STAFF NEWS & ANALYSIS
Questionable Narratives: Gold Versus Stocks
By Staff News & Analysis - March 11, 2015

Gold's Long Decline Is the Real Story … Equity markets started off this year by falling. They rallied in February, working their way back into the green. The Standard & Poor's 500 Index now is up about 1 percent for the year. Gold has traveled the opposite path … – Bloomberg

Dominant Social Theme: Gold is a bad investment.

Free-Market Analysis: We track dominant social themes and this is a consistent one: Don't invest in gold.

Gold traveled up against the dollar to nearly US$2000 an ounce, but you wouldn't know it from the mainstream media. Most of the coverage gold received was negative and took place after the metal for some reason started to plunge in price.

There wasn't any reason for the plunge that we could see. It's under US$1200 an ounce and we still can't figure out why. We were told, even in the midst of gold's fall, that it was because a "recovery" made gold less of a "safe haven."

But we're talking about two years ago. Where's that recovery? What happened? Gold went down fast but the recovery never happened. Strange, isn't it?

Of course, there's a big split in the investment community regarding gold, even among "gold bugs." Some say the market is so large and varied that it can't be "fixed." Others have spent a full career investigating manipulations that they claim move gold and silver around almost at will.

The culprit is supposed to be paper, as in paper metals. In simplest terms, one sells the precious metals short and waits for such orders to ripple through the entire market. Only the big Wall Street firms have the muscle to do this on a grand scale, we're told, and that's where fingers inevitably point.

This Bloomberg article like most articles in the mainstream won't hear of any conspiracy talk. There are plenty of reasons for gold to be a wretched investment these days and the article – like so many Bloomberg articles – enumerates a number of them.

It's not surprising, of course. Bloomberg's major profit center seems to be a trading terminal that provides a gamut of bond prices and a number of other graphics and news items. Michael Bloomberg started his news division to provide more information to his terminals.

When it comes to Bloomberg media, the terminals and other businesses are truly the tail that wags the proverbial dog. Bloomberg is closely tied to Wall Street and Wall Street is no fan of gold, which simply can't provide the kind of financial elasticity that fiat money offers.

More:

Gold now is down about 1.6 percent year-to-date and it wouldn't be a surprise if the precious metal fell more this month. "March has a history of being the worst" month for gold, according to Bloomberg. During the past four decades, on average, bullion futures decline 1 percent in March. "Prices fell 65 percent of the time, more than any other month."

The reasons gold prices can't seem to gain any traction are many: Job creation has been robust, inflation is low and the Federal Reserve is widely expected to begin the process of easing back on monetary accommodation — strengthening the dollar and further reducing gold's appeal.

As we noted late last year, the gold narrative has failed. The promised hyperinflation that was supposed to send gold soaring never arrived. Instead, we had disinflation, with a threat of global deflation.

We can see the meme building here. Gold is not doing well because job creation is robust and inflation is low. Also, the Fed is about to raise rates – or so we are told.

Let's unpack this. The head of Gallup recently called US employment numbers a fiction – so how does Bloomberg make the case that employment is robust. Maybe this statement includes Europe, but Europe is engaged in central bank quantitative easing because the "recovery" there remains weak to nonexistent. Japan seems little better.

How about inflation? We know monetary inflation isn't low because there are estimates that central banks around the world have printed some US$50 trillion in the past six years in an effort to generate asset inflation. Perhaps it is price inflation that has remained subdued – but not according to outfits like ShadowStats that put the inflation rate considerably higher than government figures.

What we end up with are the same questions these sorts of articles always generate. In India, the black market for gold smuggling is huge – tons and tons of yellow metal. Gold seems to be a sought after commodity in China, too, where consumers line up around the block to buy it. Much of the world, then, seeks gold and yearns to hold it. Yet the formal "prices" remain on a downward slope.

The stories themselves don't make sense. There's lots of demand for gold; price inflation is active and Western economies remain lousy. If gold is sold as a "safe-haven" then business should be booming.

The article goes on to make other points regarding gold's lack of traction. The Swiss National Bank ballot ("requiring the Swiss National Bank to hold at least 20 percent of its 520 billion franc balance sheet in gold") didn't pass.

India was "going to cut its import duty on gold," but that didn't happen, either. Finally, we are told, the new Apple watch would consume so much gold that prices would have to rise.

