In response to Hyperinflation Silliness (Times Two), reader William says “I think you are saying gold benefits no matter what. I’m confused.”
That’s a good discussion topic. I have commented on this before but let’s recap with a few more bullet points as to when gold does well and when it doesn’t.
Gold Does Well in These Environments
4. Decreasing faith that central banks have everything under control.
5. Rising credit stress and fear of defaults
Gold Does Poorly in These Environments
1. Disinflation (1980 to 2000 is a perfect example. There was inflation every step of the way but gold got clobbered).
2. Increasing faith in central banks’ ability to keep things under control (Mario Draghi’s “Whatever it takes” speech triggered a prime example)
Gold does worst in prolonged disinflation and in periods that have rising faith in central banks.
I suppose one could condense this all down to increasing or decreasing faith that central banks to have everything under control. Alternatively one might think of periods of rising or abating credit stress.
Hopefully the bullet points highlight the times in ways that are more easily understandable than a simple “rising faith, falling faith” duality.
Right now I suggest that it’s pretty clear that markets again are questioning central banks’ ability to keep things under control. In Europe, especially Italy, people wonder if their deposits are any good.
There is a lot of credit stress internationally coupled with central banks actions that have gotten totally out of hand. Meanwhile, central banks have made little or no progress on their stated goals.
How and When Does This End?
I covered the end game a bit in How and When Does This Mess End?
The one thing we can easily dismiss for now is hyperinflation in the senior currency (the US dollar).
We are clearly in an asset bubble, and by definition, asset bubbles deflate, not rise infinitely. Secondly, the problems in Europe and Japan dwarf those of the US.
Should countries in the Eurozone exit the Eurozone, they could easily see hyperinflation.
To understand likely scenarios one must understand the difference between money and credit.
Many hyperinflationists have gone wrong because they do not understand the difference; they do not understand excess reserves, and they do not understand the true meaning of helicopter money.
As noted in Hyperinflation Silliness (Times Two), Jeff Nielson was the latest. There will be more.
Mike “Mish” Shedlock
When does credit crash Mish?
Hyperinflationist have been missed every years since 2008 but only opposite.
It seem that the only option left for central bankers is money creation to fight
deflation and asset bubble busts until the totally lost in confident of all central banks.
At that final end, may we see the hyperinflation ?
BTW, gold holding is the good stratagy along the way.
Eddie Ip said:
I agree with you that in today’s environment the most important factor affecting gold price is faith in central banks (and governments). Everything is rigged, including the presidential election. There are no markets. There are only interventions and manipulations. Central Banks are the markets. Thus I tend not to trust anything the governments tell us, including the phony economic figures.
We are facing unprecedented challenges today. Thus I find technical analysis and analysis of the past limited value. But I am a strong believer that ultimately fundamentals win and there is a limit to any intervention and manipulation. Nobody knows when it will come. Thus I am holding physical gold as an insurance. Best Eddie Ip
I’m finding TA (Elliott Waves and cycles) difficult in this environment too. The best advice I’ve been given is when in such an environment, stay out of the market by going to cash.
My position in a nutshell
In this “rigged” environment, I’d feel more secure if I knew where my families next meal was coming from. Shouldn’t we have local farms from coast to coast to provide our food & independence? Instead we are fed pharmaceuticalized garbage because we are dependent on them. Food banks aren’t the answer – local farms are. Hemp used to be considered a “Billion dollar” crop. Hemp seeds are a super food for both man & beast…
Do you mean like Friday’s job report? LOL!
The herd will be managed right up until the stampede. Moooo
Replace “CB” with Govt and the you have it right. The biggest factor for gold is trust in govt, and as we are seeing the establishment is under assault most everywhere. The govt bubble is in the process of popping, and gold will see almost as much demand as stocks.
Thomas Malthus said:
I was visiting Canada recently … I mentioned to a friend that I like to hold gold instead of cash….
He thought that made no sense and asked why….
I told him that I was not investing in gold rather I was holding it as a hedge against the endless central bank printing…
I pointed this out:
Now if whatever cash he was holding was instead in gold…. he would have not lost nearly 20%…
Gold will be the last man standing. If it gets beyond that to cans of beans then you may as well put a bullet in your head.
Michael Rudmin said:
actually, if it gets down to cans of beans, I’d advise you to learn drying techniques for food preservation, and gardening/harvesting.
I’m going to argue that one of the best times to be alive is during the dark ages; with increasing tech (yes, and decreasing death rate) came increasing slavery and misery.
The only thing better than that may have been to be alive ten thousand years ago, in the stone age.
