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Why Isn't Gold Higher?

RickAckerman's picture




 

 

My colleague and erstwhile nemesis Gonzalo Lira posed the question above in a recent essay, and it is indeed a most puzzling one.  Given that the world’s central banks — joined most recently by a shockingly reckless Switzerland — are waging all-out economic war by inflating their currencies, shouldn’t gold be soaring,?  In fact, prices have continued to meander between $1500 and $1700 since September of 2011, when gold topped out at $1945 after a spectacular run-up from $728 in just three years.

What could have caused the bull market to go lifeless since then, even as more and more countries appear hell-bent on devaluing their currencies to keep their exports competitive? The answer that Lira has offered is novel and engaging, but it did not persuade me, perhaps because the underlying conceit seems forced. For he has likened the current gold market to the one for credit default swaps (CDS) prior to the Great Financial Crash of 2008.  Because swaps provided insurance against bond defaults, they rose in value as the crisis mounted. But then, suddenly, they ceased to appreciate, Lira says, because “the markets collectively realized that the counterparties to those CDS contracts might not be able to pay up.”  This, Lira asserts, is exactly what is occurring in gold, as paper certificates have come to greatly exceed the supply of ingots held in vaults. The result, he says, is that “the global precious metals markets are essentially a game of musical chairs, with far fewer seats than players—far less gold than gold holders. And market participants collectively know this. Which is why they don’t trust their counterparties. Which is why gold isn’t rising like a shot.”

 

 

I think there’s a more convincing explanation for why gold isn’t rising, and I will get to it in a moment. But first let me say that my intention is not to assail Lira or his ideas. Even though we had a nasty spat on the Web a couple of years ago over the inflation vs. deflation conundrum, I’ve always found his essays insightful, original and well wrought.  Putting aside our differences over whether the inevitable collapse of the financial system will be brought on by hyperinflation or deflation, we probably agree on 90% of the things we write about.

 

‘Vague’ Insurance

This time, however, his logic would seem to equate apples and oranges. To begin with, the swaps he would compare to gold are a contractual form of insurance against default risks in certain types of financial instruments. As such, it is at least theoretically possible to calculate exactly how much risk is insured, even in a market as large as mortgage securities.  Gold, on the other hand, and relative to inflation, offers only a vague kind of insurance. Moreover, unlike swaps, gold does not give its owner a claim on anything.

 

Lira’s argument might have been more persuasive if he had simply asserted that an effectively unlimited supply of “paper gold” has been absorbing enough demand to suppress the price of physical. But if, as he evidently believes, ruinous inflation, never mind hyperinflation, were immediately in prospect, then we should have expected to see the demand for bullion soar, pushing up paper gold no matter how large the supply.

 

Physical vs. Paper Gold

 

Lira lumps paper and physical together to argue that “the current spot price of gold is reflecting market uncertainty as to who has actual gold, and who has worthless paper certificates of gold.” Again, if this were so, then we should have expected uncertainty itself to have spiked the preference of investors for physical over paper, overwhelming carry-traders and other feather merchants playing gold from the short side. And if investors were indeed worried about whether the insurance they hold is properly matched to the endgame, would they be buying the Treasury paper of a country that owes so much more than it will ever be able to repay?  In fact, the risk of a U.S. default is the last thing on their minds at the moment, and it will likely remain so until the day when events no one can predict cause creditors or debtors – it will have to be one or the other – to get stiffed.

 

In the meantime, whither gold?  My own theory as to why prices aren’t bounding above $2000 is simply this: the central banks have so far failed to produce any meaningful inflation. The untold trillions worth of stimulus they have shot at this goal have barely kept deflation at bay. Granted, prices for groceries, health care and some other necessities have gone through the roof. But the inflationary impact of all of these things together is inconsequential in comparison to the deflationary down force of a quadrillion dollar financial edifice that remains in a state of incipient collapse.

 

Hyperinflation Scenario

 

Under the circumstances, I continue to believe that deflation, rather than hyperinflation, will wreck the global financial system. I did not, by the way, “switch sides” in this argument as Gary North asserted in an essay he wrote for LewRockwell.com.  It was when the debate turned unendurably ugly that I was impelled to take a closer look at what some of the hyperinflationists were saying.  Peter Schiff, for one. In his scenario – which, along with the running debate at FOFOA blogspot is the most persuasive case for hyperinflation that I’ve come across — a run on the dollar would force the Fed to absorb the entire supply of Treasury paper at auction.  An unintended result, says Schiff, is that ostensibly unsupported bond markets such as corporates and municipals would collapse, forcing the Fed to extend open-ended buying to all fixed-income securities.

 

This would most surely trigger a hyperinflation – would in fact be a hyperinflation.  However, this scenario, and virtually every other hyperinflation scenario of which I am aware, envision hyperinflation occurring as a result of political decisions made, Fed actions taken and markets “rescued.”  My gut feeling, however, is that the collapse of global markets will be so swift as to preclude intervention, let alone rescue.  Pent-up forces will take their course, and the entire financial system will experience an instantaneous collapse for which the May 2010 Flash Crash will seem to have been just a warm-up.

