The price of Gold


The pendulum I am referring to is NOT a ‘tsunami of credit’ or financial engineering.

Those are secondary, and they follow the primary pendulum, which is something very difficult to quantify, by its nature. In a word, you might say that it is ‘sentiment’ regarding business activity, and no doubt that itself is a complex derivative function of such as credit cycles, debt deflationary dynamics, investment in innovations and delayed return on that investment, cumulative process, endogenous fluctuations, acceleration, failure to see cycles as inherent in free markets, hoarding tendencies, fluctuations in plant and manufacturing equipment, overproduction, amplitudes in constructional industries, random-disturbances, under- and over-consumption tendencies during booms and recessions, and so on and so forth.

The critical insight is that in economics, it is mostly meaningless to talk about ‘cause and effect’, as such laws don’t hold in a system which exhibits advanced complexity, by which I mean so complex that it is in its very nature to be practically indescribable, and non-deterministic in that economic behaviours and reactions within the system are probalistic rather than definite.

To summarise, your statement “The underlying problem is government debt” is trivial in terms of what we are talking about. It is a statement that may be true in particular narrow contexts at this particular moment in time. To my ears, it is a statement exactly similar as “the underlying problem is this rain cloud overhead” when talking about the world’s climate.

Let’s see what the consensus will be about what is “the underlying problem” in five years time. I guarantee it won’t be "government debt. I also guarantee it will be just as insignificant.


I guess where we differ is how the US deals with the debt overhang or how much of a hot topic it’s going to be. It’s a governments job (along with many others) to create an environment for the private sector to flourish. The current debt & government policies will strangle them.
True, so many factors will come into play and as you say, all we can do is see where we’re at in 5 years.


“Unprint” the bond is obviously metaphorical to explain to people why QE conducted on Treasuries is an asset swap. You swap the public sector liability of a Reserve for the public sector liability of a Treasury. There is no net impact on the private sector at all.

As I’ve said before, I actually wish that QE did work as advertised because it would be a useful tool to reverse recessionary pressure. But it doesn’t.

As I’ve also said before, engaging with ideologues like yourself is pointless in this regard because you are married to your position. What people like you always seem to miss is that I could buy 1,000 gold futures now and gain exposure likely far beyond your own. It is not an exclusive club to which you belong. I am not short your long. So I have no emotional attachment to the metal. When I can make money by being long or short then I do. My posts are merely to illustrate why the hysterical “money printing MONEY PRINTING” zealots like yourself simply have absolutely no idea what they are talking about.

:laughing: at this point goldbugs have been correct about less than nothing, it should almost be difficult to be so consistently wrong.


You’re ignoring the governments balance sheet to defend your argument? That its a load of paperwork for basically nothing (apart from primary dealers making a fortune from it) and QE is a non issue? Again, the problem is government debt, and the Fed shouldn’t be accommodating the government. It’s practically non reversible as a politician won’t want a recession another 07 to happen on their watch.

I’m not married to my position mate and I would wish you would address the question I have asked you on numerous occasions, what are your thoughts on the governments balance sheet - this massive factor you just so happen to leave out of any engagements we have had. The only balance sheet you ever bring up is the Feds which is neutral.
If it’s just an asset swap, why would the Fed bother doing it? It’s because the US government is broke, it can’t raise taxes to pay the debt it owes and it needs the Fed to intervene on it’s cost of borrowing. The Fed is quickly becoming the only buyer of bonds. The only reason China and Russia etc hold so much is to hold the US “ransom”, it keeps the US war machine at bay and the gold heads east.
You also work in the hedging industry and it’s a known fact that if anyone is going to hate gold it’s you guys - so there is an interest there, it just so happens it’s anything but gold, so don’t play it off.

Such as? Gold has performed pretty well this year wouldn’t you agree? Or this decade?
Or are you referring to the tin foil hat conspiracy of “price manipulation” - which as we all know now has been proven correct, by some “exclusive” article CNBC came out with, or whoever you listen/read. :mrgreen: . Of course, it only becomes fact when MSM say it is.

No doubt your response will be filled with a lot of dribble, and very little substance for changing my opinion, but like I said, I would welcome some reasoning as if I’m in the wrong asset class, I’ll sell up tomorrow and jump into US government bonds. XX
I look at the numbers, the debt, the issues with gold repatriation, the labour force participation rate, bubbles being pumped, all down to US policies. As long as this continues in its current trajectory I’ll be staying put. If you want to get involved trading stocks/bonds, go nuts.

I obviously don’t like seeing gold price going down, but as long as the US continues doing what it does best, liberating countries and stacking up its debt, it will creep up in value.


I may as well have been talking to the wall. At least, let’s try put it in its proper context, I.e. Day to day politics rather than macro-economics.

