The Dow rose 18 points yesterday, but doesn’t seem in a hurry to go anywhere. Gold fell $14 an ounce. At $1,327 an ounce, the gold price is still about 12% higher than where it started the year.
Our question for today: Is there really a new bull market for the yellow metal?
Of course, the answer is only known to the gods and the NSA. For us mere mortals, it fits comfortably into the vast library of which we have forgotten the address and lost the key. Only in the fullness of time will we have the answer. In the meantime, we await developments.
But let us poke around in the grass. We will not find the answer we are looking for. But we may find something else that might be useful…
Keeping Score
Money, by definition, observation and experience, has no intrinsic value. It is just a way to hold your place in line. Or as T. Boone Pickens says, it is “just a way of keeping score in life.”
Of course, money keeps score on only a part of life… and probably not the most important part. But in matters material it tells you how you stack up against your fellow man. It also tells you how much of the world’s output – stuff and services – have your name on them.
For that purpose, gold is the best thing never invented. A virtual currency such as bitcoin may someday prove superior, but for now gold is No. 1.
Alas, there’s a crack in every pot God ever made. And gold, too, has its fissures and faults. Sometimes, it yields to other forms of money. Last year, for example, you could move ahead in line by holding the dollar. Gold surrendered about 30% of its dollar value.
A major reason why gold so often looks good is that the alternatives so often look so bad. They are nicely summarized for us by Vivek Kaul, who we met recently on a trip to Mumbai, India.
Kaul’s new book, Easy Money: Evolution of Money from Robinson Crusoe to the First World War, tells the sorry story of the competition – the substitutes, the ersatz currencies, the monetary impostors that the world has seen come and, inevitably, go.
The origins of today’s money system can be found in Venice in the 12th century. The Bank of Venice was founded in 1171. Other banks realized they could make a business of holding deposits from rich merchants who were profiting from trade with the East. They took deposits of gold and gave receipts, which gradually came to be trusted. Writes Kaul:
As time went by, some banks developed a reputation for probity and honesty. This led to merchants, who had accounts with these banks, simply transferring receipts of these banks when they had to pay one another. This led to these receipts functioning as “paper“ money.
In some time, people running these banks also figured out that their depositors do not all come on the same day asking for their deposits back. So, in the intermittent period, they could loan out the deposited money to others for a fee. They could also simply print fake deposit receipts not backed by gold or silver, but which looked exactly like the original deposit receipt and lend that money out.
The Strange Tale of the “Massachusetts Pound”
History doesn’t always give you a clear view of the future. But sometimes, the story of the past has the same cast of characters, themes and plot twists.
In the American colonies, for example, Mr. EZ Money was one of the first immigrants to step off the boat.
After him, in 1690, it must have been an early Bush who came up with the following idea: The colony would raise an army to invade Quebec, then the capital of New France. What exactly the Yankees had against Quebec was never made clear. But humans entertain the gods, from time to time, with blunders and blockheadishness.
In the event, an army was raised. The expedition set out. It was a disaster. Thirty men died fighting. Two hundred died of smallpox. And the loot, which was meant to pay for the adventure, was never captured.
What to do? Issue paper money!
Called the “Massachusetts Pound,” it was already on the decline when it was made legal tender in 1721. Already, merchants had drawn its measure and refused to take it. So, the government reacted in typical blockhead fashion: It made it a crime not to take the paper money at face value.
Other colonies were close behind. Here in Ben Bernanke’s home state, the assembly was wrestling with the bills from its own failed expedition. What could be done?
In 1702, it decided: Print money!
One bad idea led, like a sink drain to a sewer line, to an even worse one. Soon, paper money was flowing all through the colonies. And it stank. Rhode Island was the “biggest money printer of them all,” writes Kaul. Against hard currency, its paper money lost about 95% of its value by 1748. “In Pennsylvania, the most responsible colony when it came to printing money, paper currency had lost 80% of its value.”
Later, these paper monies disappeared completely.
Regards,
Bill
Market Insight:
Is Bitcoin’s Difficulty Gold’s Opportunity?
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
Bitcoin buffs are going to hate me for today’s chart.
