Could the Fed kill gold?

I had a brief off-line discussion with DFM this morning as I noted this line in his morning wrap.

Watch out for non-farm payrolls tonight – a strong number could feed on the fears unearthed by the minutes and we might see a perverse reaction of equity weakness and dollar strength.

It got me thinking that the latest Fed minutes could be a trigger for a reversal for the “bad news is good news” meme on markets as the members of the US Fed board appear to be showing some resistance to the idea of further QE. Whether this is just chatter or actually come to pass is another thing, but together with the politicking around the fiscal cliff and the idea that the US economy is slowly improving it got me thinking about the direction of markets, specifically metals.

I’m not a gold bug by any means, and my opinion on the metal has been quoted previously on MB.

Gold is the ‘people’s fiat‘, that is it has no real value however humans intrinsically trust it to have value. So when central banks are devaluing ‘State fiat‘ via “printing”, the people will run to gold as they trust it to store value.

It is actually very odd behavior when you think about it because gold is about as useful as paper to the average Joe. However the fact that it is completely immutable and, thus far, inimitable, seems to have some ‘magic’ effect.

This all comes back to the perception that “printing” leads to inflation and gold is a hedge against that process. I’m not completely on-board with that analysis (see more here) , but like many things in the real world  being “correct” and being “right” aren’t  necessarily the same thing.

So overall, my thoughts are, rightly or wrongly, that once there is a perception that the US government is going to stop “de-facing” it’s own currency then the people’s fiat would see a fall in value.

The overnight market response to the Fed’s statements appear to be in-line with these thoughts.

Gold prices fell more than 1 percent Thursday on signs that Federal Reserve officials are increasingly concerned about the risks of the Fed’s asset purchases on financial markets, reducing bullion’s appeal as a hedge against inflation.

Minutes from the Fed’s December policy meeting showed a growing reticence about further increases in the central bank’s balance sheet, which was expanded sharply in response to the financial crisis and recession of 2007-2009.

The minutes also showed several officials thought it would be appropriate to slow or stop asset purchases well before the end of 2013, citing concerns about financial stability and the size of the balance sheet.

If that is the case then a strong non-farm payroll tonight should see further falls which is something I’ll be looking out for.

I’m not saying I’m right on this, metals certainly aren’t my area of expertise, so I’d be interested in getting other opinions on how they think gold will perform in the case that we do see continuing economic growth from the US over 2013 in an environment of an increasingly hesitant Fed.

 

85 Responses to “ “Could the Fed kill gold?”

  1. Odd behaviour indeed.

    I consider gold a redundant commodity. Not many seem to agree with me on this, arguing it’s value as an inflation hedge etc etc….

    Of course it’s value has nothing to do with it’s price, so if I were to speculate I see no reason why a revival in growth from our US &/or Euro cousins couldn’t see the price of gold drop another 20% or more.

    Even then I wouldn’t be buying…or shorting

    • JC says:

      It will never be redundant. History proves this time and again. It will correct, crash, rise, but as a store of value it will never be redundant. This is especially so in a captialist system where all the players have abandoned the key tenet of the system, BANKRUPTCY!

      There isn’t a central bank or country that wants to restructure it’s debts, and austerity in the Euro is a virtual fallacy. Gold is a hedge against the lunacy of policy makers. If the US were to start recovering strongly, the Fed would be to slow to raise rates anyway for fear of stymieing the recovery.

      Policy makers want capitalism without the pain that arises from past profligacy. A utopia of never ending and uninterupted growth, where people never lose jobs.

      • Peter Fraser says:

        Agreed, Gold will never be redundant, but it’s value can fall, and probably will as fear subsides.

      • GSM says:

        We shall see Peter. I doubt it. IMO Gold at 4k+ over the next few years is entirely possible , but not for the reasons I suspect you might ascribe to it. What is very likely to fall however are Australian residential property prices, making Gold a valuable hedge against that rather more certain outcome.

      • Peter Fraser says:

        LOL – then I think that we disagree on more than the price of gold.

        If you did wish to hedge house prices, then gold might do it for you, but I’m sure there are better legs to consider. I haven’t looked at that at all, but perhaps gold, silver, iron ore long term futures, oil futures, and coal futures might be a good place to start, and it will be more rigid than one commodity.

        Whatever you choose to do, best of luck.

      • GSM says:

        PF,

        Somehow I don’t think i/o or coal futures make a better practical hedge than PM’s.

        House/Land prices doubled recently , and more in some cases, as you may recall. All it took was opening the credit spigot to stimulate the demand and people piled in , in herds.

        With serious CB buying Gold is well supported. “As fear decreases” ? LOL. I have heard that all the way from Gold $400. Even the Fed is now sh*****g bricks about it’s balance sheet.Maybe we should be a little worried too.

      • Peter Fraser says:

        GSM – thats not how spreaders work GSM – some legs will be covered and some shorted.

        Something is hissing loudly right now – it seems to be gold.

      • GSM says:

        PF,

        Nice recovery on Gold last night. Right on time too. Just more confirmation there is still plenty of interest.

        Best of luck with whatever you choose.

