Deviant Investor: The Luster of Gold Returns Due to Economic Uncertainity
MD: It’s always fun to examine the articles written by gold bugs who are clueless about what money is. The landscape is always rich with delusions. Let’s see.
The Luster of Gold Returns Due to Economic Uncertainity
Guest post from Paul Somerfield
The role of gold as a safe-haven investment is one of the fundamental principles of modern markets and it seems as if recent movements have once again confirmed this fact.
MD: That being true … and it probably is, gold is “precluded” from ever being money. Of course, if you know what money is, among its very few attributes is: real money has “no intrinsic value.” Anything having intrinsic value disqualifies itself from being money … it is a promise to deliver that has already been delivered. Money is an “in-process” promise to deliver on a trade.
The price of December gold futures rose to $1,279.40 dollars per ounce; the highest level since early June. During this same time, the cash value of gold has likewise increased by 6.2 per cent. Both of these observations could be great news for medium-term investors and these rates may very well be indicators of a more bullish gold market. What are some of the underlying factors which have caused such gains?
MD: A proper MOE “never” changes the value it stands for. That’s why the HUL (Hour of Unskilled Labor) is the ideal unit for money. HULs have never changed what they trade for over all time. They have always traded for the same size hole in the ground that they trade for today. The fact that gold price is changing like this proves it is “not” money. Either the value of gold is changing, the value of the dollar is changing, or both.
Tepid Consumer Spending
One of the most important influencing factors in regards to the price of gold involves consumer sentiment and spending.
MD: … again proving it is not money. Real money doesn’t care about consumer sentiment and spending. It is strictly valued as a pair of traders value it at an instant in time. Once valued that way, the trader creating it is obligated to reclaim it and destroy it as promised. If he mis-valued it, he has to adjust his behavior accordingly (work harder than planned or bask in his brilliance). None existed before his trading promise (for that promise), and none must exist after delivery (or default mitigated by interest collection). Inflation of the money itself is thereby guaranteed to be zero. What else can it be?
This is generally seen as a broad snapshot of how an economy is performing. It should also come as no surprise that spending within the United States will have a decidedly profound impact upon the valuation of this yellow metal. Recent figures have shown that spending only increased by 0.1 per cent in June. This is actually the smallest increase witnessed so far during 2017. Thus, some market makers are wary about the medium-term status of the domestic economy.
MD: Spending tells you nothing about money. It could be coming from traders creating new money (which they later will destroy), or from money traders have acquired and accumulated in their previous trades. As soon as they spend it, it is available for other traders to claim and return if they have in-process trading promises to deliver. Regardless,, spending is of no import whatever. Neither is saving.
The Question of Federal Reserve Interest Rate Hikes
There has been a fair amount of speculation as to whether or not the United States Federal Reserve will enact an interest rate hike.
MD: This is the biggest delusion and “hand-tipper” of all … i.e. the notion that the Federal Reserve sets interest rates. The operative relation for “any” money … proper or improper … is: INFLATION = DEFAULT – INTEREST.
Defaults are being perpetually made by counterfeiting governments … they make trading promises and never deliver … they just roll them over. This is far and away the largest supplier of defaults … and if inflation is to be zero, they must be met with interest collections of like amount. Since the whole “improper” process we have to use is open-ended, with no direct negative feedback loop (like defaults being immediately met by interest collections), the unmeasurable INFLATION can be anything governments say it is … until it is so out of wack their improper MOE collapses … and they reset and start the con all over again.
Any such hike is normally closely tied into inflationary figures. However, softer inflation has pointed to the well-founded observation that the Federal Reserve may postpone any rate increases for the time being.
MD: Inflation is “not” measurable … it can only be estimated … and is thus always a fiction. Only a “proper” MOE process can know what inflation is. And such a process knows what it is in real time … all the time. It is zero. The inflation being referred to here is a strictly a made up number. And until the inevitable money calamity, it will be predictably very low. If they report it as it really is, the Social Security payments have to be automatically adjusted (COLAs). And that blows the whole Ponzi scheme. None of this could be happening with a proper MOE process.
A slower pace of rate increases has historically tended to support the value of precious metals and there is no doubt that these latest observations have played an important role.
MD: All rates of increase (or decrease) are very small and slow. It is a death of a thousand cuts … and then the camel collapses under the addition of a single straw (to mix metaphors).
A Rising VIX?
MD: This VIX thing is amazing … just in the fact that it exists. They invented the options trading model (Black-Scholes) which was very sensitive to the underlying “distribution”. So what do they do? They game the distribution. They invented the VIX and now bet on that. You can’t make this up.
One of the most recent news stories involves the Dow Jones closing above 22,000 points for the first time in history.
MD: Right. All companies are increasing in value simultaneously and continuously … but inflation is near zero? Bet me!
Although this is supposedly good news and a sign of a relatively strong domestic economy, some are concerned that the CBOE Volatility Index may be in for a reversal in the near future.
MD: CBOE Volatility Index … another VIX like measure … without a knob. They have made this thing so complicated and attached so many knobs, there is never any hope they can know how to turn all those knobs. When it blows up I hope someone has a camera on as they all violently turn the knobs … like kids in the car arcade ride, going in a circle and turning the steering wheels … connected to nothing … violently, as if they’re having effect.
It is important to point out the inverse relationship between the VIX and index values. Still, any sudden increases in the VIX index will likely cause some investors to pull their money out of the open markets and to place their funds into safer havens.
MD: Important to point out? To whom … fiction writers?
The Trump Dilemma
One point that cannot be stressed enough is the instability associated with the White House. As the Trump administration continues to flounder and as officials seem to be replaced on an almost daily basis, some are questioning whether or not the president can deliver on many of his other promises put forth during the election campaign.
MD: Since a “proper” MOE process has no “social” linkage or dependency whatever, “real” money does not have this instability.
It is also important to point out that politics could also play a role in the price of gold; particularly if tensions continue to rise between the United States and Russia.
MD: I’m surprised he says it this way. Politics plays a role in the value of the dollar. As such, it plays a role in the price of everything in the same way. If gold was money this wouldn’t matter. But “mining” and amount of trade play a role in the value of gold … and that makes it unsuitable as money.
Rumors of a so-called “trade war” may further exacerbate this situation. Although more rhetoric than reality at the present, the possibility of protracted political instability may help to support gold prices.
MD: Again, “real” money is not affected by trade wars. The traders with in-process trades still have to reclaim the money they created …. trade war or not. If the war causes many to fail (i.e. defaults), what do we know will instantly happen? Of course, interest collections will increase by like amount and the warring parties will have their playing field instantly impacted … in a negative feedback fashion. No manipulation necessary.
The Other Side of the Coin
Not all analysts believe that gold will remain bullish indefinitely. The traditional overhead resistance of $1,280 dollars is approaching and there could be a reversal soon. Regardless, the long term trend is strongly upward due to continually devalued fiat currencies.
MD: Again proving … it is not and cannot be money.
The coming days will be interesting in terms of gold prices. Those who hope to keep abreast of the latest news should employ reliable online resources such as CMC Markets. Gold may indeed have regained its luster to the average trader.
Thanks to Paul Somerfield
Gary Christenson
The Deviant Investor
MD: Remember folks … .these people are “gold dealers”. They want to keep people buying and selling gold so they have to keep making up and telling new stories.