Bankers and Economists Say Gold is a Bubble. Here’s Why You Should Ignore Them

smartknowledgeu's picture

It is indisputable thay:

 

(1) History has much to teach us;
and that

(2) We ignore historical evidence that is useful in predicting the
future far too often, even though history has demonstrated time and time again
that it repeats itself.

 

With the benefit of hindsight, let’s review the chatter of
the leading US economists before the stock market crash of October 29, 1929
that ushered in the global Great Depression:

 

"We will not have any more crashes in our time." -
John Maynard Keynes, 1927.

 

"There may be a recession in stock prices, but not
anything in the nature of a crash."
- Irving Fisher, leading U.S. economist,
New York Times, September 5, 1929.

 

“There is no cause to worry. The high tide of prosperity
will continue.”
- Andrew W. Mellon, Secretary of the Treasury. September 1929.

 

Even after the stock market crash occurred, there was still
no stopping the economic-political propaganda machine.

 

"[1930 will be] a splendid employment year." -
U.S. Department of Labor, New Year's Forecast, December 1929

 

“I am convinced that through these measures, we have
reestablished confidence.”
- Herbert Hoover, US President, December 1929.

 

“While the crash only took place six months ago, I am
convinced we have now passed through the worst - and with continued unity of
effort we shall rapidly recover. There has been no significant bank or
industrial failure. That danger, too, is safely behind us.”
- Herbert Hoover, US
President, May 1930.

 

If one studies economic history, one will uncover a clear
and distinct pattern of unbridled and highly unwarranted optimism that defied
underlying, sickly fundamentals during every recession that has occurred in the
last century.  Overwhelmingly,
there is a clear and distinct pattern among these egregiously poor predictions,
as they consistently are issued by the world’s most prominent economists and
politicians. In fact, if you follow the financial media, I am sure that you
recognize striking similarities between the propaganda issued before and during
the Great Depression and the propaganda issued during this current monetary
crisis.

 

Though this is not a warning that another Great Depression
will inevitably materialize, I do believe that the second phase of this
monetary crisis is inevitable, that it is likely to be worse than the first
phase that we suffered in 2008, and that it is likely to challenge the depths
of the prior Great Depression unless our leading governments drastically alter
the banking and monetary policies they are currently choosing to embrace. 

 

At a very minimum, the brief historical record at the
atrocious quality of unwarranted optimistic economic predictions from
politicians and economists alike in the face of dire economic circumstances should
warn us to completely ignore the repeating pattern of propaganda about imminent
recovery that is occurring today. If we do not take notice of the mountain of
historical evidence regarding the close bonds forged between economists, and politicians
and bankers that lead to the deceit of such propaganda, we have only our own
stupidity to blame when the collective wealth of nations are destroyed in 2010
and 2011.

 

Yes, the cat is out of the bag. There is an alliance between
bankers and the politicians and economists they monetarily support to purposely
mislead the public through well-timed pieces of propaganda.  Either this aforementioned sentence is
true, or the people we continually propel to the forefront of the media in
politics and academics are the dumbest people that reside on our planet. One of
these two statements must be true.

 

Even among the most prominent people that advocate gold and
silver today, I observe a wealth of misguided commentary about gold that
largely has arisen due to the propaganda campaigns that bankers have
continuously waged against gold. And what about prominent economists beliefs
about gold? Today, economists still have not broken their shameful history of
making awful predictions. For this reason, one should ignore every politician
and economist that states that gold is currently a bubble. However, let’s
dissect one case in particular.

 

A couple of weeks ago, well-known and often-quoted American
economist and economic professor at New York University, Nouriel Roubini,
scripted some of the most inane arguments I’ve ever read in support of the
“gold is a bubble” argument. In fact, some of his arguments were so vapid that
it would not surprise me, if one day in the future, an investigative journalist
uncovered a direct deposit from the US Federal Reserve into his bank account a
few days prior to his writing of the article, “The Gold Bubble and the Gold
Bugs.”

 

The economists and politicians that continually rail against
gold do so because gold is the enemy of a fraudulent monetary system that
continually steals the wealth of nations through a silent tax called inflation.
In his article, “The Gold Bubble and the Gold Bugs”,  Roubini wrote, “since gold has no intrinsic value, there are
significant risks of a downward correction.”
 Indeed, today, despite a decent rally in the gold futures
market on Christmas Eve, gold still appears vulnerable to further downside
action, and further downward pressure at the end of this month would not
surprise me, if it happened.  However, when Roubini wrote this article in mid-December, a
gold correction had already commenced (thus, there was zero risk in his prediction
of a gold correction at the time he scripted his article
).

