This follows on from my two posts in 2008 (that long ago?!) estimating the fair price of gold needed to balance external US debt liabilities. At that time the gold price needed was about $8300 per ounce.
$8387.96 Gold & US Balance sheet #2! 2008-07-18
Estimate gold market @ $8355+! 2008-07-18
Now it has changed. The US debt has increased a lot since then!
These $8300 figures were taken from estimates of US debt held by foreign entities and dividing that by the US gold reserves.
This time I have used the following two sources of data:
The text file on the St. Louis Fed website, giving foreign holdings of US debt. It's called:
'Federal Debt Held by Foreign & International Investors'
which now totals $3,884,000,000,000 (3.884 trillion, up a long way from the figure I used for 2007/08 which was $2.190 trillion
and the evergreen Wikipedia:
http://en.wikipedia.org/wiki/Official_gold_reserves
which gives 8133.5 tonnes for the USA (unchanged since 2008)
The gold price to cover this debt is:
3,884,000,000,000/8,133.5/32150=$14853.22 per ounce of gold.
Incidentally, 32150 is the number of Troy ounces in 1 tonne.
The actual gold price for 15 September 2010 is $1267.70 after a high near $1275 yesterday, so it's currently 8.53% of fair external debt budget balancing value, i.e. 91.47% undervalued.
Gold is more undervalued on this metric than it was in July 2008, when it was over 10% (11.3%) of fair value, i.e. 88.7% undervalued, despite its rise from $948.80 to $1267.70 in the last two years.
That's 'only' a 33.6% rise in $ gold price over 26 months. Not exactly a bubble is it?
Wednesday, 15 September 2010
Monday, 10 May 2010
The end of the euro as a sound currency? 2010-05-10 15:43 BST
Happy Monday today? Well it is for anyone who needs a loan in Europe!
http://www.reuters.com/article/idUSN1019810320100510
"US STOCKS-Wall St set to soar on euro-zone rescue plan."
"NEW YORK, May 10 (Reuters) - U.S. stocks were poised to jump about 4 percent at the open on Monday after a $1 trillion global emergency rescue package was launched, quelling contagion fears and sending European stocks surging."
Looking at http://www.kitco.com/ , they are spot on. The Dow is up 434 points, that's 4%!
"DJIA 10,814.84 +434.41" 10:08 NY time, quote delayed 30 minutes.
Wow.
The article says:
"The rescue package pledged 500 billion euros ($670 billion) in loans and loan guarantees to euro-zone countries, plus about 250 billion euros from the International Monetary Fund. The package is on the same scale as the $700 billion bailout launched by the United States to stave off the credit crisis."
I thought that Greece needed about 30 billion euros originally and that ballooned to 100 billion in recent weeks. Now the package (including other countries) is 500 billion!
It goes on:
"...the European Central Bank said it would buy government debt to steady investor nerves. A number of European central banks said they had already started."
That sounds like Quantitative Easing to me, printing money. QE to infinity as Jim Sinclair has recently predicted as being inevitable.
Doesn;' this mean the end of the euro as a sound currency. It's no longer a hedge against the dollar, just another banana republic style set of pieces of pretty coloured paper. The Germans will be delighted that's for sure. Good for their exports with a weak euro but another big inflation to come to go with the one in the 1920s. The German thrift has bailed out mediterranean recklessness as Bob Hoye has said.
Gold of course has gone down a bit, but not much. It will fade as the safety trade for a little while but has the potential to come in instead as the big inflation trade because none of these currencies can even pretend in the slightest to be sound money now!
http://www.reuters.com/article/idUSN1019810320100510
"US STOCKS-Wall St set to soar on euro-zone rescue plan."
"NEW YORK, May 10 (Reuters) - U.S. stocks were poised to jump about 4 percent at the open on Monday after a $1 trillion global emergency rescue package was launched, quelling contagion fears and sending European stocks surging."
Looking at http://www.kitco.com/ , they are spot on. The Dow is up 434 points, that's 4%!
"DJIA 10,814.84 +434.41" 10:08 NY time, quote delayed 30 minutes.
