Ben Bernanke is confused. And no, it’s not just the monetary system that continues to confound him. This time it’s gold prices. During yesterday’s Congressional testimony Bernanke was asked about the surging price of gold and if that is a sign of no confidence in fiat currencies. He responded:

“Well the signal that gold is sending is in some ways very different from what other asset prices are sending. For example, the spread between nominal and inflation index bonds remains quite low – suggesting just 2% inflation over the next 10 years. Other commodity prices have fallen recently quite severely including oil prices and food prices. So gold is out there doing something different from the rest of the commodity group. I don’t fully understand the movements in the gold price, but I do think there’s a great deal of uncertainty and anxiety in financial markets right now and some people believe that holding gold will be a hedge against the fact that they view many other investments as being risky and hard to predict at this point.”

Mr. Bernanke is no dummy. I know I am a bit hard on him at times, but that is only because he is supposedly the Michael Jordan of the financial system so expectations are high. Unfortunately, he has performed more like Luc Longley (no offense to the superb Aussie readers here). Nonetheless, Mr. Bernanke understands that inflation pressures remain very low (even though he has failed to apply or promote the proper solution to our current balance sheet recession). Aside from gold prices there are no signs of inflation in the economy. But I believe gold prices are moving higher due to the public’s opposition to fiat currency, fiscal stimulus and what is generally viewed as continued “money printing”. This is highly irrational in the long-term in my opinion and creates the potential for gold to turn into a bubble is looking increasingly high.

Gold prices have surged this year as the Euro crisis has created increasing concerns over the viability of fiat money. I have previously discussed the great irony here. Gold is viewed as a hedge against the potential collapse of paper currencies . It is seen as the ultimate safe haven currency. The Euro crisis has created an incredibly misguided belief that the viability of paper money is at stake. It has caused the increasing rally cry for reduced government spending and continued shrieking from deficit hawks who haven’t differentiated between the currency system in the EMU and in most other developed nations. Ironically, the Euro is more a reflection on the gold standard than the paper currency systems in place in nations such as the USA or UK.

Is it irrational for gold prices to move higher in the near-term? Absolutely not. This belief that paper money is flawed is likely to persist. Investors and governments are truly convinced that the USA is the next Greece. Last weekend’s G20 meeting was a clear sign that governments are giving up on fiscal policy. This creates increasingly high chances of global instability. After all, I don’t think there are too many people out there who would deny that the rally in risk assets and the glimpse of recovery was due to government intervention. The CBO’s recent report verified as much.

This move towards fiscal austerity is eerily similar to what we saw in Japan in the 90′s and could very well drive us towards continued recession as we talk ourselves off the edge of the cliff. In the end, however, the Euro crisis will pass. That is unlikely to occur until European leaders recognize that their single currency system is inherently flawed (just as the gold standard was) and that means we could see substantially higher gold prices as investors continue to rush into gold with the belief that gold can serve as a viable reserve currency (something that has already been tested in a global economy and also something that has already failed). All of this increasing worry in Europe is likely to increase the odds of a gold bubble. The great irony here is that while many are worried about a bubble in treasury bonds we are likely to continue seeing increasingly high chances of deflation and/or very low inflation while a bubble grows in gold prices. The inflation trade will continue to fall flat on its face, but gold will continue to do “something different” as Mr. Bernanke so eloquently said.

How do I see such a scenario unfolding? I believe there is a fairly high chance of an eventual defection and default in Europe. After all, there is no good solution in the region and the debt problems will persist until something forces the EMU’s hand. If this in fact occurs gold prices could very well reach stratospheric levels. But ultimately, paper money will survive in its current form no matter what happens to the Euro. Cooler heads will prevail and investors will realize the the Euro crisis is unique to that currency system and not a reflection of the floating exchange system as a whole. As this occurs gold investors will realize that the risk of inflation never materialized and that the Euro was not in fact a flaw in paper currency, but a flaw in single currency systems. Should this occur I believe we will see a spectacular collapse in gold prices not unlike the move in the 70′s.

In the near-term, however, dollars, bonds and gold are likely to remain the safe haven trades of choice as deflation remains a near-term risk and investors continue to misinterpret the Euro crisis as a fiat money crisis. Ultimately, one of the above will end in heartbreak for millions of investors and I for one am not betting against the solvency of the USA.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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    • I actually think its a very bold call.

      Given that 99.7% of people don’t understand the monetary system, i think TPC is making a huge leap of faith to suggest that investors will eventually realise the differences between the monetary systems. They are yet to realise thus far.

      Maybe I’m too bearish on that bit…but it goes without saying that if people one day do figure it out, then it is an absolute certainty that gold will be stuffed!

