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wildfirepower
03-06-2011, 10:18 AM
In this video, Ron Paul discusses that the Dow Jones index in 2000 was worth 44 ounces of gold and that today it is down to 8 and it is headed for 1 ounce of gold.

As we can see, the stock market is still in a crash and we should be grateful for Ron Paul pointing this out to Bernanke.

http://www.youtube.com/watch?v=opdDCqe95zo

erowe1
03-06-2011, 10:22 AM
As we can see, the stock market is still in a crash and we should be grateful for Ron Paul pointing this out to Bernanke.


The other possibility is that gold is in a bubble. It has gone up in price much faster than everything else since 2000.

Inkblots
03-06-2011, 10:31 AM
The other possibility is that gold is in a bubble. It has gone up in price much faster than everything else since 2000.

That's my great concern. Thanks to the explosion in the monetary base the Fed has ginned up in the past 3 years, it's impossible to get reliable price signals anywhere. People say there's no long-term price inflation threat because the 10 year Treasury yield remains low - but that could be because all the excess liquidity slopped into the debt markets and created a bubble in government debt, masking inflation fears. People say price inflation is out of control because gold's price is exploding - but again, it could be a speculative bubble. I honestly can't tell!

If only we had a free market in money, investors could get reliable cost signals without needing to resort to augury or dowsing.

tsai3904
03-06-2011, 10:39 AM
If you understand that gold is truly money, then it is not gold's value that is rising, but that the value of the dollar is falling. To say that gold is in a bubble is to say that the value of the dollar is significantly undervalued.

Travlyr
03-06-2011, 10:40 AM
If only we had a free market in money, investors could get reliable cost signals without needing to result to augury or dowsing.

So true. The theft is disgusting enough in itself, but the market manipulations are so aggravating. How do you guess accurately what a secret powerful controlling entity is doing, and exactly how does it affect the markets? At least free markets can be accurately analyzed.

erowe1
03-06-2011, 10:53 AM
If you understand that gold is truly money, then it is not gold's value that is rising, but that the value of the dollar is falling. To say that gold is in a bubble is to say that the value of the dollar is significantly undervalued.

Undervalued compared to what? There's no standard against which the dollar can be compared to say that's what it's value ought to be. Its change in value over time, compared to any standard (the price of gold, the price of a Big Mac, the CPI, the Dow, it doesn't matter) can be measured. And by all those measures it has gone continually downward over the past century. But each of those things can be measured against one another as well (gold vs. Big Macs, Big Macs vs. CPI, gold vs. CPI, gold vs. the Dow, etc.). And if gold goes up relative to everything else, it could be in a bubble just as easily as houses and high tech stocks can. There's nothing special about the propensity of gold to be used as money that prevents that.

ababba
03-06-2011, 11:15 AM
The proper comparison should account for the dividends that the Dow Jones paid in the last 11 years. Thats 2% a year compounded. Gold obviously doesn't pay dividends. The Dow Jones index only accounts for stock prices, not dividends paid.

erowe1
03-06-2011, 11:36 AM
The proper comparison should account for the dividends that the Dow Jones paid in the last 11 years. Thats 2% a year compounded. Gold obviously doesn't pay dividends. The Dow Jones index only accounts for stock prices, not dividends paid.

That's a good point. But 2% annually over 11 years is only about 25%. So it would still be worth only 10 ounces of gold instead of 8.

Dr.3D
03-06-2011, 11:42 AM
That's a good point. But 2% annually over 11 years is only about 25%. So it would still be worth only 10 ounces of gold instead of 8.

And how much did gold go up in price in those same 11 years? Was the percentage increase of the gold greater than the average dividend yield of the stock market?

erowe1
03-06-2011, 11:45 AM
And how much did gold go up in price in those same 11 years? Was the percentage increase of the gold greater than the average dividend yield of the stock market?

Assuming the OP is correct, yes. The Dow stocks bought with 44 ounces of gold in 2000 would be worth only 10 ounces today, when you include dividends.

