Trust and Oil
Soggy Dollars
First, there’s a word for someone who buys gold in the hope its price will rise. This word is not investor, but speculator.
Second, statistical anomalies cannot be asserted as proof of manipulation. Also, the article is giving the reader the blueprint for a no-brainer way to profit by the mistakes of the manipulators. If it were that easy, then people would be doing it.
Third, with gold there is nothing to trust. Gold just is. Which is rather the whole point. If market makers are scalping for basis points, that may affect some hedge funds but it has no effect on you.
Can Investors Trust the New Gold Fixing?
Pure Gold
Contango works the same way in oil as it does in gold. Speculators bid up the price of oil in the futures market, and arbitrageurs buy spot crude to carry it for them. The basis keeps widening as this trade occurs. The only difference is that in gold, there’s always space in the warehouse. In the case of crude, storage capacity is finite, expensive, and (we assume) progressively more expensive. This article is written by someone who gets it.
Dmitri Speck has a chart that shows the price declines at the same times over a 10 year time frame. I don’t think that’s an anomaly; that’s a long term pattern.
I save for the long term in gold, so yes, the dollar price of gold won’t affect me over the long term. However, at some point I will have to sell my gold in order to live, or purchase items that I need. If the dollar price of gold has declined over a good portion of that time, as it has from 2011 to date, then gold is not a very good store of value, especially if prices for essentials such as food and medicine have not also declined in price. Fortunately for me, by basis is around $800, so the hit has not been too bad. However for those who purchased at higher price levels, they have lost value. If they have had to sell for whatever reason, then they would have been better placing their funds in cash in the bank of Sealy.
Desiring a higher price for something that you have set aside as savings is not speculation, especially in a monetary system designed with debasement as its raison detre; it is how one measures value since you have to sell the gold for currency when you wish to purchase something as gold is not legal tender, and generally not accepted in commerce for payment.
Playing in the futures market is speculation. Setting aside gold for savings and insurance is not.
Until and unless the goods which need to be purchased for day to day life decline in price substantially-things such as medicine, food, housing etc.-and gold may be sold at a price to buy a higher amount of those goods in the currency for which it is exchanged, it is hard to say that gold has been a very good store of value. It is good insurance against financial calamity, but it’s role as a savings vehicle has been diminished.
In my opinion, this is by design; the design of the Fed. They have good reason to keep the dollar price of gold suppressed as it makes their product more attractive, and the activities in the futures market by the ESF through the FRBNY and other proxies, which have been proven by GATA through statements by former Fed Chairman, is how they do it.
By the manipulation of interest rates to the zero level, which has deliberately killed conventional savings vehicles such as CD’s and money market accounts, combined with the ongoing deliberate suppression of the dollar price of precious metals keeping them as poor stores of value at least over the medium term, they have forced people into seeking yield in what I consider to be highly speculative areas such as junk bonds and equities, the risks for which most in the retail investor level have no understanding. It is a deliberate fleecing of the public by the central bank for benefit of their owners.
While your theories are interesting, they do not disprove manipulation. At least they have not convinced me, especially in a world where conspiracy theories are proven as conspiracy facts on a routine basis. NSA, LIBOR, HFT, the London Gold Pool, mortgage fraud etc.; the list is growing. I agree with Chris Powell of GATA, “there are no markets anymore, only interventions”.
Very well said:
“Desiring a higher price for something that you have set aside as savings is not speculation, especially in a monetary system designed with debasement as its raison detre; it is how one measures value since you have to sell the gold for currency when you wish to purchase something as gold is not legal tender, and generally not accepted in commerce for payment.
Playing in the futures market is speculation. Setting aside gold for savings and insurance is not”
“Desiring a higher price for something that you have set aside as savings is not speculation”
Desiring a yield for your savings is not the same thing as desiring a higher price. Desiring a yield is saving. Desiring a higher price is speculation.
Thanks for your comments.
Mike: Let me offer a few brief responses. I may write more substantive answers in a future piece, but I’m limited in what I can do in a comment.
By anomaly, I don’t mean temporary. I mean a deviation from expectations. We need to be careful top say that price moves can’t be explained by any other reason, therefore manipulation. I have shown the data to disprove that there is naked short selling to push down the price. This series, Soggy Dollars and Pure Gold, is just quick takes.
By the way, I would be wary of any argument that says Conspiracy Theory XYZ is true, because Conspiracy Theories ABC and DEF were proven true.
I don’t mean the term speculation as a pejorative. I don’t necessarily mean gambling, betting blindly, etc. I mean buying something with hopes for a rising price, as opposed to buying it with reasonable expectations of a yield. It’s buying with plans to liquidate, vs. owning and operating a productive asset.
The Fed is trying to take away all other choices, and force everyone to be a speculator. There are few good choices left. This is why I founded Monetary Metals.
I can’t speak to how Yellen and her merry men think of gold. But I can assure you that there is no economic reason why they need a low gold price. A high gold price wouldn’t change a thing (except affording gold speculators more free purchasing power, i.e. capital consumption, the same as stock and real estate speculators have gotten).
Finally, let me address your statement, “If the dollar price of gold has declined … then gold is not a very good store of value…”
I firmly insist that the dollar is a bad measure of value. The dollar goes down, as we all know. It also goes up, which is where the controversy comes in.
You continue “…especially if prices for essentials such as food and medicine have not also declined in price.”
As I argue in my series on Yield Purchasing Power (http://snbchf.com/gold-standard/yield-purchasing-power/), consumer prices are not a good measure of value either. Particularly in healthcare, we see that the government is pushing up the cost–but it is not a monetary issue. It is tax and regulation and antitrust and healthcare policy.
I would recommend you look at pricedingold.com. Pull up a chart of crude oil. The price of crude is less volatile when measured in gold than in dollars.