We’ve been following the Dow:gold ratio for quite a while. I’ve been saying for years that we will eventually see the ratio move to par by the time this bull is finished. Actually we may even see gold briefly become more expensive than stocks.

You can see from the above chart each swing since the 30’s has been more extreme than the last on both the up and down side.
The extreme undervaluation of gold and overvaluation of stocks in 2000 will probably lead to an even larger swing down as the long term cycle moves back to the opposite extreme. I expect human emotions to work their magic and ultimately we will probably see gold briefly become more expensive than the industrials at a bubble top some time in the future.

At the moment the Dow:gold ratio may be poised for another leg down after the year and a half consolidation.

As you can see these big consolidations eventually lead to another leg down in the ratio. Once the consolidation completes we get another repricing of stocks compared to gold. Usually that means a big rally in gold although the last leg down included not only a big move higher in gold but also a drastic downward price adjustment in stocks. By the time stocks finished the bear market leg gold had established a new value zone between $1000 and the old 1980 high of $850. Then for almost a year and a half stocks rallied while gold consolidated that big move, eventually even broadening the range up to $1250.

Now gold is poised for another major leg up while stocks are stuck either in a consolidation of the big rally or maybe even another leg down in the secular bear. Either way, I think once the Dow:gold ratio breaks below the bottom of that range we will be heading into another major repricing of stocks compared to gold.


  1. Anonymous

    Gary, continuation from the post on your last thread. Firstly you’ve completely ignored the whole point of my post I.e dogmatism and it’s impact on the investment mindset – instead you’ve gone straight into a defence of your dogmatic thesis. Regarding your point about debt and printing, I wish it was so simple but it’s not, yes there will be and there has been printing, there will be austerity measures but in the end there will be debt restructure I.e default. To say they will print us into hyperinflation and destroy the dollar is just plain tin foil hat talk! If the elites destroy the dollar the game is up and they lose power and control, why would they let that happen?. So you see it is not a simple case of print or default. Your other point about the dollar is also wrong as it is all relative, consider that I am denominated in EURs so for me the dollar has added real value. I can tell you that my day to day living expenses have not gone up over the last 6months when the EUR dropped. Guru boy

  2. Anonymous

    So what price would the “guru boy” put on gold? No flimsy analysis, just give us a number, then let’s watch and see how it shakes out.

    Seriously, you’ve done the homework, so what’s you’re projected number AND the time frame, as predictions mean nothing without a specific time limit.

  3. Gary

    I guess what you call dogmatic I call riding the bull.

    If you believe in the bull and stay on board for the long haul then you will get rich (relatively speaking). This is how almost all ultra successful investors amass their fortunes. They spot a fundamental shift early and then ride it to completion. Think Buffett at the 74 bottom. Soros with the collapse of sterling. Rogers with commodities, etc.

    If you are unable to spot a fundamental shift or just don’t believe then you are going to have to choose the traders route.

    Sure that route will allow you to gloat when investors are suffering through the drawdowns that are inevitable with an investing strategy.

    And yes if you work hard and have excellent discpline and risk control skills you should be able to make a living with this strategy provided you have a large enough original stake.

    But in the end it will be the investor who walks away from the bull set for life with financial freedom while the trader will have to continue his constant battle to eke out a living uder the constant stress of major loss to his capital base if his system breaks down.

    That is not my goal. I don’t like sitting in front of my computer all day. I don’t want to have to spot every little wiggle in the market, especially in the precious metals market. I already made a living I have no desire to do that again. Now I just want to turn a comfortable retirement into a lavish one.

    Anyone who feels the same, then this is the best opportunity you are going to have to do so. You either take the chance or you don’t, it’s your decision.

    If so and you would benefit from a little help from a “coach” then I will do my best to keep you focused on the big picture and your eye on the prize.

  4. Anonymous

    that’s the point, I can’t! It doesn’t matter how much homework someone has done as to predict the price of gold going forward I would need also to predict the Feds actions, the ECB actions as well as those of china, Israel, Iran, Packistan, North Korea…I think you get my point. Anybody predicting the price of gold within a time frame is just plain guessing. What I can tell you is to buy it low and sell it high and right now I can tell you it’s high! Guru boy

  5. Anonymous

    No problem Gary, my intention is not an antagonistic one just stating some opinions that hopfully lead to some healthy debate, I don’t mean to mislead or confuse anyone. Guru boy

  6. Gary

    Now on the other point, do you seriously think the elites would stay in power if we default? If the USA defaults on it’s debt it would send the world down into a deflationary spiral that would make the 30’s look like childs play.

    Unemployment would likely surge to 30+%. How many politicians are going to keep their jobs in that kind of environment. Hell we are already watching a massive movement against incumbent politicians and official unemployment is only 10%.

