This was insightful commentary with a serious conversation about the ratio of gold / dollar and oil prices. With large amount of debt issuance ahead to cover current budgets and long-term liabilities, it is almost “in the bag” that we will see higher prices ahead. We will see some major corrections along the way the will allows commodity prices to fall across the board then we will be talking about the doom of deflation (I actually think this will be needed to bring incomes and cost of living back in-line) then the bulls will come out again to pump it back up. Its a cycle but in the end, the trend is certain, higher prices for things you “need”, lower prices for “wants” (better production but not enough demand) and steady or falling wages and they will translate into the fore mentioned scenario.
We have too much debt in our system and not enough money to pay it off. Our track record on letting things default and fail not good, so the assumed course of action will be more support and debt to try and keep things smooth. This will not work because of the debt issue and the scarcity of money we have created with issue money as a debt instrument in society. This will be the defining issue we will tackle in the next 25-50 years and it will shape our society beyond that.
Forbes - Panic is in the air as gasoline prices move above $4.00 per gallon. Politicians and pundits are rounding up the usual suspects, looking for someone or something to blame for this latest outrage to middle class family budgets. In a rare display of bipartisanship, President Obama and Speaker of the House John Boehner are both wringing their hands over the prospect of seeing their newly extended Social Security tax cut gobbled up by rising gasoline costs.
Marc Faber’s gold comment was just a small part of the interview but relevant with this current sell-off in the precious metal. Also, he speaks about entitlements in the United States. This is really the elephant in the room that no one will acknowledge is the main cause of future uncertainty in our economy. We need to meaningfully and aggressive tackle this issue and get a compromise that creates some sort of cut-off under the existing obligations but also fulfills that same obligation to people who are too far in life to have the ability to create and alternative plan for retirement and healthcare.
This is the only way. If we continue on this track, we will continue to dedicate more and more resources to propping this broken system up and we will not have the options we need to tackle other issues that are pressing like energy security and education.
This article hit is right on the dot. Any purchases of gold bullion by central banks “does” reassure gold investors that it was a wise choice in this time in uncertainty. Yes gold does not pay a dividend but also it has no liabilities other than itself. Unlike fiat currencies (Dollars, Euros, Francs, Yuan , etc) which carries a liability being that they are brought into existence by decisions that you have little influence on and is affect by political headwinds even though they profess monetary independence from this pressure. If that was the case then we wouldn’t not see so much intervention every-time we have any major negative news.
Right now we are witnessing the largest expansion in public debt and currencies ever. This is why ALL central banks (basically) are increasing their gold reserves so they can show they have something tangible in their holdings that are not entirely dependent on another counter-party (ie another government). They can all agree on value for gold. We are seeing the re-monetization of gold and eventually silver as we continue to increase debts at increasing rates.
Bank of Korea is smart to make this purchase and we should see more in time.
Yahoo! News - South Korea’s central bank bought 25 tonnes of gold over the past two months in its first purchase in more than a decade, saying the time was ripe to boost its gold holding, but markets barely moved on the news.
Sounds like good advice in the time where we are trying to get out of the biggest financial crisis since the Great Depression. We are dealing with record global budget deficits and central banks that are seemly standing ready to print as much money as needed to try and revive the economy. This means a serious devaluation in the current purchasing power of your currency. Gold does a very good job (some would say par excellence) for preserving relative purchasing power as a wealth saving instrument.
The Chinese government have been signaling this to their citizens for over 2 years now. We should be wise and take heed to this advice. We would be stronger as a nation if we had a large private savings in this country that was not just in U.S. dollars. What this would mean is lets say we have a currency collapse, we would have serious pain while we figured what new monetary system to bring into being, our population would have hard currency that they could use to get goods into this country. Its just like having insurance but you hold the policy so you would not need to worry about some third party going out of business and not being able to follow through on their obligation.
There could be a political motive for this as well, all our major commercial banks having sizable short positions in gold and silver. No bank or government wants to see the gold price reflect their true value because that would be much higher and then you would have to talk about what caused this on all the financial channels and this would not be a fun conversation. Now lets says many Chinese people start buying more gold and sliver, this would force the commercial banks to cover their position or close it out and that would do two things.
First, it would cause major losses when settling these short positions. Second, as they shorts were retired, it would drive the precious metals price much higher. This would complicate U.S. policy on economic issues. I don’t know what the Chinese motive is, but I wanted to lay out an alternative scenario.
Forbes - The People’s Bank of China(PBOC) recommended yesterday that 1 billion Chinese consider buying gold as a hedge against inflation and to preserve values in a world where currencies can fall. The PBOC Financial Markets Review came out just as several major currencies were indeed declining in value against gold; the dollar,1%, the Swiss franc,2.5%, t he British pound, 2%, and the Japanese yen, 2%.
I love the $1,650 call by Goldman Sachs. 1650 is the magic number these days, I wonder where I heard that before (*cough Jim Sinclair *cough). Gold is really breaking out, currently last time I checked it is at $1,370 per ounce. We are seeing the reaction to the multi-trillions of new debt we are creating. Its a total debasement of the U.S. dollar.
As long we continue this path, gold is going higher and the dollar will continue to lose value. The USDX (Weighted currency index) is at 77, (70) is the lowest it has been recorded at. Goldman stated in this article that gold prices will come down when the economy recovers. This may be true but we will need to see major cuts in federal spending and much higher taxes. Right now, gold is being re-monetized as money and if this fully occurs then even if the U.S. dollar regains confidence, people may still use gold to store wealth because they are not certain if our politics will not revert back to the same old games we have been running in this country since the end of WWII.
Bloomberg - Gold may rally more than 20 percent from this month’s record to a high of $1,650 an ounce in 12 months as the Federal Reserve takes action to stimulate the U.S. economy, according to Goldman Sachs Group Inc.