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Guest Post: Five Reasons Why Gold Prices Will Decline
Submitted by Simon Black of Sovereign Man blog,
This morning I received a research note from a private bank I work with occasionally.Buried in the text was a call for lower gold prices, and the analysts listed five reasons why they think gold prices will decline. Here’s what they had to say:
1) “We expect the scaling back of [the Fed's] stimulus to happen this year at the December meeting. A reduction in monetary stimulus . . . shall reduce the attractiveness of gold as a zero-income asset.”
2) “Inflation pressures in the developed world should remain subdued, lowering demand for gold as an inflation-hedge.”
3) “We expect the US recovery to accelerate, reducing the attractiveness for gold as a safe-haven asset.”
4) “A subsequent improvement in investor sentiment shall also reduce demand for gold as safe-haven asset.”
5) “Physical demand from India should be discouraged by the gold import duty increases and other measures that aim to reduce the current account deficit.”
My analysis? These guys are completely missing the point.
The reality is that today’s financial markets are controlled and manipulated by central bankers who are destructively expanding their balance sheets to the point of insolvency. Many central banks are already insolvent. Most “rich” countries are bankrupt.
And the “richest” country in the world has entered yet another sad, farcical episode public fiscal humiliation.
The US government is so broke that they fail to collect enough tax revenue to cover mandatory entitlement spending (like Social Security) and interest on the debt. And that’s with interest rates at all-time lows.
The debt is growing by the day. The US government reached its statutory debt limit back in May, and as soon as they raise the debt ceiling, they’ll quickly reach the new limit again.
The US government cannot even afford the 1.968% average interest that it is currently paying. (This is compared to 6.620% back in January 2001, and 3.665% in September 2008 when Lehman collapsed…)
Politicians are seizing pension funds, raiding bank accounts, and raising taxes. They’ve imposed capital controls, and even restricted gold importation and ownership.
Investors are addicted to cheap money like meth junkies. Stock markets are at all-time highs. Bond markets are near all-time highs. Many other asset classes (US farmland) and commodities (cattle) are also near all-time highs.
There’s very little in this world that makes sense.
I own farmland in South America as the ultimate hedge against inflation, system disruptions, and economic decline. Plus it generates great cashflow.
But farmland isn’t terribly portable or liquid. And that’s why gold is such a great option.
Precious metals are like an insurance policy. It’s a policy you hope you’ll never need to cash in. But if the need ever arises, it’ll probably be because the financial system has collapsed, and the gold price has gone to the moon… potentially even tens of thousand of dollars.
If that day ever comes, you’ll be thankful that you had the foresight to trade away some paper currency for real savings.
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Don't know about iridium, but mos def sell tritium, I hear there is a glut.
Regardless of current definition, Soc. Sec. is not an entitlement.
Authors of articles and comments that promote that idea, and the one that holds SS as the cause of all our ills have no credibility.
They consider themselves to be politically astute, complaining all day long about the govt. cheating and stealing from them, then would sanction the theft of a lifetime of savings in a retirement account.
SS is an easy fix. Remove the cap, remove all non-citizens, students, anyone who hasn't been paying in. Means test.
bad choice. choose in FIFA world ranking order to move to South America. Ecuador not up there , shit beaches,food,chicks,culture and of course.football...but go ahead.
Totally.
C'mon, where else can you find such cutting edge prognostication?
Let's see - the debt has gone beyond astronomical since stars are numbered in billions, so the moon equivalent is tens of thousands. BRILLIANT!
Then sign it Heisenberg...
Nonsense.
#1) I used to work on the COMEX where gold is traded. There is no more manipulation there than in any other financial market, and to the extent there is manipulation, it's in both directions.
#2) As long as there is no dollar collapse, the COMEX cannot default. As long as dollars are valued in the economy, the COMEX can obtain as much gold as it wants.
#3) The amount of gold in the world doesn't matter. If all of the billionaires hoard their gold in vaults, the rest of us won't care even in a system where gold is the only money used. To say there "wont be enough" gold shows a complete lack of understanding of how gold, and money, work. If there was only 1 ounce of gold left in the world, that would still be more than enough to run the entire economic system of the world.
Here's your refresher course: Gibbons ate bark. Gibbons died. The end.
There are two shops in my area that have been around for ages, they buy and sell, but their premiums are pretty hefty. The new ones to crop up are buy only, and there are a bunch of those. Also, some jewelers are now advertising to buy...they'll buy anything that's gold / silver.
There are 174,190 Metric Tons of Gold in existence today...above ground. (And yet the USA can't give Germany their 700 Metric Tons??? That is because the USA does not have any.)
http://www.gold.org/investment/why_and_how/why_invest/demand_and_supply/
There are One Million grams per Metric Ton. Multiplly 174,000 by 1,000,000 yields 174,190,000,000 grams. Divide that product by 31.103 grams per ounce troy to determine the amount of ounces. Divide the result of that Quotient by 7 Billion (7,000,000,000) and that yioelds Ounces per person.
If I recollect my calculation there is enough Gold for roughly 4/5th of a Troy Ounce for every single man, woman, and child on the face of the planet. What are you writing about??? That is enough to have Gold as a fungible currency.
And your name, Gatorengineer, claims to have something to do with Engineering??? That is laughable. I did not know is not a valid excuse. The information is to readily available.
I believe India has a huge impact as well as demand versus price correlation on gold prices globally. The reason being that Indians actually buy physical gold. If you think about it, if anyone anywhere in the world buys physical gold, then the wholesaler, jeweller, banker etc, everyone makes money and many a times the same gold gets to a pawn shop or a gold loan dealer, even Govt with duties, sales taxes etc who also makes money off the transactions. This makes physical gold a more productive asset.
While we have seen China and some other countries buying gold but they do it for their reserves which ends up locking the gold in some vault and thus making it unproductive. Banker, wholesaler, jeweller, pawn shop dealer, Govt etc, no one makes money of it. Govt buys directly from another Govt or from a gold company and thats the end of it. Of course, Govt transactions are tax and duty exempt.
In terms of India, demand continues to remain volatile.
If you compare the Q2 2012 and Q2 2013 reports here http://www.gold.org/investment/research/regular_reports/gold_demand_tren...
You will find that gold demand in India alone declined 34% in 2012 versus 2011 but then picked up 50% between 2012 and 2013.
However, we are once again seeing signs of a massive 'official' demand decline because of Govt hiking duties to an astronomical 15% within the last few months. Lack of demand is here: http://www.business-standard.com/article/pf/budget-planners-take-over-to...
Many other countries such as Italy, France and Russia are also contributing a demand slowdown. Italy has been quite significant with 2 years of solid declines.
Last year India saw the biggest slowdown in demand of 34% which is why it seems gold prices plunged from USD 1,800 plus levels to USD 1,300 levels. Although India has slightly picked up though others have also plunged while India again enters a slowdown effective July-Aug 2013 period inspite of low gold prices, it seems gold may not find any more productive demand anywhere globally. The Rupee's massive decline in July and Aug also made things even more worse.
Italy along with Singapore is also a major converter of gold into jewellery, however, both are seeing slowdowns while Pakistan has seen demand plunge 80% due to smuggling of gold into India.
All in all, I do not see much of conspiracy theories or any evidence of that. It is just that the real buyers who are wholesalers, jewellers etc are not seeing much robust rise in demand due to global economic slowdown, hike in custom duties, outright bans in Nepal and Pakistan etc and hike in duties in Sri Lanka etc causing the demand to slump and the margin calls on speculators has made the rise much more challenging. This is a massive demand destruction and most gold is being bought by people today including ZH'ers and parked inside a vault which makes gold unproductive.
If this article is to be believed then data shows that 2014 may see a further price slowdown. http://in.reuters.com/article/2013/09/11/india-gold-price-gfms-idINDEE98...
Please also consider that QE and rising interest rates also play havoc with demand both for physical as well as speculative reasons.
I hope gold will rise and one day it will, but it must see demand rise either from normal public for weddings or whatever in the interim but if demand inside vaults keeps rising the system will need a shock of a banking shutdown or some catastrophe i.e. a default by a major country or coutries etc to occur before price touches USD 2,000 or higher. India will certainly have a catastrophe in 2014 but question is, will it be sufficient for demand of gold in India to rise and consequently globally?
I do not believe any Indian economic catastrophe will have any major impact on gold since Indians are mostly poor, over 90% to 95% and they simply do not care whether stocks or markets go up or down, especially globally, because it does not impact them whatsoever. While the duties are, and will be a huge impediment to jewellers etc to create any major demand revival.
Excellent comment.
Confusing long term with medium and short term timeframe and confusing personal preferences with the main financial trend in the three different timeframes, always has been very expensive...
Thanks.
My comment was mainly towards long term trends. Short term and medium trends are dictated by bank liquidity, jewellers, short term speculators etc. All these are currently weak globally and extremely volatile. I have stopped having views on short term and medium term due to extreme volatility and buying on dips is the only rule I follow and it works.
Either a squeeze needs to happen like Panama has now closed its banking system and we must worry if it does not reopen on Oct 2. Until Oct 2, I am not worried. Syria has subsided for now, Iran seems to be getting over. False flags also seem to be quietening due to worldwide debt problems. Cyrpus closed its banking system for 2 weeks or 3 and it did not cause a global collapse. Smallest and weakest players are signalling massive systemic risks but so far China, Germany or Abu Dhabi or Singapore or Norway or US debt has bailed everyone out.
https://www.banconal.com.pa
Otherwise, demand must rise for gold. Hyperinflation worldwide will impact gold but it has yet to arrive despite low interest rates since 2008 and counting. No doubt, we are at a precipice of a collapse, who knows when it will collapse!
Some good things that have happened over the last few years are:
1. Companies do not rely on banks or Govts no more as much. They have increased their cash piles significantly so in the event of a collapse the giant corporations will not be worried. Look at Apple, Microsoft or any company that has huge cash on their balance sheets.
2. Banks are being squeezed because they cannot make their fees for services provided which hurts them but the govt has been able to warn everyone that if a collapse comes, everyone is on their own. But everyone else is better off due to cost cutting, store cloures, withdrawing from unprofitable countries or areas.
3. Enforcement has improved whether of banks or any corrupt or tax free opportunity. US money is returning to US from Swiss, German and French too. Each country is on self survival and self growth mode and if it hurts someone like India or anyone else who relies a lot on imports or foreign investors is basically doomed.
4. Interest rates have started rising whether in Greece or India or US, as compared to 2008-2009 period. This shows some survival by giant corporations and economies. Small ones too have adapted. Many employees have retuned themselves with this prolonged crisis and are ready to work for less, are looking for opportunities overseas or have 'retooled' themselves by acquiring new skills or living in their parents basements or whatever it takes.
My view relies on the 7bn people we have on this planet today. This is a no win situation and estimated to rise to 8bn by 2023 approx. Earth is in trouble, forget the banks or corporations. We should touch 9bn by 2050.
http://en.wikipedia.org/wiki/World_population
IMO not a good article, beause it argues long-term, while the 5 reasons from the bank are short and medium term.
You guys that 'own farmland in South Amerikay' ..........
Don't you know you also need to own an army to hold onto it.
Property rights are disappearing fast, you will soon only be able to defend the land that you live on -and you'll have to fight real hard and dirty to hold it.