      • Peter Fraser says:

        GSM – falling 1.5% is hardly a recovery. Get out while you still can.

      • GSM says:

        PF,

        1.5% – meh a minor blip in Gold. I note though the almost $40 hard bounce of the lows. I’ll take that as a recovery. Looks good on the charts too.

        The US Mint’s 1st day’s trade in 2013 in eagles 53,000 ;

        http://www.usmint.gov/mint_programs/american_eagles/?action=sales&year=2013

        All of Jan 2012 sales in eagles- 84,000. More than 50% of prior Jan in 1 day.

        I’d say people that are now feeling “less fear” may be looking for better homes for their wealth storage than stocks and RE perhaps?

        You still have time to get in PF, the train is about to leave though.

      • GSM says:

        PF,

        Seems we have different charts ( or are you using your RE calculater? ;) )

        NY Close Thursday – 1663.60
        NY Close Friday – 1655.68

        Difference – .4%

      • Peter Fraser says:

        GSM – you misunderstand – I am a holder of gold, but as the Fed starts to increase interest rates, gold will fall proportionately, and that is good for the global economy. If that halves my gold holding value, that’s OK by me, I’m not a seller of gold and nor do I rely on it as a future source of wealth. I want the world to recover over the next few years, and the signs of that recovery are everywhere.

        http://www.mining.com/fed-tightening-talk-scares-scares-gold-59161/

      • Peter Fraser says:

        GSM – yes the price did recover. My apologies I was using an earlier price.
        The trend isn’t healthy though is it.
        I don’t expect the price to fall to anything silly like $400 but fall it will.

        Anyone with leveraged holding (ETF) will be damaged heavily, but physical holders will only lose maybe 30% or so. Who knows what a market will do when a freefall starts.

      • Peter, you are really just talking rubbish here. There is no “hissing”, yes Gold is down from it’s peak, but only by a percentage seen numerous times in other corrections over the course of the bull market. It’s been a long drawn out correction, but fact is Gold has risen 12 years in a row (priced in USD), do you think that’s a sign of a bubble popping?

        “as the Fed starts to increase interest rates”

        So you expect this in the near future? The Fed has indicated rates will remain near zero until mid 2015 and this is a target which has been pushed out a couple of times.

        On Gold: “Get out while you still can.” – Peter Fraser, January 5, 2013 at 7:55 am

        I’ll have to remember to resurrect this one down the track ;)

      • And further to your response above at 9:08 am:

        Over what time frame are you suggesting the trend isn’t healthy? It’s in a trading range.

        http://www.avidchartist.com/2013/01/golds-bull-market-intact.html

        “physical holders will only lose maybe 30% or so”

        So you are projecting US$1160 Gold price in the near future?

      • Peter Fraser says:

        BB – that was a stab in the dark estimate, but $1160 USD looks about fair value to me.
        Gold isn’t as liquid as shares, so it’s fall won’t resemble the cliff that we saw in 2008, but nor is it held universally by individuals who need it for shelter or a service like homeowners.

        Plot a trajectory somewhere between the falls of those two assets and you will have a reasonable projection of the next couple of years as the Fed tightens monetary policy, assuming that it does.
        However if it doesn’t tighten soon, it will at some point.

        As a commodity, and as a holder of that commodity, I honestly don’t care what the price does, except that the price of gold is inversely proportional to the state of health of the global economy, so for that reason alone I hope that if continues its downward trajectory.

        You must know that at some point in time it will plummet. Even the hint of raising interest rates in the USA has scared holders. Remember that small holders of gold have zero sway over the market. CB’s may not dump holdings, but leveraged ETF holders and hedge funds will beat the small holder to a pulp when they exit in large volumes.

      • “the price of gold is inversely proportional to the state of health of the global economy”

        I recall you saying something similar last time and I asked you then why the rise in Gold from 2001 – 2007?

        “You must know that at some point in time it will plummet.”

        It probably will unless it is remonetised, but expect the fall to be from much higher prices.

        “the next couple of years as the Fed tightens monetary policy, assuming that it does.”

        That’s not an assumption I would be making quickly until we see the results of the recent expansion we’ve seen from the Fed in the form of QE3/QE4.

        You are placing way too much faith in the market jawboning, their track record speaks for itself.

      • Peter Fraser says:

        BB – prices of many things rose over the years including gold, but the rise from the first moment of realisation of the issues in 06/07 has been spectacular to say the least.

        http://www.google.com.au/imgres?imgurl=http://goldratefortoday.org/wp-content/uploads/2011/03/gold-chart-71-present.png&imgrefurl=http://goldratefortoday.org/explaining-gold-rate/&h=472&w=900&sz=32&tbnid=huj4IowIUbqieM:&tbnh=67&tbnw=128&zoom=1&usg=__5ZH_lC0dM1THU1Sco9ofd9yQVxM=&docid=mmUa5Q_B2KVW5M&hl=en-GB&sa=X&ei=u4jnUMXcIKWpiAftuoGwAg&ved=0CG8Q9QEwCw&dur=2968

        Actually in 06 gold pretty much hadn’t risen for over 20 years. So can you explain to me why you are not taking fear into account as a major factor for the current price of gold.

