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Gold and Gibson's Paradox

Tyler Durden's picture




 

Submitted by Alasdair Macleod via GoldMoney.com,

There is a myth prevalent today that the gold price always falls when interest rates rise.

The logic is that when interest rates rise it is more expensive to hold gold, which just sits there not earning anything. And since markets discount future expectations, gold will even fall when a rise in interest rates is expected. With the Fed's Open Market Committee debating the timing of an interest rate rise to take place possibly in September, it is therefore no surprise to market commentators that the gold price continues its bear market. Only the myth is just that: a myth denied by empirical evidence.

The chart below is of a time when the opposite was demonstrably true. From March 1971 to December 1979 the trends in both interest rates and the gold price rose and fell at the same time. It is worth noting that this occurred over more than one business cycle, so it is not a relationship which was cycle-dependant.

Gold Interest Rates Chart

The myth is therefore satisfactorily debunked.

To understand why this relationship between interest rates and gold is not as simple as commonly believed, we must take the argument further to bring in commodities generally and visit the tricky subject of Gibson's Paradox. This paradox is based purely on long-run empirical evidence, when gold was transaction money, covering the two centuries between 1730 and 1930. It observes that the level of wholesale prices and interest rates are positively correlated. It is not the price relationship that is consistent with the quantity theory of money, which presupposes that interest rates correlate to the rate of price inflation instead of the price level itself. This maybe a reason why monetarists mistakenly argue, as we also discovered in the seventies, that central banks can manage the rate of inflation through interest rate policy. The common view in markets today about the relationship between interest rates and price inflation is wholly at odds with the longer-run evidence of Gibson's Paradox and accords with the more fashionable quantity theory instead.

Gibson and his paradox are generally forgotten today, and those who centrally plan our money and markets appear unaware of the challenge it poses to their monetarist preconceptions. Keynes, no less, described Gibson's Paradox in 1930 as "one of the most completely established empirical facts in the whole field of quantitative economics", and Irving Fisher also wrote in 1930 that "no problem in economics has been more hotly debated". Even Milton Friedman agreed in 1976 that "The Gibson Paradox remains an empirical phenomenon without a theoretical explanation".*

Resolving this paradox can be left to another time; instead we shall consider the implications by looking at price relationships between wholesale prices and interest rates in a post-gold world. The next chart is of producer prices measured in gold compared with one-year Treasury yields.

Producer Prices Gold Chart

I have taken the St Louis Fed's "Producer Price Index by Commodity for Crude Materials for Further Processing" to more closely reflect commodity price trends, and to reduce the additional considerations of changes in processing margins over time. The one-year interest rate is preferred to the original evidence of Gibson's Paradox, which used the yield on undated British Government Consols stock as being the only continual information on rates available, because we need to more firmly link the evidence to modern interest rate policies.

Looking at the chart, it is hardly surprising that Gibson's Paradox was quashed from the time of the Nixon Shock in 1971, when the US unlocked a huge rise in the gold price by ending the Bretton Woods Agreement. Instead, the gold price took on a life of its own, driving down wholesale prices priced in gold for the next nine years. The rise in the index from 1980 to 2000 reflected gold's subsequent bear market when gold fell from $800 to $250, but the influence of Gibson's Paradox appears to have returned thereafter.

This conclusion might be considered suspect; but the chart tells us that not only are producer prices at their lowest for thirty-five years when measured in sound money, the price level also coincides with zero interest rates. In theory, it accords precisely with Gibson's Paradox. So where do we go from here?

There is only one way for interest rates to go from the zero bound, it being only a matter of time, time which according to the Fed is now running out. Commodity prices in their role as raw materials therefore seem set to rise with interest rates, if the Paradox is still valid. Furthermore, the evidence from this analysis suggests that wholesale prices are suppressed even more than the price of gold. This being the case, when the interest rate cycle turns the potential for higher raw material prices measured in dollars could be truly spectacular, even more so in the event the gold price rises at the same time, which seems likely in the event that financial markets become destabilised by higher interest rates.

It is worth repeating at this point that the economic consensus, which adheres to the quantity theory of money and has been comforted by the apparent absence of consumer price inflation in the wake of the post-Lehman monetary expansion, takes a diametrically opposite view to that indicated by the Paradox. The prospect of a turn in the interest rate cycle is expected to drive the dollar's exchange rate higher still, weakening commodity prices and gold even further. In the language of the dealers, everyone is on the same side of the trade, meaning the dollar is technically over-bought and commodities over-sold.

