Monday, September 5, 2011

Jobs Zero, Gold One

In the world of soccer (football), a one nil win can be quite comprehensive. Difficult to believe if you like NFL or Rugby.

On Friday, the US job numbers came out and surprised everyone. Team US Economy, on the comeback trail from two years of hard slog and much incentive (read money printing), was dealt a blow to their championship chances when they lost the game.

In fact, gold didn't even score a goal, it was an own goal from Team US Economy that did the trick. The Federal Reserve has piled over 3 trillion dollars into the US economy over the last two years and the results have been a big fat zero in economic growth.

Some are calling for QE3 to begin, but this would be a disaster, not only on the monetary policy front, but the pschological front as well. People now know that monetary stimulus doesn't work. The masses are wising up to the phoney monopoly money and it's uselessness. If they try another round, look a out for massive price increases and no growth. The game of stagflation will be here. No one wants that.

The issue is that you can keep throwing money at the problem, but if households have too much debt, they ain't gonna spend. Simple really. Sure, some still don't get it and put the new TV on their already over-mortgaged house. But many can't squeeze that last cent of increased mortgage payment for luxuries when they can't even afford food and fuel.

The Fed, and in turn all Central Banks and Governments in the West, have tried to be the big spenders instead. We admire them for trying their best, in a game that is definitely a losing one, but when you are the printer of new money and the spender of first resort, it means that the economy is doomed. In fact, the market is just a fake. No tenable price discovery as no one knows how to measure their economic output anymore.

The one shining light though is gold. As the ultimate monetary asset, it is being valued against currencies that are falling in price. Gold, the scarce resource which has been money for 5000 years or more, is being purchased by the few that understand the dangers that the world faces. Ask yourself why Central Banks are buying gold? Why would China want a RMB currency backed by gold and why would the European Central Bank be calling for the gold of the PIIGS to be collateral for any further loans to their sadly insolvent economies? Is gold ultimately money or not?

The game is going to have new rules in the coming years. Rules which make a flowing game into a nightmare spectacle. But no matter what the world does, debt needs to be dealt with.

Look for gold to continue to win every game from here on until Bankers and Governments see sense.

Gold in New Zealand dollars: $2229.46 per oz
Previous all time high: $2279.35 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $51.18 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)


The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001

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