STAFF NEWS & ANALYSIS
As Central Bankers Confront Stagflation, Gold Shines More Brightly
By Daily Bell Staff - April 05, 2016

A Warning for Gold Bugs: This Rally Won’t Last … Gold prices surged 16.5% in the first quarter … Gold investors should enjoy the party while they can. –Wall Street Journal

This small article is incorrect in some big ways.

It’s negative about gold despite the surge (or perhaps because of it) and predicts gold is headed back down against the dollar.

It also claims that “gold doesn’t have any intrinsic value.”

Unlike stocks, the article reminds us, gold does not represent the value of something else, something larger, the way equity does.

The article seeks to remind us that when you are purchasing Microsoft or Apple, you are buying a small portions of huge organizations with fantastic products and promising futures.

When you buy gold, you are merely purchasing a funny-colored metal.

But both of these statements are untrue.

Gold has intrinsic value because its value has been recognized, historically, for thousands of years. In a hundred or a thousand years, it will like have approximately the same purchasing power as today.

Why the constant misinformation about gold in the mainstream media?

Gold has always been a target because mainstream financial media in the West serves the financial interests of central banking. And central bankers don’t like gold because it’s not controllable the way fiat is.

Central banks can print as much fiat as they want. But only so much gold emerges from the ground each year. And only a certain amount circulates.

Thus central banks are constrained by volume and availability when it comes to gold. As a result, there has been a long term effort to replace gold-as-money with debt-based fiat.

This effort began in the modern day with fiat propagandist John Maynard Keynes who called gold a “barbarous relic.” Central bankers continue to use Keynes’s monetary theories to justify voluminous money printing. This is a big reason why the world’s economy is in such a mess today.

Also, as part of their monetary strategies, bankers continue to suppress the value and popularity of money metals, especially gold.  This provides them more control over the “formal” economy – or so they believe – though informal “gray” and “black” economies expand as a result.

What central bankers are doing constitutes a price fix. Price fixes really never work. The suppression of gold reduces prosperity. The monetization of the economy creates price inflation.

Over time, gold finds its rightful level and value relative to paper currencies. We are at such a point where gold is beginning to reassert its power and become less controllable against fiat.

This is because central bankers have kept interest rates too low for too long and credit has expanded voluminously as a result.

Markets are becoming more unsettled and volatile as numerous asset bubbles have formed. The biggest bubble is in the so-called derivatives markets, which may be as large as $1.5 thousand trillion now – an incomprehensible number.

The imposition of negative interest rates is another ludicrous solution that will predictably have unexpected and negative results.

We have dealt with one of the article’s issues, which is the argument that gold has no “value.” The other argument the article makes is that gold is not going to be a good investment going forward.

Factors driving gold in the first quarter included fears about a Chinese market meltdown and generally negative economic news. The article claims that the first quarter’s turbulent times have “dissipated.”

This is simply untrue. China’s problems are going to get worse, not better. Much of the wealth of the Chinese middle class is tied up in empty apartments in vacant cities. Eventually, as always happens, there will come a time when valuations of these “investments” will drop to realistic levels. It won’t be pretty.

Central bankers have already inflated beyond reason since 2008. Eventually, this excess credit, some $100 trillion of it, will circulate. The West’s larger asset bubbles, including the derivatives bubble, are bound to burst at some point, and some may have already.

Central bankers won’t be able to raise rates for fear of destabilizing what little economic progress has been made. The result will be something that defined the 1970s – a period analogous to this one. We’ve mentioned it in numerous articles: Stagflation.

We’re seeing more articles about stagflation now as reality of its emergence is beginning to be recognized by the mainstream media. CNBC recently posted an article entitled, “Wall Street’s latest dirty word—stagflation.”

The last bout of stagflation in the 1970s pushed gold to around $800 an ounce, a valuation that still hasn’t been reached again when accounting for inflation. This is why some analysts eventually expect gold to travel to $2000 an ounce or more against the dollar.

Conclusion: Much in the world today is unsettled and frightening. Continued purchases of gold and silver are an apt, if modest, remedy. It’s paid off before.

