Gold was money in 1929 to 1935. Gold is not money today despite what the goldbugs wish for.
Gold never is money. It just gets treated like that for a spell--and that's a time I want to front run. Gold will be money again--for a spell. But probably not before there is a loss in confidence in both the US$ and the euro. Sentiment will drive this, not fundamentals. Even then, there won't be a big move of liquidity into gold--but it only takes a small % of the liquidity that's sloshing around to find a home in precious metals to take them way higher. I believe there are a few individual companies whose present capitalization alone rivals that of a significant part of the entire gold producing industry's capitalization.
If the consumer has no savings, a falling income (re: purchasing power) and his assets are declining in value, money velocity will fall and prices will decline in spite of liquidity infusions. After all, the Fed is not handing out $100s on street corners or dropping it from helicopters. It's just protecting its shareholders. Too many parties to this show are insolvent. Some of them don't know it yet.
This economy has been built on credit, not "money" that reflects wealth creation. If credit is not available to the average consumer, there will be a huge decline in prices as goods don't move. (Lee Scott, Wal-Mart's chief executive, described the latest quarterly results as disappointing. "It is no secret that many customers are running out of money towards the end of the month," he said.
news.independent.co.uk
See Japan for oh so many years in re commercial properties, which, in spite of interest rates at zero, declined in value. Lenders wouldn't lend and borrowers wouldn't borrow. But the Japanese had huge savings and massive exports, so it is not all together analogous.
I am expecting a deflationary depression, during which--for a spell--gold will be deemed money and miners will be mining "money."
Of course, this shituation is unprecedented so we will not see an exact repeat of anything that has come before. It should be way more devastating and entertaining. |