    We are already on an usustainable course borrowing more and more trillions in a desperate attempt to prop up a failing economy. At want point does that all of a sudden halt voluntarily?

    I think you really have no idea how human nature works. We will continue down this path until something breaks. That is always how it works. History is pretty clear on that one.

    That means we are going to continue to borrow more and more and we are going to continue to print more and more to service that debt. The same thing we have been doing for 10 years.

    We will not deviate from the path and have not deviated from the path until we are forced to.

    Now if you are in Euros you are already seeing the effects of currency debasement as you are in the initial stages of a currency crisis. All things priced in Euros have been increasing steadliy for the last year and a half. The price of gold is going through the roof. This is happening despite muted demand as the European economy is still in recession.

    Ask yourself how prices can be rising in the low demand environment of a recession?

  7. Anonymous

    By definition, something that is near it’s highs is “high”, but that means nothing.

    Yes, sometimes it is a top, but it’s often just one more high is a series of many. I’m not trying to be rude, but you need more than to know something is “high’, which is purely subjective.

  8. Anonymous

    At $850, I heard gold was “high”, and it was by some measures (old highs,etc), and 50% higher, so how useful was that?

    Especially if shorted at $850, not only did one miss a nice run up, they managed to get in the way of it!

  9. Gary

    When you say that the price of gold is high by what metric are you judging it’s value.

    It’s certianly not stretched above the 200 day moving average. So by that metric I would say no gold is not high.

    Public sentiment is right in the middle of it’s historic range. So it doesn’t appear we are on the verge of running out of buyers real soon.

    Bullish percentage on the mining stocks is at levels that have been more indiciative of bottoms than tops. So I don’t see how that is too high.

    In inflation adjusted terms gold is one of the cheapset assets in the entire world. So it’s going to be hard to make a case for price being too high on a fundamental basis.

    The gold:Xau ratio is at levels that are historically cheaper than almost any other time in history other than the crash of 08.

    So I have to wonder is your sole judge of value simply that gold is at the top of it’s range on a chart? If that is your metric then by that reasoning one should have sold in Sept of 05 or Sept of 07.

    In hindsight not the best of strategies.

  10. Anonymous

    Hi Gary,

    How high above the 200-day moving average do you consider overvalued?

    at what level above that average do you begin to think about taking profits and waiting for a pullback?


  11. Anonymous

    annon, apologies I should have been more clear – relative it’s 200dma. Gary – there is a developing backlash against the keynsian smoke and mirrors that were used during the 08 banking crisis, most definetly here in Europe people are seeing through the curtain and realizing there is no wizard. There is major resistance in Germany to any printing and this proberbly will leadto break in the EUR, if that happens we will see deflation. In the US there is also a backlash begining, actually I just read an article in the NY times about half an hour ago that there is major disillusionment with the current keynsian policy across both political parties. Also please remember how much public opposition there was to QE1, Obama knows it would be very difficult to do again besides I think he’s starting to realize that this will not solve the problem. Like I said over the years we will see bouts of austerity measures and printing but in the end there will be default. It is important to understand that there are many different was and names to label default but in the end it will be boy

  12. Anonymous

    Gary for me when gold touches the 200 dma it’s time to back up the truck, that is the real buy opportunity. Yes it takes patience and discipline but that’s what would inspire me to buy. Look at the 5yr chart, it has always signalled a good buying boy

  13. Anonymous

    First, nobody except the criminals at the Fed know what the Fed is doing. they’ve already been printing to save Europe b/c they’re all working for a one world gov’t.

    To say they won’t print is ridiculous, even though i agree there is more of a fight against it these days. Simple fact is they are accountable to nobody so will continue to do what they always have.

    Besides, right now (after a ripping 1 year stock market rally) people are against more “printing”, but just wait until the welfare rolls swell further late this year and see how much resistance the Fed gets when it wants to hand out money.

  14. Gary

    Here is the problem with waiting for a touch of the 200 DMA. The last time it happened was early 09. If you didn’t take that opportunity you have now watched 300 points pass you by. You may have to wait for another 300 points before gold touches the 200 DMA again. During that time you could have riden a major leg up and exited when it got stretched above the mean.

    The other problem is that one can’t really buy at the 200 DMA. It’s easy to say just buy at these levels and another thing entirely to do it in real time.

    In real time you are going to be telling us how gold is looking terrible, how the technicals are saying gold is going lower, or how the gold bull is over and how it was a bubble.

    In real time you are just kidding yourself if you think you could buy with gold at the 200 DMA. The only people that can buy at those kind of levels are value investors who are just scooping up what they percieve as great values. Traders are no where to be seen at times like this.

