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Ken Rogoff: "Policymakers Should Be Cautious Seeing Gold's Drop As A Vote Of Confidence"

Tyler Durden's picture





 

Authored by Kenneth Rogoff, originally posted at Project Syndicate,

In principle, holding gold is a form of insurance against war, financial Armageddon, and wholesale currency debasement. And, from the onset of the global financial crisis, the price of gold has often been portrayed as a barometer of global economic insecurity. So, does the collapse in gold prices – from a peak of $1,900 per ounce in August 2011 to under $1,250 at the beginning of July 2013 – represent a vote of confidence in the global economy?

To say that the gold market displays all of the classic features of a bubble gone bust is to oversimplify. There is no doubt that gold’s heady rise to the peak, from around $350 per ounce in July 2003, had investors drooling. The price would rise today because everyone had become convinced that it would rise even further tomorrow.

Doctors and dentists started selling stocks and buying gold coins. Demand for gold jewelry in India and China soared. Emerging-market central banks diversified out of dollars and into gold.

The case for buying gold had several strong components. Ten years ago, gold was selling at well below its long-term inflation-adjusted average, and the integration of three billion emerging-market citizens into the global economy could only mean a giant long-term boost to demand.

That element of the story, incidentally, remains valid. The global financial crisis added to gold’s allure, owing initially to fear of a second Great Depression. Later, some investors feared that governments would unleash inflation to ease the burden of soaring public debt and address persistent unemployment.

As central banks brought policy interest rates down to zero, no one cared that gold yields no interest. So it is nonsense to say that the rise in the price of gold was all a bubble. But it is also true that as the price rose, a growing number of naïve investors sought to buy in.

Lately, of course, the fundamentals have reversed somewhat, and the speculative frenzy has reversed even more. China’s economy continues to soften; India’s growth rate is down sharply from a few years ago. By contrast, despite the ill-advised fiscal sequester, the US economy appears to be healing gradually. Global interest rates have risen 100 basis points since the US Federal Reserve started suggesting – quite prematurely, in my view – that it would wind down its policy of quantitative easing.

With the Fed underscoring its strong anti-inflation bias, it is harder to argue that investors need gold as a hedge against high inflation. And, as the doctors and dentists who were buying gold coins two years ago now unload them, it is not yet clear where the downward price spiral will stop. Some are targeting the psychologically compelling $1,000 barrier.

In fact, the case for or against gold has not changed all that much since 2010, when I last wrote about it. In October of that year, the price of gold – the consummate faith-based speculative asset – was on the way up, having just hit $1,300. But the real case for holding it, then as now, was never a speculative one. Rather, gold is a hedge. If you are a high-net-worth investor, or a sovereign wealth fund, it makes perfect sense to hold a small percentage of your assets in gold as a hedge against extreme events.

Holding gold can also make sense for middle-class and poor households in countries – for example, China and India – that significantly limit access to other financial investments. For most others, gold is just another gamble that one can make. And, as with all gambles, it is not necessarily a winning one.

Unless governments firmly set the price of gold, as they did before World War I, the market for it will inevitably be risky and volatile. In a study published in January, the economists Claude Erb and Campbell Harvey consider several possible models of gold’s fundamental price, and find that gold is at best only loosely tethered to any of them. Instead, the price of gold often seems to drift far above or far below its fundamental long-term value for extended periods. (This behavior is, of course, not unlike that of many other financial assets, such as exchange rates or stock prices, though gold’s price swings may be more extreme.)

Gold bugs sometimes cite isolated historical data that suggest that gold’s long-term value has remained stable over the millennia. For example, Stephen Harmston’s oft-cited 1998 study points to anecdotal evidence that an ounce of gold bought 350 loaves of bread in the time of Nebuchadnezzar, king of Babylon, who died in 562 BC. Ignoring the fact that bread in Babylon was probably healthier than today’s highly refined product, the price of gold today is not so different, equal to perhaps 600 loaves of bread.

Of course, we do not have annual data for Babylonian gold prices. We can only assume, given wars and other uncertainties, that true market prices back then, like today, were quite volatile.

So the recent collapse of gold prices has not really changed the case for investing in it one way or the other. Yes, prices could easily fall below $1,000; but, then again, they might rise. Meanwhile, policymakers should be cautious in interpreting the plunge in gold prices as a vote of confidence in their performance.

 


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Mon, 07/08/2013 - 18:27 | Link to Comment knukles
knukles's picture

huh...

 

maniacal laughter   we are so far past trying to explain things, now

 

I gota go taper

Mon, 07/08/2013 - 18:35 | Link to Comment max2205
max2205's picture

They should not because they caused it to drop....just saying

Mon, 07/08/2013 - 18:43 | Link to Comment nope-1004
nope-1004's picture

 

 

The reason for owning gold is for protection from what we call tail risk.  That is, very bad things happening in the economy.

