Dylan Grice: "The Gold Market Is Healthier Now"

Tyler Durden's picture




 

"Gold has become much more affordable in recent days as the price has collapsed. Such a collapse is unpleasant, but not cause for concern," advises Dylan Grice. "Gold remains durable," as a source of protection from loss of confidence in the system, and, he adds "a correction was overdue. Now, the gold market has become healthier." Critically, Grice warns during this interview with Finanz und Wirtschaft, "gold will not protect against a crash in the financial markets, it showed 2008," since if many investors simultaneously urgently need cash, they sell everything they have, including gold. However, Europe is a time-bomb, China's credit bubble is ow where the US was before the financial crisis, and while inflation may not be an imminent threat (and likely shuffled more gold holders out leaving "a more stable investor base,") Grice concludes, "Gold endures. If confidence in the currency is lost, or in the bond market; Gold is a safe haven." There are good reasons to own gold. And to buy gold, there is now a reason more than a week ago: It's 30% cheaper.


Via Finans und Wirtschaft
,

Why the gold price has suddenly dropped so quickly?
There are many opinions, ranging from conspiracy to cyclical or chart-based technical reasons. I have no idea. And I know no one who really knows. Although many people believe, to know the reason, but that's not the same.

Do you have at least a guess?
We still do not know what caused the stock market crash in 1987, and we'll probably never find out. The same applies to the slump in the gold market in recent days. To know the cause, would be nice, but is not so important.

What does the falling gold price?
Each boom has  large corrections, and these are often violent. In the gold market, there was a break in the mid-seventies, the price fell more than 40%. This was painful, and many people wrote back then: for gold - it felt like the end of the bull market; not true. This was a healthy correction. 1987 shares fell 25% in one day, that did not mean the end of the bull market. 1994 broke the bond market. In 1997, the Asian markets, but in both cases continued to rise.

Can the translate that directly to the gold market?
The collapse does not necessarily mean that the gold bull market is over. They could indeed be over, but I think not. And in view of the great whole, such a collapse is not important, even if it is violent and unpleasant course. There are good reasons to own gold. And to buy gold, there is now a reason more than a week ago: It's 30% cheaper.

So is this a buying opportunity, or should we come to doubt the bull market?
I have no idea if the gold price rises or falls in the coming months. But gold endures. The market strategist Marc Faber argues, the share price of Apple had fallen much more than gold. But what will happen with Apple in ten or a hundred years? That nobody knows, and this applies to all companies and for most currencies. All we know is: A gold bullion a hundred years ago is the same as a gold bullion now. In Roman times, they said "let himself pay one ounce of gold a decent toga and a meal," that is still true today.

The price of gold fluctuates but violently.
Yeah, we just saw a spectacular fluctuation. But owning gold brings with it durability. This makes gold as an investment is very attractive.

Discontinuity does not fit into a durable investment.
Gold is up for twelve years in a straight line, which is extremely unusual. Since it takes a downsizing, a certain liquidation. This is not unnatural. While this largest price drop in the past thirty years is unusual, on the other hand, these unusual incidents occur quite often in financial markets. A correction was overdue. Now, the gold market has become healthier.

Gold will now be seen as less?
The mood in the financial markets has changed. Investors have become more confident that the worst is over and everything will be all right: Europe has solved its problems in principle, that the U.S. is on track, and China beat well. I had predicted that China will have a difficult year 2012, but it has not materialized. All this ensures optimism. Those who had bought gold for fear of imminent higher inflation, perhaps now sees no more danger of inflation and thus an end to the gold price increases - why should he keep gold?

Is inflation coming?
I was never bullish for gold, because I assumed higher inflation is imminent. Inflation is slow and is a long-term problem. You will not see it suddenly - such fears I've never understood. But those who acquired gold for the wrong reasons, it may now be sold. Those who maintain it now belongs to a more stable investor base.