Not that I’m advocating going back to the stone age, but I AM advocating against losing it JUST when things are getting good.
Now, I must admit that technology is greater today, but you also have to remember that we weren’t without technology, ever.
A sling is technology. Spinning thread on the simplest spindle is technology. Even Naptha, lighter fluid, is a technology that definitely goes back to the age of King Solomon, and probably back to Moses. Stone Henge, the pyrimids, and boats are all ancient technology: Kon-Tiki, the Sea Peoples, Noah’s Ark, were all USUAL structures.
Nor are the sciences ever completely lost: astronomy, smelting, chemistry… all go back to ancient times, and none are completely lost.
Also think bottled spirits in the bottle. Nothing like a nice single malt to settle a deal.
And with the GBP on the skids…they could get a little more affordable in USD’s.
I like my currency very liquid.
Currencies fluctuate. Gold stays the same,,,,31.1 grams to the ounce.
Old Guy said:
I have traded gold for 35 years. I still have many ounces I bought for 250 an ounce. Real price discovery is honestly a joke. Currently I am out of the gold market a I sold at 1371. Banks are caught manipulating the price and get slapped with a fine and continue to do business as usual. No one goes to jail. Scary stuff, honestly. The last fine was 3 billion dollars.
As long as governments allow criminal behavior to continue the bilking of innocent people will continue. Therein lies the injustice of it all. Banks get people to invest and then bet against their own clients and people should be tried and put in jail for it, but governments prefer to just fine them and do nothing.
Remember, nothing continues in the same direction forever. Everything is cyclical, just like sound waves, light, a beating heart, climate, and the business cycle. Govt and fraud have peaked, because they are no longer economically sustainable. Granted, when 40% of your economy is based on debt, the reset will be painful. Maybe, just maybe we will learn that politicians and central planners can never manipulate the business cycle, and only increase the amplitudes, we will be able to plan for the cycles so we make the declines bearable.
We must resist the temptation to grab on to the totalitarian lifeboat that Hillary would most certainly launch during the reset coming during the next term. Trump, for all of his flaws, understands debt, and how to restructure and swap it, which will be necessary as the world’s reserve currency changes due to the explosions of dollar-based debt when the dollar explodes higher. I believe he we also prosecute the fraud, which has been the root problem enabled by career politicians. Once again, the career politician must be made extinct, if any meaningful reform is to occur. Vote out EVERY incumbent, every election until they get the message. http://twistedlittlethings.com/tlt/the-5-steps/
“Banks are caught manipulating the price and get slapped with a fine and continue to do business as usual. No one goes to jail. ”
Think about it. Crooks get caught and pay huge fines to the government but NO ONE goes to jail. No reason to wonder why, the obvious reason for that is the governments are happy for the opportunity to grab the huge fines from the crooks and if they put them in jail maybe there would be fewer crooks. Then the governments would have fewer opportunities to grab some of the loot. The system has become totally corrupt, but those who like the present politicians cannot see that elephant.
Carl R said:
Banks are behaving properly when they avoid risks. This means that they should often have positions opposite of their clients. Banks that were hard hit in the financial crisis in 2008 were the ones that took active positions, and held mortgage debt. Ones that properly shorted mortgage debt sufficiently to eliminate their risk, such as Goldman, were fine, while ones that were caught with long positions, such as Lehman, were not.
No Name said:
Gold does poorly in deflationary periods. See 2008-2009, when it got clobbered. All assets including gold lose value if everyone badly needs cash and cash rises in value. Assets are the opposite of cash, if cash rises, assets go down.
Gold only does well as a hedge against government (and thus indirectly as a hedge against central banks). And that is the ONLY reason gold does well. Hyperinflation is loss of trust. Stagflation isn’t.
Unfortunately there is a lot of misunderstanding regarding gold. Don’t listen to the gold bugs, they don’t have a clue about anything of this. They are just as anti-dollar as the hyperinflationists, that also are completely clueless. The coming dollar rise will – once again – catch them by surprise.
Michael Rudmin said:
mish, could you define what you mean by deflation, inflation, stagflation, disinflation, and so on? Noname has a claim above, and it might be a very good claim except that I’m betting his definitions differ from yours.
I know that you say inflation is an increase in the money suppl, including credit.
I suspect that all your other definitions will be correspondingly different that common knowledge.
Accordingly, it might be good to pick a couple countries, and chart 50 years, showing inflation, deflation, stagflation, disinflation, etc, all in different colors, say as a percentage indicator, from 0-100%.