- Bernocchio

 

My reason for owing gold is for protection from what I call white collar crime, bank bail-ins, and an insolvent fiat regime.

- nope-1004

 

Ben, take your 'tail risk' and shove it.

 

Mon, 07/08/2013 - 18:45 | Link to Comment francis_sawyer
francis_sawyer's picture

The only time I lose confidence in gold, [on a drop], is when my sailing vessel DROPS to Davy Jones Locker...

Mon, 07/08/2013 - 18:49 | Link to Comment outamyeffinway
outamyeffinway's picture

Was that a suggestion to buy gold.........?

Mon, 07/08/2013 - 18:54 | Link to Comment francis_sawyer
francis_sawyer's picture

It was a suggestion to understand the art of "Shipwrighting"...

Mon, 07/08/2013 - 19:02 | Link to Comment prains
prains's picture

pontoon your Ciabatta, chin strap optional

Mon, 07/08/2013 - 19:13 | Link to Comment francis_sawyer
Mon, 07/08/2013 - 19:23 | Link to Comment prains
prains's picture

strap it on and play this for the wife

 

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

Mon, 07/08/2013 - 19:58 | Link to Comment francis_sawyer
francis_sawyer's picture

& pray that your wife really loves you because you're a big Barry White lookin' motherfucker...

Mon, 07/08/2013 - 20:24 | Link to Comment Pladizow
Pladizow's picture

Where was this "golden clarity" when this co-author released his fraudulent report?

Mon, 07/08/2013 - 22:20 | Link to Comment philipat
philipat's picture

"Meanwhile, policymakers should be cautious in interpreting the plunge in gold prices as a vote of confidence in their performance".

Other than their performance in actually supressing the price of Gold.

Tue, 07/09/2013 - 01:56 | Link to Comment Dark_Horse
Dark_Horse's picture

When rates were near zero, gold was the the lesser of 2 evils, with the same carrying cost, and it had momentum supporting it too.

Now that rates are on the move, holding gold in excess starts to smart. Rate change has triggered the rebalancing to reasonable allocations going forward.

Gold will need a significant catalyst now.

Dark_Horse

 

Mon, 07/08/2013 - 19:24 | Link to Comment espirit
espirit's picture

Bernanks Photo Kaption Kontest:

"I can tell Krugman had Foie Gras and Steak Tartare for dinner". 

Mon, 07/08/2013 - 19:32 | Link to Comment Scro
Scro's picture

This is where I stopped reading. What a tard.

By contrast, despite the ill-advised fiscal sequester, the US economy appears to be healing gradually.

Mon, 07/08/2013 - 23:27 | Link to Comment Scarlett
Scarlett's picture

the propaganda never stops now does it?  

 

Please go shopping.  Do not worry.

Mon, 07/08/2013 - 20:34 | Link to Comment Hulk
Hulk's picture

Just remember to wash your hands. We don't want the entire ZH community infected ...

Mon, 07/08/2013 - 21:15 | Link to Comment Go Tribe
Go Tribe's picture

No kidding. These gold articles are becoming mnotonous.

Tue, 07/09/2013 - 13:14 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

Any time I could redux the entire article to "gold, bitchez" this is the case.
Meh. I don't need special encouragement other than a cheaper price to load up.

Mon, 07/08/2013 - 18:27 | Link to Comment Stoploss
Stoploss's picture

Especially when we all know the monetization will never stop.

The funniest part is the shorts are going to be decimated.

Mon, 07/08/2013 - 18:37 | Link to Comment Bastiat
Bastiat's picture

 

I've been considering this theory of the gold short end game:  a few hedge funds are seeded by the commercials (the bullion banks). They take large positions-they may or may not have other client money, likely they do.  They are big enough to move the market and get the attention of all the momo chaser, piggy-back hedgies.    The seed players will know when the reversal is coming--in fact they will likely trigger it when the buy back in (to redeem the "investments" of the bullion banks, of course).  They other clients will get clobbered but may still make money if they are out first.  The slow will get the muppet extraction.  The momo-chasers will kill each other and their clients.  

In the meantime, the bullion banks are already long and continuing to pick up all the forwards sales they can get out of the miners.

Mon, 07/08/2013 - 19:33 | Link to Comment spine001
spine001's picture

"By contrast, despite the ill-advised fiscal sequester, the US economy appears to be healing gradually. Global interest rates have risen 100 basis points since the US Federal Reserve started suggesting – quite prematurely, in my view"

I started loughing so bad after reading this line, internally contradictory that I couldn't continue reading the article since it became a joke.

Mon, 07/08/2013 - 22:36 | Link to Comment gjp
gjp's picture

revealed his true colors there din't he? Just another sycophant apologist

Mon, 07/08/2013 - 18:29 | Link to Comment zorba THE GREEK
zorba THE GREEK's picture

If by falling you mean manipulated by desperate government officials,

then I agree with your premise.

