What’s Wrong With Gold?

What — precisely — is amiss with gold?

Has the Midas metal… lost its Midas touch?

For 18 months the monetary and fiscal authorities have rampaged, banging along with all brakes off.

They have carried on at a gait truly astounding.

Meantime, inflation finally appears to be rubbing the sand from its eyes and stretching its legs.

And yet gold has wallowed, lolled and languished, despite all the money-spewing. Worse — gold has gone $150 backward this year.

And so once again the question: What is amiss with gold?

Have the central banks finally gotten their hands around its neck? Has Bitcoin knocked gold from its historical perch?

Or perhaps the reason is something else entirely. Have you taken your guess?

The answer you will have shortly. But first a look at Wall Street on this, September’s ides…

Green Everywhere, With One Exception

We find a fine, fine sea of green.

The Dow Jones Industrial Average jumped 236 points on the day. The S&P 500 gained 37; the Nasdaq Composite, 123.

The 10-year Treasury yield crept further along, to 1.30%.

It was fair winds and following seas for Bitcoin today — up an invigorating $1,379 (at writing).

Yet amid our ocean of dazzling green, we chance upon a solitary red islet…

Gold lost $12 and change today, ending trading at $1,794.90.

Whenever favorable tailwinds fill its sails… giving indications of easy waters… fierce headwinds soon knock it backward.

Once again, what is amiss with gold?

Sound, Honest, Disciplined Money

We take a natural shine to gold because it is a sound money. It is therefore an honest money.

And as we have stated before: Anything honest in this world of sin and vice is worth a defense.

So little honesty… evidently… remains.

And an honest, sound money is a disciplined money. It chains government down in thick, impossible fetters.

Explains the grandee of “Austrian” economics, Ludwig von Mises:

It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the nonobservance of old customs by kings. The postulate of sound money was first brought up as a response to the princely practice of debasing the coinage.

“Gold Has the Public Spirit of a Tomcat”

As we have also written before, gold resists social uplift. The greater good is beyond its care. It lacks all human compassion.

Gold has the public spirit of a tomcat.

And it turns from the sound of trumpets. “You go over there,” gold tells its paper counterpart. “I’ll stay here.”

As wrote our co-founders Bill Bonner and Addison Wiggin in Empire of Debt:

The trouble with gold is that it turns its back on world improvers, empire builders and do-gooders… The nice thing about gold is that it is so unresponsive. It neither laughs nor applauds.

Paper money, fiat money, debasing money, this is the money for public service.

That is because fiat money is civic-minded. It has a heart. And unlike gold, it follows orders.

Whatever war, whatever boondoggle, whatever swindle it is ordered to throw in with… it will throw in with.

Fiat money willingly sacrifices its value for the greater good. Gold, meantime, fiercely and jealously guards its own.

Lifeless Gold

What — then — is wrong with gold? Why does it bob along in doldrums, lifeless, lacking all vigor?

Here again are the options:

Have the central banks finally gotten their hands around its neck? Has Bitcoin knocked gold from its historical perch?

Or perhaps the reason is something else entirely.

But we have run a trick on you, and sent you chasing after wild geese.

What is wrong with gold?

“Absolutely nothing,” argues Mr. Lance Roberts of Real Investment Advice.

Nothing Wrong With Gold, but Much Wrong With the Financial System

There is nothing wrong with gold.

There is, however, much wrong with a financial system gone dizzy, a financial system erected upon the beach sand of easy credit, of artificial credit.

What ails gold is the absence of fear. Mr. Roberts:

There is presently no “fear” present to drive investors into the psychological “safe haven” of gold. That lack of fear is evident in everything from:

  • Record issuance of money-losing IPOs
  • Mass issuance of SPACs
  • Record margin debt levels
  • Near-record stock valuations
  • Retail investors taking on personal debt to invest
  • Bitcoin
  • Belief by investors of the “Fed Put.”

You get the idea.

Indeed we do — get the idea, that is — and all too well.

“The Bug Has Yet to Hit the Windshield”

More from Roberts:

Given that gold is no longer exchangeable for currency, and vice versa, the broken link as an inflation hedge remains. In today’s “fiat” currency economy, the ability to use gold as a method for transactions on a global scale remains destroyed. Therefore, gold has become a “fear trade” over concerns of the dollar’s demise, inflation and an economic reset.

While there are valid reasons to be concerned with such disastrous outcomes, those events can take decades to play out… the “bug has yet to hit the windshield.” Yes, it eventually will, but how much longer it will take is unknown.

“How much longer it will take” is of course the unknown variable, the x factor, the joker card, the question that is worth $64,000.

The answer is on the knees of the inscrutable gods.

Yet we believe firmly the answer is a “when” — not an “if.”

When Investors Will Realize the Error of Their Ways

The specific date when the ‘bug hits the windshield’ eludes us, it is true. Yet here Lance Roberts hazards his own estimate… of sorts:

Is there anything wrong with gold? No.

However, as long as the Federal Reserve is engaged in inflating asset prices and forcing investors to take on excess risk, gold will likely continue to underperform.

Will that eventually change? Absolutely.

When? As soon as the market participants realize the error of their ways.

That is… as always… when it is too late…


Brian Maher

Brian Maher
Managing Editor, The Daily Reckoning

The Daily Reckoning