Mount Fuji secondary volcanic eruption on flank of the volcano is covered with metals of various sorts.
I may annoy people by talking about things they don’t want to hear but at least I don’t go off the mental cliff like many do. Explaining things and how these work is tricky as all hell. We have to be careful to not make up stuff or ignore facts. One favorite game played by online explainers is to suggest something is causing something else to happen…while producing zero evidence backing this. The drastic fall in gold prices has driven nuts all the guys who claimed gold has something to do with the floating fiat currency game. It does not.
Gold is a commodity like wheat or raw steel. It has the exact same market dynamics as these things and is international so forces are greater overseas than in the US since the US is NOT the world’s biggest gold market, far from it. This doesn’t stop dopes from claiming otherwise and here is a British example that dredges up zero proof of his headline contention: Fed and Bank of Japan caused gold crash – Telegraph
The central banks of China and the emerging powers bought 535 tonnes last year to escape dollars and euros, the biggest wave of state purchases since 1964. Their strategy is to buy the dips, and they are no fools. The head of China’s reserve manager “SAFE” used to run a US hedge fund.
They won’t try to catch a “falling knife”, prefering to wait until the dust settles. The upward trend of the great bull market has been broken. The technical damage is brutal. Bank of America expects a further drop to $1,200. Be patient.
My view is that the US Federal Reserve and the Bank of Japan “caused” the gold crash. The rest is noise. The Fed assault began in February when it published a paper warning that the longer quantitative easing continues, the harder it will be for the bank to extricate itself.
The report was co-written by former Fed governor Frederic Mishkin, often deemed Ben Bernanke’s “alter ego”. It said the Fed’s capital base could be wiped out “several times” once borrowing costs climb. The window will start shutting by 2014, with trouble then compounding at a “dramatic” pace.
Cause and effect are hard to see especially when someone is delusional. If China or Japan were fearful the US dollar would be debased further, they would have bought gold with US dollars they gain via trade. Instead, the opposite happened. So why is that?
Mishkin wrote his report because he accurately understood the trap Japan is in: perpetual ZIRP lending forcing the government to run huge deficits that cannot endure high interest rates in the future so they have to keep a depression going and this depression is in worker’s wages and above all, the immense number of retired Japanese who are a huge proportion of the population.
The Fed isn’t ‘assaulting’ gold by publishing a study that compares the Japanese trap with the trap we are in today! This is an analysis of the dangers of the floating fiat currency regime when there is huge trade imbalances. Even now, Mishkin dares not attack the ideology of free trade!
The price of gold has zero to do with the value of a dollar. It does have a lot to do with the availability of capital! When speculators hold gold, it is in anticipation of SELLING IT, not holding it. It is dead weight unless one uses it as capital for borrowing money. Many a speculator bought gold hoping it would go up and up and up. When it shuddered at the top of the market curve and then became a bear market several months ago, the speculators all began dumping gold simultaneously.
Since this is a buyer/seller market with hourly changes in value depending on the BIDS for the gold, it is prey to all the speculative dips and surges that all speculative commodities have. And these change all the time depending on gossip, the weather, herd instincts of the most primitive sort and security concerns. When gold surged fastest in value compared to the US dollar (but NOT the euro!!!!) this was no different than housing shooting up in value when banks lend easily.
Note that Barrick Gold has been falling for about 2 years after jumping up and down at the peak for 5 years.
The same thing happened with housing: when the bubble popped, everyone who was speculating rushed to sell their holdings and this flooded the market suddenly with excess houses and so everyone’s home value dropped like a rock. The Fed helped create the bubble via below-inflation lending to the bankers. The gold rush was fueled by the same cheap loans, too.
London Fix Historical gold – result: It is obvious this is a HUGE hockey stick curve and any normal bettor in this game sees that for the last four months, gold has begun to waver in value and was ripe for a collapse as all hockey stick games end with the puck in the net.
But when gold goes retrograde, all the creeps who bought gold shares with borrowed money are very, very hasty to sell and desperate to sell before their margins are called and this fear is causing the crash, not the Fed.
As for the Bank of Japan, it had been assumed that the colossal monetary stimulus of Haruhiko Kuroda would revive the yen-carry trade, leaking $1 trillion into world asset markets. But the early evidence is the opposite. Japanese investors brought money home last week.
“Mrs Watanabe” is selling her Kiwi and Aussie bonds to bet on stocks and property at home. And she is selling gold like never before. That too is a shock.
And why are the Japanese selling gold? What are they buying? Evans-Prichard doesn’t say. I see things quite differently due to reading the Japanese news a lot. Japan Gets Calls From U.S. to Europe Not to Drive Down Yen as even the US political goofballs figure out that Japan is performing a hostile action.
And the Japanese who have the real loot aren’t brining it home, either: Dish Network to make $25.5 billion Sprint bid as Softbank of Japan tries to buy Sprint Nextel with $20 billion much of which is borrowed from the ZIRP Bank of Japan. This would have been the biggest foreign takeover by a Japanese group. No, the Japanese are NOT bringing the loot home, they are on a rapid buying spree and to pay for this, they sell gold converting this to DOLLARS, not yen.
And then buying things far more useful than inert gold: other countries’ industries! Duh!
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