Wow.
The article says:
"The rescue package pledged 500 billion euros ($670 billion) in loans and loan guarantees to euro-zone countries, plus about 250 billion euros from the International Monetary Fund. The package is on the same scale as the $700 billion bailout launched by the United States to stave off the credit crisis."
I thought that Greece needed about 30 billion euros originally and that ballooned to 100 billion in recent weeks. Now the package (including other countries) is 500 billion!
It goes on:
"...the European Central Bank said it would buy government debt to steady investor nerves. A number of European central banks said they had already started."
That sounds like Quantitative Easing to me, printing money. QE to infinity as Jim Sinclair has recently predicted as being inevitable.
Doesn;' this mean the end of the euro as a sound currency. It's no longer a hedge against the dollar, just another banana republic style set of pieces of pretty coloured paper. The Germans will be delighted that's for sure. Good for their exports with a weak euro but another big inflation to come to go with the one in the 1920s. The German thrift has bailed out mediterranean recklessness as Bob Hoye has said.
Gold of course has gone down a bit, but not much. It will fade as the safety trade for a little while but has the potential to come in instead as the big inflation trade because none of these currencies can even pretend in the slightest to be sound money now!
Friday, 15 January 2010
An Astronomy lesson from Zimbabwe and the USA. 2010-01-15
Friday 15th January 2010 at 21:36 GMT
I must be in need of something better to do. When I was little, I used to do sums in my head for amusement and I decided to try some mental arithmetic last week to see if I could still do it!
I rememeber considering the US government's debt a few years ago, when it was 6 trillion dollars. I realised that this was in fact an astronomical sum, literally. You see, 6 trillion miles or 6 million million miles as the famous astronomer Patrick Moore put it, is equal to one light year, the distance the fastest thing in the universe, light, travels in a year. So the USA was already in a truly astronomical amount of debt. Forget the distance of Neptune, which is about 3 thousand million (now called 3 billion) miles; that is a mere snip. I mean that is nowhere near the extent of this year's bonuses for the bailed out investment banks, is it? Solar System scales are not sufficent to describe these sums of money; interstellar scales are needed.
The nearest star is Proxima Centauri, a red dwarf that orbits alpha Centauri, the latter of which is visible clearly in the southern sky. They are 4.2 light years away. That is abut 25 trillion miles. Sirius, the brightest star in the sky (partly because it is one of the nearest) is 8.6 light years away; that's about 50 trillion miles or 80 trillion kilometres. Now that is about equal to the unfunded liabilities of the USA in US dollars.
A mile or a kilometre is a nice unit, because it takes a little effort to walk it; 15 or 10 minutes respectively. And it takes a little effort to earn a pound, a euro or a dollar for an ordinary working person in the western world and a lot more effort for the average person in China or India. So it's a good thing to consider as a measure. Now think how much effort it would take to walk all the way to Sirius and you get an idea of whether the US debts are ever going to be paid off!
Right, let's get to Zimbabwe. Things get even more interesting because even the seemingly unimaginable distances of space are barely enough to describe the debasement of their currency.
What started me off on this bout of maths, apart from the sheer mind-numbing tedium of living in cultureless central England was this graph, shown below, charting the inflation of the Zimbabwe dollar since 1/1/2001, an interval of a mere 9 years, by plotting how many Zimbabwe dollars traded for 1 US dollar. It starts at 100 and then rises steadily, then wildly to somewhere between 10 to the power of 23 and 10 to the power of 31, depending on whether you believe official or unofficial data, internal goverment or external agency data.
In the worst case, the US dollar was worth 1,000,000,000,000,000,000,000,000,000,000 Zimbabwe dollars, i.e. 10 to the power of 30, or 1 E+30.
I wondered what this might represent. Well, in fact, after doing some mental arithmetic, I arrived at the shocking conclusion that this number is about equal to the distance across the entire observable universe, in millimetres.
I am sure therefore, that by the end, 1 Zimbabwe dollar (or perhaps even 1,000 Zimbabwe dollars) would not have bought you a single molecule or even a single atom of anything, given that there are about 1 E+23 atoms in a gram!