The article finishes by explaining that the most pernicious influence on gold is the rising dollar. "Against a basket of major currencies, the greenback is up more than 8 percent so far in 2015, after rising more than 12 percent in 2014."

Gold is in a declining cycle, the article informs us, while stocks are in an ascending one. "If the economic trends of the past few years persist, they favor stocks over gold."

We've come to a similar conclusion but not for the reasons given. For us, there is an evident and obvious manipulation taking place – and that's central bank money printing. The vast sums of money being printed by central banks in the past half-decade have ballooned the stock market and high-end goods.

Is this "natural?" Is this a way a marketplace would work absent monopoly money printing abetted by the force of the state?

On its face, various asset classes are obviously manipulated, especially equity. The business cycle itself is manipulated. Gold may be giving off signals having to do with a rotating of the business cycle but … c'mon, really?

The staggering sums that have poured into the market have likely frozen the business cycle in place. It's still a "golden bull," though one that hasn't had any opportunity to find closure. There's never been any blow off, not as in the 1970s.

Many arguments involving gold and stocks seem to be paper constructs, rhetorical fantasies. The reality is certainly not what is being maintained, even thought valuations are real enough.

We've suggested that the world has embarked on a Wall Street Party swelling into a financial fiesta for securities marts. We don't know how long this is going to last but tremendous profits have probably already been taken in this market.

Likewise when it comes to gold, the reasons why the yellow metal has underperformed don't seem especially convincing. But nonetheless, gold is where it is … the stock market, too.

Is gold a bad investment? Not historically. Is the stock market over-inflated? Yes, if you believe that central bank money printing inflates assets.

Most people won't see it that way, of course, because the modern narrative wants to focus people on extraneous reasons for various asset-class movements. For us, the primary market mover remains monopoly money printing. Focus on that and things become clearer.

After Thoughts

Can central bankers and others around them continue to keep the proverbial balls in the air? Are you betting on the system's continuation or its collapse? Timing is everything.

You don’t have to play by the rules of the corrupt politicians, manipulative media, and brainwashed peers.

When you subscribe to The Daily Bell, you also get a free guide:

How to Craft a Two Year Plan to Reclaim 3 Specific Freedoms.

This guide will show you exactly how to plan your next two years to build the free life of your dreams. It’s not as hard as you think…

Identify. Plan. Execute.

Yes, deliver THE DAILY BELL to my inbox!

 

Your $50 Ticket to the “$100 Billion Pot Stock Bonanza”

The $100 billion marijuana industry is dominated by penny stocks…

With legalization sweeping the country, these penny stocks have already begun skyrocketing in price…

Take action TODAY, and you have a once-in-a-generation opportunity to turn a tiny $50 investment into an absolute fortune.

Click here to find out how.

Biggest Currency Reboot in 100 Years?
 
In less than 3 months, the biggest reboot to the U.S. dollar in 100 years could sweep America.
 
It has to do with a quiet potential government agreement you’ve never heard about.
 

Posted in STAFF NEWS & ANALYSIS
  • Guy Christopher

    When gold is looked upon as an investment, it has absolutely been lousy lately. When gold is looked upon as savings and, by extension, insurance against those dangers common sense tells us are lurking and probable, gold is performing marvelously. If you buy gold today thinking you are going to make a fortune, you might be disappointed for awhile longer. If you buy gold today because your instincts and education tell you every investing metric is artificial, dishonest and/or grossly over-manipulated, and that every syllable of every word in every sentence uttered by government and parroted by lapdog media is a lie, then you can rest comfortably knowing gold is doing the job it’s supposed to do.

    • Stargazer

      Amen!

  • Danny B
  • Jim Johnson

    I used Grandad’s recommendation of keeping back 5% in precious metals, but I see here the Swiss now recommending 20%? Hmmmm. Pretty smart folks…

    • Greg Jaxon

      You often hear a number like 5% gold allocation, even from the “barbaric relic” crowd.
      In 2009, John Nadler wrote an article poo-poohing the gold standard as unattainable by modern economies, but said

      “For the majority of individuals, the same exact average as the official sector’s average holdings (roughly 10%) is a perfectly adequate level.”

      Surely he was exaggerating! At the time I did a back of the envelope calculation: what price did Nadler think gold ought to be:

      10% x Global_Wealth / Gold_Above_Ground = (roughly) $18,333.33 / ounce

      If everyone took this advice, which I find extreme, one tenth of the world’s wealth would be idle and static.
      If you repeat my (now aging) calculation, you’ll get a different answer depending on which measure of global wealth you want to believe. But the form of the equation is the thing to question.