 

Whatever we might predict about the outcome, one result that seems entirely likely is that banks in the U.S and elsewhere will not open for business the next day. Over the short-run — a few weeks, perhaps — this would be ruinously deflationary, since a hitherto inexhaustible supply of digital money will have become inaccessible via checks, ATMs or charge cards. The fragility of the clearing system that allows such money conduits to function will be tragically obvious by then, as will the distinction between cyber money and the real stuff.  And you had better have some of the “real stuff” stashed away in your home, by the way, since, The Morning After, that’s the only kind of money Safeway cashiers and gas station attendants will understand. Nor should you expect them to be up to speed right away on the junk silver you’ve socked away, since, at the retail level, although perhaps not in barter circles, pre-1964 coins are likely to be treated the same as the pot-metal coins that have driven silver dimes, quarters, halfs and dollars into secure storage.

 

Gold Hoarders, Beware

 

A couple of caveats for gold hoarders. Don’t count on exchanging gold at $5000 an ounce for something with high intrinsic value, such as farmland.  For all we know, supply-chain disruptions could be so severe that you’ll pay a Krugerrand just for a loaf of bread. And while it has always been possible in theory for short-squeeze pressures to push gold well above the $5000 level, this is most unlikely for reasons that Lira’s essay implicitly recognizes. Consider who is short all of that paper gold:  carry-traders such as Morgan Stanley, J.P. Morgan, Goldman Sachs and other bullion bankers who have always been able to borrow gold for next to nothing.  The likelihood of regulators forcing them to make good on their paper gold obligations can be dismissed in advance as negligible.

 

Despite the seeming paradox of intrinsically worthless fiat money gaining traction in a post-apocalyptic economy, there will remain the possibility of a hyperinflationary spike.  It could happen if, say, the Fed were to attempt a lump-sum pension payment to all government workers. For political reasons, this would have to be matched by similar windfall benefits to private-sector workers in the form of Social Security, welfare payments, unemployment compensation and food stamps.  The Catch-22 of this approach is that any benefits in excess of what is needed to keep the economy functioning, if only barely, would touch off an inflationary spiral.  Imagine how the world would react if someone in Congress merely mentioned that The Government was going to cover all of the obligations and liabilities of public and private pensions and health plans.  If and when that day arrives, I will have no argument with Lira and the hyperinflationists about the likely outcome.

 

 

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Wed, 01/30/2013 - 19:27 | 3200702 Banjo
Banjo's picture

Gold ounce for a loaf of bread. Please. You know what keep some Fiat handy for day to day stuff gold is your long term wealth asset.

as such swap it for other assets that are debt propped and falling in real terms either via inflation or deflation

 

 

Wed, 01/30/2013 - 18:02 | 3200408 John Wilmot
John Wilmot's picture

The untold trillions worth of stimulus they have shot at this goal have barely kept deflation at bay.

Huh?

M1 in January 2008: $1368 billion

M1 in January 2013: $2455 billion

http://research.stlouisfed.org/fred2/series/M1/

...note how there was no decline in M1 at any point even in the depths of the 08-09 panic.

Wed, 01/30/2013 - 17:48 | 3200364 MeelionDollerBogus
MeelionDollerBogus's picture

Gold's price will be very high very soon:

http://flic.kr/p/dQd1eDhttp://flic.kr/p/dvDHf2

only a fool would bet against this. Or ignore it. Be it September or July, 2400/oz is coming fast.

http://flic.kr/p/dQ9ops

Wed, 01/30/2013 - 17:46 | 3200360 MeelionDollerBogus
MeelionDollerBogus's picture

Sorry Ackerman but recent history busts your Kruggerand for bread theory. The facts are that 0.1 grams of raw gold, not even purified, from the ground bought 1 loaf of bread in Zimbabwe during their hyperinflation. 1 krugerrand makes a LOT of 0.1 gram multiples.

Wed, 01/30/2013 - 18:18 | 3200466 Lem Motlow
Lem Motlow's picture

.1 gram of gold is still about $6 US, which still seems high for a loaf of bread.

Thu, 01/31/2013 - 03:51 | 3201736 MeelionDollerBogus
MeelionDollerBogus's picture

at the price of the event it was more like $4 for 0.1 grams however many people would have to dig all day just to find the gold to get the bread so there's not enough food energy to ESCAPE, probably nowhere welcome to go. Gangs with machine guns bring in the bread, they set the price. It was, sadly, the cheapest price in town.

Wed, 01/30/2013 - 18:34 | 3200521 NidStyles
NidStyles's picture

Doesn't seem high when you are starving.

Wed, 01/30/2013 - 17:33 | 3200331 NidStyles
NidStyles's picture

So I guess you missed Obama's speech about the US not being a deadbeat nation, and how the Fed is actually more beholden to the whims of the Presidency rather than Congress... How likely it is that the debt ceiling will continue upward and the US government will continue creating paper to cover it's real debts.

 

You do realize that everything you said that would need to happen for the Hyper-Inflationary environment to be possible has already happened, right?

