08 December 2014

Gold and silver bugs have already experienced a hyperinflationary event

Dominic Frisby has a couple of podcasts out from the Mines and Money conference in London. Dominic is a great interviewer and probably the only gold friendly one who is willing to ask some very pointed questions, instead of the usual soft ball stuff.
The one with Ross Norman, CEO of Sharps Pixley is good but I found the one with Ned Naylor Leyland of Quilter Cheviot the most interesting.
As an example of Dominic's pointed questions, this is what he asks five minutes in: "I put it to you that gold and silver bugs have experienced their worst dream only in the opposite in that all their options on gold and silver aka their junior mining stocks have wiped them out in much the same way that a hyperinflationary event would have done."
Some other interesting bits include Dominic recounting a conversation with an educated moneyed Malaysian on a plane trip about whether Asian countries would follow the path of Western countries where use and investment in gold has faded, and how people still think the pound is redeemable in gold.
The most telling part is towards the end where Ned tells a wealthy investor, who isn't invested in gold and is using residential property as his hedge against the current rocky financial architecture, that property is a poor illiquid hedge "and I could see the penny slightly dropped but he didn't like it and so he just looked at me and went don't give me that goldbug look". If you want to understand why Westerners are not buying gold, the "but he didn't like it" cognitive dissonance explains it all.


  1. Interesting as always. I would point out that, while yes, the drop in gold miners (especially jrs)has had the same effect of being greatly harmed in a hyperinflation by holding currency, it's not apples to apples.

    As painful as the collapse has been (and may continue), there will be no gold "re-set". That is to say, if a currency experiences hyperinflation destruction then the gov't will likely invent a new currency or will simply reverse split the old currency 1-100+.

    Gold has the chance to come back full circle over time (possibly a longer time than many had modeled for), and most probably would reverse in a hyperinflation situation (like the rupee).

    For US dollar based gold holdings, this has not played out so well despite the huge govt debts and money printing that have and continue to occur. Maybe with so many mini-wars raging around the world, the US is simply seen as a moderately stable place despite the monetary warts. After all, what good is money if your house, business, roads, schools, children etc are getting blown up daily or weekly or even just possibly tomorrow (unimaginable stress!)?

    A conspiracy nut or fiction author may even conclude that US involved wars are planned to create the illusion of a safe haven for our currency to take the spotlight off our woeful spending habits(it could make a good story so I hereby copyright the concept!)

    So yes, gold has had a major set back and the losses are real - for now. But one could never eat one's gold and thus (hopefully) has a job that pays cash. If all you have is a paper currency in hyperinflation, not only has your bank acct been destroyed (like gold), but now your main source of food and water purchases has just made your ability to eat extremely more difficult (that has not happened yet in a lot of places and I for one hope it does not).

    For many, gold is just insurance to be tucked away until needed. Like insurance, the premiums paid are losses, often for long periods, until "recouped" when the covered situation occurs. For gold traders - well I really don't care about traders as that is pure gambling.

  2. "the drop in gold miners [is]not apples to apples... As painful as the collapse has been there will be no gold "re-set."

    A thoughtful response... but

    therein lies the rub - what governments can do in the imagined example with fiat currencies, they are equally capable of doing with precious metals! For which, instances of 're-sets' are already on the books.

    The supposed degree of safety or 'insurance' which gold is expected to provide evaporates in the light of these proven examples of governments socializing metallic assets.

    It would seem wise to take a cue from the closing prompt our host leaves us with -

    westerners aren't buying gold... for whatever reason! In point of fact, the propensity to save in precious metals is a cultural attribute - all but eroded in the west but still existent elsewhere.

    Might it not be prudent to hang one's hat somewheres where that tradition still holds traction? Government's are going to be MUCH less willing to play such games with a citizenry who by tradition hold their wealth in gold and silver, than in those countries where such a strategy is all but absent!

    Malaysia and the like will prove to be very interesting examples of how that thesis plays out.

    Another inspiring post Bron! Keep em coming...

  3. Market technicians and number-crunchers, those who concentrate on production and demand while denying manipulation, and those who think gold is a "commodity" tend to lose sight of the big picture. And the long picture: there is no way to hold gold for the right reasons without being a student of history, particularly monetary history.

    (And no, there won't be a hyperinflation, YET...)

    "Trading" of "gold" (paper or otherwise) is noise in the larger scheme of things. Frisby never did get to the fundamental reasons why gold has to be an "emotional attachment" and not an "investment".

    Lost in the trees, one cannot see the forest...

  4. "gold has to be an "emotional attachment" and not an "investment"

    The purpose and method of acquiring precious metals varies from one to the other of us.

    For some of us, life without it's attachment to solid, manifest "things" is a burden not to be borne. For others, it is implicit in our outlook and reasoning that "things" exist as tools for our advancement - to be maintained, employed or discarded according to their efficacy towards that.

    In a world increasingly hostile to freedom of thought and action, gold serves the savvy amongst us as a means to protect those qualities - attachment to it outside of that purpose seems akin to tying an anchor around one's legs, thus impeding progress towards their destination.

    I think you will find Kreditanstalt, on close inspection, there are few amongst us who 'deny manipulation.' Rather, the nature of such manipulations, and who is behind them are the questions which animate the discussion.

    The debate needs continue, with that distinction in mind, in order to finally rise above the mutual incomprehension which so characterizes the gold blogosphere of the moment.