Off the keyboard of RE
Published on the Doomstead Diner on April 14, 2013
Discuss this article at the Economics Table inside the Diner
The financial story of the weekend is the 4% hit Gold took going into the weekend, dropping $88 to finish below $1500/oz. The fall isn’t limited to just this week though, it’s been ongoing since Gold hit it’s peak at around $1900/oz back in early 2011. Predicitions from the Gold Bug crowd at the time being that Gold was set for Parabolic Liftoff, heading for $5K or even $10K/oz. Never happenned of course and it’s been on a pretty steady downward track since Q2 of2012.
What’s happening and why? One important factor most recently was the collapse of the Cyprus Ponzi, which led me to short Gold a couple of weeks ago.
There also is likely a Margin Call Event coming down the pipe from this in Europe. It will force Liquidation of Assets across the board, and the Eurotrash have a lot of Gold. I forsee a massive Collapse in the PMs market when the Euro Collapses. I think it is a 6 month-1 year timeline. Disclosure: I am going to short PMs and go LONG on the Dollar through this Shitstorm.
While the Cyprus Event accelerated this trend, it’s been ongoing in Eurotrashland for quite some time, everybody is liquidating assets trying to get out of the Euro Sewer. Thing is, it’s not so simple as just trading a pile of Euro Toilet Paper for a Shiny Paperweight.
The folks with large positions in Euro based assets don’t really HAVE a lot of Euros stuffed in Mattresses, they are leverred Hedge Funds who have to liquidate one asset to buy another, and if they are liquidating into a losing position they are getting progressively deeper in the hole. The have to find an asset INCREASING in value as fast as everything they have is losing value just to stay even. What is increasing in nominal value? The Stock Market of course, because that is what Da Fed is propping up! You don’t wanna buck Da Fed, so you don’t buy Gold, you buy APPL if you are a Eurotrash Hedge Fund manager looking to reallocate assets.
The next issue you have to deal with is “who has money?” and “who has Gold”? The reality here in the FSoA (and in Europe and China too), is 80% of the population has no more in the bank than a couple months worth of Bills, which they need to keep liquid and in the bank to pay those bills. They can’t realistically keep this money in gold coins in the basement safe, run to the coin dealer when they need to pay a bill, convert it at whatever the spot rate for the day + the dealer’s charge to dollars, run to the bank and deposit it, then write a check on this to pay a bill.
Similarly, any company still in Bizness isn’t paying their employees in Gold Eagles in little Pouches, they have a Payroll Account and are paying in Dollars or Euros. Similarly, they have accounts to pay their suppliers and pay their fixed bills. They can’t keep all this money in Gold and liquidate as needed to pay bills, it’s all moving around too fast for that from one persons account to another. This is where most of the MOVING money in the system is, it’s not in large stashes of cash that some squirrels could take and shift to Gold coins to “store value”. Not to mention, when you go from $1900 to $1500 in the course of 2 years time you are LOSING money at 10% a year, which is not a great store of value. Maybe long term gold coins hold more value than fiat, but short term for the last 2 years they got HAMMERRED.
After looking at where the Money is, you gotta look at where the Monetary Gold is. When I say Monetary Gold, I mean the BRICKS of Gold held in the CB Safes, not Gold Wedding Rings, which generally don’t get sold off until somebody is really hurting. The only people with large amounts of Gold to SELL are the CBs, Sovereign Wealth Funds and a few Illuminati. They can either Dump gold on the market if they want to see the price go down, or Buy it if they want to see the price go up. Gold Bugs call this “manipulation”, but it’s what any pigman does when they hold a near monopoly position in any commodity. That is how the Game WORKS.
What is most curious here is that DESPITE the fact CBs are BUYING gold, the price is still going DOWN. What that tells me is that Hedge Funds are liquidating Gold positions faster than the CBs can or will buy that gold at the moment. Which only makes sense, because it is the Hedge Funds that are NOT quite TBTF that are in the deepest doo-doo, especially in Europe. Certainly the Ruskie Mafia in Cyprus got hit hard here, despite the fact the better connected escaped out the Back Door in the City of London.
So what is the medium and long term prognosis here for the PMs? Well, since de-leveraging in Eurotrashland still has quite a ways to go here, downward price pressure on Gold is likely to remain pretty strong, and you would have to count on Da Fed and the PBoC to buy it and keep the price propped up. In this respect, Gold Bugs should be GLAD the CBs are manipulating the market, because if the PBoC STOPPED buying, in all likelihood the floor would drop out from under Gold. Like with the Bond Market though, the CBs will try to keep any given asset class from being abandoned en masse by buying it. What level the CBs see as “right” for Gold is hard to say, and depends a lot on political machinations. My guess is a floor around 1350, but subject to change if/when TSHTF in the Nip Bond Market or Italy or Spain go Tits Up. Then you are likely to get wild Volatility and Fluctuations as liquidations are undertaken and the hoi polloi scrambles to dump whatever Toilet Paper they are holding in favor of what shiny paperweights they can locate.
