Is Gold Over Or Undervalued? How About The EFSF (Europe = Fastow, Skilling & Fuld)

Tyler Durden's picture

From Sean Corrigan

In an opinion piece of our own, instigated by the gentlemen at Gold Money, we were asked how we work out whether gold is over or undervalued at any given minute. What a question at the best of times, much less now!

What we came up with was the following, something which encapsulates a theme about which we have written much of late:?

What is ?value? in a world where the single goal of the powers that be is to deny the market the ability to have its constituents? underlying ordering of wants accurately reflected in the price structure?


We have no proper market in capital; severely impaired markets in any number of basic goods; false markets in real estate; distorted markets in labour (hence why so many poor souls are still without jobs); and no certainty about anything except the awful certainty that nothing is off?limits to those who are  desperately trying to put Humpty Dumpty together again in time for the next turn of the electoral cycle rather than accepting that he has shuffled off this mortal coil and that it would be better now to see whether at least we can salvage a half?decent omelette out of the remains?

And that pretty much sums up our commentary on the EFSF—the ‘’Excruciating Folly of Suspending Finality’ or ‘Endorsing Falsity to Succour the Few’, or perhaps just ‘Europe = Fastow, Skilling & Fuld’.

Its agreement has ignited a rally—at that, one which could technically unwind much of the preceding rout, unless some renewed problem surfaces from among the many, murky lacuna in the details of how this Archimedean earth?mover will actually be knitted together; not least among them the suggestion that such a nakedly cynical attempt to frustrate the existential purpose of the CDS market might render its whole, multi?trillion edifice unstable and so force a widespread  rebalancing of holdings across the physical bond market.

To the extent that the deal does succeed in heading off an immediate meltdown, some removal of risk premia seems entirely justified, but that is not to say that Europe’s problems are at an end, nor that the global economy does not now hover parlously between a stalling recovery and a renewed slump.

Notable, too, is that fact that this month’s stock index rally has been equally strongly felt in the KOSPI as in the DAX and in the TWSE as in the CAC, as the  underweight institutionals and the 80% of hedge funds said to be under water scramble to take advantage of a rising tide with scant regard for which boat they are actually clambering aboard.

Adding to the optimism (the jaundiced among us might say, the pessimism) that no bank in Europe is about to close its doors, is the hope that the Chinese authorities are on the verge of issuing one of their heaven?shaking decrees and so will restore the profitability of business there at a stroke, by relaxing their grip on official monetary policy.

Since we all know just how swimmingly such steps have worked out in our own countries, in the aftermath of a dramatic episode of pervasive commodity and property speculation, we can immediately cast all cares aside the minute that the omniscient Communist Party issues a diktat to the effect that it will be adopting the success?garlanded procedures of Bernanke, King, et al.

Sarcasm aside, the hoo?hah has been blown up over the declaration by Premier Wen that policy should be ‘fine?tuned’ and that banks should henceforth be more responsive to the needs of struggling small businesses—an exhortation which has predictably been parlayed up into a signal that the PBoC is about to cut reserve ratios ? and possibly interest rates— before year end.

This comes despite Wen’s continued insistence that the fight against inflation is still the number one priority. It also ignores the fact that while the policy banks may be encouraged to ration out their credit quotas a little more evenly in future, this potential liberalisation will go hand?in?hand with steps being already taken to crack down on the grey market for loans which is those same small firms’ main lifeline at present.

It also overlooks the fact that many SMEs told those conducting a recent survey of the sector that their main worry was not the availability of credit, but the inexorable rise in their cost base in a land where the increase in commodity prices has been second only to the ascent of wage rates in dampening their chances of achieving profitability.

Nor does it pay much heed to the fact that people waking up to the idea that property prices may not just rise by 10?20% a year, but may fall 40?50% in an afternoon, might not be too impressed if SHIBOR trades 25bps lower in the near future.

Never mind. In that old retailing maxim, it’s not the steak that sells, it’s the sizzle. If the story of an imminent Great Wall of Chinese liquidity being unleashed reinforces the desperate need to see asset prices higher, so be it, but those riding what might turn out to be a thoroughly misplaced interpretation of events should at least keep their stop?loss discipline while they ride the updraft higher.