 

I am so sick and tired of you demagogues running around saying things have to happen the same exact way as they did before for them to reuslt in nearly identical ends. Quit being such a narrow-minded fuck.

Wed, 01/30/2013 - 16:48 | 3200173 e_goldstein
e_goldstein's picture

Gold up $13+ today. Stellar timing as always, Ackerman :-/

 

Wed, 01/30/2013 - 16:21 | 3200023 Jeepers Creepers
Jeepers Creepers's picture

I know it's not the main point of the article, but the idea that "stackers" are going to just as screwed as fiat holders by paying an ounce of gold for some bread is ludicrous.  I have no doubt a SHTF run on the dollar scenario would have a few weeks and months of food shortages in certain pockets, but black markets quickly come online and I'll take my chances with precious metals.  If a loaf of bread goes for a Krueggerand, everyone will start making bread.

Witness the Soviet Union, their Ruble was worthless, but underneath was a black market where people could get much of what they wanted, and that was underneath a totalitarian government that was a police state.

Where stacking would be useful is in the aftermath of a failed currency.  If nothing else, you can take it elsewhere to greener pastures.  Try doing that with Zimbabwe dollars.

 

 

Wed, 01/30/2013 - 17:14 | 3200195 akak
akak's picture

 

I know it's not the main point of the article, but the idea that "stackers" are going to [be] just as screwed as fiat holders by paying an ounce of gold for some bread is ludicrous.  I have no doubt a SHTF run on the dollar scenario would have a few weeks and months of food shortages in certain pockets, but black markets quickly come online and I'll take my chances with precious metals.

Good points JC. 

Yes, all the (egregiously idiotic) gold naysayers, such as Rick Ackerman is here, love to trot out a whole host of disingenuous, historically ignorant, and perfectly specious strawman arguments as to why holding gold during a currency collapse, or a period of high inflation, will supposedly not benefit the holder.  Chief among them are: 1) any fiat currency collapse, period of high inflation, or outright hyperinflation will instantly leap to "Armageddon", with brain-eating zombies roaming the landscape, and everyone will ignore gold as they fight over the last scraps of food (has never happened yet, though), rendering gold "valueless"; 2) that in direct contrast to point #1, the aforementioned zombie hoards will somehow forget the "valueless" nature of gold, and decide to just break down your door and steal all your gold (because every gold owner posts prominent signs in all their windows stating "Get your gold here!"; 3) that the government will go door-to-door and "confiscate" your gold, or at least make it illegal to own, thereby rendering it valueless (because there have never been any such things as black markets, or hiding one's valuables, or patiently holding them for sunnier times); 4) that "nobody" will recognize the value of your gold anyway (contradicting points #2 and #3), rendering it again valueless.

What all these dishonest and disingenuous shills for the powers-that-be and the financial and political status-quo love to ignore, though, is the fact that the most valuable aspect of holding physical precious metals is NOT for their possible use in the midst of a crisis, but to transfer one's savings and wealth THROUGH that time of crisis, to the re-established period of financial and economic normalcy to follow.  Their anti-gold arguments are analogous to claiming that owning a car or a house is forever and always "worthless" merely because neither are of use in a lifeboat.

Besides all of that, I think that anyone who claims to believe that deflation is the real concern here is either a complete idiot with NO knowledge of monetary and financial history whatsoever, or else is a lying, malicious shill for the status-quo political and financial elites.  EVERY period of chronic and exponentially increasing governmental overspending and indebtedness, such as we are in the middle of today, has throughout history ended in the same fashion, and it was NEVER with an appreciating fiat currency!

Rick Ackerman, you are a fool or a liar --- which is it?

Wed, 01/30/2013 - 16:02 | 3199941 GFORCE
GFORCE's picture

Gold isn't higher because the inflation expectations were extreme and deflation rules. Deflation will win the day. Best put your money somewhere it won't be confiscated or devalued. Not many of them I know.

Wed, 01/30/2013 - 15:36 | 3199814 dunce
dunce's picture

In the last paragraph, the govt. taking over private pensions, health care obligations, etcetera, is dismissed as unlikely. Obama care is designed to take over health care and the example of Argentina with pension plans is instructive. There has been serious talk about taking over our 401K plans in this country. i define serious talk as even floating the idea.

Wed, 01/30/2013 - 15:24 | 3199743 MrBoompi
MrBoompi's picture

On most days the moves in gold mirror silver.  (In fact, most markets seem synchronized if you ask me.)  But the metals pricing seems to indicate manipulation that is only possible because of the paper market.  The physical metals can even be in short supply and it doesn't have that much of an effect on price.  The motivations and methods for depressing the prices of gold and silver are well known.  I think any resemblance in the charts of gold and CDS are coincidental.

Wed, 01/30/2013 - 15:21 | 3199714 FFox
FFox's picture

Sorry to burst your "paper gold" bubble Rick, but people that think they're really investing in gold (or silver) with GLD or SLV are being defrauded and misinformed.  Other paper gold storage/certificate schemes as well.