Gibson's Paradox says it will turn out otherwise, and it could be central to linking the cyclical relationship between interest rates, securities markets, and commodity prices. It becomes much easier to see how these relationships tie together. Rising interest rates would almost certainly be accompanied by a potentially large fall in overpriced bond and stock markets as speculative positions are unwound, the former even undermining bank solvency ratios.

The flight of speculative capital from falling markets has to go somewhere, particularly if cash balances held in the banks are at a growing risk from systemic default. The Paradox tells us that these are the conditions for commodities to become the safe haven of choice for the highest levels of speculative money ever recorded since fiat currencies dispensed with their golden anchor. Ergo, Gibson's Paradox probably still holds.

*All three quotes are taken from Barsky & Summers, National Bureau of Economic Research Working Paper No. 1680, (August 1985).

 

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Sun, 07/26/2015 - 17:18 | 6356675 realmoney2015
realmoney2015's picture

Interest rates are going to rise. Been 0% for how long? Sorry, I don't trust the fed and I don't believe a word from their chairperson.

Sun, 07/26/2015 - 17:56 | 6356699 Supernova Born
Supernova Born's picture

Gold abides.

Sun, 07/26/2015 - 18:32 | 6356878 God
God's picture

God says:
No, you MUST get your credit products now before the rates rise! BUY you simplistic maggots!

Mon, 07/27/2015 - 01:21 | 6357887 Four chan
Four chan's picture

interest reflects risk, the more risk the higher the interest, the higher the counter party risk, the more precious gold. 

Sun, 07/26/2015 - 18:16 | 6356835 CPL
CPL's picture

The time to have jacked up the interest rates would have been 1998 to keep gold's value.  Right now, it's simply too late to matter any more.  They sat on it too long and as a consequence the price is anchored to worthless paper because that's how the ETN/ETF instrumentation was built.  It was built, on purpose, to keep PM's in the gutter.  The architects of these pieces of shit failed to account for leveraged decay that like a rot, undermines the market value and purpose of anything that becomes leveraged well and beyond the production of it. 

Just look at silver.  There's 100 million ounces on the market for trade (roughly).  The amount of paper silver out there, 40 billion pieces of paper silver.  So either one ounce of silver is worth 40000 dollars or it's worth 0.  If pretending there's a price war and a market to buy and sell it.  Then fucking do it.  But since no one can pull their thumb out of their ass and the people running the markets are obviously all dumb as a box of hair. 

Might as well go straight to zero with silver, gold, platinum and everything else on the commodities board.  Once everyone's broke.  Let's then see what everyone really needs, instead of wants.  See how awesome of an investment a shiny rock is at that point.  I bet a grocery bag of tomatoes from my garden once it's done, my tomatoes are worth more than the gold.

Sun, 07/26/2015 - 18:40 | 6356904 RockyRacoon
RockyRacoon's picture

If commerce and industry could be run on a tomato currency then it would be the currency.  Sorry, but no gold star for you.

As for Gibson's Paradox / interest rates / gold pricing is concerned, that relationship went out in the 1930s when the gold standard was demolished.  And a corollary to that is that we don't have free markets for price discovery any more.  'Tis all moot at this point.

Even the fantabulous Larry Summers has something to say about that very thing: 

http://www.nber.org/papers/w1680.pdf

Sun, 07/26/2015 - 20:25 | 6357173 wet_nurse
wet_nurse's picture

Tomato currency might be a good idea. everyone would spend spend spend before their money went bad.

Sun, 07/26/2015 - 20:35 | 6357190 CPL
CPL's picture

The "money" has already gone bad, yet I still have tomatoes.  Keep your shiny rocks, trade you for carrots or cabbage if you've got any.  If not, we've got no business to conduct.  Away with you jews, got no trade for the likes of paper or sellers of pebbles.

Mon, 07/27/2015 - 09:41 | 6358659 Random_Robert
Random_Robert's picture

Your tomatos will only have value unitl they spoil, so what do you do if you have several bushels of "extra" tomatos? Let them spoil, and watch the "value" of the effort you put into growing them slowly degenerate into a moldy pile of fly-attractant?