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redpill's picture

A bit thick with the vocab.  I prefer Europe Finally Seems Finished.


Yen Cross's picture

Simple vocabulary. Buy physical.

chump666's picture

Keeping it real Celente...I respect this guy:

C'mon EUROPE wake the f*ck up!  YOU HAVE BEEN GAMED! 

DoChenRollingBearing's picture



Gold is valuable for three important reasons:

1)  It is and has been the best wealth preserver through time for thousands of years.

2)  Gold is insurance against financial mismanagement by .gov and the Banksters.

3)  You can ALWAYS find someone close by who will take gold as payment.


jonan's picture

4. gold (and heavier elements like silver and platinum) can only be created during the final seconds of a dying stars life, prior to being blasted out into space in a gigantic super is billion year old second generation stardust...

fiat is second generation sawdust...

NB's picture

Roll 'em if you got' 'em!

Mr Lennon Hendrix's picture

Um, so what about gold?  Or is the question of gold ignored because it is rhetorical.

There is only gold, and nothing else matters.

philipat's picture

Umm, as for the answer to the question about Gold................?

HoofHearted's picture

They don't have a clue. They use big words to try to make you forget about it.

Hey hey over there..check it out. They're dancing WITH the stars. I said with the STARS. So forget everything else.

vocational tainee's picture

did you get an answer?..

navy62802's picture

I don't know, but gold just took about a 1% nose dive in the past half hour.

saulysw's picture

The USD : YEN just changed around 3.6%. Intervention?

gwar5's picture

Shadow Gold Price is the estimated real price of gold were we to value gold in a free market with real price discovery without CB interventions. The three people below all  use the standard Bretton Woods valuation model to calculate the current shadow gold price: 


James Turk, Gold money: Gold is worth $11,000 based on money supply (last week)

Brodsky: Gold is worth about $9500, based on money supply (6 monhs ago)

Rickards: Gold is worth about $7000 based on money supply (6 monhs ago)


They vary but they are all much higher than $1700/oz.

saulysw's picture

Changed my mind. Move along, nothing to see here.

sitenine's picture

Gold in neither under valued nor over valued.  Comparing any PM to fiat currency is a fallacy in the first place.  When money dies, and it will just as it has always done throughout all of history, gold is still intrinsically valuable.  Many of us have tried to explain this simple fact over and over, but we're fighting against an idea that people want to believe in.  Each individual has and follows their own religion, and we will all live and die by what we each believe to be truth.  Know though, that the Clerics of Keynesian Economics have stolen your religion to pervert the perceptions of debt accumulation in order to amass vast fortunes for themselves.  I personally talk to people about PM investment frequently, and I would guess 5% of them even understand what I'm trying to tell them, and 90% of those that "get it" still buy SLV or GLD to stuff into their 401(k) rather than take a "risk" with the physical (an irrational fear far beyond my comprehension).  I would say something clever, like "BTFD" or "gold is money", but there's really no point at this juncture.  It wont be long before you either have it or you don't.

Whalley World's picture

for years the look i saw was fear when i tried to talk about real money

they just didnt want to know.  funny you go to elementary and high school then maybe on to university but no classes on what is money, i suppose the subject shatters their world view

Snidley Whipsnae's picture

Whalley World...

Fear of change is up near fear of death for humans. People hate change and resist it even in the face of any obvious facts. For instance, we all know that fiat currencies have a longevity of about 40 years on average. But, people want to believe that 'modern' fiat currencies will not follow this pattern.

It's impossible, in my experience, to educate large numbers of people to the fact that gold will preserve their wealth.

Consider it a great success if you can slooowly convince a few people, in your lifetime, that gold should be part of their insurance portfolio for wealth preservation.

I've been buying gold since 1968 and I probably have not convinced a dozen people that having some gold is a good idea. Most that buy gold come to the decision on their own, and after looking into the history of fiat currencies.

I went to a pretty good college and took a couple of economic courses. I certainly do not remember a proff discussing the history of fiats...even though we did cover the Weimar hyper inflation and a couple of soverign defaults.

