Two Opposing Viewpoints

These ought to spark some spirited discussions over the weekend.

As you know, I'm what's known as a permabull. I'm long and stacking precious metal and nothing will shake my faith and cause me to sell. I'm only looking to add by buying the dips. However, some of you continue to trade so I try to offer honest conjecture about the short-term direction of prices.

To that end, I offer these two, competing views as to where prices may be headed in 2013. First, here's a piece from one of our bullion affiliations, Hard Assets Alliance. Not surprisingly, they fall in the "Turd Category", emphasizing patience and a buy-the-dip mentality. Lots of pretty charts, too.


A Smart Resolution for 2013

J. Keith Johnson January 11, 2013

Preparing for a new year offers new opportunities in precious metals.

As 2012 slips into memory, many have now embraced the tradition of setting resolutions for the new year. Part of this practice often includes examining the past year or two in an effort to assess where we are today and how that fits in our overall goals.

There are many benefits to examining our past as part of setting goals for the future.

We learn from our mistakes.

Current goals can be adjusted according to milestones we've met, how well we've been able to meet deadlines, and the results of our efforts.

New goals can be established in our effort to grow, mature, and prosper.

But these exercises also help us gain a more precise perspective of the bigger picture. As our perception becomes more accurate, our larger goals can be seen more clearly through the haze of immediacy that sometimes obscures our vision.

For those of us invested in precious metals, such an exercise provides a constant reminder of the reasons we hold them. As an example, consider the past few months. At the close of the year, gold had dropped $127 since its September high of $1,784.50. Clearly, this could cause some distress for gold holders, leaving many to question their reasons for owning the yellow metal.

However, looking back only a couple more months reveals gold's year-end close to be more than $100 higher than July's low of $1,556.25. Furthermore, with total gains of 8.26%, 2012 is gold's third-worst year in the past decade.

"Worst" is obviously relative, though. Stepping back to look at the past ten years reveals that gold's "worst" years weren't actually bad at all.

The fact that 2008 was gold's worst year in the past decade should come as no surprise. The pain that most investors endured that year still remains fresh in our minds. With the DJIA having dropped 33.84% and the S&P 500 losing 38.49%, many saw their portfolios literally cut in half that year. Yet gold gained 4.32% in the face of the worst annual stock performance in decades, rising from $833.75 to $869.75.

We see this repeatedly during times when many other investment options failed to perform well. The second-worst year for gold in the past decade was 2004, when gold climbed from $416.25 to finish the year at $435.60: a 4.65% gain. The DJIA gained 3.15% that year.

An overview of the past ten years certainly adds to perspective. It's also interesting to note that the worst years in the past decade have been election years.

In fact, gold hadn't lost value in any year since 2000, when it dropped from $290.25 to $274.45, a loss of 5.44%. Yet gold still represented a safer position than either the DJIA or S&P 500, which lost 6.18% and 10.14% respectively. In case you missed it, as of the close of 2012, gold has gained value every year for 12 years in a row.

After the last three presidential elections, gold has increased in price admirably. Furthermore, it appears that the middle year between presidential elections tends to be the best for gold owners, with gains of 25% in 2002, 23% in 2006, and 29% in 2010. The exception was 2007, when gold outdistanced 2006 with gains of almost 32% in value.

Looking at the past decade as a whole, consider if you had bought the DJIA or S&P 500 stocks at the beginning of 2003. Each offered some admirable profits of over 50%. However, investors who put the same amount in gold would have realized gains of over 375% during the same time frame.

There's no doubt that the last decade has provided gold with its best streak since its 1980 high. With this in mind, perhaps it's a bit lopsided to limit our analysis to ten years. After all, our exercise is an effort to understand the bigger picture in order to prepare for the future. What if we drop back another ten years?

If one had invested $1,000 in the DJIA at the beginning of 1993, today they would be sitting on about $3,970. If they'd invested $1,000 in the S&P 500, today they'd have enjoyed a 227% gain, turning into $3,270 in their account. But if they'd invested $1,000 in gold, today they'd be sitting on about $5,050 worth.

And this, ultimately, is the big picture. Unless someone is a fantastic trader, nobody's going to get rich quickly with precious metals. However, metals appear likely to keep on keeping on for the foreseeable future.

