Gold & Silver, STAFF NEWS & ANALYSIS
Two Powerful, Simple Facts Giving Gold a Major Boost
By Daily Bell Staff - May 11, 2016

Bloomberg Singer Says Gold Rally Just Beginning as Goldman Sees Losses … Billionaire hedge fund manager Paul Singer said that gold’s best quarter in 30 years is probably just the beginning of a rebound as global investors — including Stan Druckenmiller — weigh the ramifications of unprecedented monetary easing on inflation. “It makes a great deal of sense to own gold. Other investors may be finally starting to agree,” Singer wrote in an April 28 letter to clients. – Bloomberg

When we simplify the terms of the argument, we can understand it. In this case, gold’s escalating value against the wounded dollar has little to do with oil prices or China’s economic vitality.

There are two reasons actually. Let’s explain.

Well over $100 trillion has been printed by central banks since 2008 in a vain attempt to generate economic momentum.

Nothing much has happened. Economies around the world are in various stages of recessions and depressions.

This is a momentous occurrence. From academia to industry, and government too, people should be proclaiming that Keynes is dead.

Instead … nary a peep.

But it is true. If these past seven years have shown us anything, they have shown us that Keynesianism is a dead letter.

You can’t elevate economies by stuffing them with money.

Economies are more complex than that. And people aren’t stupid. Not today, anyway.

They notice a lot of money coming into the economy and they don’t necessarily believe prosperity is just around the proverbial corner.

Certainly that’s what has been happening. Businesses don’t want to lend money because they don’t know whether the counter-party is solvent.

Individuals don’t want to “invest” because of a similar uncertainty.

The stock market has been rising, it’s true (as we predicted not long ago) but even this upward momentum is not doing much more than keeping up with inflation.

Gold, on the other hand, has performed better than any other asset class in the 2000s – rising from around $200 to nearly $2,000.

And now gold is on the move again, reaching $1,300.

More from Singer:  “Investors have increasingly started processing the fact that the world’s central bankers are completely focused on debasing their currencies.”

This is a simple, persuasive fact.

Goldman, meanwhile, believes gold will end the year near $1,200 because oil prices have firmed along with the Chinese stock market.

Really?

Both of these statements are speculative indeed.

Oil prices may have firmed for now but that certainly doesn’t mean they cannot retreat.

And China’s economy surely shouldn’t provide investors with a heady sense of optimism, given the grimness with which Chinese officials themselves regard the system.

There are other professionals in the market that share Singer’s perspective.

The billionaire Stan Druckenmiller said last week gold is his largest currency allocation. He also stated the current equity bull market was exhausted after a seven-year run.

Here are some figures:

Spot gold has rallied 20 percent this year … as investors poured funds into bullion-backed exchange-traded products. The commodity, which dropped for the past three years, remains more than 30 percent below its September 2011 high.

Also, Goldman despite a bearish end-of-year forecast just revised its bullion estimates higher in a May 10 letter. BNP Paribas SA believes gold could hit $1,400 in the next few months.

Goldman believes gold’s growth against the dollar will be slowed by further Fed rate hikes. But during the 1970s, rate hikes had little effect on gold prices until Volcker hiked hard in the early 1980s.

In this case, the chances of sustained hikes seem fairly slim, given what just happened to the market when Yellen hiked a quarter point.

Additionally, it seems quite evident that central banks are looking for inflation and generally seek a looser funds flows.

Even Yellen, who speaks of higher rates because of “recovery” regularly contradicts herself.

When it comes to gold, then, there are two salient facts.

First, the stock market is seven years old.

Second, central banks are obsessed with liquidity as they try to create price inflation and economic recovery.

This is one of those times when circumstances proclaim a given trend in an emphatic manner.

Conclusion: One way or another, sooner or later, it is gold’s time (and silver’s). And maybe that time has already begun.