I like this quote from a pretty good bygone economist...

"Faced with the choice of changing one's mind and proving there is no need to do so, almost everyone gets busy on the proof" John Kenneth Galbraith

Miss Expectations's picture

I was "talking gold" to my brother-in -law and he told me that he'd recently asked an investment adviser about it.  The investment adviser told him that he thought everyone should have some physical gold.  To make his point, he pulled a one ounce gold coin out of his pocket.  He said he ALWAYS has this coin with him and that he's carried it for years...just in case.

ImNotExposed's picture

What is value? Value is being able to put a hot meal in front of your family every night. Value is knowing that a tooth infection isn't going to kill you. Value is being able to flush a turd down the toilet and being reasonably sure it won't come back to haunt you. Value is being secure in the thought that you can go downtown, and in the silence enforced by the meekest of your neighbors, read the words of the most controversial thinkers who ever lived. Value is walking down the street at night without being mugged. Value is being able to practice the faith of your fathers, or more importantly not having to practice the faith of your fathers. Value is that a rich man is as subject to the law as a poor man. Value is when a butcher trims the fat for you the same as he does for the mayor. Value is when your home is as secure as an inpenetrable fortress. Value is when the government trembles before the will of the people.

Value has nothing to do with money.

buyingsterling's picture

 Everything of value you mention above is now under threat; some of it may disappear for generations, or forever. As much as anything else, it's our turning our back on gold, in favor of 'easy money', that has brought us to this pass. Gold may not buy the things of value, but only gold can protect them by providing long-term stability.

spencer's picture

why are you wasting the time of an average reader?

ricocyb13's picture

Gold is not backed by anthing, versus the USD is backed by the FED.

Harlequin001's picture

And that just makes all the difference, riiiiiiiiiiiiight...

I feel so much safer now...

Good old Fed eh, watching my arse as usual. So perhaps you could explain how, if the Fed is watching over us, did we get into this mess?

navy62802's picture

Hi Ben. Glad you could make your way over to ZH. Oh and you're wrong. Gold is backed by something. It is backed by a finite, limited supply ... no human integrity necessary.

TheBadgersSett's picture

just as well given human integrities shortage. Perhaps given its finite supply we could back our currencies with that instead.

Snidley Whipsnae's picture

I believe that everyone has a price. At least, 99.9999% of all humans have a price in 'money', or some object that they so long for, that they would do almost anything to obtain it.

With that in mind... How do we find the the tiny per centage of humans with 'no price'? And, if we identify this tiny minority, will they be good leaders in other respects?

Gold can put a check on the bad traits of human nature but will not eliminate them. Rules will always be rewritten or ignored when memory of bad outcomes is lost through a couple of subsequent generatons.

Tao 4 the Show's picture

Maybe life is poetically symmetrical and there are as many who can't be bought (or at least have sufficient integrity) as there are sociopaths. Problem now is that the leadership is inverted - the sociopaths are in charge.

terryfuckwit's picture

hi i would be interested in what peoples opinion of the growth that is occurring in the paper versions of silver and gold. I have read that india are getting on the paper bandwagon and many think PAGE will be no differant from comex and no less manipulative...Might well be a long game for us stackers...


someone please cheer me up!!

NoZaboBadge's picture

"cheer me up"??? - This is fight club 

Tao 4 the Show's picture

Game theory is helpful at this point: who stands to gain by various moves?

Big irony here if you expect communist China to save the day for free market capitalism.

Reality is like eating a nutritious diet. At first it tastes bad if you've been on a diet of sugary, pre-digested pablum. But after a while, you begin to enjoy the richness if the flavors and your overall health is better. We are going to need all of our strength in the years ahead.

Miss Expectations's picture

GOLD, like OWS is also 99.999%

awkward squad's picture

The average Indian family (by which I mean the millions of people living in bamboo huts) owns approximately 150grams of 24K gold, in the form of jewellry, wedding dowries etc. At today's suppresed price, that's around $8000US. I wonder how much gold the average European or American citizen owns right now. Not a lot, I'd guess.