They have zero chance of EVER actually owning any physical gold or silver with those fiat based, fake gold allocations.

Not to mention: evidence of zinc fake gold bars that may be part of the physical holdings at the Fed. and elsewhere.

Better are real ownership of "REAL METAL" OR WELL CHOOSEN COMPANIES THAT MINE THE REAL STUFF.

Nice try though.

 

Wed, 01/30/2013 - 15:15 | 3199695 dogbreath
dogbreath's picture

Why isn't gold higher.  Is it a mystery?

Annual physical demand is 4600 tonnes

Daily physical bullion clearing LBMA ~ 570 tonnes.  Lots of this is moves on price volatility where little actually leaves for delivery.

Comex paper  -  unlimited

Options -  unlimited

"We buy gold" black market  vacuuming up the scraps

Central Bank leasing.  And its Gone!!!!

GLD price suppression activities yet there is doubt that they have much actual physical.  Here one should note that many suckers who would have otherwise added to the first number above think their investment in GLD is safe.  But untill when.

The paper physical market is a cartel and I think price suppression is rather easy because they have a common interest to keep the price down and cooperate with each other.  Think the Libor scandal.  This includes allowing china to get a piece of the action.  Note how Russia keeps all of their own.  Who actualy hold russia's gold.  The state or others.

Everybody who is accumulating segregated unencumbered physical is a winner.  The rest of the market is paper which is the defacto price discovery mechanism.  ZH'ers aren't the only stackers out there and I think the parties that pull the strings in the paper market are accumulating while allowing enough leakagee that there  is never a real run on physical.  The emprer has no clothes

The 171 000 tonne global above ground historical supply might be understated for the very reason people throughout history have cherished gold - it is real money not beholden to anybody.  None of your business IOW.

The big crash enginneered to give us the AMERO or some other world government global currency might succeed IMHO.  Golds true price discovery can only come when the price discovery is against other real goods.  With unlimited printing and agricultural subsidies, Milk monopolies,  and general bureaucratic interference in the market , golds true price cannot be discovered because there is no truth anywhere.

When Raw Milk trades freely against Gold then its price will be discovered.   

When so many people are up to their eyeballs in debt or are the working poor that are Bill Blacks "GDP running to keep up to inflation"  Who is truly buying gold when compared to the aggregate value of cash and assets in the world.   FUCK Gold, what is anything worth???

 

Wed, 01/30/2013 - 14:56 | 3199612 UrbanBard
UrbanBard's picture

You have some strange ideas.

" the central banks have so far failed to produce any meaningful inflation. ...Granted, prices for groceries, health care and some other necessities have gone through the roof."

An increase in necessities isn't meaningful price inflation? When people are forced to conserve their money for necessities, then the numbers of people bidding for non-necessities declines. This lowers their relative price. This process is not deflation which is a decrease in the money supply.

Why isn't gold rising? There can be many factors.

1. People can be ignorant of gold as an inflation hedge. Only a small number of people are buying physical gold, but this will change as word gets out.

2. The Official statistics on the the state of the economy are false. 49 million people are on food stamps; this must depress panic.

3. Official data on price rises are lies. The government says that core inflation is under 3 percent. But, if you add in food and fuel, then the actual increase is around 10%. Ordinary people have yet to take evasive action.

4. Paper gold manipulation by central bankers can be pushing physical prices down. It is anyone's guess as to how much of the central banker's gold is not leased. Germany asked to repatriate 300 tons; the New York FED said that it would take seven years. Why the delay? Don't they have Germany's gold? Or will it take that long to unravel the paper trail?

5. Uncertainty in Europe and other places can be pushing the dollar up -- and gold down.

6. Hidden currency manipulation, such as Dollar / Euro swaps are pushing up currencies.

The point is that these manipulations must eventually fail and are likely to do so catastrophically, because the act of delaying reality causes a worse correction.

We disagree on how fast this will unfold. The usual Hyperinflation takes from 9 months to a year for a  crack up boom. Are you projecting days? On what evidence do you have?

The idea of a Krugerrand for a loaf of bread is ludicrous. This could only happen in the big cities where there is only 2 to 3 days supply because of "just in time" inventory systems. A supply disruption would depend on the big cities being unable to trade anything of value for food.

The price will be much less where food is grown. Why assume a local high price when many of us do not live in urban areas? Your argument would imply a great need to move away from any place where a supply disruption would occur, such as Washington D.C.

Are you assuming that people cannot afford to move? Why aren't you mentioning food storage as a preventative for this kind of panic? A year's supply of food would only cost a Kugerand per person.

Wed, 01/30/2013 - 14:56 | 3199605 steve from virginia
steve from virginia's picture

 

 

The problem is to imagine a post- automobile, post- industrial, post- modern world ... using modern, industrial ways of imagining. The process leads to conceptual dead ends such as 'hyperinflation' or 'run out of the dollar' as if these thing are mechanical processes ... using the industrial way of imagining.