Posted in STAFF NEWS & ANALYSIS
  • Guy Christopher

    I cancelled my subscription to WSJ 15 years ago. I still see articles like this nice piece from DB, which tells me I didn’t miss a thing by dumping my subscription.

    Jim Rickards said in an interview published 04Apr16, “the
    next financial crisis is coming…I can see it a mile away…it’s coming and it’s gong to be worse than 2008….when it happens its
    going to be bigger than the central banks….get your gold now.”

    • gringott

      Spot on.

    • nv_pogonip

      the ques for me, a (very) amateur investor, “what kind of gold, and who to buy from”. don’t want to pay huge comms if don’t have to. any advice welcome.

      • By privately, if possible, from those who sell.

        • nv_pogonip

          i suppose u can’t name names….

        • Maybe put an ad in Craig’s List or something …

      • Danny B

        nv_pogonip, several years ago, I was making frequent driving trips to Alaska. The miners all need to buy fuel and food and meet payroll. They take their gold to local assayers to sell it for a percentage of the daily quote. Some of them pay their employees in gold. BUT, they still need FRNs. They will sell you flake for a percentage lower than the daily quote. Nuggets are generally sold higher.

  • FLR

    To be fair, this is not WSJ editorial policy but a column by a nitwit cub reporter called Steven Russolillo. He even criticizes another WSJ column that apparently expressed a positive or neutral view of the gold market. But I wonder if he was instructed to write this “hit piece”. It is quite poor and childish.

  • esqualido

    The knock that it has no intrinsic value (vs FRN’s?!) is clueless enough, and the one that it pays no interest, when the return on savings was under 0.01%APR equally so, but now that the banks are charging customers interest, it is almost foolish not to hold some bullion, especially as a synthetic dividend can be created by, at your brokerage account, by writing naked out of the money calls on the GLD ETF, which are not really naked, as the proceeds of selling bullion are used to cover the position if gold goes up, and if not, the premium acted as a hedge.

  • Bruce C.

    Well, I hope this article is right about one thing, that THIS gold rally won’t last. I’m going to be coming into a good amount of FRNs soon and I’d like to convert them to gold and silver at lower prices. It’s too bad the authors of articles like these don’t own any PMs themselves that I could take off their hands.

    Fortunately, some financial “authorities” are saying that Donald Trump is “crazy” that he thinks we’re in a financial bubble and a recession is coming. Hopefully “Wall Street” investors will continue to think the Fed’s reluctance to raise interest rates because the global economy is so weak means that the US economy must be really good by comparison. Ideally, the US dollar will strengthen against gold even more as the yen, yuan, pound, and euro continue to sink and foreign investors bail-in to US markets.

    I remember an argument once about how a new BMW automobile could not possibly be worth only 50 1-oz gold coins. To one of the debaters, five hundred 100-dollar bills just seemed more like it. Maybe he lived in Del Mar, California:

    https://www.youtube.com/watch?v=Xzt3EcIo5tk

    • Danny B

      Not one person in the vid looked at the camera.

      • Bruce C.

        So what does that mean to you?

        • Danny B

          Staged

          • Bruce C.

            Really? That would be a lot of trouble, and for what purpose?

            I haven’t been to California lately, but when I was there people were pretty inured to the presence of cameras, similar to NYC.

            He’s made a lot of videos like that too. Here’s one that shows people acknowledging the camera:

            https://www.youtube.com/watch?v=bYhTFz_SGw0

  • alaska3636

    Random note:

    I read from a commenter who had spent some time in China that the empty cities were a fact although, he did not specify the extent. I think it was over on Steve Sailer’s blog. I had not, up to that point, seen a confirmation of that fact. I believe that he said it had something to do with a twin belief that GDP was all that mattered; and, that real estate always goes up. Sounds familiar…

    • Petrosilius

      you can find it described also in Jim Rickards book ‘The Death of Money’

  • chrisyew

    In the 1970s, there is still integrity in balance sheets of countries. This time the debts are so big, I think the system will break. All assets prices are priced at ridiculous levels as a result of liquidity pump, QE, ZIRP, NIRP or clandestine money generation by central banks. There is so much money in the system that returns from assets are very low and in the case of NIRP, negative. There is no logic in negative returns. This is possible when no alternative to currencies/assets can be found or countries/people are prevented by force, coercion and manipulation from buying them. At present, only countries with the might are out in the open buying precious metals. The rest may have to wait till the system breaks before they could buy and it will be chaotic. Currencies with solid gold backing will become the reserve currencies so as to cause the least disruption. Even the least disruption will be chaotic.

