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  • 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, 2012. 06:13 PM | 21 Likes Like |Link to Comment
  • Short Gold For The Long Haul [View article]
    You are right that any point in time an asset is worth no more than someone will pay for it. You are wrong when you say it is not a currency; when I go to Europe, I must change my dollars for Euros before I can buy something. So too with gold, I must change it to the currency in which the goods are priced so as to buy something and that has never been a problem.
    I would suggest that a large number of purchasers of gold have been motivated by the belief that gold protects against inflation (which indeed it does). However, now that the threat of inflation appears to be receding, those who bought to protect against inflation are selling.
    It is my view that the threat has never been inflation, but rather deflation. Indeed the Fed and the ECB and the Bank of Japan are doing everything they can to create a bit of inflation and they are failing because the forces of deflation are so strong.
    Eventually, people will come to understand gold's role in a deflation and that in a deflation all debts become suspect and many do not pay as expected. They will then look for assets that are not someone else's debt and discover that gold is one of those.
    May 7, 2013. 08:26 PM | 12 Likes Like |Link to Comment
  • Switzerland And The Change Of The World Economic Order This Weekend [View article]
    Let's remember that Switzerland is a very small country and while its monetary policies have a history of prudence and stability, there is no way that the Swiss Franc could become a reserve currency because the supply of Swiss Francs is simply too small and would be totally insufficient to impact the clearing of the vast number of international transactions that take place every day.
    Second, the announced rate of purchases of gold if the referendum passes is too small to have a major impact on the market. It would, as a move towards sound money, have a significant impact on the belief that financial difficulties can be solved by fiat money.
    Nov 27, 2014. 10:35 AM | 8 Likes Like |Link to Comment
  • Gold moves to three-week high, miners gain again [View news story]
    The really important news is not so much the relatively small move in gold, but rather the very large moves in crude, iron ore and copper as well as the move in the value of the dollar. The fall in the basic commodities reflects a lack of demand and suggests falling industrial production. More important, however, is that a significant amount of the production of these commodities has become uneconomic and that much of the production infrastructure had been financed with debt that will be increasingly difficult to service. For those who have borrowed in dollars, that will provide a double whammy.
    This tells me that unless something in this paradigm changes very soon, we are going to see mounting defaults that will significantly weaken the world banking system. The end of the movie looks like accelerating deflation, which will propel gold prices to levels not spoken of in the last three years.
    Jan 6, 2015. 04:17 PM | 7 Likes Like |Link to Comment
  • 2013: The End Of Gold's 12-Year Winning Streak [View article]
    It's really pretty simple: when sound money policies are pursued, gold languishes, when they are not, gold flourishes. If you think that we (or anyone else in the developed world) is pursuing sound money policies, you should not invest in gold. Those who think otherwise should invest in gold. History will show that it is invariably a winning investment in those circumstances.
    Jan 6, 2013. 11:22 PM | 7 Likes 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, 2012. 09:41 AM | 7 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, 2012. 04:09 PM | 7 Likes Like |Link to Comment
  • GLD: A Very Dangerous Set Up [View article]
    Gold is an asset that strikes me as unsuitable for trading. That's because, as many pundits have pointed out, it does not have earnings, pay a dividend, or have an industrial or commercial value that would drive its price.
    The price of gold does, however, respond to unsettling political and economic events, serving as an asset that represents a safe haven in such times. As a result, instability in the Ukraine, the Middle East and elsewhere will tend to cause gold to rise and fall in response to events that are, to some extent, unpredictable and random.
    The real reason to buy gold is as insurance against potentially catastrophic events in the financial markets. Presently, the developed world has an unsustainable debt burden that continues to increase and bubbles in the financial and real estate markets - driven largely by cheap debt.
    History tells us that when debt becomes unsustainable it is forcibly reduced by either inflation or deflation and, so far, no other alternatives have been found.
    Those who understand gold know that it serves as a safe haven in both cases. In an inflation, the value of currency and debt fall; in a deflation, currency will be strong, but debt will fall because it becomes increasingly costly to repay and much of it will default.
    To the extent that one fears neither inflation or deflation, holding gold probably doesn't make much sense.
