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  • Will GLD Get A Second Wind? [View article]
    Leaving possible short-term market reactions aside, any increase in rates by the Fed will be so minuscule that it will be economically inconsequential to gold or any other asset class.
    The simple reality is that the world economies are in the grip of deflation, which the Fed, the ECB and the Japanese Central Bank are fighting as vigorously as possible, but without notable success so far. Who would have thought that it would be so difficult to create some inflation?
    While some may enjoy trading gold (and perhaps profit from its short-term moves) the real reason to own gold is as insurance against the catastrophes that are wreaked by deflation and - should it be the case - any subsequent inflation.
    Most understand why and how gold protects against periods of significant inflation, but few understand how gold protects against deflation. Perhaps that's because these two phenomena are not the reverse of each other. Yes, inflation is about rising prices and deflation is about falling prices. Inflation is really about depreciating the currency - which also serves to reduce the real cost of debt, while deflation increases the cost of debt. In the case of inflation the value of debt erodes, while in the case of deflation it explodes. That is because payment failures cause defaults and when that happens it's game over. Gold, however, is not a debt and cannot default and why it is the ultimate safe haven in a deflation.
    Nov 9, 2015. 11:06 AM | 5 Likes Like |Link to Comment
  • Gold Is In A Long-Term Downtrend Driven By Fed Monetary Policy [View article]
    It certainly was convenient that Venezuela had some gold, particularly since nobody was offering to take a couple of billion of any other commodity as collateral. As you may (or may not) know, collateralized loans are always over collateralized to account for possible market movements. I suppose that they could have borrowed against oil, but then where would you store a couple of billion dollars of oil?
    Nov 6, 2015. 08:59 AM | Likes Like |Link to Comment
  • How Will The Fed Impact GLD This Time? [View article]
    It's fine for traders to buy and sell gold on the basis of what the Fed does or doesn't do, but ultimately that is not the issue. The issue is debt - in particular excessive debt - and there is nothing that the Fed can do about that. Indeed, only the market can do something about that and that is what the Fed fears most.
    The Fed knows that we are in a deflation and (like other central banks) are fighting a desperate battle to overcome it because deflation bankrupts debtors. It is my view that their battle has been lost and that the die is cast: the excessive debt will be removed by bankruptcies and a depression will ensue.
    That will cause gold to soar - not by tens or hundreds but by thousands of dollars. That is the reason to buy and hold gold.
    Oct 26, 2015. 08:42 PM | 2 Likes Like |Link to Comment
  • Gold Is In A Long-Term Downtrend Driven By Fed Monetary Policy [View article]
    Mr. Lerner appears not to believe that the US is part of a global economy and that Fed policy will determine the fate of the gold market. That is not my view. Gold is traded in a great many currencies and in many of them it is doing quite well. If you were a Brazilian, gold would be looking pretty good as compared to the real. Indeed it is looking pretty good in any emerging country market.
    What we are seeing is a fraying of the global economy and, not unsurprisingly, it is starting at the edges and will work towards the center. The issue to worry about, however, is deflation. If you are in the commodities business, deflation has already arrived; the key industrial commodities like copper, iron ore, coal, crude, etc. are selling for less than 50% of what they were selling for a year or so ago. One might think that would be good for those that consume those commodities, but the problem is that demand is down and that's why the prices are down.
    What's the connection with gold? The answer is that deflation bankrupts debtors (check out Glencore) and in that environment, people look for assets that are not someone else's debt and gold is one such asset. Unlike real estate or art or jewelry, it is highly liquid and easily converted to cash in both small and large amounts.
    Or just look at Venezuela; in April they were able to borrow $1 billion from Citibank, but only because they collateralized their loan with gold. Had they not had gold, they wouldn't have gotten the money. I think they now understand the value of gold if they did not previously.
    I think we will find - sooner rather than later - a significantly greater appreciation for the value of gold than is now the case.
    Oct 20, 2015. 05:16 PM | 3 Likes Like |Link to Comment
  • Will The Labor Market Bring Down GLD? [View article]
    As the equity and commodity markets around the world tumble, a lot of seemingly counter-intuitive things are happening. The weakness in gold is but one of them. Others would include strength in both the Euro and the Yen and in the bond markets.
    When a host of counter-intuitive things happen, it is not because we have gone through the looking glass and landed in Alice's Wonderland, but rather that other forces are at work. One of them is leverage: great on the upside, horrible on the downside.
    Right now a vast number of leveraged positions have investors scrambling for liquidity (e.g., margin calls) and are in the process of covering and/or exiting their bets and raising cash. The Euro, the Yen and the bond markets have huge short positions some of which are now being reversed creating demand for those assets.
    On the other hand, there is not a huge short position in gold, so no pressure to buy it and some pressure to sell it to raise cash and deleverage. That is what I think is going on right now.