Mon, 07/08/2013 - 20:16 | Link to Comment Stuck on Zero
Stuck on Zero's picture

An ounce of gold can buy 600 loaves of bread today?  What is this guy smoking.  A decent loaf of bread goes for $4.50 today.  That means you can only buy 240 loaves of bread.

 

Tue, 07/09/2013 - 13:29 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

Where I live 2.20 to 3.30 can get a decent loaf of bread. if you're paying 4.50 it's either garlic bread ready to throw to the oven in a foil bag or some other specialty giant loaf the size of 3 normal loaves of bread for making sandwiches.

Mon, 07/08/2013 - 18:29 | Link to Comment Bastiat
Bastiat's picture

 

"Policy makers" don't suffer from the delusion that the market pricing of gold conveys real information, since they themselves are behind the manipulation.

They should be more concerned about the Chinese other central banks accumulating gold as a Vote of No-Confidence in the US Dollar.

Mon, 07/08/2013 - 18:47 | Link to Comment Croesus
Croesus's picture

Exactly, +1,000.

The move away from the BernankeCoin will not be stopped, regardless of the Fed's confidence-boosting shell games.

All paper will burn.

Quoting Seek's post (below): The fact that gold is manipulated lower is actually a sign of no confidence by the very central banking authorities that worked to lower it!

Mon, 07/08/2013 - 19:01 | Link to Comment CheapBastard
CheapBastard's picture
Bundesbank Warns China's Currency "On Its Way To Becoming Global Reserve Currency"

 

http://www.zerohedge.com/news/2013-07-06/bundesbank-warns-chinas-currenc...

 

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

 

Dr Joachim Nagel Member of the Executive Board of the Deutsche Bundesbank

The Internationalisation of the Renminbi

 

 

http://www.bundesbank.de/Redaktion/EN/Reden/2013/2013_07_03_nagel.html

Mon, 07/08/2013 - 18:29 | Link to Comment linniepar
linniepar's picture

Event horizon, bitchez.

Mon, 07/08/2013 - 20:41 | Link to Comment Tinky
Tinky's picture

Precisely. 

Tue, 07/09/2013 - 13:46 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

we don't need fiats where we're going, bitchez!

Mon, 07/08/2013 - 18:31 | Link to Comment duo
duo's picture

since I lack access to nearly free money from the FED and GSEs, and don't have enough to buy insider information from the NSA, I guess I'm no better than a Chinese or Indian peasant.

Mon, 07/08/2013 - 18:40 | Link to Comment sodbuster
sodbuster's picture

Chinese and Indian peasants have a whole lot more honor and moral compass than the shitbags running the US and the EU.

Mon, 07/08/2013 - 18:44 | Link to Comment CPL
CPL's picture

The people on the ground do because if they don't it costs them something, they've got skin in the game.  

Their governments however are mostly built of the same type of douche bags that run the US and EU.  All political cum dumpsters and sock puppets, might be the odd honest honest man/woman running a tight platform.

Mon, 07/08/2013 - 20:30 | Link to Comment olto
olto's picture

sodbuster: fixed

"Chinese and Indian peasants have a whole lot more honor and moral compass."

Mon, 07/08/2013 - 18:34 | Link to Comment seek
seek's picture

Policymakers request gold to be manipulated lower, it falls, and then they take that to be a vote of confidence? If that's their thinking, we're more fucked than I thought.

No, the gold price is an echo of Volcker: "...Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake." Volcker said that about 1973, and they're not repeating the mistake this time.

The fact that gold is manipulated lower is actually a sign of no confidence by the very central banking authorities that worked to lower it!

Mon, 07/08/2013 - 18:35 | Link to Comment Temporalist
Temporalist's picture

Of all the people that I know nearly all invest(ed) in stocks and real estate; I can number those that bought gold on one hand.

 

*Oh and the Chinese and Indians are still buying in record amounts.

Mon, 07/08/2013 - 18:37 | Link to Comment Al Huxley
Al Huxley's picture

gold – the consummate faith-based speculative asset

 

I actually think USTs are the ultimate faith-based asset.

Mon, 07/08/2013 - 23:21 | Link to Comment Alexandre Stavisky
Alexandre Stavisky's picture

No, Gold is not faith based.  No animal comes to gold as a godly good.  It is shiny and holds up. It is somewhat scarce.  That's it.  If shit would hold my daily labours at a constant so that in my old age I could spend them to equivalent effect, I would stock pile shit.  And would write arias about its essence, scent, usefulness, and even dietary desirableness.  However as I have perused the many options to contain value and have found all (like gold miners) full of holes with liars at the entrances, I have resolved upon gold.  For its durability, its scarcity, and because above all I could never see a Savoy Row suited son of the satanic order of central banking donning a tin cup hat with a tiny orb, donning a onepiece fits-all double stitched, double pleated union suit and riding a small car unfit for upright seating and taking pickax and shovel and drawing out of the god's green good earth whatever tiny nugget He so fits to bestow upon them.  Mining is dirty, dangerous, difficult, demoralizing.