    Case in point during the run up in Nov. and Dec. all we heard was how people were going to load up the truck on a pull back. Did any of them do it? Of course not. The ones that did piled in in Dec. and then preceeded to freak out when gold put in another leg down.

    Now if you think politicains or citizens are going to give one rats ass about printing during a double dip recession you are kidding yourself. When times are hard people just want some one to cure the problem. They don’t care how it’s done they just want the pain to stop. It doesn’t matter what the long term consequences are.

    Guru boy you have no earthly understanding of how hmnan nature works do you? You would make a terrible politician…although that’s probably a good thing. We have more than enough of them as it is.

  15. Anonymous

    Gary, you are correct which is why I mentioned patience and dicipline. The question I was asked was how do I measure high or low. My answer was the 200 dma which you appear also to agree is a bargin level. Now whether one has the patience or discipline is another question! Regarding human nature, I believe you may have more experience and understanding in that area as I’m only 35 so I’ll defer to my elders in that one ;-). I never said they would not print, what I did say it would come in bouts I.e when things really hurt but again on the flip side they will also use deflationary policies as well so you see it will be a roller coaster. What I do firmly believe is they will not print us into oblivion as they will always pull back until they get to the point where there is no alternative but to DEFAULT.Guru boy

  16. Gary

    I think they will continue down their chosen path and the default will come in the form of hyperinflation.

    You think they will willing send us into a deflationary spiral by defaulting on the debt by not paying.

    We’ll see who ends up being right.

    I’ll warn you though history is pretty clear, all currencies eventually end up being worthless. It’s because human nature never changes, we always try to get something for nothing.

  17. Anonymous

    IMO, guru boy believes what he reads in the newspapers too much. 🙂

    You know, they are also pushing for the New World Order and one centralized government.

    As I recall, some crook at the Fed was talking about raising rates the other day. LMAO!!!! yeah right. And if they did (to scare people only), they have to lower them right back in 2 months.

    Look around and you’ll see LOTS OF PAIN, and higher (going higher) unemployment. Soon, people will be begging for more handouts which is exactly what Bernanke knows, and THEN he’ll be happy to olbige and “save the day”.

    These criminals were bailing out Greece a few weeks ago, before others called them out on it, and they said they “had the power to do so” by their charter. Criminals cheat, then gloss things over guru boy.

  18. Anonymous

    Sure, this time could be different, but you can’t make money betting against the probabilities.

    Wait till the riots get started here in the US, then tell me the criminals won’t hand out checks in various forms, knowing that they’re not giving out anything but debased dollars which most citizens do not understand.

  19. Anonymous

    I know Gary respects Timmy Knight’s trading, but I do not.

    I’m glad he came out with another re-iteration of his favorite short GDX.

    Tells me we have lots of upside!

  20. Anonymous

    Gary & annon, apart from Germany under the Weimer republic, no modern day western country has ever gone into hyperinflation and the only reason why Germany did was because of the unreasonable impositions imposed on them by the Allies in war reperations.(pls if you can find one let me know? Note Rome & Spanish empire are not included as modern) Think about it, in what way does it help the elites if we end up in hyperinflation? Like I said before if they destroy the dollar it’s end game I.e they lose control and power. Why would they do that? Guru boy

  21. Gary

    Angola, Argentina, Austria, Belarus, Bolivia, Bosnia, Brazil, Bulgaria, Chile, China, Georgia, Greece, Hungary, Isreal, Nicaragua, Need I go on?

  22. Anonymous

    First off, what does “modern day:, and then the qualifier “western” countries have to do with anything?

    And I’m not even arguing we’ll get hyperinflation, I argue that gold is going much higher, deflation or inflation I don’t care.

    And I’m not sure why you feel Germany in the Weimar has nothing to do with today, anyway. My views are not economic, as gold LOVES deflation, and I’m in gold to preserve wealth and make a few shekels.

    If I had to guess, I’d say deflation first, then currency collapse. Either way, gold is where you want to be, and that is the underlying issue.

  23. Anonymous

    Guru boy,

    “elites” lose their power every so often, you know, and sometimes their heads too!

  24. Anonymous

    What, crashes don’t happen in “modern day”, because we’re all technie now or we’ve “learned our lessons”? LMAO!!!

  25. Anonymous

    Gary, I said western country, the only one I will give you from that lot is Greece and even them you could dispute as being modern western, especially in the 50s. Austria I consider being part of the same weimer german condition. Pls do go on…

  26. Gary

    Madagasgar, Mozambique, Peru, Phillpines, Poland, Romania, Taiwan, Turkey, Ukraine, Yugoslavia, Zaire, Zimbabwei.

    Just to name a few more.

    Hyperinflation isn’t determined by a countries global positioning or how late or early in the 20th century it happens to be.