 

We moderns simply lack the tools with which to formulate a post-waste world because our culture does not allow these sorts of tools, they are unfashionable. We are modern because we waste not because we can imagine how to not-waste. People in slums in Tanzania and dirty hippies in communes know how to not-waste ... we are not them.

 

Right now, even with the smallest amounts of private sector deleveraging there are massive problems, this all leaves out public sector re-leveraging and open-ended bank bailouts by central banks. What happens when the next leg of deleveraging occurs? Nobody knows because such a thing has never happened on current scale ... ever. However, no central bank can absorb all private sector debts ... the Federal Reserve could not absorb the debts of a small country like Spain not because of the threat of inflation but for it to do so effectively, the central bank would become insolvent and there would be zero absorption. Depository (commercial) banks would all fail and depositors would not be able to access their funds. Those with funds would cling to them tightly  ... because these funds would become capital for whatever institutions were to succeed the failed variety.

 

It could happen if, say, the Fed were to attempt a lump-sum pension payment to all government workers.

 

This would cause rather than cure the problem as pensioners have no collateral to offer and the lump-sum payments would be unsecured loans. The Fed would be instantly insolvent (the pensioners cannot possibly repay b/c there is nothing to repay with). The Fed would become another large bankrupt commercial bank with zero capital.

 

The only 'effective' collateral within the dollar banking system would be customer deposits MINUS reserves which are bookkeeping artifacts not anything real (they are like those loans made to pensioners). Because the amounts of debt vastly exceed deposits most (deposits) would be absorbed by the debts and extinguished (Fisher) ... this outcome is neither inflationary nor deflationary. The government would be forced to issue currency (as it was during 1933).

 

Many argue this issuance was incorrect and it may have been but the alternative would have been no banking in the US for many years and little in the way of currency in circulation until a 'wildcat' system emerged. This would have private notes issued against the small amounts of deeply buried collateral that remained in private hands after months of bank runs in 1932-33. Keep in mind that those surviving systemic run and collapse of banks would not be eager to lend the surviving money to any bank, no matter how structured!

 

Private holders would have been 'rich' in the sense that what they held was capital but would have been poor in that this collateral was insufficient to support anything but the lowest level of local business ... that high leverage was impossible due to the effect of the prior shock and that low leverage would not allow industrial level returns.

 

With a defunct banking system and currency issue underway it would be a simple matter for the Treasury to expand the issue of greenbacks so as to retire sufficient debt to allow the it (Treasury) to recapitalize a much-diminished banking system. As far as I am concerned, this would be a better system than present b/c there would be zero consumption and most industrial enterprises would be smashed ...

 

 

Wed, 01/30/2013 - 14:54 | 3199595 RuiNsPro
RuiNsPro's picture

We have to first deal with a huge de-leveraging procedure that is delaying NOT PREVENTING the ultimate inflation strike. That's why we have not seen gold heading toward 5000 yet.

Wed, 01/30/2013 - 14:46 | 3199557 Panafrican Funk...
Panafrican Funktron Robot's picture

The problem (and there are many) with Ackman's (and others) analysis is that he's focusin solely on the shadow banking collapse.  Yes, this is a headwind via nominal dollar destruction, but that hole is being filled (and then some) with fairly extreme deficit spending by the US government, ergo the "dual-mandate" purchases by the Fed of both MBS and UST to keep both nominally afloat.  Slow motion currency collapse is what we are for sure experiencing, and ironically, a slowdown or stoppage of the shadow banking collapse will actually hasten the currency collapse (via "sudden" and very, very violent inflation spiking).  

Wed, 01/30/2013 - 14:28 | 3199491 Clesthenes
Clesthenes's picture

“Why isn’t Gold Higher?”

Gee, that’s a big question.

It’s like asking, “Why do people still buy Treasuries?”  Or, “Are Treasuries practically or constitutionally collectible?”

If the answer to the last question is negative, what will that do to the gold price?

Well, that depends on whether there is any gold left in Fort Knox.  If you’ll notice, the US Treasury reports its gold as “gold (including gold deposits and, if appropriate, gold swapped)”.  “Gold swapped” is a paper item and, in this case, is a recognition of the gold carry trade.

US Treasury securities serve as collateral for issued Federal Reserve Notes, the scrip you and I carry in our pockets.  If they can’t be practically or constitutionally collected, what other Fed assets are available for such collateral?  A “gold certificate”?  This is a paper claim on the gold, if any, left in Fort Knox.  Divide issued notes by physical gold in Fort Knox, and you get $7,000 – if all claimed gold is still there.  If only half is left, $14,000.

But there are other dollar equivalents that have to be considered.  Companies around the world refer to these “dollar equivalents” as “cash equivalents”; look at any corporate balance sheet.  And we’re talking about a worldwide question here.  I estimate that such “cash equivalents” add to some $1.5 trillion.  We’re not finished; there are other factors: Mortgage Backed Securities; the gold carry trade; Treasuries owned (but not held) by foreign “official institutions”.  And all are ultimately collateralized by “gold or gold receivables”.

When you put them all together… well, get ready for a wild ride.