      I always find Antal Fekete’s insights refreshing, and he once answered a slightly different question, “How much should money be backed by gold?” (i.e. how fractional could the reserves become in a gold standard?) As usual, his answer was completely organic, no fiat added: the upper limit is 75:1. If all is going well, with 75 business days per quarter, the gold in circulation must clear 1/75th of the bills of trade outstanding. His Gold Bills mature in 91 days or fewer. So even Antal Fekete would think a bank was perfectly sound if just 2% of its assets were bullion and the rest lent out as social circulating capital.

      • Jim Johnson

        No amount of Fiat will buy any of my PM. I mean to see it invested locally as you describe a real bank should be. I refuse to abdicate further to strangers I can not even shake hands with. One formula that keeps nagging at me is a Reset calculating from the debt of the absolute worst developed nation (Greece?) dividing into what ever PM’s (all of it) that their citizenry and treasury can account for and put on ‘deposit’. People could understand this very basic move. And on a tangent, these same folks will go with our good old US of A if push comes to shove, as we are the only, and I mean ONLY power who held the keys to the world (A Bomb) and did not use it. If it comes to a vote, who they gonna trust? the Chinese? Russians? Okay, maybe the Swiss…

  • Guy’s comment below sums it up perfectly in my view. Just as the Bell says, timing is everything and this is true both in equities and in Gold. If you believe in Gold and want to smooth out the timing factor then dollar cost averaging (regular purchase of Gold bullion or Gold coins every month, or every quarter) is the way to go. That way if Gold continues lower (as seems likely since that is still the overall trend) your average cost will keep coming down. The recent rally in both Gold and Silver has failed and we are back to where we started before the rally began. Spring and early summer is the weakest period for Gold from a seasonal perspective, and regardless of price suppression or manipulation we are in a deflationary environment in crude, iron ore, copper, Gold and Silver for now. Worldwide demand is low and falling, as the world economy is choked by debt, government interference, and regulation. I believe we will see new lows in Gold before the summer is finished. I also believe it is a great time to continue buying Gold on a monthly or quarterly basis.

    • Praetor

      I think you be right!

  • Renov8

    Every month that passes by confirms one thing for me….the market is resilient. This market has been riding the proverbial wave of over exuberance (where have I heard that before?) for a long time. The last market we rode did not have the desired ending. This time they say its different. How’s that? Is it the trillions of dollars injected into the markets to keep them afloat. Is it the unprecedented corporate buy backs which have artificially kept stock prices high? Is it the Fed manipulation of all the asset classes?
    At some point, all of these balls in the air will become too much. They will come crashing down. The question I ask myself is this…..of the asset classes out there, which have been manipulated to the downside the most and have the best possible chance of a phenomenal return?

  • Renov8

    Thought for the day….” Simply, rising gold/silver prices are an indicator that our currencies are losing their value. Rapidly rising gold/silver prices are an alarm siren that these currencies are rapidly losing value.” If you follow this logic, everything is peachy keen….

  • Tom kauser

    Gold is a double negative! You buy it in the hope that it goes up but never get to fully enjoy its uses when it does?

    • Danny B

      Tutankhamun took it to the grave with him. The rest of us want to leave it for the kids to insulate them from economic shocks.

  • davidnrobyn

    Gold is not an investment (that is, if you’re not a price chaser). You’re not buying gold to sell it again for FRNs. You’re buying gold to get OUT of FRNs. Like Indians, who buy more when it’s on sale, and add it to their daughters’ dowries, to be kept as family wealth for generations. They don’t give their daughters strings of rupee notes tied together, they give gold.

    • davidnrobyn

      Btw–the financial press is ALWAYS down on things that are great buying opportunities, and sky-high on things that are already overbought. Just read and do the opposite.

    • Tom kauser

      Value on sale?

  • Dr Stephen Nordstrom

    US$ Trade Weighted Index Major Currencies 1985 = 145………..Today? = 90…………..That’s the US$ going down against major currencies.
    US$ gold Price ………………………………………..1985 = 317………..Today? = 1,153………That’s the gold price going up against the US$.

  • Centurian

    Gold is “stuff.” FRN’s are paper that can change in value minute to minute due to a million things beyond your control.