  1. Gold is as irrational as TB-US… Technically in the same configuration. Short-term bull, but one-life move on the short side on long term. The overall sovereign is bearish on LT. One world, one market.

  2. …’in the long time’ he says….well in the long time we’ll all be dead, hehehe….

  3. There is a simple reason gold is ‘out of line’: it is true money. All the people who treat it like a commodity are just not getting the message. But I am not surprised: if you have lived in the fiat era of 1970-2010, you have forgotten what real money ought to be. And that is NOT paper backed up by debt.

  4. like i say on my surfboard(and a few other places)……if it swells, ride it……

    everything is a “sell” sooner or later……its about when

    there would still be an ultimate investment for fear(irrational or otherwise) if gold didn’t exist(i guess then we would have the silver-haters).

    i won’t risk alliteration by posting the DOW:gold historical chart again here

    a ounce of gold will buy the DOW, or at least half it,before this is over. whether it makes sense or not……..i am constantly amazed by the things human beings do that make alot less sense than buying gold.

    euro and US real estate unwinding will be more convulsive and/or prolonged then most think.

    the rope ben is pushing on might well ultimately become a “spring”……i know ya’ll have seen those slip out of their confines….if not,no matter…….deflation is working for gold

  5. I agree, it is impossible for a country to default on debt denominated in the currency it prints, in a floating exchange regime. That country can always print money and buyback treasury debt. In so doing, the supply of the currency increase. There are 2 ways new printed currency can go: real economy or financial markets. We are in a world of excess supply ad deleveraging balance sheets, real economy doesn’t want new money, at any price, so the new money created by central banks (FED and BoJ in primis) is going into financial markets, inflating the price of risky investment assets (during positive mood cycles) and “safe” investment assets (during risk averse cycles).

    In any way, if money go in real economy (inflationistic world) gold increase,if money go in financial markets(deflationistic world)gold increase. Gold is a currency, the first currency. The value of gold increase if the supply of other currencies increase beyond the amount necessary to accomodate GDP growth.

  6. most do not WANT to get it… means a prolonged convulsive event in the worlds marketplaces(we ARE there…..hellooow)……very unsettling…….these are the same guys that tell me “don’t fight the market” (i don’t, to a point) when corp stocks are wayyyy overbought past fundamentals(when i get a nosebleed and TPC goes short I SELL).

    most do not want to own the same asset as scared old people stuffing mattresses.

    or bandana wearing skinny guys with guns(i got mine) and canned goods(i wouldn’t eat anything out of a can) digging bunkers(i’d rather get vaporized) in their back yard screaming “the sky is falling”

    then there is the bugs that think they’re gonna “will” their stash to their children………wrong.

    its just an investment(a good one right now) that i will short on its way down……everything goes down sooner or later.

      • Sachs is wrong. You can just look at the borrowing data to prove that Bernanke’s plan didn’t work. Did it help to stabilize the economy? Perhaps marginally. But it did a lot more good for the banks than it did for Main Street. Unfortunately, the banks aren’t the crux of this problem. They were merely a symptom of the problems on Main St.

  7. Downloading on Longley when you had your choice of both Bill Wennington and Jud Buechler? Just don’t get it…

  8. Forget the gold-inflation-deflation mumbo jumbo.I buy gold because in the ABBA LERNERs keynesian world = paper money currency system all the private financial wealth is in the goverment hands and at last all the goverments will destroy their currencies buying its debts.

  9. TPC,

    I am new to this site. So far, very good. Thanks. So what is the solution, in your opinion?

  10. The real bubble is of course fiat money. Way too much of it has been printed, completely out of line with economic growth. Six newly printed dollars (i.e. debt) created 1 dollar of economic growth in the past decade. That is a clear sign something is terribly wrong. Gold simply signals that in 2001 it was game over for normal growth. Since then the U.S. has experienced negative GDP (see, but Greenspan and co. has sold us the story that inflation = economic growth. Alas, it is not.

    Gold will perform great during money printing and disastrous monetary policies. I don’t see an end to that soon, so as long as we have Bernanke, Geithner & Obama the bull market in gold will continue. Von Mises taught us that the 2 outcomes of a credit crunch are deflation, or destruction of the currency. They have chosen the 2nd option, Bernanke’s sole goal is to prevent Great Depression II from happening. So he will kill the dollar, which is hugely bullish for gold.

    • “Von Mises taught us that the 2 outcomes of a credit crunch are deflation, or destruction of the currency. ” Nout Wellink

      How about a third solution from Moses, not Mises, debt forgiveness (Deuteronomy 15:1, Leviticus 25)?