Then superimpose that with the gold graph, and see what you get.
While gold and other asset do deflate, gold deflated less. Just watch the high end real estate and commercial markets deflate. It could be stunning in some markets whereas others might not be so bad.
So yes, deflation also has a regionality to it, as does inflation and hyperinflation – just ask Venezuelans.
I would add one thing – yes, the rising dollar will provide the impetus for a gold sell-off that shakes the trees one last time, but it also will be the source of sovereign defaults that will destroy govt confidence, the biggest driver of higher gold prices. Defying the logic of linear thinkers, the dollar, gold, and stocks will all rise together, as we head into the big reset.
I was thinking of a logical endgame that removes debt and prevents outright collapse. I would like thoughts on the real creation of a true world bank with UN SDR issue that accompanies nation debt forgiveness. Does anyone see such a scenario in the eventual endgame. Such a reset will one day be attractive to national governments worldwide.
Be careful what you wish for. This is the goal of those one-worlders who want total control over everything and everybody.
John Spiers said:
Prevent outright collapse?! Fie! There is a critical mass of small business innovation that needs commercial real estate, which is way too expensive right now, by say 90%. That mass is atrophying is skill for lack of space. Hot money and zero interest provides for landbanking, empty real estate while demand starves. We want collapse, we want the criminal profits disgorged by peaceful economic action, not state-sponsored terrorism (the FED)
Nothing can prevent the collapse. We can only hope to minimize the carnage and hold on to our freedoms. Organizations like the world bank, IMF, BIS, etc., are all tools of the establishment, which must be dramatically reformed. The last thing humanity and the world economy needs is to hand these fraudulent, and unelected cesspool’s more power – especially because they lack real experience, depend on lawyers that think imposing laws will replace human nature, and rely on false thoeries and models that program in their biases and beliefs, not to mention they lack sufficient historical data to capture the major cycles of war and civil unrest that follow economic declines. Of course, politicians will claim they can manipulate the business cycle to get elected. It is up to voters to call BS, and send them packing. Let’s give them a chance to make it in the real world.
Gold does well when faith in Fiat currency declines, usually this is tied to faith in central banks which u mention.
You are thinking linearly, and ignore global capital flows. The big problem and driver of gold is the collapse in govt confidence, not CB’s. Of course, part of the media’s propaganda is to make you think the CB is part of govt.
Another way to put it.
Gold does poorly in boring times when government debt is small, you can get 5% for your money safely in a bank, the rule of law is upheld and we are not invading or bombing countries.
Didn’t happen with Bush. Didn’t happen with obama.
Is sure not gonna happen with Hillary.
A small chance it happens with Trump.
You write in your post “How and when will this mess end”….
“There are no precedents for the trio of negative interest rates and massive amounts of QE by numerous countries simultaneously in a clear game of competitive currency devaluations.”
And you use the word “Competitive”, as if these private central banks are all operating on their own, by themselves, without any direction at all from anyone. And I use the word PRIVATE even when some of these banks proclaim they are governmental institutions “representing” the “people” of their respective countries.
While not an expert in these matters, and certainly not as knowledgeable as you, I still remember an organization located in Basel, Switzerland by name of BANK OF INTERNATIONAL SETTLEMENTS (BIS). You might consider referencing, at least for starters, this URL for a summary of its history and activities > https://en.wikipedia.org/wiki/Bank_for_International_Settlements
Now these MEMBER BANKS of the BIS do not belong to this organization in Switzerland, (in which the BIS negotiated a “treaty” with the host country so that it is not subject to ANY CRIMINAL or CIVIL prosecution or penalties for any “wrong-doing”), for no reason. There are obviously certain VERY important reasons for their membership. And these “reasons” no doubt would make crystal clear that these banks do NOT operate independently, but that there is a PRIORITY above all others to “manage” them for the overall welfare of this worldwide banking CARTEL’s profitability and survival, regardless of the cost to the citizens of the countries in which these member banks are located.
So please cut the crap. It’s important for people to become aware of the greatest scam in the history of mankind.
This MESS most likely will NEVER end. And if it does, the cost in BLOOD and TREASURE will be immeasurable.
David Mack said:
Might want to take a quick look at this on Nate……
This needs to be taken seriously. Real clear politics stopped including rasmussen poll results. (The insider said they were one the few still DOING REAL POLLING).
If you go to their we site, they show Hillary up 4 points, after he post convention bounce. Before that it was a tie for a few weeks.
With everything else being a fraud now, why shouldn’t we believe polling is just another marketing tool?