So much better to set up the system and rule from on high in the higher ether with suit, vestment, accolade, and printing press.  Actually condescending to the true printing press has a soiling element to it and so that is off-agenda.

Fact is ruler and slaves.  Set up the system to preserve that, all is well.  But usury in its endgame crushes the throughput.  Banker hates the constraint.  Gold constrains the banker.  Even paper (at apogee power) constrains the banker.  Must develop new control buttons without physical constraint, to be called Derivatives.  Debt must be pushed to the next stage.  Inconsequent of realities, must defy the REAL.

Gold is the fallback upon the full-out rout.  The terrific, nearly-killed wild-eyed almost-died rallying point after unstructured, utter, moment-before-death defeat!

The market calls, no merchandise, but the market is filled with chits, affidavits, electronic promising, transparent claims upon goods-no-longer-wanted.

Yes please.  Fill my future with empty promises, award me with verbosity and deep-kneeling pledges of payment.  But my purse is filled with...? Ah, Bereftness.

Read your pink pages, watch your finanmedia, stare at the tickers.  Do those numbers hold any value or meaning anymore?  What is a number?  When every number can be inflated or reduced at will by currency manipulation.  There is no definable area by which you can make true investment in ANYTHING!  Charting (when the globe has been rent), Fundamentals (when every lie has been codified), Momentum when real movement has been swept from the floor by electronic proxy.

Please.  People.  Wake. UP!  All the sanctuary statuary is a corrupted whitened sepulchre of contemptible corruption.  Nothing in Global governance or global marketplace can be TRUSTED!  Every regulatory, advisory, brokerage, depository has been demonstrated to have been compromised.

And the ultimate parlour token of a bankrupted business still being circulated?  US Dollar.  Doesn't even burn well.  Every reservoir of liberty, every container of value, every proxy by which representation is made, has been altered and diminished.

How stupid the cattle that eat stones believing them to be nourishment.  THERE IS NOTHING LEFT!  THERE CAN NEVER BE A RESTORATION OF THAT WHICH HAS BEEN CONSUMED!

The fact that this Potemkin artifice of living continues on is only, ONLY BECAUSE EFFUSION OF MONETARY UNITS STILL MAKE THE CATTLE DROVE TO THE FEEDING POTS.

But the Debt is far too huge.  The Real Production of the earth far too scarce.  And the dumbed-down vehicles (humans) which still offer up devotional offering for naught are receding from the field.  THE ROUT IS ABOUT!  Without Gold, there can never be a Rallying to bring about economic man.  Nations are in full "strategic withdrawal"; it is only MOMENTS before the coalitions, large and small of mankind, ROUT.  And then every man for himself.

Wish to Rally?  Better make it Gold, and Durably, Reliably.  Even then many years must pass before men will extend their trust to the monumental folly-filled extensions of this day.

The End of Days.

Tue, 07/09/2013 - 03:55 | Link to Comment CSA
CSA's picture

As long as you don't pay at today's inflated gold prices, your entire essay is correct.

Tue, 07/09/2013 - 13:49 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

inflated? Gold is easily 10% of its future value. Price is highly depressed good value discount.
To call this "inflated" is like saying an "inflated price" for bread is a dime for a loaf.
Just utter nonsense.

Mon, 07/08/2013 - 18:37 | Link to Comment sodbuster
sodbuster's picture

Only one way to view the drop in gold and silver- they're running a sale, bitchez!!! Buy REAL value with paper fiat that is being defaced to the tune of $85 bln a month!!! Thanks Bernank, you f'n wanker!!!!

Mon, 07/08/2013 - 18:40 | Link to Comment Cacete de Ouro
Cacete de Ouro's picture

This article is way off of anything remotely resembling gold market analysis. I suggest Rogoff spend some time talking to the Bank of England FX division who rig the London Gold Fixings, rig the whole London market supply, and who have really fucked up central bank clients 'earmarked' holdings. Then talk to the BIS traders who control the price on behalf of the BIS governors. Then talk to Dudley who oversees FRBNY intervention into the Conex..

What a load of BS this article is....

Mon, 07/08/2013 - 18:52 | Link to Comment outamyeffinway
outamyeffinway's picture

Clark Kent = Superman

Ken Rogoff = Superneutralman

Mon, 07/08/2013 - 18:39 | Link to Comment jepicza
jepicza's picture

That was deep... I am still crying.

Mon, 07/08/2013 - 18:50 | Link to Comment EclecticParrot
EclecticParrot's picture

Yeah, kind of a slow day all around today -- pre-Bernanke yawnings.  Like an all-night eatery that drops a basket of fries into the hot oil every 45 minutes, just in case, we've been treated to this hour's ZH gold article.