Finally in this mix is general psychology, which is not the same amongst the vast majority of Homo Sapiens as it is amongst Doomers. Doomers see the End Game as IMMINENT, so those who do have some “wealth” are putting it into Possessible PMs if they believe in this asset class as a store of that wealth. Long term they do likely hold more value than Toilet Paper, but how much more is a very open question. For most people here in the FSoA and stronger Eurotrash economies like Krautland, while they may not be happy with their Goobermints they don’t see them as in imminent danger of collapse. Current Boomers and Silents receiving Social Security checks don’t see it likely the check won’t arrive next month, and they are likely correct in that assumption. Overall, the number of people who BOTH see collapse as IMMINENT and HAVE enough money to drop a significant amount of it into PMs as a choice is EXCEEDINGLY small both relative to population size AND relative to the centralized wealth pools controlled by the CBs as proxy for the Illuminati. J6P can’t push around the prices of these asset classes, he doesn’t have a big enough slice of the financial pie with which to do it. So one can only assume that those who do hold the vast majority of Monetary Gold will manipulate the price best they can until the Plug gets Pulled at some other end of the financial spectrum. When that occurs, it’s hard to predict where the CBs will put their support behind, but not sure it will matter either because the system in general will be so out of whack that no commerce will be moving anywhere.
In that longest term outcome for this post, I would agree with the Gold Bug that Gold will hold more value than Fiat does, but probably not by a whole lot and it will be difficult to keep, difficult to exchange and likely taxed to beat the band as well. Right now, it’s mainly a specualtive medium, a GAMBLE only to be taken if you can afford to lose the bet. I sure would not leverage gold Short or Long now, it can swing as wildly as Bitcoin. Like all the rest of the financial markets it is a CRAPSHOOT.
Gold has some appealing properties which made it work both as Currency and as a Store of Value during the expansionary period of the Money game in the community of Homo Sapiens. Its chemical properties make it difficult (impossible without Nuclear chemistry) to produce at will, thus you can’t “counterfeit” real gold, though you can of course do metal dilutions that are difficult to detect during typical commerce. It lasts essentially forever, doesn’t rust, hell it’s even impervious to that most corrosive of environments, sea water. Still TONS of gold sitting at the bottom of Davey Jones Locker in basically the same condition it was when a Spanish freighter was sunk by a French Privateer.
Regardless of those qualities, to function as Currency, Gold had to be widely distributed, which it once was but no longer is. Because it was perceived as a store of value, it was over many millenia CENTRALIZED into very large pools, which really don’t ever get redistributed, they just wheel them from one cage to another in the basement of the FRBNY. I’ve never run into a Gold Bug who could plausibly explain to me how these huge piles of Gold would ever be broken up and redistributed out to J6P as Coinage to use as currency.
As long as there ARE big centralized Piles of it, whoever controls those piles controls its “going price” on the market, not selling any if they want the price to rise, dumping if they want the price to fall. It behooves those in control to keep a floor price under gold, but also not to let it rise to stratospheric levels, because then it loses representative value. Put it this way, if Gold were to rise to $10K/oz, 10 1 oz coins could buy a nice Doomstead in the Ozarks. Happy Days for a Gold Bug if that were to occur, but a highly unlikely outcome here.
Nowadays, the PM market is a Casino, mostly well controlled by those who control vast quantities of it, and also control the Mines where it is dug up from under the ground as well. If you do have a lot of extra spare change and place a Bet on the PM Number on the Roulette Wheel, you’re probably better off than holding Euros, but in the near term not better off than holding Dollars, especially if you are leveraged, which just about all hedge funds are, and Sovereign Wealth funds also for that matter. As a future Currency, Gold holds very little promise, its mostly well sequestered into Safes controlled by others far more powerful, and it’s not ever coming out of those safes for redistribution. Its value is just PERCEIVED value, not Utility Value. Unlike a gallon of Gas, it won’t make your SUV go anywhere. Unlike a patch of Land in the Ozarks, it won’t grow any food for you to eat.
Most of all, unlike Friends, Gold will not stand by your side and help you protect and defend you children and loved ones. Bet on something you can depend on. Bet on your FRIENDS. Bet on COMMUNITY. That is the FUTURE, not Gold and not Money.
The ROOT of all EVIL.