Thursday, December 29, 2011

The Price of Gold and the GDP of India..

There are a lot of factors which affect the price of gold.  Political turmoil, inflation, currency woes, economic growth, and investor speculation to name a few.  Mining increases the world's gold reserves by about 2500 tonnes or 1.8% of total reserves per year, so for the price of gold to just stay constant there needs to be a steady influx of new cash buying into the gold market, otherwise the additional supply of mined gold would lead to a glut and price reductions. 

An interesting bit of trivia about gold is that India buys more gold than any other nation, but not for bank reserves, rather, the purchased gold is used primarily for jewelry.  Wikipedia: Gold. 
India is the world's largest single consumer of gold, as Indians buy about 25% of the world's gold, purchasing approximately 800 tonnes of gold every year, mostly for jewelry. India is also the largest importer of gold; in 2008, India imported around 400 tonnes of gold. Indian households hold 18,000 tonnes of gold which represents 11 per cent of the global stock and worth more than $950 billion. 

So I thought it would be interesting to point out how the trend of the price of gold over the last 30 years would coincide with the trend of the GDP for India for the same time frame.  hmm.   Both trends are relatively flat for the first 20 years, and then around 2002, both trends climb in near unison, each more than tripling in value in less than a decade. 
30 Year Gold Price Trend: Source.

30 Year India GDP Trend: Source:World Bank Development Data
At $1,500 per ounce, it would require about $125 billion just to purchase the newly mined gold for a year.  Its not going to come from India.  The GDP of India has not increased enough to absorb the increased cost of their traditional share of the new gold production.  And once there is a glut in the market, the price doesn't just decrease, it falls off the table.

I wouldn't be at all surprised to see gold fall quite a bit from the current level.  The gold proponents like to talk about gold's inherent value as compared to currency because Governments can not just make more gold like they can make more currency. Gold's supply is limited and rare.  But don't overlook the fact that the supply does increase every year and if there aren't buyers willing to pay the current price for the newly mined gold, then the price will drop and continue to drop.

It is a market based on momentum and once the market picks up momentum one way or the other, it takes a significant event to change the direction.  India's meteoric rise in GDP over the last decade was the primary driver of the price of gold.  As that trend starts to flatten out, it will dry up the pool of buyers willing to continually buy newly mined gold and the price will fall.

Cool Christmas Present, Guitar Pick Punch

Thanks to my Sister-in-law Cherie for the very cool guitar pick punch.  You take an old credit card or hotel room key card or AARP membership card and insert it into the punch, press the handle together and voila, a new guitar pick.   How cool is that?

For a guy who has lost a gazillion guitar picks over the years and has also tossed out hundreds of potential guitar pick raw material sheets of plastic, this was a perfect gift.


Thursday, December 22, 2011

Tea Party calls it quits on payroll tax chicken game

John Boehner (R-Ohio) finally realized that he and his party had taken a really stupid position (even for them) regarding the payroll tax increase so he gave up the bluff at the last second and wants to cut a deal quick.   House GOP leaders yield on payroll tax
House Republican leaders, bowing to pressure from both the White House and their Senate colleagues, agreed to a stopgap measure that will forestall a tax increase on American workers that was scheduled to take effect Jan. 1. 
The deal is expected to come to a vote Friday under procedures that would require all members in both chambers to agree.
Given their penchant for high drama its not hard to see how the Tea-Party led House GOP let it come to this.  They love to make bold threats and make folks run to stock the cellar with food and batteries.  But getting this close to sticking every working American with higher payroll taxes in the name of fiscal responsibility with the news dropping just as the House hightailed it out of town for Christmas?  Pure genius of a strategy there, fellas. 

But now suppose hypothetically if the deal falls through tomorrow...
If any members object, Speaker John A. Boehner (R-Ohio) would call the House back into full session next week for a vote, he told reporters Thursday.
OK, I wonder how much it will cost the US taxpayers to fly or otherwise transport all 435 members of the House back to Washington for a special session over the Christmas holiday to handle business that would have already been handled if there was rational and competent leadership by both parties in Washington?  However many million dollars that might add up to, it pales in comparison to the political value it would provide the Obama reelection campaign and the DNC in general, keeping  in mind the most important background detail in this story.
The impasse largely concerned how to pay for extending the tax cut for a full year. The House had rejected the Democrats' idea to increase the income tax on millionaires...
Protecting millionaires at the expense of average working Americans.  For as long as I can remember, that was the precise summation that the Democratic Party made of the GOP economic strategy and I always scoffed at it.  But now it seems that Boehner and his Tea Party cronies who steer the GOP have proven the point. 

Thursday, December 15, 2011

Did the NDAA really allow for detaining US citizens?

There are plenty of hyperventilating pundits bemoaning about how buried deep in the National Defense Authorization Act (NDAA) of 2012 there is allegedly a provision that grants authority to the US military to permanently detain American citizens for whatever they feel like.  All the usual bloviators  are piping up in condemnation.

I recommend that people actually read the bill for themselves and not just rely on other people to tell them what to think.  Here is the bill in pdf form.   The part in question about detainee maters starts at page 418.  You will see that there is nothing in this bill that authorizes the military any new powers to detain American citizens.  The entire reaction to this bill is just more proof that to convince the American contrarians you don't need to be correct, you just need to be loud. 

