gold does not cash flow. You can't leverage to buy gold. And on top of all, "investing" in gold is not favored by the IRS (unlike businesses or real estate).
Regarding "The US does not have a $14t economy..." Sounds like $15B in 2011Q1. Per US Dept of Commerce
Current-dollar GDP
Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 3.8 percent, or $138.9 billion, in the first quarter to a level of $15,010.3 billion. In the fourth quarter, current-dollar GDP increased 3.5 percent, or $126.3 billion.
@George: The logic most use in general and why you see gold run like it has is debt and money printing devalues the dollar. Hence, it takes more than a dollar to buy what 1 dollar used to (inflation). Gold in the general investing world represents something that can not be manipulated and is generally a hedge against the dollar (usually, as the dollar goes down, gold goes up).
That theoretically is why. Some think this spiral will never stop because the debt printing never stops. I personally don't see it that way, but will ride the train until it does. There are also many other systemic reasons (other countries defaulting, e.g. greece, etc and the collapse of the euro, etc.. many many other reasons).
Just like in real estate, do your own due diligence, but it is wise to have SOME exposure. TIPS + metals, etc.. 10% of your portfolio, 20%? Up to you.. My % is much larger.. to each his own.
Current-dollar GDP
Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 3.8 percent, or $138.9 billion, in the first quarter to a level of $15,010.3 billion. In the fourth quarter, current-dollar GDP increased 3.5 percent, or $126.3 billion.
What I meant was, 'economy' is a relative term.. as in you don't have a 14 or 15t economy when you owe $17t. That is called running in the red
A look at some #'s:
The U.S. dollar vs the Euro:
in 2001: $1.2 ($1 U.S. got you $1.2 Euros)
in 2011: $.69 ($1 U.S. gets you $.69 Euros)
Almost a 50% devaluing, and that is vs the Euro, which is really only relatively analyzing. The euro has many of it's own problems.
Price of Gold 2001 to 2011: Up 487%
So it's not that gold is in a bubble, it is that the U.S dollar is in an abyss.
I hope i've shed some light on the theory..I am neither preaching nor suggesting who buys Gold - doesn't affect me if you do or don't. Just trying to help you get a picture of the dire debt situation and why it drives commodities, this is not hysteria as others suggest, they are just in denial.
The important part is debt relative to GDP. The chart doesn't look all that ominous... especially given the 'great recession'
Chart is misleading. In 1950 our GDP was a fraction of the size and our currency was backed by the gold standard. Today, the GDP is 14t,and the FED can print money as it wishes since there is no gold standard. Also, chart only goes up to 2009. Thanks to our new presidents insane spending that chart for 2011 will now read 113% (17t / 15t) with no end in sight.
Pretty ominous in my book
Add in corporate, household and municipal debt and you get a chart that looks like this:
http://prudentinvestor.blogspot.com/2010/02/chart-of-day-us-debt-vs-gdp-in-2009.html
How would you not worry about our situation? Sure.....go on and spend 2x more than you generate and see how long you can pull that off? Remember, growth financed by debt isn't REAL growth.
The US has about a $14 TRillion dollar economy. $14 Tr divided by 365 days equals about $38.4 Billion per day.
My $0.02
Blasphemy Kevin...now fall in line and learn to run around like a chicken with its head cut off :D
Not following your math. The US does not have a $14t economy when you have 14t in debt
We will miss our debt "allowance" by an additional $2t this year, that is an extra $6b a day ($5.4 to be exact) of additional debt a DAY! Estimates are we only produce an income as a country of $1b a day.
So yes, you may want to run around and scream :mrgreen:
@Anthony
Apples and oranges.
You are comparing the amount of income that our country generates (formally known as GDP) with the amount of debt we owe (accumulated over many decades).
As an analogy, consider a young couple who purchase their first house with a long term mortgage. Their combined incomes (Personal GDP) is $55,000 but they buy a house worth $200,000 and put just 10% down ($20,000). Their debt of $180,000 far exceeds their income $55,000 yet these transactions occur every day.
On a national level, the total amount of goods and services produced and consumed in this country amount to close to $14 TRillion. Most is made up of consumers buying those goods and services. Consumers pay for those goods buy spending their income. Some go into debt to consumer more today. Part of that is government purchases of goods. The government pays for those goods by both taxing citizens and borrowing money. For many years the government has spent more than it has collected in taxes thus it incurs a deficit (that accumulates into the debt. Just because it spends more that it takes in does NOT mean that we exclude those excess purchases from the GDP calculation.
Some economic theories suggest that accumulated debt can have a feedback effect on consumers and businesses who anticipate higher future taxes and curb their current purchases.
Further discussion of this topic is way too involved for a bulletin board.
[quote=Kevin Yeats
Some economic theories suggest that accumulated debt can have a feedback effect on consumers and businesses who anticipate higher future taxes and curb their current purchases.
Further discussion of this topic is way too involved for a bulletin board.
Kevin, I understand the difference. You responded that the country generates $38.4b a day. That is of GDP. That number means very little from an investment and hedging standpoint that the OP is referring to.
We are discussing why commodities have moved so much. The impetus is not how much GDP we create, it is the ratio of debt creation vs production. That current ratio is $6b per day of NEW debt created to generate $1b of GDP.
