Jubilee Prosperity

Gold went from little interest in late 1999, when it traded at $255.80 after a 20-year bear market, to $1152.80 yesterday, with johnny-come-latelies humping and plunging on positive prognostications by pundits.

In other words, gold went from $681 with fear in October 2008, to $1152.80 with greed in November 2009. The ads say it can’t go to zero, but it sure can hurt you.

Most people extrapolate recent linear past as prologue and lose money.

There is a time for every season and a rhyme for every reason.

Gold rose with the hidden 84% real devaluation of the dollar under warfare welfare guns and butter government policies accelerated since 9-11.

New nominal highs in gold were recently triggered by widely reported news of Arab, China, India and Russia mercantile purchases. These combined with rumours of Gold Exchange delivery default meltups that have been around for years to drive gold up in nominal prices. Gold is still half what it was in 1980 in real terms.

It is worth considering there is a seller for every buyer. If we do not know who the smart money is, then we are missing an important clue.

Gold can be settled by central bank sales, 22-carat coin melt at a discount, or cash or credit under Exchange force majeure rules.

It pays well to read the fine print and learn from history.

Exchange Directors can increase required derivative margins to the point big longs have to sell, as happened in 1980 with Arab Hunt Silver at $50, which quickly dropped to single digits with disabling margin calls and 29 years later has still not recovered in nominal, let alone real terms.

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This entry was posted on Thursday, November 19th, 2009 at 7:46 pm and is filed under Capital Preservation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.