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  • Why The Economist Is Wrong On Gold [View article]
    A good article, worthy of a couple of comments. The first is that gold functions as money when debt (and currencies are debt) do longer functions as money (store of value, medium of exchange, etc.). The second is that we cannot look at gold just in US dollars; if we go beyond the dollar, we will note that gold is rising in terms of other currencies - notably the Euro and the Yen - and that tells us something about those currencies as well as the demand for gold. It is also interesting to note that European governments are trying to reduce the use of cash in their economies (presumably, in an effort to increase tax collections). That, however, serves to reduce currency role as a medium of exchange and its usefulness as money. These are all factors which are serving to enhance the value of gold. Ultimately, as Venezuela has just discovered, gold is money which is accepted as collateral (or payments for goods and services) when cash isn't.
    May 25, 2015. 11:04 AM | 5 Likes Like |Link to Comment
  • A Scary Thought About U.S. Employment [View article]
    It doesn't appear to anybody that dollars are debt or that $9 trillion dollars have been borrowed by foreign borrowers and turned into local currency. Just the debt service on these loans provides significant support for the dollar in the currency markets. Indeed it is really a gigantic short against the dollar and that may come to bite borrowers and lenders alike.
    May 10, 2015. 10:41 AM | 2 Likes Like |Link to Comment
  • The FOMC And U.S. GDP Could Bring Up GLD [View article]
    I think that we are entering the end game. The problem is simple - the world has too much debt, which is impeding economic progress. The Greek case may be extreme, but it showcases the issue.
    When you have too much debt you can devalue your currency through inflation to get rid if debt; if you can't create inflation you must devalue your currency against gold to get rid of debt. History history tells us that those are the only two possible courses of action to address too much debt.
    Tinkering by the world's central banks will continue to be ineffective. I predict a return to the gold standard when the deflationary collapse occurs.
    Apr 28, 2015. 05:26 PM | 1 Like Like |Link to Comment
  • Case For GLD Bullishness: FOMC Induced Inflation Uncertainty [View article]
    It should be pretty clear by now that inflation is not in the cards any time soon. The vast money printing exercises undertaken in the US, Japan and now the EU are pretty dispositive. The winds of deflation are simply too strong.
    That, of course, is good for gold. Why? Because the problem is and continues to be too much debt and if we cannot inflate our way out of it then the forces of deflation will do the job for us.
    Unfortunately, history tells us what that means for our financial system and why gold will become valuable relative to paper IOUs.
    Mar 21, 2015. 04:42 PM | Likes Like |Link to Comment
  • Will The Fed Spike The Gold Price? [View article]
    It would appear that the only significant difference between the two of us is timing. In this regard, financial crises typically don't play out over time; usually there is a trigger - a seemingly random event like the Lehman failure - that causes liquidity to dry up. From thereon the crisis spreads like a wildfire.
    Right now, there are any number of potential triggers out there -Greece being the most prominent. My guess is that the storm will come from Europe because its banking system is far more leveraged than ours and contains mountains of sovereign debt which continues to be treated as risk free and requires no capital to carry.
    Whatever it turns out to be the vast majority of investors will remain unprepared as is always the case when a crisis hits.
    Mar 16, 2015. 09:30 AM | Likes Like |Link to Comment
  • Will The Fed Spike The Gold Price? [View article]
    I am not a trader, so my perspective is more macro than micro. That being said, I must disagree with your view that a rising dollar will have a negative impact on the price of gold.
    Before coming to that conclusion, you must first figure out the impact of a rising dollar on things other than gold. In this regard, I would note that $9 trillion (no typo, it starts with a T) US dollars (not their equivalent) have been borrowed by borrowers in non-dollar economies. I would also note that, in the past year, the dollar index has risen approximately 25% (from 80 to 100). That means that the debt service on all these obligations has increased by 25%. That is a very serious problem and it is likely that a meaningful number of these loans are going to default.
    These defaults are not likely to be inconsequential. $9 trillion is a very big number - roughly equivalent to the GDP of China and only the GDP of the US and the EU exceeds $9 trillion.
    The result, in my opinion, will be the breaking up of the financial markets as we know them and in the process a flight into dollars (which will exacerbate the problem) and into gold.
    Mar 15, 2015. 10:42 AM | 6 Likes Like |Link to Comment
  • Gold - The Oversold Commodity That Is Worth Picking Up [View article]
    We, along with the rest of the world, are tipping into deflation as the result of an excess of debt and a major financial crisis looms ahead. I suspect that its onset will only be determined in retrospect and that it could have already begun.
