Wednesday, December 14, 2011

Is The Gold Bubble Finally Peaking? HSBC Sues MF Global Over Gold

Now might be a good time to remind readers what we have consistently said on here.  Gold is a bubble.   Physical demand for gold has been falling for about two years.  But, paper demand for gold has been rising.  And that paper demand has been rising using greater and greater leverage through paper products created to allow greater and greater leverage.  None of that is new to long time readers.  But, today gold is being taken to the wood shed and is down about 5%. 

Now, no one knows exactly when that gold bubble will pop but please be assured, the price of physical gold has been driven substantially by leveraged financial demand for gold from hedge funds and financial speculators.  And, remember, we have said that at some point, big buyers of gold like China and Russia are either going to become net sellers or will no longer be large buyers as their economic Ponzi schemes are exposed.  ie, It’s hard to be a net buyer of gold when your country is exposed as being broke.   

The gold bubble is no different than any of the other “paper” bubbles created by a banking system run amok be that the technology bubble, the housing bubble, the commodities bubble, the stock market bubble, the debt bubble, the financial employment bubble or any of the other bubbles we have written about on here.   They are all a myth.   That myth was exposed back in 2008 when gold collapsed.  And we said it would.  But then gold buyers were bailed out by the Federal Reserve. 

With this MF Global fiasco, it seems some people might be starting to understand the dark side to the leverage we see in the gold market.  And, as we have said before, that the Federal Reserve won’t be bailing out the buyers of gold again as they did in 2008.  MF Global is a proof point of that.  That means investments in gold, be it physical or paper, are not quite as safe as people’s faulty beliefs thought they were. 

The biggest buyers of gold are the status quo.  If you think the status quo is going to come out on top, then as we have said before, you should be buying gold.  If not, you might want to think for yourself rather than listening to all of its religious preachers who are essentially selling people a vision of a savior that does not exist any place but in their mind.  And, that is exactly what we have said all along.  Gold hasn’t collapsed yet.  Maybe 2012 will be the beginning of the end of the gold bubble and maybe it won’t be.  But as the financial demand for gold unwinds, we are left only with fundamentals.  Fundamental demand for gold has fallen substantially and we haven’t even hit the knee of the curve of the coming crisis we have written ad nauseam will make the 2008 crisis look like a picnic. 

One thing is certain.  Gold is not a safe haven.  It never was and a lot of people are likely to lose their ass in gold just as they will in other financial speculations because they outsourced their thinking to foolish ideologues.

Title link here.

posted by TimingLogic at 2:28 PM

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