Tuesday, August 30, 2011

The Attack on Gold Escalates: NYT Columnist Wants to Stop the "Gold Bubble"

They ignored the internet bubble and the housing bubble, but they are now talking about stopping the "gold bubble". In NYT, Steven M. Davidoff writes (my emphasis):
....it is sometimes referred to as the barbarous relic. You can’t eat gold. Its industrial uses are limited. If someone else doesn’t assign the same value to gold that you do, you are out of luck. For those who predict it will be valuable if society completely collapses, guns and canned goods might come in handier...

The commodities regulator, though, could force American exchanges to further raise margin requirements, reducing leverage and the ability of investors to buy more gold. The agency would also have to act to limit the gold acquired individually and by the E.T.F.’s. All of these measures would have to be coordinated and put into effect on a global basis.

...if regulators are going to stop the next bubble, they will need to act aggressively. Of course, they shouldn’t act in every circumstance, but when we see volatility and speculation as is the case of gold, acting to curb these forces through limiting leverage in cooperation with international regulators would be a prudent course. This would ensure that if a crash does come, it does not have aftereffects on banks and other institutions. Even if the Commodity Futures Trading Commission is hesitant to take such steps, it could, as an initial foray, take to the media to try to “talk down” the speculation.

Otherwise, we’re left hoping, without much basis, that people have learned that this time will not be different, something not much in evidence in the case of gold.
Here are a few things Davidoff doesn't get (or doesn't want to publicly admit) about gold. It is an alternative to paper money as a medium of exchange. Given that governments around the world have mismanaged their currencies and debt, it is extremely prudent for people to own gold, as a hedge against further mismanagement. Only a small percentage of investors own gold, but the number is growing. That, plus continued paper money printing, is the main reason it is going up in price. I have argued that these two factors could push gold to $25,000 per ounce. People are damn scared, it is not a boom in the sense that people are flocking to gold to make money. They are flocking to gold to protect themselves financially. The argument that you can't eat gold is an absurd argument. You can't eat paper money either (Though it may have an edge over gold as toilet paper).

If Davidoff was serious about halting the flight into gold, he wouldn't be calling for infringing on the basic right of  the people to own gold. He would be calling for the end to government policies that are creating the flight to gold, namely, deficit spending, excessive taxation and government money printing.

Bottom line: Davidoff is a propagandist for the banksters who benefit from paper money and deficit spending. They know that gold is a check against their irresponsible activities and they are escalating their attack on gold.

24 comments:

  1. Is Davidoff stashing the "it pays no dividends" argument as the ace up his sleeve? Otherwise, his cliched list of reasons for not owning gold just feels incomplete. I almost feel cheated. Almost.

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  2. The most delicious irony of all is that EVERY "criticism" against gold as money, whatever their validity, applies even more so to fiat paper.

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  3. What a prick. The Fed in particular and the State in general create bubbles and make a killing off them, but the only "bubble" they're oh-so-keen to prevent is in gold. Gee, I wonder why.

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  4. Bubbles are driven by borrowed money .That is "credit expansion".Is that's what's happening to Gold?

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  5. I have come to the realization that people-pushers who use the word "measures" are just terrorists who need to be eliminated from any and all violent/political power structures.

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  6. Not only is he bad at economics, his first assertion is flat out wrong:
    http://www.youtube.com/watch?v=EYGai-mXSqg&feature=fvsr

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  7. @RW,

    "They know that gold is a check against their irresponsible and they are escalating their attack on gold".

    They have to. This means they are very, very afraid because gold held by people as an alternative to their worthless fiat money further erodes their concentration of power, thus further delegitimizing Leviathan and the illusion it is even necessary to begin with.

    Leviathan is nothing but a fairy tale, a figment of fertile imaginations, for the sick and twisted of mind.

    Good post Mr. Wenzel.

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  8. It's astonishing people are calling gold a bubble. Did they forget what a bubble is? We've had two in the past decade and they've totally forgotten them already.

    In a bubble, EVERYONE is rushing to it. Virtually no one sees it, and the general consensus is that it's bulletproof and will rise indefinitely. During the dotcom boom, everyone was in a mad rush to pour money in. Your mom and dad, your neighbor, your mailman. Same with housing.

    Is this even remotely true of gold? Hell no. The average person is not rushing to dump all their money in gold (yet). 99% of economists and financial advisers are not insisting that people put money in gold.

    Those of us who are buying gold are still in the minority. How on earth can it possibly be a bubble, considering this fact?