Does that mean they won't pull back more? Absolutely not. They could see a serious pullback before resuming their upward movement. But the multiyear trend continues to be upward.

This is because, overall, the pressures that have moved precious metals over the past ten years are just as present and just as concerning – if not more so – than they've been during modern history. Very little, from a macroeconomic perspective, has improved.

- The dollar continues to shed almost 2% of its value per year, if we accept the Federal Reserve's figures. But if we use the 1990 formula for inflation, it's slightly above 5%.

- Our legislators have found it utterly impossible to balance the country's budget. While there was much media hype over the fiscal cliff, the reality is that nothing really changed. The can continues to get kicked down the road for us to deal with another day.

- Unemployment, at about 8% officially, also continues to rise according to the older formula. According to John Williams of Shadowstats, with all "discouraged workers" included (the unemployed who have given up looking for work), the rate is near 23%.

These are big-picture observations. They are what we need to keep in mind as we consider 2013. And it's these observations that strengthen our resolve to buy and hold physical precious metals for the long haul. With gold's excellent track record and decade-long upward trend, it's proven to be an incredibly enduring means to preserve, and even enhance, personal wealth. Furthermore, the current pullback may offer the best opportunity to initiate or add to your current precious-metals position.

When considering gold as one of your 2013 resolutions, we invite you to look at the Hard Assets Alliance and its SmartMetals account. SmartMetals is an innovative way to buy, sell, and store precious metals – without the hassle, risk, and uncertainty of buying or selling metals through most precious-metals dealers. Check out the free SmartMetals Action Kit for answers to all of your questions.

As you prepare for 2013, be sure you've considered all available options, along with their potential for loss or gain, progress or regress, blessing or adversity. Regardless of your current situation, establishing and building a core position in precious metals is a smart resolution for 2013.


OK, then. On the flip side, a few weeks ago I received this post from a place called They are a "Hard Asset Investment Advisor" and they describe gold as a "sound asset". However, you can tell by reading the piece below that they're not too excited about what lies ahead for 2013 and beyond.


Gold Crash in 2013 or 2014?

Gold has been in a bull market for over a decade, but now we’re seeing more sideways trading than before and corrections in 2011 and 2012 were much sharper than any other correction during the 2001-2010 period.

Could this be a sign of weakness? A silence before the storm?

Can gold crash? enumerates several factors that can pull gold’s price down… Here are some of them:

1. The weakening euro, potential euro crash: If this happens, the dollar will gain from it (as he biggest rival of the euro), thus pushing gold down.

2. Gold has failed to reach predicted levels: Prestigious financial institutions have been predicting gold prices of 2,000 $ and even 2,500 $ an ounce for 2012, but gold could barely hold the 1,700 $ level – another sign of weakening.

3. Renowned experts are predicting cheaper gold for 2013: Marc Faber and Jim Rogers are just two of those expecting gold to correct strongly; Faber even talked about sub 1,500 $ gold prices in 2013.

4. In a deflationary scenario gold could become cheaper: Deflation is characterized by lower prices, diminished consumption, as people “sit on their money”, spending less – gold prices could dive, if such a thing happens (and many economists are predicting a “deflationary spiral” for the United States).

5. Weakened investor sentiment: Undoubtedly the investor sentiment has weakened during 2011, 2012 and in early 2013, but not enough to drag gold prices down significantly – if any factor drags gold down lower, investors might lose confidence and this will again undermine short-term and medium-term price increase.

6. Automatic stop-losses ending positions on bearish trends: If gold goes too low, stop-losses will “detonate”, causing a domino-effect – which in turn might cause panic and could bring gold’s prices down (the frequent horizontal oscillations and sharp corrections have recently pushed gold closer to such a scenario happening).

7. Gold price manipulation: Major financial speculators are often manipulating gold’s price downwards (by short-selling a large amount of gold, creating panic among investors, who will then in turn sell their own gold, this way bringing prices even lower) – according to Jim Sinclair, Goldman Sachs is manipulating the prices downwards only to be able to buy up more gold for much cheaper.

And these are only several issues that we have to keep in front of our eyes before investing in gold.

