The above chart is and end-of-day chart from yesterday. Gold closed at $1484.
At 11:30 AM Central, gold was at $1520, up $36 on the day.
Gold vs Copper
What’s the Message?
Stephanie Pomboy at Macro Mavens nails it.
at the risk of piling-on,the canary in the financial crisis coalmine has been singing loudly. the relationship btw the metallic barometer of financial insecurity (gold) and the metallic barometer of economic activity (copper) has been a reliable predictor of trouble in the past. pic.twitter.com/K6rjNSpRcB
— steph pomboy (@spomboy) August 7, 2019
Gold Not an Inflation Hedge
As I have pointed out numerous times, and contrary to popular belief, gold is not an inflation hedge. Gold fell from $800 to $250 with inflation every step of the way.
Rather, gold is a measure of faith in central banks that everything is under control.
Gold vs Faith in Central Banks
Everything Under Control?
Clearly not, and I have easy-to-understand proof.
- Hello Treasury Bears: 10-Year Bond Yield Approaching Record Low Yield
- Negative Yield Debt Hits Record $15 Trillion, Up $1 Trillion in 2 Business Days
- US Treasury Declares China a Currency Manipulator Under Orders From Trump
If you believe gold tracks inflation or is some kind of inflation hedge, you need to think again.
Only in hyperinflation or its mild form, stagflation, is gold an inflation hedge. But even then, both are synonymous with central bank stress.
Hello Treasury Bears
Let me make it simple: It’s the debt, stupid!
The global economy is choking on debt as central banks are determined to have more of it.
Inflation? Forget about it. The bubbles are proof we “had” inflation.
The Bond markets says something else is coming up.
Mike “Mish” Shedlock
“Only in hyperinflation or its mild form, stagflation, is gold an inflation hedge.”
What about hyper-stagflation, Mish?
I can’t help but think gold’s given value in dollars at any point in time is more than just faith in central banks and not also related to “inflation”(pick your definition, whether it’s expanded monetary base or price increases).
The price of a steak or a cup of coffee years ago isn’t higher because of central bank expectations….
The notion that it’s primarily centered around central back faith is just too simple an explanation to me and the surrounding data not convincingly causatory vs correlative. Who can’t see stagflation in the least coming down the pike? But as you note, when people see price increases(caused by inflation) then it also calls into question central bank policies….seems like a chicken vs. egg discussion to me.
“Rather, gold is a measure of faith in central banks that everything is under control.”
Exactly. I would add faith in Fiat currency as well, but I guess the central bank term covers that
It’s called confidence.
Debt has kept rising but Gold corrected by $800 / ounce or 40%. Did Faith in CB increase by 40% during that span as world debt kept increasing? Now suddenly no faith again? Not sure there are parallels in the thinking.
Yes faith increased. “Whatever it takes”. Remember that?
Investors gave them the benefit of the doubt. Now? Not so much.
Historically the price of gold appears to be quite well correlated to the US debt ad debt ceiling. Gold seems to be playing catch-up at the minute
That chart doesn’t show anything other than that Gold had a great 10 year run. Run it back another 20 years.
Seems like a pretty significant deviation in the last 5 years to me…
I’ll just add the numbers to my previous post. In 1980 debt/gdp was 31% and rose to 57% in 2000. Gold went from $550 to $284. The fact that there seemed to be a correlation between gold and debt level from 2002 to 2012 is completely coincidental. There is no correlation.
The talk is starting to worry me. “how high gold…” “Gold’s blowing up…” “what of the gold price with QE4?” Been down this road before. Maybe it will be different, but get ready for the opposite of what you think should happen.
“get ready for the opposite of what you think should happen.”
That would be getting captured and used as a sex slave by the Swedish Bikini Team. Alright. Chin up, shoulders back. Let’s get on with it…
Time to “take one for the team”. 🙂
The miners are up today, not as strong as I would like but at least they are participating. Yesterday some of them were actually down on the day but not today. My only complaint is they should be a lot higher based on a gold price of $1500.
If the miners aren’t following gold up it is a warning that gold will correct. Alternatively they are late to the party but either way one should confirm the other.
Golds blowing up. Are treasuries doing the same today? If so, sounds like a lot of money running for safety. What’s changed? What do they know that I don’t?
So what is a reasonable estimate on how high gold will increase in value?
Depends how much money they print. You can rest assured though that it will be a lot and it will never stop … until …
I don’t remember any economics books covering the topic of negative interest rates. Negative interest rates means that the currency is worth less than face value, which it has been since Nixon was President. That is why gold and silver are rising, fear among the savers, who figured out where the bankers are going.
Negative interest rates are based on the absurd premise that time is a liability rather than an asset. The fact that the world is headed in this direction shows how badly bankers have botched the global economy.
Negative rates is where investors willingly throw hundred notes on a bonfire. Black is white and up is down. We are doomed.
“Wouldn’t using gold as a hedge against the Fed be a bit like fighting the Fed?”
If so it’s been a generally successful fight if you pick your times right
The “Minsky Moment”. As Friedman put it “debt feels good until it doesn’t”.
To me, the situation can be described as ‘you can’t solve a debt problem [GFC] with another debt problem’. During the Great Depression among other things, the Fed lowered margin requirements back to 50% from a bubble-inducing prior 90%. The point is the country rebuilt their balance sheets. Now, the world has done anything but – and another debt problem will not solve a debt problem – it’s just compounding it and the inevitable.
It is hard to believe the Fed didn’t see this coming. Japan has been down this path since the late 80s and repeatedly failed. The Fed can’t do anything about debt but monetize it and hold it on their balance sheet (which is nothing more than some entries on a spreadsheet on a computer) essentially forever. The world has been doing a lot of pretending for a long time but the pretending is about to end.