News & Analysis
Gold Collapse ... the Bubble Is Pricked?
Gold prices plunge overnight – is the rush over? ... Has the gold boom come to an end? The price of gold, which has climbed for years like a blood pressure reading for anxious investors, plunged overnight to its lowest level in three months. Gold fell almost $US58 to $1,614 per ounce. It has declined 15 per cent since September, when it hit a peak of $1,907. It had more than doubled from the financial crisis three years earlier. The decline on Wednesday came on an ugly day in the stock market. The Dow Jones industrial average lost 125 points a day that last year probably would have caused fearful investors to buy gold as a protective investment. "It's difficult to forecast, but I think the gold bull market is over," said Cetin Ciner, a professor of finance at the University of North Carolina-Wilmington. He likened the surge in gold to dot-com stocks before they collapsed. – New Zealand Herald News
Dominant Social Theme: It's over. The bubble is collapsing.
Free-Market Analysis: It really gets repetitious after a while. When the stock market falls, pundits don't immediately shout, "The bubble is over!" No, there are anxious meetings and grave headlines.
We are to assume that if stocks fall something is wrong with the larger economy. But if gold and silver drop within the current context, we are supposed to feel relieved.
That's because the power elite that wants to run the world has spent the past 100 years demonizing gold and silver. The idea that people can simply dig up gold and silver and grow wealthy is anathema to the elites.
The main thrust of the elites in the 20th and now the 21st century is to control the way people make a living. The idea is to give people no choices, apparently, but those that support the onrushing globalism.
If you are a lawyer, you support the penitentiary-industrial complex. If you are a teacher, you support a curriculum that ruins your students' minds. If you are a doctor, you do little that is not approved by Big Pharma – which is, of course, an elite enterprise.
This is, in fact, why the elites hate and fear gold and silver from the perspective of mass ownership. Dig up gold and silver and you have made yourself wealthy without becoming entrapped in the larger dialectic that the elites have established.
Of course, those who are partial to government as a generally positive paradigm don't see it this way. The Greenbackers and others are convinced that the elites want a return to a universal gold standard. But these prognosticators make no differentiation between a private and state gold standard. One emerges coherently and the other is imposed.
In fact, in a purely private economy, Greenbackers and Social Creditors would likely get a chance to implement their schemes. Here at DB we favor such monetary competition. We simply believe that historically speaking gold and silver would emerge at least as a considered alternative. Bi-metallism is an ancient and successful standard. The US was founded on it, in part.
As for the top elites, the dynastic families that maintain their power and wealth by apparently controlling central banks, it is certainly possible that they want a state-mandated gold standard. But more likely they seek a global currency created out of IMF SDRs. Top men have stated this on numerous occasions.
A PRIVATE metals standard would surely NOT be to their liking. For one thing, no matter how much gold and silver they own, a private-market monopoly is impossible to sustain absent the dead hand of government.
If the elites try to drive up the price of money metals by hoarding gold, other supplies shall surely emerge from other hoarders or mines themselves. This is an ironclad rule of markets. When there is access to a good or service within a private economy, it is not possible to "corner" the market.
Also, there is plenty of gold in the hands of non-elites. To ignore the holdings of Indians and Chinese (in addition to Western holdings) is to make inaccurate and even contemptuous assumptions.
Of course ... the elites will do what they can to suppress the price of gold – and silver. They will continually manipulate the price downward as they've been doing and they will use their control of the mainstream media to further cast doubt on the value and ascension of precious metals. Here's some more from the article:
Some investors buy gold as a hedge against inflation, and minutes from a Federal Reserve meeting that came out on Tuesday afternoon suggested that the central bank believes inflation is under control.
Gold's attraction as an asset of refuge during crises also seems to have diminished. The economy has picked up, and worst-case scenarios in the United States and Europe have faded.
"Fear has been gold's best friend, and so to the extent that fear is dissipating, gold should fall," said Jim Paulsen, chief investment strategist at Wells Capital Management. "We might look back at these Fed minutes as the line in the sand."
Gold has been hit in recent weeks by a strike by gold sellers in India, the world's largest buyer of physical gold. Another bearish sign was a surge on Wednesday in the US dollar, which tends to rise when gold falls.