        If the chart that I supplied was up to date you would see a similar pattern to the 80/81 pattern just before the crash. I’m sure that you have charts that show that, but I will find a link if you wish.

        Perhaps I was being optimistic being a gold holder. It does look as though it might retrace to $500/$600 USD.

        I’ll buy a stack more if it does.

      • Peter Fraser says:

        My apologies, I don’t know what that link was.

        Just Google 30 year gold charts.

      • “So can you explain to me why you are not taking fear into account as a major factor for the current price of gold.”

        Fear is definitely a factor. To gauge the extent of fear in the price is not possible (so not worth arguing on that point), but if it’s fear of currency debasement which has driven Gold to current levels, don’t you think that Gold has a lot higher to run given recent policy decisions by Fed to increase easing (not to mention similarly destructive actions elsewhere)? People have more reasons to be fearful of fiat currencies today than they did 6 months ago so logically Gold should be heading higher.

        For a fair comparison of the Gold patterns now to 30 years ago you would need to use a log chart, here is one I found (still not perfect as doesn’t start from 1970 bull market beginning, but you can still see the difference in the steepness of climb):

        http://www.the-privateer.com/chart/usgmonth.gif

        Over the final 2 years of the bull market that ended parabolic into January 1980 the price of Gold quintupled (5x), rising from $170 to a peak at $850. We haven’t seen anything like that in the current bull market.

        Of course there is no guarantee we see an exact repeat of the 1980 bubble, but if anything the crisis we’ve faced over the last 5 years (which continues today) is greater in size than 1980… so if we see a parabolic move based primarily on fear then it could eclipse the size of the move in 1978-1980.

      • Peter Fraser says:

        “Fear is definitely a factor. To gauge the extent of fear in the price is not possible (so not worth arguing on that point), but if it’s fear of currency debasement which has driven Gold to current levels, don’t you think that Gold has a lot higher to run given recent policy decisions by Fed to increase easing (not to mention similarly destructive actions elsewhere)? People have more reasons to be fearful of fiat currencies today than they did 6 months ago so logically Gold should be heading higher.”
        Yes it is possible to estimate just how much fear played a part in the elevation of gold prices. IMHO it was almost entirely fear of losing money, as verified by the negative interest rates paid on US bonds, German bonds, as well as other safe havens. Gold became a safe haven along with some other investment options. It was one of the options chosen when fear of losing your money became paramount. Fear of currency debasement is certainly a strong element, I can’t deny that, but I just don’t agree that it was the major reason.

        “For a fair comparison of the Gold patterns now to 30 years ago you would need to use a log chart, here is one I found (still not perfect as doesn’t start from 1970 bull market beginning, but you can still see the difference in the steepness of climb):
        http://www.the-privateer.com/chart/usgmonth.gif
        Over the final 2 years of the bull market that ended parabolic into January 1980 the price of Gold quintupled (5x), rising from $170 to a peak at $850. We haven’t seen anything like that in the current bull market.”
        Thanks but I really don’t need a log chart at all. If you can’t see the similarity in this inflation adjusted chart, then I think there is very little to discuss.
        http://www.macrotrends.org/1333/gold-and-silver-prices-100-year-historical-chart

        “Of course there is no guarantee we see an exact repeat of the 1980 bubble, but if anything the crisis we’ve faced over the last 5 years (which continues today) is greater in size than 1980… so if we see a parabolic move based primarily on fear then it could eclipse the size of the move in 1978-1980.”

        Globally I agree, but within Australia the recessions in the eighties and the nineties were worse. That global issue might save gold from falling quickly, although hedge funds and the rise of leveraged gold ETF’s might have made the situation even worse.

        BB from a personal standpoint I really don’t care where gold goes. Anyone who has their wealth stored in PM’s should be watching it carefully though. Note I’m not advising anyone to cash in their gold and buy real estate, I just caution on PM’s and in particular gold. Of course what people do is entirely up to them.

      • The methodology to create the inflation adjusted chart you linked has changed over time, there are alternative inflation statistics which show Gold still has a long way to go before reaching inflation adjusted highs:

        http://www.sharelynx.com/chartstemp/FreeGoldSilverSSCPI.php

      • Peter Fraser says:

        Not really BB – one graph is over the last 100 years whilst the other is a log scale over almost 300 years.
        We no longer have a gold standard, and so gold has gone from being currency to a pretty metal adored by women because it’s just as pretty as high heels.

        If nations move to a partially gold backed standard then you might have a chance, but until then it’s the “I love you’ of choice for those who can afford a little more than flowers on her birthday.

        It’s what I buy, flowers wilt.

      • It’s of no material difference that the Shadow Stats chart is over 300 years. To reach the 1980 inflation adjusted high using Shadow Stat CPI figures Gold would have to reach around $10,000.

      • Bakunin says:

        If gold is a bubble, what do you call US Gov Bonds? Bonds is the mother of all bubbles.

        You write that you wouldn’t want to be in gold if interest rates rise, well I wouldn’t want to be in US bonds.

    • myne says:

      Gold has thousands of uses.

      But thanks to looking pretty and staying rich, it’s mostly used for bangles and bricks.

