Let's talk about the gold market

[thriftyandboringinohio]

Re: Let's talk about the gold market

Here'r a 5 year gold chart. Higher highs and higher lows.
Despite the strong evidence for deflationary forces, it does not seem to show that the dollar is buying more gold.



On the troubles at Comex, I've become pretty jaded. People have made convincing arguments for ten or twenty years that the exchanges are just about to run out of gold but it never happens. As jk points out, it ain't really a true commodity exchange any more. Most customers are happy to settle contracts in cash rather than gold, a profit is a profit. It makes sense if you believe gold is more money than a commodity.

[kbird]

Re: Let's talk about the gold market

On the troubles at Comex, I've become pretty jaded. People have made convincing arguments for ten or twenty years that the exchanges are just about to run out of gold but it never happens. As jk points out, it ain't really a true commodity exchange any more. Most customers are happy to settle contracts in cash rather than gold, a profit is a profit. It makes sense if you believe gold is more money than a commodity.

It appears that the physical gold shortage at Comex was solved by shipping gold from the LBMA. But what happens when the troubles at Comex also spread to the LBMA?

https://www.goldmoney.com/research/g...o-why-the-fuss

[jk]

Re: Let's talk about the gold market

aug 15, 1971 nixon took the dollar off the gold standard. aug 15, 2020 is supposed to be an announcement of a u.s.-china trade deal which is said to have an undescribed currency component. perhaps the recent rocketing of gold is frontrunning that. perhaps.

[GRG55]

Re: Let's talk about the gold market

aug 15, 1971 nixon took the dollar off the gold standard. aug 15, 2020 is supposed to be an announcement of a u.s.-china trade deal which is said to have an undescribed currency component. perhaps the recent rocketing of gold is frontrunning that. perhaps.

Nobody that really counts wants Chinese currency. They all want US$. Even the Chinese. The looming issue for the PBOC is the reduction of US$ from export trade flows since the virus spread. It is trying to manage the exchange rate of the CNY, which is presently an exercise of propping it up. That means selling US$ against the CNY.

[kbird]

Re: Let's talk about the gold market

Nobody that really counts wants Chinese currency. They all want US$. Even the Chinese. The looming issue for the PBOC is the reduction of US$ from export trade flows since the virus spread. It is trying to manage the exchange rate of the CNY, which is presently an exercise of propping it up. That means selling US$ against the CNY.

Everyone is trying to manage their exchange rate, especially the United States. I don't particularly want Chinese currency, but then I don't really want U.S. currency either. The demand for gold is being driven by an increasing number of investors who want to invest in a store of value as fiat currencies worldwide get debased.

With that said, I expect any currency component of a trade deal between the United States and China represents an agreement to allow the U.S. dollar to depreciate vs. the Chinese currency, not the opposite.

[shiny!]

Re: Let's talk about the gold market

Everyone is trying to manage their exchange rate, especially the United States. I don't particularly want Chinese currency, but then I don't really want U.S. currency either. The demand for gold is being driven by an increasing number of investors who want to invest in a store of value as fiat currencies worldwide get debased.

With that said, I expect any currency component of a trade deal between the United States and China represents an agreement to allow the U.S. dollar to depreciate vs. the Chinese currency, not the opposite.

Who here thinks that there will be a major selloff in gold/silver again when/if the stock market(s) crash again, like what happened during the GFC in 2008? Or will investors hold on to it more strongly this time, as there is more concern about fiat currency debasement?

[kbird]

Re: Let's talk about the gold market

Who here thinks that there will be a major selloff in gold/silver again when/if the stock market(s) crash again, like what happened during the GFC in 2008? Or will investors hold on to it more strongly this time, as there is more concern about fiat currency debasement?

I think there would be a sell-off, but I would guess it will be closer to what happened in March 2020 than what happened in 2008.

[jpatter666]

Re: Let's talk about the gold market

Who here thinks that there will be a major selloff in gold/silver again when/if the stock market(s) crash again, like what happened during the GFC in 2008? Or will investors hold on to it more strongly this time, as there is more concern about fiat currency debasement?

Everyone is waiting for a selloff, so not expecting anything serious anytime soon.

[jk]

Re: Let's talk about the gold market

Everyone is waiting for a selloff, so not expecting anything serious anytime soon.

