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November
27
2024
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The Latest Gold Survey Found Something Very Interesting
It's good to see articles like this that fully acknowledge the recent slump in the price of gold provided a great buying opportunity for latecomers. Some prospective buyers have been waiting a year or more, since $2,100/oz. to buy gold. It’s been a long wait. Even then, at $2,600 an ounce, gold was hardly the bargain some were hoping for. Last week’s $150 gain was certainly notable! The consensus is that a mix of these flare-ups played a primary role in it. U.S.-provided missiles being fired by Ukraine at targets on Russian soil, North Korean troops and equipment deploying to Russia. Or just look at the Middle East: Israeli boots on the ground in Lebanon while 250 Iranian rockets rain down in a single day. Russia’s recruiting Yemeni nationals to sign up for the Ukraine fight, and the Iranians fired up their uranium concentration centrifuges once again. Goldman Sachs issued a brand-new forecast that mostly reaffirms their $3,000 target next year. What happens next is anyone's guess. If gold can gain $150 in a week, we could see $3,000 gold before New Year’s Eve. Some are surely wondering if there are any chances for gold to pull back instead. The problem with answering that is that, like now, the new “low” prices will still be quite high. Sure, saving $100-$200 an ounce sounds nice. I think that’s a mistake. Penny wise, pound foolish, as my grandfather would say. Like spending 15 minutes in the car to find a station selling gas 11 cents a gallon cheaper – is that really a smart use of your time? Instead, think about the role gold plays as a diversifying factor in your savings. Notice that I said savings rather than investments. I believe gold is a form of inflation-resistant savings. Most of its price fluctuations are based on currency debasement, after all. When in doubt, we can always watch what the world’s central banks are doing. They’ll never tell you us to buy gold (that means less for them). So watch what they do instead. They’ll continue their paper money printing while assuring us everything is just fine – while buying gold hand over fist. Central bankers haven’t forgotten what real value is… So far this year, they’ve added 700 tons of gold to their vaults (year-to-date, on track to match 2022’s record purchase level). Overall, the third quarter of 2024saw the greatest gold demand of any third quarter in history. To hear money managers say that gold has become a necessary part of a portfolio should tell anyone on the sidelines it's an important asset.
And 56% of gold investors said they’re likely to increase their gold exposure in the year ahead. I wonder if they’re waiting for a chance to buy the dip? Or they’re just sticking to their allocation plan, regardless? Why was the gold standard really abandoned? As far as questions go, this is one where the first answer that comes to mind is probably the right one. But what did the Treasury's insolvency really look like? Even those with the slightest familiarity will know that President Nixon ended the gold standard so money-printing could pay for the conflict in Vietnam and massive spending at home. But the money-printing had already started, so when allied nations like the UK and France started cashing out their dollar reserves for gold? Effectively, President Nixon faced a massive margin call and he didn’t have the gold reserves to make good on those claims… Still, this overview asserts that the U.S. didn't have enough gold. Actually, it says there wasn’t enough gold in the whole world forty years before:
Our partner Dr. Ron Paul has heard this excuse before. “That’s like saying you can’t build a skyscraper because your architects don’t have enough rulers to measure it,” he told me. In other words, it’s nonsense. It’s a BS excuse. That so-called “international gold shortage” was caused by the credit boom of the Roaring Twenties. Banks extended too much credit – and when asset prices fell, and depositors lined up to withdraw their funds (in real money, gold and silver), the banks didn’t have it. I suppose, if you’re in charge of an overextended bank, a sudden “international gold shortage” sounds a whole lot better than, “I guess we gave too many loans to speculators who lost it all and didn’t pay us back.” That first excuse? That’s not your fault! Who could’ve predicted the world’s gold would suddenly go missing overnight? Unfortunately, the truth – the second story – that’s reality. There wasn’t an international gold shortage. There was, instead, an international credit bubble. When the bubble popped, a lot of people who thought they were rich suddenly learned that they were not. The gold they imagined they owned, well, that vanished. Their wealth was, as we still say today, “on paper.” The credit bubble imploded the way they always do – see Dr. Paul’s description of the malinvestment-boom-and-bust cycle for details. For a more recent example, I had friends who made the mistake of buying a home back in 2007, at the peak of the last bubble. A year or two later, they owed $1.5 million on a house now worth less than $900,000. They defaulted on the mortgage and the bank eventually sold the house at auction for $550,000. None of this happened because of a sudden “international money shortage,” mind you! It happened because price is not the same as value. It happened because an entire generation of Americans decided that flipping homes was the easy way to get rich – and banks were happy to loan them way too much money. So let’s consider – would we be better off under a gold standard? The author lists the three main objections to the gold standard:
