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It's not often I agree with Ben Bernanke, but this
time, in regards to gold, I do. Please consider Bernanke
Says Gold, Commodities Conflict on Inflation.
U.S. Federal Reserve Chairman Ben S. Bernanke said gold prices, which
surged to a record yesterday, are sending a different signal on inflation
than raw materials.
“Other commodity prices have fallen recently quite severely, including
oil prices and food prices,” Bernanke said today in response to a
question during testimony to a House Budget Committee hearing. “So gold
is out there doing something different from the rest of the commodity
group.”
Gold futures for delivery in August fell $15.70, or 1.3 percent, to $1,229.90
an ounce on the Comex in New York today. Yesterday, the metal reached
$1,254.50, an all-time high. The price climbed for nine straight years and is
up 12 percent in 2010.
“Bernanke is dispelling the argument that people are out there buying
gold because of the threat of inflation,” said Matt Zeman, a metals
trader at LaSalle Futures Group in Chicago. “Deflation is now more of a
threat.”
“There is a great deal of uncertainty and anxiety in the financial
markets right now,” Bernanke said. “Some people believe that
holding gold will be a hedge against the fact that they view many other
investments being risky and hard to predict at this point.”
In testimony to the House committee, Bernanke said that the U.S. economic
recovery, while being sustained by private demand, isn’t as strong as
he prefers and faces risks from Europe’s debt crisis that may require
further Fed action.
Private Demand Mirage
In regards to private demand, Bernanke must be looking at Paul Krugman's Magic Keynesian Mirror.
Please click on the previous link for details as to how the magic mirror
works.
Private demand only appears to have has risen because of countless
stimulus programs. For example, housing is poised to crash (again), now that
the second round of $8,000 tax credits have expired.
New Mortgage Applications at 13 Year Low
Inquiring minds are reading Overall
mortgage application volume falls 12.2 percent.
The number of customers applying for a mortgage to purchase a property
fell to the lowest level in 13 years last week, a sign the housing market is
struggling without government incentives.
Purchase volume declined 5.7 percent and is at its lowest point since
February 1997, the Mortgage Bankers Association said Wednesday.
"Purchase applications are now 35 percent below their level of four
weeks ago, as homebuyers have not yet returned to the market following the
expiration of the homebuyer tax credit at the end of April," said
Michael Fratantoni, MBA's vice president of research and economics.
Little Genuine Demand
There is very little genuine demand, there is only the magic mirror that
makes it appear like there is.
BMO's "Go to Cash" Call
Credit conditions are weakening across the board and the Bank of
Montreal(BMO) says "Go to Cash - In Plain English".
That is quite a report.
"Gold is Different" Says Bernanke
Proving that even monetarist clowns can sometimes say something that makes
sense, I have to agree with Bernanke on this idea: “Gold is out there
doing something different from the rest of the commodity group.”
Indeed it is. The reason has nothing to do with inflation, but everything do
with default risk.
Our little bout of an inflation scare from March 2009 through April 2010 has
possibly come to a close. 2007 and 2008 were deflation years in my model and
we are back in deflation now given that credit marked to market is clearly
plunging once again.
Gold is Money
Gold is acting differently because gold is money, and equally important,
money that was not borrowed into existence and is no one else's liability.
How do we know gold is money? Because it acts like it! Please see Misconceptions
about Gold for a complete
discussion.
Gold will not default. Good luck with everything else.
Of course gold is not immune to pullbacks, perhaps even sharp ones as
sentiment varies and also because of gold derivatives and the deleverging of
paper gold. However, that does not change the real story, and oddly enough, I
think Bernanke senses it.
Mish
GlobalEconomicAnalysis.blogspot.com
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Mish's
Global Economic Trend Analysis
Thoughts on the great inflation/deflation/stagflation
debate as well as discussions on gold, silver, currencies, interest rates,
and policy decisions that affect the global markets.
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