Clueless Gold Writers Keep At It

Mish

Mainstream media articles smacking gold are inevitably made by writers who are clueless about the metal.

Gold and the Recovery

Put Wall Street Journal writer James Mackintosh firmly in the clueless camp. 

Mackintosh says Gold Will Need More Bad News to Keep Prospering.

If economic recovery continues, expect gold to suffer: There will be less need for insurance, fewer worries about the dollar’s reserve status and lower prospects of more Fed action. Of course, if the Fed lets inflation rip gold might ultimately rise a lot more—but for now, at least, investors see little chance of this.

Gold-Dollar Relationship 

US Dollar Index vs Gold 2020-08-17

With the US dollar index at 93, where it is today, gold was at $2,000 and $1400 and $320. 

Something else is going on and recoveries have nothing to do with it.

Also see my July 27 article, Nonsense from the WSJ on Gold vs the Dollar

Reserve Currency?

Mackintosh does get some things right. He does not expect the dollar is about to lose its status as the world’s anchor currency, and neither do I for reasons explained many times.

Faith in Central Banks

It is lack of faith in central banks propelling the dollar. We had three major recoveries in 2000, in 2009 and in 2020 with gold rising in each. 

It's the monetary stimulus stupid. 

We can have a Fed-induced orgy of a recovery (we already have on in the stock market, just not the real economy), and it will fuel gold, not collapse it.

No Magic Money Multiplier

Hello. There is No Magic Money Multiplier but the Fed believes there is. 

As long as central banks and governments keep debasing money, there will be little faith in central banks but lots of faith in gold.

For discussion of reserve currency status, please see What Would It Take to Dethrone the Dollar?

Mish

Comments (26)
No. 1-11
Scooot
Scooot

I read an interesting article about part of Alan Greenspan’s tenure, can’t remember the exact dates but the gist of it was this: He believed the movement in the gold price was an early indicator of inflation expectations and there was a lag of about a year. So The Fed at the time would adjust the fed funds rate in accordance with the gold price early warning system. This had the affect of curtailing Gold’s price rise and kept inflation in check. If he was right, today’s bull market is signalling inflation expectations, whether inflation eventuates or not we don’t know yet. However, The Fed clearly aren’t going to raise rates, in fact they want inflation, so inflation expectations will persist, and those concerned with inflation will continue to have no confidence in the Fed, (or any other central bank for that matter).

PecuniaNonOlet
PecuniaNonOlet

76 days till election. What will happen to gold under a Biden presidency?

frozeninthenorth
frozeninthenorth

Gold is the original crypto...you have to mine it after all. Having been involved int he Gold "mania" of the early '00 I will tell you this; as gold prices climb, the incidence of "fake" gold will multiply -- this will eventually increase transaction costs.

We got scamed (a big Swiss private bank) with two fake gold bars -- gold price were slightly below $2,000 and the scam was very well executed -- they replace part of the gold bar with Tungsten -- which has nearly the same density as gold. Tungsten cost about $300 per kg. After that unless we had a certified seller we would always process the gold before accepting it into our vaults, increasing the transaction cost rather dramatically

Tony Bennett
Tony Bennett

"If economic recovery continues,"

...

Haha. Good one.

There has been NO economic recovery. What has happened is massive fiscal stimulus by fedgov. The 6 months (February - July) saw a fedgov deficit of $2.418 trillion. And not to be forgotten Forbearance (rent moratorium, too) on any loan just for the asking. Once the training wheels come off ... down we go.

lol
lol

Trump gets reelected,he will default on the trillions owed to China!Stiffing China out of trillions will be the template to restructure/writeoff the 30 plus trillion in red ink,which means the dollar as WRC is over.

nlightn
nlightn

James Mackintosh appears to have limited knowledge of the economics of gold.

Or,..he's a stooge for some front attempting to constantly manipulate gold prices.

Hey James Mackintosh,...if gold is not such a threat to the fiat dollar,...why do you have to form a theory at all,..and it's a theory that doesn't even hold water? You're using fairly immature positions to defend your perspectives. Only the novice would buy your crap.<<<

As Mish so well stated,..." As long as central banks and governments keep debasing money, there will be little faith in central banks but lots of faith in gold."

And central banks are performing that feat with Pythagorean accuracy !

KidHorn
KidHorn

IMO, people are buying gold because the alternatives are not hard assets or are not very liquid. Even if you buy blue chip stocks, there's nothing stopping companies from massively increasing the float to raise money.

truthseeker
truthseeker

I would think a large drop in the number of new Covid-19 cases could cause a temporary sell off in precious metals as programmed traders move out of the PM space and the safety of short term treasuries into the oversold dollar index and even more into overbought FAANG stocks even as Amazon is up over 100 today.

foxdbff
foxdbff

'It is lack of faith in central banks propelling the dollar.' Really?

I understand your thesis. Absolutely right. But what has all of it to do with the price of gold? Nothing mate ... All the knowledge there is to know about faith in central banks, the recovery, QE and whatever else is known to all the market participants in the gold market. Gold bugs seem to forget that for every buyer there is a seller! For every market participant 'loosing faith' in central banks there is one that decides the rally is overdone, central banks have control and it is time to take a profit.

Markets fluctuate, sometimes violently always based on emotions around collective knowledge about that market. Sometimes bulls overwhelm bears, sometimes the opposite but it is not about knowledge, its about emotion. Regardless, all the emotion about all the knowledge about the gold market is in the chart, it is in the price at all times.

If we analyze price we see that silver is lagging this rally. Not a good signs for the bulls. We also see that miners are lagging this rally. That worries me. Hell the HUI is at 2006 price levels! That is a 14 year standstill. You could have made a fortune on Facebook and Tesla in that period. Bitcoin was not even born then. Do I prefer Facebook and Tesla here. Of course not! But both shares are likely still in a bull market. Precious metals likely aren't.

Sell your gold? I'm not. Not yet at least but seriously considering. Seeing analysts on TV with 'in gold we trust' hats scares me. Seeing silver and miners lagging scares me. Reading these articles scares me. Buffet buying Barrick shares knowing that he bought ConocoPhillips at the 2008 peak in oil and sold airliners in March at the low scares me. Proof enough that stepping into the gold market here at these prices is not a wise decision. Of course I could be wrong but you cannot accuse me of being stupid.

At some point all faith in central banks will melt away. At some point the house of cards will collapse. As Lacy Hunt explains, the law of diminishing returns will eventually push the Fisher equation below the zero bound and with the Fed constraint at the zero bound with the FED's fund rate we risk entering a downward spiral. Deflation and fear will set in.

Will gold save us then? What happens when we get a panic in debt markets? Will the yellow metal spike into stratosphere then? I'm scared it will not. A furious mark down across asset classes seems more likely. I'm afraid that dollars under the mattress might do a lot better then. But hey, I'm not a financial blogger, just a stupid loser wasting his time to reply.

Captain Ahab
Captain Ahab

Only a fool buys bonds in a zero-interest-rate environment when yield entirely comes from future price increases predicated on lower interest rates. Ditto with shares, high-priced with ridiculous PE ratios.
What I want to know is:
How long can the Fed keep zero rates going?
When market euphoria ends, how long to the collapse?
How far will Democrats go to beat Trump?