Mon, 07/08/2013 - 18:47 | Link to Comment JustObserving
JustObserving's picture

The world is awash in fiat money.  All the gold mined in human history is worth $6.4 trillion.  All the gold bullion available in the world now is worth $2.7 trillion.  The land value of Beijing alone is $20 trillion.  The land value of Shanghai is worth another $20 trilllion at least.  All the real estate in China is worth at least  $200 trillion.  All the real estate in China twenty years ago was worth less than $5 trillion. 

Gold is very inexpensive compared to the wealth bubbles that exist in the world today

Mon, 07/08/2013 - 18:41 | Link to Comment unwashedmass
unwashedmass's picture

 

gold is in backwardation now. 

some vote of confidence. 

they are just creating and enforcing the CB's kill zone......

 

Mon, 07/08/2013 - 18:45 | Link to Comment Bangin7GramRocks
Bangin7GramRocks's picture

Gonna be a shit ton of empty former big-ass book stores soon. What new retailer will possibly fill those spaces?

Mon, 07/08/2013 - 18:45 | Link to Comment joego1
joego1's picture

Insurance against the fools in charge. That is all.

Mon, 07/08/2013 - 18:46 | Link to Comment Al Huxley
Al Huxley's picture

GLD Dropped around 15 tons of inventory today. You know why retailers and institutions need to be encouraged to sell GLD?  To free up the gold for the buyers in India, China and Russia.  Know why they want it?  To back their new global reserve currency when they decide it's time to cut the cord on the USD.  Think the US banks are substantially net long now because they've decided to operate as charitable institutions to help the hedge funds finally make their numbers? Not a fucking chance.

Mon, 07/08/2013 - 18:46 | Link to Comment bigbucksr
bigbucksr's picture

there is no reason to panic about the deflationary drop, as the central bankers are firmly in control and will save us from anything and everything.  makes you wonder why the previous great empires didn't figure out this central banker money-printing trick to keep the economy going?

i can't wait to read those meeting minutes from the most recent Federal Reserve Open Committee meeting....I am sure that will tell us everything we need to know about what the great wizard behind the curtain is thinking we should do next!  

hold on, this is 2013...are we really listening to CNBC tell us that we are waiting to read the minutes from a FOMC meeting from 2 weeks ago...why exactly do we need to wait to read these all knowing meeting minutes again?

Mon, 07/08/2013 - 19:06 | Link to Comment russwinter
russwinter's picture

Reports on commitment of traders and bullion banks’ participation reveal that the sistema is strongly positioned to take out slingers (speculators).

more- http://winteractionables.com/?p=4267

Mon, 07/08/2013 - 19:08 | Link to Comment johny2
johny2's picture

"With the Fed underscoring its strong anti-inflation bias"

come on tell us another one, this one was pretty funny.

Mon, 07/08/2013 - 19:09 | Link to Comment Peter Pan
Peter Pan's picture

I know someone who has been buying an oz of gold per week for the last 40 years.

His only regret is that he was not buying 2 oz per week. 

Now in his late 60's he views the events of the world with a smirk on his face.

He explains that once you have bought gold it is hard to allow yourself to sell it when it has been paid with your own money. He tells me that cash is the most dangerous commodity, not only in terms of losing value but also in terms of being tempted to buy things. In short as he says, "you only sell gold for essentials or emergencies, but cash flows out of your pocket on all the junk you can imagine."

Mon, 07/08/2013 - 20:24 | Link to Comment Seasmoke
Seasmoke's picture

He should see what a credit card does. It makes cash look like platinum.

Tue, 07/09/2013 - 04:00 | Link to Comment CSA
CSA's picture

He is using it as forced savings.  Sounds like a wise man as long as he doesn't start praying to it.

Mon, 07/08/2013 - 19:12 | Link to Comment CheapBastard
CheapBastard's picture

American workers better sit down for this one. Life for them is about to get much much tougher:

 

WASHINGTON (AP) -- Landmark immigration legislation passed by the Senate would remake America's workforce from the highest rungs to the lowest and bring many more immigrants into the economy, from elite technology companies to restaurant kitchens and rural fields.

 

 

http://news.yahoo.com/millions-more-immigrants-under-senate-193330831.html

Mon, 07/08/2013 - 19:17 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

<--- Ken Rogoff's article = TotalHedge (+ bullish for ZeroHedge clicks)

<--- KR article = Spot on

Seriously though, if you can afford to be patient, the $1000/Oz is good for stacking, and its rise to 'much higher' levels might be useful for swapping PM for Fiat and then in turn into other 'valuable assets'. 

In my case, gold is an insurance policy.  If it rises way up and I get a windfall in fiat, I'd use the fiat to buy productive land with water.  I like gold, but I like the 'yield' and a view from nice acreage even more.  To me gold vs. land is a 'no brainer'.  Especially if things go to pot.

Mon, 07/08/2013 - 19:27 | Link to Comment Divine Wind
Divine Wind's picture

 

 

+1

Excellent strategy.

