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Ardent Listener
Administrator
USA
4841 Posts |
 Posted - 09/22/2009 : 15:42:40
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Sorry, gold bugs, but the facts just don't add up
Boyd Erman
Last updated on Tuesday, Sep. 22, 2009 07:35AM EDT
It seems a shame to trash the party just when it's finally becoming fun to be a gold bug.
Bullion is flirting with $1,000 (U.S.) an ounce and hoarding the metal is no longer just a pursuit for Eric Sprott and assorted conspiracy theorists with caches of canned food. Even the guy behind the bar at dinner the other night was long gold and happy to expound on why.
It's all about inflation they say, and gold as a store of value. Except for one thing: The facts don't back it. (Unless you're an American buying bullion because you're worried about the inexorable decline of your dollar. In that case, you should be worried.)
Almost every real measure of actual inflation pressure - as opposed to the inflation paranoia inherent in the gold price - shows little in the pipeline. One of the best long-term indicators of inflation expectations for the next decade, the price premium built into inflation-protected U.S. Treasury bonds, is indicating that prices will rise 1.75 per cent a year.
Yet the bullion pushers forge ahead. After 20 years of being wrong when gold was stuck around $350 an ounce through the 1980s and 1990s, they are nothing if not persistent.
The key to their argument is the man they call "Helicopter" Ben Bernanke, the head of the U.S. Federal Reserve, and all the cash he and his peers at central banks around the world are creating to revive growth in the world economy. At some point, that money will sluice out of the banks into the economy, inflation will be upon us like a tsunami, and gold will be treasured as a store of value.
The proof, as gold bugs see it, is in the price of gold. It rises when inflation is a risk, so inflation must be a risk. Get it?
The problem is one of simple math: Those helicopter-loads of cash, even if they were making it into the real economy, are not nearly big enough to fill the Sudbury-size crater in the global economy created by the crash in the world's housing and stock markets.
The Fed balance sheet, a focal point of inflation hawks, has expanded by about $1.3-trillion as Mr. Bernanke pumped cash into the lending system. Added to that, the Obama administration has come up with close to $1-trillion in stimulus, the biggest of a global group of packages totalling about $5-trillion.
However, the decline in assets is much bigger. The value of global stocks has fallen by more $17-trillion since the markets peaked in 2007 and U.S. housing is down more than $4-trillion since topping out in 2006.
On top of that, the financial institutions that are supposed to push that cash into the economy aren't doing it.
U.S. bank lending, by some estimates, is contracting at the fastest rate since the Depression. Bank credit in August in the U.S. shrank at an "epic" pace equal to 9 per cent a year, according to David Rosenberg, chief strategist at Gluskin Sheff.
The result is a real money supply that's actually shrinking at the same time as the jobless rate is at a cyclical high and factories are idle.
Not surprisingly, executives scoff at the idea of raising prices any time soon, with one telling The Globe and Mail not so long ago that it would be "very cavalier" to even try. That utter lack of pricing power is clearly reflected in Friday's numbers showing that underlying inflation is still slowing on both sides of the border.
To that, many gold bulls retort that central banks are going to miss the transition to hyperinflation when it comes, or be unwilling to fight it with higher interest rates because of political pressure from indebted governments.
That seems far-fetched. Central banks have become very good at keeping inflation anchored. In the 18 years since the Bank of Canada adopted the goal of keeping inflation centred between 1 and 3 per cent in Canada, consumer price increases have averaged a 2.1-per-cent pace. Not bad.
There will likely be plenty of warning before inflation takes hold, as capacity use creeps up and unemployment ebbs.
Those real facts go a long way to explaining why even though gold is at $1,000, inflation fears have yet to become mainstream, and discussion of exit strategies to pare back government stimulus programs before prices take off - talk that dominated the last big G20 meeting in April - has largely, and mercifully, fallen by the wayside.
Mercifully, because if the gold bulls and their view on inflation really held sway, the exit would already be on. Interest rates would already be rising and the world would be well on its way back into recession. The bugs should be careful what they wish for.
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Think positive. |
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Neckro
1000+ Penny Miser Member
Saudi Arabia
2080 Posts |
Posted - 09/22/2009 : 15:51:19
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| That article made me laugh. |
Trolling is an art. |
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Ardent Listener
Administrator
USA
4841 Posts |
 Posted - 09/22/2009 : 15:56:44
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Well he did say........ "It's all about inflation they say, and gold as a store of value. Except for one thing: The facts don't back it. (Unless you're an American buying bullion because you're worried about the inexorable decline of your dollar. In that case, you should be worried.)"
I'm worried, I'm worried!  But if the bank of Canada doesn't think they too won't be effected by a U.S. dollar crash then all I can say is dream on.