Why 2013-2014 is the most likely period for a gold price crash? First of all: Watch the charts and see the “humps” with sharp corrections and uncertainty reflected in sideways trading. In addition: The euro crisis is deepening and the worse the euro’s situation gets, the stronger the dollar will get (another fiat currency that will have a short-lived period of strength). The dollar will get stronger (and gold cheaper), as forex speculators and investors will rush to the dollar from the euro.

Nevertheless, gold is a sound asset with intrinsic value. But it’s only good until people believe in it.

There are forces pushing it up and there are forces dragging gold down. When the latter will prevail, gold will crash.


So there you have it. What do you think? Who's right? Could they both be right? I look forward to reading your comments on the matter.



Sad-descent's picture

North Korea

North Korea seems close to a nuke test.

North Korea has installed a screen over the entrance to one of the test tunnels at its nuclear test site in Kilju County, North Hamkyung Province, inhibiting intelligence gathering activities and raising fears of an impending nuclear detonation.

Second source

SEOUL, Feb. 3 (Yonhap) -- North Korean leader Kim Jong-un made an "important" decision regarding the communist state's security and sovereignty at a military meeting, a news report said Sunday.

   The report of the military meeting comes on the heels of speculation that North Korea is poised to conduct its third nuclear test. The North has threatened to detonate a nuclear device in retaliation for the U.N. Security Council's resolution condemning its Dec. 12 long-range rocket launch.

The Watchman's picture


philipat's picture


If your hypothesis is correct regarding the Fed writing-off all the Treasury debt (Without wiping out its shareholders, the TBTF Banks) then you have truly solved the world financial problems and happy times are here again. Just start borowing. Every Nation will be able to rack up as much debt as it wants then just write it off. Ot perhaps just mint a few Platinum coins.

But, I think not.

Libero's picture

Puck T. and Strongside

Puck T.(7:02) "When I was kid, back when Moses was a hobbledehoy, I could walk into Sears as a twelve year old and buy a hunting rifle or a shotgun and several boxes of ammo if I had the money.  I remember America; the United States sucks."

Puck- What no AR 15's on sale at Sears way back then???  Not allowed then? Back then people would be thought crazy to ask for one, ain't I right on that one??? Please answer.

Strongside (6:25) "These gun rules have opened the door for the state and federal government to track your medical history!!!!

Strongside- Just like those damn insurance companies when we want to buy life insurance.

Newtown child massacre and one crazed killer has truly ruined it for all.

DayStar's picture

RE: 73 Tonnes and What Do You Get?

Another day older and a trillion in debt! smiley (Apologies to Tennessee Ernie Ford!)

Gent, with these guys now I am just looking at what could be the worst case for people.  It seems to me the removal of PMs from the market place before the mass of people really realize what is going on and before the dollar crashes would be the worst case scenario.  This 73 tonne hit to the global supply of PMs may well be a major step in that process.  We have Germany calling for glacial repatriation of their sovereign gold that instills unease among people as to the existence of said gold.  We have Prime Minister Abe doing his best to trash the yen and people standing in line to buy gold as a result.  We have the US Mint running out of silver not once but twice in a 30 day period.  We have miner strikes in South Africa and some mines there closing.  We have massive tonnage imported into China, India, Turkey, Iran, Kazakhstan, and Russia.  I think a lot of this activity is designed to actually remove PMs from retail availability, and of course to protect some early adopters.  However, by the time the "little people" see the need and start trying to cross the chasm, there won't be any retail metal left and they will be left high and dry with not much option except to financially crash and burn.  The fact that TPTB did not try to hide the OI standing for delivery and the huge amount they reported suggests to me that they are draining the available metal and they could very well be getting ready to pull the plug on Comex and the public availability of PMs.



S Roche's picture

@Gent @Daystar and et al re Harvey Organ...

Unfortunately, this is a good example of why Harvey is almost a total waste of time, [Edit: imao​]:

Dave from Denver noted that in Shanghai a total of 31 tonnes of gold stood for delivery Thursday night. If you add the comex gold to Shanghai delivery gold we have 73 tonnes of gold standing which represents almost 40% of annual gold production. It seems to me that the physical markets are truly on fire! (emphasis added)

Umm...annual gold production is estimated to run up to about 2,800 tonnes, plus recycled gold estimated at up to 800 tonnes. 73 tonnes is about 2.6% of annual gold production and 2% of total new supply, not counting any investor sales of stock gold. plus my own research.