 

And here’s where the chicanery of economists like Roubini
emerge if one takes the time to dissect his comments. Note that when Roubini
released his article to the media that gold had already shed $75 to $80 an
ounce from its previous high earlier in the month. At this point, an
eight-year-old could have predicted the likelihood of further short-term
weakness in gold markets. When the gold correction continued after Roubini’s
comments circulated the internet, there were inevitably many people that read
Roubini’s comment that erroneously deduced that Roubini correctly predicted the
current downward correction, and thus, gold must have no intrinsic value.

 

But let’s break down this statement even further to
illustrate exactly why Roubini’s comments offer nothing beyond what a shill for
the banking industry would state. 
Roubini claims that gold has no intrinsic value. If we look up the
definition for intrinsic, this is what we find: “Of or relating to the essential
nature of a thing.”
  The fact that
people are willing to pay more than $1,000 an ounce for gold, by definition,
grants gold intrinsic value. The fact that people value gold as an attractive
adornment in the form of jewelry and are willing to pay top dollar for gold
jewelry, by definition, grants gold an intrinsic value.  If gold had no intrinsic value then why
do people offer top dollar for it? I wonder if Roubini is married and if he is,
if he bought his then fiancée a diamond ring? Using the flawed “intrinsic
value” argument, if gold has no intrinsic value, then surely diamonds have zero
intrinsic value as well. And if so, then why do so many people that accept the
flawed “gold has no intrinsic value” argument willingly buy diamonds? Of
course, the answer is that both gold and diamonds DO have intrinsic value as
indicated by the willingness of people to pay loads of money for these commodities,
whether in raw or processed form.

 

If Roubini is arguing that gold can not  serve as money because it has no intrinsic
value, then has he ever considered the intrinsic value of all fiat money
itself, including not only the US dollar, but also the yen, the euro, and the
pound sterling? The only qualities that grant fiat paper money value are the
numbers and the pretty ink with which governments adorn it. But strip away the
numbers and pretty ink, and how much would someone be willing to pay for that blank
piece of paper? Not even a penny I would fathom. Yet, strip gold from its
jewelry form, or better yet, offer it to someone in its rawest, unprocessed
form, dug up in a core sample from the earth, and you will always find people
willing to pay vast sums of money for this raw metal.

 

By definition, this gives gold far more intrinsic value than
any fiat currency
, and renders Roubini’s argument as almost laughable. It is
even more amusing that the public, en masse, then embraces such silly arguments
and repeats them like mindless parrots. Though this is amusing, it does not
surprise me. This is the fault of institutional academia that has stripped all
young adults of the ability to critically think and reason for themselves.  This is why I have argued that business
school is an utter waste of time and money (something I unfortunately did not
realize myself until completing my MBA), and why some of the worst reasoning
about global economics and monetary policies originate from former economic
chairs and professors of supposedly esteemed academic institutions such as
Harvard and Princeton (aka Ben Bernanke). 

 

The public stands far too much in awe and grants far too
much trust to public figures just because they are in a position of authority
or because they might possess a degree from Harvard or MIT or Oxford. I’ve seen
this pattern of gullibility happen over and over again. Commercial investment
firms are able to repeatedly mesmerize and recruit clients by advertising sophisticated
quantitative models developed by some Wharton MBA that grant their clients a
sense of entitlement and superiority. In reality, this is just nonsense because
stock markets are rigged and the only way to guarantee results is to become
friends with the riggers or understand how the riggers operate, which no
quantitative model can effectively accomplish.

 

Though I graduated from the University of Pennsylvania, I
have met more people on the streets during the course of my life that
understand politics and monetary concepts much more fully than any student or
professor that I have ever met inside the hallowed academic halls of any Ivy
League institution. A fancy degree should never grant anyone a pass as someone
to be respected and it should not grant me one either. Rather, one’s logic, rationale, and track record should be
necessary to earn the respect of masses, though these ingredients never seem to
be essential to the financial media. 

