Ritholz on Gold and on Making Predictions

http://globaleconomicanalysis.blogspot.com/2013/07/ritholz-on-gold-and-on-making.html


Grave Dancing

Ritholtz claims to be agnostic regarding gold. I suggest his current hyperbole proves otherwise, even though he once liked the metal.

For the record, Ritholtz is a good guy, we just happen to disagree regarding gold. 

And I certainly side with Ritholtz regarding the folly $10,000 or even $3,000 gold predictions by hyperinflationists, especially when people put timeframes on them.

But not every gold fan is a hyperinflationist or an inflationist of any kind. As a staunch deflationist, as well as someone who is definitely not agnostic regarding gold, I am proof enough.

And who is it now that is coming out of the woodwork to dance on the grave of gold? It's a Plague of Gold Bears Now Say "Gold Unsafe at Any Price".

What's the Real Long-Term Driver for Gold? Click on the preceding "Plague of Gold Bears" link to find out.

We are firmly convinced that the fundamental argument in favor of gold remains intact. There exists no back-test for the current era of finance. Never before have such enormous monetary policy experiments taken place on a global basis. If there was ever a time when monetary insurance was needed, it is today.

Gold is the only liquid investment asset that neither involves a liability nor a creditor relationship. It is the only international means of payment independent of governments, and has survived every war and national bankruptcy. Its monetary importance, which has established and manifested itself in the course of the past several centuries, is in the process of being rediscovered.

Contrary to 1979/1980, the current gold bull market will unlikely end due to a sudden strong rise in interest rates, as the balance sheets of governments, households and corporations are tainted by huge debt. In the current environment, this would lead to a deflationary depression. According to the BIS, the combined debt burden of governments, households and non-financial corporations in the 18 OECD core countries has risen from 160% of GDP in 1980 to 340% of GDP in 2012.

In order to counter the current problems in the financial sector, but also in the real economy, the Fed, the Bank of Japan, the Bank of England and the ECB are going to continue to hold interest rates at a low level. There has always been a strong link between negative real interest rates and the gold price.