Gold fetched only $300 to $400 an ounce during the 1990s but climbed steadily last decade. It took off in late 2008, when prices for stocks and corporate bonds plunged, wiping out years of savings and even money market funds looked suspect. Investors bid up prices for the safest of assets, like US Treasury bonds. Others turned to gold.
Such articles as these are often full of obvious misinformation. Gold and silver began going up around 2001 not 2008. And gold and silver are both worth about ten times what they were a decade ago. Meanwhile, stocks have not moved nearly so much.
Gold is not in a bubble, certainly not yet. Gold and silver constitute a bull market in money metals. Paper assets, meanwhile are in a bear market. These assets' rotations are part of the business cycle and have nothing to do at root with "bubbles."
There will likely be gold and silver bubble at some point. The precious metals business cycle bids up the physical and then the paper. Eventually, the small junior mining stocks come into play. That 's when the blow off takes place, eventually. But there is no evidence of this yet.
In fact, gold and silver, while moving up, are still tracking the larger stock market. The divergence between the two markets has not yet taken place, as it did eventually in the 1970.
We figure there are several years to go yet, though there is always the possibility that those elites trying to manage the world's larger economy will turn to outright confiscation at some point. We don't see how they tolerate US$5,000-an-ounce gold.
But the elites have no wish to explain such things in detail via the mainstream media they control. They'd rather reignite paper assets if they can. And in the meantime, they wish to keep people ignorant about the larger destructive workings of monopoly fiat money.
Conclusion: The Internet – and what we call the Internet Reformation – is making that increasingly difficult.
Updated on date of publication.
Posted by clark on 04/08/12 11:34 AM
Bischoff wrote, "Do you get the point... ??? You need to eat to survive now, but you need gold to survive in old age."
A potato seed company might fit the slot of gold just as well in this example and for many of the same reasons. I'm not certain, but it seems the risk to holding a large pile of gold is just as high as running a potato seed company.
Bischoff wrote, "everything has a price, except gold."
Then how does a Person measure its value?
A miner might measure it by the cost to produce it, but the average Person doesn't calculate it this way, the cost to produce it is just a suggested wholesale price.
You can't say gold has no value, a value has to be known to make it a reference point if it is used as money, and that value is its price.
An ounce of gold historically bought one fine men's suit. Except when it didn't, i.e. in 1999 a fine men's suit didn't suddenly drop to $250.
Also, Bischoff, I think you missed my point when I wrote, "Yeah, truthbetold, gold is a bubble, like housing was a bubble in 1998."
That time period was a lead in to a bigger surge in the housing bubble (some say it was even earlier, 1980's or even 1970's). The 1998 surge for housing may be an equivalent to where we are now with gold? The best time to have sold housing was 2005, we're not there yet with gold. My point was, no one called housing a bubble in 1998, but really it was a beginning.
Posted by flying_pig on 04/08/12 01:54 AM
"Yes, but the work required to mine and refine it has stayed remarkably constant over time."
I doubt the veracity of this claim. Can you provide hard numbers to back this incredible claim? Ideally, you should be using Joules to measure work.
If you going to try and revive the labor theory of value, you better put up a better defense.
Posted by Bischoff on 04/07/12 11:53 PM
C: "However; for the same reasons, the potato farmer would have done well setting up a potato seed company too."
B: Huh... ??? Run that by me once more. I am not sure I get your point... .
C: "Your other comment to dottie got me to thinking, in your view, what's the difference between silver and gold? Specifically, why is one a commodity, and the other is money and nothing else? Is it due to scarcity and nothing else?"
B: The decision that gold is money was made 3,000 years ago. It was made by an uncountable number of people who recognized that gold was the commodity bar none, which could best store value (work performed). The reason lies in the chemical and physical characteristics of gold. Gold became Money when the marginal utility of gold exceeded that for any other commodity for most people.
At the same time, the work expended to mine and refine a specific amnount of gold turned out to astonishingly constant. This made gold an ideal standard by which to measure work to produce any other good or service, i.e. the value (work performed to produce a specific amount of gold) is set at "1". The value of any other good or commodity is a fraction of the value of gold, also called a "price". IOW, everything has a price, except gold.
Besides being the ultimate store of value, and being an excellent measure of value, Gold also was a means of exchange. However, gold as a means of exchange or currency soon ran into trouble, because of its scarcity.
