Why the Gold Cartel Will Fail to Prevent a Primary Gold Bull Market

I dunno 'bout Marx, although he was of an age when Spanish and Mexican silver threatened superiority of all good Anglos, Saxons, and Goths.

By the time GB Shaw came around, silver was the radical's answer to all social problems. The gold defenders were the day's reactionaries, industrialists and bankers whose mortgages squeezed blood and gold dust from farmers and the poor, those same vile folk who created the Federal Reserve (oops, let's not go there).

If you learn specifically what Marx had for gold, do tell. By the turn of the century gold was the international bogyman. He might have been called "Big Oil" or "George Bush" back then...

I wish I could dig up that essay, but I'm not sure which journal it's in. I should have known I'd want to find that one again. I don't think Marx had anything resembling a coherent theory of money, so I wouldn't put much significance in his maunderings on gold. I think he just didn't like bankers- capitalists, you know. He appeared to think they were all crooks. Well, even a blind pig can find an acorn sometimes...

Silver as legal tender was the big issue for William Jennings Bryan when he ran against McKinley in 1896. The "cross of gold" speech. Bimetallism would mean easier money, which would lessen the burden of debtors. There was a long deflation beginning with the resumption of gold convertability in 1876 to about 1900, and anyone who owes on a loan in a deflationary period is going to be caught in a vise.

I own mostly Austrian Philharmonics (they have beautiful Vienna Philharmonic instruments – violins, violas, cellos, a French horn, bassoon, and harp – pictured on one side, and a the great organ from the Vienna Golden Concert Hall pictured on the obverse. And they are struck in 99.99% pure gold). Doesn’t get much more beautiful than that!

You're absolutely right; the Phils are some of the most beautiful gold coins I've ever seen, they have a reasonable premium compared to some others and are pretty liquid. Right now, USA Medallions are among the best from a low-premium standpoint and they're sorta attractive too.

just remember the bid-offer spread. the dollar difference between what you pay for a new coin, and what the dealers will pay you for an old one. If you were to buy and sell a gold coin in one day how much of the original investment would you lose? That tells you how much the price would have to appreciate before you could break even. Not pretty.

Nick, I was, of course, being sarcastic in replying to the Lenin nonsense. Lenin didn't know his economic butt from a hole in the ground. I just threw him back because this notion that gold is a money maker is just silly.

I'm ALL for making money. When gold was $30 an ounce and rising, I bought, and sold at $450. But that was a once-in-a-lifetime deal based on the OPEC price increases. Gold does NOT go up in deflation, and we are in deflation right now. More evidence of that every day.

Yes, good speculators can make money in inflation, deflation, no flation. But for most investors, gold is a loser, and has been for 25 or so years.

I'm not sure I understand your argument. Yes, velocity is important (no evidence now AT ALL that velocity has increased); and supply is important (still too low to support venture capital). Ergo, deflation.

As for what the market is betting on as a "medium of exchange," it isn't gold. Nor is it yen (do you really want to hold yen? Nor Euros, even though right now they are up vs. the dollar (check lately how many European powers want OUT of Euros?)

No, the dollar remains THE world's money, and as long as our deficits are reasonably small (and historically they are) and our debt-to-national assets is small (and it is quite small, with our estimated corporat assets---not even counting government land, gold, hard assets---at $40 TRILLION), the long-term prognosis for the dollar should still be very high.

Interesting how cotton, precious metals, natural gas, oil, copper, are all down. Only a couple of food items are up. I don't have time now to check the details, but with all these DOWN, how is the prognosis "bullish" on commodities?

Based on that logic, the stock market should be EXTREMELY BULLISH on stocks!!!

I think gold is a (sometimes) useful measure of "wealth preservation." But most of the goldbugs I've encountered are the gloom and doomsters who see a Y2K around every corner. They have either religious ties to gold (i.e., the people who think paper money is "of the devil") or are of the Jacksonian "hard money" bent. So I disagree that they tend to be merely cautious investors and see them more as social commentators.

Again, however, if preservation is your goal, you PAY to hold gold, and get no value unless you sell. But at least with your HOUSE, you live in it, and in many places it appreciates. So unless you are speculating on gold, I find it very tough to make any money.

Note the commodities index is now posted, and despite the commentary which says that it is "bullish" or "extremely bullish" on commodities, the numbers for most of them are DOWN, especially oil, natural gas, and . . . oops, precious metals. Corn is also down, although your example, wheat, is up.

My argument is that no one can look at the price of a commodity and allocate its components with any degree of precision. Thus, a barrel of oil may well be cheaper thanks to newly discovered sources, lowered barriers to entry, or decline in consumption, yet inflation can be raging away. Indeed, if one defines inflation and deflation solely as rising and falling prices, then methodologically how can we diagnose what is causing the price movements?