Dr.3D
03-06-2011, 11:55 AM
Assuming the OP is correct, yes. The 44 ounces of gold invested in the Dow in 2000 would be worth only 10 ounces today, when you include dividends.

Yep.... looking at this chart, it would seem if one had bought 44 ounces of gold at $200/ounce in 2001 it would be worth 308 ounces now at the the same $200/ounce now. In other words, it became 7 times more expensive or gained 700 percent. I seriously doubt the market did as well.

http://www.kitco.com/LFgif/au00-pres.gif

erowe1
03-06-2011, 11:57 AM
Yep.... looking at this chart, it would seem if one had bought 44 ounces of gold at $200/ounce in 2001 it would be worth 308 ounces now at the the same $200/ounce now. In other words, it became 7 times more expensive or gained 700 percent. I seriously doubt the market did as well.

http://www.kitco.com/LFgif/au00-pres.gif

It didn't do as well. That's the point of the OP.

ctiger2
03-06-2011, 12:07 PM
Undervalued compared to what? There's no standard against which the dollar can be compared to say that's what it's value ought to be. Its change in value over time, compared to any standard (the price of gold, the price of a Big Mac, the CPI, the Dow, it doesn't matter) can be measured. And by all those measures it has gone continually downward over the past century. But each of those things can be measured against one another as well (gold vs. Big Macs, Big Macs vs. CPI, gold vs. CPI, gold vs. the Dow, etc.). And if gold goes up relative to everything else, it could be in a bubble just as easily as houses and high tech stocks can. There's nothing special about the propensity of gold to be used as money that prevents that.

Big Macs, CPI, DOW, Houses & Tech stock are not money/currency.

Gold and the US Dollar are.

When it took $300 dollars to buy 1 oz of Gold it cost 833oz of Gold to buy a $250,000 house
It now takes $1430 dollars to buy 1 oz of Gold and it costs 174oz of Gold to buy that same $250,000 house.

Less Gold is buying the same US Dollar valued & denominated asset. Gold isn't going up. The Dollar is going down.

erowe1
03-06-2011, 12:09 PM
Big Macs, CPI, DOW, Houses & Tech stock are not money/currency.


That's irrelevant. They are units against which each other unit can be measured. They could be used as money if people chose to.

Gold is going up relative to the dollar (and relative to Big Macs, the CPI, the Dow, and almost everything else). The dollar is going down relative to gold (and almost everything else). From those two facts it can't be determined whether or not gold is in a bubble.

ctiger2
03-06-2011, 12:16 PM
That's irrelevant. They are units against which each other unit can be measured. They could be used as money if people chose to.

Gold is going up relative to the dollar (and relative to Big Macs, the CPI, the Dow, and almost everything else). The dollar is going down relative to gold (and almost everything else). From those two facts it can't be determined whether or not gold is in a bubble.

It's not irrelevant at all and in fact it's the most important aspect. Big Macs, CPI, DOW, Houses & Tech stock etc can't be used as money and aren't used as money for specific reasons. They all fail as Medium of exchanges, Standardized Units of account & stores of value.

Here's the value of the dollar chart priced in Gold:

http://farm6.static.flickr.com/5175/5503319076_ba334073cf.jpg

When you price a barrel of oil in Silver or Gold, oil isn't going up. When you price a barrel of oil in dollars, oil is going up. Therefore, it's actually the value of the dollar that's falling relative to Silver, Gold and Oil.

silverhandorder
03-06-2011, 12:23 PM
I think there is a point to the bubble claim. Excess money goes to an asset making it overvalued in dollar terms but once the bubble pops all of that money disappears. If you doubt gold don't sit on your money and put it into some other physical asset.

erowe1
03-06-2011, 12:23 PM
It's not irrelevant at all and in fact it's the most important aspect. Big Macs, CPI, DOW, Houses & Tech stock etc can't be used as money and aren't used as money for specific reasons. They all fail as Medium of exchanges, Standardized Units of account & stores of value.