 

See money has TWO forms of value- One is currency: its value as "current" medium of exchange. The other is capital:  its value as a FUTURE medium of exchange.

 

Gibson's Paradox is easy to understand, but impossible to quantify.  If money is cheap  (low interest rates), then the hard-requirement (and therefore the desire) to work for it diminishes.

Some people call this "greed", but I prefer to label it as "ambition" - The two are mirror-images of the same dynamic... The difference being primarily that ambitious people tend to look for the best work necessary to produce money, while greedy people look for the easiest (or least) work necessary to produce currency (think finance, hint hint)

Your tomatos will not endure as money, nor will they ever help you to build wealth, because your reluctance to trade will simply inspire me to find other tomato farmers who ARE willing. That is how economies actually operate-  on trade and commerce; NOT on leverage and margin.

 

Leverage and margin destroy, they do not create.

 

 

 

 

 

 

 

 

Sun, 07/26/2015 - 20:45 | 6357230 CPL
CPL's picture

1930's was also when doctor's helped sell cigarettes based on their smooth flavour and low tar.  If extrapolating that the financial dump seen today is a direction reflection of all those past dumb decisions for over 120 years it's probably a good idea to plan for PM's going to 0.  That's usually the end result of a ponzi scheme based on hype; doesn't matter if they are flogging gold, silver, beanie babies or tulip bulbs.

Sun, 07/26/2015 - 21:32 | 6357350 RockyRacoon
RockyRacoon's picture

What?  Now you're just babbling.  Like seeing yourself in print or something?

Mon, 07/27/2015 - 01:04 | 6357861 Mintcoin
Mintcoin's picture

Yep.

 

Gold = Pet Rock.

 

Sun, 07/26/2015 - 21:39 | 6357364 FIAT CON
FIAT CON's picture

Gold is MONEY, a medium for exchange.

 Lets just see how much people are willing to trade you for that bag of rotten tomatoes.

Gold does not corrode  ie spoil

 

Mon, 07/27/2015 - 04:37 | 6358089 BarkingCat
BarkingCat's picture

I like tomatos. They are the ingredient for some of my favorite foods. One problem with tomatoes that does nor effect gold is rotting, and in relatively short time.

They call these metal precious for a reason.

Sun, 07/26/2015 - 19:59 | 6357097 Macon Richardson
Macon Richardson's picture

Chairperson? She's not a chairperson; she's a chairmunchkin.

Sun, 07/26/2015 - 17:20 | 6356677 q99x2
q99x2's picture

Buy Gold we don't have much of it on Q99X2 but I hear the elders have started importing it from Earth.

Sun, 07/26/2015 - 17:45 | 6356679 The Delicate Genius
The Delicate Genius's picture

http://www.321gold.com/editorials/hamilton/hamilton013104.html

"One of the most important fundamental drivers behind the current fabulous golden bull in US dollar terms is the surreal negative-real-interest-rate environment that now plagues Americans courtesy of the Federal Reserve.

Negative real rates are relatively rare in financial history, as they represent an inherently unstable and artificial state created by central bankers attempting to try and seduce their countrymen and corporations into piling on ever increasing amounts of debt.

The central bankers hope that the rocketing debt growth spawned by negative real rates will ultimately translate into economic growth as the fiat cash injected into the system by spiraling fractional-reserve debt creation soars. They hope this debt-injected cash will precipitate an economic boom.

Negative real rates create enormous problems though, as they effectively steal from hard-working savers to subsidize wastrel debtors. In normal markets both savers and debtors are offered fair prices for capital, for both lending it and borrowing it. Mutually beneficial transactions for both parties are possible, and capital-market commerce thrives.

In negative-real-rate environments, a central bank artificially manipulates short-term interest rates so low that they are actually driven below the official rate of inflation. This means that savers and investors actually lose real purchasing power by lending and investing their capital. $100 that they lend this year might return as $101 in nominal terms next year, but this $101 can really only purchase the equivalent of $99 worth of goods today. True purchasing power, and hence real wealth, is gradually hemorrhaged.

Over time, these negative real returns decimate the savers and investors in the capital markets. Debtors, like parasites or vampires, gradually suck the life out of savers as they are offered unfair and artificial deals due to brazen central-bank short-rate manipulation. Instead of savers and debtors being able to enter mutually-beneficial transactions, win-win situations, savers are forced to only be able to lose purchasing power while the debtors greedily gobble it up.