I defended Harvey on the never-ending Chris Martenson thread but really, Harvey does more harm than good in my opinion. I had to look up the word "febrile" recently, it is the continuous state of Harvey Organ's commentary. It is not helpful.

Dyna mo hum's picture

Prayer request for this mans exoneration

In the news this week, a Southern California man was put under 72-hour psychiatric observation when it was found he owned 100 guns and had (by rough estimate) 1 million rounds of ammunition stored in his home. The house also has a secret escape tunnel.

The television reporter said: "Wow! He has about a million machine gun bullets!" and the headline referred to it as a "massive weapons cache".

By California standards someone owning even 100,000 rounds would be called "mentally unstable".

If he lived elsewhere, such as Arizona , he'd be called "an avid gun collector."

In Oklahoma , he'd be called "a novice gun collector".

In Utah , he'd be called "moderately well prepared", but they'd probably reserve judgment until they made sure that he had a corresponding quantity of stored food.

In Montana , he'd be called "the neighborhood 'Go-To' guy".

In Idaho , he'd be called "a likely gubernatorial candidate".

In Wyoming , he'd be called "an eligible bachelor". 


In Texas , he'd be called "a Hunting Buddy".

Puck T. Smith's picture

Strongsidejedi: That's the problem.

"If the person is not mentally fit, they should probably not be allowed to carry.  But, I can not think of a way to do the screening without creating a massive national database of every citizen's diagnosis each time they see the doctor."

Who's to decide?  Are we to restrict everyone because of what someone might do?

That's why I take the extreme position: anyone may buy and carry any weapon they can afford, except where private property owners forbid it, and if someone is judged to be too dangerous they should not be in society in the first place.  They should either be hospitalized, imprisoned or executed, depending on the circumstances.  If they are not executed, and are released from prison or the hospital they should be able to buy and carry guns just like everyone else.

Puck T. Smith's picture


"Puck- What no AR 15's on sale at Sears way back then???  Not allowed then? Back then people would be thought crazy to ask for one, ain't I right on that one??? Please answer."

That would have been around 1967.  I don't think they had them.  They wer just really getting the M-16 into mass production by then.  You could get an M1 or an M14 semi, I think.  But fully auto was already restricted by that time.

Strongsidejedi's picture

@DynaMoHum (72 hr hold story)

@DynaMoHum -  The choice of the word "exoneration" is imprecise.

If a board licensed physician certifies that the patient requires emergent care, the physician in California can invoke a 72 hour hold.  The patient is admitted to a hospital and is not in a jail cell.  They're admitted without regard to ability to pay into a psychiatric medical facility. 

The term "Exoneration" suggests criminal prosecution.  This is not a criminal or legal hold on the person. It's purely medical and called a 5250.


This hold is important to have in place while the doctors treat the mentally ill man.  The only way a 72 hour hold can be made is if the person is out of touch with reality and has intent to harm himself or others with plans in place.]

California Welfare and Institutions Code Section 5250 (a) says

(a) The professional staff of the agency or facility providing
evaluation services has analyzed the person's condition and has found
the person is, as a result of mental disorder or impairment by
chronic alcoholism, a danger to others, or to himself or herself, or
gravely disabled.

proton777's picture

No comment

Strongsidejedi's picture


I hear you Puck.  But, the issue here is not the gun availability.  The issue is that the mentally ill person is not aware of what they are doing while they are sick. Or, if they are aware, they are not able to control their thoughts or actions.  If you haven't been in a Psychiatric ER, you have no idea what I'm talking about.  I've been in those settings.  People who are having manic or psychopathic breakdowns do not know where they are at.  Some of these patients do not even know who they are.  You'll ask them their name and they come back with Napoleon or Prince Harry.  Some pace around in a mania and can't stop talking with themselves.  I've even seen a doctor get punched in the face while trying to help a female psychiatric patient.  I ran to help the doctor and I asked the woman why she did that.  The manic woman basically just said that the doctor was so cute that she had to punch him.  No joke.

These people are certifiable nut cases when they're sick.  You can't call them "people" at those times because they don't act like normal people.  They're out of touch with reality when they have the breakdowns.  The thing you guys don't get is that when you put the patient on the right medication, the patient becomes a totally normal person.