    I have friends that rode out hyperinflation in Argentina a while back. The business was a subscription healthcare service model. Their number one rule was to turn every “dollar” they could into “stuff” on the day that they collected it. Today you might be able to buy a chair for $100. Tomorrow it might cost $130. So, it is better to own a chair than $100, since a chair is always worth a chair. In a few months, you might need cash and sell that chair for $400. They bought land, houses cars (even exotic antique race cars), equipment, jewelry and Gold.

    They moved what they could to Uruguay as quickly as possible (due to a favorable tax environment and less regulated, more stable economy) and bought property there. Once that crisis was over, they were insanely rich. They took their profits and engaged in expanding their business to other countries and in land and subdivision development in Uruguay.

    While a certain amount of cash is convenient and necessary for normal activities (you generally can’t pay for groceries with a chair), turning money into stuff is a great hedge against currency inflation and collapse. It is wise to turn a significant amount of your wealth into stuff. That includes gold.

    • Good comment thx for this story, your friends are smart.

  • alaska3636

    I’ve been thinking, lately, about gold and silver’s “intrinsic” value. There are many (ancient) stories that prominently feature the barbarous metals as the sought after item, usually as some kind of (hidden) treasure. It is an old story and it is still recycled today in modern adventure fiction. Fictional stories stick in the minds of men a lot longer than (financial) journalism and the spirit of Midas and his golden touch will reach a far wider audience than the financial gurus speculating on whether gold is a valid investment vehicle. I just don’t think people see paper notes as a valuable payoff when Indiana Jones goes diving into the tomb. Imagine uncovering the ancient paper notes of the Chinese from thousands of years ago: what do you do with them?

    Also, Martin Armstrong continually reminds that currency is backed by confidence; but he rarely mentions that confidence historically bottoms out of all currencies.
    http://armstrongeconomics.com/2015/03/11/gold-a-rally-for-40000-by-year-end-come-on/
    In his articles about confidence, also he fails to mention the enduring confidence of the people in gold. I perused a DB article almost one year in the past (http://thedailybell.com/news-analysis/35170/Armstrong-Predicts-the-Wests-Eventual-Demise/) and feedbacker Hugo mentions that Armstrong’s writing hasn’t been the same since he was mysteriously released from prison. I haven’t been following him that long; but, he goes out of his way to explain that there is no conspiracies, just random variables bouncing off inevitable cycles and corruption to the hilt.
    http://armstrongeconomics.com/2015/03/11/rothschilds-fact-or-disinformation-to-protect-the-guilty/

    Someone smarter than I probably understands all this.

    • Impending Sky

      Con-men trade in confidence.

    • Danny B

      Alaska, I too noticed that Armstrong hates GOV as virulently as ever. But, he is adamant that gold is not manipulated and is not going to rise very much.

  • Gil G

    Gold’s claim to fame it that’s a shiny yellow metal that doesn’t corrode and has a certain deal of historical precedence. However other than what has gold got? What gives gold its “intrinsic” value that it has to highly valuable? Why can’t it slump to a permanent moderately high value? Some people hold onto gold because that’s what they used in the olden day the same way some hold to wood-burning stoves for the day when electricity goes off and stays off.

    • Guy Christopher

      Gold’s claim to fame is a lot more than yellow metal with historical precedence. The one word answer to most of your questions is ‘confidence.’ But ask yourself, why does it have 5,000 years of historical precedence, through wars, failed governments and centuries of economic collapses? What’s paper money issued by any destroyed government worth? Why has gold maintained value as borders, leaders, flags and paper currencies have changed hundreds of times throughout history on all continents? What is it that wouid have you believe the USA is immune from the march of history, when the USA is following the dead-set path of every failed government in history?

      • Guy Christopher
      • Gil G

        By your reckoning bows & arrows are better weapons over guns because they have been around a lot longer. It could be argued that not much progress happened during the last 5,000 years anyway. People had roughly the same standard of living for thousands of years until the last two centuries.

        • alaska3636

          Guy has it pretty well nailed when he says: ” The one word answer to most of your questions is ‘confidence.'”

          By this reasoning, your comment about bows and arrows (and pretty much all of your comments) is (are) senseless.

          How much confidence do people have in bows and arrows versus (modern) guns?