It is irrelevant. And it's the least important aspect. All of those things can be used as money. And all of them have been. McDonalds uses Big Macs to buy dollars all the time. I use dollars to buy stocks and then later use those stocks to buy dollars. The price of one relative to another has nothing to do with which ones are preferred as media of exchange. And most owners of gold today don't use that gold as money, any more than they use stocks as money, by exchanging them for dollars or some other fiat currency. Granted, some do make other exchanges with gold, but I doubt that factor accounts for much today.

You seem to be using a line of argument that implies that it is impossible for gold every to be in a bubble, no matter what its price. Are you really saying that?

YumYum
03-06-2011, 12:32 PM
I remember I posted a thread over a year ago stating that gold would eventually plummet. I was told I was wrong, and I eventually conceded. But now I have G-d on my side, and I listen to Him:

"They will throw their gold in the streets, tossing it out like worthless trash."(Ezekiel 7:19)

ctiger2
03-06-2011, 12:36 PM
You seem to be using a line of argument that implies that it is impossible for gold every to be in a bubble, no matter what its price. Are you really saying that?

No, currencies can and do become overvalued. But, that will usually happen at some blowoff point where everyone's rushing to convert their "assets" into that specific currency. Most people feel this will also happen in Gold. But, we're nowhere near that point. Inflation adjusted according to John Williams from shadowstats it should take $7500 dollars to buy 1oz of Gold right now. So, we've got a long way to go. It's fun watching Silver and Gold find their free market price.

Richard Russel does a better job of explaining it than I can:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/3/5_Richard_Russell_-_Gold_to_$6,000_as_Media_Ridicules.html


Richard Russell - Gold to $6,000 as Media Ridicules

With the advance in gold and silver remaining strong, the Godfather of newsletter writers Richard Russell stated in his latest commentary, “There's something magical, mysterious and rather beautiful about a primary bull market. The bull market in gold has been in effect for over ten years, and the mysterious part of it is the way the American people have both ignored it and damned it.”

“I've begged and implored my subscribers for a decade to enter the great bull market in gold. Even today, after a solid decade of higher prices, the great majority of Americans own not a single ounce of gold. And even today, after an amazing ten consecutive years of higher prices, we hear know-nothings denouncing real money, gold, as a barbaric and worthless relic of former times.

When investment "geniuses" like Warren Buffet displays his ignorance by denouncing gold, it adds little to his legacy. Warren's dad, Howard supported the gold standard). Warren Buffett's problem is that he only understands balance sheets and earnings. The value of a Picasso or a gem diamond or a bar of gold is outside Buffett's understanding. Which is sad, because Buffett's lack of understanding has kept many an American on the sidelines while gold surged higher in terms of Buffett's beloved paper currencies.

I've lived through bull markets in housing, commodities, stocks, silver, land. But in all my life I've never seen anything like the current bull market in gold. As far as many investment experts and as far as most of the media is concerned, the great bull market in gold has been a non-event and an abomination.

So much the better for those of us who recognized the gold bull market for what it was and is. The gold bull market may be the biggest money-maker of the last two or three generations.

I've written before that bull markets don't die of old age. Bull markets die of over-speculation and over-participation and thus, in the end they die of exhaustion. I've said all along that this is the way the bull market in gold will ultimately die.

So is the current gold bull market choking with over-participation and over-speculation? Hardly. This is what is so remarkable and uncanny about this gold bull market.

Today while gold is within a few percentages of its record high, I'm asked how high I think gold can climb. My retort is, "Wrong question, the real question is how low can fiat or irredeemable money fall?"

This time, gold has, so far, only multiplied five times -- from 255 to 1430. If gold was to repeat its 1970 performance and multiply 24 times, it would rise to over 6,000. But there's a difference between the two gold bull markets: This time the other half of the world's population (China, India, Asia) has been added to the mix. And this time, the very viability of fiat currencies is a part of the picture.”

We have not yet seen panic buying in gold and silver, that will come later. The interesting thing is the relentless rise in both metals being underpinned by extraordinary physical demand, primarily from Asia. It appears the physical market is having its way with the paper market to the delight of hard money advocates around the world.

erowe1
03-06-2011, 12:39 PM
No, currencies can and do become overvalued. But, that will usually happen at some blowoff point where everyone's rushing to convert their "assets" into that specific currency. Most people feel this will also happen in Gold. But, we're nowhere near that point. Inflation adjusted according to John Williams from shadowstats it should take $7500 dollars to buy 1oz of Gold right now. So, we've got a long way to go. It's fun watching Silver and Gold find their free market price.