    May 4, 2014. 11:16 AM | 6 Likes Like |Link to Comment
  • Gold Trust ETF Falling As Expected [View article]
    I am not a trader and do not buy and sell on the basis of short term moves. The only reason to hold gold today is because there is a high probability that the developed world is not able to repay the debt that it has incurred in the last decade. Not only is it unable to repay existing debt, but must incur additional debt to function. We are thus hostage to the market and the interest rates it charges for the refinancing of existing debt and the funding of new debt.
    If you believe in the tooth fairy, then you will believe that the developed world's central banks will be able to fund both the new debt and the refinancing of the existing debt at low interest rates. In that case you must also believe that taxation is no longer needed as the governments only need to fund themselves through their central banks at low interest rates. I would like to think that you would find the latter statement to be absurd.
    Plan A, of course is to approach the debt problem by trying to inflate it away. Unfortunately, this is not working anywhere in spite of Herculean efforts to do so; in fact the growth of debt has outpaced the rate of inflation since the last crisis, so we are actually going backward in out attempt to inflate debt away.
    Plan B, unfortunately, is not discussed (other than behind closed doors among the central banks because that plan used deflation to extinguish debt and does so with bankruptcy (both corporate and sovereign).
    Unless you have a Plan C, those are the only two choices and both cases are deleterious to your financial health. In a deflation, not all debt will default, but all debt (corporate and sovereign) will become suspect and fall in value. In an inflation, debt will lose value in real terms and in nominal terms with rising interest rates; and in both cases equity values will suffer because neither environment is friendly. In a deflation, prices will fall and in inflation costs will rise, potting profits at risk in both cases.
    Both cases, however, are beneficial to gold. Gold has always been a good hedge in inflationary times and in deflationary times it will offer a safe haven because it is not someone else's liability.
    Nov 5, 2013. 02:00 PM | 6 Likes Like |Link to Comment
  • Don't Bet On Gold [View article]
    There are no asset classes that truly stand the test of time (assuming you look at real returns); the reality is that different asset classes do well at different times. In times of relative monetary stability - such as in the mid eighties to the late nineties for instance, gold performed poorly and stocks performed well.
    If you believe that a period of monetary stability lies directly ahead, then you are right to eschew gold and invest in assets that do well in such a period. For my part, I do not believe that we are on the cusp of such a period; on the contrary, all of the signs are pointing towards continued monetary instability as the developed countries search for strategies to deal with excessive indebtedness. In this respect, I would argue that there are no good strategies and that only significant inflation (or deflation) can produce the meaningful reductions of debt that are needed. If that is true, then history will tell you that in those periods gold not only served as a good store of value, but also provided significant real gains. In this regard, I would note that in a deflation, gold prices only need to be stable to provide positive real returns.
    May 12, 2012. 10:56 AM | 6 Likes Like |Link to Comment
  • A Brief History Of Gold And Why It's Overvalued By A Factor Of 2 [View article]
    My, my, one hardly knows where to begin. First and perhaps most important your analysis assumes that the US is the only country in the world and that the dollar is the only currency in the world. I hate to say so, but that is not the case. Were you in Germany in the 1920's you sure would have been happy if you held a bit of gold. That was a time when the stamp on the envelope with your life insurance check exceeded the value of the check itself.
    Second, when you compare the price of gold to say. the CPI, you fail to note that from 1900 until 1975 the price of gold was fixed by the Treasury, first at $20.67 an ounce and then at $35 an ounce. Those were the prices at which the Treasury was prepared to either buy or sell gold in any amount. It was, therefore, not surprising that the price of gold did not change. Were you in any other country that was on a gold standard (e.g., the UK), you would have found that the price of gold varied a bit more as devaluations occurred. You might also have noted that were you around for the deflationary depression in the US in the '30s you would have seen the value of your gold holdings rise by almost 70% when FDR devalued the dollar.
    Lastly, as you point out, gold is not like a bond or a stock (or a commodity) and that is why it cannot be analyzed like a bond or a stock (or a commodity). It has also been around a lot longer than the dollar and indeed any currency that exists today. In addition, the data extends back into periods BC, but you need not go back that far for your analysis; a couple of centuries and less than a dozen currencies will tell you the story and if you do that you may both gain a better understanding of what influences the market value of gold and want to amend your analysis.
