Dow down, but only by a bit. Gold off, but only by a touch. Oil lower too, but just by a smidge.
We don’t go in for daily numbers, Fellow Reckoner. They’re too volatile. Too capricious. Too whimsical. One minute, stocks are on an upward tear. The next they’re crashing down again. Then you take a step back and realize the chart you’re looking at tracks movements by the fractions of a point. It’s like watching footage from a tiny camera, strapped to the back of an ant…at an IMAX theatre. Comfortably navigable ground suddenly becomes a terrifying terrain of Himalayan proportions. Who needs the headache, the vertigo or the motion sickness?
A nose-on-screen perspective is fine — necessary even — if you are day trading in and out of stocks…but your editor has neither the discipline nor the stomach for such demanding activity. Besides, it’s hard to really glean much from a second-by-second analysis of events. The sheer amount of information is simply too much for the human brain to process, much less to arrange in any meaningful kind of pattern.
The price of gold, for example, might have been cheap a few minutes ago…when compared to the price a few more minutes ago. Then, compared to the price yesterday, it’s cheaper still. About $8 bucks cheaper an ounce. (And even that number will have changed by the time you read this.) But so what? One year ago, you could have bought an ounce for about $180 less than today. That would seem to make today’s price expensive, no? But wait. Five years ago, you could have bought two and a half ounces for the same price it costs you to buy just one today. And ten years ago, you could have bought five and a half ounces. Does that make gold cheap, or expensive? A buy, or a sell?
It depends on your perspective. We’ve all wished we could go back in time and buy ’90s shares of Apple, acres of unpopulated beachfront and unloved ounces of gold. Alas, time marches in one direction and one direction only. So where will gold be tomorrow…a year from now…next decade?
Central bankers seem to be betting on a higher price — perhaps a much higher price — in the months and years ahead. Perhaps they’re looking at the divergence between the paper gold market — largely dominated by exchange traded funds and futures — and the physical, stuff-you-can-touch-and-feel market. Reads the April letter from Sprott Asset Management (courtesy of Dave Gonigam over at The 5-Minute Forecast):
“Although the paper gold price has been range-bound over the past month, the physical gold market has been undergoing staggering change…
“It was revealed,” write Eric Sprott and David Baker, “that Hong Kong gold imports into China totaled nearly 40 tonnes in the month of February, representing a 13-fold increase over the same month last year… There isn’t a physical market on Earth that can withstand that type of demand increase without higher prices over the long run.”
Adds Dave, always hard on the story for The 5’s loyal readers, “And that’s not a one-off event; Chinese gold imports during the last eight months have grown nearly eight-fold year over year. And as we noted a few days ago, China’s hardly alone: The IMF says 12 countries bought 58 tonnes last month — with Mexico, Turkey, Russia and Kazakhstan leading the charge.”
“Meanwhile,” continues Dave, “Cheviot Asset Management reckons for every one bar of physical gold, there are 100 open positions in the ‘paper gold’ market.”
“The paper market for gold can continue its charade,” conclude Sprott and Baker in their report, “but demand in the physical market will soon overpower it through sheer momentum — there’s only so much physical to go around, and it appears that there are some very large buyers that are eager to take it.”
We have no idea where gold is ultimately going, Fellow Reckoner…only that, throughout history, the Midas Metal has proved a tremendously successful insurance against central banker folly. That’s a fact onto which even the central bankers themselves appear to be cottoning. Don’t let them beat you to the punch.
Joel Bowmanfor The Daily Reckoning
Joel Bowman is managing editor of The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.
off the topic a bit, i suppose this is what you can expect when you expatriate :
up till the point where the wife took that picture, that woman with the camera had every intention of having those kids kidnapped, the parents don’t know how lucky they are.
What if we have the same scenario as we had in the 70′s when the gold price rose to $400 odd, and if I understand correctly, Russia, etc (the “developing countries”?) were buying, only to find the price plummeting in the 80′s?
And what if the Fed have been buying gold and its derivatives (having insider information, created as an insider) through, say a trust it formed in a tax haven, as a hedge against all the money printing it has undertaken for its fellow insiders?
And then what it the Fed reversed the process?
It seems so far, all the money printed is to prop up favoured banks (fellow insiders), merely replacing the contracting supply of fiat currency that is contracting through irrecoverable debt.
The Fed probably will not be able to continue with this process, for the amount of irrecoverable debt to be replaced by money printing would have to be measured as a percentage of a Quadrillion (Trillions are peanuts!) If the Fed had to continue to pursue with this policy it would lose control of its function completely.
Fiat money, however would still contract with irrecoverable debt that has to be written off, but physical gold supply (ie excluding any bubble that may have been created by any derivative it may have, as for eg with fractional reserve banking) remains indestructibly at the same level of supply, therefore losing its value in terms of fiat money.
A conclusion would then be then, that if you are not an insider to the control over a country’s money, to be very careful that you don’t get badly burnt. Therefore perhaps, no more than 25% to be held in physical gold and that held physically in possession, and the rest in fiat currency (not deposited in any banks).
Sure there should be some increase in physical demand in the 2nd half of the year but it remains to be seen if it will be enough to increase the price.
The present scenario is no ordinary one (debt deflation, and perhaps the worst in history) and no one can be trusted with handling someone else’s investments.
“It seems so far, all the money printed is to prop up favoured banks (fellow insiders),”
Congrats. You have figured out why the Fed was created in the first place.
I keep reading this but apparently people don’t get it. Gold is not an investment, it is currency insurance.
Understand that and you’ll do much better in the gold market
Yip! Gold is insurance of investment size proportions unless you’re into gold derivatives!
Ah only a few short years ago whilst we were in Dubai Joel pointed out that gold in the Souks was $690, any wonder all those fashionably clad locals were clamoring for some action.
When you've got a room full of 200 oil insiders scratching their heads at current high prices, something's gotta give.
For most investors, it’s weird to think of stocks as their go-to investing option.
The petropoly has bills to pay and setting the price of oil was a simple way to balance their budgets.
Investors don’t seem to care that what's propping up their investments is what will ultimately destroy them: government monetary policy.
For the next decade the energy revolution will be likely confined to the US, displaying the robustness of American entrepreneurship.
Why the Sage of Baltimore’s commentary persists through America’s changing times.
After attending Platt’s oil conference in London I want to relay two important themes you need to know.