Wednesday, March 7, 2012
From: SGTbull07 | Mar 4, 2012
On February 29, gold dropped 4.8% and silver 6.2% (based on London fix prices). That's quite the fall for one day. We've seen prices that have risen that much, too. But as I'm about to show, these ain't nothin', baby. Based on our experience, we've been saying for some time that volatility will increase as the markets fight their way to the mania phase of this cycle – and that once there, the gyrations will jump even higher. This call doesn't exactly require one to go out on a limb; it makes sense since more investors will be crowding in – and volatility was high in the 1979-'80 mania.... There are some definite conclusions we can draw from the historical picture:
First, if history repeats, or even rhymes, our biggest days of volatility are ahead. And they will be normal.
Second, big price fluctuations will be common as we enter the mania and approach the peak. In fact, when large daily movements become the norm, the historical record suggests we will be nearing the end of the cycle.
Third, since current volatility has thus far been lower than what was experienced during the final phase of the 1970s bull market, we are not in a bubble, nor yet in the mania phase, and nowhere near the top. Remember that the next time you hear some nincompoop spew bubble talk on CNBC.
What can an investor do with this information? Prepare yourself for bigger daily swings – in both directions. And buying on those outsized drops is probably a good strategy… Because we now know what volatility looks like.
Thanks to SRSROCCO for the following text and stats:
In 2010, the top 5 gold miners consumed a total (estimated) 470 million gallons of diesel to produce 19.7 million ounces of gold. This turns out to be 24 gallons of diesel per ounce of gold produced. If we estimate that these gold big cap miners only had to pay about $3.50 (maybe less due to hedging) for diesel, their grand total diesel cost per ounce was:
TOP 5 GOLD MINERS
$3.50 X 24 Gallons = $84 diesel cost per ounce of gold
$84 / $1,600 (average price of gold) = 5% diesel cost per ounce of gold
By Paul Nathan
It can be difficult to grasp that under a gold standard there is no "price" of gold. We're used to gold being expressed in dollars but what if a dollar was gold? What if you wanted to buy wheat or steel with gold? If dollars were gold these things would be valued not in dollars but in terms of gold. We wouldn't care about the price of gold; we would instead want to know how much our gold could buy. The price of goods, commodities and services would all be valued in relation to gold and a "dollar" would simply be another word for a specified amount of gold.
Gold is always worth what it can buy. To ask what the price of gold is in terms of dollars is redundant under a gold standard. If a dollar were defined as, let's say 1/2000th of an ounce of gold, we would then need to know how much of any given commodity 1/2000th of an ounce, or a dollar of gold would buy. Under a gold standard that would be determined by the marketplace-as it was for centuries. Only under a dollar standard has the "price" of gold become an issue. Why? The dollar depreciates. Since we went off the gold standard the dollar has experienced an almost 100% devaluation. In 1913 an ounce of gold could be bought for $20.67, soon after it cost $35 for an ounce, and today an ounce of gold costs almost 2,000 dollars.
To understand the fallacy of having a price for gold, temporarily forget about the dollar and look at what commodities are worth in relation to other commodities. Unlike their relationship to paper money, the relationship of commodities to each other has stayed roughly the same over centuries.
Here is an example from my article Trillion Dollar Gold:
If people were allowed to accept gold and silver coins the world would look much different. For example, everyone is complaining about the high price of gas. A gallon of gas is actually cheap. What if I told you that a gallon of gas actually only costs about a dime? It does-a silver dime. At 35 dollars for an ounce for silver, one tenth of that, or one thin new dime is worth about $3.50 or about what the national average price of gas is.
Since abandoning the gold standard dollars have become synonymous with paper money. We rarely even think of money now as anything other than paper. That's why people talk about the "price" of gold. But for centuries before paper there was the silver doubloon and the twenty dollar gold piece-the cold hard cash of the realm.
"Hard" and "cold" were terms used to distinguish commodity money from "soft" paper money back when people still handled both. Many mistrusted paper promises and opted to be paid in specie only, money they could touch and feel. Paper sometimes circulated at a discount to specie due to war, bank failures, or general fiscal mistrust; the same is true today.
With commodities valued this way money remained stable for centuries, yet the paper dollar has fallen in value by 98% since its crowing. Isn't it ironic that we still cling to the dollar as our "standard?" We price everything using depreciating dollars, but if we removed the dollar we could return to a system where goods and services are valued by what it cost to purchase them with other goods. In actuality, commodity prices have remained relatively stable over our lifetime. So why do we continue to use the dollar?
Good question. Especially when we consider that gold's value is about the same today as it was a century ago. It'd take about the same amount of gold today to buy a bushel of corn or a barrel of oil as it would of have in 1800. And if we paid with silver at the pump we'd be paying about the same for gas now as any other time in our history. That is why the free market always chose a commodity to be money, not decreed government paper promises. Isn't it time to reexamine the virtues of such a standard?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Paul Nathan has passionately written in support of a free marketplace and real money for over forty years. Since 2008 Paul has been a contributing commentator for Kitco and writes a candid, real-time, Market Update for subscribing traders investors. In 2011 John Wiley & Sons published The New Gold Standard, Paul Nathan’s definitive work on the gold standard past and present. Paul called the end of the bull market for gold in 1980, the beginning of the 25 year tech revolution and bull market in 1982, went “All In” on gold and gold stocks in 2001, and alerted his readers to short the DOW at 14000 in July of 2007. 2008 and 2009, catastrophic years for most traders, were two of the best years in his trading career.