Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Price Disillusionment

Commodities / Gold and Silver 2012 Aug 16, 2012 - 01:04 PM GMT

By: Jan_Skoyles


Best Financial Markets Analysis ArticleThe markets are holding on for more quantitative easing (QE). This is what we keep hearing. Every day we hear reports of the gold price still maintaining its narrow ‘trading range’ of the last month. In fact, since May it hasn’t broken out of the $100 trading range.

Things don’t seem to be getting any better, the markets are still demanding more action, banks are asking for more liquidity, bailouts still seem to be the only medicine for the PIIGS and the central banks are mulling about what to do next.

So, why hasn’t gold gone through the roof? Is this not the time for it to shine? Especially when there are so many expectations of further QE, the markets are almost at a standstill waiting for the next announcement.

However QE’s implementation, whether in the UK, US or even the EU is not a guarantee. This is despite various statements from governors, chairmen, presidents that they will do everything within their power; for most central bankers and economists these days this basically means printing money to buy bonds.

Gold as a hedge against inflation is an oft cited reason for gold bullion investment. The central bankers have already been on quite an inflation binge. But the inflation so many warned of when the printing presses were turned on has not transpired. In the US this week CPI is down to its lowest level since 2010 whilst in the UK and Eurozone it is up slightly but not enough to cause concern to markets.

Where is the inflation we were promised. Were central bankers right to be paranoid of deflation? Does no inflation mean no gold price extravaganza? Is that all we should worry about? Below we outline why, whatever the outcome of central bankers’ the decision to invest in gold bullion will remain a beneficial one.

Gold and deflation
Global growth has slowed quite dramatically since the onset of the Eurozone crisis, this has proved to have a deflationary impact on the markets.

Considering gold is considered the ultimate hedge against inflation many are asking if this means we are seeing the slow death of the gold bull market.

The World Gold Council believes that across all economic periods, whether inflationary or deflationary, gold has retained its purchasing power. Good news for gold bullion investment, but a report out this week suggests a deflationary period may be even more beneficial than an inflationary one.

Rhona O’Connell, citing Roy Jastram’s The Golden Constant writes that during deflationary periods gold’s value is at its most powerful:

In the United States there have been three recorded deflationary periods and gold increased its purchasing power in each of them, by between 44% (1929-1933) and 100% (1814-1830).

This suggests that to sell your gold investment ahead of deflationary events could prove counterproductive and leave with a high risk basket of investments due to the undermining of equities and low bond yields which is seen in such events.

Is it just about QE?
Such comments do not mean we should hope for and expect the central banks to allow us to descend into a period of deflation. They fear this more than the sky falling on their heads. But at the moment the markets are almost falling asleep waiting for further liquidity injections – they are clearly hungry for it. Even if central bankers are a little wary, we do expect to see easing of some form in the next few months.

In the short term we do seem to be facing deflation worries and a stagnant gold price. But in the long term it cannot be ignored that the markets have seen a huge injection of liquidity. Whilst the central banks may have created the money, they have little control after they press the button.

Gold shows up monetary inflation far better, quicker indicator than consumer prices. So whilst gold has doubled alongside the doubling of central bank assets, consumer prices have not.

Golden fundamentals
Whether we are heading for further QE or deflation, these aren’t the only factors which will drive the gold price.

The other factors which drive gold are very much still in place. The very same factors which were driving gold to record highs before the first round of QE was even thought of.

Interest rates remain historically low, with little indication of an increase. Whilst inflation may be officially low, real inflation rates indicate otherwise, showing savings in bank accounts are gradually being eroded away. Last month Bernanke and friends all committed to long-term low interest rates.

This week the World Gold Council reported that central bank purchases were at their highest in Q2 since 2009. Central banks are clearly losing faith in both the euro and the dollar, they are ahead of the game and setting up the barricades for when the full assault on the two currencies begin.

Whilst data from the US and the EU may appear to be slightly healthier than expected, fears remain about China, India and Brazil. The green shoots of the next financial growth phase seem to have withered, with many expecting China to be pushed to implement a round of stimulus. This in turn will increase gold demand from Chinese citizens terrified of inflation.

Whilst China and India may be a bit cool in gold purchases in the last quarter, demand from Europe, namely Germany has surprised everyone. I’m not sure why considering of all the currencies, the single currency union is the one which will create the biggest car crash of them all, affecting so many different economies and individuals. The Germans have seen a currency crisis before and they’re insuring themselves pronto.

As we have said repeatedly on these pages, in times of crisis, individuals turn to gold. Whilst Syria is not to be acknowledged for any decent behaviour at present, the population has displayed the human tendency to turn to gold in times of crisis. This week Bloomberg reported President Assad had lifted restrictions on gold bullion imports, this comes at a time when it is becoming increasingly difficult for the country to interact with the outside world.

Short term, long term gold price
The mainstream seems to think that economics and the gold price mirror one another like Tweedledum and Tweedledee. Unfortunately like life, it doesn’t work like this. It takes time for one another to catch up. Hence the ‘great correction’ we are witnessing, investors, the markets and inflation all need to look across the race lanes and see where everyone is.

Inflation, deflation, who knows, we need to step back, discard our magnifying glasses examining the brush strokes and look at the dark picture in front of us. Lots of things are going on, but they all play a role in the story; the economy is going to the dogs and gold has plenty further to run.

Want to invest in gold as an insurance against central banks’ money printing? Invest in gold like a professional in minutes…

Jan Skoyles contributes to the The Real Asset Co research desk. Jan has recently graduated with a First in International Business and Economics. In her final year she developed a keen interest in Austrian economics, Libertarianism and particularly precious metals.  

The Real Asset Co. is a secure and efficient way to invest precious metals. Clients typically use our platform to build a long position and are using gold and silver bullion as a savings mechanism in the face on currency debasement and devaluations. The Real Asset Co. holds a distinctly Austrian world view and was launched to help savers and investors secure and protect their wealth and purchasing power.

© 2012 Copyright Jan Skoyles - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 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