By David Galland, Managing Director, Casey Research
Does the price action of gold of late make you scratch your head, falling as it has from its recent high of $1,420 to $1,359 as I write? Hard not to make one wonder, considering the nature of so much recent breaking news…
And, yet, gold goes down.
Doesn’t make much sense, does it?
In my firmly held opinion, what we’re seeing is nothing more than the consequences of Mr. Market’s confusion – about gold, about the dollar, about Europe, about Asia… and especially about the potential consequences of Uncle Sam’s massive meddling in all manner of markets. Thus Mr. Market desperately looks to the equally confused punditry for an explanation, and gets fed a lot of nonsense and hoo ha about “risk on” and “risk off,” and the benefits of the governments “quantitative easing,” and so on.
Don’t let yourself be confused in the slightest about what’s going on, and pay no attention to the punditry. The analysis they do is garden variety at best, and they have it dead wrong… just as they almost always do.
To make that point, I’ll share a quote from the excellent book When Money Dies, referring to the Vossische Zietung, one of Germany’s leading financial newspapers back in the 1920s as the inflation began to spin dangerously out of control:
The Chancellor would accept no connection between printing money and its depreciation. Indeed, it remained largely unrecognized in Cabinet, bank, parliament or press. The Vossische Zietung of August 16 declared that…
… the opinion that the flood of paper is the real origin of the depreciation is not only wrong but dangerously wrong… Both private and public statistics have long shown that for the last two years the interior depreciation of the mark is due to the depreciation of the rate of exchange… it should be remembered today that our paper circulation, although it shows on paper a terrifying array of millards, is really not excessively high… we have no ‘dangerous flood of paper’…
Another particularly telling quote from around the same time was from the Berliner Borsen Courier:
It has long been realized that the printing of notes is the result not the cause of depreciation, and that the amount of currency, as it increases in bulk, is really decreasing in value. A point has now been reached where the lack of money has a worse effect than the depreciation itself… Even should the quantity of paper money be three times its present size, it would constitute no real obstacle to stabilization.
Until such a time, therefore, let us print notes!
At the time of that quote, the money printing in Germany had pushed the mark from 5 to the dollar to over 1800. Yet, almost no one in a position of influence was connecting the dots.
That’s much as is the case today. Until there has been a fundamental shift in U.S. fiscal and monetary policy, I would like to strongly suggest you trust your own instincts about the relative value of holding gold versus dollars – or any of the fiat currencies, for that matter – and set your sails accordingly.
Or, you can listen to Bernanke, who said yesterday:
And, don’t forget: historically interest rates, gold, and inflation all rise together. Not until we see positive real interest rates – interest rates that clearly outstrip the depreciation of the currency – will gold stop being a good investment. We are nowhere near that point.
[The case for gold is getting stronger by the day – if you don’t have any yet, buy some today. For answers on where to get it, where to store it, and when to sell it, read BIG GOLD, the go-to advisory for gold, silver, and large-cap precious metals stocks. Subscribe today for only $79 per year, and you’ll also receive 12 FREE monthly issues of Casey’s Energy Opportunities. Details here.]