    Hyperinflation is brought about by a special set of circumstances. Namely a country falls so deeply in debt that they can’t service it. The choice then has to be made as to whether the country will default by not paying or by printing. They are both the same thing just with different end results.

    So far the US has shown no inclination at all to choose the no pay option. When things started to deflate in 08 and 09 we could have opted for austerity measures, let the banking system collapse and started over. We didn’t! We decided to double our debt and continue printing.

    If the mess we were in last year didn’t inspire our elected officials to choose the painful but short path then what do you suggest will?

    So far there has been no sign at all that the US will choose any other path than to continue to pile on more and more debt and to service it by printing more and more money.

  27. Anonymous

    Americans have grown increasingly comfortable defaulting on their own debt. Why wouldn’t these same buttfuckers push their congressmen to default on the country’s debt? And why wouldn’t the congressmen listen? Shit, I’ll bet some of these dipshit congressmen have sky high credit card debt that they’re considering defaulting on.

  28. Gary

    You do realize there is a big difference between an individual defaulting on his debt and a government?

    Now let me ask you this question. If the individual could print money and pay for his debt to keep the party going would he?

    I think we just answered the question of whether the US will print or default.

  29. khalid

    “Modern Western” or “Modern Developed” economy. I don’t see any Japan or the UK, for instance, in your list of nations.
    I don’t even count Greece as as serious modern Western economy, personally.
    Brazil, for example, was in real hyperinflation in recent times, but I don’t think that’s the kind of country Guru Boy is talking about.
    The Pound has been “in decline” since forever. Yet the UK has not seen hyperinflation, to my knowledge.
    The Japanese CB loves to rape their currency, as we all know.
    I don’t know what Frank, on this board, has to say about this, but, again, what about Japan? How much have they printed over there? You’re probably gonna say domestic savings saved Japan from hyperinflation.
    But in a real monetary deflation scenario, money will have to flow to the deepest markets, and most meaningful, out there. (Yes, I believe a lot of it will flow into gold/PM’s.) But the US is a true safe haven.
    It simply is, period, when the rest of the world is in a fiscal/monetary mess as well.
    And don’t think for a second people like me are giving back-ass nations like China, my money.
    I’m dollar, UST, gold bullish. Hyperinflation is an outlier event, as far as I’m concerned.
    IN any case, I am heavily invested in gold and miners, so I don’t care if I’m wrong fundamentally.
    NO matter what the scenario is, I expect a gold bubble to materialize. That’s where I totally agree with Gary.
    This mother is in a secular bull market. The end ain’t in sight yet.

  30. Gary

    The “western nations” are just now entering into a debt spiral. You can’t have hyperinflaiton until that happens. Without it there is no reason to print one’s currency into oblivion.

    All I’m saying is we are going down the path that leads to that outcome. Japan is much closer as they have now gone through all their savings and are much deeper in debt than the US.

    Great Britain is the same story. Their source of income, the north Sea oil fields, are in decline. They are going to increasing have trouble servicing their debt. They too are entering a period where they will have to print massively to service their debt.

    And I think we all know that just because the market is irrational right now it doesn’t mean it will stay irrational. It never does. Eventually sanity always returns. It’s why bubbles pop.

    The USA is in an unsustainable debt bubble. I don’t think anyone with any common sense can deny that. So just because the world at the moment is irrational enough to continue to loan us money doesn’t mean they will always continue to do so. When they stop our choices will be either not pay or print.

    And I think I answered the question of which it will be in the comment above this one.

  31. khalid

    I totally agree that the US, along with other G7, G10, G-whatever nations, are in a debt spiral.
    I agree that there is currency debasement going on because of Keynesian policies.
    But people have been going on and on about the collapse of the Dollar, about debt, the same issues, for decades.
    Read any literature on money and markets from the fifties or sixties. The same concerns you mention popped up then as nowadays. It’s really uncanny. Especially when you think about what most market participants, retail and pro investors, have been thinking about for decades.
    The crude reality of it all, is that the market is constantly sold the inflation-trade. Don’t ask me why.
    Where I stand, yes a bar of gold buys me more stuff than the Dollar does over the past decade, but the Dollar’s purchasing power is significantly more vis-a-vis other “Stuff”, not just other currencies, than where it was in mid 2008.

    Gary, you could buy a magazine for 20 cents “back in the day.” Maybe 2 cents backs in the late 19th Century. So what?
    A cup of coffee cost an infinitesimal fraction of a British pound in the seventies. Now it will cost you 3 GBP or something.
    Where was the hyperinflation the past 30-40 years in modern developed economies? How many times has Britain defaulted, in whatever sense of the word default the past 100 years? I think you’re attributing too much significance to government default. Anyway, Brazil’s situation a few years ago, or Zimbabwe recently, are not analagous in any way to the US now.

