Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

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

Gold vs Savings - Ben Bernanke vs. Rothschild's Obscure Clerk

Commodities / Gold and Silver 2013 Jul 20, 2013 - 10:10 AM GMT

By: Adrian_Ash

Commodities

Does the Fed chairman really not understand what drives savers to gold...?

BEN BERNANKE, today's most powerful banker, said this week that nobody really understands gold prices, including himself. Victorian Europe's richest man, and bullion broker to the Bank of England, N.M.Rothschild at least took the trouble to check.


"I know of only two men who really understand the value of gold,"Rothschild reputedly joked in the mid-19th century – "an obscure clerk in the basement vault of the Banque de France and one of the directors of the Bank of England.
 
"Unfortunately, they disagree."

The US Fed chairman in contrast shows only a cursory interest in gold. That's despite being an economic historian (and 3,000 years of history say people buy gold as a store of value) as well as sitting on top of the world's largest hoard (the New York Fed vaults some 6,700 tonnes for both the US and foreign governments. The United States' own gold reserves total 8,133 tonnes – some 5% of all the gold ever mined).
 
Asked in Congress on Thursday, however, why 2013 gold prices have fallen 25%, Bernanke was in fact close to an answer. "People are less concerned about extreme outcomes," he said, "and therefore they feel less need for whatever protection gold affords."
 
This drop suggests "people have somewhat more confidence. [So] the gold price going down is not necessarily a bad thing."
 
Rothschild's obscure clerk might well agree, at least with regards to Western investors. People buy gold, and drive the price higher, when they fear bad things ahead. War, financial crisis and stockmarket crashes...such horrors make rare, indestructible gold appealing like nothing else. (The US government's own hoard confirms that.) But five years after Lehmans collapsed, many investors are now bored with the crisis. That makes gold – proven crisis insurance – look boring as well.
 
Asian households, on the other hand, buy gold whenever they can. So their rising incomes mean India and China now account for one ounce of gold in every two sold worldwide. And not understanding gold prices today starts with ignoring Asia's rapid ascent.
 
Ben Bernanke was also half-wrong to say people buy gold as an "inflation hedge". Because he missed the equally big role played by interest rates – and that's a telling blind spot. After all, the Fed chairman slashed the returns to cash to zero. More than four years later, he promises to hold rates at zero "for an extended period" in future as well.
 
This might not matter if inflation stayed "low" as he keeps claiming. But when inflation overtakes interest rates? Gold tends to rise in value when cash savings fall in real terms. That's been as true under the free-floating prices of the last 42 years as it was under the 19th century's classical Gold Standard.
 
Put another way, if inflation is rising faster than your savings are growing, your cost of living would be falling if you held that money as gold instead.

Since Richard Nixon cut the Dollar's last formal ties to gold backing four decades ago, the official US cost of living index has outpaced US savings rates in 198 months. Gold prices have risen in 163 of them, gaining an average – in real terms and after accounting for today's US capital gains tax – of 14.2% per year. That made the Consumer Price Index fall for gold-owning savers.
 
The reverse is true too (and again, in the main. We're as tired of saying you can't time real rates and gold as everyone else is of hearing it). In those 305 months when cash savings grew in real terms, gold lost value almost two-thirds of the time, dropping an average 4.0% from a year earlier and so making life more expensive for gold-owning savers.
 
Yes, the plunge in gold prices this year far outweighs the steadying cost of living for bank savers. But no one said fighting the Fed would be easy, or cheap. And the lesson for central bankers meantime?
 
Back in the 19th century, if people began exchanging their paper money for gold, central banks would raise interest rates, defending the value of cash and encouraging savers to stay in paper instead. With that convertibility long gone, however, central banks now have what Bernanke calls "flexibility" – the ability to keep rates below inflation, and even create more money at will. This bid to boost the economy comes at the expense of cash savers. So when people choose to buy gold in the 21st century they are signaling in fact the "success" of US Fed and other central-bank policies.
 
No doubt Ben Bernanke understands that more than he lets on. Savers would do well to understand his repeated desire for higher inflation. Never mind understanding the aims of his likely successors.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - 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