Monday, March 17, 2014

The Gold Bubble v.2

The following chart shows the number of ounces of gold it would take to buy the median priced new house in the United States.

Click to enlarge.

I can only speak for myself, but I have no desire to buy gold at these prices. Your desire may vary.

This is not investment advice.

See Also:
The Gold Bubble

Source Data:
St. Louis Fed: Custom Chart


Mr Slippery said...

This chart is pretty compelling.

However, if history rhymes, we could be approaching the second leg down where it drops under 100oz for a median house. That means it might be time to back up the truck (if you want to buy a house with your gold).

Stagflationary Mark said...

Mr Slippery,

We certainly could.

Further, if we did hyperinflate, this chart would go right out the window of course. I'm definitely not predicting that (within my lifetime), but it is not outside the realm of possibility.

As Greenspan said in 1966, in the absence of a gold standard there is no safe store of value. I believe him. Unfortunately, I don't have the resources to diversify against every bad outcome. I therefore must attempt to negotiate the economic minefield as best I can. So far, so good.

Hindsight has treated me well so far. No regrets over owning gold and silver from 2004 to 2006. No regrets over any long-term TIPS, I-Bond, or EE-Bond purchase so far (since 2000), much to the dismay of every financial expert predicting higher interest rates, higher inflation, and an early end to ZIRP. Go figure.

That said, it is a minefield. I'm 49. I still have quite a few steps left to take in theory.

It would be much easier if I am wrong to be a permabear. I really hope that's the case.

It could be argued that this post's chart is reason for optimism and maybe the bulls are right.

Then again, there were 30+ years of falling long-term interest rates in the aftermath of the last gold bubble bust. What would that say about our long-term future if the pattern repeated? Hello Japan? Perma-ZIRP? Impotent Fed desperately pushing on strings?

Troy said...

Thing about savings is that at its core it's putting aside stuff now you'll need in the future, like your pantry.

For savings to work, it has to survive being in storage, and not collapse in real valuation.

gold priced in hourly wage.

Anyone buying gold 1970-2010 (outside the 1980 blowoff top) has preserved their wealth.

2000 was a turning point in my thesis, in that the integration of China into the global economy was only entering its second stage, from experiment to reality.

We can see this in MANEMP:

and of course our trade deficit:

Stagflationary Mark said...


Anyone buying gold 1970-2010 (outside the 1980 blowoff top) has preserved their wealth.

Alternatively, one could say that anyone buying gold at the 1980 blowoff top and holding to the next blowoff top has preserved their wealth.

That's probably not much comfort to those who bought gold in 2011 at over $1800 though.

I guess it all depends on whether you think 2011 was a blowoff top. I believe it was. Commodity bull markets tend to rise parabolically then collapse under their own weight. That behavior can be seen both in the 1970s and 2000s.

As expected, silver was hit hardest. Those who bought at $40+ in recent years are probably still trying to figure out what went wrong.

Accept it. Everything, including silver, is rising in price. These are inflationary times.


Stagflationary Mark said...


The difference going forward between us revolves around our theories of China's future.

I am very bearish on China and have been since starting this blog in 2007 (when their stock market was much, much higher).

We gave them our manufacturing but they aren't getting nearly as much out of it as they had hoped. That growth engine is just about dead. Meanwhile, they're trying to make up the difference with unsustainable domestic construction (and shadow banking debt to go with it). I do not assume that their insatiable demand for commodities will continue.

The Chinese Economy Is Destroying The Copper Price

In the likely event that lenders will tighten the reins, a diminishing amount of copper will be needed as collateral for loans. Further, the present drop in price has created a decrease in the use and acceptance of copper as security for debts. Both factors will lead to the dumping of huge amounts of the metal onto the market. Since supply and demand play a large part in market prices, an enormous increase in the copper supply will force the price to plummet.

That could very well happen.

Mr Slippery said...

I think copper has already suffered massive dumping. Price falling below $3 was a pretty big milestone.

This article says the Fed just let the recession cat out of the bag.

Did Fed President John Williams Just Predict The Next Recession?

When the Fed starts talking about soft landings, time to buckle up.

Troy said...

wrt Williams . . .

"During that time he also served as a senior economist at the White House Council of Economic Advisers from 1999-2000"

that's an important factoid. Again, I don't know how the Fed is going to "vote" on policy. You have your hawks, and doves, and how policy is hashed out between them is really mysterious to me.

"Soft landing" translates to "Get thee to Tokyo ASAP" to me.

As for China, I cannot comment on them, one way or the other, intelligently. They have a billion more people than we do. My god.

Stagflationary Mark said...

Mr Slippery & Troy,

I think we just need to be patient and wait for Ben Stein to chime in, lol. Sigh.

Stagflationary Mark said...

Here is more wisdom from Ben Stein (right before the Great Recession).

"Safe" is a happy word

Stagflationary Mark said...

Hey, maybe the Fed could lower the Fed Funds rate from 0.08% to something more reasonable?

It could increase the odds of a soft landing dramatically.

Just cut that rate in half already! Reap the 0.04% whirlwind, lol. Sigh.