 

Most politicians, economists, bankers, and media personnel
that constantly denigrate gold seem to be embattled in a crusade to paint all
gold owners as crazy, lunacy-tinged, tin-foil hat wearing conspiracy buffs that
believe gold can only rise in a straight line to $10,000 an ounce. In fact,
from my experience, I’ve found almost the exact opposite to be true. In my
encounters with gold owners over the past decade, I have found most gold owners
to be insightful, of above-average intelligence, and much more capable of
independent thought than the average person. Though there is a small contingent
of gold owners that may indeed resemble the mentally unstable character, Jerry
Fletcher, portrayed by actor Mel Gibson in the movie “Conspiracy Theory”, there
is also a small contingent among the investment community, otherwise known as
Chief Investment Officers of large commercial investment firms, that always
believe that the stock market will rise no matter the circumstance.

 

Even though I believe that gold will eventually top out at a
price multiples of its current price, the truly educated among gold owners don’t
expect this price to be achieved as a straight shot higher to the moon. For
this reason, we have bought gold since it was $500 an ounce and held on (or for
the more sage among us, maybe even at $300 or $400 an ounce). We have acted in
this manner because we understand that not only is it natural for gold to correct
after rapid surges, but that gold also corrects sharply at times due to price
suppression schemes executed by bankers. And we understand that neither
occurrence constitutes a gold bubble bursting.

 

As one of the themes of this essay has been to learn from
history, I will conclude this article by stating that one of the best reasons
to ignore the gold bubble advocates today is their failure to acknowledge one
of the most important contributors to steep declines in the price of gold that
occur from time to time – the execution of price suppression schemes and free
market interference into gold markets by bankers. To support this thesis, I
will reproduce below a portion of an article I wrote on October 16, 2008, in
which I discussed the enormous anomalies created in gold markets by these
banker executed schemes during the fourth quarter of 2008.  Though I wrote this article more than a
year ago, it is worth revisiting to understand the ample evidence of gold price
suppression schemes that one must account for to understand that gold
corrections cannot be a bubble bursting.

 

“Today (October 16, 2008), there have been four distinctly
and differently priced markets established for gold: (1) Futures markets in
Asia that consistently establish prices $20 an ounce to $60 an ounce higher
than the prices established in (2) Futures markets in New York; (3) Physical
bullion bars that dealers are starting to price at healthy premiums above both
daily spot prices established in Asia and London/New York; and (4) Physical
coins that dealers have always priced at premiums above bars and spot prices,
but that are now selling at soaring premiums above spot prices.”

 

“Since the July 14th (2008) correction in gold and silver
markets began, waterfall declines have occurred in gold prices in New York
futures markets that trade paper gold where physical delivery of real gold
occurs with less than 1% of all paper traded futures contracts. The differences
in spot prices in Asian futures markets and in New York futures markets for
gold have been staggering for the past 10-12 weeks, so much so that two
distinct and separate future markets for gold have been established, one in
which the gold price is significantly higher in Asia and another, where the
gold price is significantly lower in New York. As they say, a picture can paint
a thousand words so below you can find the daily spot charts in Asia and in
London/New York so you can compare the huge discrepancies between these markets
on a visual basis.”

 

In the remainder of that article, which you can find here,
complete with all graphs
, I presented compelling visual evidence of enormous
discrepancies in the price of gold between Asian and NY/London markets within
the same 24-hour trading day that lasted for weeks on end, and seemed to point
to excessive suppression of gold prices in the NY and London markets.  The evidence was so compelling, that when
I forwarded it to CFTC commissioner Bart Chilton, Mr. Chilton promised me that
he would investigate the discrepancies with his team. Given the evidence, I concluded
back then “that something [was] seriously amiss in the futures markets for
gold…and that rampant manipulation for profits by just a few players [was]
occurring in an unchecked fashion. According to data recently released by the
Office of the Comptroller of the Currency, a division of the US Treasury, of
the $135 billion of gold derivatives contracts (including futures and options)
controlled by financial institutions, JP Morgan controls $96 billion
(71.11%) of these contracts and HSBC Bank USA controls $34.4 billion (25.48%)
of these contracts. In other words, just two players control almost all gold
derivatives contracts in the entire United States.”

 

Thus, if we tackle all flawed arguments against gold on the
basis of logic and from the perspective of understanding that from time to
time, bankers execute artificial schemes to depress the price of gold to serve
their own purposes, then it should be quite simple to ignore your local
politician and economist when they tell you that you shouldn’t buy gold because
it is a bubble.

 

JS Kim is the Founder & Managing Director of
SmartKnowledgeU, LLC
, a fiercely independent investment research and consulting
firm.