    I think a lot of the hyperinflationist arguments also miss a couple of crucial points about the realities of global trade and of the international financial system.
    The Dollar is the global reserve currency. Period. People, this is a major point that needs to sink in.
    Either this system collapses and we have more to worry about than just the price of gold, or the system keeps stuttering along erratically as it has been, and Treasuries remain well bid as the rest of the world takes decades to figure out who the next big man in town will, some nation or supranational entity other than the USA. Because EVERYONE depends on the US consumer.
    The Euro cheerleaders totally neglected how stupidly weak the Euro Zone’s foundations were the past several years. If the Fed is dumb, what would you call the Eurocrats?

    For all its faults, the US is the only nation of any significance. And it runs the show right now.
    It’s currency is the lifeblood of the global trade and finance. The arbitrer of value. There is absolutely no entity that can replace it. Whoever has lived outside the USA WILL recognize it is where money will ultimately be somewhat safe.
    Whoever does international business and trade also knows the Dollar is what will be scooped up in spades when things go wrong in Europe, Candad, UK, China, Asia.
    Someone mentioned people are hating seeing the Dollar in a technical bull market. It is the ultimate contrarian trade right now, maybe somewhat less now because of deep Euro pessimism. We need Euro to bounce 5-6 percent and stabilize to “reset” that pessimism sentiment.
    But gold is akways the better bet, because there ain’t enough of it to go around. They’re producing less and less of it each year. So if gold goes up up up, you’ll want to be heavily invested in PM miners, ABX, Newmont, etc.
    The bluechip miners, or GDX are still extremely undervalued.
    BP lost 100 billion in market cap in 6 weeks.
    What’s the market cap of ABX? There’s a long ways to go yet.
    I’m out. Good luck all.

  32. Gary

    I would be willing to bet the dollar will no longer be the reserve currency in 5 years.

    Yes in 08 and early 09 we definitely had deflation. It’s why the price of everything was dropping drastically. That’s not the case now.

    I would say again that we are now in very special circumstances unlike anything before. Our debt is starting to double in very short periods of time. It’s doubled in just the last 6 years.

    Unlike the 50’s-60’s we are now in the end stages where our debt starts to spiral completely out of control.

    Unless the next “new” thing comes along quickly and it’s big enough to allow us to produce our way out of this mess we have a default coming in our future. It will either take the form of us reneging on our debt or printing the currency to the point of collapse and having to replace it with a new currency.

    Trust me the dollar will go the way of the pound sterling and all other reserve currencies. They all eventually get left in the dust. I believe we are nearing that period in time.

  33. Anonymous

    This talk about “modern day Western nations” is laughable.

    They could never, haven’t ever made the same mistakes as others before them. What a joke!

  34. Gary

    Are you kidding? They are making them right now. We are building the debt bubble that leads to massive inflation.

    That was the best joke I’ve heard all day 🙂

  35. Anonymous

    This “modern day Western nation” has already debased our currency 95% since just 1913.

    And now their back is REALLY against the wall. They’ll print, and even if it doesn’t “get into the system” (it eventually will, IMO), the people that get it (bankers), KNOW the currency is trash.

    Either way, inflation of deflation, Gold goes MUCH higher and that should be the real discussion.

  36. Anonymous

    Guru Boy,

    You seem to think that the Fed has a choice between hyperinflation and default, and that they will choose to default. You are wrong on both counts, but it doesn’t really matter. All roads lead to the same place.

    If the US government chose to default on its debt (it won’t, but let’s pretend) the currency would be destroyed anyway because every Treasury holder on earth would dump their bonds in a global panic, driving the dollar down in an endless spiral.

    If the US government chooses to “monetize” the debt (as is already happening) we will wind up with a spiral currency debasement and inflation, which will result in higher interest rates, which leads to higher debt service, which leads to DEFAULT.

    default > currency devaluation > hyperinflation

    currency devaluation > rising interest rates > default

    It doesn’t matter if you’re a deflationist or an inflationist. All roads lead to the same destination: a default, AND a destroyed currency.

  37. Anonymous

    “My best guess is we will have a continued recovery, but it won’t feel terrific,” Bernanke said.


  38. Anonymous

    Nobody knows the time frames on any of this. Not Gary, not anyone else. And Gary will admit this most times, but from time to time he shows his hand, like today when he predicted that USD will not be the reserve in five years time. Friends, Gary doesn’t have a crystal ball as he so often says. So by his own admission, you’ll have to take his timeframes for macro events with a pinch of salt, just as you would short-term calls.

