Msrpaul

Is Gold A Sucker's Bet?

Bankers hate gold Governments hate gold. They hate it because it is and always has been money. In good times, it's the rich mans idolatry. But in times of insecurity, it's everymans agreed form of real money, for one simple reason. Unlike FIAT currency, it can't be printed, it has to be mined, at considerable cost. It has been money culturally for thousands of years. The only difference is how many pieces of paper you're willing to trade it for.

You predict gold will fall, and it may. But your prediction is correlation to other commodities, which have industrial or consumptive value, that of course are tradeable for those pieces of paper, and in hard times, supply exceeds demand. Every governments response to such circumstance is the same. Print more paper to make people feel wealthy so they borrow and spend. But human behavior is different than that. In deflationary times, people avoid debt, consume less, and spend more time with family. Good for humanity, bad for economy.

The problem is, over time, the public grows to mistrust governments everywhere who use the printing press as a solution to bail out the corrupt. Gold is the one thing that equalizes the equation of citizens against their government. That's why it was illegal to own in the free USA for so many years.

Yes, governments through their central banks, because they know that as nation to nation, just as citizen to government, gold is money. It's why the Nazi's robbed very central bank in WW2. DO you think the Swiss were going to make tanks and ship them to Germany for marks?

Nope. Only gold shines in hard times.

There are times when I may choose not to go long gold, but I would NEVER short it. (neither would I short energy or food). Step aside if you think it is overvalued. But shorting any of these 3 is Russian roulette. It gold falls to 800, I'm bying. I'll buy more at 750. At 650, I'll gladly trade all my dollars in for gold. Because the government always responds to deflation the same way. print print print print

Thursday Outlook: Commodities, Emerging Markets

David,

I always love your posts. I got out of commodities before the last final and rewarding run, and keep waiting to get back in. I am aghast at the markets' willingness to digest bad news, but then again, with the coffers of the Fed in their minds as a backstop, risk is the only way to go. The consumer lending market has ground to a halt, and lots of people are on the brink. I know, as I work in the financial industry and see them. There is huge overcapacity in the financial system, which is yet to be dealt with. And today, the Ambac's got downgraded, and the market RALLIED!!!! What's missing from this picture? In the end, we are experimenting with a great game, using assetts instead of income to try to maintain"wealth" i.e. borrowing to keep the debt spiral running. The housing market is deflating. Moreover, today, the market rallies on high oil. I just can't figure the twisted logic. And gold falls on a weaker dollar.

Wednesday Outlook: Commodities, Emerging Markets

As I say, they can only "gig" the news so long (sucking in the small investor). What everyone seems to so severely miss is that without real income growth- which we haven't had for years as we've been fueling our demand for things with credit growth-there can be no real GDB growth. Greasing the financial wheels prevents meltdown, but the underlying fundamentals of weakening American skills creating a more service based economy (especially on the low end) are not a driver for wealth.

In our incredible desire over the years to avoid normal and healthy corrections, we have built an artificial economy based on assetts, not income. Housing will regress to the mean, as supply and demand will ultimately trump any tricks the Fed can attempt.

Now commodities inflation will enter, and will exist for years.

Great charts David, I look for them every day.