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overtheedge
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Why Isn’t Gold Higher?

- Rick Ackerman -

Don't know where to start, so this will have to do.

"The first thing we do is corrupt the language."

Inflation and deflation are monetary events.

There is money and money substitutes. Money substitutes are fiat.

There is physical and there is fiat.

There are commodities and fiat. The commodities can be anything from raw materials to finished goods.

There is supply and demand.

Demand requires a willing buyer with the assets to purchase the item. Otherwise it is just want.

Most of the gold market is in fiat because that is what the buyers demand. The buyer has no intention of taking delivery or paying for storage in an allocated account. The buyers and sellers are buying exposure to the market in the form of fiat and not buying/selling physical gold.

If the primary market is for fiat, the much smaller physical market is caught in the net. On top of this, we tend to forget that a lot of newly mined gold was sold months ago at what might have been a lower price. This most assuredly affects the bid price decisions of larger buyers.

Now what is more probable? Inflation or deflation? Inflation is the current trend. Deflation could only happen by removing gross amounts of money from circulation. Money substitutes are not money anymore than a coupon for a free hot-dog is a hot-dog. Could gross amounts of money be removed? No, but when the majority of folks trust money substitutes, such as entries on a computer, and those substitutes vanish, the effect is the same. We are dealing with perceptions of wealth.

That the buyers walk away (hoard money, etc) and prices fall is NOT deflation. It is readjustment of the supply/demand curve. Prices can move up or down with inflation and deflation, but prices don't inflate or deflate. A commodity does not inflate or deflate unless it is a rubber balloon.
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Cash on hand is always good.

PMs are for later when the economic system stabilizes and is allowed to take care of itself.

Silver coins will become a barter item later also.

On these we agree.

Commented 4305 days ago

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Beginning of the headline :My colleague and erstwhile nemesis Gonzalo Lira posed the question above in a recent essay, and it is indeed a most puzzling one. Given that the world’s central banks — joined most recently by a shockingly reckless Switzerland — are waging all-out economic war by inflating their currencies, shouldn’t gold be soaring,? In fact, prices have continued to meander between $1500 and $1700 since September of 2011, when gold topped out at $1945 after a spectacular run-up from $728 in just three years... Read More

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