Mon, 07/08/2013 - 21:02 | Link to Comment new game
new game's picture

yup. land to cash at closing(echo bubble losing air real fast at 4.5 percent and rising price), then 4 oz per week(LB/month) starting 7/29-check from closing should be cleared...then patience cause the fucking idiots done fucked up BIGtime...

Mon, 07/08/2013 - 19:15 | Link to Comment kito
kito's picture

if gold is heavily manipulated by the cbs, why even allow it to get to 1900 and change????????..........why even make it a "story" worth paying attention by giving it so much room to run?????

Mon, 07/08/2013 - 19:25 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

Kito, it occurs to me that if -- as some ZH bloggers have suggested in recent days -- the US banks are happy to have gold drop to where they repo the insolvent gold mines...

the banks won't care what the price is afterwards.  In fact, once could argue, once they own all that gold in the ground, they'd be happy to see its price rise sky high.

Don't know if this hypothetical scenario will 'pan out', but you gotta assume that the banking elite can afford to hire the smartest guys around - to look at and plan for every scenario (even this one), such that it ends with them on top.

Mon, 07/08/2013 - 20:05 | Link to Comment francis_sawyer
francis_sawyer's picture

I'll go with the "happy to have gold drop to where they repo the insolvent gold mines" theory...

~~~

But really... A "paper ETF", [with what?... 100x leverage?]... Who the fuck really cares where the price goes to [or retreats to]... That's the BEAUTY of playing PAPER games with asset prices that YOU ALONE are allowed to set the market on because your fucking TRIBE prints you the money to do it out of thin air...

When you wrap your dome around THAT concept... kito... Instead of being a 2 bit water carrier [because you don't want it to be true]... Things will become clearer...

But don't listen to me... Go consult your rabbi about it... I'm sure he'll give you the straight & unbiased answer...

Mon, 07/08/2013 - 19:27 | Link to Comment johny2
johny2's picture

let me offer opinion on that. qe1 and qe2 were too small. qe3 provided enough to corner the markets, for a while.

Mon, 07/08/2013 - 19:17 | Link to Comment Divine Wind
Divine Wind's picture

 

 

Dr. Paul Craig Roberts, former Asst. Treasury Secretary under Reagan, did an excellent interview with USA Watchdog within which he discusses the implications of the new trade deals being arranged between the U.S. and Europe, as well as various countries in Asia.

The short of it is that if the deals are signed, this likely prevents a collapse for some time because of the need for these countries to align their policies in support of the dollar.Barry Sotoro & Co. could print to the moon and back.

When asked about the impact of the price of gold, he damn near throws up his hands.

Scarey concept all the way around.

Watch it here:

http://usawatchdog.com/washington-is-arranging-support-of-the-dollar-paul-craig-roberts/

Article on the trade deal:

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/08/talks-over-a-huge-u-s-europe-trade-deal-start-this-week-heres-what-you-need-to-know/

Mon, 07/08/2013 - 19:50 | Link to Comment kito
kito's picture

@divine wind..............not really sure how this supports the dollar..............trade tariffs are low already......americans might pay lower amounts for olive oil and audis, but thats just more of the same broken model.........consumption.....consumption.......consumption....not exactly what is needed to fix the economy..........................if anything, the trade deal seems to benefit american ag in opening up more exports to europe should the trade agreement lower europes standards for quality ..........more exports for the u.s. means more dollars flowing back to the u.s., which i dont thing the bernank wants........without a large trade deficit, inflation would kick in rather quickly.....the bernank needs dollars leaving, not coming.......so how exactly is this going to help the dollar????

i dont see roberts point in this...perhaps you can shed some light..................TYLER WHERE IS YOUR ANALYSIS???????!?!?!?!?!?

Mon, 07/08/2013 - 20:07 | Link to Comment francis_sawyer
francis_sawyer's picture

so it comes down to kito & Divine Wind discussing things on ZH?...

~~~

Same person [using 2 login usernames] in the same room?...

Mon, 07/08/2013 - 20:19 | Link to Comment kito
kito's picture

WTF are you rambling about??

Mon, 07/08/2013 - 21:21 | Link to Comment pods
pods's picture

Kito, that is a fantastic point above that I was explaining to family in upstate NY about why they will not drill for NG.

With the amount of FRNs being created, if that debt didn't flow OUT of the US, we would all be wearing bread helmets and setting ourselves on fire.

This game only works if our chief export is FRNs.  

And domestic energy production would slit our own throats by allowing all those FRNs to circulate domestically.

pods

Mon, 07/08/2013 - 21:31 | Link to Comment kito
kito's picture

Exactly pods.....which is why I see this Atlantic trade agreement more for the benefit of greedy big ag who get to export their gmo laden garbage rather than for the benefit of the dollar.....btw....this seems so bad for Europe....

Mon, 07/08/2013 - 20:51 | Link to Comment kito
kito's picture

Francis are you suffering from Jew paranoia induced dementia???