  • alaska3636

    A strong meme being promulgated in the MSM is that race is a “social construct”. This is a sub-meme of a larger meme regarding the supposed tabula rasa nature of man, which can be traced to the Enlightement era writings of Rousseau.

    Another branch of this meme is the OOAT or Out Of Africa theory of human evolution: the idea that all modern men are descendants from a single, ancient race of Africans. When I look at the evidence and arguments, it appears that the multi-regional hypothesis is a bit more robust, but there is a lot of uncertainty for both arguments.

    One benefit of the “race is a social construct” theory is that it justifies state force in recreating the “social contract” and the expression of various social institutions to try to inculcate this egalitarian meme in man. One argument against this theory is that these attempts to create social egalitarianism have generally created the opposite of the expected results: the poorer races/social classes have only gotten poorer against the swelling tide of increased standards of living. This counter force, as with so many things in economics, makes it hard to perceive cause and effect.

    From Gawker:
    http://gawker.com/more-than-one-medical-student-at-uva-believes-black-peo-1769000512
    “White people’s fascination with what (hint:nothing) is biologically different between races goes back as far as the Tuskegee Syphilis Experiment, during which black sharecroppers were manipulated into acting as living petri dishes for a disease that researchers failed to inform subjects there was a cure for.”

    For example, what the author of the above statement fails to see, is that the experiment was created by members of the US Department of Health, a branch of the government, which is charged with creating the equality sought by the theory that “race is a social construct”.

    • Me_Again

      Again someone on the wrong page………….

    • Yossi Singer

      Care to elaborate what any of the essay you just wrote has to do with Gold?

  • Danny B

    Race is NOT a social construct. There are 3 races; Caucasoid, Mongoloid and Negroid. The Negroid race is the only of the 3 that is devoid of the blood / genes of the elder races. They have no genetic material from Neanderthal or Denisovian. The Elder races survived through 2 glacial periods. They must have developed great predisposition for cooperation. Mitochondrial DNA tracking suggests that Caucasoid and Mongoloid peoples developed independent of the out-of-africa scenario. The Basque have the highest % of Neanderthal blood. The ancient history of Sub-Sahara Africa indicates little or no cooperation. Here is a link to a vid by Pastor Manning. If it offends you, take it up with the Pastor; https://www.youtube.com/watch?v=iUohFqmGDwk

    • Me_Again

      Did you get the wrong page or something?

    • Yossi Singer

      What does any of that have to do with Gold?

    • Hello Danny,

      Never knew you were such a geneticist……..:)
      Let me suggest a terrific book to you, “The Broken Bough” by Edward M. Keating. It is an outstanding explanation of human nature. The book is no longer in print, but it is available from used bookstores online.

      Ingo

      • Danny B

        Thanks very much Ingo. Unfortunately, I find everything interesting. I do a lot of reading but, find a lot of holes in my knowledge.
        My impression of the current situation is; Both the East and the West know that the reign of the U.S. dollar is coming to an end. The West wants the SDR and the East wants gold. The East is a much bigger economic bloc. Since America could just print to purchase what it wanted, it let manufacturing slip away. The East is a productive powerhouse.
        The R.O.W. has strangled oil to strangle the FED and neuter our military. I don’t blame them. It will certainly be a battle for the history books. The battle between the SDR and gold will most likely be won by gold. There is going to be a lot of collateral damage,,, namely, the crash of socialism.
        Good to hear from you again.

        • Good to converse with you again, Danny…..

          I see the East (China) wanting GOLD, but don’t ever think that they want the “Gold Standard”. Those Eastern economies are all run by more or less dictatorial regimes. The “gold standard’ for their own currency would mean handing control over “money” to the productive workers in their societies. That’s never going to happen.

          The East (China) wants to establish a “trading block” to compete with Brazil, Russia, India, the Americas and Europe. The Chinese would use gold to merely settle trade differences between the East (China) and the other the trading blocks.

