"Everything you need to know about gold"
GOLD AND THE NORMALCY BIAS
We think we know most (if not, all) of what we need to know about gold. Investors do their research and marketers spin their best yarn(s). Support is offered with an amazing array of fundamental and technical factors on display for all to see. But what are we not seeing?
Since the origin of the Federal Reserve in 1913 the US dollar has lost ninety-nine percent of its purchasing power.
Not coincidentally, but in direct reflection of the dollar’s loss in purchasing power, the price of gold has multiplied one hundred fold from $20.67 oz to $2060 oz as of August 2020.
Comparing Bitcoin To Gold – Store(s) Of Value?
Mark Cuban claims that Bitcoin is a better store of value than gold. Is he correct?
GOOD NEWS… The rebound in gold prices from their recent low has awakened new fervor among those looking for the elusive moonshot. The ‘obvious’ signs of much higher inflation have emboldened those who are inclined to predict ever higher gold prices.
Contrastingly, the chart of GLD prices pictured below doesn’t look all that great…
GOLD PRICES THEN
A year ago this past week marked the onset of the Covid-19 Pandemic. It also was the last full week of trading in the financial markets preceding crashes in all markets and a near-complete, albeit temporary, shutdown of economic activity.
Subsequent rebounds in stocks, bonds and real estate took valuations to levels as high or higher (much higher for stocks and gold) than before the turbulence took hold. Some might refer to those valuations as nose-bleed levels, although the summit for peak ascension is always moving when the effects of inflation are factored in.
Gold had its day in the sun, too.
STOCKS – BITCOIN – GOLD
Stock prices, according to the S&P 500, are up seventy percent from their lows last April. The Nasdaq Composite at its most recent high point was up even more, sporting a ninety-five percent increase from its nadir. A number of individual stocks have done even better.
For the entire year 2020, however, stocks were up a more modest sixteen percent (S&P 500) and only seven percent for the Dow Jones Industrial Average.
However, the outsized performance of the Nasdaq was even more apparent on a full calendar year basis. For 2020 the Nasdaq was up forty-three percent. Relative to its peers, the average Nasdaq stock was up more than three to four times as much as non-Nasdaq stocks.
An All-Asset Price Crash (AAPC) might be the next “Wow! Can you believe it?”
In the meantime, whether it be stocks, bonds, gold, or oil, investors are licking their chops and counting their profits before they are booked. And, they have reason to gloat. Let’s see what all the noise is about.
ABOUT MMT AND GOLD
According to MMT (Modern Monetary Theory), there are “four essential requirements that qualify a national currency as sovereign”.
Those four requirements include:
We listed the above requirements and talked about ‘sovereign currencies’ in the article MMT – Variation On A Theme.
But, there is a fifth (important) requirement regarding MMT and a National government which issues a sovereign currency. That requirement is stated quite clearly by L. Randall Wray, who is one of the leading spokespersons in behalf of MMT:
GOLD AND RIP VAN WINKLE
The “Rip Van Winkle Caper” was Episode No. 60 in the original Twilight Zone television series. It first aired in April 1961.
The show centered on the actions of four thieves who put themselves into suspended animation for 100 years, with the intention of waking to the prospect of enjoying, without concern, the spoils of their recent criminal actions.
The “spoils” happened to be one million dollars in gold bullion (bars) which they had recently misappropriated, i.e., stolen.
The entire plan was orchestrated by one of the men, who hired the others to perform specific tasks which depended on the execution of their respective and infamous talents. Now, they were in a cave located somewhere in the desert in the southwestern United States.
The gold price is not about gold. In fact, it tells us nothing about gold.
So why are people so obsessed with the price of gold? In most cases, it is because people likely view gold as an investment opportunity. “How much can I make and how quickly?”
However, the question which continues to plague gold investors and others is “Why didn’t gold respond the way we expected?”
The answer is found in the term unrealistic expectations.
When gold is characterized as an investment, the incorrect assumption leads to unexpected results regardless of the logic. If the basic premise is incorrect, even the best, most technically perfect logic will not lead to results that are consistent.
Here are some examples of inconsistencies when viewed through the lens of faulty logic based on incorrect assumptions…