Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Gold Hatchet Job by Barron’s

Commodities / Gold and Silver 2010 Aug 02, 2010 - 12:25 AM GMT

By: Howard_Katz


Best Financial Markets Analysis ArticleGold dropped 30 points on Monday-Tuesday of this past week thus breaking out downside from a head and shoulders top.  The problem here was that most of the indicators on gold are bullish.  Thus the head and shoulders is an anomaly.  Technical analysis proceeds on the basis of probabilities.  One must weigh the bullish and bearish factors and establish a weight of the evidence.

The Monday-Tuesday decline, as it turned out, was caused by Al Abelson of Barron’s, who did a hatchet job on gold in his column of 7-26-10.  I have a long acquaintance with Barron’s and was one of its big advertisers (for financial letters) in the 1960s.  At that time, I was warning of a grand cycle bear market in stocks, which came true in the early 1970s as the DJI plunged from over 1,000 to 577.  During this time gold was rising from $35/oz. to $196/oz.  I made the acquaintance of then editor, Bob Bleiberg, a fine man who favored the free market, the balanced budget and the gold standard.

But it appears that Abelson has gone the way of all flesh.  He has noticed that, when the Fed prints money and eases credit, the stock market goes up.  Indeed it does.  Counterfeiting works – for the counterfeiter.  The problem is that the wealth flowing into stocks comes from creditors (who put their assets into such things as T-bonds, corporate bonds, certificates of deposit, etc.) and from the American worker (whose wages decline in real terms).  It is a redistribution of wealth (and from poor to rich) not a creation of wealth.  It makes the stock market richer but the whole country poorer.

We may compare and contrast two periods of American history.  First, consider 1866-1896.  During this period the U.S. was on (or returning to) the gold standard, stocks were flat, the real wages of the average worker rose by 90% and foreigners poured into this country because the streets were (in a very real sense) paved with gold.  Second, consider 1980-2010.  During this period the U.S. issued trillions of paper dollars (yes, trillions).  Stocks went to the moon.  The real wages of the American worker fell (the only generation to be poorer than its fathers) and foreigners are denigrated as “illegals,” and used as an object of hate.  In which period were Americans rich and in which are they poor?

But Al Abelson finds the stealing of wealth to be much more practical than the production of wealth, and therefore he is, Unlike Mr. Bleiberg, an enemy of gold.

Strangely enough, some people in the gold bug community try to erect a wall between gold as an “investment” and gold as a political issue.  “Investment” is in quotes because the abolition of the gold standard means that no investment is possible in the world anymore (with the possible exception of Switzerland).  Since 1933, the real rate of return on riskless investments here in the U.S. has been zero, and that does not even figure taxes.  Since an investor is someone who aims for return on capital, there has been no investment in the U.S. (or most of the world) since 1933.  Everyone trying to get wealthy from the financial markets today is a speculator, and if you want to make money as a speculator, you had darn well better be a good one.

The problem is that the political implications of a gold standard and the speculative implications of how to operate in our current climate are intertwined.  Abelson seems to understand this.  His first objection to gold as a speculation is:

“…gold, in keeping with its hoary tradition revels in the world’s misery.”

         “A Contrarian’s View of Gold,” Barron’s, 7-26-10, p. 7.

This is indeed a strange argument.  (Hoary means ancient and is a side reference to Keynes’ argument that gold is a barbarous relic.  Actually, gold is the same age as democracy, and no one calls that hoary.)  What is it to a speculator, and how does it imply that gold is going down?  If there is a shortage of food in some country, then the price of food will go up (as per spring 2008).  Does this mean that the speculator should not try to make a profit in wheat?  Actually, by putting the price higher the bullish speculator helps to create more supply and thus alleviate the world’s misery.

But above and beyond this how can anyone connect gold with misery?  Money, in the form of gold bars, was invented by the Jewish community in Babylon circa 587 BC.  The idea of using gold as money instead of merely engaging in barter had a dramatic effect on eastern Mediterranean civilization.  Democracy appeared in Athens.  The Acropolis was built.  Geometry was invented.  Philosophy started to happen.  All historians since that day have agreed that the 6th century B.C. was one of the great ages of human history, and a light was lit at that time which has never gone out.  By contrast, money was abolished (an effect of the Edict of Diocletian) in the late Roman Empire.  The Roman economy collapsed.  The Roman armies could no longer defeat the barbarians.  When the final invasion came (406 AD), the Romans never even sent an army to defend themselves.  Rome was sacked in 410 AD.  (“The city that took the world was herself taken.”)  Historians have named the subsequent period the Dark Ages.  Interestingly, the decline was only in the West.  The Eastern Roman Empire righted herself by returning to the gold standard.  By 1000 AD, she was by far the wealthiest nation in the world, and the Eastern Empire outlasted the West by 1000 years (410 AD to 1453 AD).

In modern times, the Americans adopted a gold standard in 1788 with the adoption of the Constitution.  Britain followed after her victory in the Napoleonic Wars.  Both of these nations then created more wealth over the next century than had ever been seen in human history.  America expanded over the North American continent, and Britain created an empire upon which the sun never set.