Savers are faced with an unpleasant choice in these environments hostile to wealth creation. Do they lend their capital to borrowers at a negative real return, fully realizing that they will lose purchasing power and wealth every year, or do they just quit lending entirely and try to protect their capital from central-bank depredation by any possible means?

Sadly in America today, we are slowly learning the answer to this crucial question. In a desperate gamble to try and reignite a failed stock-market bubble, Alan Greenspan and his Fed are remaking a terrible mistake that has only led to pain and misery throughout history. US real rates have been bludgeoned relentlessly lower since 2000, and the bitter fruits of officially plundering savers to subsidize debtors are slowly becoming apparent...."

Sun, 07/26/2015 - 18:20 | 6356843 FranSix
FranSix's picture

Commodities should stabilize here:

http://schrts.co/Keexry

Sun, 07/26/2015 - 20:26 | 6357175 daveO
daveO's picture

Ail true, but since 2011 the rate of US debt expansion has slowed enough to drag on the 'bubble' economy. Now, the commodities are/have been smelling another positive rate environment, at zero, where defaults pile up faster than new debt. QE4 can't be far away, within a year. The FED's just waiting for the stock crash to justify it. QE by spring '16.

Sun, 07/26/2015 - 17:21 | 6356685 Squid-puppets a...
Squid-puppets a-go-go's picture

Does anyone know how to get evidence of what % of gold bought thru comex is done on debt and how much is purchased via leverage? does anyone even hold these stats?  Because that relationship would be pertinent to the merit of the 'high interest/dump gold' camp

Sun, 07/26/2015 - 20:44 | 6357210 daveO
daveO's picture

In the long run, gold is priced as the reflection of a nation's federal debt. That's all that matters. US debt in 1971 was $398 Billion and gold was $35/oz. By 1980, US debt was $908 Billion, up 2.28 times. Gold, OTOH, went parabolic to $800/oz., up 10 times that amount. Volcker, the FED price fixer, saved the dollar by jacking rates sky high. Still, gold never went even close to $80/oz. again. The closest it got was near $250/oz. in '99. US debt in '99 was $5.656 Trillion. This translates to $497/oz. in gold. So, gold was 'on sale' in '99, too. A 50% discount(today that'd be near 800/oz).  At $800/oz in 1980, gold was discounting a US debt level of $9 Trillion. The US finally reached 9 Trillion in 2007. Guess where gold finished that year. 

Sun, 07/26/2015 - 17:25 | 6356694 Ethical_Money
Ethical_Money's picture

Worship a shiny metal all you want and be judged for it if you insist but the ONLY ethical money form for government money is INEXPENSIVE fiat else the taxation authority and power of government is misused for private interests such as gold owners.

 

The current system, government subsidized private credit creation, is wicked too but the solution is ethics, not rare, shiny metals to artificially limit money creation.

Sun, 07/26/2015 - 17:56 | 6356768 Bernanke'sDaddy
Bernanke'sDaddy's picture

Your comment speaks volumes about your igniorance.

 

I will put my faith in a rare, shiny metal as a proxy for my blood, sweat and tears over government promises any day.

 

You really shouldn't hang out here. I think these concepts are WAy above your pay grade.

Sun, 07/26/2015 - 18:07 | 6356812 Ethical_Money
Ethical_Money's picture

"as a proxy for my blood, sweat and tears"

 

And environmental destruction via mercury and hydralic mining to name just two means.

 

Sweating, crying and bleeding does not atone for senseless misery and destruction, not to mention injustice.

Sun, 07/26/2015 - 21:10 | 6357296 Tall Tom
Tall Tom's picture

Have you ever heard about GATA, the Gold Anti Trust Action organization?

 

The organization was formed in order to sue the US Government, the FED, and other Financial institutions for keeping Gold Prices depressed.

 

But as to the REASON WHY they initially formed?

 

To help the South African Miner employees get justifyable wages for their labors, along with safe working conditions, something which was not allowed with the Financials and Nations DEPRESSING THE PRICE OF GOLD.

 

Woe to the Socialists. They decry that to which they actually not only contribute, but, to that which the they actually CAUSE.

 

DID YOU KNOW THAT?

 

You spew utter HYPOCRISY.

 

 

Sun, 07/26/2015 - 21:26 | 6357334 nmewn
nmewn's picture

You've obviously lost the single brain cell you were born with.

Fiat is a human catastrophe, how many wars have been fought with credit & fiat? Turning to your chosen field of naivete (which seems to be ecological/enviromental) how many rain forests burned, animals "made homeless" (lol) or slaughtered with the "help" and use of credit & fiat?

Now I know where you're going to end up so let me stop you before you go blabbering idiot...BITCOIN!...which requires what?

Power generation, servers humming along from that power source, internet and all its hardware from towers to cable routers, devices and moar plastic etc. ad nauseum.

Very ecologically friendly, yes? ;-)

Mon, 07/27/2015 - 01:09 | 6357868 Mintcoin
Mintcoin's picture

+1 mining is horrible on the environment

Sun, 07/26/2015 - 17:56 | 6356770 Latitude25
Latitude25's picture

I'm a very ethical person.  Can I buy things from you with photocopied $100 bills?

Sun, 07/26/2015 - 18:04 | 6356802 Tinky
Tinky's picture

Member for 15 weeks.

Paid troll.

Ignore.

Sun, 07/26/2015 - 18:12 | 6356824 Ethical_Money
Ethical_Money's picture

Paid troll you claim?   You do know the fate of all liars?   You should find out before you accuse so lightly.  See Book of Revelation.

Sun, 07/26/2015 - 18:36 | 6356891 Tinky
Tinky's picture

Perhaps I did judge too quickly. Please allow me to refine:

Unpaid troll, and religious zealot.

Ignore.

Sun, 07/26/2015 - 21:23 | 6357324 Tall Tom
Tall Tom's picture

He is NOT NECESSARILY a Zealot.

 

The Zealots are analogous to the modern Zionist.

 

He proclaims Jesus. It remains to be seen if he supports Zionism.

Sun, 07/26/2015 - 18:37 | 6356895 SoilMyselfRotten
SoilMyselfRotten's picture

You talk like a troll, he called you a troll. He can be wrong and not be a liar.

Sun, 07/26/2015 - 21:35 | 6357340 Tall Tom
Tall Tom's picture

Bearing a false witness is what is constured as lying.

 

I agree that he can be mistaken and not be a liar.

 

But I think that he is a misguided SOCIALIST rather than a troll.

 

Just because some who post are Socialists does not mean that they are trolls.

 

This is NOT Echo Box Club. This IS Fight Club, after all.

 

Patience. When he begins to dispute factual information then I will probably agree. 

 

Until then I am inclined to give him the benefit of the doubt.

 

You, of course, will do as you choose.

Sun, 07/26/2015 - 21:17 | 6357302 Tall Tom
Tall Tom's picture

Do you know the fate of HYPOCRITES, Ethical_Money?

 

You need to find out everything possible about that which you write before you accuse so lightly.

 

BTW...Jesus was a CAPITALIST, not a Socialist. In the allegorical "Parable of the Talents", He was the Master. He even expects INTEREST EARNED at a Bank if His capital was not ventured outward and risked by FAITH.

 

As for me I am Hellbound. Welcome to that wide path of destruction, Ethical_Money..

Mon, 07/27/2015 - 01:10 | 6357872 Mintcoin
Mintcoin's picture

Deuteronomy 7:25-26

Sun, 07/26/2015 - 18:04 | 6356804 Squid-puppets a...
Squid-puppets a-go-go's picture

most governments historically, with rare exception, have been unethical. For you to consider a govts monetary preferences over the broader peoples, who are the real participants in any economy, is spurious to this assessment.

And the scarcity of gold is precisely what provides its utility in stabilising an economy and limiting the prospect and magnitude of bubbles. There is nothing 'artificial' about its scarcity.

get your head out of the Govt. ass. Peoples live savings are at stake

Sun, 07/26/2015 - 17:26 | 6356697 katchum
katchum's picture

Those charts are only relevant when the CPI is incorporated in it. Today interest rates are rising while yoy CPI is at zero. Hence gold goes down.

Sun, 07/26/2015 - 20:53 | 6357252 daveO
daveO's picture

Nah. Gold and commodities are discounting negative money creation created by defaults outpacing new loans. Markets aren't pricing in future FED riggings (QE). They're simply pricing by what the FED's saying(rate rise). When the banks crumble the FED will rumble, with more QE.

Sun, 07/26/2015 - 17:28 | 6356702 The Merovingian
The Merovingian's picture

Long term rates are not going higher anytime soon. The Fed is definitely lifting the FF rates 25bps at least twice in the next 6 months. Then we'll see if the wheels fall off this old bucket they call a 'robust' economy.

Sun, 07/26/2015 - 17:32 | 6356712 Soul Glow
Soul Glow's picture

Interest rates rose in the 70's when gold had its run then.  Anyone that thinks the reason gold is falling is due to an oncoming rate hike hasn't a clue how the gold market is manipulated.

Sun, 07/26/2015 - 20:57 | 6357263 daveO
daveO's picture

Back then, people still remembered the Depression. They wanted out of fiat. Now, they don't have a clue. It will take a full blown dollar meltdown, like Argentina, Mexico, USSR, before people will pile into gold again. That means it will be 'on sale', in the US, for the near future.

Sun, 07/26/2015 - 17:31 | 6356714 Chuck Knoblauch
Chuck Knoblauch's picture

The US is the core empire.

Gold wont rise until the government falls.

Sun, 07/26/2015 - 17:39 | 6356730 Fukushima Fricassee
Fukushima Fricassee's picture

Then Godl will absolutly rise because this governmment is finished.

Sun, 07/26/2015 - 17:48 | 6356747 Tribulation Blues
Tribulation Blues's picture

Obama's assassination can not be that far off... Satan will enter in and bring him back to life. Rev 13; 3

Read the Lord's numerous warnings to prophet Linda Newkirk about what is coming... http://revelation12.ca

Sun, 07/26/2015 - 17:58 | 6356772 Peter Pan
Peter Pan's picture

The whole of society and civilization is being assasinated by people far higher up the food chain than Obama. To think his assasination will change things is false because even that would be arranged by those above him holding the strings,

Sun, 07/26/2015 - 18:00 | 6356783 Latitude25
Latitude25's picture

Is Linda hot?  Maybe I'll convert.

Sun, 07/26/2015 - 18:08 | 6356809 Fukushima Fricassee
Fukushima Fricassee's picture

Fuck Obama and all he represents,  but " Linda Newkirk" must be insane ? That's some crazy shit , mother fucker.

Sun, 07/26/2015 - 19:18 | 6356997 Fahque Imuhnutjahb
Fahque Imuhnutjahb's picture

 

 

I think I'll synthesize two of my favorite types of posters here at ZH.

 

God has helped me make $8500 per week simply proselytizing on the internet.  My sister's ex-husband's dentist's nephew makes $15000 a month from home @www.aggravatingstuff.com

Sun, 07/26/2015 - 19:51 | 6357067 NuTroll
NuTroll's picture

lmao right after the 2nd sun implodes? Did you goto the J.J. Abrahms theological seminary?

Rev 13:3 is about the temple mount, not a political leader. Why are all these religious comments popping up on a secular economics alt blog? Is there an investment strategy to hedge against Armageddon? Long Bibles, take physical for delivery maybe, but stay away from the LaH/AyE?

Sun, 07/26/2015 - 20:52 | 6357250 wet_nurse
wet_nurse's picture

I would submit that the bullshit that the book of Daniel and Revelation outline is about to come to an end.

Sun, 07/26/2015 - 17:40 | 6356733 WillyGroper
WillyGroper's picture

Anyone here have any FRN's with a date earlier that 2009?

I ask because IMO with the new bills & lighter coinage, I don't find it a stretch that these will be the first of our devalued national currency.

Sun, 07/26/2015 - 17:49 | 6356752 Latitude25
Latitude25's picture

And what makes the newer ones any more or less irrelevant than older ones (not including silver coinage of course)?

Sun, 07/26/2015 - 22:00 | 6357414 WillyGroper
WillyGroper's picture

2 or 3 yrs ago when i left CNBS on to watch the quotron, someone they interviewed (don't know who) made a brief mention they had plenty of predated ones. no reason given.

a friend also caught that & called to see if i saw it. 

look how many times the bills have changed under the counterfitting bs spew.  not so easy with coins they're putting out now, which are a bit lighter in weight. kyle bass nickles anyone?

then of course jim willie mentioned when they start "coloring" the money, it's on it's way out. again the counterfitting bs.

just a guess cuz i haven't seen anymore pre 2009 FRNs.

they seem to have disappeared faster than silver certificates.

Sun, 07/26/2015 - 17:53 | 6356759 Peter Pan
Peter Pan's picture

Forget Gibson's paradox.
The greater paradox is the willingness of the sheeple to happily make their way to the financial and societal abbatoir simply because they see rising asset prices and food stamps waved before their noses by clueless polticians bought with peanuts which in turn implies that these politicians are nothing but monkeys.

Anyone who by this time and in full view of what is occuring in Greece as well as most economies having enshrined bailout legislation, who do not understand the imperative of owning precious metals, then let them suffer.

Then again the sight of the American people even considering Clinton and Trump as presidential candidates must give great hope to Kim Kardashian for the future. Which leads to another paradox.....the crazier the times...the crazier the choice of leaders.

Sun, 07/26/2015 - 17:54 | 6356764 henry chucho
henry chucho's picture

The bottom won't be in,until I can buy 1 ounce of pure gold,with my monthly food stamp entitlement..

Sun, 07/26/2015 - 18:03 | 6356798 ncdirtdigger
ncdirtdigger's picture

My local PM dealer now accepts EBT cards for payment.

Sun, 07/26/2015 - 18:37 | 6356810 Tinky
Tinky's picture

The only thing that I can think of that was parodoxical about Bob Gibson is that he never killed anyone with his brushback pitches.

What? Not that Gibson?

Sun, 07/26/2015 - 18:08 | 6356814 Latitude25
Latitude25's picture

I like this recent lack of correlation better.  Total Central bank balance sheets vs price of gold

http://goldsilverworldscom.c.presscdn.com/wp-content/uploads/2014/06/gol...

Sun, 07/26/2015 - 18:09 | 6356816 HYMN
HYMN's picture

Not being as smart as most of the posters on ZH, I have no idea what the charts "say". The explaination for them, I understand even less. It will be interesting to see how all this interest rate,commodities,currencies thing unfolds. Some here have suggested popcorn as they watch. I like to amuse myself flipping a Gold coin as I watch. IMHO Federal Reserve Notes lost their real value when they no longer had "Silver Certificate" printed on them. They are just a means to procure more PMs, feed and seed, ammo and supplies, while I can still use the worthless promises they make. My guess is NFL, meanwhile, heads or tails, shit I dropped it.

Sun, 07/26/2015 - 20:03 | 6357107 The Delicate Genius
The Delicate Genius's picture

they say that correlation is not causation, but economists always think it is.

they also think.. post hoc ergo propter hoc.

they are very good at making simple things seem complicated though, I'll give 'em that.

Sun, 07/26/2015 - 18:36 | 6356894 cpnscarlet
cpnscarlet's picture

It really get me ROFLOL when, at this point, someone uses a "chart" or a "trend" to talk about gold or silver prices. If something as mundane as trading technicals mattered, some chartist or Elliott Waver would have been right about an "up" move by now.

PM technical analysts - Take down the "Andrea Doria" sign...she ain't pullin' in any time soon.

Sun, 07/26/2015 - 19:40 | 6357040 cpnscarlet
cpnscarlet's picture

Not while Yellen's still breathing, it don't.

Sun, 07/26/2015 - 19:44 | 6357053 Fahque Imuhnutjahb
Fahque Imuhnutjahb's picture

Long term trends, reversion to the mean, and correlation restoration may rule out one of these days.

Sun, 07/26/2015 - 18:53 | 6356935 Anopheles
Anopheles's picture

There are always exeptions, but that's not what usually happens. 

And this time, the drop is absolutely connected with rising interest rates.  Simply the announcement of rising rates has dropped the price of gold.  Wait until the interest rates actually move away from zero, the money in gold will flee in an instant. 

What the author fails to note is that from 1970, the price of gold was $37 and oz, and just recently allowed to float.  Those are not the conditions we have today. And the runup to 1980 was caused by the Hunt brothers trying to corner the silver market.

It's amazing what you can "prove" when you cherry pick data. 

Now, show us the SAME graph over the past 50 years.  It looks a LOT different. 

Sun, 07/26/2015 - 19:01 | 6356963 Kina
Kina's picture

Individuals in failing economies and South America and Africa resorted to gold to save wealth. As has always been the case since the beginning of unbacked paper currencies, or despoiled currencies of history.

