Quote from: cypherdoc on August 09, 2011, 04:55:27 PM

miscreanity: you've already had your increasing ascent and blow off top as i look at the daily chart.

From Whose wrong: Gold or Treasuries? yesterday:

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Keep in mind that a double top or gradual rollover pattern is not indicative of the final high. Instead, watch for gold to establish a new trading channel with a higher angle of ascent from the one formed over the past decade. The price will definitely be highly volatile, perhaps $100+ range per day, but the overall trend will still be ascending.

Followed by my subsequent post:

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* Note that gold has formed a double top on the short term charts (1hr or shorter) after a push down from ~$1770 to ~$1730. The $1650-1680 range is the initial target followed by $1600 and $1550. Any spike down from here on out will be met with immense buying, so the drops will be very short-lived. Trade short at your own risk; I recommend buying physical metal.

Indeed, there was a drive down from about $1780 to $1720 over the course of nearly six hours followed by steady buying. The price is now steady at ~$1740 prior to the FOMC announcement. If the $1650 level cannot be breached and close to the downside of that level, the problems will prove worse than almost anyone expects.

I'm not interested in a pissing contest, so let's move on.

Quote from: cypherdoc on August 09, 2011, 03:58:39 PM

if our fiat money system was based primarily on the printing of money as you say you would be right. but in fact the amount of money printed since 2008 has only been on the order of 1.6T give or take and mostly is retained on the balance of the Feds balance sheet as excess reserves.

as most of us here realize, USD's mostly exist as debt or virtual money so to speak. this is a key differnence btwn what happened in Weimar Germany and Zimbabwe. both had no or insignificant debt markets with which to issue debt backed money. this is why when they printed money they went into hyperinflation b/c once printed they can't be removed from circulation.

contrast this with what we've done with the USD. the amt of leverage in the world dwarfs the actual currency by orders of magnitude. private debt is around 55T. the derivatives mkt is a quadrillion. how many trillion do we owe in entitlements being paid with debt. whats happening now is widespread defaults on this same debt which is CONTRACTING the money supply (amt of debt) hence deflation. there won't be enough leverage to sustain prices at these levels even gold and silver. its all about the USD as you said. but instead of managing it down, i think they are trying to manage it back up.

UST's is betraying your arguments as well having rallied since the downgrade. the setup is here.

No new money needs to be printed for massive inflation to occur; more than enough already exists to trigger such a monetary event. I'll explain momentarily. First, a few important points:

"Dollarization" due to the dollar's status as global reserve currency has led to more than half of existing dollar instruments being held outside of the US.
The petrodollar is the largest aggregate pool of foreign-held US currency.
The US dollar has been losing its appeal in global markets; this can be seen in efforts by oil producing nations to use alternative currencies.
Volatility in the exchange rate of the USD has been significant since 2008 with massive inflows and outflows over short periods of time.
Gold is held in varying quantities by central banks as a reserve asset.

If we agree on the above statements, we can continue.

What would happen if all the dollars around the world went back to the US? It would effectively double the money supply there or more, wouldn't it? I think we could agree that 100% or greater inflation, even spread over several years, could be highly detrimental to any economy.

That is effectively what is happening - the exported dollars are coming home to roost. Now for the explanation:

While the dollar was stable and there were no concerns about the US gov't paying its bills and generally being reliable, the currency was accepted generally without question almost anywhere in the world. Now that there have been some truly frightening financial shocks to the system, the dollar is becoming undesirable.

Because of this, holders are growing hesitant to rely upon the dollar and are choosing to reduce or eliminate their exposure in favor of other currencies or forms of money. Businesses that accept dollars will attempt to exchange for alternatives or use the dollars where they are still accepted. Eventually, the predominant place (or even the only place) where dollars will be accepted is the issuing nation - the US.

As the world rejects a significant portion of USD, we now understand how all of that currency will flow back to its point of origin. Therein lies the already-existing mechanism for inflation. This started primarily with the Middle East during the shock in the 1970s and again with Saddam Hussein in Iraq during the 1990s. Rejection of the dollar threatens a cascade effect that could very well cripple the dominant standing of the US in the global arena, especially coming from such a large pool of wealth as the petrodollar.

Now the US has no choice. It cannot stem the tide of dollar rejection in favor of the Euro and other currencies. One of the prime reasons for this is perceived instability in the US economy and by extension the dollar. Since gold is held by central banks a form of reserve, wildly fluctuating prices for the metal in USD suggests one or the other is unstable, thus controlling the inevitable rise of gold is critical for the US to maintain an appearance of stability.

There are more details and additional factors that are accelerating that trend, but I think you can start to get the idea that inflation is already baked into the cake. Even printing the relatively small amount now is only serving to exacerbate the problem, and who actually thinks they'll stop printing more? This is why currency controls, especially involving international travelers, are on the rise. It's an effort to manage the influx of unwanted dollars.

It bears repeating that the dollar is in a managed decline with gold naturally rising in direct opposition. This balance is rapidly growing beyond control of the forces that are attempting to make this a gradual transition because the global economy is far greater than any one nation. These things also take years to unravel, if not decades. A parabolic rise is only beginning to build.

You're better off holding long positions in precious metals and sitting tight than risking complete loss by being short. Better yet, get physical.

Cheers.