  39. LELIO


  40. Anonymous

    “no modern day western country has ever gone into hyperinflation”

    “Angola, Argentina, Austria, Belarus, Bolivia, Bosnia, Brazil, Bulgaria, Chile, China, Georgia, Greece, Hungary, Isreal, Nicaragua,”

    “Madagasgar, Mozambique, Peru, Phillpines, Poland, Romania, Taiwan, Turkey, Ukraine, Yugoslavia, Zaire, Zimbabwei.”

    Gary likes to conveniently (and selectively) ignore what people write (like “modern day western country”). I agree that Greece does not qualify either.

    I doubt that most of those countries (except Zimbabwe – and learn to spell it if you are going to use it) have experienced true hyperinflation (at a minimum, a doubling of prices in three years or less). Even relatively high inflation (say twenty percent a year) doesn’t qualify.

    “I would be willing to bet the dollar will no longer be the reserve currency in 5 years.”

    YOURS! I will take that bet. There is simply no credible replacement at this time. Something eventually will replace the dollar as the reserve currency, but whatever does is not apparent now, and won’t displace the dollar within such a short time frame.

  41. Richard

    Of course the US government needs to get its budget into surplus as soon as possible if it’s going to avoid a solvency crisis (I’m assuming it won’t take the hyper-inflationary route). In other countries this sort of change is often introduced through a change of government. Unfortunately the US political system only offers the choice of two parties, both of which have failed to address the problem.

    Cutting spending in practice wouldn’t be difficult. There is enormous unnecessary spending, for example the military budget – the US is hardly at risk of imminent invasion.

    Perhaps this reduction in spending would cause a contraction in GDP, but even if GDP fell 15 or 20 percent, the US would still be a relatively wealthy country. Hopefully it wouldn’t be that bad, since what isn’t spent by government becomes available for use in the private sector. Also GDP measures production, which would include increased exports or at least import substitution if the US was going to start paying its way in the world.

  42. Anonymous

    It doesn’t get any more clear than the chart is now. A classic double top in gold. We definately move lower. 1150 soon.

  43. Gary

    And apparently Gumby didn’t read what I wrote.

    Hyper-inflation isn’t determined by a countries global positioning or how late in the 20th century it happens to be.

    Hyper-inflation occurs when a country enters a debt spiral that it can’t extract itself from. If the country has a fiat currency it then has a choice to default or try to print it’s way out of it’s obligations.

    Western countries are just now entering that debt spiral. I can’t see where we are doing anything to change the course of events that lead to that decision – renege or print.

    When the secular bear began Greenspan cut and printed. The result was individuals and the financial system leveraged up unsustainable levels of debt. Now that the bubble has collapsed the government has taken the ball and is leveraging up to insane levels in a futile attempt to keep the party going.

    The end result isn’t going to be any different for the US than it is for an individual or a bank. At some point the debt spiral overwelms the ability to pay.

    When that point comes the government will have to decide whether they want to default by reneging or massively debasing the currency.

    I used the analogy yesterday if an individual goes bankrupt but had access to a printing press and could print their way out of their debt, would they?

    I think we all know that 99.99999% of people would choose the printing press option to keep the party going.

    So far that is exactly what the USA is doing. So far I see no sign of restraint and I’m assuming the US is not going to be that vanishingly small percentage that chooses the right path because the short term will be too painful.

  44. Anonymous

    Anon 5:52,
    Don’t you get it? Most of us don’t care about short term tops, double or otherwise.

    We are just holding our positions until the final phase of the bull arrives.

    I think TK is a classic example of the follies of trying to trade the gold bull. He has gotten run over by the bull so many times I’m surprised he still has any money left.

  45. Anonymous

    Where are all the clowns that were saying the miners, being weak the other day, were going to lead gold down?

    Shouldn’t that logic tell us today that the strong miners will pull gold higher?

    1-2 days lower on gold, MAXIMUM, in my opinion.

  46. Gary

    We could be in the opposite situation as we were in January. Instead of a yearly cycle low intensifying an intermediate correction in gold we may have a strong rally in the market moderate an intermediate correction in gold and miners.

    Not that I’m positive gold is entering an intermediate correction yet but it is late in the intermediate cycle and due sometime in the next 6 weeks, unless the cycle stretches like it did last time. If that were to happen we could see the gold rally continue for another 4-5 weeks before correcting.

    Basically it’s just too dangerous to lose ones position. The secular bull is a long way from over. The safest course is just to hang on.

  47. Anonymous

    Looks like `ole TK is getting his ass kicked again. Even his GDX shorts are coming back to bite him in the ass. LOL

  48. Frank


    For Japan the key thing is that the money supply did not grow (much) post 1992. But it didn’t shrink either. M2 was up 1-2% per year.

    They practiced Keynesian stimulus by borrowing money domestically at close to 0% interest rates. Japanese pension funds, etc. played along.

