Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
AI Tech Stock PORTFOLIO NAME OF THE GAME - 29th June 22
Rebounding Crude Oil Gets Far Away from the Bearish Side - 29th June 22
UK House Prices - Lets Get Jiggy With UK INTEREST RATES - 28th June 22
GOLD STOCKS ARE WORSE THAN GOLD - 28th June 22
This “Bizarre” Chart is Wrecking the Stock Market - 28th June 22
Recession Question Answered - 28th June 22
Technical Analysis: Why You Should Expect a Popularity Surge - 28th June 22
Have US Bonds Bottomed? - 27th June 22
Gold Junior Miners: A Bearish Push Is Coming to Move Them Lower - 27th June 22
Stock Market Watching Out - 27th June 22
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22
AI Tech Stocks Current State, Is AMAZON a Dying Tech Giant? - 20th June 22
Gold/Gold miners fundamental checkup - 20th June 22
Personal Finance Tips: How To Get Out Of A Tough Financial Situation - 20th June 22
UK House Prices Relative to GDP Growth - 19th June 22
Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed? - 19th June 22
Useful Things You Need To Know About Tweezer Top Candlestick Pattern - 19th June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Price Disillusionment

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

By: Jan_Skoyles

Commodities

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 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