It compares the recent price action in bitcoin (blue line) with that of the South Sea Bubble.
The South Sea Company was a British joint-stock company whose shares peaked at over £1,000 (unadjusted for inflation) in 1720 and then fell back to £100 before the year was out.
This wiped out the wealth of thousands of investors – including English math and physics genius Sir Isaac Newton. He reportedly lost £20,000 (equivalent to about £2.4 million in today’s money).
I’m showing you this chart not to poke fun at bitcoin (which I find extremely interesting in principle), but to add some context for the recent recovery in gold.
Of course, it’s probably a stretch to think that the rush of capital out of bitcoin is moving the dial in the much more liquid gold market. But on the other hand, the popularity of bitcoin shows that folks are genuinely concerned about the fate of fiat currencies under Global QE.
Gold has just hit a 17-week high at $1,345 an once yesterday… after the longest stretch of monthly gains since last August.
And net commercial long positions in gold on the Comex division of the NYSE have doubled so far in 2014 – hitting a four-month high. This signals that professional investors are starting to pay attention to gold’s profit potential again.
The roller coaster ride for gold since its September 2011 peak of $1,900 an ounce to its recent lows of about $1,200 an ounce is basic investor physiology writ large.
At $1,900 an ounce, everyone thought gold was going to continue to rocket higher toward $2,500… even $3,000… an ounce. At $1,200 an ounce, everyone thought it was destined to continue to fall to $800 an ounce.
This is just another example of the advantage of a contrarian view – something we hold dear at Bonner & Partners. (In fact, we’re giving away a free report with two of our favorite gold plays along with a free hardcover copy of Bill’s book on the big build up of debt in the US here).
The best time to buy is when others are fearful. The best time to sell is when others are greedy.
And forever will it be so…
2018 BONNER & PARTNERS, ALL RIGHTS RESERVED
5 comments. Leave new
Clear and excellent summary !
God did not make any cracks in any pots, Bill, but there are a lot of crackpots around……..we live in a divided universe where there is a spiritual battle happening ….while all of us take our places ….thanks for the history lesson …….2400toone.blogspot.com might be of interest if you are a history buff……Israel was in Egypt for appx 400 years and began there in the number of 70 persons ….WHile they were there , their population doubled 16 times
The value of Bitcoin is proportional to its aggregate utility (% of economy transacted in BTC) [core value] with some speculative froth on top (we don’t know how much is froth). However what is certain is that the % of economic activity transacted in BTC will increase as an utter inevitability, perhaps x1000 or more, therefore its core value will increase, particularly respecting its non-inflationary nature (21M maximum). The South Sea enterprise meanwhile collapsed worthless for very good reason. I now see the hierarchy of money as Gold/Silver, Bitcoin, other “alt” crypto currencies in aggregate, other frictionless e-currencies (e.g. M-Pesa), finally FIAT which will increasingly be viewed as a legacy that was manipulated out of existence by corrupt interests who finally got what they deserved. And don’t forget Bitcoin is a truly global currency _and_ transaction system – the first ever. It’s utterly decentralized nature means that it can not be regulated – Janet Yellen admitted as much. The peoples of the world choosing how to transact – that’s global democracy, a power beyond national government mandate and the dawn of an age when we all become global citizens. National governments will recede in relevance and become more of a collective utility serving the people rather than the powers that be. This is truly the salvation of the peoples of the world. Decentralization rules – literally, and implements true democracy – true freedom.
Finally we obtain freedom the Rothschild and Rockefeller (R&R) money dynasties … freedom from this:
“Let me issue and control a nation’s money and I care not who writes the laws.” Mayer Amschel Rothschild (1744-1812), founder of the House of Rothschild.
“The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” The Rothschild brothers of London writing to associates in New York, 1863.
Oroperu…….you were devastatingly wrong!
What could have possibly driven gold down as low as this if not manipulation? Every new printed fiat “dollar” should have driven both oil and gold higher. Eventually the piper will be paid, I cannot see how this mess has lasted this long. P.S. you have a type O. Gold is measured in ounces not onces. Ha.