A Few Timely Remarks About Gold, Silver And The Gold Mining Index
We made a negative remark few weeks ago about gold and I want to follow up with a more detailed post. When I start to hear remarks that gold is headed to $10,000 an ounce given it is little more than $1,000 an ounce, it's time for a gold update. Any calls for gold to hit $10,000 an ounce are based on a future that is clearly not reasonable. These types of predictions are often made from people who haven't been very good at predicting anything. We've had the biggest global money bubble in history over the last two decades and over the last year or so the political baboons in every country on earth have spent other people's money like drunken sailors. Yet for all of that, gold has risen a few hundred bucks since the 2008 economic crisis and to $1,200 overall. Not chump change but not anywhere near a 1,000% rise now being talked about.
Additionally, the HUI (gold mining index) and silver haven't risen at all since before the 2008 collapse. But the most hated asset amongst most gold bulls (and one of my favorite investments), the dollar, has risen quite nicely. When the financial savants were talking about gold's rise being tied to a declining dollar, we said the dollar and gold could eventually rise in unison, and if that happened, the world was going to be a very unpleasant place. And, that is indeed what is happening. Unpleasant? . We haven't seen anything yet.
Gold's shine is about Wall Street's liquification of the shiny metal more than anything else. In other words, in a certain sense gold is no different than a credit default swap or a mortgage backed security or crude oil; financial demand for gold has increased thousands upon thousands of percentage points over this cycle as Wall Street creates more and more leveraged vehicles for gold gamblers in the form of options, futures options, gold mini futures contracts, gold ETFs and on and on. While some central banks are adding to their gold supply ( central banks that have already been proven to be perfectly and completely incompetent including China, Russia and the Middle East oil fiefdoms, yet are somehow cited by gold bulls as constructive reasons to own gold. Certainly gold bulls are not in the company of genius.), the financial demand for gold is not sustainable as we have discussed before. As an example, we remarked that these countries could become net sellers of gold when their economies unwind, something I fully expect is a high probability.
Gold is at $1,200 an ounce because the Federal Reserve bailed out the gold speculators. It's that simple. Gold remains a bubble. But that's not a new position on here. As we highlighted before and after gold's 2008 crash, we already know what gold is going to do if we have future liquidity shocks or unwindings; gold imploded during the last liquidity crisis and unwinding in 2008. Recently, as an example, Congress is warring with the IMF to block more dollar funding for sovereign bailouts. And subsequent to that, the IMF is pushing global austerity measures. These are nightmarish developments for the global economy and very bearish for gold. More bearish developments yet to come.
Effectively, what we see is a mini cornering of the gold and silver markets by financial speculators using countless leveraged instruments. All courtesy of the Federal Reserve and free taxpayer money. (About four years ago we wrote on here the Fed wasn't fighting inflation, it was fighting financial speculators. There is no inflation. There is only financial speculation.) The Federal Reserve, the savior of gold bulls, is the very organization these speculators seek to protect themselves from. How ironic eh? It's a little like labeling someone a robber but then freely taking money from them. There's a lot of circular logic in the gold market. Another example is that speculators are constantly squawking that banks and central banks are shorting gold or selling gold into rallies to push down the price. And if that is true, then so what? Gold speculators are often taking free money from the Federal Reserve to leverage up in an attempt to drive the price of gold higher. And regardless of whether they are taking free money from the Federal Reserve, they are distorting the price of gold with all of the leverage instruments Wall Street has created. It's all a game of great hypocrisy.
Gold is not a store of value. Gold is not money. And the dollar cannot be devalued against gold as was the case in the 1930s. (Some mentally-challenged financial "guru" has been arguing that devaluing the dollar against gold is the Fed's secret weapon. WTF? Do you live on planet earth?) If you believe the dollar is going to zero, I have news for you. The government makes the rules and unless you foresee the end of civilization and the United States, you are fantasizing about a reality that doesn't extend beyond your frontal lobe. ie, You suffer from dementia. Gold bugs have fifty reasons why the shiny metal is at $1,200. Their reasons change like the direction of the wind. That should be scary in itself. Gold is going higher for one reason. Unsustainable financial demand. The trading genius may be in an out of gold at the right time to make a profit but most people aren't traders. That includes most professionals.
Gold bugs are often right to be concerned about fundamentals and as we have noted many times on here, I respect the action of the shiny metal. But how many gold bulls are going to tell you the Federal Reserve has bailed out the gold speculators (and silver) and that has propped up the gold market? (They have also bailed out other central banks and that has allowed China, Russia and the Middle East fiefdoms to continue buying gold....for now. All good things come to an end.) Otherwise, gold, silver and mining stocks would have kept imploding like every other asset. And that includes equities that would have kept imploding. That doesn't fit into the general conspiracy or notion of most in the gold market so you'll probably never read anything from a gold bull of any sort. The Federal Reserve is most often the enemy of the gold bull and to believe they are benefiting from bailouts isn't consistent with a world where gold is supposed to protect one from the Federal Reserve. If you think the Federal Reserve is going to keep giving away more and more free money to financial speculators to fuel their gambling habit while the economy suffers, then you should own gold. That's not a wise bet.