      Here’s how:

      1. set reserve requirements to 100%
      2. Print a sufficient amount of debt-free legal tender and distribute equally to all adults in the population. This will allow debtors to pay down their mortgages to market price levels and would also compensate savers for years of artificially suppressed interest rates. Note that the banks would be made whole in nominal terms but would suffer relatively in real terms. The long term solution is to repeal legal tender laws, the capital gains tax, government deposit insurance and allow alternative currencies.

  11. TPC, OK, I don’t get it what do you want Bernanke to do on the monetary side? He’s got interest rates at near zero, he keep cheer leading the economy at every opportunity, he’s opened up the swap lines in case there is a credit freeze up in Europe, so what more must he do? Are you suggesting he do more quantitative easing?

    I’m not sure what else he can do, the fiscal side is in the administration and congress’s hands, so Bernanke can’t do much about that other than to encourage them.

    • Agreed. I am a bit too hard on him. He is powerless in terms of what he can actually do. But he opines on fiscal policy all the time and carries a huge amount of influence. He should recognize by now that monetary policy has failed and that we need to better understand our fiscal options. He has never expressed such an opinion.

      • TPC, if he did that publicly, what message would that be sending the markets and the main street. Now is not the time to drive fear into the markets, he needs to continue to be the cheer leader, he has no choice. Did he ever? In the back ground I’m sure he’s pushing for another stimulus, or at least asking the WH to tone down the anti business rhetoric. “Whatever it takes”, wasn’t that the catchcry from him and Geithner?

        Let’s hope they keep the pedal to the metal, before they decide to ease up of stimulus measures (both monetary & fiscal). Now is not the time to pull back.

        • He’s a fairly outspoken man. I am not saying he should admit that monetary policy has failed. Absolutely not. But I do think he should try to push Congress in the right direction. After all, that is basically what these hearings are for. Not only to keep him accountable, but for these Congressman and women to pick his brain and ask for advice and guidance. His comments regarding the deficit and our debts instill this fear mongering campaign that we are going bankrupt. He certainly knows we can’t go bankrupt (he has said as much), but for some reason he doesn’t seem to be able to advocate an approach that might be more geared towards Main Street. I don’t get it. It could be politics or it could just be that he doesn’t get it. But he should. Anyone can recognize by now that his Wall Street driven recovery has not solved the underlying problems. It has been a terrible form of trickle down and it has failed. He should recognize this and push Congress in the right direction. You would think that a Republican might even advocate tax cuts, but I don’t recall him ever advocating such a thing.

          • Targeted stimulus to repair consumers’ balance sheets and destroying supply of housing.

            Pay the damn builders not to build for a couple years. Don’t we already do this with farmers?

            That will help the private sector big time!! That, and then get the fiscal house in order in 2013-14. And cut bs spending that affects as little jobs as possible.

  12. Some thoughts I’ve had on gold:

    1. Where is it written that the average rate of mining gold shall be roughly the same as the average economic growth rate?

    2. Someone has said that it is silly to dig gold out of the ground just to bury it again in bank vaults. Isn’t this a waste of human effort?

    3. Central banks hold vast amounts of gold. Is gold a fallback position for the central banking establishment? Why should we let central bankers, who caused this problem, set the ground rules?

    4. Keynes said gold was a “barbaric relic”. I am no Keynesian but he does have point, doesn’t he?

    I am a libertarian. I believe in complete liberty in money creation and acceptance so it is none of my business what people use for money. However, unless we truly are barbaric there is at least one better form of money than PMs even in a truly free market without legal laws. What is it? Good ole common stock. It has value just like gold yet it is at most just pieces of paper backed by the rule of law.

  13. TPC .. the other aspect of the “fiat money crisis” fear (other than the Euro) is the unfunded future liabilities.

      • “Unfunded” = US gov future liabilities (medicare, social security etc.).
        The fear is that the government will not be able to afford these, and printing will be chosen rather than austerity or benefit cuts.

  14. I agree, I think TPC is absolutely correct.

    Bubbles always last longer than we expect them to last.
    Not being in a bubble as it grows is like missing a fast moving train. Or as if you got out of the elevator to haven and it just keeps going higher until one day for no special reason the rope breaks and you realize how much higher you are having gotten out to soon out of this irrational dream world.

    Until this happen believer’s will rationalize there position. Just as they did with the Internet bubble the so called new economy P/E ration where a thing of the past it was now cash burning rates and sales to prices etc. The real estate bubble was unstoppable, bricks and cement can’t go wrong with that. Oil at $147.00 where is peak oil now?

    Now Gold is going up, up and up but that’s ok since we are told that Gold is not a normal commodity.
    Does this not sound familiar? The famous words “It’s different this time” is it not?

    No one can tell how long this one will last since this is an international, world wide extravaganza including the Chinese and they love gambling but when it ends it will no be nice.

