Citi: Gold Will Be Annihilated If Inflation Doesn't Pick Up Soon

The Business Insider ^ | 2-3-2010 | Vincent Fernando

[blam]

Citi: Gold Will Be Annihilated If Inflation Doesn't Pick Up Soon Vincent Fernando | Feb. 3, 2010, 1:31 PM | 471 | 7 PrintTags: Investing, Commodities, Gold, Analyst Research Citi's Alan Heap warns that gold could soon lose a lot of the factors supporting its price right now.

That's because a stronger U.S. dollar and rising interest rates would be bad news for gold, based on history.

Also, investment demand for physical gold is abating when measured by slowing demand for physical bullion and a leveling-off of gold ETF demand.

Most importantly, Mr. Heap reminds investors that gold hasn't been a hedge against inflation despite the traditional view that it is one. Historically, gold prices haven't been related to realized inflation:

Rather, gold prices have historically been driven by an expectation of inflation, which is different. This relationship is shown below using inflation-linked bonds as a proxy for inflationary expectations:

[snip]

[Buckeye McFrog]

as with the Global Warming hoax, whenever the data begins to appear nonsensical, look for the fix....

[EagleUSA]

That’s because a stronger U.S. dollar and rising interest rates would be bad news for gold, based on history.

::::::

That is why we buy gold, right?? A HEDGE on the economy? How is this news?

[KarlInOhio]

The author included an awful graph. It is comparing the inflation rate with the current gold price. Either compare the CPI (not the change - the actual index) with gold price or compare the inflation rate to the change in gold price.

[equalitybeforethelaw]

You think? Inflation won’t take off until there is a real recovery.

[Brilliant]

Annihilated? No way. “Gold has never been worth nothing.”

[babble-on]

that’s a good point there.

[OB1kNOb]

Methinks when the economic implosion occurs, it won’t be gold that will be annihilated. JMO.

[kabar]

Rising interest rates will be a disaster for the economy. And our debt servicing costs will go thru the roof.

[KarlInOhio]

Some buy it as a hedge against inflation. Others overbuy it as a bet on inflation. A lot of money was destroyed (not the currency, but the fractional reserve multiplier) in the crash, which the Fed tried to counteract by increasing the money supply. Trying to thread the needle of not to much and not to little along with hitting the right point in time to slow down the increase is very, very tough. A lot of people are buying gold betting that Bernanke will screw up. If it looks like he will get it right those speculators will be dumping gold before it drops, which will cause it to drop.

[Mariner]

And still, nobody knows if we’re headed for deflation, inflation, or deflation followed by inflation.

[GonzoGOP]

More likely Citi is holding a short position on gold and doesn't want to cover at the higher prices. With the current debt load there is no way the dollar will stay strong. Note that it is not something inherent in gold that will drive up the price. A foreign currency from a country that isn't in debt will work just a well.

Gold is going up as a result of the fear that the dollar will go to zero when Obama defaults (restructures the payments on) on the US debt.

[redhead]

I was toying with selling mine when it recently hit the new $1200 +- high. Then I thought, no, because then I’d be exchanging something that “has never been worth nothing” for something that has been WORTH NOTHING FOR THE LAST 30 YEARS. Duh??

[appeal2]

So I guess Clyburn is correct, we can just print and spend our way out of anything. Just takes perseverance. It worked great for the Romans, for the French in 1690’s, for the Colonial Congress from 1776-1790, from the Weimar Republic. It is pretty well proven economics, the more money you print, the less its worth. Anyone who thinks there’s no inflation should take a trip to the supermarket sometime. Food prices have gone up over 11% in the past two years.

Take a look at this article, a brief history of fiat money.
http://dailyreckoning.com/fiat-currency/

The “geniuses” running things now have not figured out a way to defeat the inevitable historical failure of fiat currencies, regardless what the guy at gov-Citibank says. This is all noise to get the sheeple to believe in the value of their greenstamps. Nothing more, nothing less.

[combat_boots]

Gold Prices Drop - The Street, Feb 3 2010 11:50AM
U.S. Mint silver, gold, platinum coin revenue hits $1.7bn record high in FY 2009 - Mineweb, Feb 3 2010 9:21AM

See Gold News: http://www.kitco.com/

[screaminsunshine]

That would be a good time to get some.

[milwguy]

Silver eagle sales last month were near all time record. Gold eagles had huge month as well. Mom and Pop investor are not listening to GS, CITI and the like. They remember their parents and grandparents stories of the depression and are taking action to protect themselves

[John.Galt2012]

Trade it for arable land and livestock. You’ll be sitting pretty.

[EagleUSA]

If it looks like he will get it right those speculators will be dumping gold before it drops, which will cause it to drop.
::::
It is difficult to see how this “administration” has any intention of doing anything substantial or meaningful to TRULY improve our economy. Too much work is still being done to destroy it. Many gold buyers are much more farsighted than just anything Bernake might do, looking at the true agenda of this administration (worldwide and long term) and trying to protect against it.

[GonzoGOP]

They remember their parents and grandparents stories of the depression and are taking action to protect themselves

Actually I see this trend as being very pessimistic. The thing with gold and silver is that while you may lose some value, you won't lose it all. Also, unlike stocks or bonds, you can convert gold or silver into any currency, not just dollars. So if the dollar goes to zero you can get your gold out as Euros, Yuan, Yen etc.

If people were just worried about inflation they would just buy foreign currencies or stocks. But what is driving gold is not just a fear of inflation, but the fear of total global economic collapse. The year 2012 may not be the end of the world, but stock brokers and bankers may wish it was.