The market sentiment has not brightened rightly
Look around: States and financial systems are deeply in debt, interest rates can not fall further, real interest rates are negative, we live in a world of financial repression. The best possible outcome would be a gentle rise in interest rates in the coming years. This would be accompanied by negative real interest rates, because that is the only way for governments to gradually reduce their debt burden. In this scenario, long-term interest rates remain extremely low and therefore overvalued stocks and bonds. That's not a bad environment for gold.

What are worse scenarios?
The danger is that the central banks lose control of inflation and interest rates. This is a deadly combination for the bond market, and also for stocks that showed up in the seventies. There are also other dangers: Europe is a time bomb. The euro was supposed to bring peace and prosperity and has instead caused a split. China deregulated the financial system, and the debts have grown significantly. The country is now where were the U.S. was before the financial crisis. This is a dangerous game. On credit expansion sooner or later followed by a reduction in debt. The consequences of this are evident in the U.S., Spain, Ireland, in the euro zone - also politically and socially. That will not be any different in China.

Gold rose in parallel with the expansion of central bank balance sheets. This is no longer?
I am very careful of such correlations. As I learned as a student with extensive econometrics, you can in fact establish a correlation between rainfall in Scotland and the money supply in the UK. Correlations do not mean much, even if the relationship between central bank balance sheet, fear of inflation and the gold price is reasonable. The fear may subside, then breaks up the correlation.

Should central banks in emerging markets buy more gold?
I do not know. If I were central banker, I would certainly do that.

Gold is not a safe haven anymore?
Gold will not protect against a crash in the financial markets, it showed that in 2008. If many investors simultaneously urgently need cash, they sell everything they have, including gold.  If confidence in the currency is lost, or in the bond market, then gold is a safe haven. This happened to some extent in the seventies. Holding gold before the last crash was the right choice and it is now more than ever. I suppose I do not know how to evaluate permanence, but it is worth a lot to me.

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Tue, 04/16/2013 - 20:32 | 3458870 badandrew
badandrew's picture

Fuck gold, buy lead.

Tue, 04/16/2013 - 20:34 | 3458883 Kirk2NCC1701
Kirk2NCC1701's picture

Lead is fungible.   ;-)  ;-)

Tue, 04/16/2013 - 20:45 | 3458913 Croesus
Croesus's picture

You can't eat lead.

Well, you can, but it's not good for you.

 

 

Tue, 04/16/2013 - 20:50 | 3458932 Manthong
Manthong's picture

 

.. maybe a lead colonic?

 

 

Tue, 04/16/2013 - 21:04 | 3458985 AssFire
AssFire's picture

Brass and Lead, Gold and Silver..Speak of the Destruction!...I'm in a time zone.....

http://www.youtube.com/watch?v=B5S-q1gRxvw

 

Tue, 04/16/2013 - 21:09 | 3459018 LetThemEatRand
LetThemEatRand's picture

Don't forget your gunpowder if you're buying lead.  http://www.youtube.com/watch?v=yyGAvulgWmw

Tue, 04/16/2013 - 21:57 | 3459137 fourchan
fourchan's picture

i still dont know who i thank for putting gold on sale. and the stack grows higher.

Tue, 04/16/2013 - 22:22 | 3459218 DoChenRollingBearing
DoChenRollingBearing's picture

I hope to add to my stack tomorrow as well.

Tue, 04/16/2013 - 23:13 | 3459367 Scarlett
Scarlett's picture

got 9 yellow presents for myself today

Wed, 04/17/2013 - 01:27 | 3459563 Harlequin001
Harlequin001's picture

Did you pay for it, with bitcoins?

Tue, 04/16/2013 - 22:03 | 3459150 Harlequin001
Harlequin001's picture

'"gold will not protect against a crash in the financial markets, it showed 2008," since if many investors simultaneously urgently need cash, they sell everything they have, including gold.'

Hey Dylan, given your statement above can you explain the 400 tonnes of FUTURES sales that drove gold down through support at $1540. That's not a physical gold sale to raise cash, that is a speculative short sale.