      If gold was as cheap as some other metals, it’d be everywhere like silver is.

    • I’m not suggesting that gold is going to disappear an an inflation (and fear) hedge anytime soon, merely that it’s price is a function of sentiment, and nothing more. This makes it incredibly difficult (if at all possible?) to value.

      To say that the past can tell us what it will do in the future is a bit of a red herring. As is the statement that gold “will never be redundant”.

      I just don’t see the value of investing in it. It’s a personal decision.

      I don’t necessarily have any strong convictions over whether others (be it individuals or central banks) should be investing in it. Would have thought that investing in public utilities would (in most cases) provide better return on capital that heaping it on some lumps of metal sitting in a vault

      • Many (both private buyers and central banks) are holding Gold as a store of wealth/reserves as opposed to holding other currencies (which are being debased), so I don’t think it’s fair to compare it with investments providing a return.

        Gold (for many) is about return of capital, not return on capital.

      • Actually I think this is a fair point, but that leads into the same question. If we see a recovery in the US economy do you see this dynamic disappearing as people begin to “trust” other assets again ?

      • Peter Fraser says:

        Fear has been in a five year bubble, but now the hissing sound of it deflating keeps PM investors awake at night.

        When they all hit the exits at the same time it will get ugly.

      • I guess that depends on whether we see a real recovery fueled by sustainable economic growth that can survive post QE and ZIRP. Or even the perception that such a recovery is taking place could be enough to take the shine off Gold.

        If we maintain the Gold as reserve/store of value meme (that’s not what it is to everyone), then it’s not so much about trust in other assets as it is trust in other currencies and while the US has been the most publicised of mismanaging their currency/government debt, they are far from the only one doing so. Japan is out in force talking money printing and in response we’ve seen talk of their pension funds buying Gold, what if their local population catches on? We’ve got China buying Gold (for official reserves as well as their population), although stats here are obviously shrouded. The RB of India has recently been trying to talk their local population out of Gold. There are clearly more drivers for the secular bull market than what the US is doing to their currency. This debasement is happening everywhere. So even if the US does see a real economic recovery I am not convinced the bull market would be over, but it could definitely slow things down.

      • Tarric says:

        A friend of mine in the world of financial management called the bubble on gold about 4 years ago, she told me that many of the hedge funds were buying up all the gold they could get their hands on. There by driving the prices to the stratospheric heights we find them at today.

        When the hedge funds and the big players pull out of gold, the bubble will burst. However when that will happen is a matter of opinion, I think we are at least 5 years away from that more like 10-20 years before confidence truly returns and gold can return to its long term median.

        That is of course bar any more insane shocks to gold from both sides of equation, whether it be an attempt to return to the gold standard or another GFC.

      • Peter Fraser says:

        Tarric – at the first sign of an interest rate rise in the USA gold will plummet like a gliding brick.

      • npi_tweet says:

        Funny to say gold has no value but a bit of plastic with a 50 written on it has value?

        Some believe in plastic others iin gold. The real question is what is value?

      • Absolutely BB.

        And you’re quite right it’s probably not fair to compare gold with, say, equity in a business.

        What I was meaning to say is that there is fundamentally no reason why gold “should” keep pace with inflation, or be traded at $1 or $1 million. Most other “productive” assets (business etc) can be valued based on subjective valuation of earnings/future earnings etc…. gold (as far as I can see) cannot.

        As npi_tweet comments below, there is of course no real value in our “plastic money”…and even less so in all the ones-and-zeros that make up our balance sheets (majority of which doesn’t physically exist)

  2. Tarric says:

    As you say Gold buying is driven by fear, whether that be fear of inflation or fear of a systemic economic collapse.

    In my opinion we need to look at gold from a psycological perspective as much as from an economic one if not more so.

    From wall street traders all the way down to the man on the street there is still a great deal of fear about the direction of the world economy. Due to the GFC the possibilities of a Eurozone breakup, a Chinese hard landing and a U.S default are now very real possibilities in the minds of investors. Should these shocks occur gold will be their only completely safe haven and if one of these events did occur the panic buying would drive gold even higher.

    Were the central banks in the world able to magically take away the risks that have been made apparent over the last 5-7 years then gold would immediately lose a large majority of its value because there would no longer be suffecient fear for gold to maintain its status within the world of investing.

    For that reason I expect gold to stay pretty much where it is for the moment, there will naturally be rises and falls on news (EU data, U.S political brinksmanship etc) but bar any further crisis or magical recovery I cant see it going significantly higher or lower.

  3. GSM says:

    Could the Fed Kill Gold?

    They have certainly been trying and yet they don’t seem to have succeeded. Notably, other significant CB’s are accumulating the metal – China, Russia etc. but what do they know, eh?

    • JC says:

      CB’s becoming net buyers is often a good indicator it’s time to sell some, though i still believe it’s very prudent to have some as a hedge against the loons running the show.

      • JC says:

        Just to add to this, the Swiss CB, probably recognised as the most prudent financial managers of all were net sellers of the metal when it was $300 USD an oz. This turned out to be a pretty good buy signal.

      • Jack says:

        The RBA must have followed their advice as i recall them selling at the same time.
        Interesting fact re gold, about 15% of the worlds gold is in Indian Jewellry.

