Gold Bugs.
Gold being at an all-time high within hours of the European bailout promises and kisses does not require a deep psychology to solve. Fear. Spoke Joe Brusuelas, of Brusuelas Analystics, who points again to the creeping upward LIBOR OIS, which is the money banks charge each other for overnight loans. The higher it goes, the more doubt and fear in the market. The gold price says that Europe as well as Asia is a risky place to keep your money -- and that even the dollar, a refuge for euros and yen, is not a solution, just a transition. The Gold Bugs are always with us, and when they are right, they are very right. John Tamny asserts that the price of gold is an expression of the disregard of the dollar.
Blow-Off.
Gold retreated modestly on the third day after the EU bail-out, but no one thinks it has topped. The blow-off is for the fools in China, where they have entered a secular bear market. Long way to the bottom. Can't catch a falling knife. The theme for the remaining year is fixed: the euro goes to par; the yuan fades and fades; the PIIGS default and reorganize; the US switches control on Capitol Hill and reigns in the pretentiousness on Pennsylvania Avenue. Gold is delightfully positioned to enjoy all possible scenarios from Asia to Europe to Lord God Almighty Dollar Ben Bernanke and the printing press at the Fed (with $2.3 Trillion on the books). If I'd told you, back in 1999, that it would be $1233/oz in 2010, you would have regarded me a Gold Bug kook. If I tell you $2000/oz today, you may sneer as well. Shrug. China's bear market will make gold the only refuge this side of the grave.
The classic question asked before every election has been, “Are you better off today than you were 1, 2, 3 or 4 years ago?” ‘Better’ was roughly defined in economic terms: jobs, prospects, opportunities, purchasing power, safety, stability, etc. Clearly, the political class has decided that the traditional markers of the economic health of a nation are no longer relevant; that now the notion of ‘social justice’ must be factored in and even take priority over any other consideration. At the same time, every indicator reflecting the relative health of economic activity has been trending downwards.
In our own country, the Obama administration has been promoting policies that have accelerated this downward trend. The popularity of gold is a reflection of the uncertainty and outright fear that the markets are about to collapse. Our administration has done nothing to alleviate such fears. In fact, every policy already enacted as well as proposed seems specifically designed to drive markets down even further. We can no longer interpret this as coincidence, mistake or stupidity. Along with everything else that’s been happening – socially, politically and internationally – it would be foolish to assume that we are not facing a profound change from the way in which we have been conducting our everyday lives.
Gold is seen as the final hedge should everything else collapse around us. It is a fantasy. After everything else has gone up in smoke, a retreat to gold cannot save us. Look at it in practical terms. Imagine lugging a gold bar to the ruin of a store with empty shelves in search of a loaf of bread. People are actually assuming that gold will be capable of performing alchemy in reverse and produce bread.
The futility of hoarding gold was aptly demonstrated during previous wars. When the invading armies were said to be approaching the town, the people packed up their valuables (including their gold candelabras) into wagons and set out to escape certain death, rape and plunder. Along the way they could see all the things once deemed valuable (including gold) strewn by the roadside as so much refuse. They did not even slow their pace. Instead, in a desperate effort to lighten their own load, they dumped their valuables as well. The lucky ones arrived at a safe haven with barely the threads on their backs.
Their ultimate goal was to reach America which promised nothing more than a new start. With America in ashes, there will no longer be anywhere to run to. Gold or no gold, when hope is extinguished humanity has failed.
http://peterkoelliker.blogspot.com/
When the Chinese Bubble pops, Trillions of Renmimbi will flow into Gold, Jewelry and Silver. Even worse, the Renmimbi will become worth less. Thrifty Chinese will get angry and bad things will happen.
Something Brusuelas just said doesn't ring true to me. He said that if the 'not-another-dime' crowd finds its voice, the euro will founder and the price of gold will shoot up as a result. But the whole reason that gold goes up against the dollar has less to do with the euro than it does with worldwide investors' confidence in U.S. monetary policy, specifically with respect to deficit spending and inflation. The best thing the U.S. could do to strengthen the dollar is to join the "not-another-dime" club. That's the downside risk to gold - that the U.S. adopts a strong dollar policy. I've been thinking about buying some gold myself and when I think it through, the one thing that I'm depending on is for Obama and Congress and Geitner to continue to spend like drunken sailors. If they tighten the reins gold will plummet. Sounds like Brusuelas has too much skin in the game to be completely straightforward in this.