Mon, 07/08/2013 - 22:14 | Link to Comment francis_sawyer
francis_sawyer's picture

No ~ you 'CUTESY' motherfucker... [You kno ~ if you actually started to THINK, I could 'like' you]...

~~~

Here's a more detailed summary of my thoughts [on another thread]

http://www.zerohedge.com/news/2013-07-08/cnbc-viewership-collapse-contin...

Your ideas on THIS ONE are stupid... [which MEANS ~ Your comments are 100% dependent on a US DOLLAR hedgemony ~ which is a 'paper ponzi' controlled by JEWS]... Which, I suppose, MAKES you a genius... Until it doesn't...

Mon, 07/08/2013 - 22:38 | Link to Comment kito
kito's picture

Jews Jews Jews.....blah...blah...blah...and what does this have to do with your nonsensical comment about having two names under the same person merely because I responded to divinewind??? Another grand conspiracy theory? Do tell...because your Jew shtick is getting fucking trite already....

Mon, 07/08/2013 - 22:58 | Link to Comment francis_sawyer
francis_sawyer's picture

OK... I'll drop that one [because I really don't give a fucking fuck]...

~~~

The rest is not a 'Theory'... [or maybe it is... You know ~ like LIBOR, or the Chinese buying gold]...

Mon, 07/08/2013 - 23:20 | Link to Comment BringOnTheAsteroid
BringOnTheAsteroid's picture

Hey, hold on a second, wasn't the whole cheesepope thing because you weren't allowed to spell due, out loud. You and Kito are headed for the naughty corner if you don't watch it. Oh, I have a joke: What's the difference between a cheesepope and father christmas? Oh, bugger it, I can't be bothered waiting for a reply. Father christmas goes down the chimney.

Mon, 07/08/2013 - 20:29 | Link to Comment Divine Wind
Divine Wind's picture

 

 

It is acknowledged that this would do little more than to enable the U.S. to continue to bump along the bottom and delay the effects of running trillion dollar deficits.

Additionally, as Roberts points out in a related article on his website:

"The deal is designed to draw Europe away from trade with Russia, just as the Trans-Pacific Partnership is designed to draw Asian countries away from China and fold them into US-structured relationships.

These deals have little to do with free trade and everything to do with US hegemony.

These “free trade” deals will commit the European and Asian “partners” to support the dollar. Indeed, it is possible that the dollar will supplant the euro and Asian currencies and become the monetary unit of the “partners.” In this way Washington can institutionalize the dollar and protect it from the consequences of the printing press that is being used to boost the solvency of banks too big to fail and to finance never-ending federal budget deficits. "

http://www.paulcraigroberts.org/2013/07/05/lawlessness-is-the-new-normal-paul-craig-roberts/

Mon, 07/08/2013 - 20:52 | Link to Comment Tinky
Tinky's picture

I respect Roberts, and certainly wouldn't rule the possibility that the balls stay in the air longer than what might reasonably be expected. However, there are, in my view, two reasons why the next crisis is likely to occur sooner rather than later:

  • Too much interconnectivity, complexity, and suppressed volatility for there not to be a black swan event that triggers a cascade of crises leading to the big event.
  • Those attempting to control the system have already dropped a ball or two (i.e. they have already begun to lose control)
Mon, 07/08/2013 - 21:20 | Link to Comment kito
kito's picture

I still don't see how this helps the dollar....his statement doesn't provide the logic....perhaps this is more favorable to the euro?

Mon, 07/08/2013 - 19:24 | Link to Comment eddiebe
eddiebe's picture

And this guy gets paid for this type of analysis? 

Mon, 07/08/2013 - 21:12 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 50,000 for this article alone!

 

 

Mon, 07/08/2013 - 19:25 | Link to Comment Ignorance is bliss
Ignorance is bliss's picture

This morning I had a conversation about SHTF with a baby boomer college. He sees the probable future course of this country and he was with me except for Gold. He acknowledges that ponzi abounds and nothing can be trusted in Bonds and Stocks. we plan on continuing the conversation over drinks.

It just so happens my wife is from Venezuela and a Gold ounce arrived in the mail. Somewhat embarrassed I acknowledged buying more gold. She looked at me funny and said" Are you crazy...Gold is okay, just don't buy stocks or bonds, that's crazy." She can't cook, but I love her to death. 

Gold and Silver: Sometimes it's the most obvious truths that escape us.

Mon, 07/08/2013 - 19:28 | Link to Comment Divine Wind
Divine Wind's picture

 

 

Sounds like a keeper.

She seems to have good sense.

You can always tteacher her to cook

Mon, 07/08/2013 - 19:36 | Link to Comment Ignorance is bliss
Ignorance is bliss's picture

She is a great gal. Unfortunately, when you really think what the high price of Gold / Silver portends to our world view  you have to really start planning for something very alien to our current reality. That is the difficult hurdle for both my wife and I. I might be a step or two ahead of her and a step or two behind the curve, but the depth of changes that will most likely occur are very hard to digest. 