Chart courtesy of the fabulous http://www.wikipedia.org/.
See also http://en.wikipedia.org/wiki/Zimbabwean_dollar#Hyperinflation !
I must be in need of something better to do. When I was little, I used to do sums in my head for amusement and I decided to try some mental arithmetic last week to see if I could still do it!
I rememeber considering the US government's debt a few years ago, when it was 6 trillion dollars. I realised that this was in fact an astronomical sum, literally. You see, 6 trillion miles or 6 million million miles as the famous astronomer Patrick Moore put it, is equal to one light year, the distance the fastest thing in the universe, light, travels in a year. So the USA was already in a truly astronomical amount of debt. Forget the distance of Neptune, which is about 3 thousand million (now called 3 billion) miles; that is a mere snip. I mean that is nowhere near the extent of this year's bonuses for the bailed out investment banks, is it? Solar System scales are not sufficent to describe these sums of money; interstellar scales are needed.
The nearest star is Proxima Centauri, a red dwarf that orbits alpha Centauri, the latter of which is visible clearly in the southern sky. They are 4.2 light years away. That is abut 25 trillion miles. Sirius, the brightest star in the sky (partly because it is one of the nearest) is 8.6 light years away; that's about 50 trillion miles or 80 trillion kilometres. Now that is about equal to the unfunded liabilities of the USA in US dollars.
A mile or a kilometre is a nice unit, because it takes a little effort to walk it; 15 or 10 minutes respectively. And it takes a little effort to earn a pound, a euro or a dollar for an ordinary working person in the western world and a lot more effort for the average person in China or India. So it's a good thing to consider as a measure. Now think how much effort it would take to walk all the way to Sirius and you get an idea of whether the US debts are ever going to be paid off!
Right, let's get to Zimbabwe. Things get even more interesting because even the seemingly unimaginable distances of space are barely enough to describe the debasement of their currency.
What started me off on this bout of maths, apart from the sheer mind-numbing tedium of living in cultureless central England was this graph, shown below, charting the inflation of the Zimbabwe dollar since 1/1/2001, an interval of a mere 9 years, by plotting how many Zimbabwe dollars traded for 1 US dollar. It starts at 100 and then rises steadily, then wildly to somewhere between 10 to the power of 23 and 10 to the power of 31, depending on whether you believe official or unofficial data, internal goverment or external agency data.
In the worst case, the US dollar was worth 1,000,000,000,000,000,000,000,000,000,000 Zimbabwe dollars, i.e. 10 to the power of 30, or 1 E+30.
I wondered what this might represent. Well, in fact, after doing some mental arithmetic, I arrived at the shocking conclusion that this number is about equal to the distance across the entire observable universe, in millimetres.
I am sure therefore, that by the end, 1 Zimbabwe dollar (or perhaps even 1,000 Zimbabwe dollars) would not have bought you a single molecule or even a single atom of anything, given that there are about 1 E+23 atoms in a gram!
Chart courtesy of the fabulous http://www.wikipedia.org/.
See also http://en.wikipedia.org/wiki/Zimbabwean_dollar#Hyperinflation !
Wednesday, 25 November 2009
Record debasement of British Pound! : 2009-11-25
Don't worry, these are not British pounds - we are not there (yet)!
Wednesday 25th November 2009 at 16:58.
So the record high in gold in pounds Sterling gives a new record low for the British pound in terms of gold. Let's see just how much our government and bankers have managed to debase the pound over the last century.
Easy to calculate. The present value of the £ compared to its value under the Gold Standard is the reciprocal of the current bullion price of a gold Sovereign coin which used to be a £1 coin worth £1!
Sovereign gold content = 0.2354 ounces
Present bullion value = 0.2354*706.73 (today's 'PM Fix' London gold price)
= £166.36 in today's 'money'.
It has been debased by a factor of 166 times.
Reciprocal of this (1/x function) = 0.006011 (oh dear).