  15. Speaking of hyper-inflation, isn’t the solution to just set reserve requirements to 100% ?

    • Interesting idea, but how do we unwind the current system? Changing the reserve requirement would have to be a very slow unwind and it would likely involve an unbearable amount of deflationary pain.

      I think the same effect could be achieved through proper bank regulation. If we don’t allow these banks to turn into casinos that carry huge solvency risk (instead make them more like utilities that serve the economy) then we mostly eliminate the fear of bank failure and bank runs. The USA should also implement a full guarantee on deposits.

      • “Interesting idea, but how do we unwind the current system? Changing the reserve requirement would have to be a very slow unwind and it would likely involve an unbearable amount of deflationary pain.” TPC

        First of all, government backed fractional reserve lending in a government enforced monopoly money supply is simply a government backed counterfeiting cartel; it loots savers via negative real interest rates and drives borrowers into debt they can’t repay when the money supply shrinks. So, reserve requirements should be set to 100% to put an end to that, at least in government enforced monopoly money supplies. That would then allow the government to safely distribute a sufficient amount of debt-free legal tender to all adults in the population to reverse the past injustices of the current system. Debtors could pay down their mortgages to current market price levels and savers would be compensated for years of artificially suppressed interest rates. The banks would be made whole too in nominal terms. Of course, there is no free lunch so the banks would lose in real terms or at least not gain the advantage of having some of the few remaining dollars in a deflating money supply.

        “I think the same effect could be achieved through proper bank regulation. If we don’t allow these banks to turn into casinos that carry huge solvency risk (instead make them more like utilities that serve the economy) then we mostly eliminate the fear of bank failure and bank runs.” TPC

        I am a libertarian so I believe in a minimum of regulation; just the usual laws against fraud and insolvency. What we need are optimum money solutions which only the free market can provide. That would require the elimination of legal tender laws (after the reset proposed above), the abolition of the capital gains tax and the elimination of government privilege for any money such as FRNs. As for government moneys, let them be legal tender only for government debts (Render to Caesar only what is Caesar’s) backed by their taxing authority.

        “The USA should also implement a full guarantee on deposits.” TPC

        The private insurance market should be sufficient, IMO. I believe that government privilege is the cause of our problems not a solution.

        • The problem though is that the loans are in the system because there is demand for those loans. The fact that these banks lend out more than they have in their coffers is a result of excess private sector debt. That will exist as long as there is demand. So we could increase reserve requirements, but the demand for loans will remain. So what do we do? Increase the # of banks by 10 times? In the end, we have essentially the same exact system without the high level of solvency risk at each institution.

          As for regulation – the last 20 years should be proof that the private sector cannot regulate itself.

          As for insurance – the private sector cannot be relied upon to back all debts. Especially in times of crisis. At the end of the day there is only one institution large enough and powerful enough to back all debts and guarantee payments. Relying on the private sector to do this in time of panic is a recipe for disaster.

          I have a huge amount of respect for the Libertarian movement, but I just don’t think it’s a very realistic position. Government can and does do good things for the citizenry of the USA. The war entangled history of the USA is by far the surest example of this. We have quite literally fought our way to the top and established a very desirable place to live in doing so. Unfortunate in many respects, but a great showing of government good for the people.

          I should add that this does not mean I am an advocated of trampling other nations and policing the world, but we have fought many injustices throughout our history and it has established quite a great place to live in my opinion.

          • “So we could increase reserve requirements, but the demand for loans will remain. ” TPC

            Well, if the banks could not create money then interest rates would rise till the supply of loans equaled the demand for them.

            However, that is besides my point. After a just reset, I advocate total liberty in money creation and acceptance subject to the usual laws against fraud and insolvency. Let banks practice fractional reserves as they wish but only in their own PRIVATE money supplies not in a government money supply. Or allow banks to practice FRL with government money too but with no government backing
            and ruthless enforcement of insolvency laws.

            “I have a huge amount of respect for the Libertarian movement, but I just don’t think it’s a very realistic position. ” TPC

            Liberty is extremely practical. The problem is, we have not had it since 1913 at the latest.

            • The 20th century was a pretty good time to be an American. There has been, arguably, no greater period of prosperity, innovation and societal advancement in any civilization in history.

              • “The 20th century was a pretty good time to be an American.” TPC

                Well, there was the Great Depression that blighted the lives of many Americans and which directly led to WWII and the deaths of 50-86 million non-Americans. And as Ben Bernanke admitted, the Fed caused the Great Depression. And after that, there was the terror of nuclear annihilation as we learned that fascism beats communism in an economic race.

                Fractional reserve lending has worked well after a fashion despite the fact it is dishonest and unstable. There are better ways to do money, I’d bet. Let’s allow liberty and see?