Commander Mark Kelly said it at the Senate hearing this week.  He said something about how Jared Lee Loughner is a totally normal person unable to have commited the atrocity in Tuscon while under correct medication.  Commander Kelly is totally correct here.  The U of A health system, the County Health authorities, and the city of Tuscon failed in that case to put the mentally unstable patient in the health system appropriately.

The thing you guys are missing is that when the patient is normal, well, they're normal.  Like Dr. Jerome's story says, he talked with the guy when he was normal.  He was fine.  But, when the brain gets unhealthy, look out.  They become like Jekyl and Hyde and the switch is off.  Their brain doesn't process correctly and they can't connect the thoughts right, which is why they start thinking that the TV is evil and the devil is speaking to them to do something.

You give that patient a dose of Haldol and they're back to normal in a few days.

Now, if you're a gun dealer or at a gun show, you have no idea if the guy buying the ammo or weapon is stable 100%. 

In the case above, clearly the man is not stable.  That's why he's on a 5250 hold for 72 hours.

Strongsidejedi's picture

@Libero - regarding health information

@Libero - damn straight and "Fn - bubba"

I have no reason to hold back my comments at this point.  I'm fed up with the Orwellian nonsense being thrown at us as "regulation".

This is the fricking US of A people...let's wake up and get with it!

The health insurers and the data warehouse guys at CVS Caremark have more information on you than you have on yourselves!

HIPAA was supposed to protect the citizens from having their health information exposed.  Instead, it limits doctors from discussing care because they can't exchange information.  Meanwhile, the health insurers have your list of office visits, diagnoses, and medications for the past five years in their database.

If you're in a medical insurer like some big HMO's, every doctor or nurse can see your health records in great detail, like every note, medication, and phone call.

Now, the government wants to build a database to track YOUR diagnosis and YOUR treatment condition for mental illness?
I know doctors who can not get access to a patient's mental illness records when the doctor needs that information to help treat the patient.  So, the state of New York will be having to build a medical diagnosis database to track all gun owners, am I getting that right you guys in Buffalo?

Are you fricking kidding me?

The damn doctors in Manhattan at NYU can't get that information out of the 5150 hold at the psych ER across mid-town for crying out loud!

Why the hell does the State of New York get that information while the healthcare system itself isn't allowed to share that medicallky relevant information???

HIPAA my ass!  Call me Dr. Benjamin Rush and pass me a muzzle loader boys!

opticsguy's picture

Sounds like a hit job to me

gotta tie up the loose ends, Chicago style

priyam10's picture

Thoughts on COT ???

No comments on this week's cOT ?

indosil's picture

Trader Dan

Trader Dan's Interviews....I have been following them for a pretty long time now....His take on COT is very different from Turd or Harvey or any other guys......

What i infer from his interview is that COT in Silver is strong because of the Large Speculators like Hedge Funds who are treating it as an Industrial Metal & investing in it just like any other Base metals & exactlt the opposite for Gold(Mind you doesn't refer to Silver as a Monetary Asset)' rising due to the improving "Global Scenario".He also mentions in his interview that Gold & Silver rose on Friday due to bad NFP & Unemployment rate but immediately surrendered the lead on the  good Industrial Data.

If that's the case didn't Silver behave both as an industrial as well as a monetary asset?????

Please,in no way am i questioning "Trader Dan" but only putting forth my queries.

For your own conclusions

philipat's picture

@Swiss Drug Guy (S.Roche)

Yes, agreed. A basic fact check, even for a frequent publication, is essential. It would be better for HO to publish less frequently, perhaps weekly, with accurate data.

PS. Where did you get that hat.....

Revelation's picture

What a Loss...

Adrian Douglas dead at 55.

Just heard about this...One of the giants in real-world gold analysis lost his battle with cancer recently...Very sad

$54,000 Gold (if fractional reserve bullion banking did not exist)

Texas Sandman's picture

Faber just on CNBC

Telling Maria Buttaroma she was in grave danger if she didn't have gold.  That doesn't sound to me like somebody who thinks gold is going to crash.

We have seen nothing like a mania in either gold or silver and that tells me this has much further to run yet.  Gold is still less than 1% of investment assets on average.  Silver far less than that.  The most valid analysis in all likelihood is that we've been in a consolidation & we'll eventually continue higher.