 The National Defense Authorization Act of 2012

Sunday, December 11, 2011

Road Warriors: Wayne State headed to Div 2 National Championship

The Wayne State University football team won their 4th road playoff game in a row yesterday, earning a trip to the Division II National Championship game in Florence Alabama next Saturday.  Congratulations to the team from my Alma Mater in Detroit.  Road Warriors: Wayne State headed to Division II National Championship

This year was the first time Wayne State has reached the playoffs, voted in as the GLIAC entrant, even though Hillsdale won the conference title.  They were on the road and underdogs in all four playoff games so far.  It has been an amazing run and it is almost unbelievable we are one game away from a National Championship.

"When I recruited a lot of these guys, I told them that we would compete for a national championship," said coach Paul Winters. "Now they can see that everything has come together. We're going to play for a national championship."

Wayne was never very good in football as far back as I can remember.   Oddly enough there was a fellow engineering student and lab partner of mine from back in 1983, a guy named Paul Butcher, turned out to be a good pro football player, (maybe the only one from Wayne?) for the Raiders and Lions but year after year our teams were mediocre at best in the very tough GLIAC conference.  However under coach Paul Winters, the football program has really flourished and Wayne has started to attract some great talent primarily from Michigan and Ohio high schools.

I think the 24 team tournament system in Division II is superior to the BCS system for determining the Div IA National Championship.   Especially when a 6 seed goes on the road to beat a 3,2,1 and another 1 seed on their way to the final game.   Imagine the excitement that would build if the big schools could figure out a way to use a system like this.  Holy cow it would be incredible.

Go Tartars! Warriors!  Detroit loves a parade..

Thursday, December 8, 2011

The most precious commodity is confidence

Some would say that gold is the most precious commodity.  Others would say it is oil.  Many would say that corn and rice are more important than either gold or oil.  And still others would say fresh water trumps all the others.  Strong arguments can be made for any of them.

But I disagree and say that confidence in currency is the most precious commodity.  If that is lost, then the economy and our entire civilization whithers and dies.  There are 7 billion people on Earth, far more than could possibly exist on this planet if humanity had not come up with and refined the concept of money. If there is an Armageddon event in mankind's future, it will coincide with the end of the currency era.   I'd throw a round number out there and say a billion people would die within a year if the world's financial markets failed and quit functioning.   And it wouldn't stop there.

Money is a means for people with varying talents, resources, effort, and luck to all take part and contribute to the same economy.  Some grow food, some design machines, some mine for resources,  some take care of the sick and research cures for diseases, some perform menial labor, some keep law and order, we all contribute in some small way to the beehive of activity that is our society.  Not because we are programmed from birth like drones in a hive to fulfill a task, but because we need to trade our time, talent and effort for money so that we can trade the money we earned for things we need to help our families survive and maybe even thrive.  How much money our efforts are worth may not seem fair, but in the aggregate the system works, given the rampant population explosion of humans around the globe these last few centuries.

That is why I don't understand the conservatives who aim to demolish our system of currency in order to start from scratch with something new that works better in theory.  It all sounds so simple to the simple mind but the plan to put the dollar on a diet and truncate spending won't work as intended because it will kill any remaining confidence in the economy which will set in motion of chain of events resulting in economic collapse and failure of the currency system.  When that happens, civilization ends and society goes backward a couple hundred years at least.  I hope you have some chickens in the yard and a well for fresh water if that dream comes true.  If you have a job now, you won't have it then.

Yeah I suppose you could say that it sucks how complicated and unfair and out of control our monetary system has become and you would be right.  But to do away with it now and start over would end our civilization, so be careful what you wish for.  We need to find a way to keep the system of money viable for the near and long term future and to do this we need to grow the economy, not shrink it, to pull us out of this great recession.

And the first ingredient for economic recovery is confidence.  And that is why I can not support any GOP nominee other than Jon Huntsman.  The rest of them don't want to restore American confidence.   They prefer to drag down consumer confidence and instill fear in order to increase their own chance of winning an election.


Tuesday, December 6, 2011

Searching for signs of intelligent life.

The GOP base has apparently realized that they can't beat Obama with a tea-party whacko or simpleton, so all of a sudden it has become Newt vs Mitt for the ticket.   The party has 3+ years to figure out who to run and we get these two retreads to pick from?  Neither of them will beat Obama.  Jon Huntsman is the only GOP candidate that could possibly gain enough support from the middle to win the general election but time is running short for the GOP voters to face up to that and support Huntsman.

Anyways, while I search for signs of intelligence in the GOP, there are some other folks out there who have an even more daunting task.  Listening for AM radio signals from planets hundreds of light years away to look for evidence of life out there.    

Search Resumes for Evidence of Life Out There   
Astronomers announced Monday that they had taken E.T. off hold and resumed searching for radio signals from extraterrestrial civilizations with a set of radio telescopes in Hat Creek, Calif. The project, part of the Search for Extraterrestrial Intelligence, or SETI, was suspended in April when the University of California’s Hat Creek Observatory ran out of money...
“We are going to need public support,” she said.

Apparently, now that we have evidence from NASA's Kepler satellite that there are other planets out there that likely have surface temperatures where liquid water could exist it has rejuvenated hope that the aliens will be swimming around in the water and listening to tunes on the AM radio.

I think it is more likely that we will hear alien radio signals than the GOP base will get smart all of a sudden and start to support Jon Huntsman and turn the race.  I could be wrong though.  Stranger things have happened.