Wed, 01/30/2013 - 14:14 | 3199451 Stuck on Zero
Stuck on Zero's picture

The experience with MFGlobal is enough to keep big players from betting any real money on paper gold.

 

Wed, 01/30/2013 - 14:15 | 3199443 silverserfer
silverserfer's picture

paper gold inventories are increasing at levels sufficent to offset the decreasing inflow if physical gold into the secret gold vaults. any sale of physical gold is just enough to keep the masses feeling like they can go out and get some if they needed to. but this is just scraps really for all us small fish. Its all about refinery and mining gold flow.

Bottom line, gold price only needs to be high enough to keep grandma coming into cash for gold shops and high enough to make the bottom line numbers work just barely for many of the small to medium sized mining operations.  

Wed, 01/30/2013 - 14:10 | 3199439 Never One Roach
Never One Roach's picture

Debt destruction >> printing right now

 

...and...velocity has dropped to near zero I suspect.

 

Wait until it picks up....then you'll see the yellow metal move alot imo.

Wed, 01/30/2013 - 14:05 | 3199429 piceridu
piceridu's picture

Since Money = Debt and hence Debt = Money, if all debts were extinguished, there wouldn't be any money... No Debt = No Money

Thu, 01/31/2013 - 03:46 | 3201734 MeelionDollerBogus
MeelionDollerBogus's picture

does not compute. Precious metals are non-debt money.

Currencies on paper or electrons are debt, as are bonds. They are debt-based currency.

ANY tangible of any sort can be a non-debt money, it need only prove itself as a store of value (not belief but intrinsic uses like resisting corrosion, highly dense energy source, able to be stored a long time, edible, useful tool, whatever).

Wed, 01/30/2013 - 13:44 | 3199353 GNWT
Wed, 01/30/2013 - 13:42 | 3199343 Papasmurf
Papasmurf's picture

My own theory as to why prices aren’t bounding above $2000 is simply this: the central banks have so far failed to produce any meaningful inflation. The untold trillions worth of stimulus they have shot at this goal have barely kept deflation at bay. Granted, prices for groceries, health care and some other necessities have gone through the roof.

Inflation in the necessities of life IS inflation.  Central banks have doubled the cost of groceries, gasoline and medicine in only five years. 

What does it take to impress you?

Wed, 01/30/2013 - 16:26 | 3200045 bart.naf
bart.naf's picture

Inflation in the necessities of life IS inflation.  Central banks have doubled the cost of groceries, gasoline and medicine in only five years.

 

 

No inflation here either.

http://www.nowandfutures.com/images/gold_plus_sp500_2.png

 

/sarc

Wed, 01/30/2013 - 15:40 | 3199829 steve from virginia
steve from virginia's picture

 

 

 

Fuel prices are high because it requires more capital investment to obtain each succeeding unit of fuel ...

 

Don't fret ... soon enough new fuel will be too costly for the waste of it to afford. In other words, the consumption of fuel will not generate sufficient credit to bring new fuel to market: this is 'net energy negative' we are at most 2 years from that particular point.

Wed, 01/30/2013 - 13:53 | 3199375 El Hosel
El Hosel's picture

Why isn't gold higher? Why isn't Angelo Mazilo in jail? Why isn't financial fraud a crime? Why isn't our "strong dollar" policy working? Why aren't box cutter sales banned? Why is food, energy, and medical cost not measured in the inflation basket? Why can't we pass a budget? Why won't Obama produce his birth certificate? Why did Goldman get 100% of their AIG exposure? Why does the Market go up 10 days out of 11?

.... And where the Fuk is The Honorable John Corzine?

Wed, 01/30/2013 - 13:50 | 3199374 Panafrican Funk...
Panafrican Funktron Robot's picture

He is correct regarding the ongoing shadow banking collapse (as has been reported here a few times in good detail) being a headwind on the nominal price of real, non-consumable assets (real estate, precious metals, etc.); it's really a 50/50 chance that the nominal price will go up or down in the future, what I'm holding gold for is simply that I don't think the US dollar will continue to exist in it's current form for too much longer (I would refer to this as hyperinflation, but I frankly don't give a fuck about the naming convention), and even if it does for some reason hold up for, say, a decade or two, it's wealth security I can pass on to my kids.  Shit, we're really not that far away from the Japan domino falling completely the fuck over, and that, my good ZH friends, is what will blow this all up.  

I think Ackerman is simply not understanding the geopolitical shift underway.  I think Lira is much more in touch with it, because he's actually lived through a small scale version of it.  

Wed, 01/30/2013 - 13:30 | 3199299 topshelfstuff
topshelfstuff's picture

the really Big Move for Gold, Silver and all other Commodities, will come after a "Bank Holiday", perhaps one week, after which Current USD's in Cash form will need to be turned in for New USD's with two Decimal Places added, making $1.00 Current = $100.00 New USDs. I have pointed to this several times.
There would be at least 2 Line Items that are simple to do since its all internal, both Mortgage Loans and Student Loans (Debt) will remain Booked at the Current Dollar level, though both Payable in the New USD's. This eliminates these 2 problems, available to all Mortgage Holders, not only those facing foreclosure or Underwater, this also becomes a "token" mollifier for The People in order to take some of the Heat off all the Bankers (lets call it shenanigans, to be nice), and we rest with a pardon and clean slate.