      • Rusty Penny says:

        My wife is Indian, I noticed this amongst her extensive family.

        It parallels with JC’s post above, nesting on Insight Wealth’s.

        Indians have a cultural memory of policy makers being f*ckwits.

        So they wear some of the hedged wealth. Went I travelled to India I observed and said ‘man their banking system would be more efficient if that was in vaults instead of being worn on wrists and necks’.

        However India has been a net seller of jewelry to bullion for the past 4 years.

        I guess that cultural memory still pays dividends.

      • Jackson says:

        @Rusty Penny

        Indians have a cultural memory of policy makers being f*ckwits

        Not sure what happened to “Comment of the Day”, but this gets my vote.

      • Suggest you dig a little deeper, 10 years ago it was western central banks selling, today it is eastern central banks buying.

        http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/12/28_6_Shocking_Gold_Charts_Depicting_Stunning_Western_Decline.html

      • Gunnamatta says:

        I tend to see gold heading south before it goes up mainly because I think it will rise and fall on sentiment about what central banks will try to do – until such point as it becomes fairly obvious that central banks cant do anything else (cf Japan) at which point it serious rises.

        In addition to the Russian and Chinese central banks (and dont forget Russia stacks lots of gold off balance sheet) there is also the matter of Chinese people being fairly openly encouraged to buy gold, and they are buying in droves.

      • flawse says:

        Exactly!

  4. Jack says:

    I believe they are trying and one reason that they may succeed is that people have been focused on the logic that the govts will inflate away their debt.

    I was reading an article on financial repression where govts pay very low or negative real rates of return and force various parties to hold that debt. If governments can keep interest rates artificially low, their debt in real terms starts to fall, so long as they rein in spending.
    So you have a system of government deleveraging and this on average takes 23 years, at the same time you have the private sector deleveraging it all gets very interesting.

    • Bills says:

      This is how countries dealt with their debt during the period post WWII when the US debt to GDP was even higher than currently (i think). And China off and on over the past decade.

      • flawse says:

        Bill in those times the US ran a CAS. You have a lot more leeway when you are running a CAS rather than a chronic CAD.

        We’re also assuming that the world economic structure, into the future, remains more or less as is and will remain forever US centric. I’m pretty certain it ain’t gonna be so! However as Yogi Berra said “It’s hard to make predictions especially about the future”

        China’s appetite for Gold rather than more US worthless paper may have a fair input into the Gold price.

        OTH Eric Jansen over at itulip.com has had the Gold picture pretty well framed over the last 15 years. He has always said the time to sell would be when the Fed starts raising interest rates.
        Now the FED might eventually figure it cannot QE to infinity forever. However raising interest rates without a full scale reform of both the economic system and society will likely prove disastrous and lead to straight out inflationary expenditure. So what we may get would be a fall in the Gold price followed by the explosion.

        Not married to any opinion but I’ll keep my physical gold. The paper stuff I trade a bit.

        One more thing…the gold price in A$ has been static for a couple of years. If the Fed starts raising interest rates while we are lowering them the price of gold in USD might fall but in A$ it might even go up.

      • Jack says:

        FLAwse
        Yep running a CAS makes a difference, but the real issue is real interest rates, the impact on government debt of 3 percent inflation and 1 per cent interest rates is the same as 10 percent inflation and 8 percent interest rates.
        The other really sinister impact is that the basket of goods that is measured doesnt alway reflect an individuals personal inflation experience.
        Either way its a net transfer of wealth from investors to the government.
        Your point re the CAS and re Australia is spot on, is suspect its already reflected in bond prices particular countries like the Swiss where you have a negative 2% yield on government debt.
        It also means bubbles as investors pile into anything that produces a yield and that why I think gold might struggle, on a logical basis

      • flawse says:

        Jack (I don’t think I’m disagreeing however inflation is never a solution)
        Just to clarify what I was talking about
        The difference between 10% and 3% is relevant to the economy. I take your point re the government. If we run at 1% we are assuming we can finance the resultant consumption and CAD. Given that we already run a CAD 1% ensures we are sure not going to run a CAS. So we rely on those good ole foreigners. At 10% interest rates we’d likely run a CAS provided we could keep the A$ in check. However given the present structure of our economy, or the US, we would obviously smash it.
        If you are running a CAS you have room to lower rates and raise consumption.

        One more thing.
        I think the idea that inflation gets rid of govt debt is a bit misleading. If much of your liability lies in the future re social security demographics etc inflation doesn’t inflate anything much away.
        Secondly you may get reductions in the apparent vale of govt debt however it will likely be offset by an equal rise in private debt. Inflation really doesn’t result in decreased private debt. It never has in my life time and the major reason we are now in so much debt is negative RAT rates associated with inflation.

      • Jack says:

        Flawse
        Totally agree that it is overall debt, particulary private, but the people trying to inflate govt debt are the same people that believe the pitchford thesis, and also want to kill the gold price. If you are trying to inflate away the debt, low inflation is preferable to high inflation.