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Realcent.forumco.com disclosure. Please read.
All posts either by the members, moderators, and the administration of http://realcent.forumco.com are for your edification and amusement only. It is not the intent of realcent.forumco.com or its host to provide investment, medical, matrimonial, legal, security or tax advice and nothing posted here should be considered to be so. All rights reserved.
Think positive. |
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Ardent Listener
Administrator
USA
4841 Posts |
Posted - 09/22/2009 : 16:10:54
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But he is correct, they are crazy, they should be buying silver instead. Just kidding, I'm an offical gold bug too.
But get this Erman guy. Gold is already shooting up to $1,000 just on the prospect of future inflation getting out of hand, but he wants us to wait until it hits $5,000 I guess. Sure Mr. Erman, let's give you more time to hoard up on gold.  |
Realcent.forumco.com disclosure. Please read.
All posts either by the members, moderators, and the administration of http://realcent.forumco.com are for your edification and amusement only. It is not the intent of realcent.forumco.com or its host to provide investment, medical, matrimonial, legal, security or tax advice and nothing posted here should be considered to be so. All rights reserved.
Think positive. |
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AGgressive Metal
Administrator
USA
1937 Posts |
Posted - 09/22/2009 : 16:25:01
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| No matter what the technical conditions about dips and up-ticks, money supply, blah blah - one thing is certain: all paper currencies eventually fail. I wonder what advice this guy would give to Argentines in the late 1980s? Or British in the 70s? |
And he that hath lyberte ought to kepe hit wel / For nothyng is better than lyberte / For lyberte shold not be wel sold for alle the gold and syluer of all the world.
-Caxton's edition of Aesop's Fables, 1484 |
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Country
1000+ Penny Miser Member
USA
3121 Posts |
Posted - 09/22/2009 : 16:58:24
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Sorry Erman; arguments using consumer inflation of 1%-3% are not going to fly. Governments hide the real inflation. Try and get by with a fixed pension that you got 10 years ago. GOLD has a way of adjusting its price to the REAL inflation rate. Could we say 10% or so is the REAL inflation rate?
One of the best long-term indicators of inflation expectations for the next decade, the price premium built into inflation-protected U.S. Treasury bonds, is indicating that prices will rise 1.75 per cent a year.
I'm not buying them. Government voodoo economics birth/death rate inflation inherent in these won't ever pay you for the REAL inflation adjustment that you need just to keep up.
Why has GOLD been held down? Why have US Treasury interest rates not gone through the roof? It's the same answer - government manipulation. One day soon, government manipulation will be overwhelmed by a panicked population seeing their buying power evaporate as their paper currency falls prey to the worthless reality un-backed paper currencies have shown again and again in the past. |
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The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get-rich-quick theory of life.
– Theodore Roosevelt
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oober
1000+ Penny Miser Member
USA
1304 Posts |
Posted - 09/22/2009 : 17:26:38
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With China buying and pushing PM's on its people. They will no way allow PM's to tank...
I just don't see it...
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 09/22/2009 : 17:43:01
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This Erman guy also ignored the pesky little details-
-From 1974 (When it was legal to own gold bullion again) to 1980 gold did remarkably well.
-US Gold Coins minted 1932 and earlier did very well in the US from 1945-1974, it was hard to find a $20 gold coin for less than $60 during the 1960’s.
-The price of gold increased from its lows of 2001 through 2008 in spite of the ‘low’ inflation recorded by the government, yet there is no reason given for this in the article. By rights gold should have gone down or remained in the doldrums, yet reality has a nasty way of proving gold bashers wrong.
-Gold bounced back from its lows during the financial meltdown of 2008, yet the stock indexes are still off of their 2008 highs. Could gold investors know something that Erman and the paper pushers don’t know?
(Answer, Yes!)
South African Gold mining is declining, meaning less supply, this wasn’t mentioned in the article, another pesky detail unworthy of Erman’s attention. |
Edited by - pencilvanian on 09/22/2009 17:44:38 |
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Cody8404
Penny Hoarding Member
USA
602 Posts |
Posted - 09/22/2009 : 20:06:31
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This was one of hte more interesting articles of late.
I hope he convinces enough people to sell thier gold so the price drops. Now is the time for some welcome good deals. |
Awake, O kings of the earth! Come ye, O, come ye, with your gold and your silver, to the help of my people, to the house of the daughters of Zion, to the help of the people of the God of this Land even Jesus Christ. |
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Dalsuh
Penny Hoarding Member
USA
757 Posts |
Posted - 09/22/2009 : 22:30:03
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| The comments section to that article was more entertaining. |
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Coinage
Penny Collector Member
Canada
303 Posts |
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Sorry, gold bugs, but the facts just don't add up
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