Its eithr that or the EastBloc moves first = China ReValues the renmimbi to 2 to 1 USD's and the rest of the EastBloc, over 100 Nations, Peg to the renmimbi at the exact same Exchange Rate they are currently trading at. This results ...well, you can figure that out

Wed, 01/30/2013 - 13:30 | 3199297 KingdomKum
KingdomKum's picture

We few,  we happy few,  we band of silver holders  .  .  .

Wed, 01/30/2013 - 13:13 | 3199247 KingdomKum
KingdomKum's picture

We few, we happy few,  we band of silver holders  .  .  .  

Wed, 01/30/2013 - 13:05 | 3199220 Meat Hammer
Meat Hammer's picture

"Experts" are still trying to put the upcoming never-before-seen event into a hitherto-seen context.  

When the SHTF, the value of gold and silver will depend on 2 things - the level of desperation of the counterparty who wants it from you and your negotiating skills.

 

Wed, 01/30/2013 - 13:05 | 3199219 Kastorsky
Kastorsky's picture

Stopped reading at - 

"gold does not give its owner a claim on anything"

whaaaat?

This is exact argument idiots at CNBC make:

"Gold is worthless because it's not backed by mortgages".

No kidding:

http://truthingold.blogspot.ca/2013/01/any-questions-as-to-why-germany-w...

Wed, 01/30/2013 - 14:23 | 3199472 buffettwanab
buffettwanab's picture

Couldnt believe that bs when i heard it...almost shit my pants!

Wed, 01/30/2013 - 13:04 | 3199215 Bay of Pigs
Bay of Pigs's picture

Why isn't gold higher? Chris Powell of GATA tells you why in ten short minutes. Seriously Rick, please get up to speed on this topic.

http://www.youtube.com/watch?v=yt8VJHmsG50

Wed, 01/30/2013 - 12:55 | 3199190 lunaticfringe
lunaticfringe's picture

Gonzalo's premise is kind of interesting. But nobody stands for physical delivery. I think it's quite possible that people have exited that market (futures)- certainly the people who rely on the physical stuff. Nobody actually needing gold or silver would buy it there anyway. 

What I find fascinating is that the FED prints unlimited quantities of dollars and delivers it to member banks. Banks have no place to park this new money for any kind of meaningful return- so they ramp up international markets as well as our own. The money is meaningless anyway- it's not like money represents a unit of labor anymore. Thus the inflation everyone is talking about is strictly limited to financial markets- this is a DJIA on a 100%+ tear in 5 years. That Bernanke and QE have manufactured such a Frankenstein while slaying all competing interests is a modern day marvel. 

There ain't gonna be an encore.

 

 

Wed, 01/30/2013 - 12:42 | 3199147 g speed
g speed's picture

will yoou pleeze buy my ounce for $7000? --ok then how about $5000--not huh? --then how about $2500, and thats a deal --no? ok then asshole just tell me what its worth in todays dollars-- Oh then the price is what it is??? That must be why its not higher--cause it is what it is.

Wed, 01/30/2013 - 12:35 | 3199115 TrulyStupid
TrulyStupid's picture

Look at it this way:

Q. How can the overall unpayable fiat money debt be liquidated without hurting the owners of the ponzi?

A. Exactly how its being done for the last decade or so:

Central banks and interested private global entities need to round up all the physical PM's they can... the end game is a return to the gold standard when PMS are held by the players.

Before that happens the sheeple need to fleeced of as much of their real savings as possible by encouraging them to view liabilites as assets ( personal real estate, cars etc.) and assets as liabilites (continual dissing of PMS, small farms, participation in the productive work force, supression of stock prices).

People need to view their LOC and credit scores as savings. You can't have a run on a digital bank with outstanding debts. Convinced them that deficits are meaningless and public expenditures will never have to be balanced with higher tax revenue.

Discover new wars and repeatedly push the fear button to generate a new round of looting of the public treasury by private interests and then the  triumph button to give the sheeple a sense of accomplishment. Wave a few flags.

Gradually wind down peripheral non-core financial instituions using the MF Global experience as a blueprint. Before repegiing the US dollar to PMs, make sure you have all the PM's and real asets. Stop the commodity markets and derivative markets, forcing all outstanding central bank debts, contracts and ETFs to be settled in dollars.  Then devalue the dollar by 50% or more by pegging the price to gold and or silver.

Mission accomplished!

Wed, 01/30/2013 - 12:31 | 3199113 ebworthen
ebworthen's picture

"Lira’s argument might have been more persuasive if he had simply asserted that an effectively unlimited supply of 'paper gold' has been absorbing enough demand to suppress the price of physical."

Lira's argument is more persuasive than yours of "inflation isn't here yet and deflation is massive".

Besides housing prices, what deflation?

What prices are declining?

I'd still rather hold physical that will always be worth something.