          Yes, the FED and the ECB want the SDR which is just another monetized debt, irredeemable currency ala the Federal Reserve Note (FRN). However, to involve the other trading blocks in such a currency and to make it a world reserve currency, the FED would have to make concessions to the other trading blocks that would not be very palatable. To involve Europe and the BRICs in such a currency would mean the FED will give up serious power over determining the money supply.

          A much better solution for the American people is the restoration of redeemable U.S. currency. For that to happen, all Congress would have to do is to remove the “legal tender” protection from the Federal Reserve Note (FRN) which was extended to it with the Coinage Act of 1982.

          Without “legal tender” protection, the FRN would have to compete with redeemable currency of state chartered banks. States could form a compact in the form of a currency union under Section 10 of Article I of the U.S. Constitution to issue a uniform national redeemable currency. It could be modeled on the original Federal Reserve Act of 1913, but of course without the involvement of oversight by the federal government. Oversight of the restored redeemable currency would be exercised by the states directly with congressional approval. (see U.S. Constitution, Article I, Section 10, Clause 3 — “No State shall, without Consent of Congress,………. enter into any Agreement or Compact with another state,…… unless in such imminent Danger as will not admit of delay.”)

          The irredeemable FRN is then forced compete for value with the newly restored redeemable currency in the FX markets. With the restoration of redeemable currency, productive workers are again in charge of “money” and the prime interest rate.

          Once the FRN value approaches that of the newly restored redeemable currency in FX markets, the U.S. Treasury should exchange FRNs for “Bills of Credit” of the United States (the old “Greenbacks”). The new issue of Greenbacks should be used for the payroll of government employees. The amount of authorization for issue of Greenbacks will lie with the U.S. Congress. The people most interested to preserve parity between the irredeemable Greenback and the redeemable currency will be government employees. This will limit the Congress from authorizing excess amounts of Greenbacks, unless the federal politicians want the ire of government employees coming down on them.

          With a restored redeemable currency, proper banking is made possible again. Proper banking involves the discounting of “Bills of Exchange” (Real Bills) and the creation of redeemable currency under the “gold standard”. Remember, the “gold standard” is the standard which measures value of goods and commodities. The amount of redeemable currency in circulation would be based on the value of 90-day “Bills of Exchange” as well, as physical gold held by state chartered banks.

          The restoration of redeemable currency must however take place before the irredeemable USD/FRN loses all value, otherwise there will be no market left for the FRN.

          The new “Apple Pay” system is ideally suited to speedily put a restored redeemable currency system into practice.

          • Danny B

            Thanks very much Ingo. The Chinese must find a balance between gold and “flying money”. They are getting an update on what happens when you remove all restriction on “money” creation.
            As far as electronic payments and electronic wallets, I just don’t see enough security from hackers. Real Bills is a subject that I can’t fathom adequately.
            I’ve been writing at another blog. Perhaps you could read a bit and tell me if I have wandered too far off track. The thread covers a lot of ground. Here’s a link to the most recent subject that I am interested in.
            http://www.energeticforum.com/287806-post1374.html
            http://www.energeticforum.com/287816-post1375.html