          Ancient guns existed at the same time (overlapped) as bows and arrows in battle because the wielder had sufficient confidence in the long bow that switching to guns hadn’t yet made technological sense. The historical precedent only has sufficient weight in so far as the relative confidence in the means of attaining the stated ends.

          Guns and money are means towards different ends so, again, your comparison is tenuous. Technology and money are not mutually exclusive. You can gain technology with various types of money, but money is not necessarily effected by technology. Paper money has been coming and going for thousands of years; but you can still purchase technology with gold that is thousands of years old. Why? Because confidence still exists in gold from 100AD whereas none exists for paper Chinese currency from 100AD. I can also buy an ancient musket with said ancient gold but I would not have much confidence in it’s ability to protect my home.

          Why do people have confidence in gold? Good question although it is irrelevant to the discussion regarding the ostensible choice of free people to choose what they decide that money is. In your world, everyone would be forced to use Gil bucks long after people had lost confidence in them. Why do you think one or a handful of people should decide what everyone should use as money when those same people can not imbue everyone else with anything resembling confidence? Because of bows and arrows, right…?

          • Gil G

            No it’s because gold is bad at tarnishing. Not to mention the price of gold 2000 years ago is incompatible with the price of gold today because the economies are/were totally different. It could be argued gold is less valuable today because the average person long ago (a peasant or slave) would probably never been paid in gold in their lifetime let alone save it for a later purchase because it was too rare and valuable. They probably would have felt privileged to personally handle silver. Nowadays most of us can afford to buy gold coins and ingots and have it sit idle for extended periods if we choose to.

    • Philip

      It certainly has another value, it can’t be printed. Next it is not wanted by the bankers, they say, which in itself is a good reason to not sell. On a day to day basis fiat becomes worth less and so do pensions. Might be a good idea to get a wood burning stove if you live in a treed area. Have you read much on A E Fekete? Good luck. Remember after inflation comes barter so some silver might help. Philip.

      • Gil G

        Gold is printed when it is mined and, sure enough, technology progress means more gold is accessible.

        • General Smedley Butler

          The amount of gold mined annually is between one and two percent of the existing global supply, about the same rate as real economic growth globally. This hardly qualifies as a corollary to fiat money printing. Contrary to bank inspired negative hype, there is plenty of gold in the world to support a global monetary system. After all, gold is an element. Theoretically, it can be divided down to the atomic level. In other words, in addition to the properties enumerated in other reader comments, due to the vast stock of gold relative to annual supply it is perfectly suited as the foundational reserve asset for the global monetary system. Gold and silver are the most appropriate financial assets for supporting a free, fair and honest global monetary system. Which is why you will never hear an encouraging word about gold from the present system.

    • misterkel

      Fits Aristotle’s definition of money – fungible, limited, universally recognized, divisible, transportable, etc.
      And fiat fits those definitions, too, except they are delimiting the supply. That’s why gold is better than, say, iron. Or granite.

    • Greg Jaxon

      Well, for starters those physical properties make gold hoardable, making it a good foundation for transfers of wealth through time. The demand from hoards also leads to the incessant increase in the stock of gold (mined and refined), such that today there is estimated to be between 60-80 years worth of modern day production in these “hoarded” inventories. That’s a huge pile of rock that (as you observe) just immutably exists. The full might of the mining industry to produce or applications to consume-irretrievably simply cannot make any significant dent in that immense stockpile. No values are “intrinsic”; all value is subjective and relative to the needs and wants of acting humans’ choice. Yet the facts are objective and easy enough to observe: stocks to flows of 70:1 and growing. When you look for certainty in the world, gold itself (intrinsically) has the lowest entropy of any physical thing at the scale necessary for economic use. How that subjectively gets “priced” by humans depends a great deal on their need to literally hoard (and then to dishoard) as a means of carrying the value they can produce in their youth into the consumption they want in their old age. When equivalent certainty is produced by other capital in the economy, gold becomes a small fraction of total wealth. When certainty is shattered by breakdowns in the economy, the certainties about that pile of rock gain in relative importance.

  • Danny B

    Re; stocks. Somebody is buying stocks,, aside from firms that repurchase their own stocks. Various States ARE selling treasuries. Jim Willie claims that the States that are dumping treasuries are buying stocks. http://www.examiner.com/article/2014-will-be-the-year-of-the-currency-reset-and-gold-backed-trade-note
    This makes sense to trade the monetary instrument of your enemies for something more connected to the tangible world.

loading