Promises are worth nothing compared to tangibles.

Wed, 01/30/2013 - 15:46 | 3199874 steve from virginia
steve from virginia's picture

 

 

@ebworthen:

 

"What prices are declining?"

 

Labor ... the most important price of all.

 

BTW: when fuel prices decline it will be extremely not fun. Declines will be caused by collapsing of credit. Look for 'energy deflation' as real energy prices increase causing spiraling consumption-side deleveraging and bankruptcy, this in turn will shut in expensive supplies of crude and other forms of energy.

 

 

Wed, 01/30/2013 - 12:13 | 3199046 Clowns on Acid
Clowns on Acid's picture

Why isn't gold higher? The same reason that SP is at 1500. Next question.

Wed, 01/30/2013 - 12:19 | 3199042 JOYFUL
JOYFUL's picture

Although zealously guarding its 'fringe blog' status in most every way, there is one area where ZH continues to fall down in the conspiracy sweepstakes...

however, I will happily continue to hammer home the point which has somehow slipped between the cracks for even the most fringey of the fringeblog goldbugs...which is,

that the world's largest gold miner, quote unquote, is not a 'gold miner' at all, and never was, having been set up to play the role of spoiler in the production end of the gold business, whilst tag team partner JPM supervises demand destruction and forced liquidation on the retail side.

Barrick Gold has operated for some three decades as a buyer of legit gold miners, cancelling out independent players one by one, and then in classic monoligopoly style, gaining enough leverage to skew the whole market by forward selling 'production' at prices designed to suppress both market and producer.

"In 1983 Barrick Gold Corp. was a start-up company with a single mine in Canada and a founder with no experience in the gold business," Doyle said. "By 2001 Barrick had amassed off-balance-sheet assets that were worth more than the market capitalization of the next five biggest gold-mining companies in the world combined. Barrick made $2.3 billion on its short sales of gold and made a profit on those short sales for 62 consecutive quarters. A short sale is inherently a high-risk speculation. How many true speculations have ever been profitable for 62 consecutive quarters?"

When that particular game was forced to an abrupt end Dec 2nd 2003, gold started off on it's long march to victory...and it wasn't because they were feeling Santa-like, but rather, attempting to reduce the pressure from Blanchards' suit, which had started to reveal more and more of the underpinnings of the dirty deal by which JPM fed borrowed FED gold into Barricks coffers generous payback terms so that they could sink the market at will.

With Barrick partially hamstrung, the resulting bull market has had to have been confronted more directly by JPM and the London crew, but the same kind of ErnieRoth\Ed Farhat dynamic has continued to exist tween the two tag team badguys of the mining world...Barrick has been used as the premier laundermat and chop shop for the  black market gold and drug money which underpins the whole sio-nazi project of the Baron Krupp\Rothschilds ubercriminal organization, which plebians only get to catch sight of on the lower levels, such as the Bush\Clinton crime gang...

Never forget that Barrick was started by the BusheyBandit and gundealer Adnan Kashhoggi(CashHoggee!)using a failed Canadian hustler as front man for the vehicle by which it was intended that Ollie North's great cash cow could continue without pain in the ass oversights.

With Barrick on the ropes now, due to the meltdown in production at it's few legitimate properties,and failure to unload the others on the Chinese, we are awaiting the denouement of the whole WWF farce...in which the ref continually turns away while the bullies pull some underhanded trick on the opposition...

and things are about to get a lot more interesting, with both heads of the(visible)hydra now put out of action for good! Jamie(I Like to Hurt People)Dimons' hidden pencil and fireball tricks are about to go up in smoke, and Bobo Brazil's gonna finally wear that golden belt!

Sorry Rick, you n Gonzalo are way too mainstream for this story...Loosen up, n look at the road dudes, the rocket's gettin ready, as we speak!

http://youtu.be/vkRl_nLLoVg - Maxwell

Sumthin' Sumthin'
Thu, 01/31/2013 - 01:04 | 3201541 JOYFUL
JOYFUL's picture

tip o the iceberg!

+1

Wed, 01/30/2013 - 12:03 | 3199007 Bagbalm
Bagbalm's picture

Nothing would surprise me.

If the central banks were loaning their gold to the smaller banks and then buying it back from them I wouldn't even be surprised. When they can't make good on the loan they win twice...This is the kind of convoluted crap they do.

Wed, 01/30/2013 - 12:03 | 3199004 Bansters-in-my-...
Bansters-in-my- feces's picture

"My own theory as to why prices aren't bounding above $2000 is simply this: The central banks have so far failed to produce any meaningful inflation.

The untold trillions worth of stimulus they have shot at this goal have barely kepy deflation at bay."

                                                                         Rick Ackerman

 

Well rick,let me call you dick for short.

You are one sick fucking puppy.

So barely any inflation....?

Oh,unless you are a home owner with a mortage you mean,?

A mortgage that is underwater.

So if you are a home buyer you barely notice inflation

And don't eat

And don't pay power bills,or or school fees...

or insurance.....

Once again......You are a sick fucking puppy.

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