+1

[llanlad2]

Re: Let's talk about the gold market



It's the government and central banks response that determines the type of outcome. Faced with deflation they always choose inflation. Why will it be different this time?
AND

They will step in. They are going to blow the final bubble. Shorting this market is like shorting Tesla. It will pop when they raise interest rates and I think it's possible we see new HIGHS and LOWS in that order before the year is out. If this plays out then that will be Ka before a real investment led recovery allied with a weakening dollar.

Anyone still seeing signs of deflation anywhere?
Anyone seeing any reason the above quote isn't correct(Fed raising rates to end this melt up) other than the date?
Will a raise in interest rates make any difference if they are behind the inflationary curve?
And I know this was a gold thread but it should have been about commodoties.

[jk]

luke gromen's scenario: closest historical analogue is 1940's to early 50's, when wwii left the u.s. with very high debt/gdp. solution: keep interest rates below the nominal growth rate of the economy, i.e. maintain negative real rates, letting inflation reduce the debt/gdp ratio. the u.s. ran negative real yields for most years for decades.

thus the fed wants and needs to be "behind the curve" in terms of [real,, not fake] inflation, while the fiscal authorities need "official" inflation to stay relatively low so as not to drive cpi based changes to tax brackets, social security payments, etc.

another historical analogy- germany's ww1 reparation debts parallel baby-boomer entitlement obligations. they cannot be paid if the dollar maintains its current buying power. the entitlements + interest on the debt + defense spending are already outpacing tax receipts. these obligations cannot be met, so there must be default, either in the obvious and politically unpleasant straightforward way, or via the somewhat more subtle mechanism of reducing the value of the dollar.

another analysis: money represents claims on goods and services. as the boomers continue to retire and collect entitlement payments, use entitled medical services, etc the economy cannot produce enough goods and services for them to purchase given that other citizens, who produce those goods and services, will also be wanting to buy/use them. thus the claims must be shrunk to meet the production of the economy. politicians must either reduce entitlement payments or support inflation, reducing the real buying power of those claims without reducing their nominal value.

a major crash of the financial markets would also reduce claims, but tax receipts are significantly dependent on the capital gains taxes paid on stock transactions, and a major crash would also likely shrink consumption and significantly shrink the economy, shrink incomes and further shrink tax receipts. this would have to be countered by increased gov't spending and inflation after the deflationary detour.

so all roads lead to inflation as far as i can figure. i would be happy to have people poke holes in these arguments.

[kbird]

I remain in the inflation camp 75% and the hyperinflation camp 25%.

There might be deflation for a short period of time (ka) and there will certainly be periods of disinflation, just as there was during Weimar. But the general level of inflation is heading up and it isn't coming down again anytime soon, IMHO.

[llanlad2]

Thanks Kbird and JK.
Pretty much chimes with my view although I'm not a subscriber to a hyperinflation scenario. In that situation the money will be taxed out of existence. I've not seen it mentioned but I'm sure that's why the tax rates were so high in that post war period that you alluded to JK. It was a control on even greater inflation. It's possibly why taxes are becoming part of the discourse now.
Allowing interest rates to rise and "normalise" is obviously another tool that I expect will be used when they see things getting out of hand.
But overall yes it's difficult to see anything other than sustained inflation while Western Economies adjust.
Consequently I'm a bit more optimistic in that I see US Govt and private money going into the productive economy in a significant way which will benefit most in the medium term.

[santafe2]

The US$ is simply the sea in which investments float. One only needs to understand when a particular investment area is undervalued in relation to the dollar. It really isn't that difficult.

[thriftyandboringinohio]

With the price of oil recently showing strength we might think about the price of gold. Until 2014 there was a very tight correlation between the prices of gold and oil. In 2014 the price of oil dropped but still retains a good correlation for shape and direction. So should we expect good gains in both oil and gold this winter?

[kbird]

With the price of oil recently showing strength we might think about the price of gold. Until 2014 there was a very tight correlation between the prices of gold and oil. In 2014 the price of oil dropped but still retains a good correlation for shape and direction. So should we expect good gains in both oil and gold this winter?

It seems like there's good reason to be bullish oil and gold over the next 5 years or so. If inflation stays high and real interest rates remain below zero, hard assets like oil and gold should perform well. That said, I've been puzzled by gold's poor performance in 2021 up until this point.