Wednesday, March 25, 2009

Peak Oil Financial Planning: Get Out of the U.S. Dollar Now

"Why you should get out of the US dollar now!" By Justice Litle in CommodityOnline.com

"Get out of the U.S. Dollar. NOW. Do not pass go, do not collect $200, do not stop to conduct an impromptu inventory of your unmentionables." (Continued here)

This article is based on concerns that "China wants the dollar replaced as reserve currency." But regardless of this, printing dollars means inflation, and Peak Oil inflation is just around the corner. All currencies, pensions, retirement plans, life insurance, health insurance, and long term care insurance are promises to be able to buy oil in the future (all depend on oil). As oil supplies diminish, these promises evaporate in inflation and bankruptcies.

Gold and silver are mentioned as possible safe havens, but are not. The prices of gold and silver have not been going up as the world economy collapses. Both are used in electronics and jewelry and therefore the demand for these metals is collapsing. Gold and silver are a bubble waiting to burst.

8 comments:

Canadian silver bug said...

I beg to differ on your interpretation of the gold and silver market. In the last several years gold demand has soared despite a drop in jewelry demand(industrial demand for gold is marginal at best and not a factor). Gold production has been dropping and only the selling of central bank gold has managed to keep the price at these levels over the last 5 years, if 500 tonnes/year had not been sold off to supress the price it would be much higher. Central banks do not have unlimited Gold and some have started to become net buyers again. The tide is swinging and the U.S., Canadian, Austrailian and south African mints cannot keep up with demand for gold coins.

Gold has also retained its value when equities have not over the last 12 months

silver is potentially much stronger than gold because recession causes zinc, copper,and lead mines to close which supply 60%+ of all silver, silver demand is not going to drop 60% and above ground reserves will be used up if the recession continues. In silver's case the same mints have not been able to meet the spiking demand, creating a retail shortage.

Clifford J. Wirth, Ph.D. said...

Hi Canadian Silver Bug,

From Gold News: "Both 2008 and 2009 have now seen these long-standing patterns virtually destroyed. The jewelry market has diminished considerably due to the buoyant Gold Price, lessening its impact on the September to December period in the developed world. In India there have been virtually no imports of gold in the last six to nine months, because Indian consumers have felt that prices were just too high between 12,000 and now 16,000 Rupees per 10 grams, the standard pricing-weight locally.

Right now Indian gold imports remain virtually nil. So the idea that the gold market will quieten in May, becomes a non-event. Because Indian gold demand has already been quiet since the start of the current 'gold year' which began in September 2008.

Thus we do not expect to see any drop off in demand in the gold market this spring. What is there to drop off from?"

http://goldnews.bullionvault.com/gold_seasons_032520095

canadian silver bug said...

India is the largest retail buyer of gold but has become more savy in recent years with people buying coins and wafers due to the lower premiums vs. bangles and chains but net purchasing is down as your article states. There is however powerfull western and institutional gold investing that has so far made up for the lost indian demand, Indians are also substituding silver in some cases, because of the more attractive price and the proven depletion of silver stockpiles.

From Jeff Chrisitian 2008 CPM gold book,
" Mine production continued to decline last year(2008), to 55.3 million ounces from 58.7 million ounces in 2007",
there was however additional recycling, but lower government sales. It's a big complex picture but Indian gold sales do not define the market. Old mines are being drawn down and new mines are slow to start and usually lower yields than those they replace

"investor buying is projected to reach a record 52.3 million ounces this year." up from 2008s 43.3


the end picture for 2008 year was,

"This reduced the total available supply to the gold market to 120.7 million ounces from 127.0 million ounces in 2007."

The market can afford some lost demand if supply is also contracting. The real wild card for the year is how much IMF gold gets sold to balance the books

Clifford J. Wirth, Ph.D. said...

Hi Canadian Silver Bug,

Gold prices have not gone up in the last year, despite the collapse of the global economy:

http://www.kitco.com/charts/livegold.html

Ove the last year, silver prices have declined: http://www.kitco.com/scripts/hist_charts/monthly_graphs.plx

www.gregor.us said...

Hi Cliff. My comment about gold is that its purchasing power has soared as global asset deflation unfolded the past 9 months. Gold must always be measured in real terms, not absolute terms. While I don't expect the global asset deflation to continue, and while it's certainly possible that gold will weaken in terms of selected currencies, I would be very surprised if, over the next year, gold's purchasing power falls. Always possible.

To your point, Silver is indeed more tied to industrial demand. However, we have long, long since departed the industrial demand realm for gold. We have been into the monetary realm for gold for at least two years. And with more phases of the crisis to come, I don't see an end to that paradigm for gold.

I would normally prefer to not live in a world in which the prospects for gold were not so bright. Alas, gold has an excellent chance to triple from here. The key, as always, is to exit gold and buy the next undervalued asset class when the time comes. If someone wants to make the case that time is now, and the asset, say, is Oil--well, I think people should be open to that argument.

G

Clifford J. Wirth, Ph.D. said...

Dear G.

Here is what I wrote in my post:

"The prices of gold and silver have not been going up as the world economy collapses. Both are used in electronics and jewelry and therefore the demand for these metals is collapsing. Gold and silver are a bubble waiting to burst."

Despite many words, you have not put a dent in what I said in the post. Many people hold the position that you do, that gold is a good investment. But gold is a bubble, as it has not much real intrinsic value. Oil, land, and food production have more real value. If a government suddenly dumps much gold on the world market, the price will drop, and others will sell, and as more sell the price will drop -- just like with many homes up for sale today.
But only the future will tell.

Most financial advisers suggest having no more than 10 percent gold/silver in one's portfolio.

Anonymous said...

Gold prices have not gone up in the last year, despite the collapse of the global economy

When measured in US $, you are correct. However, such generalizations fail to take into consideration the strong backing of the American dollar. Gold is moving higher vs. other relatively weak currencies (e.g. Canada, UK, Poland).

Additionally, gold does have some intrinsic value, namely, since the government is limited by how much one can fabricate per given year. That is why it is considered a storage of wealth, compared to fiat currency (which can be produced on a whim).

"Value," as you state, is a matter of perspective, on the basis of supply and demand. Food production, much like oil production or precious metal extraction, can vary on a year-to-year basis as determined by producers and the market. Likewise, it can also be subject to the fear and/or greed of those interested in their respective commodities (ever see the movie "Trading Places" ?).

There is plenty of anecdotal evidence to suggest that prices may be suppressed, but that hasn't stopped demand from subsiding. Gold and silver are starting to fetch a hefty premium at coin shows and on the internet, and the lack of available supply is only pushing prices higher.

Clifford J. Wirth, Ph.D. said...

Dear Anonymous,

Most financial advisers suggest having no more than 10 percent gold/silver in one's portfolio.

Gold and silver are bubbles that will burst as soon as one or more governments sell much of it, and the price drops. As it drops, more will sell and the bubble will burst.

My advice to you is to diversify and get a grip on history and Peak Oil. See Chris Shaw's "Man and Stuff" listed on my blog, right side. Gold is tokens. After the last power blackout, a lot of people will have lots of tokens that are basically worthless. Gold has token value today, but not so in the Post Peak future.

After the last power blackout, you will wish you had converted your gold into something useful, like a wood stove, wood saws, farm land, or living in a sustainable place.

In the future, when someone wants to buy my macadamia nuts, I won't trade them for gold coins, but will take some cloth or dental services in trade.

Best wishes,

Cliff Wirth