          • Hello Danny— As regards electronic “money”, the great advantage that ApplePay has over other payment systems is that it is “hacker-proof”. That enables the creation of “redeemable electronic currency” under the “gold standard” employing Real Bills and gold.
            You said that you couldn’t quite fathom the concept of Real Bills. Let me try to explain it simply.
            90-day Commercial Bills of Exchange, aka Real Bills, evolved out of the employment of surpluses. Let’s say a wheat farmer experienced a harvest twice as large as expected due to unusually good weather during the growing and harvesting season. However, the farmer’s capacity to store the surplus wheat is absent. Consequently, the extra wheat will rot in the field, unless he can sell it to an elevator company.
            The elevator company already has obligations to other farmers, but is able to manage to buy the surplus wheat and store until it can sell it to a flower mill, provided that the farmer accept a 90-day Bill of Exchange in which the farmer releases title to the surplus wheat in return for an irrevocable commitment to pay for the stated amount within a 90 day period. The farmer accepts the Real Bill, because alternatively, the surplus wheat would rot in the fields.
            The elevator company instead purchased the extra wheat, because they sensed a demand from flower mills. The flower mills in turn purchased the wheat from the elevator company on a Real Bill, because they knew that their bakery customers needed to fill demand from consumers for extra bread and pastry.
            The bakers also paid by executing a Real Bill in favor of the flower mills. They had no fear of doing so, because they are closest to the consumers, and they know that the extra bread and pastries baked with surplus flower will be eagerly snapped up by consumers who will pay for the good with gold coin or most likely with redeemable (electronic)currency.
            Who creates redeemable (electronic) currency…??? State chartered banks do. Why don’t states charter banks today to create redeemable currency under the gold standard…??? It is, because no one is willing to furnish “paid-in” capital in the form of gold (specie or bullion) to capitalize a bank as long as the debt-monetized, irredeemable Federal Reserve Note has “legal tender” protection. Once Congress lifts this protection from the FRN, you will find plenty of people eager to start a bank to create redeemable currency.
            How do banks do that and earn a return on their capital. They do it by buying 90-day Bills of Exchange from wheat farmers, elevator companies, flower mills and bakers at a discount to the face amount of Real Bills depending on their days left to maturity. Against the value of the not-yet matured Bills of Exchange (Real Bills) and physical gold on hand, the banks create a US Dollar (defined by Congress in terms of quantity and fineness of gold specie) either as paper, but most preferably as electronic currency.
            I could go on and give the rational behind the fact that electronic currency using ApplePay is infinitely more preferable to paper currency, why redeemable currency is the only thing that provides one the ability to save which will allow Congress to eliminate Social Security and the Social Security Tax, etc., etc…..
            Of course, if you are interested, I will be happy to explain.
            BTW, I checked out the URL you referenced. Are these just factoids you collected and listed…???

          • Danny B

            Ingo, the thread is at a “free energy” blog. The people there are VERY light on economic knowledge. The thread is heavy on factoids to supply backgroung. I have written plenty of summation and interpretation but, the main point is to supply information. Those 2 posts are mostly factoids.
            How much do YOU know about free energy. The former head of the CIA and FBI started a free energy company called, “Terawatt Research LLC”. William Webster is hardly a pie-in-the-sky kinda guy. His machines have been certified by underwriters laboratories in America and Germany; http://revolution-green.com/interactive-magnetic-oscillation/

            I explained how his machines work and he took down his site a month later.

            The free energy people need a LOT of basic background. I’m nobody’s genius but, I quote a lot of smart people. 🙂

            I post links for the excerpts so that they can read the original.

            You have previously clearly explained real bills. I understand the whole idea. I just fail to picture how it would work in an economy that has delegated actual production to a minor segment of the economy. No need to explain it any further. It would just go over my head. The same thing happens when guys at the forum try to explain space or time or field.

            I’m not a master of electronics. nor economics. My best intuition is for mechanical systems.

            Free energy has been around for a long time. This vid shows one of the earliest FE machines; https://www.youtube.com/watch?v=ObdM7VzE18A
            It’s mistakenly called “gravity energy” even though there is no “falling body”. IF you develop and interest in free energy as demonstrated in mechanical devices, you should start by reading “lecture 30” by Harold Aspden.
            IF you feel that you don’t have the time or interest,,,,,,,, I understand. I’m interested in everything. Sixto Ramos just won a design award for a free energy device. It was presented at an inventors convention in Switzerland.
            The free energy people at the Energetic Forum ASKED me to write about the economy. I started and wrote the entire thread because nobody else contributed anything but a few snippets.
            So, while much of the thread may appear pretty basic, it’s all they have. The average person is overwhelmed by the volumes of info on the net. I sort it out.

            I get no feedback so, I don’t know if / how much I’m wandering astray. That prompted my query?

            This board for comments is a bit awkward for communication.

            wd_breeden @ you-know-who.com

  • Me_Again

    In the UK you can buy gold without paying VAT. However Silver has a 20% VAT surcharge which effectively screws it as a purchase unless you buy coins and antique.