My bearish remarks about gold a few weeks ago weren't just for grins and giggles. HUI demand is waning and global liquidity is once again trading at a premium. The HUI and silver are looking mighty toppy as fundamentals start to shift again. That they have been unable to break past the 2008 peak is looking mighty disconcerting at this point in time. Does gold have further to run? It's all about demand. But if the economy is getting ready to take another leg down, we saw what happened the last time. Gold, silver and the HUI imploded. I guess we are about to find out.
HUI Index
Silver
Gold
Additionally, the HUI (gold mining index) and silver haven't risen at all since before the 2008 collapse. But the most hated asset amongst most gold bulls (and one of my favorite investments), the dollar, has risen quite nicely. When the financial savants were talking about gold's rise being tied to a declining dollar, we said the dollar and gold could eventually rise in unison, and if that happened, the world was going to be a very unpleasant place. And, that is indeed what is happening. Unpleasant? . We haven't seen anything yet.
Gold's shine is about Wall Street's liquification of the shiny metal more than anything else. In other words, in a certain sense gold is no different than a credit default swap or a mortgage backed security or crude oil; financial demand for gold has increased thousands upon thousands of percentage points over this cycle as Wall Street creates more and more leveraged vehicles for gold gamblers in the form of options, futures options, gold mini futures contracts, gold ETFs and on and on. While some central banks are adding to their gold supply ( central banks that have already been proven to be perfectly and completely incompetent including China, Russia and the Middle East oil fiefdoms, yet are somehow cited by gold bulls as constructive reasons to own gold. Certainly gold bulls are not in the company of genius.), the financial demand for gold is not sustainable as we have discussed before. As an example, we remarked that these countries could become net sellers of gold when their economies unwind, something I fully expect is a high probability.
Gold is at $1,200 an ounce because the Federal Reserve bailed out the gold speculators. It's that simple. Gold remains a bubble. But that's not a new position on here. As we highlighted before and after gold's 2008 crash, we already know what gold is going to do if we have future liquidity shocks or unwindings; gold imploded during the last liquidity crisis and unwinding in 2008. Recently, as an example, Congress is warring with the IMF to block more dollar funding for sovereign bailouts. And subsequent to that, the IMF is pushing global austerity measures. These are nightmarish developments for the global economy and very bearish for gold. More bearish developments yet to come.
Effectively, what we see is a mini cornering of the gold and silver markets by financial speculators using countless leveraged instruments. All courtesy of the Federal Reserve and free taxpayer money. (About four years ago we wrote on here the Fed wasn't fighting inflation, it was fighting financial speculators. There is no inflation. There is only financial speculation.) The Federal Reserve, the savior of gold bulls, is the very organization these speculators seek to protect themselves from. How ironic eh? It's a little like labeling someone a robber but then freely taking money from them. There's a lot of circular logic in the gold market. Another example is that speculators are constantly squawking that banks and central banks are shorting gold or selling gold into rallies to push down the price. And if that is true, then so what? Gold speculators are often taking free money from the Federal Reserve to leverage up in an attempt to drive the price of gold higher. And regardless of whether they are taking free money from the Federal Reserve, they are distorting the price of gold with all of the leverage instruments Wall Street has created. It's all a game of great hypocrisy.
Gold is not a store of value. Gold is not money. And the dollar cannot be devalued against gold as was the case in the 1930s. (Some mentally-challenged financial "guru" has been arguing that devaluing the dollar against gold is the Fed's secret weapon. WTF? Do you live on planet earth?) If you believe the dollar is going to zero, I have news for you. The government makes the rules and unless you foresee the end of civilization and the United States, you are fantasizing about a reality that doesn't extend beyond your frontal lobe. ie, You suffer from dementia. Gold bugs have fifty reasons why the shiny metal is at $1,200. Their reasons change like the direction of the wind. That should be scary in itself. Gold is going higher for one reason. Unsustainable financial demand. The trading genius may be in an out of gold at the right time to make a profit but most people aren't traders. That includes most professionals.
Gold bugs are often right to be concerned about fundamentals and as we have noted many times on here, I respect the action of the shiny metal. But how many gold bulls are going to tell you the Federal Reserve has bailed out the gold speculators (and silver) and that has propped up the gold market? (They have also bailed out other central banks and that has allowed China, Russia and the Middle East fiefdoms to continue buying gold....for now. All good things come to an end.) Otherwise, gold, silver and mining stocks would have kept imploding like every other asset. And that includes equities that would have kept imploding. That doesn't fit into the general conspiracy or notion of most in the gold market so you'll probably never read anything from a gold bull of any sort. The Federal Reserve is most often the enemy of the gold bull and to believe they are benefiting from bailouts isn't consistent with a world where gold is supposed to protect one from the Federal Reserve. If you think the Federal Reserve is going to keep giving away more and more free money to financial speculators to fuel their gambling habit while the economy suffers, then you should own gold. That's not a wise bet.
My bearish remarks about gold a few weeks ago weren't just for grins and giggles. HUI demand is waning and global liquidity is once again trading at a premium. The HUI and silver are looking mighty toppy as fundamentals start to shift again. That they have been unable to break past the 2008 peak is looking mighty disconcerting at this point in time. Does gold have further to run? It's all about demand. But if the economy is getting ready to take another leg down, we saw what happened the last time. Gold, silver and the HUI imploded. I guess we are about to find out.
HUI Index
Silver
Gold
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