                • What do you propose? A reversion to the gold standard? Changing reserve requirements would not necessarily fix the system. In its current form FRL only strengthens the oligopoly, but does not necessarily change the amount of money in the system which is an exogenous effect.

                  • “What do you propose? A reversion to the gold standard?” TPC

                    Heavens, no! Government should simply get out of the money business except for issuing its own money to be used for tax purposes and enforcing the usual laws with regard to fraud and insolvency. The free market would then provide money solutions for the private sector. BTW, I predict that common stock would win out over precious metals because it is much more flexible, just, democratic and stable since it does not require fractional reserves, lending at interest or even lending at all. Currently, capital gains taxes prevent the use of common stock as money in addition to legal tender laws, the FDIC, and other government privileges for FRNs.

                  • “In its current form FRL only strengthens the oligopoly, but does not necessarily change the amount of money in the system which is an exogenous effect.” TPC

                    OK, I see where the confusion is. FRL multiplies the exogenous money into credit which I refer to loosely as money also. It has the same effect; it drives up prices. I suggest we replace most of the credit money with legal tender fiat and ban FRL till we have fundamental reform. I guess I am suggesting the US Treasury create enough legal tender fiat to payoff every mortgage in the US and distribute it equally to every adult in the US.

  16. The great thing about watching Luc Longley play was that you didn’t need a replay…seems like an apt benchmark to me.
    Agree that the spectre of the ‘USA is next’ is looming, and that austerity measures are just as contagious as rising credit spreads. The odds of a self reinforcing double-dip are shortening.

  17. F. Beard

    Good point as you mention share certificates “just pieces of paper backed by the rule of law” they dont need to have an aditional intrinsic gold valuation ?
    We need an acountable form of Government instead of digging gold out of the ground just to bury it again in bank vaults”.

    • “they dont need to have an aditional intrinsic gold valuation ?” Firts

      You got it, I think. Conventional money is an unnecessary and unstable intermediary in common stock transactions.

  18. I’m 100% in agreement with TPC here, even if only for the fact that goldbugs are quite an interesting group who seem to have some real fundamental flaws in their logic. For one, how can you believe in the destruction of currencies (and thus global financial collapse) and be spending so much money on a useless yellow metal?? Who’s going to want your yellow metal when there’s no way to get food/water/shelter? We’re much more likely to move backwards to a bartering system than using gold as a currency. I’d be going for lead and gunpowder if I believed that….

    Gold is attractive because its perceived as the new brainless investment. Its the new Buy/Hold play and looking at a chart along with the doom and gloom media convinces people that its an easy way to make money. Those silly “Cash4Gold” commercials aren’t helping either (and certainly fleecing a lot of desperate suckers). Spot prices aren’t even showing the massive physical premiums people are paying to get Gold. I’ve never seen spreads like those used by gold dealers – that should tell you something (reminds me of NYC’s midtown electronics stores). Besides that, mining for gold is one of the most destructive industries out there as the vast majority of it is done using mercury which invariably runs off into rivers, lakes and oceans. I mean, how can it be that a open water fish like Bluefin Tuna shouldn’t be consumed more than once a week due to toxic mercury levels or Inuit woman having toxic breast milk due to mercury? Poisoned life on the fringes of civilization is a horrible failure we’ve brought about. I wouldn’t encourage this industry on those grounds alone (beside the fact that I think its a waste of capital).

    You’re better off with a multi-currency cash horde stored under your mattress. At least you can take that out and carry it around.

    • armeggedon would definitly take bullets to trade with…….but we are talking about a commodity that is up 352% in 10 years while the DOW is flat…..just a temporary investment.

      the mercury u are refering to is used by poor s. americans to capture very little gold, not REAL gold miners……..the burning of coal for electricity produces hundreds of thousands of times the mercury….as is the lead left over from gasoline octane enhancement….its everywhere son, and all of it is deplorable…..own any energy stocks lately?

      but i don’t expect you to like gold as an investment.

      as for a bed of currencies……i’ll sit down with you here in 2-4 years while we are both shorting gold, and i’ll tell you what i made on the runup…

      as always, thats what makes it a market, and to each his own, and i always appreciate your comments.

      PS, apple is up 20,000x inception, and a guy i know bought an ipad w/2 unemployment checks,irrational u think?……someday aapl will be worth zero……now thats a bubble……one i rode some of,matter of fact.

      • Boatman,

        I too always appreciate your posts – I would say I’ve certainly learned much more here than I’ve taught anyone!