Gold as "Money" ignited trade, both over space and over time. The need for currency grew and grew. The quantity of gold available could no longer efficiently tranfer value in exchanges. It was at that time that silver became a currency which had a closely fixed relationship to the quantity of gold in existence. Gold's function as a currency receded, taken up by silver and other commodities. However, at no time was gold anything else but money, though silver and other commodities have had a more or less fixed relationship to gold. Since they could be readily exchanged for gold, it became common to call silver and these other commodities money as well.
When Adam Smith set forth the Real Bills Doctrine to create redeemable paper currency, the benefits of the ultimate store of value and the standard of value that gold represents was preserved in the redeemable paper currency created against Real Bills. At that point, silver or any other commodity became superflous as currency. If silver coins or certificates still circulated, it was due to the lobbying by the State of Nevada, and the raucus put up by the labor unions and William Jennings Bryan.
C: "You say gold is, "part of the currency (FX) market"... so you're saying gold is a currency?"
Yes, of course. However, nobody would use it as currency as long as there is "legal tender" currency. In any case, what I said in my comments above about gold as currency would still apply, even if there was no "legal tender" currency.
Gold should be on the currency markets, because it is "Money". If gold was listed on the FX markets, it would have to show fractions of ounces in terms of each unit of irredeemable currency. People would immediately see the value of their irredeemable paper currency. It would dawn on people that gold is the "standard of value" (set at "1"), and that the value of the value of the irredeemable paper currencies is a very, very small fraction of the value of gold.
Keeping gold quotes in the precious metal markets reinforces the propaganda put out by the central bankers that gold is just another commodity, like silver, copper and wheat. It is not. Gold is Money, and nothing else.
C: "If a number of businesses accept silver as a currency, how can you say silver belongs in the commodity markets? Are the businesses not free to decide what to accept as a currency? Or is gold the Only acceptable currency?"
B: People should be free to accept any currency, at any time for whatever reason. An intermediate commodity chosen to effect an exchange transaction it is a totally private business affair. However, that does not change the fact that gold is money, and nothing else.
When governments force currency upon you by making it "legal tender", gold goes into hiding and the metallic currency revert to being industrial commodities.
The whole monetary mess today can only be solved by repealing the "legal tender" protection given the FRN, and by again creating redeemable currency under the RBD.
Posted by Bischoff on 04/07/12 09:12 PM
"Yeah, truthbetold, gold is a bubble, like housing was a bubble in 1998."
Yeah, go ahead and sell your gold before the bubble bursts... .
You don't have any gold... ??? Heck, clean up by selling short.
Lots of luck... ..
Posted by clark on 04/07/12 04:32 PM
Bischoff wrote, "Why hide behind a bunch of other peoples opinion... ???"
I'm not hiding.
If another Person writes the same opinion better, why re-invent the wheel? Plus, I don't plagiarize.
I think your excuse of not wanting to read links is a cheap cop-out.
Bischoff wrote, "Marginal utility is an individual, constantly changing phenomenon."
That sure seems like it's subjective.
And after that, how the heck can you write, "When marginal utility for a particular commidity no longer changes (is constant)" ??? You just wrote it's a, "constantly changing phenomenon" either it is, or it isn't.
So because something holds for masses of people throughout the world that something is no longer a commodity? Now That sounds silly.
A rose by any other name is never a rose?
A cool quote about money:
"The value of money, as we have seen, depends upon the subjective valuations of the people who hold it. And those valuations do not depend solely on the quantity of it that each person holds. They depend also on the quality of the money. ...
The present valuation will often depend upon what people expect the future quantity of money to be. And, as with commodities on the speculative exchanges, each person's valuation of money is affected not only by what he thinks its value is but by what he thinks is going to be everybody else's valuation of money." ...
Click to view link
Yeah, truthbetold, gold is a bubble, like housing was a bubble in 1998.
Posted by truthbetold on 04/07/12 12:29 PM
Gold is a bubble that they can't keep submerged... ..the deeper they try to push the price down to faster and higher it pops to the surface... ... .thanks DB for keeping the fire alive with the truth.
Posted by dotti on 04/07/12 10:20 AM
Quick reply--then off to garden!!!
I've been really busy lately. I'm trying to keep myself focused on the "Need to do's". Thanks for the welcome back.
I checked out the other DB discussion via your link. Jeepers!!! That's lots of reading for me to tackle--maybe tonight.