    The US is different because there is huge private net debt as well as government debt. In Japan people had large personal net savings.

  49. Frank

    “Modern western country”, eh?

    Well, Argentina fit the bill quite well both geographically and economically.

    It was one of the top 10 wealthiest countries about 100 years ago. The rotten Peronist policies (and its associated fiscal and monetary policies) brought about the decline.

    I see much of the “West” following the same template.

  50. khalid

    Noted, thanks.
    I hear you, but I guess my view has always been that, for the US Treasury, the “world’s” savings, ex Germany/Japan, is analogous to Japan’s domestic savings.
    I think shorting Treasuries is the no-brainer trade for the investment/financial community.
    The no-brainer trade in the nineties was to short JGB. We all know what happened to those who took that route.

  51. khalid

    By the way, a totally structural feature of the global economy, post globalization, is that Americans MUST spend.
    I don’t see that structural aspect changing much.
    The world ultimately funds that spending.
    The thing is the rest of the world has not found a way around this “problem”.
    Domestic savings, then, will not be a problem so long as the rest of the world has no alternative to funding the US government constantly.

  52. Gary

    In the long run it will do the rest of the world a lot more good to stop throwing money down the US rat hole so we can buy their “stuff”.

    Eventually they will sell their products to an ever growing middle class.

    But to continue to loan money to a bankrupt US so we can buy their stuff is a seriously flawed policy. It will ultimately end when the US reneges on it’s debt either by default or debasement.

    It would be like the banking system continuing to loan to bankrupt borrowers so they can pay their mortgage payments. At some point that strategy ends up breaking the bank. The same strategy will also break our creditors if they don’t come to their senses.

  53. Anonymous

    Now, now Gary no need to call people ‘Gumby’ for expressing an opinion! Anyway great blog debate, some good and valid points made by most. Guru boy or is it gumby!

  54. Anonymous

    Shortin bonds is a great long term trade…lookin to get back in on TBT and start accumulating…I like that trade much much more than being long ole yeller for a long term trade…sorry fellers…lookin good on short yeller for now…but smarting on the short stox…all in a days work…long oil with short puts…

    D G out…

  55. Anonymous

    I’m still up quite nicely in “yeller” via DGP and SGOL. Nice and comfy, little to no commissions, and the wind at my back.

    Day to day calls here are a waste of your breath, DG, and don’t try to kid others that you are profitable as gold is a mere 2.8% off ALL-TIME highs.

    Take it on down the road, please.

  56. Anonymous


    I forgot to add that I also have more free time than I know what to do with, being I only check in once each day around this time (the close).

    Good luck with that bond short, btw. I’m not a ST trader, but the ZB is going lots higher over the next few months.

  57. Anonymous

    I will see you at 1150 soon…You are reel funny and awful cocky…all your free time??? no job or in the unemployed line…
    must be buyin gold wit those UC checks…
    Good luck my friend…i’ll give you 6 months max and you will be not here…

  58. Anonymous

    An important country that has experienced hyperinflation that Gary left off his list:


    A feared superpower one day, bankrupt the next.

    Sound familiar?

    Russia went into hyperinflation in the 1990’s. Old people who had survived the siege of Stalingrad and Stalin’s purges had their savings wiped out and starved to death on the streets. Many people left the cities and lived off potatoes in the countryside. Economists estimated that three million people died during this hyperinflation.

  59. Gary

    Hey I like to give anon’s nicknames so we know who we are talking to. If you are rude or irritating you are going to earn a slightly less flattering nickname 🙂

  60. Anonymous

    Gary… assuming there is a reaction in gold at this level (say a temporarily bought of stiff profit taking or a break-out to the upside)… *when* would you say this reaction might come? Days? A week? Several weeks? And how violent do you guess the first move might be? Down -3%? Up +5%? Just curious. Will not hold you to any numbers as we can never know these things exactly. Just interested in your guesses. Thanks. -Squiggy

  61. Gary

    If you are already a subscriber go to the terminology doc on the website to find the cycles data. That will give you some idea of when we can expect the next dip to bottom.

    Depth is impossible to predict and would depend on if we are moving into a minor daily cycle low or a higer degree intermediate cycle low.

    either way the decline could be moderated by the stock market rallying.

  62. Rehab


    A suggestion, since most of your subscribers are short term, can you support physical holdings for the 90% of your readers that don’t have the balls to hold through the next 5 years. They won’t listen, but at least you will know that you said so anyways.

    Most of what you say is gibberish to me when compared to the big picture. I enjoy the jargon, but 90% of it is noise to the big picture.

    Those that want to have fun, can trade the gold market. Those that won’t to make money will simply buy. Simple!

