Off late there is a huge divergence. Dollar has been going up. At first it was just a simple correction. Later it was flight to quality. And still later it was deleveraging. And also unwinding of carry trade. All good and credible reasons why dollar is going up. But if flies in the face of the Austrian economics that every one seemed to have started believing.
Austrian economics or monetary economics or Gold bug's pet theory suggest that as the commodity increases in supply the value attributed to it decreases. And currency is a commodity. So, is dollar. So, when the money supply of dollar is increasing in hundreds of billions and trillions in final figures, why is dollar still going up? The traditional answers don't seem to reveal anything about this unkind deviation.
The sites like Kitco where I could have sensed what is going on also don't help much. The theories usually fly in the known territory. That could be one of the issues here. May be we are faced with economics that we have not yet seen; of course, such enormous money supply was never seen in history.
The question to be asked is: Are gold bugs still on track? Or are they trying to waken up dead spirits. The answer, I am pretty sure is they are still on track. And perhaps, there is only one track that will lead from here and that is the way of the Gold Bug.
And now comes the logical conclusion, if ardent Gold pundits are correct; why is gold lying low and where is it going to take us and WHY?
Gold has been facing the serious deleveraging, sorta shaking up of holders from weak hands to stronger hands. The popularity of Gold as investment asset was taken to the world press in quick time. And with this entered hordes of investors out of pure profit motive. (They cannot be considered serious Bugs (with respect) as they would have sold off their appreciating asset to convert back into a depreciating currency. So, they end up no where.) A serious Gold Bug would sit on the currency for years to come and would take the position mostly in physical and never leveraged. The second set of investors made the mistake and the credit-crisis caught them on the wrong foot.
Ah! a simplistic explanation. But at least gives us an illusion of opinion.
WHY?
It is easy enough to understand, the commodity that is in oversupply will depreciate in value. That's common sense. Economics or not, is not much of the matter.
So, the logic would say the dollar is going to collapse, WHEN we can't predict.
Hundreds of billions and few trillions have been unleashed on the banking systems all over the world, and the value of the currencies are going to hit the downdraft sometime in future. That's given.
But then, why hasn't gold moved? Because till now, all the money is held within the confines of scared banks, who are putting the money back in to government securities than get into the system.
But why did Fed dole out the money in first place.? Fed in its own admission states, it would take at least two quarters for the money to move. In other words, the actual impact on "consumer spending" will start about 6 months from now.
So, Dollar should crack about 6 months from now i.e. if market has already not factored it in, which is unlikely. So a better guess is to assume, dollar would have cracked back before 6 months.
And once the "stimulus" money reaches the enlightened consumers, one of the must-buy things is Gold. Pushing up the physical demand of course. Gold price should increase i.e. if canny investors have not already got in on it already.
So, that leaves us few months to get our act together. If gold pundits are proved correct it would be bad. And if the trend spills over to other commodities - a disaster or something close to it. But then, nobody buys an insurance to die.
Falkor
Ps: Btw, silver is better than gold.
Austrian economics or monetary economics or Gold bug's pet theory suggest that as the commodity increases in supply the value attributed to it decreases. And currency is a commodity. So, is dollar. So, when the money supply of dollar is increasing in hundreds of billions and trillions in final figures, why is dollar still going up? The traditional answers don't seem to reveal anything about this unkind deviation.
The sites like Kitco where I could have sensed what is going on also don't help much. The theories usually fly in the known territory. That could be one of the issues here. May be we are faced with economics that we have not yet seen; of course, such enormous money supply was never seen in history.
The question to be asked is: Are gold bugs still on track? Or are they trying to waken up dead spirits. The answer, I am pretty sure is they are still on track. And perhaps, there is only one track that will lead from here and that is the way of the Gold Bug.
And now comes the logical conclusion, if ardent Gold pundits are correct; why is gold lying low and where is it going to take us and WHY?
Gold has been facing the serious deleveraging, sorta shaking up of holders from weak hands to stronger hands. The popularity of Gold as investment asset was taken to the world press in quick time. And with this entered hordes of investors out of pure profit motive. (They cannot be considered serious Bugs (with respect) as they would have sold off their appreciating asset to convert back into a depreciating currency. So, they end up no where.) A serious Gold Bug would sit on the currency for years to come and would take the position mostly in physical and never leveraged. The second set of investors made the mistake and the credit-crisis caught them on the wrong foot.
Ah! a simplistic explanation. But at least gives us an illusion of opinion.
WHY?
It is easy enough to understand, the commodity that is in oversupply will depreciate in value. That's common sense. Economics or not, is not much of the matter.
So, the logic would say the dollar is going to collapse, WHEN we can't predict.
Hundreds of billions and few trillions have been unleashed on the banking systems all over the world, and the value of the currencies are going to hit the downdraft sometime in future. That's given.
But then, why hasn't gold moved? Because till now, all the money is held within the confines of scared banks, who are putting the money back in to government securities than get into the system.
But why did Fed dole out the money in first place.? Fed in its own admission states, it would take at least two quarters for the money to move. In other words, the actual impact on "consumer spending" will start about 6 months from now.
So, Dollar should crack about 6 months from now i.e. if market has already not factored it in, which is unlikely. So a better guess is to assume, dollar would have cracked back before 6 months.
And once the "stimulus" money reaches the enlightened consumers, one of the must-buy things is Gold. Pushing up the physical demand of course. Gold price should increase i.e. if canny investors have not already got in on it already.
So, that leaves us few months to get our act together. If gold pundits are proved correct it would be bad. And if the trend spills over to other commodities - a disaster or something close to it. But then, nobody buys an insurance to die.
Falkor
Ps: Btw, silver is better than gold.
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