        I totally understand what you’re getting at in terms of polluting effects of mercury. However, I wanted to frame it in the context of my post as a whole: given that gold has little industrial value (though what it is used for is certainly important), why pollute the earth digging up, aggregating, and burying back again? The other examples you mentioned are unfortunate, yet necessary evils to supply our digitized/motorized/power hungry society. And no, I don’t own any energy stocks at the moment – though I certainly have invested in them in the past and certainly plan to do so in the future.

        The problem with the argument that gold is up 350% is that it wasn’t a straight run up, most of the move was in the past 4 years, and one would have to tie up tons of capital to make a relatively small absolute return. It’s been more of a “two steps forward, one step back” rally with gold having periods of fairly sizable sell offs and lots of stagnation. Saying that the DOW is flat over 10 years pretty much makes my point – gold as an investment is attractive because it lounges under the banner of “Buy and Hold”. For me, investing is hardly ever a buy and hold strategy (unless you’re investing in your own company) and the greatest gains come from being an active investor/trader.

        I’ll be glad to have that convo in 2-4 years, but I’ll tell you right now that I’ve pretty much only got 2 currencies – Euros and good ‘ol greenbacks – and that’s really just the denomination of my assets (minus my short term cash position). But I don’t plan on sitting on the sidelines during that time and have little doubt that I can outperform gold on my own. Then again, I find the markets intriguing and its like a game to me so I don’t have any problem chasing the next hot trend. But rest assured, I’ll definitely be there as the herd stampedes towards the really small doorway – it was tons of fun shorting oil at $150! By the way, I saw Beowulf in 3D a few years ago and immediately bought IMAX stock afterwards. Made a nice profit sold out and watched it crater. Was too scared to jump back in at around $3-4 and have been kicking myself since considering the reason that I liked it to begin with. That’s a few hundred % in a much smaller timeframe.

        I’m totally on board with the AAPL call. The company has had great success in waking up from the graveyard. But from an investment perspective as well as a technology perspective, I really dislike it. I will admit that I did help a friend make some nice coin showing him how to write options on his losing position as it dropped back down to fair value last year. But this company will inevitably have to take a knee under the weight of Jobs’ ego.

        • unfortunately, Jobs might not be around to do spout anything…..a “whipple” procedure to deal with pancreatic cancer has an abismal success rate,even medium term…..i know too much about medicine to need doctors, as i know too much about investing to need a financial planner…….but thank god i don’t know everything…..and never will.

          any long gold money i have is that which has been way off the radar screen for years……everything else is a trade.

          euro bouncing back some…….and look, gold “directly” coupled to dollar again, but doing better than it.

        • and IB, “cash for gold” is on a par with renting furniture and TVs…..doesn’t mean owning a TV is a bad idea……..renting a TV what a suckers concept, like spending your paycheck on the lotto-”a tax for the mathmatically challenged”


  19. Does the reason matter??

    The “voters” in the stockmarket say buy

    What else do you need to know?

    The price of gold is going up.

    JPMorgan (Short-Gold) put out a BUY BUY BUY recommendation on GOLD

    It seems the door is not wide enough to UNWIND the MASSIVE SHORT POSITION JPMorgan sits on—Only the price action will tell.

  20. Gold is attractive because its perceived as the new brainless investment.

    Yep. In addition to that, gold has also become a proxy for expressing tea-party style resentments ear of the political system. It’s an ideological statement, more than it is an investment choice per se.

    If gold was a currency, it would be worth far more than it is today, and it would track inflation. Of course, it isn’t, and it doesn’t. Sadly for the goldbugs, it’s just a commodity in the same way that wheat and pork bellies are commodities…well, except that wheat and pork bellies make for a nicer lunch.

    • Yup! And the biggest difference between the precious metals and every other commodity is that the rest are actually consumed!

      Then again, in India its popular to serve some desserts covered in silver or gold leaf…

  21. Ah the sweet religion that is goldbug-ism.

    Price is irrelevant. Just buy it. No reasonable metrics apply because its different this time. If everyone did business in gold it’s price would be 60,000$ an oz!!!!!

    The “Great Reset” where every citizen will barter with gold coins and lugs 40lb safes around with them is near.

    The dollar is being debased. ( Nevermind the fact that the money supply is CONTRACTING!!!!!!!!!!!!!!!!!!!! )

    Surf on brothers! Some you you will get out alive. But most of you won’t. That is a mathematical necessity.

    But I hope the shit goes to 2,500/oz. It’ll create more downside fun. Maybe its just my personality – i’m too optimistic.

    The “SKY IS FALLING STRATEGY” has been proven wrong far too many times to ignore. I know, I know, this times its different.

    I’d rather starve and die if we go Mad Max, than be sittin around looking at a stack of gold @ 500 an oz when the S&P goes to 2000 and spits off 4% dividends.

    Hey I’m pretty grumpy – maybe I COULD be a goldbug.

