Which Is A Bigger "Act Of Faith" - Owning Gold Or Stocks?

In its latest gold hit piece, the WSJ almost tried to actually do something today's financial media used to do once upon a time: investigative reporting. Instead, it falls back to doing something the financial media has become quite great at when spinning someone's propaganda: presenting opinion as fact.

Case in point, Jason Zweig writes that "Gold is supposed to be a haven amid hard times and soft money. So why, even as Greece has defaulted, the euro has sunk against the dollar, and the Chinese stock market has stumbled, has gold been sitting there like a pet rock?"

This "report" came just one day after China lied that it had increased its pet rock, pardon, gold holdings by 604 tons or a whopping 57% (lied not that it had increased its gold but that it did so in one month when the price of gold actually tumbled, and lied that its actual gold holdings are now only 1658 tons):


... but told the truth why it is doing so at a time when faith in China's central planning crumbling as a result of its burst stock bubble. This is how China's SAFE explained the move:

Gold as a special asset, with multiple attributes... to help regulate and optimize the overall risk-return characteristics of international reserves portfolio. From the perspective of long-term and strategic perspective [gold helps with] reserve portfolio allocation, safety, liquidity and increasing the value of international reserve assets.

And as Bloomberg added:


Perhaps Mr. Zweig should ask the country with the $26 trillion in bank deposits, more than double the US, why it picked a gold reserve increase as the symbolic move needed to "ensure security" as well as increase "safety and liquidity."

And since the WSJ will do none of that, it has decided instead to do what the mainstream always does when "analyzing" gold - lash out at "gold bugs", i.e., those who buy gold in times of stress... like the central bank of the world's biggest and fastest growing nation for example:

Recognize, too, that gold bugs—the people who believe in owning the yellow metal no matter what—often resemble the subjects of a laboratory experiment on the psychology of cognitive dissonance.


When you are in the grip of cognitive dissonance, anything that could be regarded as evidence that you might be wrong becomes proof that you must be right. If, for instance, massive money-printing by central banks hasn’t ignited apocalyptic inflation, that doesn’t mean it won’t. That means it is more likely than ever to happen—someday.

Zweig then takes it up a level: 'You don’t want to be one of these people, spending years telling reality that it is wrong. There is a case to be made for owning gold, but it speaks in a whisper, not in the shouts of doomsday so customary among gold bugs."

What is ironic, of course, is that it is the WSJ whose job is to rationalize how reality is wrong, because day after day we get reports how the economy is strong and getting better (except when it snows, of course, or when GDP needs double seasonal adjustments when it is below expected), and in the meantime one thing never mentioned is that the only thing keeping the system erect is that in 2015 the world will see the biggest intervention yet by central banks in the world's history, surpassing even the peak of the financial crisis...

... which is also why equity values are where they are: central banks have made sure there is nothing besides stocks that is left to buy - not our words, those of both evil gold bugs Morgan Stanley and Citigroup. Naturally, to "reporters" like Zweig, all one needs to evaluate the state of the economy is the manipulated level of the S&P 500 (ignore the $22 trillion in central bank liquidity injections that pushed it to that level) and the rest falls into place. For those who question that approach, they are promptly labeled gold bugs, and "you don't want to be one of these people."

There is some more gold-bashing in Zweig's piece which readers can read on their own, but here is the punchline:

With greenhorns in gold starting to figure all this out, the price has gotten tarnished. It is time to call owning gold what it is: an act of faith.

Now that is odd, because it was just a few months ago that Citigroup said exactly the same thing about owning stocks!

.... investors remain united in their faith in the central banks – if not for their ability to create growth, then at least in their ability to push up asset prices. And yet the limits of that faith are increasingly on display. Not only are there signs of trouble at individual corporates on the ground. There is also a growing realization that the central bankers themselves – be it the ECB today, or the past and present Chairs of the Fed – subscribe to different theologies.


For now and for next year, we think the grip of the Inner Party seems firm, and (provided they are prepared to wield it) liquidity will keep pushing up prices. But whereas Orwell’s processes of Learning and Understanding led inevitably to an ending involving Acceptance and Reintegration, the real world’s liquidity addiction feels to us merely like the end of a chapter.

Ironic that even Citigroup dares to mock the Inner Party and its Thought police in this case manifested dutifully by Mr. Zweig.

To be sure, there is little point in trying to point out to well-paid public relations agents and access reporters posting as the "journalists" that make up the WSJ's "economics" vertical (which proudly showcases such case examples as Jon Hilsenrath, who is less concerned with the sanity of goldbugs and more with why America's "stingy" proles refuse to spend money they don't have) that while his philosophical ramblings on gold completely miss the point, he is actually is spot on to point out that in world of quadrillions in financial assets ...

  • Over-the-Counter derivatives, notional amounts: $692 trillion at year-end 2014, per the BIS. For comparison, this figure was $72 trillion in 1998.
  • Global real estate: $180 trillion, according to global real-estate services provider Savills.
  • Global debt market, both securities and other forms of debt: $161 trillion at year-end 2014, per the Institute for International Finance’s Capital Markets Monitor. According to the Bank of International Settlements (BIS), debt securities make up $95 trillion of this total.
  • Global equities: $64 trillion, per the World Federation of Exchanges.
  • Global M1 money supply: $24 trillion at year-end 2013, per the World Bank.
  • Gold: $6.8 trillion at year-end 2013, according to the Thompson Reuters GFMS Gold Survey.


... physical gold is the only one without counterpaty risk.

There is also little point in pointing out to a WSJ "economics" reporter that by onboarding $22 trillion in risk, the "bad bank" hedge funds formerly known as central banks have explicitly made the quantification of counterparty risk impossible, which is precisely why to those not blinded by ideology, and whose view of the world is contingent on not spooking advertisers such as Wall Street's biggest banks, explaining anything is a moot point.

However, since the WSJ was once a good medium of "investigative" journalism, here is a hint. Instead of devolving to name calling and passing off ideological diatribes as analytics work, here is something you can actualy investigate.

As Zero Hedge first reported several weeks ago, it was none other than the Office of the Currency Comptroller who reported that not only did JPM blatantly corner the commodity market in the first quarter of 2015 as shown in the chart below (even as gold derivatives were unexpectedly and mysteriously lumped in with FX/currency instead of "pet rocks")...


... but at the same time Citigroup also cornered the "Precious Metals" market:


So here's a thought Jason: instead of quoting a Barclays analyst why "a lot of investors have become disillusioned with gold" and why "safe-haven demand hasn’t been strong enough to lift prices, but has only been strong enough to keep them from falling", maybe you can try to figure out why that is the case.

Start by making a few phone calls to Citi or JPM and find out why their commodity/precious metal derivatives exploded as they did - as can be factually seen in the OCC's Q1 report - at a time when gold has not only not risen following a surge in global risk, but has tumbled to its lowest value since 2010.

Because that's what actual "reporters" do - they report, something the WSJ may have forgotten.