Conclusion: The pound Sterling is now worth 0.6% of its original value under the gold standard when Sovereigns were issued annually for nearly 100 years between 1817-1914 for use as money before Britain left the Gold Standard.
It has lost 99.4% of its value since then; rather, 99.4% of its value has been taken away.
Let's calculate the new £ in terms of the old 'LSD' money (pounds, shillings and pence) where 20 shillings made £1 and 12 pence ('12d') made a shilling, ie 240d to the pound.
0.06011*240=1.44 d (old pence)
Interestingly, as an aside, in 1797 England issued 'Cartwheel Twopences' struck by the Matthew Boulton steam coin press (when Britain was the major industrial power in the world) and these weighed 2 ounces - almost like being on a gold/silver/copper trimetallic monetary standard, the price of copper being 1d per ounce.
In terms of this, today's pound sterling would be worth 1.44 ounces of copper when it used to be worth nearly 1/4 ounce of gold!
This fits neatly with the idea (the fact) that, when a government takes precious metals out of the coinage and replaces them with base metals, it allows them to debase the currency over time until the coins actually reach the intrinsic market value of the base metals they contain! The pound is now indeed a base metal coin, as are the dollar and the euro (and all the rest). Well, base metals dollars were produced in year 2000 and anyway, the alternative is a paper dollar, also very cheap to make. Eventually, a stage is reached when even the base metals in the coinage become more valuable than the face value of the coins for the lower value demoninations and have to be :
a) replaced by cheaper metals (copper pennies in Britain replaced by copper-plated steel in 1992 which is magnetic - you can separate these 1992-onwards minted coins using a magnet),
b) shrunk to fit the new shrunken metal value of the currency - (the cupro-nickel (formerly silver!) British coins were shrunk around the same time by about half, presumably for this reason), or
c) discontinued altogether (the smallest demonination English coins such as farthings and halfpennies were sequentially phased out, presumably because they couldn't buy anything or they were too costly to manufacture).
Eventually, under a paper money system, the monetary value of the paper note can be decreased until it is worth as much as the actual paper and ink plus perhaps the processing cost for manufacturing the actual note.
After that one is exhausted, you just add more zeros to the note, until you can hardly fit any more onto it.
Thanks to the wonderful Wikipedia for pictures.
See:
http://en.wikipedia.org/wiki/Zimbabwean_dollar
&
http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe
.
New gold highs in Sterling! : 2009-11-25
Wednesday 25th November 2009 at 16:26.
I blinked and I missed it! Over last weekend the gold price zipped past its old all-time high in pounds Sterling of around £693 per ounce set around the beginning of February 2009 and has registered six London Fixes all above £700.
Today 2009-11-25 : GBP 704.45 706.73
Yesterday 2009-11-24 : GBP 708.81 703.30
Monday 2009-11-23 : GBP 702.41 702.87
compared to last week :-
Friday 2009-11-20: GBP 690.83 691.04
Thursday 2009-11-19: GBP 681.55 682.84
Last Friday's close was £696.81 (US$1150.90 with$1.6517:£1), which I think is clearly abover the old high from earlier this year.
Currently at 11:02 NY time on 2009-11-25, 16:02 London time, the Sterling price is £707.33 (or US$1178.40-1178.50 depending on which end of the Kitco page you are reading ,with $1.6660:£1).
I blinked and I missed it! Over last weekend the gold price zipped past its old all-time high in pounds Sterling of around £693 per ounce set around the beginning of February 2009 and has registered six London Fixes all above £700.
Today 2009-11-25 : GBP 704.45 706.73
Yesterday 2009-11-24 : GBP 708.81 703.30
Monday 2009-11-23 : GBP 702.41 702.87
compared to last week :-
Friday 2009-11-20: GBP 690.83 691.04
Thursday 2009-11-19: GBP 681.55 682.84
Last Friday's close was £696.81 (US$1150.90 with$1.6517:£1), which I think is clearly abover the old high from earlier this year.
Currently at 11:02 NY time on 2009-11-25, 16:02 London time, the Sterling price is £707.33 (or US$1178.40-1178.50 depending on which end of the Kitco page you are reading ,with $1.6660:£1).
