More evidence that gold responds well to deflation

[economicsjunkie]

http://mishtalk.com/2016/03/04/demand-o ... old-trust/

"One of the biggest factors behind gold’s rise has been negative rates. The Bank of Japan last month joined a growing number of central banks, including the Swiss National Bank and the European Central Bank, when it introduced negative interest rates in an effort to spur consumer spending. Sweden’s central bank said on Thursday it was moving interest rates further into negative territory, and warned it could cut again. Canadian officials are also weighing cutting borrowing costs below zero."

[Libertarian666]

http://mishtalk.com/2016/03/04/demand-o ... old-trust/

"One of the biggest factors behind gold’s rise has been negative rates. The Bank of Japan last month joined a growing number of central banks, including the Swiss National Bank and the European Central Bank, when it introduced negative interest rates in an effort to spur consumer spending. Sweden’s central bank said on Thursday it was moving interest rates further into negative territory, and warned it could cut again. Canadian officials are also weighing cutting borrowing costs below zero."

What gold is responding to is inflationary central bank behavior.

[Kbg]

I don't agree. I think Mish is correct, people are moving to gold to avoid paying interest on their savings. However, if it looks like the US is going to raise rates then gold will reverse. There is nothing more complex here than a basic carry trade.

[Libertarian666]

I don't agree. I think Mish is correct, people are moving to gold to avoid paying interest on their savings. However, if it looks like the US is going to raise rates then gold will reverse. There is nothing more complex here than a basic carry trade.

I'm sorry, but I fail to see the connection between "moving to gold to avoid paying interest on savings" and deflation. All people have to do to avoid paying interest on savings is store their savings somewhere other than bank accounts, in whatever form they prefer, including paper "dollars"; they certainly don't need to buy gold for that purpose.

[economicsjunkie]

I'm sorry, but I fail to see the connection between "moving to gold to avoid paying interest on savings" and deflation.

Low and especially negative interest rates are evidence or deflationary pressures. One explanation could be for example that people expect future prices to be lower than today's and are thus ok if having a bit less than before as long as it beats asset prices.

All people have to do to avoid paying interest on savings is store their savings somewhere other than bank accounts, in whatever form they prefer, including paper "dollars";

Tell that to sovereign wealth funds and other large institutions who have to store billions if not trillions of $!

they certainly don't need to buy gold for that purpose.

Nobody's saying they "need to". But evidence suggests they do.

[economicsjunkie]

What gold is responding to is inflationary central bank behavior.

The central bank cannot create noticeable inflation. All they can do is boost bank reserves, but if credit demand remains low (or is expected to go lower in future) bank reserves won't do much if anything at all, besides ending up as excess reserves. We've seen evidence for this in many currency areas over the past decades now: Japan, Europe, US.

An institution that would indeed have the ability to create noticeable inflation would be the Treasury, and thus by extension Congress.

[economicsjunkie]

I don't agree. I think Mish is correct, people are moving to gold to avoid paying interest on their savings. However, if it looks like the US is going to raise rates then gold will reverse. There is nothing more complex here than a basic carry trade.

I would qualify that to say that if it looks like the US will raise rates on a sustained basis, there will be some downward pressure on gold (I don't think we know what the net effect will be since there may be other pressures working the other direction, like for example if we suddenly see massive inflation which, granted, is unlikely).

[Kbg]

I don't agree. I think Mish is correct, people are moving to gold to avoid paying interest on their savings. However, if it looks like the US is going to raise rates then gold will reverse. There is nothing more complex here than a basic carry trade.

I would qualify that to say that if it looks like the US will raise rates on a sustained basis, there will be some downward pressure on gold (I don't think we know what the net effect will be since there may be other pressures working the other direction, like for example if we suddenly see massive inflation which, granted, is unlikely).

EJ said what I would have said to TN and I agree with this. I just don't see serious US inflation when a good chunk of the world is deflating. We are too interconnected now. With regard to all the Fed stuff, all one needs to do is look at the velocity of money https://research.stlouisfed.org/fred2/series/M2V to see why we haven't seen inflation with all the printing going on. When we see a turn up here, I will get interested in the potential for inflation but not until then. When it turns up, the the volume of money will matter again.

[economicsjunkie]

Haven't looked at that velocity chart in a while. Thanks for that. For all I know we'll soon have negative velocity, too! 

[sophie]

I've seen this ascribed to the uncertainty of negative interest rates, which are now being talked about as inevitable for many countries that aren't in the negative zone yet (e.g. Japan).  That makes sense.  I'd expect even more gold-buying if banks start imposing negative interest rates on savings accounts.

[economicsjunkie]

I've seen this ascribed to the uncertainty of negative interest rates, which are now being talked about as inevitable for many countries that aren't in the negative zone yet (e.g. Japan).  That makes sense.  I'd expect even more gold-buying if banks start imposing negative interest rates on savings accounts.

It should be an interesting moment for gold indeed when there's no more haven asset left in the world that pays positive interest.

[Libertarian666]

I've seen this ascribed to the uncertainty of negative interest rates, which are now being talked about as inevitable for many countries that aren't in the negative zone yet (e.g. Japan).  That makes sense.  I'd expect even more gold-buying if banks start imposing negative interest rates on savings accounts.

The next step after that is banning individuals from owning gold.

[ochotona]

The next step after that is banning individuals from owning gold.

No private gold, no paper money, no guns, no offshore sourced pharmaceuticals, no encryption, no privacy, every seed you put in the ground GMO and patented, what are things going to?

"SHUT UP AND PAY"

[ochotona]

Unfortunately the village would love to do that for the chilrun

[economicsjunkie]

... aaand more: http://www.againstcronycapitalism.org/2 ... est-rates/

[ochotona]

... aaand more: http://www.againstcronycapitalism.org/2 ... est-rates/

Big news!

[murphy_p_t]

https://www.youtube.com/watch?v=70xBQ2lL_pE
from 33;40

[dualstow]

https://www.youtube.com/watch?v=70xBQ2lL_pE
from 33;40

I always see his name thrown around here, so I finally watched. Interesting.

They sure don't like him at bogleheads, do they? https://www.bogleheads.org/forum/viewtopic.php?t=162432

[Libertarian666]

https://www.youtube.com/watch?v=70xBQ2lL_pE
from 33;40

I always see his name thrown around here, so I finally watched. Interesting.

They sure don't like him at bogleheads, do they? https://www.bogleheads.org/forum/viewtopic.php?t=162432

Of course not. He pushes PHYSICAL GOLD!!!!! And we know anyone who does that is a CHARLATAN!!!!!

(Note: I'm not defending Rickards, who may indeed be a charlatan; I'm just pointing out the bogleheads' well-known antipathy to gold.)

[dualstow]

That's certainly true. They don't like gold. Still, the criticism seems to be that Rickards makes predictions all the time, and that they don't come true. Have they ever come true?

[economicsjunkie]

That's certainly true. They don't like gold. Still, the criticism seems to be that Rickards makes predictions all the time, and that they don't come true. Have they ever come true?

I'd ignore people who make claim to make price predictions.

[barrett]

That's certainly true. They don't like gold. Still, the criticism seems to be that Rickards makes predictions all the time, and that they don't come true. Have they ever come true?

They don't pan out on any kind of reliable timeframe. And it's always interesting if you listen to him that he says it's absolutely imperative to hold gold, but then almost always gives a suggested allocation of only 10%.

The rest is supposed to be in land, art work and a couple of other things. Cash I think he likes too until the monetary system can reset. I've never seen him do an interview that's not an infomercial for one of his books.