Mon, 07/08/2013 - 19:27 | Link to Comment toadold
toadold's picture

"Flash! When asked what he expects the market to do Rothschild said, "It will go up and down.""

Mon, 07/08/2013 - 19:57 | Link to Comment loveyajimbo
loveyajimbo's picture

Well, the marriage between a Rothschild and a Jagoff had to end badly... witness this insipid moron, Rogoff.  No mention of manipulation...  With the CFTC and the asslick Gensler totally corrupt... the boyz can take the price where ever they damn well please.  The COMEX and LBMA are also totally corrupt.  Why play the other guys game?

Mon, 07/08/2013 - 20:00 | Link to Comment crzyhun
crzyhun's picture

The drop in gold whether by fix or fox is totally deflationary.

Mon, 07/08/2013 - 21:08 | Link to Comment newengland
newengland's picture

cwotsit,

You are a very pretty pet. Central banks have a printing machine, and they will use it, much like medieval vatican.

Fool, you, place your bet, and we'll enjoy watching you lose money. Pet.

Your sort are polite....and stupid.

Mon, 07/08/2013 - 21:16 | Link to Comment newengland
newengland's picture

Rogoff is a Grade A prat. He makes nothing. Does nothing. He grifts off all. Eejit.

I don't need his sort to tell me to buy physical gold and silver. His sort merely try to excuse their past mistakes, and grift off all.

He is useless, and trying to make his money off anyone who pays him.

He is just another slave, this time with fancy words.

Mon, 07/08/2013 - 21:10 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 ITS ALL BS.

 Escpecially the stuff they claim isn't.

 

Mon, 07/08/2013 - 21:13 | Link to Comment newengland
newengland's picture

Quite so, 'G'.

I dislike liars and fraudsters, and their politics in particular.

Mon, 07/08/2013 - 21:11 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 Golds demise is just the expected reaction after the beloved BITcoyn crash.

 

 Folks realized, that gold is just a bitcoin with a little bit of heft to it.

 

 

Mon, 07/08/2013 - 21:21 | Link to Comment newengland
newengland's picture

The Gold King and Silver Prince versus the lies of useless politicians, scamming off trusting fans, all for the useless Internationale.

You have been had, and better men and women die for your failure.

My money vs your fiatsco. You lose.

History says so, and this time is no different.

Tue, 07/09/2013 - 08:19 | Link to Comment Vooter
Vooter's picture

Would you like a banana?

Mon, 07/08/2013 - 21:33 | Link to Comment AynRandFan
AynRandFan's picture

I thought the Rogoff article was good, but too brief.  I agree that there is no recovery, and that gold is a good storehouse of value.  Wasn't that the point?

I disagree that the sequester was a bad idea because I think artificial stimulus was a bad idea from the beginning.  Yes, people are dumb enough to think that paper money is safe even though the Fed prints $1 trillion a year to support the nanny state.  But, in the long run, the nanny state will screw every dependant and I'd rather have real value - gold and land and booze and pot to get by.

 

Tue, 07/09/2013 - 02:04 | Link to Comment tom
tom's picture

I disagree. Most people buy gold mainly because they hope it will appreciate, and only secondarily as a hedge.

The current outlook for gold is not nearly as strong as it was in 2010, when China, India and all the EMs that really drive the gold price were inflating. China is looking shakey and India is sliding and not near bottom. The dollar gold price mainly follows EM incomes converted into dollars. If there's any one thing that caused the gold bear market, it was the collapse of the rupee.

In 2010 gold was a no brainer strong buy. Now it's a decent long term bet but with a high risk of near term loss.

Tue, 07/09/2013 - 06:43 | Link to Comment ozzzo
ozzzo's picture

In other words, gold might go up, or it might go down.

Tue, 07/09/2013 - 08:18 | Link to Comment Vooter
Vooter's picture

What a bunch of naive, simplistic, America-is-facing-tough-times-but-we're-trying-hard-and-things-will-get-better bullshit. The problem, of course, is that people like Ken Rogoff BELIEVE IN THE SYSTEM. If that's your starting point, you're already lost....

Tue, 07/09/2013 - 08:48 | Link to Comment Zen Bernanke
Zen Bernanke's picture

From Mike Shedlock blog:   For further discussion, here's a recap of the Fed Uncertainty Principle written April 3, 2008 before the Bernanke Fed started slashing rates in the Global Financial Crisis.

Fed Uncertainty Principle:The fed, by its very existence, has completely distorted the market via self reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed's actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.

Corollary Number One:
The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn't know (much more than it wants to admit), particularly in times of economic stress.

Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Corollary Number Three:
Don't expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Corollary Number Four:
The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

Rather than wasting time and energy in foolish attempts to divine what is impossible to accurately predict, I propose getting rid of the Fed and all the wonkish analysis, then stepping back, doing nothing, and let the free market economy work as it should.

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