Read the article and you’ll see that each of these objections is actually worse under our current, fiat money system. If there’s one thing I’ve learned over the last 25 years, it’s this: The free-floating, unbacked currency experiment has been an unmitigated disaster for most Americans. Having a currency tied to something as enduring as gold worked throughout human history! The opposite, fiat currency – the first attempt I’m aware of, from the Song Dynasty in 1279, led to a complete economic collapse. Returning to the gold standard has gained popularity recently. (Texas isn’t waiting.) Steve Forbes wants it. Even Donald Trump said:
That “very hard to do” part is the trouble. The gold standard limits a government’s ability to spend money – and the Trump economic plan will slash government revenue significantly. We can’t expect our government to reinstate the gold standard while the nation is $36 trillion in debt. Instead, I believe we all have to put ourselves on our own, personal gold standard – as a defense against currency devaluation. China finds 1,000 tons of gold, and guess who they're going to? Amid speculations of large off-the-books purchases and historically high consumer gold demand, it seems that China can't seem to get enough of the metal. As part of ongoing exploration efforts, geologists discovered a “supergiant gold deposit” exceeding 1,000 tons in the Hunan Province. China says that their state-backed, 30 year-running exploration program boasts a discovery rate of 87.3% when drilling deeper than 1,500 meters. Wu Jun, a director of the Hunan Province Geological Disaster Survey and Monitoring Institute, said that this discovery marks the largest deposit ever found in human history. And given its early valuation of approximately $83 billion, one will no doubt be curious as to who'll be the beneficiary of the deposit find. While "the government" comes up as an obvious answer, some might not know how straightforward this application will be. China is also known for wanting to de-dollarize. So what will it sell the gold for? U.S. dollars, of which it's trying to offload? The rapidly-depreciating yuan, which it suppresses to keep exports cheap for the rest of the world? No, just like in the case of Russia and many other large gold producers, chances are China will absorb most or all of the gold into the state one way or another. As blurred as the line between the private and public sectors is in Russia, where local gold is bought up by the state and by the fistful, China's is worse. If the PBoC doesn't outright buy the gold, it might do so through any number of its fronts or financial agents. Remember two things:
When you consider that China might unofficially have a gold reserve of a staggering 31,000 tons, another 1,000 tons seems like chump change. (But why advertise it, then?) Gold’s popularity as an investment It's good to see articles like this that fully acknowledge the recent slump in the price of gold provided a great buying opportunity for latecomers. Some prospective buyers have been waiting a year or more, since $2,100/oz. to buy gold. It’s been a long wait. Even then, at $2,600 an ounce, gold was hardly the bargain some were hoping for. Last week’s $150 gain was certainly notable! The consensus is that a mix of these flare-ups played a primary role in it. U.S.-provided missiles being fired by Ukraine at targets on Russian soil, North Korean troops and equipment deploying to Russia. Or just look at the Middle East: Israeli boots on the ground in Lebanon while 250 Iranian rockets rain down in a single day. Russia’s recruiting Yemeni nationals to sign up for the Ukraine fight, and the Iranians fired up their uranium concentration centrifuges once again. Goldman Sachs issued a brand-new forecast that mostly reaffirms their $3,000 target next year. What happens next is anyone's guess. If gold can gain $150 in a week, we could see $3,000 gold before New Year’s Eve. Some are surely wondering if there are any chances for gold to pull back instead. The problem with answering that is that, like now, the new “low” prices will still be quite high. Sure, saving $100-$200 an ounce sounds nice. I think that’s a mistake. Penny wise, pound foolish, as my grandfather would say. Like spending 15 minutes in the car to find a station selling gas 11 cents a gallon cheaper – is that really a smart use of your time? Instead, think about the role gold plays as a diversifying factor in your savings. Notice that I said savings rather than investments. I believe gold is a form of inflation-resistant savings. Most of its price fluctuations are based on currency debasement, after all. When in doubt, we can always watch what the world’s central banks are doing. They’ll never tell you us to buy gold (that means less for them). So watch what they do instead. They’ll continue their paper money printing while assuring us everything is just fine – while buying gold hand over fist. Central bankers haven’t forgotten what real value is… So far this year, they’ve added 700 tons of gold to their vaults (year-to-date, on track to match 2022’s record purchase level). Overall, the third quarter of 2024saw the greatest gold demand of any third quarter in history. To hear money managers say that gold has become a necessary part of a portfolio should tell anyone on the sidelines it's an important asset.
