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Inflation, deflation argument

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kwagga
Super Contributor
This is a very important point "However, every time stock prices rise the dollar falls. The best explanation for this dichotomy is that it is inflation not growth that drives both stocks and the dollar. So rising stock prices do not really indicate a bull market in stocks, but a bear market in the dollar. Those who cannot differentiate between the two will continue to misread the market and the economy." http://www.321gold.com/editorials/schiff/schiff021310.html What does this mean - In my books this means Gold will contunue its bull trend. The big question is to what extent the dollar will depreciate and dilute the rand value of gold over the medium term? In other words will it be worth while to buy Gold shares based on the fact that they mostly ralley on the $/price of gold, or will Newgold that actually reflects the R/$ exchange rate and the $/price of gold be a better play. The answer I guess will become clear in the charts over time, because currently I don't see that much that makes me exited.
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26 REPLIES 26
SimonPB
Valued Contributor
two thorts .. firstly the US more then doubled the amount of US$ in circulation in the last 2 years, simple math says that shhould see the price of the US$ halve, crippling gold in any currency apart from US$ .. secondly short term currency moves are more a reflection of risk and in a sense voting on a country/region .. the sudden and marked strength in US$ vs. Euro to 1.36 is more about fears of Europe (the PIIGS nations in particular - right now mostly Greece) then a positive vote ont he US or their recovery ..
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dbm
Frequent Contributor
Well how do we make money? I guess a good way is to buy SSF's on GLD. Considering that the Gold price will rise and the Rand will fall. Buying 10 contracts and just sitting on it. The leverage on the cost is great and one gets cash daily or looses it. But if you are right, for the cost of R1200 margin per contract, maybe it could be a good investment
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SimonPB
Valued Contributor
I don't think you can make money on gold, an that's putting myy bias aside .. for as gold rises US$ drops and rand/gold goes nowhere .. only way really is too remove the currency effect .. so long a gold fuures contract (not tradable as yet) and short the US$ using currency futures .. this removes the US$ .. no other way makes money, and herewith a lesson in trading .. soetimes you may find a great trade but be unable to put it on, then yyou just have to walk away .. a great trade only wrks if you can put it on properly .. paulson whho shorted sub prime and made abbout US$6billion in persoanl gains spent years finding a way to put on his trade, and in fact in part helped develope the products he sued for shhorting ..
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kwagga
Super Contributor
A very important G - that.
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kwagga
Super Contributor
So Paulson took $6 bil off Goldman's clients in a legal way. I won't call that trading, rather stealing. Devising funny money products, selling it and then shorting it because you know what are about to happen due to your company's exposure to these products is a crime. Then you leave Goldman, get an $800 mil golden handshake, join politics and become a decision maker when it comes to regulating your own crimes. That's just priceless. I'd like to break off that stiff pinky of his and feed it to him. That's why the US ecomony will hold the rest of the world at financial gunpoint until kindom comes. Paulson is the first candidate for my concentration camp idea. The man is a capitalist serial rapist.
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SimonPB
Valued Contributor
dude, you shoudl read the book before you rush off claiming things that are simple not true .. firstly, he never got zip from Goldman .. an so on an so on .. but we'll leave those until you read the book .. an he was sold the CDS beccause the otherside of the party figured he was wrong, that's largely trading .. an regardless whether he made money or not, the sub prime crash would ahve happened exactly as it did ..
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SimonPB
Valued Contributor
ah got ya .. you got your paulson's confused ..
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MenuOption
Frequent Contributor
This debate seems to drag on. The numbers:
GLD 2005/01 R25
GLD 2010/01 R80
So its seems about 17% p/a growth. Compounded > 200% growth over that 5 year period.

Now STX40:
STX40 2005/01 R11
STX40 2010/01 R25
Over that same period STX40 grew at 5%, compounded at 27%. And we should add say 5% div per year. So lets say 10% growth p/a.

Someone please explain what I keep on missing when I look at these numbers. Because my conclusion must be that GLD was the better investment over that period.
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SimonPB
Valued Contributor
you mean aside from picking dates that fit your arguement ??

but here's the issue, 2009 gold was up some 25%, maybe 30% .. yet GLD was flat for 2009 .. if you are bettign on gold you also have to be bettign on a weaker Rand ..
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SimonPB
Valued Contributor
soa gold bull gave uup 30% odd in 2009 thatnks to stronger rand, or weaker US$$ ..
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MenuOption
Frequent Contributor
you mean aside from picking dates that fit your arguement ??
Well, I only have GLD data from about 2004/10. So that's why I chose 2005/01 as the start date. But, pick you own dates. Maybe you are right, but then please provide the data.
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SimonPB
Valued Contributor
well how about from 1980 ?? we can all pick dates that prove ones own argguement, that's not the point ..
so moving the debate on, how did 2009 make a rand based gold bull feel ?? nothing exists in isolation and with gold the US$ exchange rate is critical, if you ignore that from your thinking, then you got nothing .. and a large part of the gold bull story also equals US$ weakness ..
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THRESHOLD
Super Contributor
There must be a very real danger (in the short to medium term) of (continued?) "large scale real asset" deflation (even disinflation) concurrent with rampant consumer inflation on "in-demand" commodities. The consequences of this would be horrendous; it would lead to social unrest. Under these circumstances, high dividend consumer oriented stocks would offer about the best protection for your money.
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EkisDoep
Frequent Contributor
Simon you say that there are no gold futures contracts to trade yet. I have used long SSF on Newgold and short ZARU$ and it has worked to some extent. That is, the one covering the other. But in what circumstances will one get both working in your favor?
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kwagga
Super Contributor
I'm talking about Henry Paulson, but maybe I have jumped the gun and added a dog to the tail. So exclude the $6bil, Goldman still shorted their own junk products, Hendry still walked out with a massive bonus, and Hendry is still a decision maker with bank regulation today. Hendry is still scum. Appologies to your Paulson, whom ever he is. I'm sure he's a real standup guy.
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MenuOption
Frequent Contributor
Well, seeing as I am not a gold bull I am happy to say that the gold bulls in the 2009-2010 period probably felt just as emosional as the market bulls in the 2008-2010 period.
I had a look at the gold charts from wiki. 1980 is a great date to pick, 1970 not so much. Does anyone have prices for JSE and Gold going back to say 1961, when was the rand established? 1961?
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SimonPB
Valued Contributor
ya a GLD SSF will work .. on SAFEX Agri there are gold, plat and oil futures contracts, but being ari nobody can trade them except for farmers ..
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Wizard
Super Contributor
Back in the 70's after the market bottomed, the US economy went into a period of stagflation. That should be the story of the next 5 years. GOLD did quite well back then on the back of that. Like it nor not Simon the trend is up..trade the price ;)
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SimonPB
Valued Contributor
yaya .. but how ?? that's my point .. gld last year was an absolute flop .. gold miners not much better ..
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