 

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Posted in Gold & Silver, STAFF NEWS & ANALYSIS
  • Chuck

    The paper gold price is a pressure release valve. When people start demanding physical possession, the paper gold price is allowed to rise until people are content to hold paper gold instruments such as futures, etfs, unallocated gold, etc.

    People are willing to hold paper gold as long as the price is rising or stable. They see paper capital gains as free money, something for nothing, and so are suckered into the casino.

    • Good point. Affects the “price” though …

    • Marcopolo

      If you own “paper gold” you don’t own gold. You own a counterparty risk that if the price were to rise significantly and you wanted out, they’d send you a check with the prior day’s closing price. You can not demand physical, ergo, you do not own gold.
      As they say, if you can’t hold it, you don’t own it.
      The COMEX paper trades at 500 to 1; so you and 499 other people “own” that one ounce of gold.
      GLD, you don’t own gold either.
      Gold’s real “value” is that as money (with which it is now beginning to behave) when you own it, the physical, you have no counterparty risk.
      When you really want to own it, you won’t be able to get it as most physical buyers don’t sell it.
      The paper gold price isn’t a pressure release valve. It’s a scam. If it does keep climbing, you’ll never get a hold of the physical. Just a bunch of dead presidents paper, which will continue to lose value.
      Gold isn’t an investment. It’s money. To increase in value, just like your USD, you have to take risk. Gold is your insurance policy that as the CB’s debase the currency, your purchasing power is maintained. Nothing more; nothing less.

  • perger

    The Bull is raging. Check out Golden Arrow Resources or call Shawn 778-686-0135.

  • apberusdisvet

    The most salient fact that has fostered more interest in gold (and the price to rise) is the admission by Deutsche Bank of decades long gold price suppression in collusion with other banks. Critical thinkers realize that without this suppression, the price of gold (even discounting inflation) should be many multiples of the current price.

    • Good point, thanks.

    • frankensteingovernment

      I read an article not long ago that put the true price of gold around 2550. That price was based on an unmanipulated market, rising debt levels, real inflation figures using the Chapwood index, and the money supply. Wish I could remember it and link it here.

  • gordon

    The vampire squid does not make any money if investors buy gold or silver which is one (probably the main) reason why the squid keep up its offensive against PM,s. The best advice one can give ,is to do the opposite of whatever the squid is advising and that way one can prosper. The DB is absolutely correct in saying that the continued printing of paper money can only have one outcome sooner or later hyper inflation.

  • Bruce C.

    I basically agree except that the fundamental reasons to buy gold/silver have been around since at least 2009 if not 2000. Why “investors” are suddenly realizing this is anyone’s guess, but it’s better to be a year early than a minute late.

    • People did buy in 2001 and 2009. They’re just buying more.

      • Jim Johnson

        Boy howdy. Incredible deals. I can almost buy into Bix Wier’s ‘Good Guys” notions.

  • Rusty Brown in Canada

    “…Goldman despite a bearish end-of-year
    forecast just revised its bullion estimates higher…”

    Does “end-of-year” mean the forecast at the end of 2015 was bearish or does it mean a bearish forecast for the coming end of 2016? Not clear from the context.

  • Anonymouse

    Remember the advice of the greatest monetary scientist alive today, Antal Fekete: ‘Ignore Price.’ If the dollar is a unit of dubious value (who can dispute this?), how can one trust the value of anything priced in it? Buy gold because it IS gold … when things get really bad and debt threatens to engulf the civilized world, you’ll either have it or you won’t. The Fed’s illegal activities support and encourage risk-free bond speculation, the effect of which is a falling interest-rate structure … hugely deflationary and causes capital destruction. Ever wonder why this country’s malls are drying-up in this era of serial bankruptcies? Wake-up .. the people have no money!!! The world’s banker’s have taken it all through inflation while simultaneously denying people their interest. Their next feat is to crash the system after they and their insider-friends have bailed. Look for a Dow-Gold Ratio approaching parity (1:1). The ‘market’ throughout recorded history has declared gold money … The Fed for the last century has declared the ‘dollar’ money …. who will you believe?

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