BTW, DB: It surely would be nice if we had a way of knowing if there are new posts to an old topic--other than going back to each one. If I wanted to write something on one of the older topics, it would be nice to think that someone would know and perhaps respond.
Just a thought.
Posted by dotti on 04/07/12 09:58 AM
I miss the intellectual stimulation when I don't take the time to hang out here at DB. Thanks for your concern!
Of course, I have heard many, many times the old "You can't eat gold!" mantra. It seems so stupid to me. My retort would be, you can't eat a stock certificate either--and certainly not a brokerage statement showing stock in an account.
Also, the "bigger fool" comment that gets applied to gold. One's 100 shares of Apple, for instance, cannot be redeemed in any other way except to find someone else who will give value in exchange for those shares. It is not possible to go to "cash out" your Apple shares by liquidating 1/1,000,000th of Apple Corporation's assets.
Okay. Now I've even confused myself. And I looked out at the beautiful day and wondered why I am sitting at my computer!!!
I really enjoyed your story and think it illustrates a point.
I hope to get back to this disucssion later! After I do garden things.
Posted by memehunter on 04/07/12 02:18 AM
Silver is more of an industrial commodity. The stock-to-flow ratio is much higer for gold than for silver (in fact, gold has the highest stock-to-flow ratio of all commodities).
So silver cannot compete with gold in the "store of value" function. For more about this, you can read FOFOA.
Silver could be used as a transactional currency (and of course people are free to accept it), but it is not optimal in that role either.
Posted by clark on 04/07/12 02:08 AM
Nice potato farmer story, Bischoff,... and I pretty much agree with it.
However; for the same reasons, the potato farmer would have done well setting up a potato seed company too.
Your other comment to dottie got me to thinking, in your view, what's the difference between silver and gold?
Specifically, why is one a commodity, and the other is money and nothing else? Is it due to scarcity and nothing else?
You say gold is, "part of the currency (FX) market"... so you're saying gold is a currency?
If a number of businesses accept silver as a currency, how can you say silver belongs in the commodity markets? Are the businesses not free to decide what to accept as a currency? Or is gold the Only acceptable currency?
Posted by truthbetold on 04/07/12 01:26 AM
Thanks DB for the encouragement the Lord knows we need to hear the facts... ... .you continue to cut through the continual onslaught on bs the media is showering us with... ... ..bottom line... . the metals keep climbing... ..thats all you have to remember to keep on pressing... ... GOD BLESS.
Posted by Bischoff on 04/06/12 10:26 PM
"As a neo Austrian I would have thought you would desire a free market."
Neo Austrian... ???" I don't belong to any economic school of thought. As Goethe once remarked, a school of thought is like a man who has talked to himself for a hundred, and who is totally impressed with the brilliance of his own mind, no matter how stupid it is.
As to a free market, it doesn't exist with silver, because of lack of transparency. It doesn't exist with gold, because has no price.
The "gold market" is not part of the commodities market at all. It is actually part of the currency (FX) market. To include gold in the precious metals commodity markets is to fool the uninitiated.
As to silver, it properly belongs in the commodity markets. However, to continue to talk of a gold/silver ratio, as if both were currency, makes no sense at all. BTW, what is the gold/silver ratio... ???
You are in the silver market. Good for you, but my suggestion is that you forget about the gold/silver ratio and watch the guys that will stick it to you. You are a smart guy. You can look up the open contracts, the shorts and the longs... . Let's see where you are in 18 month. I wish you luck.
Posted by Bischoff on 04/06/12 09:53 PM
You asked: "Can you enlighten us? Can you tell us how many naked gold contracts are currently in the market?"
Nobody really knows. I know that Lehman Bros. and Bear/Stearns leased gold and used the gold to old future in the markets. They are bankrupt, but the contracts are still trading.
When ever the gold "price" drops, it means their is deliberate manipulation. I keep saying that gold has no price. People simply do not seem to understand this.
The USD has value because oil is quoted in USD. The value is enforced by Saudi Arabia in return for our protection of them by our military.
Thinking of the "gold market" working like the commodity markets is an absolutely idiotic idea.