What would be bullish for gold? 2009-11-25
Wednesday 25th November 2009 at about 16:00.
If India's Central Bank bought the remaining 200 tonnes of IMF gold. That would be bullish for gold.
What about China? Well, they have been said to have purchased 454 tonnes since 2003. See this article:
China admits to building up stockpile of gold
http://www.financialpost.com/news-sectors/story.html?id=1530063
"...country's [China's] reserves had risen by 454 tonnes from 600 tonnes since 2003."
Maybe they have bought enough for the time being? They were often expected to be going to be the purchasers of the IMF gold but maybe India might take the rest. Either way, these facts are a sure sign of the debasement of the US dollar and other currencies and also of the transfer of wealth from west to east in the world and the impoverishment that is to come for the average people in Britain and America in the future.
Our priest at Kettering Parish Church in England was talking about the gold price this lunchtime after reading about it in the paper.
I think we are in the midst of a spike up in the price that is going to be followed by a major correction at some point. With the news media following moves in gold and the Commitment of Traders net short position in gold at record levels and concentrated in a few powerful bankers' hands, it seems like we are entering a highly dangerous situation for speculators in the near future.
If India's Central Bank bought the remaining 200 tonnes of IMF gold. That would be bullish for gold.
What about China? Well, they have been said to have purchased 454 tonnes since 2003. See this article:
China admits to building up stockpile of gold
http://www.financialpost.com/news-sectors/story.html?id=1530063
"...country's [China's] reserves had risen by 454 tonnes from 600 tonnes since 2003."
Maybe they have bought enough for the time being? They were often expected to be going to be the purchasers of the IMF gold but maybe India might take the rest. Either way, these facts are a sure sign of the debasement of the US dollar and other currencies and also of the transfer of wealth from west to east in the world and the impoverishment that is to come for the average people in Britain and America in the future.
Our priest at Kettering Parish Church in England was talking about the gold price this lunchtime after reading about it in the paper.
I think we are in the midst of a spike up in the price that is going to be followed by a major correction at some point. With the news media following moves in gold and the Commitment of Traders net short position in gold at record levels and concentrated in a few powerful bankers' hands, it seems like we are entering a highly dangerous situation for speculators in the near future.
Saturday, 21 November 2009
Jim Sinclair's Swiss Stairs in Gold: 2009-11-21
Jim Sinclair's Swiss Stairs in Gold!
Saturday 21st November at 11:50 am
In his great interview on King World News:
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2009/11/13_Jim_Sinclair.html ,
Jim Sinclair talks about the Indian Central Bank's purchase of 200 tonnes of gold from the IMF. He mentions that he could see some market action indicating central bank buying in the gold chart in the 'Swiss Stairs' formation in recent weeks. I recall that he showed an example of a 'Swiss Stairs' formation onb a chart a few years ago on his webaite http://www.jsmineset.com/ and now we see a real one in gold!
I went and looked at the chart on stockcharts.com. Here is the link, look between September and November 2009 at the price action from August to November 2009 at prices fromabout $920 to $1150.
http://stockcharts.com/charts/gallery.html?$gold
Here is my cutout from the chart (click the chart for a better resolution):
Saturday 21st November at 11:50 am
In his great interview on King World News:
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2009/11/13_Jim_Sinclair.html ,
Jim Sinclair talks about the Indian Central Bank's purchase of 200 tonnes of gold from the IMF. He mentions that he could see some market action indicating central bank buying in the gold chart in the 'Swiss Stairs' formation in recent weeks. I recall that he showed an example of a 'Swiss Stairs' formation onb a chart a few years ago on his webaite http://www.jsmineset.com/ and now we see a real one in gold!
I went and looked at the chart on stockcharts.com. Here is the link, look between September and November 2009 at the price action from August to November 2009 at prices fromabout $920 to $1150.
http://stockcharts.com/charts/gallery.html?$gold
Here is my cutout from the chart (click the chart for a better resolution):
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