To buy bread, a spec of gold from the river.

 

Paper gold cannot go to zero if that is what physical gold has to trade at. Every spec of gold on the planet will have vaccumed up and unavailable long before paper gold goes to zero. And once it goes too cheap, buyers come in looking for Physical gold delivery. And you have sellers looking to cover, looking for gold that has dissapeared from the market. You would get gold at $10,000 before you would get $0.

 

If gold on the COMEX started to plunge because of lack of confidence in the ability to supply TPTB would shit themselves for the very fact that physical gold would be quickly bought up and dissapear altogether. They would come in and put a floor under it.

 

I don't think they would want gold at $500/oz - LoL SE Asian countries, Russia and so forth would buy every bit they could get their hands on.

 

Its a delicate balancing act for the Gold manipulators, take it down too far and too quickly could create a violent rebound.

Sun, 07/26/2015 - 21:15 | 6357307 daveO
daveO's picture

Yep. I'm convinced the banksters dumped(borrowed wink-wink) US vaulted gold into the market in April, 2013 in order to break the gold fever. It went to a discount vs the US debt at that time. The last time that happened was when Gordon was dumping the UK's vault into the laps of his bankster buddies. 

http://en.wikipedia.org/wiki/Gordon_Brown#Other_issues

"Between 1999 and 2002 Brown sold 60% of the UK's gold reserves shortly before gold entered a protracted bull market, since nicknamed by dealers as Brown Bottom.[56][57][58] The official reason for selling the gold reserves was to reduce theportfolio risk of the UK's reserves by diversifying away from gold.[59] The UK eventually sold about 395 tons of gold over 17 auctions from July 1999 to March 2002, at an average price of about US$275 per ounce, raising approximately US$3.5 billion.[60] By 2011, that quantity of gold would be worth over $19 billion, leading to Brown's decision to sell the gold being widely criticised.[61]"

http://www.kitco.com/LFgif/au1999.gif

So long as physical demand stays under mine production, they don't care too much about the price level. Low interest rates helped miners, just like oil drillers, produce more than usual.

Sun, 07/26/2015 - 19:13 | 6356975 Money_for_Nothing
Money_for_Nothing's picture

Interest rate and wholesale price correlation is not a paradox if you think of it. Interest rates use to indicate demand for money for investment. The ability to raise a wholesale price use to indicate a real demand for that product. Both were raised by the same root circumstance. Economic expansion. The only thing that would happen if interest rates were raised now is that it would be harder to pretend that governments and big banks aren't bankrupt.

Sun, 07/26/2015 - 19:24 | 6356979 Kina
Kina's picture

I think you can also look at the close correlation between M2 and gold/silver price, until TPTB came in and slammed it down.

 

If M2 is on an upward streak then something is terribly wrong with the economy. Now if it is the devaluing of the currency thorugh dilution, or the loss of confidence in economy/country that cause gold as the go to alternative doesn't matter.

 

In recent times you cannot correlate interest rates and interest rates statements with the price of gold since there is and has been a determined coordinated policy to slam the shit out of gold so its genuine free market price is not revealed...i.e. in excess of $1,900/oz

Likewise in the 1970s where TPTB changed the rules overnight to help take down the skyrocketing price of bullion.

 

Usually rates are deliberately raised by Central banks to cool down an overheated market, and cool down CPI, too much money being borrowed, overshooting. Make the cost of money higher, thus reduce demand for it, thus slowing speculative and ill advised investments. Maybe rising rates also indicates an increasing shift from confidence to fear in the economy and thus the shift to gold?

 

And now the inverse is true, too much money, any rate increase could lead to spectacular implossion and dominoes.

Sun, 07/26/2015 - 21:18 | 6357305 Sorry_about_Dresden
Sorry_about_Dresden's picture

I have noticed that the price of gold is directly porportional with equity prices. When equities take a hit, go down, so does the price of gold (selling gold to meet margin calls??????).

Mon, 07/27/2015 - 00:24 | 6357779 Omega_Man
Omega_Man's picture

The thing is... we have never been in this situation before... half the world - BRICS are on one side of gold.. and the western fiat money changers on the other...with sovereign defaults taking place. 

Hunt Brothers look like chumps compared to BRICS... they are not buying all the phys gold for nothing. 

Charts mean nothing when the market is not free to act as it should.

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