While I am an advocate of gold investments and gold money, I find that many gold bugs take rather simplistic views of gold markets, gold investments, and the economics behind it. I saw recently saw headlines from another site which thundered warnings about an immediate economic collapse or imminent hyperinflation. Many gold bug forecasters have been predicting hyperinflation and collapse — for years. Yet they still trumpet this clarion tune even four years after the biggest economic collapse since the Great Depression. Where have they been? Why have they been wrong? They tell us that it is inevitable; just wait.
Many of these folks claim to be hard money advocates and even quote Mises, the famed Austrian economist and my personal hero, as their source. After all, it was he who talked about the inevitability of the crack-up boom-bust. Things are lousy here and in Europe, so there is little to argue about the failure of contemporary economics and political fixes. But I think many of these advocates of sound money recite the sacred text, but perhaps haven’t understood the sermon.
All of the bad things that they have been predicted could happen. The questions are: will they and when? They predicted hyperinflation. It hasn’t happened. They predicted high price inflation. It hasn’t happened. They predicted social panic and collapse. It hasn’t happened. They predicted gold will go to the moon. It hasn’t happened. They predicted a socialist dictatorship. It hasn’t happened.
It’s far more complicated than they think.
They fail to explain low price inflation and even deflation. They fail to understand that hyperinflation is a political decision rather than an economic inevitability. They fail to explain the “Japanese disease” of stagnation and ZIRP. They fail to understand the impact of malinvestment and the government’s ability to perpetuate it for a long time. They fail to understand the depth of the pool of real savings (capital) here and the ability of the economy to correct its’ mistakes despite a tide of government policies that hold back entrepreneurial and business activities.
And worst of all, they fail to understand the dynamics of the gold markets. This was called to my attention by the reference in Tim Price’s new article (“An Olympian Hurdle“) to the Erste Group’s article, “In GOLD we TRUST.” This research paper was issued a year ago and does an excellent job evaluating the role of gold in history and the economy, explaining the problems behind the current crises, the drivers of gold prices, and just about everything you would want to know about gold if one were contemplating an investment in it.
There is one little problem with their study. They forecast the price of gold would be $2,000 by now.
Oops.
How could they get it wrong?
Please don’t take this to mean that gold is not a good investment for a lot of reasons, most of which are explained in the Erste report. But if you had followed their advice and bought at the top of the market, you would be down 15% as of today. To make money in anything, you’ve got to have good timing.
This is the problem with gold bugs. They are like the proverbial broken record. I love gold and have invested in it and have made money. Personally, I believe that our market experts here at the Daily Capitalist (DoctoRx and Keith Weiner) have been much more accurate and I’ll listen to them.
Goldbugs have been wrong with the timing not because they don’t know economics as you have suggested but they have underestimated how much control the governments have over the financial system through central banks, rating agencies, banks, mutual funds and of course treasuries.
People do no invest in treasuries because they think it is a good investment in a deflationary environment. They do so because they are forced to by law, directly or indirectly.
This is so because the government defines the risk. Governments as of now, says their bonds are the less riskiest asset. This moves the biggest concentrated money to treasuries and this causes an effect that pulls the Independent money behind it.
But this defying reality has a limit. There is always a last straw that breaks the camels back.
We are just waiting for that time to come.
Sorry, I cannot agree. There is (some) deflation – e.g. in house prices – but that is because of a burst bubble – and it is not over yet. Major players (Guvmint/Banks/Realtors/MSM) are still talking their book/lying/twisting/ turning – extending and pretending. Other price drops,
(oil, natty gas) are falling for reasons of macroeconomic convulsion/uncertainty/caution and consequent glut – we have plenty of fuel when people have less incentive to produce/fill inventories/try to sell – China, anyone ? But where people HAVE to trade (what shall we have for dinner tonight, honey?) you can see quite rapid price rises. Sure, there will be technical “blips” – because of a poor corn harvest farmers will slaughter more livestock that they cannot manage to feed through the winter – so expect a glut of (cheap) meat now – but an even higher price later. Also, the gold “market” is still in Manipulation Mode – politix over economix.
However, this is all short term. 12 months pass, draw a line, cast up your accounts, and pay the taxman. But the sun also rises tomorrow. I must eat my breakfast, check the mail – “Oh, another damn bill ..” We are still in the midst of the biggest financial crisis the world has ever seen. You cannot blow a whistle, shout “Game over” and look at the score: “who won?”
This is not a game, with rules. It is a battle: you have to see the last man standing. He will be El Dorado.
If it looks as if the gb’s dreambet will come to pass, look for a replay of Exec Order 6102 on the grounds of National Security.
I can see why the idea of the last man standing with kilos of physical gold, while the rest on the dumb citizens running around with piles of worthless paper is so attractive to some. I have a little stash myself and I can relate. I do however strongly consider the possibility (not so remote) that if the price of 1OZ of gold reaches even close up to $5000, our clever government will ‘manage’ the situation by imposing a collectibles gain tax increase on all gold sales. Not really a confiscation but a little nibble on the profits… just small enough not to cause the uproar and big enough to temper the hysteria… And I can assure you – the good little law-abiding citizens that we are – we will be bitching and paying… just like with firearms – we are bitching and registering, just like with a Bill of Rights – we are bitched and allowed it to become irrelevant… Sorry for turning this political our economy mutated into a polit-economy.. hard to keep them logically separated.
While I cannot refute the long-term argument for gold, I’ve been listening to gold bugs for decades and the crash has already come. Not gone, true. But their short-term predictions have not been accurate. Even the broken clock is right….
~”On Gold Bugs: Why They Have Been So Wrong?”~
In short, because the PM market is manipulated by the central banks/Fed. But that game is coming to an end soon enough.
I have read how many of the smart guys in the room have thought it will occur either at the LME or in the futures market or in the bond market. Truth be told it could happen in any of those places. The whole thing is much of a Ponzi scheme now, with the small investor having pulled out of these markets, (and equities & commodities too). They have figured out that if they wade into these markets it will only be to get monkey-hammered by the algos run by the banks/brokerage houses, with results not based on value but on movement based on short term speculation.
The game will be over, (and PMs will soar), when people loose faith in the USD or… when the Government denies them access to their savings as a consequence of a collapse of one of the aforementioned markets. But rest assured in this, (or be horrifingly assured would be more accurate), that time is nigh and what follows is the devaluation of the US Dollar on a virtually inconceivable scale.