I think it might be time to buy some gold (and silver).

[pvn]

http://www.coloradogold.com/

[Exsubmariner]

Duh.

[Leaky Eye]

There seem to be a lot of gold threads going on lately. I haven't seen this central bank angle yet though.

So this investment depends on:

1) A large inflationary cycle occuring. I don't think anyone will argue that one will occur sometime.
2) Central banks being unable to further dampen gold's growth since they are allegedly dumping with full force.

The latter seems to present risks.
1) Central banks cease dumping and/or buy gold before a large inflationary cycle.
2) Central banks have enough gold on reserve to control prices through one or more inflationary cycles (until we are dead), and simply remove their current caps to do so.

What is your horizon for gold. Are you suggesting a hedge or a larger investment? Is there some way we can quantify the above risks to see if we are being adequately compensated for them?

And there is the general currency risk of the dollar gaining value. This is something I personally would never think I could accurately quantify. Anyone that can do so is smarter than me and deserves their riches.

[Borodog]

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What is your horizon for gold. Are you suggesting a hedge or a larger investment?

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No; I'm suggesting that the fiat-money system is unsustainable, and that eventually gold will spontaneously remonetize, whether anyone wants it to or not. Hence, it would probably be prudent to actually own some real currency.

[Copernicus]

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From that article

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A similar pattern occurred in Japan after the January 1995 Kobe earthquake, which devastated the port located near Kyoto and killed 6,434 people. Japan's currency climbed more than 18 percent against the dollar in the three months following the disaster, boosted by Japanese investors and insurance companies bringing home foreign investments.

[/ QUOTE ]

trading charts

It looks like the increase of the Yen in this scenario lasts ~ 3months, then its loses value for the next 18-20 months or so. There is probably a heck of a lot of other stuff going on but I wouldn't bet on this kind of short term boost lasting. People are demanding dollars because of bad investments they made largely within the US. Once these money issues are sorted out demand will drop to "normal" at least. Looks like the fed is trying to prevent a big spike though. mises on fed buying mortgages

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My understanding is that the Fed can only purchase AAA rated MBS. The MBS market is larger than the U.S. treasury market so it's not that crazy but .... there's all kinds of stories out there about the credit crunch underway and lack of liquidity in funding residential mortgage loans. Starting to hear rumors about problems with money market fund redemptions too. Much speculation about a Fed emergency rate cut too. Interesting times in the financial markets for sure.

[/ QUOTE ]

A rep of one of the largest investment managers in the country presented to us today, and he believes that another 500 points or so off the Dow will cause the Fed to drop rates 100 basis points. If that happens and they don't contract the money supply after the markets calm down after the rate cut, he sees a 15000 Dow in the near future. No fundamental problems in the economy + reduced funds rates + large money supply is grand slam home run in his opinion.

[Leaky Eye]

[ QUOTE ]
[ QUOTE ]
What is your horizon for gold. Are you suggesting a hedge or a larger investment?

[/ QUOTE ]

No; I'm suggesting that the fiat-money system is unsustainable, and that eventually gold will spontaneously remonetize, whether anyone wants it to or not. Hence, it would probably be prudent to actually own some real currency.

[/ QUOTE ]

That in no way answers my question, which I felt was valid. I gathered the remonetization angle from your OP.

[adios]

[ QUOTE ]
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What is your horizon for gold. Are you suggesting a hedge or a larger investment?

[/ QUOTE ]

No; I'm suggesting that the fiat-money system is unsustainable, and that eventually gold will spontaneously remonetize, whether anyone wants it to or not. Hence, it would probably be prudent to actually own some real currency.

[/ QUOTE ]

That in no way answers my question, which I felt was valid. I gathered the remonetization angle from your OP.

[/ QUOTE ]

You're correct IMO. Your question was valid and you got a non answer to it.

[adios]

[ QUOTE ]
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My understanding is that the Fed can only purchase AAA rated MBS. The MBS market is larger than the U.S. treasury market so it's not that crazy but .... there's all kinds of stories out there about the credit crunch underway and lack of liquidity in funding residential mortgage loans. Starting to hear rumors about problems with money market fund redemptions too. Much speculation about a Fed emergency rate cut too. Interesting times in the financial markets for sure.


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I assume that the groups the fed is purchasing these mortgages from hold sub prime debt as well. If I am understanding it correctly basically the fed gave out 38 billion in short term low interest (no interest?) loans so that these companies can pay off some debt without having to compete for "not enough" dollars. What happens in 10 days when the loans are due and they have to repay the fed? What happens to those loans that aren't repaid, will the fed continue to hold those mortgages, auction them off? The main problem still exist- people can't pay back their loans -> people who made the loans struggle -> liquidate assets -> market flooded -> prices drop. The feds move seems only to be a stalling one, holding the liquidation of some assets for an extra week or two but not altering the underlying issues.

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Your analsysis could very well be spot on. Not sure why the Fed operations helped but I assume that it helped the bigger banks. I think it was also a signal to the markets that there'd be more money coming if needed as well. The problems in the MBS market aren't going away anytime soon so I think we'll see continued horror shows. Might let a lot of junky type MBS get vaporized while protecting the higher rated paper. Illiquidity will kill even AAA rated stuff.

[adios]

Thanks for the info. Markets would rally hard IMO if and when the Fed did a rate cut. Not sure how to read Bernanke at this point.

[Zygote]

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Thanks for the info. Markets would rally hard IMO if and when the Fed did a rate cut. Not sure how to read Bernanke at this point.

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im not sure how to read him either. they're either gonna stay flat or cut and who knows how much. depends on the data.

if they do cut a signifant amount the dow will have another rally and probably a nice new high, but this will likely be the last bullet the fed has. They are really gonna kill the dollar and will likely underestimate the inflation risks to protecting the markets in this current environment of underlying inflation, just like theyve done so in the past. Maybe they'll learn they'll learn their lesson somewhat who knows.