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Robert Wagner
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Professional Credentials: The reports that I write are my personal research and opinions. They are not associated with any firm or organization, and are not intended to be taken as investment recommendations or advice. They combine my passions in economics, finance, writing and education, and... More
  • Gold Headed For Pre-QE Levels; Credit Suisse 5 comments
    Jun 25, 2013 11:18 AM

    I recently wrote an article about how silver had fallen to within 10% of its pre-QE level. Today there is an article out that Credit Suisse expects gold to reach pre-QE levels.

    "You need to re-examine your expectations for the gold market if you're long - you need to stop thinking in terms of crisis and start thinking about where gold was pre-crisis," Tom Kendall, director and head of precious metals research at Credit Suisse

    While I can't speak for Credit Suisse, I don't think it is a coincidence that both Credit Suisse and I are using pre-QE levels as benchmarks for gold. The reason pre-QE levels for gold are important is because the expectation of failed monetary policy is one of the major pillars holding up the price of gold. If gold falls to a level held pre-QE it will debunk one of the major myths supporting the price of gold.

    I've written many articles about how the pillars holding up the price of gold were made of sand, largely constructed out of myths and misunderstandings about modern monetary policy and how the Federal Reserve System is run. Endless cable TV advertising, highly vocal analysts using inaccurate and outdated theories of monetary policy and one time US Presidential candidates claiming gold will go to infinity because the Federal Reserve will destroy the US dollar are all examples of the grains of sand used to build the pillars. Their arguments are all very convincing, but all very wrong, and the fall in the price of gold is proving that beyond any reasonable doubt.

    The critical point on which all these myths are constructed is that the Fed "printing all this money out of thin air" will collapse the US dollar and lead to inevitable and unavoidable inflation, even hyperinflation. The level of confidence believers have in this theory has led them to claim that gold is going to the moon, and even infinity. The problem this theory has is that the price of gold isn't behaving like it should if this theory was credible. Best of all there is a level at which it will be totally debunked. If gold reaches levels held before QE began, it will prove that printing money isn't a justification for holding gold, that inflation didn't develop, the US dollar didn't collapse and best of all, it proves that Ben Bernanke and the Fed do know what they are doing, and that the critics of the Fed have been proven wrong on a monumental scale.

    In conclusion, in my opinion QE was never going to cause inflation. The belief that the Fed would create inflation is based upon a complete and utter misunderstanding of modern monetary policy and how the Federal Reserve manages the monetary system. Critics of the Fed have taken outdated theories of monetary policy and myths about the Fed to create pillars of sand to prop up the price of gold. If gold falls to prices held before QE began, the psychological impact on the gold market will be like a tsunami hitting the pillars made of sand. There will be no more evidence to perpetuate the myths being used to promote ownership of gold. "Printing money out of thin air" will no longer be a reason to buy gold, and without that reason, I can't think of any other reasons being used to buy gold.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (5)
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  • Chanakya_Reddy
    , contributor
    Comments (38) | Send Message
    Never trust any information from a source whose livelihood depends on you trusting his info.
    most of the propaganda for gold came from gold salesman or people who benefit from joining others in to the ponzi scheme.
    How on the earth, can anybody go to a gold selling website and read their stories on why gold is the best investment.
    its like going to Honda dealership and asking which car is the best.
    I am glad all the myths associated with gold are busted.
    - Inflation/hyperinflation.
    - Store of value.
    - Dollar collapse.
    - Collapse of US economy.
    - supply constraint of gold/peak gold/limited resource.
    - demand from china/india


    I don't want to go into details on how the myths have been busted but smart people would have already gotten enough info from SA and elsewhere regarding these topics. if you didn't have the curiosity and enthusiasm to find out , you will anyway not get it now.
    25 Jun 2013, 05:06 PM Reply Like
  • Robert Wagner
    , contributor
    Comments (2301) | Send Message
    Author’s reply » Total agreement, thanks for the comment.
    25 Jun 2013, 06:44 PM Reply Like
  • Kyle Spencer
    , contributor
    Comments (1247) | Send Message
    Dear Robert,


    I note that your critics appear to be evaporating along with their long positions. The lesson appears to be: "Never fall in love with an asset," (..and never, EVER, fight the Fed.) ;)
    25 Jun 2013, 10:12 PM Reply Like
  • Robert Wagner
    , contributor
    Comments (2301) | Send Message
    Author’s reply » Yep, the further gold falls the less noise there is.
    25 Jun 2013, 10:20 PM Reply Like
  • eagle1003
    , contributor
    Comments (1944) | Send Message
    Robert: Good article. Perhaps you can offer some insight on why the FED would embark on QE programs if the bulk of the stimulus ended up being nothing more than an increase in bank reserves without ever reaching the real economy by way of loans? My understanding is that the banks have somehow used the reserve money to buy equities, thereby elevating the stock market. Is that your understanding and if so, how does that money go from being in reserves to being in the stock market?
    26 Jun 2013, 12:57 PM Reply Like
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