    Feb 13, 2014. 03:37 PM | 5 Likes Like |Link to Comment
  • Investment Banks Are Now Very Confused About Gold [View article]
    In any bull market, like any bear market, short-term sentiment waxes and wanes and that is reflected in the market averages. National markets will tend to reflect national developments while gold will be impacted by worldwide developments and its performance is different depending on the currency in which it is followed.
    Long-term, gold has had an excellent run in all currencies and has done a good job of reflecting the what has been happening in the economies of the developed world; and, not incidentally, over the last decade has outperformed the developed world's equity markets by a considerable margin.
    What happens to gold is about what happens to debt in a world in which all currencies are also debt, but debt that has no maturity. To the extent that debt remains sound, economies will flourish and real growth will result. To the extent that debt becomes excessive, economies will stagnate and growth will be minimal if not negative.
    In that environment, gold will flourish, principally because it is not debt and its purchasing power does not depend on somebody's ability to repay it.
    To the extent one believes that sound money has returned or that its return is imminent, there is no reason to have gold; on the other hand, if one believes the opposite, then there is every reason to have gold. That's really all one needs to know and all that one needs to have is patience - until there is no longer a reason to hold gold.
    Mar 3, 2013. 03:48 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 Next For GLD? [View article]
    The only important issue is whether or not the developed world is tipping into deflation. I would argue that it is, but we are not there yet and when we are it will be too late to act.
    The problem is the mountains of debt - public and private - that cannot be repaid, only rolled over. The central banks have outdone themselves in trying to create some inflation to reduce this burden and have been unsuccessful despite the trillions of dollars (and Euros and Yen) that have been injected into the monetary system. That leaves only deflation to get rid of the excess debt.
    That, of course, is an environment in which both cash and gold will see significant increases in value. Cash will become valuable because of declining prices and gold will become valuable because it is not someone else's debt - and in a
    deflation, all debt becomes suspect.
    Nov 21, 2014. 10:59 AM | 4 Likes Like |Link to Comment
  • Gold Is Worth $370 An Ounce [View article]
    I am afraid that is quite a simplistic analysis. One of the things is (for better or for worse) is a component of International Reserves, which are the reserves held by Central Banks. These reserves consist of convertible currencies, gold and Special Drawing Rights (SDRs), which can be ignored as holdings of SDRs are exceedingly small. These are called International Monetary Reserves and are at the bottom of an upside down pyramid as the basis for the creation of what we call money. In this refined world local currencies are not assets, but rather liabilities - as in US dollars for the Fed.
    In times past, gold has been a significant portion of these IMRs, but the proportion of gold has fallen from well over 75% to under 10% currently. In the process Gold has been vilified as a barbaric relic and worse. The other reality is that gold is very inconvenient to those who believe that the best way to prosperity is through the creation of additional debt - which is what the Fed, the European Central Bank and the Japan are doing presently.
    Unfortunately, history is replete with schemes to create wealth without actually working for it. Equally unfortunate is the fact that so far all of these schemes have failed ending mostly in massive inflation and, sometimes in massive deflation. During these periods there are massive wealth transfers and when the music stops, there is a lot less for everyone. Should you fear such a period, you might want to think about what you can do to avoid it and how you can keep some of what you have.
    Believing that things are worth what someone will pay for them it is clear that at this instant in time there is significantly less demand for gold than there was a month or a year ago. That tells me that there are a lot of people who now believe that the debt for growth and gain is not - as they once thought - nearing a crisis level, but rather, the "new normal". That, of course does not mean that they are right.
    There may also be more sinister reasons for what is happening because high gold prices and the belief that, perhaps gold is a better currency than say, the Dollar, the Euro or the Yen is antithetical to those Central Banks that are counting on fiat currencies as the way out. Indeed, the unprecedented magnitude of gold's fall in a very short period can only trigger suspicions that this move may have been orchestrated. One might also wonder who is buying for, as we all know, for every seller there must be a buyer.
    Apr 15, 2013. 04:47 PM | 4 Likes Like |Link to Comment