And 56% of gold investors said they’re likely to increase their gold exposure in the year ahead. I wonder if they’re waiting for a chance to buy the dip? Or they’re just sticking to their allocation plan, regardless? Why was the gold standard really abandoned?As far as questions go, this is one where the first answer that comes to mind is probably the right one. But what did the Treasury's insolvency really look like? Even those with the slightest familiarity will know that President Nixon ended the gold standard so money-printing could pay for the conflict in Vietnam and massive spending at home. But the money-printing had already started, so when allied nations like the UK and France started cashing out their dollar reserves for gold? Effectively, President Nixon faced a massive margin call and he didn’t have the gold reserves to make good on those claims… Still, this overview asserts that the U.S. didn't have enough gold. Actually, it says there wasn’t enough gold in the whole world forty years before:
Our partner Dr. Ron Paul has heard this excuse before. “That’s like saying you can’t build a skyscraper because your architects don’t have enough rulers to measure it,” he told me. In other words, it’s nonsense. It’s a BS excuse. That so-called “international gold shortage” was caused by the credit boom of the Roaring Twenties. Banks extended too much credit – and when asset prices fell, and depositors lined up to withdraw their funds (in real money, gold and silver), the banks didn’t have it. I suppose, if you’re in charge of an overextended bank, a sudden “international gold shortage” sounds a whole lot better than, “I guess we gave too many loans to speculators who lost it all and didn’t pay us back.” That first excuse? That’s not your fault! Who could’ve predicted the world’s gold would suddenly go missing overnight? Unfortunately, the truth – the second story – that’s reality. There wasn’t an international gold shortage. There was, instead, an international credit bubble. When the bubble popped, a lot of people who thought they were rich suddenly learned that they were not. The gold they imagined they owned, well, that vanished. Their wealth was, as we still say today, “on paper.” The credit bubble imploded the way they always do – see Dr. Paul’s description of the malinvestment-boom-and-bust cycle for details. For a more recent example, I had friends who made the mistake of buying a home back in 2007, at the peak of the last bubble. A year or two later, they owed $1.5 million on a house now worth less than $900,000. They defaulted on the mortgage and the bank eventually sold the house at auction for $550,000. None of this happened because of a sudden “international money shortage,” mind you! It happened because price is not the same as value. It happened because an entire generation of Americans decided that flipping homes was the easy way to get rich – and banks were happy to loan them way too much money. So let’s consider – would we be better off under a gold standard? The author lists the three main objections to the gold standard:
Read the article and you’ll see that each of these objections is actually worse under our current, fiat money system. If there’s one thing I’ve learned over the last 25 years, it’s this: The free-floating, unbacked currency experiment has been an unmitigated disaster for most Americans. Having a currency tied to something as enduring as gold worked throughout human history! The opposite, fiat currency – the first attempt I’m aware of, from the Song Dynasty in 1279, led to a complete economic collapse. Returning to the gold standard has gained popularity recently. (Texas isn’t waiting.) Steve Forbes wants it. Even Donald Trump said:
That “very hard to do” part is the trouble. The gold standard limits a government’s ability to spend money – and the Trump economic plan will slash government revenue significantly. We can’t expect our government to reinstate the gold standard while the nation is $36 trillion in debt. Instead, I believe we all have to put ourselves on our own, personal gold standard – as a defense against currency devaluation. China finds 1,000 tons of gold, and guess who they're going to?Amid speculations of large off-the-books purchases and historically high consumer gold demand, it seems that China can't seem to get enough of the metal. As part of ongoing exploration efforts, geologists discovered a “supergiant gold deposit” exceeding 1,000 tons in the Hunan Province. China says that their state-backed, 30 year-running exploration program boasts a discovery rate of 87.3% when drilling deeper than 1,500 meters. Wu Jun, a director of the Hunan Province Geological Disaster Survey and Monitoring Institute, said that this discovery marks the largest deposit ever found in human history. And given its early valuation of approximately $83 billion, one will no doubt be curious as to who'll be the beneficiary of the deposit find. While "the government" comes up as an obvious answer, some might not know how straightforward this application will be. China is also known for wanting to de-dollarize. So what will it sell the gold for? U.S. dollars, of which it's trying to offload? The rapidly-depreciating yuan, which it suppresses to keep exports cheap for the rest of the world? No, just like in the case of Russia and many other large gold producers, chances are China will absorb most or all of the gold into the state one way or another. As blurred as the line between the private and public sectors is in Russia, where local gold is bought up by the state and by the fistful, China's is worse. If the PBoC doesn't outright buy the gold, it might do so through any number of its fronts or financial agents. Remember two things:
When you consider that China might unofficially have a gold reserve of a staggering 31,000 tons, another 1,000 tons seems like chump change. (But why advertise it, then?)
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Send this article to a friend:
 |
 |
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