  22. TPC,

    I agree with your initial thoughts, but believe that your later thoughts will be proven wrong (that’s just my opinion). I think that deflation is currently the secular theme, but fiscal and moentary authorities have fired their first bullet (unfortunately in the wrong direction that only helped banksters!) and there is little tolerance for something else so soon. As deflation takes hold and markets fall hard, I believe that gold will also fall (and ironically enough US $ and US bonds will rise and remain strong). However, that is where I end agreeing with you and begin to differ – Bernanke will panic and announce an absolutely ape sh%^ crazy QE 2 program…convinced that this is the only approach. Me thinks something stupid like $5 trillion or something like that. Yet again, most of this will be misallocated and misspent and other than providing another short term bandage, it will also fail. However, with this massive money printing, we will get inflation. And gold will rise and possibly soar.

    Short term bear on gold, long term super bull because Bernanke will do whatever it takes to debase the $ (note that I am not saying that the US will “default”, won’t happen, ever) and that will result in gold soaring.

  23. TPC – congrats! you managed to write a post about gold (anti-gold, in fact) without inciting a massive flame war in the comment section! i am impressed. As i said last week, the only topic that gets people more fired up than MMT is gold… somehow you managed to avoid the backlash on the gold piece – take that as a complement that your piece must be good!

    • Kid Dynamite-

      I also read your blog on occasion, and good job with it.

      The reason a massive flame war erupts when you say anything negative about gold is it is like a religion to those that are invested in it. Most do not listen to reason, and can only see as far as their emotions take them. Couple that with the fact that they are on the winning side of a trade, and it just makes things that much worse.
      However, most of the most emotional people about the topic are also the most illiterate. Their posting indicates this…

      That’s why I stopped posting at sites like a certain fight club knock off. I’d say that places like here and Mish’s site are filled with much more rational people, even if I always don’t agree.

      • I think most of the readers here are too smart to bother with BS. TPC is genuinely interested in making money and perhaps influencing public policy if he can. It shows in his writing. This site is no BS. That’s my favorite thing about it. It cuts straight to the point.

    • take a seat,kid,the day ain’t over yet……..but i can’t figure out what it is gets everyone so freaked out about it.

  24. There are a couple of things that I’d like to say about gold.

    I’ve noticed that when most people are bullish on something (as has been the case in gold recently) that the end is near. Everywhere I look, I see ridiculous predictions about the future price of it, and nobody thinks that it will ever be down, despite it’s run up of 500% since 2001.

    The charts of gold look even worse, especially the monthly. We have a rising wedge nearing completion with double negative divergences on MACD and RSI. I’d say that the top of the gold market is about 1300ish before the drop happens, and I’d say that the drop happens before the end of the summer – barring that it overthrows the wedge temporarily.

    Gold is the “no brainer” trade, like housing was in 2006, and like dot com stocks were in 2000. When something is a “no brainer” it is about to get brained.

    Just look at a site like zerohedge to see all the irrational predictions about it that you need. Gold to 50000? Ummm… yeah. Maybe 30 centuries from now. LOL. It took ten years to rise 500%. It’s not going up another 4000% any time soon.

    Buying physical is a sure way to make the investment in gold as illiquid as possible. While other people are scrambling for the exits, the holders of physical will be among the last to get out. It’s a financial move that is just asking for death.

    I wish everybody well in their investing, but it’ll be great to see the Glenn Beck types taken out when the wedge finally breaks down.
    This is still America. We are nothing like Zimbabwe or Weimar Germany. The sun will come out tomorrow, and when it does, expect a post 1980 style whoopin to hit gold.

    • well listen to you all about the sunshine and america…..and of course i agree.

      but you ain’t SEEN bullish on gold yet……..just because Cramer mentioned it.

      when my next door nieghbor is buying,i’m selling….n believe me he ain’t buyin yet.far from it.

      • I see commercials to buy gold, everybody on CNBC is pumping gold, the Faux News people are pumping gold, my barber was talking about buying gold, my mom was talking about buying gold, my pot smoking buddies that don’t invest are saying now is a good time to buy gold. Pretty much everybody is bullish on the stuff.

        I don’t really see any bears anywhere on it, except for on this site.

        I’d say that 95% of people are bullish on it, at least.

        • Yeah, lots of people TALK about gold, but that’s VERY different from taking a risk on owning it. How many barbers, pot smokers and moms do you know of who have actually traded some of their hard earned cash for some of the “yellow dog”? Talk is cheap…

  25. “What is your long-term outlook for inflation, the dollar, and gold?

    Inflation is part of the way societies sweep away the old order. All currencies eventually get debased – like it or not. Compute one penny invested at the time of Christ, compounded at 3 percent per year. Then consider why nobody has anywhere near that amount these days.

    Gold tends to be dug up, refined, and then buried again. The geographical entropy of all gold on the planet seems to decrease over time. A lot has been collected in vaults. I project the trend as one toward a central world gold stash.”

    - Ed Seykota, Market Wizards
    (Father of computerized trading and a 60% annual return net of fees…for 30 years)

    • “Compute one penny invested at the time of Christ, compounded at 3 percent per year. Then consider why nobody has anywhere near that amount these days.” In Banking

      Because conventional money and banking loots wealth rather than shares it and is unstable to boot when it uses fractional reserves?

      I notice the common stock company is only 400 years old. If it were only cut loose from the underlying unstable money and banking system then I predict we could have a golden age for a while. Otherwise our unstable system is going to kill a lot of us sooner or later.

      • Well, he’s trying to show that nothing retains value over time.

        If gold always retained value, why is it only 828 pounds sterling?

        • I’m no gold bug. Gold is the fallback position of fractional reserve bankers. I’ll have nothing to do with it. Instead, I’ll lobby for liberty in money creation and usage and hopefully leave the bankers holding gold with only commodity value. It’ll serve the bastards right.

          • Well gold will always serve a purpose in that respect. If two countries don’t care to hold reserves of eachother’s currencies, they’ll transact through gold crosses. We do this all the time with swaps. But this isn’t investing in gold any more so than driving to the beach is investing in the highway

          • good luck with that lobbying for liberty, F……i truely wish you all the luck in the world.

            • Thanks. “There is nothing so powerful as an idea whose time has come.” In any event, knowing how things SHOULD BE gives one an edge in speculating in the world as it IS.

      • “I notice the common stock company is only 400 years old. If it were only cut loose from the underlying unstable money and banking system then I predict we could have a golden age for a while. Otherwise our unstable system is going to kill a lot of us sooner or later.” (F. Beard)

        But the stock market has also become a fractional reserve system, albeit one with a 50% reserve ratio rather than the 10% reserve ratio of the banking system. When a broker loans their clients shares to a short seller, that creates a situation where two people each have an unencumbered claim to the same shares — in other words, the original owner and the person who bought the borrowed shares from the short seller can each demand that their shares be delivered to them. If everyone at once were to demand that their shares be delivered to them (similar to a run on a bank), only one could receive the actual shares and the other would be stuck with the short sellers worthless IOU. The stock market fractional reserve system is somewhat less out of control than the banking system but it really is the exact same fraudulent system, counterfeiting of warehouse receipts, that you mentioned earlier. Both fraudulent systems must be outlawed if we are to have truly honest and sound money and a truly honest and rational market.

        • Interesting point about short selling but the difference between short selling and FRL is that the common stock actually exists in a short sell whereas the banks create (counterfeit) money as they lend it. Naked short selling is counterfeiting though. Actually, Bernanke wants to do away with reserve requirements for banks. Mish Shedlock says there are “fictional reserves” anyway.

          • The only difference is in the reserve ratio. Banks are allowed to legally counterfeit $9 for every $1 of their depositor’s dollars they hold in trust (a 10% reserve ratio); brokers are allowed to legally counterfeit 1 share for every 1 of their customer’s shares they hold in trust (a 50% reserve ratio). Actually, I’d say that dollars are in fact backed by all assets owned by the Federal Reserve banking system (in other words, they are in a sense a share of that government sanctioned coercive monopoly). The creation of new dollars by the Federal Reserve is just a dilution of its shares, the same as when any other company issues new shares with no increase in the assets backing them.

          • I thought I should add that the reserve ratio isn’t really the issue here. To restore a truly honest and sound monetary system, the real requirement must be that banks can ONLY loan funds for which their depositors do not have an unencumbered claim. Banks hold (at least) two different kinds of deposits. Most normal checking accounts are considered “demand” deposits, meaning that the depositor has the right to demand at any time that the funds be returned to them without restriction or penalty. Various types of savings accounts and certificates of deposit are usually contractually encumbered in some way, meaning that the depositor cannot always demand the return of those funds without restriction or penalty. Banks should ONLY be allowed to loan out funds that are contractually encumbered, with restrictions and penalties upon any immediate return; they should not be able to loan out demand deposits, funds to which a depositor has has an unencumbered claim. In other words, the answer is in enforcing the rule of law (in enforcing contracts). In that case, there would be no counterfeiting involved because, since the depositor is encumbered by contract from accessing those funds, the bank can loan them without creating a second (counterfeit) claim upon those funds. Our banking system used to work that way. The problems started when the laws were changed allowing banks to only maintain a reserve ratio of all funds held (including demand deposits) rather than being able to only loan out contractually encumbered funds.