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  9. I think you are right that people trust gold more than money at the moment, even though gold is not equal to money as an exchange medium. If you read about the history of money, one of the main reasons to abandon gold was that it is way too difficult to transport in large quantities.The exchange function will never come back, we have ICT now to record credit and debit, physical money will dissapear. So gold will be just a commodity.
    The gold rush is just ponzi scheme like so many others. Don't forget: you can 'force' a government to provide services or goods in return for the money they gave out, but you can not force them to accept your gold.

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  10. Perhaps we can't eat gold, but at least it doesn't corrode in our hands like negative real rates of return for savings, T-bills etc.

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  11. Respectfully, is this guy some kind of asshole? I mean I know no one who owns Gold or Silver, yet this pom pas ass is talking like it is a mania and people are rushing out to buy it like they did housing.

    Where do you find these people?

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  12. Davidoff writes:

    " If someone else doesn’t assign the same value to gold that you do, you are out of luck."

    This applies to every owner of every single good or service. Well unless that owner has a monopoly grant from government.

    As a matter of fact, if everyone valued the same good equally there would be no reason for exchange.

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  13. Not so fast. Gold is starting to succumb to fiat pressures as well, in the form of ETFs. When more paper gold is created than physical gold, why even bother mining the stuff? That is precisely why the gold miners aren't faring as well as they should and why gold will never achieve its fair value. Too much fiat gold!

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  14. So if gold is money, then buying/selling gold is just another form of forex?

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  15. A 10 year bull run in the price of gold makes it a "bubble"? lol. At least wait 'til the price chart goes hyperbolic to start calling a bubble.

    Meanwhile, any overt attempts by the purveyors of paper dollars to control gold will be seen as an admission that everything they've said about the worthlessness of gold is a lie.

    After all, why would anyone care about a speculative bubble in a commodity that is (they keep telling us) of such little real economic or commercial value?

    If gold truly is an unimportant relic that has nothing to do with the price of bananas (or the price of dollars...) then all they can do without discrediting themselves is ignore it.

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  16. If gold is of no use, then why are central banks net buyers of gold? Why do they even have it in reserve? Gold and silver is money, everything else is debt.

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  17. @ Bill,

    "Where do you find these people?" Why, at the NYT, of course. ;-)

    This is actually a positive indicator for the price of gold. The more they suppress, the more violent the pop. In the meantime, be thankful that the price is suppressed and buy more.

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  18. Gold is the King of all currencies, as fostered by a monetary system over millenia. Everything has a price on it, even insecurity, and that price is Gold, in an ever increasing unstable world. People turn to whatever they believe will preserve their assets, and that is Gold. The fact that people everywhere are buying Gold is evidence of a corrupt global financial system that is in terminal decline. No one can stop the ever growing global cancer of insecurity that is spreading across nations and societies and communities as they watch global chaos infect nation after nation. Even Gold will come to the end of its usefullness as the basic essentials of life become scarce, then peoples attention will turn to survival as it will then be a matter of life and death for us all. Gold is just a signpost on the way to total global decline.

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  19. Don't tell me where to put my money. If you don't like gold, THEN DON'T BUY ANY!

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  20. Pretend for a minute that all gold futures contracts were outlawed or the margin was set at 100%. Would that be more likely to drive gold prices up or down? My guess is up. Shorting gold would become difficult and those who want to own some gold would likely buy physical. Actually, I suspect that Davidoff's real objective is to oulaw the private ownership of gold. Can't have the real stuff out there competing with the Fed's newly printed (or digital) paper. At least not when inflation kicks in and the Feds get to spend the newly printed stuff first.

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  21. Voluntary CooperationSeptember 1, 2011 at 2:16 AM

    I will sell gold when the NYT tells me to buy it.

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  22. Gold's value, like beauty, is in the eyes of the beholder. It's no different than the objects for which one might exchange it.
    To be legal tender requires a controlling authority. That then makes it subject to manipulation just like fiat money. In case of a total collapse a glock gets you farther.

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  23. People who own physical gold pay cash for it. They don't borrow the money. That is very different from housing, where people were putting down 10% or less. The only people who "buy" gold with leverage are futures traders, and they're grown ups who don't need Davidoff to help them cross the street. The exchanges can and have raised gold futures margins as a result of higher volatility. However, higher prices in themselves are not a good reason to raise margins.

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  24. Time for a Constitutional Amendment that gives citizens have the right to own gold and silver and to trade it for whatever they want.

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