As to silver no longer being money, there is no need. A redeemable currency works much better. Besides, silver has very good conductive properties which makes it a highly desirable industrial commodity. If you want to "invest" (speculate) in silver, find out the correct inventory and production figures (which you will not be able to get), then check the industrial requirements based on demand in the economy for the industral products needing silver, and then buy or sell your silver futures.
Thinking silver is money and that it has a ratio and to use this thinking in making "investment" decisions about silver is a perfect recipe for disaster.
Posted by Bischoff on 04/06/12 07:20 PM
It's good to see you back here, Dottie. I was worried something had happend to you.
I understand what you are trying to comprehend. Let me just say that staying alive is more important than having gold. On the other hand, gold performs a specfic function. It is to store and to measure "work".
"Work" is something only "Man" is condemned to exert in order to survive. The only problem is that nature did not provide "Man" with the instinct to work. Man's basic instint to survive is arborial. It is to reach out to take the fruit provided by nature, or to reach out and take the fruit of some else's work. This instinct to reach out and just take is as strong as the sexual instinct or the instinct to protect one's life.
Let me tell a story: (I used this story in another thread)
Imagine, you are a little kid watching your parents go and "work" into the fields to grow potatoes and vegetables.
One day, you see your dad exchanging potatoes and vegetable with a man who gives him gold.
You ask your Dad: "Who was that man, and what did he want... ???"
Your dad replies: "He is a gold miner, and he exchanged some of his gold for some of our potatoes and vegetables."
You ask: "Why did he want to make that exchange?"
Your dad: "Because he needs to eat, and he can't eat gold."
You ask: "Well, if he can't eat gold, why would you give him potatoes and vegetables in exchange for gold which you can't eat either?"
Your dad: "I plan to keep the gold stored away, so that sometime in the future when I can no longer work, either because of an accident, or because I am too old, I can then exchange the gold for someone's potatoes and vegetable to live on."
You ask: "Why don't you just save potatoes and vegetables to use when you need them in the future?"
Your dad: "Because it may be a long time before I have need to use the potatoes and vegetables, and by then the potatoes would be rotten and the vegetable would be spoiled. By exchanging some potatoes and vegetable for gold now, I can keep the gold which doesn't spoil nor deteriorate until I really need to exchange it for food. The gold miner expended a certain amount of "work" to dig up his gold, and he exchanged it for our potatoes and vegetable which I raised through my "work". By obtaining my potatoes and vegetables, he can survive, and he can continue to dig up more gold. On the other hand, I have a stable and desirable commodity which I can exchange in the future for potatoes and vegetable without any loss of "value" (work performed years ago).
You ask: How come you don't lose value when exchanging gold for goods?"
Your dad: "BEAUSE YOU CAN'T EAT GOLD... !!! Gold stays gold. The work invested to dig it up and to give it value always remains undeminished. Gold never changes in it's chemical and physical properties. Gold dug up today is indistinguishable from gold dug up 3,000 years ago. Gold doesn't spoil, meldew, rot, tarnish, desolve or be anything at anytime other than gold.
Some generations down the road, this conversation takes place... .
Grandson asks: "Grandpa, why do people no longer exchange the value created by the "work" in digging up and refining gold, for the value of goods created with "work" to produce the goods? Why did people stop using gold as the intermediate commodity to settle on the value of goods in exchange transactions?"
Grandpa: "Because some very clever people, much cleverer than you and I, came along and to told us that "YOU CAN'T EAT GOLD", and that it is a waste of time to dig it up. That it would be much more efficient, if we just took a piece of paper for our "work" invested in growing potatoes and vegetables, and that we could use those pieces of paper to exchange for any other good. That we didn't need to worry about saving gold to exchange for food in old age, or when sick, because the government would take care of us".
Grandson: "They really said that... ???"
Grandpa: "Yes, they said we would have Social Security and Medicare, and that we would be well taken care of."
Grandson: "Do you believe them, Grandpa... ???"
Grandpa: "I don't know Grandson, I am confused. I see all this misery around me, but the main stream media keeps telling me that I am really well off, and that things will even getting better. That there really is no inflation, but my social security payments buy less and less. I just don't know."
Do you get the point... ??? You need to eat to survive now, but you need gold to survive in old age. It maintains value. The value it has is created by the "work" applied by the goldminer in digging it up. The "work" required to dig it up has been constant over millenia. For the last eighty years, annual world gold production has been around 3,000 tons. This makes the quantity of "work" required to dig up a specific amount of gold a standard by which to measure the value created of any other good through the expenditure of "work". As long as a paper currency can be exchanged for gold, work can be properly measured, and people can save as well. If they can't exchange paper currency for gold, they are at the mercy of the clever men.