    I frankly don’t trust miners, despite making 1000% potentially off of them. Don’t argue with me, I don’t care, I buy silver if I want to get risky… pttt…

    Gary, I would enjoy more if you down-graded your emphasis on risk with miners by at least paying attention to us physical holders a little more. I will never!!!!! buy a miner, but I do believe in the gold move. I will easily!!!!!!!!!!! hold through any drawdowns and even added today.

    I would say 90% or more are unable to hold miners during drawdowns because they are traders and don’t understand the bull.
    Gary, I would enjoy much more if you included us less risky nay sayers in your articles, then the all or nothing miners.

    Anyways just me,


  63. Gary

    I’ve been saying for quite some time that if you can’t stand the volatility to just buy physical.

    Silver will outperform gold probably 2-1 lthough like you say it’s going to be more volatile.

    Although if one is holding physical they won’t care as no one is going to calculate what their silver is worth everyday.

    Jayhawk decided to go the physical route because he wasn’t able to cope witht the drawdowns in miners. His stress level has fallen dramatically.

  64. Jayhawk91

    I guess I’ve joined the tin foil hat brigade and have lost whatever faith I had in the system over the past few months. Watching the flash crash day was the final straw for me with holding massive stock positions. (Even though miners held pretty firm that day, one day they could be taken down just like the rest.) I still will trade in and out of my favorites like SLW.

    I’m just going to patiently build a modest core physical position over the next several months…Only about 20% invested on these so far. Goldmoney or BullionVault for a good sized chunk to keep a bit more liquid. I’m going to out weigh gold over silver to the tune of 75/25%.

    I think we are heading for more market shock events in the coming months and think we will have a milder repeat of 2008…Then a brand new shiny version of QE will be introduced to the tune of 5T US. Late summer/fall time frame. Crystal ball talk, but you study these things and have to make up you own mind. Bottom line is I don’t want to weather a draw down like 2008 even if it’s on a smaller scale. SLW got to 2.50 during that fiasco. Even the Feb sell off has my SSRI position STILL down 18% (Entered back in Jan)…That’s a small taste of what a market sell off can do to a silver miner.

    I’m hoping for a much better price entry on some of these miners, but when all is said and done I wont play with more than 10-20% of my port on the miners.

  65. Jayhawk91

    Also, Gary you like to talk about how the 2008 crash was unique in that it was a credit crisis and everything got liquidated. I tend to think a sovereign debt crisis trumps any crisis, esp in light of the domino effect it will create world wide. The flash crash day was blamed on computers, fat fingers, etc…but the bottom line was there was real fear in the markets that day over what was going down in Europe. Multiply that by 100 if the US is in trouble.

    I’ve been reading Martin Armstrong and he’s convinced this will not be a depression and no crash will be forth coming. I respect his calls so for now just think we have a small deflationary shock followed up with global printing.

  66. Anonymous

    Just checking end of day, as usual.

    Seems Dawler boy has been stuffed again. Looks like he’ll be heading to the welfare office before long!

    Bonds UP big, Gold too. Not that I’m a short term trader, but with results like his, Dawler boy better quit wasting his time “working” so hard before he goes broke…LOL!!

  67. Anonymous

    Gary said, “…Although if one is holding physical they won’t care as no one is going to calculate what their silver is worth everyday.” ROFL. You are a funny guy Gar! I check Kitco 75 times a day.

  68. Rehab

    Anon 12:05.

    If you are a trader, then you will check every minute. Physical holdings only help long-term big picture holders; it helps them not become traders because they are unable to take chances by being tempted to maximize their long-term trade with short-term ins and outs. Most of the stress of big picture long-term believers in gold comes from being out of the market and not being in it. But our natural risk-seeking nature (risk aversion is crap) is quashed when we take possession of physical holdings. We therefore avoid the stress of our compulsive nature and addiction to acts of stupidity and greed, when the big picture is what the investment is about.

    Short-terms holders will probably be worse off with physical because they don’t buy into the big picture. In such a case physical holdings will get you even more stressed due to liquidity issues.

    It really comes down to believing firmly in the big picture or not. 😉

  69. Anonymous

    Hi Gary, I can’t seem to find what your subscription service offers. You must be offering valuable information like predictions that include prices and dates?

  70. Anonymous

    Gary said “Silver will outperform gold probably 2-1”

    I read such statements about silver several times from you in the comments section. But you never gave an explanation for it. Do you have a hint for me?

  71. Gary

    Sure just pull up a long term chart of the gold:silver ratio. Silver is terribly undervalued right now. As the bull progresses that undervaluation will be corrected, meaning silver will outperform gold.

    It tends to come in big spurts as major C-waves top.

  72. Anonymous


    I’m bored. It’s 35 degrees and raining, when’s the weekend report coming out:)


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