01/21/11 Baltimore, Maryland – Big drop in gold yesterday – down $23. Oil fell hard too. Otherwise not much action…
We’d still like to see a deep decline in the gold price. Too many people are getting onto gold. Most of them have no idea of what they are doing. Like readers of MONEY magazine, they’re buying the yellow metal as a speculation. Most likely they’re going to lose money. Almost everyone who speculates on gold loses money. Don’t ask us why. It’s just one of those Iron Laws of investing.
Gold goes up for 10 years straight. Speculators notice. They jump on board. And then the train runs off the tracks.
That’s just the way it works.
Besides, remember that this Great Correction is not over yet…not by a long shot. It has barely begun to correct the excesses of the Bubble Era. A quarter of all homeowners are said to be underwater on their mortgages – that still needs to be sorted out. And the whole financial industry – with the collusion of the Fed – is sitting on trillions of dollars’ worth of mortgage backed securities, pretending that they are good credits.
There are still major bankruptcies ahead…and deflation of assets prices. And in all the sturm and drang of it, the price of gold could go down too.
But if you’re acquiring gold, you have some powerful competition. As nations become rich and powerful, they accumulate gold. Those that are getting weak and poor give it up. Here’s The Financial Times with the latest news:
Traders said that gold sales to China had jumped 30-50 per cent since Christmas, driving the cost of kilo bars in Hong Kong more than $3 per ounce above the market price of gold, the highest level since 2008 and an indication of the tightness in the physical market.
“Physical demand has rocketed in China at the start of the year,” said Walter de Wet, head of commodities research at Standard Bank.
The wave of Asian buying has propped up gold prices at about $1,360 a Troy ounce, traders and analysts said.
The metal’s price has dropped 4.6 per cent from its December record price of $1,430.95, trading at $1,364.10 on Friday, as optimism about prospects for US growth has led western investors to turn their attention away from gold to other commodities and equities. “We have a balanced situation where one part of the world is buying and the other part is selling,” said a senior trader in Hong Kong. Chinese and Indian investors are increasingly turning to gold to protect savings against sharply rising food prices.
Investor buying of gold bars jumped 80 per cent to a record 144 tonnes last year in India, according to GFMS, the precious metals consultancy, while across east Asia bar hoarding was up 125 per cent at a 15-year high.
Asians build their holdings of gold. Americans add to their supplies of paper money. The Fed is adding some $600 billion of it in the first half of the year. And it is already considering what to do next.
How about this: stop. Admit that you’ve been a fool. Renounce QE, Keynes and the devil too. And all their works.
But that’s not going to happen. Because liquidity masks insolvency; and inflation disguises deflation.
The feds are providing liquidity and inflating the money supply with the only thing they have left – paper money. And as long as the money flows…they can pretend that everything is okay. Things are quiet. Everybody is happy. Confident.
“…experience suggests that quiet periods do not extend indefinitely,” wrote Reinhart and Rogoff in their history of monetary crack-ups.
Meanwhile, smart investors are buying gold…and hoping the price falls so they can buy more.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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“Almost everyone who speculates on gold loses money. Don’t ask us why. It’s just one of those Iron Laws of investing.
Gold goes up for 10 years straight. Speculators notice. They jump on board. And then the train runs off the tracks.”
Your comments on the Gold situation are rubbish!
For the FED to be printing billions of dollars and the price of Gold drop there has to be some kind of manipulation going on!
inflation has been increasing in dollars terms since 1971 when it was disconnected from gold. What happened to the price of gold during those years as the monetary base increasing? Investing is not as easy as “ben throws more money ergo the price of gold should increase.”
i see the light!
i’ll admit it!
they’re ALL fools!
DEFAULT NOW & AVOID THE RUSH!!!!
free tibet!
China:gold :: USA:tungsten
Bill said: Meanwhile, smart investors are buying gold…and hoping the price falls so they can buy more.
No. I’m not, actually. My biggest holding is Wells Fargo.
well said, lol, shawn.
Q: what did the Wells Fargo stage coaches carry in their “strong boxes”? along with the marriage contracts, of course.
So, it sounds like a good time to dump WFC.
Has Canada shut down its gold mining and exporting industry yet? No?
maybe he shorted the stock and sold puts…
lol:
sell out now & avoid the rush!!!
how is everyone jumping into gold? i dont know anyone that owns physical gold or silver except me. Infact i doubt even 1% of the population owns any physical gold or silver, so is that what you mean when u say “to many people are getting onto gold”? this artical is the dumbest artical i have ever read regarding gold, u start of by saying gold has to go down and “everyone loses money in gold its just the way it works” then you tell people y the economy is falling apart which is bullish for gold right? so what point are you trying to get across? how the hell did this moron get a job?
which moron?
what’s a job?
why do you own gold ?
“Too many people are getting onto gold. Most of them have no idea of what they are doing.” ……… “Meanwhile, smart investors are buying gold…and hoping the price falls so they can buy more.”
…. kind of confused as to what point this article makes ?
China’s Innovative Way of Skinning the United States!
Mark Twain’s, on point, used “more than one way to skin a cat”, in A Connecticut Yankee in King Arthur’s Court, follows: “she was wise, subtle, and knew more than one way to skin a cat”, that is, more than one way to get what she wanted. Thefreedictionary.com provides a conventional definition of beggar-thy’s-neighbor as: an international trade policy of competitive devaluations and increased protective barriers that one country institutes to gain at the expense of its trading partners. Under the guise of fostering ‘indigenous innovation’ in its economy, the Chinese government creatively applies its own, non-conventional, subtle version of beggar-thy-neighbor. Its version doesn’t entail the competitive devaluation of its own currency, which would enhance China’s exports and inhibits its trading partners’ exports. China’s ‘indigenous innovation’ version perpetrates an over-valuation of the currencies of one or more of its trading partners. This adversely affecting all that (those) trading partners’ trade, with all its (their) trading partners, not just trade with China. During the periods China pegged its currency to the U.S. Dollar, China’s version of beggar-thy-neighbor was 8 times as damaging to the U.S. economy as what the media refers to as “China keeping it currency undervalued”.
In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Until action is taken on Buffett’s or a similar balanced trade model, by the powers that be, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.