You see, it is all about "WORK". It's about expending "work" and to be able to safely store it in the form of gold. It is about being able to measure "work" in order to be able to settle for value in exchange transactions.
But most of all, it's about the clever men who tell you that gold is worthless. Whenever you hear that "You can't eat it Gold, and therefore it's really worthless", RUN... .. It's the clever men wanting to steal your "work".
They don't do it out of meanness or design. They do it because they can't help themselves. They are compelled by the basic human instinct to "reach out and take".
Posted by Bischoff on 04/06/12 06:51 PM
I don't discuss opinion featured on websites. You have something to discuss, say it. Why hide behind a bunch of other peoples opinion... ???
I appreciate the effort to educate me by citing all those opinon websites, but please don't waste your time. If I feel a need to look for Gary North's latest comments, I know where to find them.
It's silly to talk about subjective and objective marginal utility. Marginal utility is an individual, constantly changing phenomenon. When marginal utility for a particular commidity no longer changes (is constant) and this holds for masses of people throughout the world, the commodity involved is called money.
It's as simple as that.
Posted by clark on 04/06/12 03:32 PM
I wrote, 'Historical bimetalism' as a suggestion for a way to refer to bimetalism, and to point out that was what would likely happen on the hypothetical island.
Some People might say, there is simply nothing else on Earth that can compare to gold for constant marginal utility.
Seeing as how gold is not accpted as final payment in most places, this does not seem to ring true.
For Bischoff, who has a hard time understanding the use of quotes, I placed some links to a much more detailed explanation and support of what is both mine and the authors opinion so People could decide for themselves and perhaps broaden the discussion. I thought that was obvious.
To say Gary North does not understand the term 'value' is funny.
Using links to larger points is just another way of having an online conversation, that's what URL's are for.
Also, of course marginal utility is subjective, one Person can see an additional utility in something while another cannot, just as Dotti put forth in her example.
By the way, Click to view link defines marginal utility as, "the extra utility or satisfaction derived by a consumer from the consumption of the last unit of a commodity. ... [or] of an economic good or service"
A commodity, not money.
Webster Dictionary refers to Click to view link in their defintion which also says marginal utility has to do with a commodity or service. Money is not mentioned.
Posted by Agent Weebley on 04/06/12 10:48 AM
Long time, no see!
See the emergence of a dialectic here on the DB: Click to view link
Posted by Agent Weebley on 04/06/12 10:46 AM
"Dig up gold and silver and you have made yourself wealthy without becoming entrapped in the larger dialectic that the elites have established."
Ingo would have you believe that a person and a pick axe takes the same amount of labour to dig up gold as Bre-X does, I mean did, I mean wanted to, I mean thought they could, I mean "would have you believe."
Why is that?
Posted by memehunter on 04/06/12 09:54 AM
Maybe I misunderstand what the DB means by "standard", but to me it evokes the idea of a fixed ratio. This is, after all, the common definition (as can be verified on Wikipedia).
Following the recent discussion on the "Central Banks won't produce natural interest" thread, I thought the DB made clear in an exchange with Bischoff that a fixed ratio is not ideal (and I agree with the DB on this point at least). I see that other commenters also discussed this issue on this thread regarding bimetallism.
I find FOFOA's "Freegold" denomination, with the exchange rate of the transactional currencies freely fluctuating with respect to physical gold, both more accurate as a way to describe this system (if a fluctuating exchange rate is what the DB means) and probably more honest in the long run than any kind of fixed ratio.
I also wanted to add that I'm not against a bimetallic gold/silver system per se, but gold is a much better store of value than silver, which is why I have objected in the past to what seemed to me to be an attempt to lump both precious metals together.
However, using physical gold as a store of value (for which it is ideally suited) means that the focus should be on optimizing the "means of exchange" function for the transactional currencies. In that respect, paper or (more probably) digital currencies seem to be more promising candidates than silver coins. I very much doubt that a return to silver coins is in our future, save for emergency situations or apocalyptic scenarios.
Posted by dotti on 04/06/12 09:32 AM
You're very welcome!!!