Richard Russel does a better job of explaining it than I can:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/3/5_Richard_Russell_-_Gold_to_$6,000_as_Media_Ridicules.html


I wasn't claiming that gold is in a bubble. I own some. I was only claiming that that's another possible explanation of the fact given in the OP. It can't automatically be discounted.

Dr.3D
03-06-2011, 12:42 PM
I remember I posted a thread over a year ago stating that gold would eventually plummet. I was told I was wrong, and I eventually conceded. But now I have G-d on my side, and I listen to Him:

"They will throw their gold in the streets, tossing it out like worthless trash."(Ezekiel 7:19)
"I counsel thee to buy of me gold tried in the fire, that thou mayest be rich; and white raiment, that thou mayest be clothed, and that the shame of thy nakedness do not appear; and anoint thine eyes with eyesalve, that thou mayest see." Revelation 3:18

PeacePlan
03-06-2011, 12:46 PM
The other possibility is that gold is in a bubble. It has gone up in price much faster than everything else since 2000.

I just want to comment on QE2 and what the Federal Reserve is doing. I liken it to incest. It is wrong for the Fed to buy their own Treasuries and is just as sick as a father having sex with his daughter. The fruit that father or the Fed bear, will not be healthy and the Fed knows it. All Central Bankers know this is something you should not do. They have no choice at this point so they are screwing themselves (incest). If they don’t buy them interest rates will rise and housing goes even further south. Higher interest rates mean our payments on the huge debt rise as it is mostly financed short term.

There is no fix that can be applied at this point all they can do is QE until the collapse. The reason gold and silver are rising is more people are becoming aware and they want to grab onto something that is real. Prepare yourself and family as best you can because this is not going to nice even if you own gold or silver. I own it because it seems like some protection (I may be deluding myself). In the 1930's unemployment hit about 25% and I think this time it will be about 50% because now we have women in the workforce.

I look at this like it is a whirlpool and thus far we have been in our little boats spinning around the outside at a distance. No one can see the the giant suck hole in the middle. A few boats have telescopes but the general public does not. We are slowly getting drawn in to the center and at some point we all can see, even those without telescopes that we are going into the hole. When that happens all I can say is be prepared as you can.

The bubble is the dollar and all other fiat instruments. Paper promises will go up in smoke and don't kid yourself that you are protected as we will all be affected.. When it does happen it will be fast and awareness to all will come rapidly.

My rant of the day!

tsai3904
03-06-2011, 01:17 PM
I wasn't claiming that gold is in a bubble. I own some. I was only claiming that that's another possible explanation of the fact given in the OP. It can't automatically be discounted.

My determination of whether or not gold is in a bubble is its total value in terms of dollars relative to the aggregate money supply. Most Austrian economists describe the late 70s and early 80s as gold being in a bubble because the total value of gold relative to the money supply was significantly above its historical average.

You have to think about what society will eventually want in terms of the ratio of dollars that is backed by gold to determine when and if gold is in a bubble. I have heard that a 40% backing of gold will suffice. I do not subscribe to that theory but if society accepts it, then when the total value of gold surpasses that ratio, it will be in a bubble.

lester1/2jr
03-06-2011, 05:34 PM
I don't know about gold being in a bubble. Are people leveraging their life and buying massive amounts of it? is it a craze? most people dont' even own any.

erowe1
03-06-2011, 05:52 PM
I don't know about gold being in a bubble. Are people leveraging their life and buying massive amounts of it? is it a craze? most people dont' even own any.

It wouldn't be a result of individual small investors. It would be a result of very large investors, like banks, nations, and mutual funds.