Point 1: Day to day politics is influenced for the most part by need. So, when it is really necessary to get the debt (held by the public through the state) back down and/or the conditions exist to do it, it will be done.

Point 2: The way fiscal deficits are reduced is spending cuts and reduced expenditure. When it happens,* it will not be done “to other people”;* it won’t be limited to tax increases on somebody else, or a “crackdown” on waste, fraud and abuse. Your taxes will go up, and government programmes you favour will become less generous.

Point 3: In relation to point 2, observe already, the crying and complaining of the ‘middle-class’. It is obvious they cannot take anymore, only adjustments done slowly and stealthily. *That is the current political reality.
Point 4: You mention ‘structural changes’ - Let’s break down the current deficit increases -it comes from (a) business cycle exigencies (40%) (b) President George W. Bush’s policies (35%) © policies from the Bush years that that Obama has chosen to extend (15%) (d) new policies proposed by Mr. Obama, including the stimulus (10%).

What are these fantastic ‘structural changes’ you have in mind that will resolve all the legacy issues and yet maintain the social infrastructure?

Do you think that Obama can get up one day, and in a sweep of his pen take money back from doctors, drug makers and insurers? Or, shut down large sections of already inadequate social safety nets? Or suddenly reverse the tax cuts and other expensive sops to conservative interests put in train by republican party half-wits?


Point 5: We have been here before. All recessions and war spending are accompanied by deficit increases. The US deficit is currently around half relative to GDP what the deficit was in the 50’s. Deficits are paid down in the period of increased business activity that inevitably follows recession. Productivity increases due to technology and full employment as another cycle of business investment takes hold and makes short work of deficits. Once the middle-class get accustomed to their new recessionary lifestyle, and forget what it was like during the recent boom, it will be possible to increase taxes and make them pay more for public services. The key ingredient is TIME.

Of course, all that seems quite unpalatable. However, it is the reality. Just the way these things work.

All of the hue and cry about the public debt is really only conditioning of the public. Day to day politics. A quite small set of variables within the whole macro-economic ecosystem, acted upon by other variables, and themselves acting upon them in turn.


Roc, yes time is a great healer, when I start seeing the improvements in their economy, I’ll change my position accordingly. At the moment it looks as though its spiraling down the drain. I guess getting ahead of the curve would be great, the problem I see is they will just try and inflate the debt away in order to become competitive again. The business cycle isnt exactly looking like it’s about to lift off any time soon, imo of course.
Until then, to me it makes sense to stay put.
I certainly won’t have any problem selling the most liquid asset in the world.

A simple strike of the pen fix would be to get rid of minimum wage. Nobody is forced to work for pennies, it’s a choice they have. Take Ireland, if the under 25s were offered a low paying job (which after years of experience could lead to setting up their own business or becoming a well paid manager of the company) or being on the dole, I’m pretty sure they would choose the job.

The structure is pretending there is such a thing as having a “smart economy”.
Low taxes, cheap labor or commodity rich is the only way too compete. That’s the reality.

This was the idea of Irelands low corpo tax.


One participant’s posts here read like the incoherent AI output from a Turing Test conversation.


Well that’s the ‘reality’ if we assume a world full of automatons, where dignity and comfort and social justice, and interests of one’s neighbours is of no matter; where natural resources are only there to be expended in the service of immediate profits, to the loss of present and future generations who live in the world as much as anyone else.

There is a problem, where a large proportion of people in the developed world today have had their intellectual facility so decimated by an education designed to turn them into an obedient automaton, that they become incapable of articulating or conceiving of the much greater complexities that come under consideration when you try and design an economic and social life fit for humans.

As it is today, the class of technician has not just yet come into the ascendency. But it will happen. It is happening quickly as we speak. Then, you may see a lot of the assumptions asserted on this board come to reality.

You can see in Asia, that considerations of dignity and comfort have for at least twenty years been relegated.

There has been a growing class of “enlightened” who say we ought to emulate them.

No doubt, we will.


A point that I have been trying to make, maybe not the clearest according to Quango Unchained - the more you accommodate the government, the more they take full advantage and get used to it, it becomes near impossible to unwind, this is a quote from the latest BIS report that might explain things a bit better;

So Roc, they either let the cycle/tide continue to turn (the financial boom) now on loose credit and we end up like we were in 07, or they nip it in the bud nice and early, let the correction continue.
Who knows, we might even see value in SCD in the future.

Only thing we can do at this moment is watch what way the Fed proceeds with their policy - but I would be cautious where I put my cash.
Keep in mind, if they let the system collapse hard - the CB’s reaction will be to print/QE/monetise, whatever you want to call it.