      • flawse says:

        :) Suddenly the music of the Rolling Stones fills my head ‘You can’t always get what you want’

      • npi_tweet says:

        Yes, sell gold when interest rates start to go up, but for the time being, it seems to be the best bet. In my mind’s eye, the world economy is a bit like watching a train wreck but in very slow motion, and I think it will be dragged out over 10-20 years.

        So, gold is in play while interest rates head down. Once it looks like interest rates will head up (keep an eye on inflation in 3-5 years time) then will be the time to start sniffing property again. Can you imagine the opportunities? Imagine an over leveraged world where interest rates are going up and asset prices are falling. That is when the real money will be made.

        In the meantime gold will keep trekking up, the AUD along with it, until investors realise we have the same disease as the rest of world – debt.

  5. MontagueCapulet says:

    Gold is lower now than it was before the announcement of QE3 and QE4,so I wouldn’t read to much into Fed announcements.
    It will probably go sideways for the next 6 months while it looks like there might be some real action on deficit reduction. When it becomes apparent that the USA will keep running 10% deficits for years to come it will start rising again.
    Inflation or deflation is a red herring. I expect to see neither over the next 20 years – just endless stagnation like in Japan, but I expect gold to gradually rise through to 2030 in parallel with rising US government debt.
    Rising debt is the driver, because as the US follows Japan in heading towards government debt over 200% of GDP and bonds are propped up artificially, the whole system is called into question. Decades from now when this bull market in gold is over, historians will explain that the bull market happened because big investors wanted a hedge against government bonds in an environment where government debt levels became more and more absurd and the global financial system eventually required a reset.
    The hedge-against-inflation argument was relevant to the 70s bull market, but this is a deflationary depression offset by money printing, its a different animal.

  6. GSM says:

    If the Fed stops QE, who is going to be soaking up that supply in sufficient quantities to prevent US rates from ratcheting much higher? Higher US rates will do what to their economy?

    The Fed may be getting nervous about it’s balance sheet, and with good reason. But for now the alternatives to QE bring about instant economic growth reversals and severe stress to the US financial system. As Sir Humphrey would say ; a very courageous move.

  7. LBS says:

    “So overall, my thoughts are, rightly or wrongly, that once their is a perception that the US government is going to stop “de-facing” it’s own currency then the people’s fiat would see a fall in value.”

    I think it all comes down to when China decides that devaluing their currency is not going to save their economy anymore. This is where the root of the currency war issue has started. Till then I dont think anything is going to happen.

  8. I’m not sure I would consider the Fed “increasingly hesitant” only a couple of months after they’ve launched consecutive QE programs (QE3 & QE4, or whatever you want to call them), we haven’t even started to see the increase in monetary base yet:

    https://twitter.com/bullionbaron/status/287040988072005632

    • Also it’s worth considering that Bernanke has spoken several times about the Fed’s “communications tools” to be used in aid of economic recovery. It wouldn’t surprise to hear the Fed is toning down talk of further easing specifically to encourage the market into believing the recovery is real and QE will soon be reduced…

  9. thomickers says:

    someone once said that “gold is the undollar”

    • Nancy says:

      Precisely. Trying to discuss the value of gold in terms of a fiat currency to me is entirely beside the point.

      Gold = no counter-party risk. I have no doubt about one thing that our government will always do to us – keep stealing from us by keeping us in a system with fundamentally unsound money, where the common man has to break his back to make enough of it to make a living, while the banker has unlimited power to create as much of this ponzi money as he pleases.

    • ajostu says:

      I like “undollar” as opposed to “antidollar”. Or maybe “alternadollar?”

      The fact that so many non-western economies have taken an interest in gold I find intruiging. Whether this acts as some kind of floor on the price I don’t know, but, though the gold price is usually quoted in USD, I wonder if it’s also a bit narrow just thinking of gold in relation to the dollar?

      Mind you tonight it’s down against everything…

  10. Petervm says:

    I think the headline should read “When will Gold kill the Fed”.

    Gold offers a alternative to the relentless debasement of paper money, gold’s been used for thousands of years the Fed around a hundred years.

  11. pellicle says:

    its a bit like standing on the beach and attempting to guess if the tide is coming in or going out on the basis of how far three consecutive waves came up the beach.

  12. GSM says:

    US Fed’s Bullard on the US economy and printing dollars (in the CNBC clip). The Fed will not be giving up on QE …;

    ” Liesman: “Easy for you to say, you have a lot of dollars to spend; you get to print them!” To which the now foot-in-mouth Bullard replied, “Aaahh; indeed we do.”

    http://www.zerohedge.com/news/2013-01-04/liesman-fed-gets-print-dollars-bullard-indeed-we-do

    What goes on behind the curtain?

    • Bollard: “I think that the quantitative easing we are starting right about now is more than what we were doing with operation twist, so I think it is a bit easier policy”

      All this talk of tightening is way too early IMO.

      Peter Fraser is talking above like they are just about to start tightening, when we haven’t even started to see the announced policy decisions take effect in the US monetary base.

      • Opinion8red says:

        When (if?) they do start “tightening” (slowing the rate of loosening?), then might be a good time to locate oneself in a good bunker. Preferably one with a good toilet system for one’s loosening bowel. Because when “tightening” begins at the FRB, global chaos a la Greece, thence war, will shortly come rolling over a horizon near you.