Either that or shut the fuck up, investors don't take on massive short positions because they're skint. It was a well timed and deliberate take down through long term support, pure and simple.

Tue, 04/16/2013 - 21:01 | 3458993 ACP
ACP's picture

You can sell it to China, who will make toys out of it and them back here.

Tue, 04/16/2013 - 21:54 | 3459133 the 300000000th...
the 300000000th percent's picture

you only eat lead once

 

Wed, 04/17/2013 - 00:06 | 3459544 Bansters-in-my-...
Bansters-in-my- feces's picture

"You can't eat lead. Well, you can, but it's not good for you"

Specially at 3200 ft ps.

Tue, 04/16/2013 - 20:35 | 3458884 ihedgemyhedges
ihedgemyhedges's picture

Crashes ain't always healthy boys. My sex life crashed 9 years ago and I still have no "up"trend in my charts.......

Disclosure: 19 years in.......rent, don't buy.

Tue, 04/16/2013 - 20:41 | 3458905 fonzannoon
fonzannoon's picture

maybe you should sell?

Tue, 04/16/2013 - 20:43 | 3458915 TwoShortPlanks
TwoShortPlanks's picture

Fuck, I just put in a bid!!!!!!!!!

Tue, 04/16/2013 - 20:49 | 3458942 ihedgemyhedges
ihedgemyhedges's picture

Dude, if you can cut the check to make me whole, she's yours..............that's gonna be one costly purchase though......

Tue, 04/16/2013 - 20:55 | 3458965 Major Major Major
Major Major Major's picture

Nobody is looking to pay for your sunk cost. If you are truly looking to exit your losing position, make a rosy forecast and fuck with the discount rate. You never know, there is a sucker born every day.

Tue, 04/16/2013 - 21:08 | 3459015 FEDbuster
FEDbuster's picture

Let's not forget 19 years of depreciation.

Tue, 04/16/2013 - 21:15 | 3459031 ihedgemyhedges
ihedgemyhedges's picture

Yep, that vehicle has been "ridden hard" and put up "wet".  Now, in order to avoid that financial hit, I do a Paulson/Geithner/Bernanke.  Pretend everything is ok while screwing on the side.......

Tue, 04/16/2013 - 21:26 | 3459064 FEDbuster
FEDbuster's picture

Hopefully she won't find out and "Bobbitt" you in the middle of the night.

Tue, 04/16/2013 - 21:43 | 3459102 Ness.
Ness.'s picture

Is it safe to assume that your avatar isn't the most recent pic of Mrs. Hedgie (No offense to Mrs. Hedgie, of course)?

Tue, 04/16/2013 - 22:44 | 3459266 ihedgemyhedges
ihedgemyhedges's picture

Good assumption.  Otherwise, you'd never see me posting here.........would be too busy eating Skittles.

Tue, 04/16/2013 - 21:06 | 3459010 Frozen IcQb
Frozen IcQb's picture

According to the FED, non-productive assets may be leased.

Tue, 04/16/2013 - 21:29 | 3459075 therover
therover's picture

Sometimes it costs too much to sell. Might as well leverage up and play the deriviatives market. 

Tue, 04/16/2013 - 21:40 | 3459098 zorba THE GREEK
zorba THE GREEK's picture

hedge... try drugmeds..Indian site... you can get generic Viagra for under $1.00.

Tue, 04/16/2013 - 20:47 | 3458910 Croesus
Croesus's picture

@ Ihedgemyhedges:

Why buy the cow, when you can get the milk for free?

Tue, 04/16/2013 - 20:52 | 3458949 ihedgemyhedges
ihedgemyhedges's picture

Where the hell were you 19 years ago???????? Besides, I "buy my milk" elsewhere now.........

Tue, 04/16/2013 - 21:01 | 3458994 HulkHogan
HulkHogan's picture

raw?

Tue, 04/16/2013 - 21:38 | 3459090 zorba THE GREEK
zorba THE GREEK's picture

Buy gold and silver, then buy lead to protect it.

