Re: Kondratieff theory for gold in a deflationary "winter"

["Gary Santos" <evs@xxxxxxxxxxxx>]

Just to add to the topic and not as a direct response to Bryan's comments.

I am wondering why there is a propensity to assume that a depression will
follow in the coming years. Why not  stagflation? Or, hyperinflation?
Commodity prices are at a cycle low, aren't they? There is just too much
fiat going around and no real adjustment in prices have occured, right?
There is no deflation in the US. Bernanke and Greenspan wanted to pre-empt
it not address the existence of it. (I wouldn't be surprised if both now
consider those speeches ill advised.) We're going to have a war and massive
deficit spending worldwide, right? So, I now ask: Why must there be a
deflation or depression?

We should consider that whatever softness there is right now in prices may
be of a temporary duration based on a propensity of the exporting countries
to outdo each other. I come from one of these exporting countries and, I
tell you, there are pressures building up to raise wages. Only through the
concerted efforts of politicians and labor leaders, in light of current
events locally and in the world, have strikes based on wages and
transportation fare hikes been defused. And, let us take note that the
competition for exports to the US have taken the form of devaluations of the
exchange (with the exception of China) rate and not of lowering prices in
local currency. And, can China sustainably export at prices that are below
cost in other countries? While I have no access to data and will have to
"guess", it would seem that their competitiveness is based on the existence
of state run companies that are in continuous deficit. This is something
that they have been trying to address (i.e. close down these firms but have
not yet done completely for political reasons). It also seems to me that
this subsidy China has given to its export sector is credit based as shown
by a looming banking crisis. All this points to some adjustment in the near
future.


----- Original Message -----
From: "Bryan Kavanagh" <bryank@xxxxxxxxxxxxxxxxxxx>
To: <longwaves@xxxxxxxxxxxxxxxx>
Sent: Sunday, March 09, 2003 8:32 AM
Subject: Re: Kondratieff theory for gold in a deflationary "winter"


The only thing I'd add, Gary, is that if it is correct that cash is king in
a price drop, then the only money accepted over millenia surely has to
outperfom our badly mismanaged fiat - even if gold were to reduce to $200
an oz.  Whether governments then step in to stymie gold
investors/speculators--something they have chosen not to do with
stockmarket and property speculation--then becomes the 64 carat question.

My contrariness leads me to believe that the answer may be 'yes'.

- BK

At 01:05 AM 9/03/03 +0800, Gary Santos wrote:
>If not, does anyone have any FACTS (as opposed to speculation) on the
topic?
>Elliot Wave and Kondratieff theorist Robert Prechter predicts gold will
>react as a commodity like silver did in the last depression, and sink below
>$200/ounce.
>----------------------------------------
>Those of us who are long on gold or gold shares should continually review
>our positions. I welcome contrary opinions because of this.
>
>The key question to ask is where will new demand for gold come from?
>Prechter's prognosis is based on a decrease in demand during a depression.
>Reductionist and assumes the conditions then are the same today. My
thinking
>is opposite to Prechter for the following reasons:
>
>a. Central Banks like China's and Russia's have a small percentage of their
>reserves in gold. They appear to desire to diversify their reserves away
>from the US dollar (see b.) and have announced this. Note that they are
>keeping it within 15% of reserves as gold does not earn interest. Gold
>however continues to be a desired form of reserves for all major fiats.
>Search the web for the announced policy of the Swiss who had at one point
>100% gold backing.
>
>b. One central issue economic issue today is money in the form of fiat. The
>question is especially being asked of the dollar fiat. There are political
>issues collateral to the issue. E.g. The move to price oil away from the
>dollar in the form of the Gold Dinar (tied to gold) and the Arab Dinar
(tied
>to the Euro). It is not clear whether gold will be a winner as central
>banking and the nature of the financial system is married to the fiat form.
>But, should new currencies come into significant use or if demand for the
>Euro increase, gold should benefit. This is where Sinclair's thesis of gold
>as a control mechanism comes in. The new fiats should provide a basis for
>people to trust that profligate money creation will not occur. While there
>are other means such as an enforced law, Sinclair's prediction certainly
>goes a long way in guarantying fiat growth restraint on an international
>basis.
>
>c. There is the short position of the mining companies and of the bullion
>banks. The price of gold decreased below the $400 level not because of a
>decrease in demand but because of continuous shorting of the metal. Gold
has
>since recovered dramatically and I am convinced that a few central banks
are
>managing the price of gold upward. The consequences of a big bank failure
>will be avoided at all costs and time is needed for the bullion banks to
>unwind. Physical gold has to be produced for physical deliveries to be
made.
>All the sold gold are now in jewelry form in India, China, Japan, etc.
>Furthermore, I think they now realize that it was a  mistake to allow the
>gold price to fall as far and as long as it did as this created an
>unsustainable situation insofar as the shorting was concerned -- as mines
>closed and jewelry demand increased, a supply gap was created. The wise
>thing for them to do is to bring production back on stream. The only way
>they can do this is to allow the price of gold, albeit gradually, to
>increase. I figure that this price is in the range of $500-$600 per troy
>ounce. At that price, many mining firms will find it profitable to reopen,
>at least, in the Philippines. If this thesis is correct, we should see the
>price of gold increase year on year.
>
>What will happen once the financial shorts are unwound? Only producers will
>sell forward when they perceive gold to be priced too high as was normal
for
>them anyway in bygone days.
>
>Did I forget anything else? Anyone?