  13. Gunnamatta says:

    I also tend to think that despite all this talk about if/when the Fed kills gold, it is the impact any Fed moves has on other commodities – particularly oil – which will be far more interesting.

    Gold (as a key hedge against the economic reality du jour) will survive one way or another even if worst comes to worse, and if any of the global central banks puts a foot wrong, in the context of them certainly making up the game plan as they go – then gold could be an inspired choice of hedge

  14. Gunnamatta says:

    http://www.macrobusiness.com.au/2013/01/could-the-fed-kill-gold/#comment-204178

    Peter F!! Sorry I missed this yesterday

    ‘Fear has been in a five year bubble, but now the hissing sound of it deflating keeps PM investors awake at night.

    When they all hit the exits at the same time it will get ugly.’

    Would that be far removed from ? …….

    ‘Real Estate has been in a five year bubble, but now the hissing sound of it deflating keeps RE investors awake at night.

    When they all hit the exits at the same time it will get ugly.’

    I feel sure you would get hot under the collar were someone to assert that latter.

    There are an awful lot of bubbles out there, and the collective hissing they make is arguably what makes the current Australian and global economic outlook look like a wade through turd infested waters of some description – with many swimmers having the puckering cloacas redolent of your irritable bowel suffering heavy indebted types.

    • Peter Fraser says:

      No Gunna, I don’t get hot under the collar and nor do I lie awake at nights, I just feel for your poorly articulated and incorrect perceptions.

      Can I help in some way?

      • Gunnamatta says:

        Just knowing that you’re there is more than enough, mate.

      • Peter Fraser says:

        Good – my work is done then.

      • AURules says:

        Peter I think Gunnamatta was being sarcastic -at least I hope he was. I have read ALL your above comments re Gold and my conclusion is that you are talking like an expert on the subject when in reality you know only the Politically correct answers.

        Amongst your many ludicrous statements you say you hold Gold & will buy more when/if it drops to about 2 times less than current production cost.ha ha ha.
        “It does look as though it might retrace to $500/$600 USD-I’ll buy a stack more if it does”

        Now why would a clued up “expert” like yourself hold Gold if he thought it was such an obviously stupid investment?

        “at the first sign of an interest rate rise in the USA gold will plummet like a gliding brick”–

        Really Peter -you know full well that even a 1% rise in Interest rates in the USA would collapse the economy! That would be a 100% increase on current lending rates to Banks& will NOT be happening any time soon!

        “I am a holder of gold, but as the Fed starts to increase interest rates, gold will fall proportionately, and that is good for the global economy. If that halves my gold holding value, that’s OK by me, I’m not a seller of gold and nor do I rely on it as a future source of wealth. I want the world to recover over the next few years, and the signs of that recovery are everywhere”

        The above statement is so stupid bearing in mind your own comments re where Gold is going. Firstly you say you’re not a seller even though you’ll loose up to half your current value ?
        Thats not very clever -you should have sold months ago!

        The next part tells us where you’re coming from -You “want the World to recover” & obviously (in your opinion )holding Gold as a store of value makes one a traitor not to rely on Govt promises & their massively overprinted fiat currencies.

        “And the signs of recovery are everwhere” — tweet tweet -which cloud do you live on Peter?
        Everthing is being swept under the carpet -the can is being kicked down the Road in ALL countries.

        I believe Gold will at least double from here. I am fully invested & have been for 10 years +
        I have studied & read all the pertinant facts -enough to know that it is feared & despised by Governments around the World.It is manipulated by them to control its rise against their paper which is being printed with gay abandon. THEY CAN’T PRINT GOLD

        I will finish with the lead in to every issue of the Privateer. http://www.the-privateer.com

        “In any discussion of the future of Gold, or of the price of Gold, the first thing that must be realized is that Gold is a POLITICAL metal. In the true meaning of the word, its price is “governed”.

        This is so for the very simple reason that Gold in its historical role as a currency is fundamentally incompatible with the modern worldwide financial system.

        Up until August 15, 1971, there has never in history been an era when no paper currency was linked to Gold. The history of money is replete with instances of coin clipping, printing, debt defaults, and the other attendant ills of currency debasement. In all other eras of history, people could always escape to other currencies, whose Gold backing remained intact. But since 1971, there is NO escape because NO paper currency has any link to Gold.

        All of the economic, monetary, and financial upheaval since 1971 is a direct result of this fact.

        The global paper currency system is very young. It depends for its continued functioning on the BELIEF that the debt upon which it is based will, someday, be repaid. The one thing, above all others, that could shake that faith, and therefore the foundations of the modern financial system itself, is a rise (especially a sharp rise) in the U.S. Dollar price of Gold.”

  15. MsSolarFelineAU says:

    Righty-ho, back on topic!

    http://www.zerohedge.com/news/2013-01-04/other-mint-campaign-starts-bang-us-mint-sells-50000-ounces-gold-first-day-year

    http://www.usmint.gov/mint_programs/american_eagles/?action=sales&year=2013

    So, let me get this right. It’s the perception by some Ordinary People (and hegies and CB’s), that their “real world” is actually going to change dramatically pretty soon/in the near future/right about NOW, that is prompting this EVIDENCE to be reported.