Markets have two ways of correcting, either price or time.  Basically mister market is going to bore everyone to death, so they get rid of their gold holdings, then it will take off again.  Seen this many times.  And now you have bears coming out & saying this consolidation is a prelude to a sharp decline.  Very unlikely.  Think back to the 1980's top.  Blow-off then down hard.  We've seen no behavior like that at all on either count (no blow-off, no hard down).

I need to add to my stack.  Been nibbling on silver in the $30 range, but it's really hard buying more when your gold cost basis is 850 & silver is 17 at the current prices.  But I need to force myself.  Maybe turn my tax refund in to a couple nice RCM 100 oz silver bars.  Really like those even though they don't stack as well as engelhards or Johnson Matheys.

pourty's picture

@Dyna Mo Hum re: 1 million rounds...

That story was from 2007...

No less meaningful, but not a current event.  The man had a fire in his house which set off a small explosion, which led to authorities showing up.

he also had 75 pounds of black powder in his house, that quantity requires a permit and some special storage methods.

While I support his right to keep and bear arms, if you are going to turn your house into an ammo dump, I think you bear some responsibility to follow local codes and keep it from exploding and burning down your neighbors house.

I can see why a reasonable person might question his sanity.

Sad-descent's picture


"While I support his right to keep and bear arms, if you are going to turn your house into an ammo dump, I think you bear some responsibility to follow local codes and keep it from exploding and burning down your neighbors house."

This to me should be the purpose of the be the arbitrator between competing property rights.

Groaner's picture

Here is Obama shooting clay pigeons

This hits the nail on the head how the Scum bags views their subjects.

Groaner's picture

Its amazing how they have been able to control

the metals and only letting them rise by a small % each year. 

Right now to me the situation could not be any more bullish for the metals and yet they are struggling.

Central banks repatriating their gold.

The debt ceiling has to be removed since its going to rocket no matter what they do.

The jobs reports are from fantasy land.

The cannot allow interest rates to rise even a little since the debt interest will be unable to manage.

More wars coming.. 

Hey, sounds like we are living in the last days, or is this just a rehearsal

S Roche's picture


Groaner's picture

I viewed that Sandy Hook Hoax video.Anyone else see it?

It raised a lot of questions for sure.

Deception is going on constantly everywhere so what else it new?

Nothing would surprise me.

Satan is Misleading the entire inhabited earth... Rev 12:9-12

His goal is to keep people from learning the truth for their salvation. John 17:3,17

ivars's picture

@sengfarmer-where I am coming from

Thanks for keeping discussion alive. I will try to answer in more detail, but here will try just to clarify few points which might help to understand where I am coming from:

1) I do not accept anything that is claimed if I do not understand it myself. So parts of claims made in blogs, media, here I just ignore until I feel i can agree with them or argument them away. That is an ongoing process as I am new to monetary and financial stuff, but without understanding them one can not form own perspective, including historic one and geopolitical one. So some widely accepted stories/scenarios just turn out (in most cases, in fact) false after studying the issue deeper, just propaganda bluff coming from all sides. It seems no one is interested in truth as that requires a lot of effort in information space overwhelmed with simplifications and lies.

2) I come from former Soviet Union, so in my experience, which forms my worldview, state is always an enemy of the people, to bigger or lesser degree. 

State is an apparatus of coercion for elites to control masses in the pursuit of elites goals. Always. State together with elected representatives rubber stamps elites decisions enforcing them with omnipresent propaganda and policing. It is the same in communist countries as in Western as in all others. NOBODY cares about taxpayers except that they pay for enrichment of elites and maintenance and increased complexity of its bureaucratic control apparatus-state. Nobody cares for masses except they have to be kept motivated by various means to produce enough in an effective manner to sustain elites interests also in global competition. Motivation may be coercion, threats, putting people in debt, competition,  show of fight between "opposing" parties, propaganda, ideology, etc. etc but with the same goal to provide elites with more. 

In general , states all around the world are sharply turning from democratic to more autocratic because the discrepancy of weapons power of state vs. citizens is increasing to a level where state can beat its citizens into submission any time and the distance just increases especially since 1990. (See Quigley

Until population does not get hands on and can operate with ease WMD , cyber weapons and financial weapons that would threaten governments not true democracy is possible. Just a farce.