BIS Annual Report


In QE the Fed buys Mortgage-backed securities (for example) in the open market from banks and non-banks alike. What does this have to do with Reserves?


Well at the moment they buy Agency MBS and Treasuries and, when exacted with a Bank, they “pay” with Reserves - they increase that Bank’s reserve balance at the Fed. So you’re swapping a government liability (treasury) . . . for another government liability (reserve). That’s really the point; if they were buying something non-government then it is a different deal. . . or even when they bought MBS with QE1, when the MBS market was distressed, then also you can have a real impact. Otherwise, in its current guise, you’re just handing out commission to Primary Dealers - and hoping that the placebo effect remains as strong as it has been.


What percentage of the banks’ cash-receipts from these sales would end up purchasing new mortgages (via MBS) and govt debt?


Cash receipts? Huh?
not sure what you mean - their reserves?
They sell a Government Bond to the Government; the Government issues them a Government Reserve in exchange - the best description is that it’s like moving cash from a savings account to a current account - and thinking you’re richer because your current account has gone up.
Obviously the real key here is that the Fed (and the goldnuts et al) are trying to hold the line that Banks lend these Reserves into the economy -which couldn’t be more false- as the document in my signature explains in detail. Banks don’t lend reserves, even the zerohedge fools are cottoning on to that.
Most interestingly the venerable Bank Of England recently acknowledged that banks don’t lend reserves in a research piece that included the following quote:

**"rather than banks lending out deposits that are placed with them, the act of lending creates deposits — the reverse of the sequence typically described in textbooks.”

And that, is that.


Anyone know how gold is doing these days. It isn’t apparent from this thread.


Up 10% ytd.


Doing well.
And, as long as rates stay low, should be ok.
It’s driven by real rates - the lower real rates are the better it will do, or worse.


Here is how it works in simple terms-

1)Government creates/issues a bond (a promise to pay back a loan in the future + interest)
2)This is bought by a dealer - they give the government cash for this bond
3)Dealer goes to the Fed and exchanges the bond for cash
The Feds balance sheet is neutral- they have a government bond as the asset, cash lent to the economy is the liability

  1. However, the initial government bond has been whisked out of thin air - this is the “money printing”/“QE”, that the Fed is accommodating. As the bond created is quickly converted to cash.
    2)The dealer is a middle man that gets payed a fee for processing the paperwork, but for this explanation, lets say their balance sheet doesn’t change.

3)What happens at the Fed is as per DP’s post, the problem is the Fed is allowing this. Remember, the Fed is the buyer of last resort. The market should be setting rates. If rates were to high government would cut spending. Have a look at the % holdings the Fed has accumulated over the years.

While DP’s explanation of what happens at the Fed is very good - he is not explaining the issue goldbugs have.
In my opinion, as long as the current government spending continues and increases, gold will continue to rise, there may be a few bumps along the way. If you see proper reform/improvements occur in the US, then gold will probably loose alot of its value. I just don’t see that happening unless a crisis is forces the government - similar to Ireland, no party wants to be seen as the bad guys.

What is very annoying is, there are all these banking acronyms and “tools” the Fed has, but if you take a step back and look at what they are doing, they are either diluting the currency supply or they are strengthening it. No more, no less.

So, DP - with regards reserves - are we talking about “reserves” which basically means the reserve cash at the Fed, as in the what banks are required to hold as a % for security?
Or are you saying the banks don’t lend out deposits?


The loan is the deposit:

You ask AIB for €50k loan.
They approve.
You then €50k on Deposit in AIB.

This is now generally accepted as how banks create money. There are some old school cranks who are trying to stick to what the “textbook” says but as the link above shows, even the BOE have realised that fight is lost. Banks do not lend out deposits.


Correct me if I’m wrong.

a. The amount they are able to lend out is a multiple of their held deposits and other holdings. Thus, held deposits ARE important.

b. The loan becomes a deposit or investment somewhere else - held by a business, or an account funded by someone’s salary, for the most part. It becomes payment for good and services, investment in machinery, employees or business services to grow a business, or payment for a property (which money ends up in a number of various accounts), etc.

The point is though, is that the resulting increase in the general deposits and productive assets (and unproductive ones in the case of land and other economic rent paradigms) is supposed to match with the productive capacity of the economy, or the total output of goods and services produced.

Of course, problems arise when you play financial engineering around economic rent paradigms and related. But otherwise, the theory is fairly sound. The problem is not with the reserve system itself. It is in misappropriating it towards financial and social engineering around economic rents.


Sure, but AUIU the issue is with causation. The role of the banks is to seek profitable lending opportunities. If they have those then deposits and reserves can be drawn in as needed in response to issuing loans.