    Got it ;-)

    And a few more things….
    When I hold a polyermer Fiat note in my hands, I can scrunch it up, I can fold it, I can shred it, I can BURN THIS NOTE (not that I am advocating that one does so, as destruction of fiat currency is against the law) I can otherwise DESTROY this note.
    PHYSICAL au/ag/other PM’s CANNOT be folded, scruched-up, shredded, BURNT to ashes, or destroyed in the same way as fiat can be. Yes, apply enough heat to any of them, and they are able to be melted.
    Also, when one has a gold or silver (or other PM’s) bar or coin in ones mitts, there is WEIGHT to these metals. Spiritual weight, Energetic weight as well as Physical weight.

    Besides, I feel wealthy when I hold my physical. Whilst others are starving, those of us who have diverted our fiat to physical will have TRUE WEALTH. (We just have the responsibility of defending our wealth, that is all…)

    avagoodweekend

  16. alwaysanon says:

    The timing on this is a bit funny because I just stumped upon an interesting theory that The Shining of all movies has an entire Fed killed off Gold subplot. Kubrik might actually have ben just crazy enough to do such a thing…

    http://www.youtube.com/watch?v=mAQnfOXqiR0

  17. jeremy.nz says:

    Look at what the fed does rather than what it says. They said no QE3, yet QE4 was anticipated by those paying attention. How will the US balance their budget? How will they cover unfunded liabilities to the tune of $120 trillion. They won’t. Neither will Japan. Neither will France.

  18. IMHO, the answer is relatively simple – allow me to black box this from my own POV:

    If the Fed “stops” (or even significantly reduces) QE (and the like), the result will be selling en-masse (read: deflationary).

    However, deflation is anathema is modern govts and CBs; therefore, they will target stagnation and mild inflation – but this will, necessarily, IMO, require on-going bond-buying, as the Patient is now utterly dependent on it (and in increasing doses).

    Hence, unless the Fed/CBs/govts/etc are prepared to entertain some serious natural deflation, they will continue to print, buy and prop.

    For, the notion that there will be genuine “recovery” (ie. GROWTH!) in this utterly (and increasingly!) debt-saturated world are, IMHO, delusional.

    Whilst the debt-load status-quo remains (and it actually just keeps increasing), near-stagnation is the best that govts/CBs will achieve over any time-frame more than a few years – ie. stimulus fades, and when it does, it requires more debt, more printing, more propping, more stimulus.

    Gold may suffer in the short-term but, IMHO, for the medium-term, any deflation in Gold/PMs will only be temporary and, largely technical, until people realise, once again, that the recovery in the economies and govts that underpin the fiat currencies is only short-lived.

    People talk about Gold/PMs in terms of inflation, hedging, security, interest rates, deflation, etc, etc, and their is some validity to those notions – though it is pertinent for me to say that they were somewhat more relevant at a different time and in different circumstances.

    Today’s circumstances are, really, without modern analogue, in terms of the nature and extent of the “problems”. Consequently, the role of gold/PMs is also different.

    Now, I contend, Gold/PMs really is more about Faith in “The System” vs “the other” (whatever that is that Gold/PMs represent).

    Hence, IMHO, people should speak less of the particular and arbitrary notions of inflation, deflation, etc, that “gold represents”, and more about what it is CURRENTLY representing: Faith – not only an alternative store of Faith, but a means of transferring one’s Faith from an ailing System into a non-System.

    So, the Fed will “kill gold” when they can regain AND increase people’s Faith in the system – not just when certain arbitrary numbers tick and and down for a few quarters – but when people feel that the ground under them is stable enough to support their weight. Trust.

    My 2c
    Stewart

    • mehere says:

      The problem for the Fed as far as I can tell is that to restore trust in the system they would have to stop devaluing the currency but how do they do that?

      • I agree that this is a Catch-22 issue – an inflation/deflation connumdrum.

        As Flawse often says, I think the answer lies back in time.

        To add, though, I would suggest that restoring Faith in the system is more than just stopping devaluing the currency – the truth is, that a currency can devalue naturally in a fiat system, as the government/economy/society matrix that makes the currency attractive itself degrades; this just naturally leads to a devaluation in the currency relative to other currencies and commodities, as it is just not as desirable for all the aforementioned reasons.

        And therein is a key issue: the US Fed can stop devaluing the USD by ceasing printing, but this will likely send the US economy into a deflationary spin (which could actually see a USD appreciation, initially!); however, as the US economy would suffer, the attractiveness of the USD – an intrinsic reflection of both the US govt/CB decree and the US economy – would enter devaluation. It’s just that this route is deflationary, instead of the inflationary (money base expansion) route.

        Truly a catch-22, IMHO; it’s as if the prosperity-by-debt-accrual paradigm has a necessary scope of climaxes.

        Stewart

  19. Rhett Morson says:

    [img]http://www.nowandfutures.com/download/gold_vs_currencies_ppp1900-2005_from_AEIR_report_rr11_pdf.png[/img]