GOLD 0.51% $1,391.7 gold futures

which way to the engine room?

  1. 1,937 Posts.
    in all the conjecture that is what's going to happen and when, I think one concensus is that the US is 'situation critical'. everyone has a different perspective on how and where it is most troubled.

    parking the arguments for a moment on interests rates, low dollar policies, liquidity, debts etc just WHERE is the engine room for the recovery going to come from?

    IMO the only thing that can save the US is to get it's people working, and the country earning. Call it a ground up rebuild if it's needed. For recovery, WHAT needs to be kicked into gear first? surely it has to be jobs, and peoples welfare. NOT a welfare state. In my mind, the welfare state is disaster with a capital D, which also means depression. So it has to start with industry, industry is equities, equities is the stockmarket.

    In modern times, with so much information and access to the stockmarket, everyday mums and dads have a chance to pull themselves out of the pooop also - not JUST institutions.

    I suggest it's a similar situation that pulled the US out of the 1930 depression years. The engine room has to be industry - and the country has to get back to work on an incredible scale. Employment goes down, aided by a low dollar (expensive imports) GDP improves, ONLY THEN can a sensible monetary have a chance to work. Reducing liquidity before this happens needs to be very selective - as small business will need to have access, and historically small business is a powerhouse for employment and productivity (for almost every economy).

    We know Tbonds are heading south currently, and with the added pressure of many more sizeable economies in much better positions, (I'll say it again) this could well be the just the US swirling around the plug hole.


    If the US doesn't get it's people back on their feet, then deflation has to be a reality ... and gold might lose out to Tbonds IMO. But this is the most marginal argument of all the presented outcomes IMO. Until the US get things moving again, a strong policy of ANY KIND is premature, if it's anything other than an incomes policy.

    Quite simply, gold is yet another asset class in which to invest money; the aim being to better real interest rates so that the depreciation effects of CPI are offset.

    (so watch real interest rates in the US also)

    John Hathaway (Director of Tocqueville Management Corp) has almost 4 decades of market experience and is known internationally for his writings about the U.S. economy, gold, silver, commodities and much more.

    In an interview with KingWorldNews and John H (mp3), John provides a good explanation as to potential investment capital that is available to fund managers globally. (excellent audio)

    John suggests $90 trillion of investment capital is vested in funds at any one time; of that he estimates as little as $500billion (0.5%) if moved into gold would be enough to sustain upward pressure on the gold market, and goes on to say the gold rally (while mature), is still only in second gear.

    ASIDE: By comparison, Australia's total share market capilisation (equities) is currently around $1.42 trillion - so a few hundred billion over in this direction would be very nice thank you very much!! and we are only talking about a shift of 0.5% of investment capital - throw China, India and emerging markets into the mix

    (the following charts are thanks to Nick at

    If we accept that industry can and will privide the engine, then the DOW should be safe. If it only stays at 10,000, the chart above suggests 3rd gear in the gold bull rally might realistically achieve a ratio of 5:1 with the DOW - this is USD$2000 per oz. If it hits overdrive, then better than 5:1 and the mystical USD$3000 per oz.

    I for one won't argue with history if this happens!

    Back to the interest rates, Tbonds, low dollar policy etc - well, that's anyone's guess. But if we accept that a lot of money is looking for a safehaven, and it's not the dollar, then where is it going to go? (or where is it going to stay?)

    Another good chart available from sharelynx -

    I surprised even myself to learn that the open interest ratio of gold price per 1000 o.i. contracts has been in the range of 2:1 throughout history. So at USD$1000 per oz, 500,000 open interest contracts is historically normal. At USD$2000 next US summer 2010, we can expect to see less than 1Million o.i's being reported (;o)

    AND FINALLY (for something completely different)

    Like the charts from, the gold price looks like it's consolidating, and is at least set to rise in the short term.

    To all the fools out there stupid enough to argue with real data, ABARE is a quarterly record of trade across many industries in Australia. It's the source of comfort for many commentators and media pundits. I (again) suggest you read it for yourself.

    If the DOW manages to keep it;s head above 9850 and strengthens from this position on/before end Nov 2009, then all the doomsayers were wrong, and the US has finally managed to find a way out. I can't see it happening any other way myself.

    It will easily take 12 months, but gold would have gone to USD$2000 by then if this is what eventuates. I've already got the house and family future in equities, and I see no reason at the moment to change.

    But then, I live for the excitement of it all. If gold doesn't move, don't dispair - there are 1800 other equities to find a home for your investment - small caps represent the small business of the share market IMO.

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