    However, until it becomes more apparent or until we have a "Lehman" moment, the price of gold is likely to fluctuate. Once the crisis becomes apparent, both gold and the dollar will soar. Why? Because in a deflation cash becomes more valuable relative to the goods and services that it can buy and in the case of the US dollar, there is presently a roughly $9 trillion short in the dollar (consisting of the dollars borrowed by or invested in non-dollar economies). In the case of gold, it will soar as a result of bankruptcies (which will make all debt suspect).
    That is the real reason for owning gold.
    Mar 9, 2015. 11:04 AM | 1 Like Like |Link to Comment
  • GLD Bearish As Greece Kowtows To The European Commission [View article]
    For Germany, that's a big number: 16% of their GDP. I am not sure how they survive that hit other than by the extend and pretend game.

    On the other hand, I agree that the US stock market is overvalued - as are the rest of the world's markets. That is the unsurprising consequence of low interest rates and their application to discounted cash flows. At current levels even small interest rate increases have a huge impact on present values.
    Mar 1, 2015. 09:31 AM | 1 Like Like |Link to Comment
  • GLD Bearish As Greece Kowtows To The European Commission [View article]
    Greece actually matters a lot. Look up something called Target 2 balances (which do not show up as debt). You will find that Greece owes the Bundesbank (Germany's central bank) another 600 billion euros in balance of payments deficits.
    Feb 28, 2015. 10:36 AM | 1 Like Like |Link to Comment
  • GLD Bearish As Greece Kowtows To The European Commission [View article]
    Extend and pretend is all that we have so far and it is hard to see how that can be bullish for either Greece or Europe. Anybody who thinks that Greece will ever be able to repay its indebtedness is smoking stuff that is not generally available legally. And that indebtedness does not include the T2 balances held by Germany.
    Some time has been bought, but it is not clear to what end. In four months Greece cannot show much progress. So far, since the beginning of the crisis all Greece has been able to do is to increase its debt (as has the entire EU).

    As a separate matter, I would note that deflation would be good for gold. Why? Because deflation bankrupts debtors and bankrupt debtors will bring down the financial system as we know it.
    Feb 27, 2015. 05:42 PM | 4 Likes Like |Link to Comment
  • FOMC Deflation Interpretation Drives GLD Down [View article]
    You say that "Gold... serves as a hedge against inflation and instability" and I agree. When the worldwide debt bubble bursts, I can assure you that you will have a severe dose of instability. One of the things that could burst the bubble is rising interest rates. The problem is that most of the developed world - not to mention the less developed world - is struggling to service their debts at current interest rates.
    Defaulting debt will bring down the banks and as debt becomes suspect, gold will be the only remaining (liquid) safe haven.
    Feb 25, 2015. 04:48 PM | Likes Like |Link to Comment
  • Gold Slides As The Greenback Climbs [View article]
    I usually stop reading when I read that gold has no intrinsic value because that is simply not true. What is true is that it does not provide a stream of income, but you do not need to have a stream of income to have value, intrinsic or otherwise.
    Furthermore, gold is traded in a world market and simply looking at its value in dollars doesn't tell you much. If you look around the world there are a great many currencies in which it has been a most profitable investment. In addition, the Central Banks are increasing their gold holdings, suggesting that they see some intrinsic value in gold. Bottom line, Gold shines brightest when the value of paper obligations become suspect.
    Feb 15, 2015. 01:30 PM | 5 Likes Like |Link to Comment
  • Fed's Insistence On Transitory Disinflation Puts A Pause On The GLD Trade [View article]
    Gold has been rising and will continue to rise as a result of the appearance of deflation. This is the bit that most people don't understand because we haven't seen deflation for several generations. The key part of a deflation is defaulting debt which causes people to look for a safe haven that is not someone else's debt.
    It has also been a long time since there was a gold standard, but if you check, every deflation has ended with a devaluation of the currency against gold.
    Jan 30, 2015. 05:57 PM | 4 Likes Like |Link to Comment
  • What Is Keeping GLD Up? [View article]
    The simple answer is demand. A more complex answer is because of deflation fears.
    Jan 12, 2015. 03:28 PM | Likes Like |Link to Comment
  • Gold moves to three-week high, miners gain again [View news story]
    Dollars is the short answer. Indeed the dollar has been soaring and, in my view, will continue to do so because we are in a deflation and that's what happens in a deflation. The soaring dollar, however, will create a lot of losers for those who are part of the $8-9 billion who have borrowed dollars for non dollar projects. Their debt service costs will soar and many will default. It will be even worse for those borrowers of dollars who produce oil, copper and iron ore.
    All this is bad news for the banking system and people who buy debt. In that environment investors will want assets that are not someone else's liability and that will cause gold to soar. And lastly. I don't think that you will find that all deflations end with a revaluation of currency vs. gold.
    Jan 7, 2015. 11:26 AM | 2 Likes Like |Link to Comment