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  • Gold investors are making a "major mistake" if they think the latest Fed minutes indicate the end of QE is likely by mid-year or even year’s end, Peter Schiff writes, seeing the recent decline in gold prices as a buying opportunity. The Fed's hands are tied, as any end to buying Treasurys or MBS would result in higher rates that might tip the economy back into recession. Gold finishes the day at $1,648.90, -1.5%[View news story]
    The real problem is that at some point money printing causes interest rates (swap rates, actually) to turn up. At that point, the die is cast and debt service becomes increasingly expensive, consuming and ever larger portion of revenues. Eventually, default is the only option. Latin America offers plenty examples, but so does Europe without needing to go further back than a single century.
    Sovereign defaults are a much better reason for purchasing gold that the simple fear of inflation.
    Jan 4 04:55 PM | 3 Likes Like |Link to Comment
  • Gold Cannot Seem To Make A Move Even With Fiscal Cliff [View article]
    I think that anyone who buys (or sells) gold on the basis of demand (or lack thereof) from the jewelry or industrial users does not understand that the significant mover in the price of gold is its value as a currency.
    When sound money policies are followed by the developed nations, gold's value diminishes and when sound money policies are abandoned - as they have been for some time now - gold's value is on the rise.
    The really big mover of gold prices will be the inevitable default of one or more large banks and/or sovereign borrowers.
    Those who believe that zero percent interest rates will stay forever, probably believe in Santa Claus and the tooth fairy. Eventually, interest rates will turn up and the game will be over. Those who doubt this need only look at the percent of revenues that sovereigns spend on debt service now and what happens to that number as interest rates rise. Doing so will demonstrate that there are few nations who can pay interest rates that have been customary in the past without using up all of their revenues.
    Once that point is reached by one of the larger of the developed nations, all debt and all major currencies will become suspect and gold will become the safe haven.
    Dec 28 04:04 PM | 1 Like Like |Link to Comment
  • Paul Van Eeden On Why Gold Is Overvalued [View article]
    One might think (from the article and most of the comments) that the US was the only country in the world and the dollar the only currency. Obviously that is not true. In addition, in the developed markets "money" moves freely and events in say, Japan or Europe impact the financial markets in the US, just as water always seeks its level in series of interconnected tanks. In addition, limiting the analysis to the US money supply includes what are called (improperly) Eurodollars, (which are bank deposits held in the US by foreign entities) but does not include the leverage created by these dollars that support borrowing in dollars to finance, say mortgages in Hungary. As might be expected, those dollars were converted into local currency, the forint, to purchase the house - which means that dollars need to be purchased to service the mortgage. In effect, the Eurodollar market represents a gigantic short position against the dollar and will be the source of steady dollar purchases in the market. When added to the deleveraging taking place in the dollar banking system the effect is very powerful.
    It is also very dangerous because it is highly deflationary and in a deflation the problem becomes one of debtors not being able to service their debts; and, when that happens, all money (which is debt) becomes suspect. In addition, when that has happened in the past, the only solution has been to devalue the currency relative to gold. So far, I see no other solution on the horizon. Everyone would like to get rid of debt through inflation, but there are times when that does not work and I would suggest that this is one of them.
    Nov 30 11:02 AM | 1 Like Like |Link to Comment
  • Agreeing on the creaky condition of the fiscal position of Western governments, two economists come to the opposite conclusion on gold. Lombard's Leigh Skene thinks the EU debt crisis has set in play a deflationary spiral in which gold falls (and sliver plunges), while John Williams says 2014 will bring realization of the U.S. government's insolvency and a soaring price. [View news story]
    Pretty much everybody understands why gold increases in price during an inflationary period, but few understand why gold rises in a deflation. The answer is simple: in a deflation, borrowers can no longer repay their creditors and all debt becomes suspect. Gold is not someone else's liability and takes on the role of money as currency (which is debt) is no longer trusted as a store of value.

    I would also note that in past deflationary depressions the answer has invariably been found in the devaluation of the currency versus gold.
    Nov 29 09:41 AM | 7 Likes Like |Link to Comment
  • Commodity Chart Of The Day: Gold [View article]
    All that may be fine for traders, but if it were that easy, we would all be very wealthy. Gold like most financial assets move on the basis of events. If we were to return to stable money tomorrow, there would be no need to own gold, but I don't think that is going to happen soon. We think of say, a cash dollar as an asset, but forget that it is someone else's liability (or debt). Right now there is too much debt and much of it will never be repaid. That will happen either through inflation or outright defaults (deflation). In neither case do you want somebody else's debt.
    As for equities, there are hardly any that do not have a lot of debt. Those that have to default will take a hit to capital because debt gets repaid first.
    Gold suffers from none of these risks.
    Sep 28 05:41 PM | 1 Like Like |Link to Comment
  • Today's Gold Rally Is NOT Justified [View article]
    Gold is up more than 500% since 2000, when the market peaked. The problem is that the central banks have been creating too much money and governments have been creating too much debt. Who would have thought that government debt was not only not risk free, but riskier than some private debt. Gold is the safe haven in periods like this and will protect against both inflation and deflation. Not bad when you consider that these are the two major risks on the economic horizon.