Business as usual for the Clinton Family Crime Syndicate:
One more reason to vote out EVERY incumbent to install de fact term limits – we must eliminate the rush to eliminate cash and the likely attempt to confiscate gold (again). Career politicians will ABSOLUTELY dig in their heels to save their lifestyle, which means they will do anything, including playing the war card. Trump does not need lobbyist to maintain his lifestyle and career. Hillary drops to her knees to pray (or something else if capable) at the alter of crony capitalist and rogue nations.
Gold does well when there is little to no confidence in the dollar…and terribly when the opposite is true.
Its really that simple.
On average the us dollar has been hit hard the last week. But against the currencies that matter (loonie, mexican peso, euro, yen, pound) only the Yen has done well.
Unless the Fed drops the one quarter of one percent rate … which I think is a raging debate inside the Fed right now…then I really have a hard time being bullish on gold.
The deficit is exploding higher however which is not bullish for interest rates going lower imho.
When SHTF governments have the power to render your gold transactions illegal, or even worse, to seize your gold storage just as if they were illicit drug proceeds. A Krugerrand sale would get you 5 to 20. That’s not my imagination. It’s a proven fact. Go read history.
So if you harbor the notion that gold is the answer to your independent wealth and happiness – and that you are one of the clever ones – please bear that in mind.
If you’re a gold bug I assume that you’re also a proponent of the 2nd Amendment. If not, you’re absolutely clueless.
Here are some Second Amendment supporters that Obama and Hillary will have a hard time trying to explain away:
On another topic often discussed here:
Social Media Patterns Show Trump Is Looking at a Landslide Victory
Jim Hoft, Aug 7th, 2016
That’s my sense, too. No one but the most blatantly ignorant and biased (still a large percentage of the voting population, unfortunately) could have missed the incredibly obvious media bias against Trump nor the highly preferential treatment of the North American Neocon Hildabeast by both the media and the DO”J”.
I think many are simply going to make a F-YOU vote against the entire system by voting for Trump no matter how many times they jump on one of his foot-in-mouth moments due to the fact that he’s not a skilled politician (aka, PC behavior expert and liar).
However, on the validity of the above data, I think much of the reason Trump supporters use social media so much more is simply because they can’t get unbiased coverage of him without it whereas positive coverage for fans of the North American Neocon Hildabeast can be had all over the MSM.
“The *establishment* composed of journos, BS-Vending talking heads with well-formulated verbs, bureaucrato-cronies, lobbyists-in training, New Yorker-reading semi-intellectuals, image-conscious empty suits, Washington rent-seekers and other ‘well thinking’ members of the vocal elites are not getting the point about what is happening and the sterility of their arguments. People are not voting for Trump (or Sanders). People are just voting, finally, to destroy the establishment.” – Facebook comment made on 7 Mar 2016 by Nassim Nicholas Taleb, scholar, statistician, risk analyst, and author of the 36 week NYT Best Seller “The Black Swan: The Impact of the Highly Improbable”
I agree. But you forgot one important point. The angry populous must not only defeat Hitlery. More importantly, we must defeat Diebold…..a much more arduous task.
When Trump says “the system is rigged”, the man is dead spot on. The basic systems of democracy we trusted back in the 50’s, 60’s, 70’s and 80’s are long gone.
Not only do we need a populous revolt. We need a crusade. The latter is highly improbable
William A. Landes said:
Mish – Thank you for your discussion on gold. As usual, you speak, and the mists clear. Not to belabor the point, I hope, but can this be said? How does gold do in deflation? Well, perhaps it depends. There’s deflation and there’s deflation. If we’re talking deflationary crash – with panic in the air and desperate searches for safe havens – might not one expect gold to do well? But, if we’re talking about the “good” deflation – the gradual reduction in prices reflecting increased productivity and innovation – well, perhaps that’s a different story altogether? You think?
A friend wrote:
Mish fails to discuss one important factor in the price of gold. Sovereign nations
buy and sell (large?) quantities of gold from time to time, often secretly if they
can keep it secret. That might have something to do with THEIR faith that
the central bankers have it all under control (or lack of such faith), or it might
have to do with other political or financial reasons, but I think this is a big factor,
or rather, “might be” a big factor, as nobody really knows how much gold is bought
and sold by countries.
Jay Pyne said:
During hyperinflation or crashed economies,people tend to go for bartering.
There has been uptick in gold mining as profitability returns
There is an Excel Macro technical indicators such as MACD, drawdown points for metal commodities, oil,cotton, and livestock at http://investsolver.com/commodities-trading-technical-indicators/