    The problem is that the exit window is too small for everyone to get out at once and when (or if) that becomes apparent, the creditors will increase the pressure to get repaid and that's when we will see the real fireworks.
    And, not incidentally, that is when investors will realize that gold is money (and not somebody else's liability). The Central Banks have already figured this out and that is why so many of them are buying gold. As adage suggests, watch what they do and not what they say.
    Sep 29, 2015. 03:24 PM | 4 Likes Like |Link to Comment
  • Gold's Artificial Lows From Extreme Shorting Attack Won't Last [View article]
    There are many ways to guess at the value of gold after the debt bubble bursts. I would opine that around $12,000 per ounce is probable because that would restore gold as a percentage of international (central bank) reserves to roughly the amount (50% of total reserves) that existed from 1950 to 1971 on average during that period. Bottom line, the increases in the price of gold following a bursting of the bubble are going to be very significant even if they are much less than your and my guesses.

    As an aside, I would note that the "total" amount of derivatives outstanding grossly overstates the values at risk. A single derivatives transaction generates multiple transactions of the same risk amount as counterparties hedge their book. In addition, derivatives transactions have no principal risk as (unlike bond transactions) no principal amounts are exchanged. Instead, they involve exchanges of cash flows on "notional" amounts.
    Aug 10, 2015. 09:35 AM | Likes Like |Link to Comment
  • Gold's Artificial Lows From Extreme Shorting Attack Won't Last [View article]
    I wouldn't expect a meaningful move in the price of gold until the debt bubble bursts - as it surely will. At that point, I would expect to see prices to rise by more than $1,000 per ounce.
    The big question is when will that happen and that is very hard to determine because it will almost certainly will result from a seemingly random event. In the mean time, the world's central banks will continue their extreme policies to counter the forces of deflation, much as did Sisyphus with his rock. Ultimately, they, like Sisyphus, will be unsuccessful.
    Aug 9, 2015. 10:39 AM | 2 Likes Like |Link to Comment
  • Greece Bailout Agreement Adds To GLD Selling Pressure [View article]
    Not really; the US has the ability to print dollars to pay off its debt, while Greece cannot print Euros.
    With respect to the currency, I expect that the dollar will be rising vs. other currencies because of the $9 trillion or so that has been borrowed and converted into other currencies (e.g., dollar mortgages in Hungary). This represents a gigantic short position against the dollar that will need to be covered.
    Jul 17, 2015. 08:52 AM | Likes Like |Link to Comment
  • Greece Bailout Agreement Adds To GLD Selling Pressure [View article]
    I would note that US debt is well over 100% of GDP. Your numbers do not include the US Treasury debt owned by the Social Security Trust. It is often excluded on the theory that it is "owed to ourselves". The fact is that it is a debt of the Government owed to all of the payers into the trust and really reflects the borrowing of money that has been spent. Eventually, it will need to be repaid when outflows from the Trust exceed inflows.
    Jul 15, 2015. 10:50 AM | Likes Like |Link to Comment
  • Greece Bailout Agreement Adds To GLD Selling Pressure [View article]
    If you think that Greece will be able to pay any of their debts or meet the conditions imposed on them, I think that you have either gone through the looking glass or are somewhere in la la land. Just meeting a primary surplus in 2015 will prove to be impossible.
    But that is not really the issue and anybody whose gold investment turns on whether or not Greece blows up is misguided. Greece only illustrates the problem that the world economy faces: excessive quantities of debt that can neither be repaid nor serviced at "normal" interest rates. Even in the US, growing your debt faster than you grow GDP eventually takes you to a very bad place.
    Right now storm clouds are forming everywhere:China, Japan, Russia, etc. Puerto Rico and Greece are indeed minor in the scheme of things. Remember Penn Square Bank? That was a small unheard of bank that took down Continental Illinois (the 7th largest US bank at the time). Why? Because their involvement with Continental Illinois caused them to lose a significant part of their short term funding.
    That's how these things start; never with something obvious. For my part, I find it hard to see how we will avoid the storm that invariably follows the creation of excess debt and that is the reason to own gold, not to try to make a few bucks off of a $100 move.
    Jul 14, 2015. 06:10 PM | 10 Likes Like |Link to Comment
  • Gold Is Heading Lower [View article]
    It is pretty clear to me that we are going to have either inflation or deflation in the near future. That's what happens when you have debt service requirements that cannot be met, as is the case now. I believe that the outcome will be deflationary, but either way the outcome will be good for gold. Until one of those two scenarios actually occurs, it is likely that the recent ups and downs will continue. The move that i am expecting will take gold to at least $5,000 per ounce and perhaps as high as $12,000 per ounce. Let's keep in mind that at $12,000 per ounce would restore central bank gold reserves (as a % of total reserves) to where they were in the late '50s and early '60s.
    Jun 8, 2015. 10:02 AM | 1 Like 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
  • 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
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