Zippyjuan
03-06-2011, 05:56 PM
The comparison between the price of gold and the value of just 30 companies doesn't really give you much useful information. All it shows you is the relative value that investors place on each. But anyhow, here is an historical look at what have been their relative prices over time:

http://www.321gold.com/editorials/russell/dow_gold.html
http://www.321gold.com/editorials/russell/russell070505/1.gif

lester1/2jr
03-06-2011, 05:57 PM
It's gotten popular but it's not like the internet bubble and the real estate bubble were. when it gets around 3000 an ounce and your neighbors are showing you their new krugerrands we'll safely call it a bubble.

tsai3904
03-06-2011, 07:57 PM
It's gotten popular but it's not like the internet bubble and the real estate bubble were. when it gets around 3000 an ounce and your neighbors are showing you their new krugerrands we'll safely call it a bubble.

So if gold gets around $3,000 but the Fed goes through with QE3, QE4, QE5, and QE6, the Fed's balance sheet goes from $2.5 trillion to $7.0 trillion, and aggregate money supply triples from now til then, you would still safely call it a bubble?

wildfirepower
03-06-2011, 08:07 PM
I remember I posted a thread over a year ago stating that gold would eventually plummet. I was told I was wrong, and I eventually conceded. But now I have G-d on my side, and I listen to Him:

"They will throw their gold in the streets, tossing it out like worthless trash."(Ezekiel 7:19)
It is true. The Treasury sold the 3 Billion ounce or 100,000 Tons of silver they had in the 1950s, and then the 400 Million ounce silver or so strategic stockpile got sold/used up by the early 2000s.

This shows that the Treasury had 3.28 billion ounces of silver at the end of 1942. Many people claim (a/k/a have fallen for) the U.S. having 5.9 Billion ounce of silver at one time, but that seems to include coinage (or was perhaps simply made up).

300,000 Tons of Gold and other treasures

This gold find in the 1940's would have crushed the value of monetary gold around the world, per Weir. Because the US Government was the largest holder of monetary gold, it would have significantly devalued the US monetary reserves if made public . Too, its revelation would allow claims from certain Asian countries that the gold belonged to them. This would upset the balance of power and wealth in the region.

http://digicoll.library.wisc.edu/cgi-bin/EcoNatRes/EcoNatRes-idx?type=turn&entity=EcoNatRes.MinYB1941.p0081&id=EcoNatRes.MinYB1941&isize=M

http://www.marketoracle.co.uk/Article8813.html

http://uscode.house.gov/download/pls/31C51.txt

I think USA has 300,000 Tons of gold. The report says 300,000 Tons of "gold" and "other treasure". There is good possibility that there is another 100,000 to 200,000 Tons of silver. Total estimated treasure 500,000 Tons. Details are very scarce/less. Please do not give importance to this till this is confirmed.

There are 2 possibilities:

1) USA has large quantities of gold and silver.

2) USA sold large quantities of gold and silver. So somebody has large quantities of gold and silver.

So there are large quantities of gold and silver in this world which can be upto 500,000 Tons to 1 million Tons of Gold.

Before 1950, the British were transporting gold from India to England. A big ship was loaded with gold and it set sail from India to England but this ship sank in the endless oceans/sea and disappeared. It is said that there is so much gold on this ship that if this ship is found today, the gold price will crash rock bottom. India was known as the “golden bird” in their early days.

Nazi Gold Hoard discovered? Only picture 1 looks genuine/real.

http://secretofhealthylivings.hakkinda.us/history/33937-what-a-find-cache-of-nazi-gold-unearthed-in.html

Poster/author 1:

I believe the world gold has more than 1 million tonnes. My ex company is a legal firm. I saw contracts for gold deals before. Last year my boss (a lawyer) drafted contracts for total of 480 000 metric tonnes gold.

My boss represented a seller, and the golds sold to 12 buyers around the world. So, the data from World Gold Council is totally wrong. The world has much more gold than 160 000 metric tonnes.

By common sense, we know the fact (world only has 160 000 MT gold) is wrong. if by size, 160 000 mt gold is only a cube with dimension 20 m x 20 m x 20 m.