The financial crisis has speeded up the need for states to get even more control over population as unpopular decisions are coming. Also, for the USA, the internal political stability is part of an assets behind  the USD as reserve currency, so that stability can not be left to the chance.

3) Derivatives and their quadrillions. This is relatively new thing to me and I intend to study them in more detail. Before that, I am not accepting any claims about them shouted out as done deals. 

What I have understood, is that derivatives are like hedging insurance against certain financial events. So it is just natural the the total potential claims vs. the book value of premiums is enormous, as in every insurance. 

E.g I assume that home insurance is almost omnipresent in the Western world. The leverage ( premium to potential claims) is at least 1:1000 if not more. May be other insurance types ( life, cars) has lover leverage , let us say 1:100. All in all in 2009 globally insurance companies had 22,6 trillion USD in assets which are presumably accumulated premiums . So , with leverage 1:100 their total claims exposure is   22,6 trillion*100= 2,26 quadrillion USD. In 2010 alone, 4,39 USD trillion premiums were issued ( and thus 439 trillion USD claims taken on).

That number does not seem to have the same effect on public that financial insurance (derivatives) has. So there might be a difference, but I doubt that shouting is balanced with reality.

For example, if some one is insuring himself over the default of Greece with leverage proportional to the probability of this to happen within the term of insurance working, some one else might be protecting himself from Greece NOT defaulting as he has been shorting Greece bonds and EUR in other deals. In most cases, the net exposure of financial system to some event should be a balance between potential claims in both directions.   If this balance is not 0, than that is the net risk for policy issuers, and  that should be,  based on insurance practices, covered more than 100% by premiums. Some institutions may go under water in case of some event, if they are banks, probably taxpayer will bail them out, but in no case will all of them tank.

If that is not the case, please refer me to some article that would look at the derivatives market from this standpoint and show where the risks are.

The basic idea is, I am left totally unimpressed with quadrillions in claims. That means nothing out of context I asked for above. One can sell insurance against Mars falling on earth with leverage 1:trillion for  cent apiece and after first 1000 customers his exposure to claims will be 10 trillion USD. 

I understand risks become more obscure as these insurance premiums are packaged and resold but that happens also in the normal insurance market all the time and if they are not totally stupid or criminal products , and buyers are as discriminate as in real insurance markets, that should cause no big problem escalation. 

May be I am wrong about derivatives, so please help me to understand.

So please  refer to point 2 , sengfarmer, to understand that I have no illusions whatsoever about what governments and ruling elites and their dependents might do to own populations and other countries if their life interests are at stake. Anything goes. Realpolitik. The forms might be subtler in the Western democracies - which are not really democracies since about 1900 but closer to the term then China definitely.

In case other things mix into the perception of world of  interests and power it is very difficult to understand the real motives as they will be always wailed by propaganda and ideology.

Beastly Stack's picture

Good Super Sunday

Orange's picture

S Roche & Philipat - Harvey Organ

I suspect that Harvey meant annual production divided by 12 months.

I further suspect that he excluded China's production as it does not leave China.

Hence if we use 2,800 divided by 12 we get 233.

73 represents about 31%, hence his 40% is likely accurate if we exclude China's production which I did not look up.

I think Harvey is fair here as production is made available on a daily or monthly basis to supply demand needed to be filled in that time period.

Mr. Fix's picture

Reply to “Two opposing viewpoints”.

Although I reject the argument pertaining to deflation, the second scenario takes into account the manipulation that is  obviously in control of the price of gold.

Since the first scenario focuses only on fundamentals, which have never been more supportive of gold,

but the second scenario  acknowledges that the price is determined by a manipulated paper market,

I am choosing the second scenario.

I would contend that the manipulation can easily drive the price down, while simultaneously all physical supplies evaporate.

I believe that is exactly the Evil Empire's plan.

Therefore, trading paper futures is a surefire way to lose money.

In the end, only those with the physical in hand will have anything of value.

In that respect, I don't agree with either scenario,

since they both seem to be pushing  trading paper.

I am also hearing a lot of talk about the mainstream press acknowledging the value of gold,

but then at the same time promoting paper trades.

All this does is prop up a corrupt system, which will continue to steal money until it collapses.

Keep stacking,

it is the only viable strategy at this point.

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