    Sep 7 11:21 AM | 1 Like Like |Link to Comment
  • Gold hits its highest level since February, +1.4% to $1,731 as QE expectations for next week ratchet up following the payroll report. Silver and copper follow suit, both posting large gains and multi-month highs. And don't forget Beijing - now getting serious about its own stimulus efforts. [View news story]
    A silly barbarous relic for some, but in times of excessive credit creation, inflation and deflation it does a pretty good job of protecting the purchasing power of one's assets. It may have gone unnoticed to some, but the purchasing power of dollar assets has declined by over 30%. Check out the performance of gold during the same period. You will see that the number is over 500%.
    Sep 7 11:12 AM | 2 Likes Like |Link to Comment
  • Will Gold Resume Its Rally In The Near Future? [View article]
    Gold is rallying on inflation fears, the main driver for gold so far. The real move will come when gold starts rallying on deflation fears and we are not there yet, but gold could be significantly higher (or not) when that time comes. Right now it is seen as an inflation hedge; eventually it will be seen as money.
    Sep 1 09:35 AM | 1 Like Like |Link to Comment
  • Gold And Silver Are On Their Last Legs ... For A While [View article]
    I think that you fail to understand that there are times when people turn to gold as a safe haven for their wealth and times when they do not. Typically the times when they do are times of monetary instability and the times when they do not are times of monetary stability. Stuff like commercial use of gold like for jewelry in India is not really relevant to the big picture. If you think that monetary stability has returned, you are right to be short of gold; if you do not then you are wrong. If you fear deflation or inflation, you are also wrong to be short of gold. From my perspective, the current crisis ebbs and flows, but is far from over.
    Aug 15 06:13 PM | 21 Likes Like |Link to Comment
  • Sell your gold and buy a house, hire workers, buy grains, or send a kid to college, writes Peter Tasker, noting the price of the metal is at multi-generational highs against these items. Recent financial instability has failed to budge the price, he says, meaning the bull market may be over and gold is back to being just another risk asset. [View news story]
    Anyone who thinks that the developed world will be able to pay off all of its debts without defaulting should definitely sell gold. Those who feel otherwise should buy gold if they have none. When the debt starts defaulting all debt will become suspect including the debt issued by the central banks that is otherwise known as cash or currency.
    Aug 7 11:17 AM | 2 Likes Like |Link to Comment
  • Attention PermaBears, The Chance Of A 2012 Recession Is Zero [View article]
    If you believe in inflation adjusted numbers, they suggest that we have been in a recession since 2000. If you believe in the stock market adjusted for inflation, you will find that it (the S&P 500) needs to rise about 30% from current levels to provide the same purchasing power (CPI) as it did in 2000. If you look at real GDP figures, the trend is down, not up. If you look at Europe, Japan and China you won't find anything to think that we are going to get any help from them. I would say that the chance of a recession (or worse) is 100%.
    Aug 6 04:09 PM | 7 Likes Like |Link to Comment
  • The Fed's (Fictional) Intervention In The Gold Market, Part II: GATA's Faulty Evidence [View article]
    Central Banks regularly intervene in the financial markets and do so by buying and selling securities, typically Treasury securities, but other securities as well. In addition, they both buy and sell gold from time to time. Some time ago, central banks were net sellers; now they are net buyers. That's just the way the system works and that is how they pursue their mandate.
    Jul 25 04:04 PM | 3 Likes Like |Link to Comment
  • Gold falls 1.3% to $1,588, the entirety of the decline coming in the minutes following the jobs report. In a little more than a day since a gold bull's dream - 3 major central banks loosening monetary policy and weak U.S. data giving at least a bit more impetus towards further Fed ease - the metal is off 2.1%. Silver is down 4.6% during the same time frame.  [View news story]
    You bought at the peak and I bought at $750-800. That makes me more comfortable as I have a profit and you have a loss, but those facts have no bearing on the prospects for gold going forward. Making decisions on a personal loss or gain is how you can lose money fast.
    Jul 7 10:00 AM | 2 Likes Like |Link to Comment
  • Gold falls 1.3% to $1,588, the entirety of the decline coming in the minutes following the jobs report. In a little more than a day since a gold bull's dream - 3 major central banks loosening monetary policy and weak U.S. data giving at least a bit more impetus towards further Fed ease - the metal is off 2.1%. Silver is down 4.6% during the same time frame.  [View news story]
    The economic news is deflationary; most gold investors buy gold when the news is inflationary and have yet to think about how gold acts in a deflationary environment. A hint of QE III would be all that would be needed to send gold up as would a couple of big debt defaults.
    Jul 6 12:05 PM | 1 Like Like |Link to Comment
  • Gold And Hyperinflation [View article]
    It should be obvious that our money (and that of others as well) is not performing its function as a store of value. Gold is and that is what it does in periods of monetary upheaval, which include both inflation and deflation. As you surely know, fiat paper money is a debt and in both periods debt performs poorly. In an inflation it loses its value and in a deflation it defaults. This has always been true throughout history and this time will not be different.
    Jul 3 10:37 AM | 1 Like Like |Link to Comment