Misconceptions about inflation, the falling dollar, and the relentless rise in federal budget deficits are skewing gold advocates’ arguments; however, a strong case can be made for the metal without resorting to these misconceptions.
Inflation, the Dollar, and the Deficit: Three Things I Bet You Didn’t KnowDetailsThere is a fundamental misunderstanding of the role of physical gold in a balanced financial portfolio. The bull market of the 2000s has led many to think of gold as another way to increase wealth through price appreciation. This is mistaken. First and foremost, physical gold is insurance. When you think about buying insurance, you don’t think about a return on your investment. You think about protection against the unexpected. Gold’s core value proposition is as wealth protection when the rest of your portfolio is going down the tubes. Price appreciation in good times, if and when it occurs, is a bonus.
Wealth InsuranceDetailsAs I write this morning, gold has given up two-thirds of its gains following the Fed’s decision last Wednesday to continue its $85 billion-a-month in bond purchases under QE3. One reason for this retreat is that markets overreacted to the news, just as they did back in June when Ben Bernanke’s statement about QE3 was misinterpreted as a signal the Fed would cut back QE3 in September. Buckle your seat belts; we’re in for many more days like Wednesday in the year ahead…
FOMC Fallout: Here We Go AgainDetailsIn the wake of the FOMC’s decision, some analysts are lurching to the extreme, speculating that a majority of the FOMC sees the economy as weakening. We won’t know what individual members think about the state of the recovery until the minutes of this week’s meeting are released. But the Fed’s announcement makes it clear a majority of the FOMC believe the economy continues to expand. We also know the FOMC decided to wait for more data before making a decision. There are probably three primary factors that influenced this decision…
Even After the FOMC Decision We're Still in SuspenseDetailsThe FOMC meeting convened today with two big questions casting shadows over the Fed’s policy: what are the unintended effects of QE and what will be the consequences of unwinding the $3 trillion (and counting) in assets the Fed has added to its books under QE?
FOMC Convenes: Where's the Smart Money on Tapering?DetailsWhat’ll the Fed do about QE3 when it meets next week? I’ve said before the numbers to watch are those related to employment and the two forces that have driven our anemic recovery—housing and consumer spending. If those numbers indicate the economy is gaining steam, the Fed will start tapering this month. If the numbers cast doubt on the course of the recovery, the Fed is more likely to delay a decision until December.
QE3: What’s the Fed Going to Do?DetailsThe story lines I’ve seen in the last 48 hours in articles and opinion pieces about the recent rise in gold prices all support the notion that gold prices are being driven by a variety of short-term circumstances. This point-of-view reflects our failure to see the forest for the trees. While the specific events are transitory, the forces behind them are not.
Gold: Short-Term Spike or a Long-Term Bull?DetailsIt’s official. After breaking $1416, the new bull market is underway. So as an obituary for the recently interred bear, here is a look at how it stacked up against others of the recent past.
Just How Ferocious Was this Bear?DetailsVolatility is inevitable considering the importance of QE3 to the course of both the U.S. and world economy, but it has been amplified by a misunderstanding of statements by Chairman Bernanke and other members of the Fed about how they’ll make decisions to taper. I’ll offer an interpretation in this post.
How and When the Fed Will Decide to Taper QE3DetailsThis is the first in a series of posts in which I’ll discuss the supply and demand forces that will drive the next bull market in gold. I’ll start by addressing the supply side of the equation. The market receives gold from four sources: mining, recycling of jewelry, sales by central banks, and sales by…
Mine Production and the Next Bull Market in GoldDetailsRead Part I In my last post I painted a dystopian future for the NFL as as a metaphor for our current banking system. You might take a look at it before proceeding. It can’t really be THAT bad. The stars of today’s too-big-to-fail (TBTF) banks are the elite financial product innovators and traders who earn huge…
Gold, TBTF Banks and the NFL- Part IIDetailsA reader recently asked why I have an axe to grind for the big banks and how it has anything to do with gold. I’ll explain with a sports metaphor. Imagine the NFL in a dystopian future The major stars are in an unrestrained PED (performance-enhancing drug) arms race, raising their incomes to astronomical levels.…
Gold, TBTF Banks and the NFL- Part IDetails