  • H_mmm

    ” John Maynard Keynes who called gold a “barbarous relic.”

    Not quite accurate, Keynes was referring to the gold standard for international trade settlement or using gold as the basis of a monetary system where the fiat issued to cover domestic trade and taxation was backed by specie.

    Gold, as a physical item and money, was never called a barbarous relic.

    • “This effort began in the modern day with fiat propagandist John Maynard Keynes who called gold a “barbarous relic.” Central bankers continue to use Keynes’s monetary theories to justify voluminous money printing. This is a big reason why the world’s economy is in such a mess today.”

      We were referring to the statement within a monetary context.

      • DutchyMcDutch

        But you didn’t do that correctly,

        What Keynes actually said was:

        “In truth, the gold standard is already a barbarous relic. All of us, from the Governor of the Bank of England downwards, are now primarily interested in preserving the stability of business, prices and employment, and are not likely, when the choice is forced on us, deliberately to sacrifice these to outworn dogma, which had its value once, of 3 pounds, 17 shillings, 10 1/2 pence per ounce. Advocates of the ancient standard do not observe how remote it now is from the spirit and the requirements of the age.” A Tract on Monetary Reform, 1924

        • Sounds like a monetary context to us.

          • DutchyMcDutch

            With all due respect but do you really not see a fundamental difference between “gold is a barbarous relic” and “the gold standard is a barbarous relic”?
            In or out of the monetary context these are two different statements.

          • The gold standard is only an “outworn dogma” to those who fail to be believe in “free market” distribution. John Maynard Keynes turned out to be one of those elites who believes he can mandate production and distribution. Such mandate is also known as “Socialism”.

            The Keynesianism is fundamental to the “Technocracy Movement” represented by the Trilateral Commission in its push for a “New World Order”.

            God help us…!!! Please, dear Lord preserve us from these “do-gooder” elites that know how to best run an economy and a society.

          • DutchyMcDutch

            Considering the fact I didn’t say I agreed one way or the other, your point is?…

  • DB: “Gold has intrinsic value because its value has been recognized, historically, for thousands of years. In a hundred or a thousand years, it will like have approximately the same purchasing power as today.”

    BISCHOFF: The intrinsic value of gold is due to history…??? Gold has intrinsic value only to the extent that any other commodity has intrinsic value. As a commodity, gold served as medium of exchange centuries before it became money. Gold (electrum) first became money around 500 B.C. in Lydia.

    It is the human exertion expended to mine and refine a specific amount of gold which is set as the standard value by which to determine the value of any other good or commodity.

    To the extent that capital is employed to reduce human exertion in the mining or refining of gold, the value of gold specie or bullion is reduced. However, the same capital used to reduce labor (human exertion) in the mining and refining of gold, is the same capital which also reduces the labor requirement in the rest of the economy.

    It is that phenomenon which renders the value of gold relatively stable over time vis-à-vis the value of other goods and commodities. It is not the “so called” intrinsic value of gold.

    DB: “Why the constant misinformation about gold in the mainstream media?”
    BISCHOFF: The “main stream media” is owned by the “monetary elite”. If gold is the standard of value, then the redeemable currency created against 90-day “Bills of Credit” acquired by banks carries with it the value of gold. It is only workers in the productive industry which give rise to redeemable currency generation. In other words the productive workers are in charge of “money”.
    The “monetary elite” was finally able to gain legal status through the National Banking Acts of 1933 and 1935. Using the sale of government bonds (debt) in secondary markets, they were able to orchestrate the creation of irredeemable currency by monetizing congressional budget deficits.
    The prime interest rate under the gold standard was established by the willingness of workers to invest their gold savings in gold bonds. With the nationalization of the gold savings of the American people in 1933, the determination of the prime interest rate was no longer market based. The fixing of the prime interest rate was transferred to the “Federal Open Market Committee” (FOMC), a body of twelve individuals belonging to the Board of Governors of the post-1935 Federal Reserve System.
    The main stream media, as well as the education establishment is prompted by the “monetary elite” to down play and utterly obscure the difference between redeemable currency under the gold standard and irredeemable currency created against sovereign debt, lest the general public should catch on that it requires work to give ownership rights to money or any other good or commodity.

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