Modern gold bugs are trying to protect themselves from the depreciation of their paper currencies.  That is, by an economic act, they are trying to undo what is being done to them by a political act.  The politics and the economics are so intertwined that they cannot be separated.  This is why the subject was traditionally called political economy.  To predict what is going to happen, one must understand both politics and economics.

Abelson continues:

“the long-term outlook for gold was “fraught with risk.…should gold investors
become less enamored with bullion, this inventory will hit the market’ with decidedly
unpleasant consequences for the metal’s price.”


So here is Barack Obama printing money by the trillions, and we are supposed to worry about an increase in the value of the paper dollar.  What about the law of supply and demand?  Adam Smith taught us that, when supply is increased, then price must come down.  Well, Mr. Abelson, the supply of paper money in the U.S. has been (approximately) doubled over the past 2 years.

We went through this in the 1970s.  We, the few, the proud, the gold bugs, predicted on the basis of Nixon’s abolition of the gold standard on Aug. 15, 1971 that the value of the paper dollar would go down, and the (dollar) value of gold would go up.  We predicted a large scale rise in consumer prices.  That rise came in 1979 when the CPI increased by 13.3%, and in that year gold multiplied in price by almost 4 times.

Of course, the increase in paper money during the 1970s was a pittance compared to what is going on today.  The worst year for money growth in the ‘70s was in the neighborhood of 8%.  Things are so bad today that the Fed is lying to us about the money supply.  However, we can get a handle on it by looking at the monetary base, and this has more than doubled over the past 2 years.  So my bet, Mr. Abelson, is that gold speculators are going to become (a lot) more enamored of gold in the future, just as they did in 1979.  We gold bugs of the 1970s were right because we understood the law of supply and demand.  If the supply of money goes up, then since money is the demand for all goods, the price of virtually all goods has to go up.  If you don’t understand that, then go back and start to read Adam Smith.

Abelson, more recently, is known for his statement of some two years ago, “Chicken Little was right,” (Barron’s, 10-6-08) in which he joined with the New York Times to predict an impending “deflation.”  Chicken Little, of course, was the gentleman who ran around shouting that the sky was falling.  He was full of alarm.

Chicken Little was full of alarm, but the science behind his prediction was not very good.  And the same is true about Abelson and the other paper money bugs.  The purpose of all the media hype against gold is to persuade us to sell out of our gold holdings and to head off a movement to return the country to the gold standard.  The idea here is that the paper aristocracy wants to steal our wealth, and their fundamental tool is the counterfeiting of money via the Federal Reserve.  Everything they say has this motive and is trying to make us poor.  Listen to them, and you will fail.

Sentiment has been negative on gold and other commodities thus far in 2010.  But, of course, such periods are great times to buy according to the theory of contrary opinion (which Robert Bleiberg always championed).  It would not surprise me if the readers who rushed to take Abelson’s advice have sold at the exact bottom just before the coming big rally.

The Abelson trashing of gold is simply one more example that we live in a society which is single-mindedly devoted to taking our wealth.  It used to be the case that Americans recognized that cooperating with one’s fellow man and creating more wealth was the way to go.  Redistributing (stealing) the wealth was something that the Russians did.  But do you know what also happened last week?  On Wednesday, just one day after the Abelson gold break, Russian Prime Minister Vladimir Putin,

“…approved a wide-ranging plan on Wednesday to sell off state property…”

        “Russia to Sell Off Stakes in State Companies to Fill Budget Gap,” New
        York Times, 7-29-10, p. B-1.

So Barron’s is going Keynesian, and Russia is abandoning socialism.

“O tempora, O mores” (“Oh the times, oh the customs.” – Cicero)

I offer Russia a swap.  You give us Putin, and in exchange we give you Abelson.  We need someone who will sell off state property and reduce the budget deficit.

As the famous speculator Jesse Livermore used to say:

"After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!"

The reason for this is that market trends go on for much longer than almost anyone thinks.  It is not too hard to get on a winning trend.  The difficult part is to stay on it and not get shaken off by temporary sentiment swings (or bearish media articles such as Abelson’s).  Eventually every trend will reverse.  But it only reverses once.  People think that it is going to reverse many, many times.  So I find that the best thing I can do for my subscribers is to shore up their courage and keep them moving with the trend.  THE TREND IS YOUR FRIEND.  THE BIG MONEY IS MADE IN THE BIG MOVE.

To help people make the big money in the big move, I publish a fortnightly (every 2 weeks) letter, the One-handed Economist ($300 per year).  I will stack my record up against Abelson’s any day of the week.  The One-handed Economist is dated (every other) Friday.  The most recent regular issue is 7-23-10, and a special bulletin was sent out on 7-29-10 analyzing the Abelson article (available on the website with subscriber’s password).  The next regular issue will be dated Aug. 6.  You may subscribe by going to my website, and pressing the Pay Pal button.  Or you may subscribe by sending $290 ($10 cash discount) via the U.S. mail to: The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules