Wednesday, April 17, 2013

Marc Faber : NOT even GOLD will SAVE YOU from the coming WORLD SYSTEMIC CRISIS

NOT even GOLD will SAVE YOU from the coming WORLD SYSTEMIC CRISIS - Marc Faber

When any market crashes, it's a shock. For a real nose dive it normally takes something unexpected and dramatic to kick it of. If people had any idea of the reason or that it was coming then the fall would start early and be more shallow.

Gold fell off a cliff on Monday and many were left scratching their heads. Did gold crash because of good news or bad news? Was the crash engineered by dark forces manipulating the world economy and protecting the dollar?

The bottom line is no one really knows why gold crashed. Likely someone was a forced seller. Markets, gold or otherwise, have a logic all their own.

Gold is a badly understood thing. Gold lovers have a crazy view on it, even governments seem to have an irrational take. Gold is "the mad metal" and here are five things to bear in mind when you love or hate on gold because:

1. There is gold and then there is paper gold
The gold price is set buy trading in derivative contracts in gold, contracts that are mostly not backed by the physical metal. When gold slumped on the 15th of April it said that about two months of the world's production was sold into the market. This was not real gold but the promise to deliver gold or the equivalent in cash. When you buy a gold ETF or a gold share you are not buying gold you are buying a proxy for gold.

This means the two values, between real gold and paper gold can get out of whack and that the value of paper gold can heavily influence the value of the metal in strange ways. That's not to say it makes it more or less valuable, only to say that when markets get into trouble the value of the proxies they trade can shift dramatically with no real linkage to gold production or even demand Don't trade gold. You will lose.

2. There are two schools of thought on inflation
Lots of people believe we will get high inflation. Government QE has printed vast amounts of new cash and many expect this to turn into price rises and a cycle of growing inflation. If you believe this you must hold gold.

On the other hand, banks were creating vast amounts of money during the credit boom and that vanished so in fact money supply may not be being increased; only replaced by QE. This could explain the lack of inflation in the official numbers. As such gold isn't a great investment.

Skeptics suggest the inflation is the alright, just not in the goods we buy from China. You know the stuff, iPhones etc. but that inflation can be clearly seen in food and services. As such gold looks a reasonable bet.

If people are starting to believe the 'no inflation' story gold will fall. But is it really so low, if the bond bubble burst what then?

3. The gold standard
There is just not enough gold in the world to be used as a value backed money medium. If gold was turned into money it would end up being money as detached from real value as paper. Communists would love gold as money because if we went back to gold coins as cash, we simply wouldn't have much money around and little economy to go with it. Of course Romans had gold as money and guess what, they had mighty inflation too. Paper doesn't create inflation and devaluation, government does, and it can do it with a gold backed currency or without it.

Yesterday, gold futures fell 9.3 percent, the biggest one-day drop in 33 years. With two-day losses of 13 percent, gold's steady decline since October 2012 has turned into an almost unprecedented rout.

Is there an explanation for this? You bet. Actually, there's no shortage of explanations. The Wall Street Journal and Bloomberg Businessweek's Peter Coy point to lowered inflation expectations. Commodities brokers see a broad drop in metals driven by a weakening China. Goldman Sachs & Co. analysts, who presciently cut their gold forecasts last week, cite fears that central banks will cut their gold reserves. If you want more, John Cassidy has a list over at the New Yorker.

Indeed. When gold is going up, any explanation will do to explain the advance: a world economy in crisis, central banks printing money. And when it goes down, suddenly a slowing economy in China explains the drop.


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