Poster/author 2:

Oh, and his lawyer writing personally contracts on 480,000 tons of gold last year......... at a rate of $1,100 per ounce, that is $16,975,200,000,000... that's right, almost 17 trillion dollars Wow, one, humble ol lawyer, handling 20% more than the entire USA GDP last year, and no ones even heard of him, or the insane amount of effect that would have on world economy, but no one noticed?..... I want to say something soooo bad right now, but I'll probably get banned if I write it..... why do people even think that our IQ is so low to just accept things they write like this... what, is the author like 12?

As per official reports the total of all the mined gold in the world is 160,000 Tons to 200,000 Tons.

lester1/2jr
03-07-2011, 09:17 AM
tsai 394 no that wold be a different scenerio

YumYum
03-07-2011, 09:36 AM
It is true. The Treasury sold the 3 Billion ounce or 100,000 Tons of silver they had in the 1950s, and then the 400 Million ounce silver or so strategic stockpile got sold/used up by the early 2000s.

This shows that the Treasury had 3.28 billion ounces of silver at the end of 1942. Many people claim (a/k/a have fallen for) the U.S. having 5.9 Billion ounce of silver at one time, but that seems to include coinage (or was perhaps simply made up).

300,000 Tons of Gold and other treasures

This gold find in the 1940's would have crushed the value of monetary gold around the world, per Weir. Because the US Government was the largest holder of monetary gold, it would have significantly devalued the US monetary reserves if made public . Too, its revelation would allow claims from certain Asian countries that the gold belonged to them. This would upset the balance of power and wealth in the region.

http://digicoll.library.wisc.edu/cgi-bin/EcoNatRes/EcoNatRes-idx?type=turn&entity=EcoNatRes.MinYB1941.p0081&id=EcoNatRes.MinYB1941&isize=M

http://www.marketoracle.co.uk/Article8813.html

http://uscode.house.gov/download/pls/31C51.txt

I think USA has 300,000 Tons of gold. The report says 300,000 Tons of "gold" and "other treasure". There is good possibility that there is another 100,000 to 200,000 Tons of silver. Total estimated treasure 500,000 Tons. Details are very scarce/less. Please do not give importance to this till this is confirmed.

There are 2 possibilities:

1) USA has large quantities of gold and silver.

2) USA sold large quantities of gold and silver. So somebody has large quantities of gold and silver.

So there are large quantities of gold and silver in this world which can be upto 500,000 Tons to 1 million Tons of Gold.

Before 1950, the British were transporting gold from India to England. A big ship was loaded with gold and it set sail from India to England but this ship sank in the endless oceans/sea and disappeared. It is said that there is so much gold on this ship that if this ship is found today, the gold price will crash rock bottom. India was known as the “golden bird” in their early days.

Nazi Gold Hoard discovered? Only picture 1 looks genuine/real.

http://secretofhealthylivings.hakkinda.us/history/33937-what-a-find-cache-of-nazi-gold-unearthed-in.html

Poster/author 1:

I believe the world gold has more than 1 million tonnes. My ex company is a legal firm. I saw contracts for gold deals before. Last year my boss (a lawyer) drafted contracts for total of 480 000 metric tonnes gold.

My boss represented a seller, and the golds sold to 12 buyers around the world. So, the data from World Gold Council is totally wrong. The world has much more gold than 160 000 metric tonnes.

By common sense, we know the fact (world only has 160 000 MT gold) is wrong. if by size, 160 000 mt gold is only a cube with dimension 20 m x 20 m x 20 m.

Poster/author 2:

Oh, and his lawyer writing personally contracts on 480,000 tons of gold last year......... at a rate of $1,100 per ounce, that is $16,975,200,000,000... that's right, almost 17 trillion dollars Wow, one, humble ol lawyer, handling 20% more than the entire USA GDP last year, and no ones even heard of him, or the insane amount of effect that would have on world economy, but no one noticed?..... I want to say something soooo bad right now, but I'll probably get banned if I write it..... why do people even think that our IQ is so low to just accept things they write like this... what, is the author like 12?

As per official reports the total of all the mined gold in the world is 160,000 Tons to 200,000 Tons.

Great post wildfirepower.