On the other hand, if inflation and deflation are defined as increases and decreases in the money stock, the phenomenon of low prices for particular commodities when the cost of living rises each year is perfectly explainable. Further, price deflation in a contracting economy is also explainable as the liquidation of excess capacity brought about by the artificially cheap credit the Fed has been creating out of thin air for the past decade.

...with all these DOWN, how is the prognosis "bullish" on commodities?

Well, if you look at the posted chart and follow the links, you'll get a better picture. I didn't want to post it all and waste bandwidth. Of course, some of the markets may have been down for day, but the trend is UP.

Based on that logic, the stock market should be EXTREMELY BULLISH on stocks!!!

Well, if one looks at the stock market index charts and the underlying fundamentals, there is little reason to be bullish. However, there are some individual stocks that are bullish and excellent buys. There will be many more when this horrible market finally bottoms. The key for today is picking the right ones out of all the daily chaos.

Steam, that is contrary to any economic reasoning since Adam Smith. Inflation is, pure and simple, too many dollars chasing too few goods. Deflation is too many goods chasing too few dollars. There is no indication, anywhere, of any type, save a relatively tiny (and very recent) uptick in some of the commodities indicators (off set by downturns in many others).

It is simply impossible to have inflation when prices are stable or falling, any more than you can have a "living corpse."

It seems we agree that inflation is an increase in the supply of dollars relative to the supply of goods. However, inflation is just one component of a good's price. There is no way to know how much or how little of the price is due to increases in the money stock, increased or decreased competition, higher productivity, or consumers' subjective valuations. Thus, it is entirely possible for the price of say, computer software, oil, gold, or any other good to be falling while the government is inflating the money stock.

Some economists restrict themselves even further by refusing to look at anything other than select raw materials as the barometer for inflation. How much of the price of precious and non-precious metals is due to the fact that manufacturing is down and so there is less demand for those products? Or that specs for certain applications now allow aluminum wire instead of copper? No one can say with any level of certitude.

OTOH, as anyone who has bought houses, cars, groceries, clothes, medicine, utilities, insurance, etc., for the past century can tell you, the price of everything overall has gone UP. When was the last time any employer, trustee or government agency made a cost of living adjustment DOWNWARD?

See, Steam, we're getting close: you say that inflation is just "one component" then you mention PRODUCTIVITY!!! Finally! I've been harping for months that U.S. productivity soared in the first half of the year (up 3.7%, the highest in many years and almost as high as in the Reagan boom era).

But the equation is, if productivity is UP, and the money supply is even, voila, DEFLATION, not inflation. So, no, you cannot have higher productivity AND stable prices and falling interest rates AND call it inflation. It can't happen.

Spain was a decepit backward when Marx was alive, a threat to no one but itself.

The Federal Reserve was created more by the demands of the farmers and businessmen of the West than by Eastern bankers who opposed it for many years. Lack of money was the reason the West wanted a central bank. The money was in Eastern money center banks which wanted to keep it that way.

Banks made more profit with paper money so Marx would instinctively prefer gold which was not as easy (at THAT time to manipulate) since it made it harder for banks to profit from monetary manipulation/creation.

The beef with gold as a money supply has always been the same. There is a chronic shortage of money when the gold standard is in place and this leads to reduced economic growth. This was the beef in 1787 and in 1887.

Why are higher productivity and inflation mutually exclusive? Someone figures out how to build a better mousetrap while the government is flooding the market with currency. Mousetraps go down in price, people buy more mousetraps, but the inflated new currency is still there, working its effects among the first and then successive recipients.

Despite the tremendous advances in productivity in the 20th Century, the dollar's purchasing power continuously declines which correlates to its ever-increasing supply, mitigated at times by the invention of better mousetraps.

No, the dollar's purchasing power has not declined. Quite the contrary. A dollar buys more energy, more oil, more of a house, and more of a car than ever before. The price of energy has just plummeted, one of the keys to your "components" of productivity.

Maybe I'm missing something in my economics background. If productivity goes up and the money supply goes up, but not as fast, that in your dictionary is "inflation?" Sorry, that just doesn't work. If "people are buying more mousetraps," then GNP is up, and without the money supply also going up, we have de facto deflation.

What has happened (and it's not bad) is that companies to stay competitive have offered more and more features on everything from televisions to cars to homes to computers as "standard." Yet very few of these things were standard 20 years ago, and still fewer, 30 years ago. Thus, the overall value of (say) a house goes up 3x, but the price only goes up 2x, and yet people "think" they are falling behind because they do not see the "standard" features as extras anymore. But overall, they are far better off. Look at Cox and Alm's stats in "Myths of the Rich and Poor."

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