Wed, 04/17/2013 - 00:03 | 3459534 TraderTimm
TraderTimm's picture

Watching the gymnastics involved in defending a Gold decline is really illuminating. You'd think for a second it was something else. Every market goes through bull and bear phases, why lose the "plot" because it gets marked down in paper tokens?

Its the same reason why people don't panic over Bitcoin - there's more to it than a bunch of trolls here yelling "SELL".

Wed, 04/17/2013 - 03:30 | 3459824 tenpanhandle
tenpanhandle's picture

I'm with you on the gold part, but I panicked over Bitcoin and I didn't even own any.

Wed, 04/17/2013 - 09:07 | 3460305 tango
tango's picture

In fact, going to the store today for some gold.   Great price drop and buying opportunity.   I tried to tell my boys that having lots of savings meant that in hard times, products and services can be cheaply acquired.  In 2008, we bought condos and land from folks who "HAD" to sell.  Best investment ever except maybe this.  

Tue, 04/16/2013 - 20:32 | 3458876 Kirk2NCC1701
Kirk2NCC1701's picture

"Healthier"?  As in short supply of bullion?  Same as with G+A:  in short supply.

Tue, 04/16/2013 - 20:52 | 3458959 fonzannoon
fonzannoon's picture

My guy today had both, I had to pay up for it though. $29 for ASE. They sure are pretty though.

Wed, 04/17/2013 - 06:31 | 3459958 new game
new game's picture

26.65ea/533 for tube this morn at B.D.(Austin TX) 14 percent prem. plus shipping.  +- as price changes slightly 2012 AE's

Tue, 04/16/2013 - 20:44 | 3458882 kill switch
kill switch's picture

http://www.youtube.com/watch?v=DoQwKe0lggw

 

Gold is the only thing,,,,,,And will never be abandoned

Tue, 04/16/2013 - 21:05 | 3459007 kill switch
Tue, 04/16/2013 - 21:17 | 3459020 kill switch
kill switch's picture

http://www.youtube.com/watch?v=MLhn9tc8Dvo

 

All for gold

Would these guys fight fot FRN's

Tue, 04/16/2013 - 20:37 | 3458887 Hopium Dealer
Hopium Dealer's picture

R.I.P. paper gold and paper silver

Hello physical shortage.

Tue, 04/16/2013 - 20:46 | 3458930 RobD
RobD's picture

I stopped by my local coin shop today. They had no silver bars other then some custom bars they had made that the try to sell at outragious premiums. They only had 3 1oz gold bars.

Tue, 04/16/2013 - 20:36 | 3458892 1971
1971's picture

Tyler, if nothing funny happens on Friday can u show a video of that dude with the bat breaking shit while ranting about the economy.

Thanks

Tue, 04/16/2013 - 21:22 | 3459038 FEDbuster
FEDbuster's picture

You mean Kevin "walstreetpro2" Rowland.  Here is Drutter's excellent compilation video "Best of walstreetpro2 (greatest fucking hits) number 1 of 3 (watch all 3):

http://www.youtube.com/watch?v=4k4xPUZRdC0

BTW I really miss Kevin's insights into the Grand Ponzi.

Tue, 04/16/2013 - 22:41 | 3459257 freewolf7
freewolf7's picture

That was hilarious! Was his Mom pissed when she got home?

Tue, 04/16/2013 - 23:02 | 3459323 FEDbuster
FEDbuster's picture

No Mom, just a wife and kids.  You have to watch the other two "greatest fucking hits", they are even better.  The wife made him move his commentaries out to the shed where things made in China went to die.

Tue, 04/16/2013 - 23:07 | 3459345 Intoxicologist
Intoxicologist's picture

LMAO!  Reminds me of that time I tried to quit smoking.

Tue, 04/16/2013 - 20:39 | 3458896 McMolotov
McMolotov's picture

"Gold On the Ceiling" by The Black Keys:

http://www.youtube.com/watch?v=OAdTbE9LAtY

I ain't blind, just a matter of time before you steal it...

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