Your reasoning has been the passive logic historically, that we've always had debt, and "some" economists think this is bad. No, no, my friend. This ratio has EXPLODED over the past few yrs as states go bankrupt, municipalities fail, foodstamps go from 30mm to 48mm in 2yrs, and the country bleeds unrecoverable jobs.
This is a combination no one has seen and historic economic views on deficit running do not apply.
I've never understood the concept of gold. It's essentially worthless. There is no point to it.
I get nothing out of having gold. It isn't a form of value, since it has no cash flow nor worth.
We invest in real estate because it has worth. There is a service provided by real estate (living quarters) that can make you money. Money that you can pay for things with. You can't take gold to the grocery store and use it to buy your food.
You can't buy a house with gold. None of that is at all possible. See, currency has worth for a few reasons. One, it is a unit of accounting. In this sense, a dollar is a dollar, and that allows me to compare the worth of two objects, let's say guns and butter for the sake of days in econ classes.
Gold could be used in this way, saying an ounce is worth half of a gun and a pound of butter. You now have a unit of accounting, equating half a gun and a pound of butter. This was the first step in monetary economies, shortly after barter systems. People used shells, gold, salt, small rocks, anything.
Where gold fails is that it is not a store of value. It used to be a store of value, because governments used to back their money on gold, so gold was the real store of value behind money. Cash was merely a way in which we could easily transfer gold, since it's kind of an inconvenience to weigh out little lumps of gold to pay for a candy bar.
However, there is not a major currency today that gold backing. US Dollars are backed simply by your faith in the currency, as are Canadian Dollars, the Euro, the Lira, and everything else.
Gold is inflating because there are people that speculate that it will become worthwhile if people like Ron Paul get elected to every major position in the US government and decide to go back to the gold standard.
This won't happen. The gold standard is simply and unequivocally dead. It worked when people had no faith in the concept of fiat money. The US has been on a completely fiat currency since the Nixon Shock, and that isn't going to change.
You see, gold is actually worthless moreso than other commodities since it has no real use. It's price is purely speculative. I guess it has uses in jewelry, some electronics, and a few other specific purposes, but not much else. Gold is skyrocketing today not because Monster cables are flying off the shelves with their gold-plated copper or whatever, and not because everyone decided to be in love with gold rings, but because there are people who are conned into believing the commercials on the radio about investing in gold.
Besides doing everything but outright lying to people, these gold sellers are making a killing on selling someone a commodity with no real value. It's amazing to me that people believe the hype of it all.
@Anthony ... from your post of 6/20 12:57 PM
My first response questioned the magnitude of your numbers.
The US has an approxmiately $14 Trillion economy.
You are quoting numbers in the billions which is diddly in the big picture.
According to Yahoo, in 2010 ExxonMobil alone generated $383 BILLION in revenue. I know that not all of that is included in GDP but it makes my point.
@Max: Get nothing out of gold? What do you get out of owning a share of stock whose value could collapse due to systemic risk as it did in 07? Who cares if gold has intrinsic value or not. We're talking about making money so all I care about is the perception of the investment by the global community. That is what drives hedge scenarios. Did Enron have intrinsic value, did blockbuster video? If you invested in these corporations you have zero dollars left. What are your options OUTSIDE of real estate, thats what we are discussing. In addition to RE. Invest in a company until some scam is uncovered?
Gold is up 500% in 10yrs.. there is a reason. If you invested in the SPX during that timeframe you made 7%. No one here is trying to sell anybody anything. The only people complaining are obviously the ones who are not putting some exposure in their portfolios.
What is your suggestion for hedging against inflation and the u.s. dollar which has dropped almost 50% vs the Euro in 10yrs? Which means the value of what your money buys is dropping.. currency devaluation, it is the hidden tax.
My first response questioned the magnitude of your numbers.
The US has an approxmiately $14 Trillion economy.
You are quoting numbers in the billions which is diddly in the big picture.
According to Yahoo, in 2010 ExxonMobil alone generated $383 BILLION in revenue. I know that not all of that is included in GDP but it makes my point.
Those #'s are per day. $6b per day of newly printed debt = ~$2t a year. Diddly? I don't know about you, but the average person can't even fathom how much money a trillion is, I can't.
"Unless you're not talking about US, you gonna have to sell your bullions first, (pay taxes) and only then buy real estate with the proceeds. Last time I checked gold wasn't the form of payment."
I agree. But until they stop my ability to convert gold into paper currency, then I can effectively buy a house with gold.
BTW, the government is now as levered as a typical real estate investor. As of the end of 2010, there was $9T of federal debt held by the public (and close to another $2T held by the Fed), and the government's revenue was $2.16T. Sadly, federal revenue was around $2T in 2000 and federal debt was only $3.4T. Hopefully, interest rates don't spike too soon. Imagine if rates doubled or trippled? Ouch!
www.cbo.gov/budget/budget.cfm Scroll down on the right for historical numbers.
The only way currencies are valued is vs other relative currencies. The euro is the most common that the dollar is compared to. The euro has it's own problems obviously, but it is one simple way to analyze.
It can also be measured by treasury note yields and how other countries use it for safety, but that is difficult.