Since stock markets bottomed in 2009, both stocks and gold have risen…almost in tandem. And that’s because they’ve both risen for the same reason — money-printing.
Just this week, the minutes from the latest US Federal Reserve meeting indicated that most members were in favour of more intervention if the economy didn’t improve.
The high gold price is a signal that everything isn’t well with the market or the global economy. That’s why we remain cautious on stocks.
And the latest news backs up our view. Take this from Bloomberg News:
‘Applications for U.S. unemployment benefits climbed last week to a one-month high, showing scant progress in the labour market that’s left Americans more pessimistic about the economy.’
So odds are the US Fed will crank out more new dollars or fiddle with interest rates before the year is out.
But the money-printing can’t go on forever. At some point the general public will figure out printing money from thin air isn’t mending the economy. Well, perhaps the end is in sight. And contrary to what you might think, it could mean more good news for gold.
It’s Not Gold That’s Volatile…
Today’s Financial Times (FT) reports:
‘The gold standard has returned to mainstream US politics for the first time in 30 years, with a “gold commission” set to become part of official Republican party policy.’
Although forgive us if we don’t celebrate just yet. The odds of it happening are still pretty slim. Especially when you remember that the last time a Republican president was in office, this happened:
The biggest increase in money supply for at least 30 years. Of course, the FT can’t resist an opportunity to bash gold, however ill-informed the argument:
‘Inflation has remained under control in recent years, despite claims that expansion of the Fed’s balance sheet would lead to runaway price rises, while gold has been highly volatile. The price of the metal is up by more than 500 per cent in dollar terms over the past decade.
‘A return to a fixed money supply would also remove the central bank’s ability to offset demand shocks by varying interest rates. That could mean a more volatile economy and higher average unemployment over time.’
The ignorance of the mainstream never fails to amaze. The gold price simply reflects the uncertainty and volatility of paper money.
As the gold-haters like to point out, gold doesn’t do anything, it just sits there. If that’s the case how can it be volatile? The chemical make-up of gold doesn’t change from moment to moment.
What changes are the economy and the monetary system…thanks to the meddling of central bankers, governments, and bureaucrats. It’s these actions that cause market instability, and so investors value gold based on that instability.
In short, it’s the economy that’s volatile, not the gold price.
And as for ‘higher average unemployment over time’, how’s the current plan working? Not so well, we think.
Cheers,
Kris
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