The news you're not supposed to know...

Austrian Economics: Understand Economics, Understand the World
The Century of the Self: The Untold History of Controlling the Masses Through the Manipulation of Unconscious Desires
The Disappearing Male: From Virility to Sterility

The Obama Deception: The Mask Comes Off
Operation Gladio: The Hidden History of U.S. Sponsored False Flag Terrorism in EuropeThe New American Century: The Untold History of The Project for the New American Century
Article posted Apr 15 2013, 5:37 AM Category: Economy Source: Mises Institute Print

What's Going on with Gold?

by Tomas Salamanca

For those of us who think that the world's central banks have been placing too much faith in the money printing press as a means of rousing sluggish economies, last week was bewildering. Gold closed the week below US$1500 per ounce. Not since June 2011 has the yellow metal traded beneath that level. Indeed, well before the breach of $1500, gold had been languishing after hitting an all-time high of $1900 in September 2011, stuck as it was within a range between $1800 and $1520.

All this was despite the Fed's adoption of QE3 during that period along with the ECB's declaration to do whatever it takes (i.e., print oodles of euros) to save that 17 nation currency. Not only that, the loss of depositor funds held in Cyprus' banks exposed the vulnerabilities of the prevailing financial order. †With all the fiat money being churned out by governments, and with the safety of that money coming under serious question, why is gold falling instead of shooting up?

One possibility is that the Austrian critique of monetary policy post-financial crisis was wrongheaded and that the dominant Keynesian monetarist school of thought was on the right track all along. According to the latter view, the damage wrought on the economy by the financial tempests of 2007-2009 could only be cured by an extraordinary campaign of monetary stimulus to prevent a deflationary spiral from overtaking the economy into a repeat of the 1930's. As for the inflationary threat posed by such stimulus, Keynesian monetarists discount it on the argument there is a great deal of slack in the labor market in periods of economic stress. As such, wage pressures will not cause the prices of goods and services to rise.

According to Joe Wiesenthal at Business Insider:
All of these ideas have been slammed by heterodox types like Austrian economists, who have warned of hyperinflation, and gold going to $10,000.

So the collapse in gold is not about gold, but about vindication for a large corpus of belief and economic research, which has largely panned out. Itís great that our economic elites know what theyíre talking about, and have the tools at their disposal to address crises without creating some new catastrophe.

Things arenít great in the economy, but the collapse/hyperinflation fears havenít panned out, and the decline in gold is a manifestation of that.
First of all, I am not aware of any consensus among Austrian economists that gold is going to $10,000 per ounce. To the extent there is any agreement at all, it is that gold is a solid investment going forward so long as central banks remain committed to inflationist economics, though how high it goes eventually few pretend to know. Austrian economists, at least if they are adhering to Ludwig von Mises, tend to be quite adamant on the point that exact price forecasting is a mug's game.

Secondly, the gold market, just like any market, is driven less by assessments of the past than it is by expectations of the future. So inasmuch as the price trend has been downward of late, this only indicates that market participants have revised their estimates of how monetary policy might cheapen the US dollar going forward. By taking into account indications of strength in the US economy, in addition to various intimations by the Fed about the approaching end days of quantitative easing, gold traders are factoring in the potential of somewhat tighter money ahead. It does not mean that the enormous monetary stimulus already undertaken has not depreciated the value of the US dollar. Let's not forget that gold remains at more than double the level it was amid the throes of the financial crisis in the fall of 2008 just before the Fed's quantitative easing efforts began. Underlining the primacy of expectations in explaining market movements is that gold has persisted upward in Japanese yen terms (going above the 140,000 per ounce level) where the recently elected Shinzo Abe government has made crystal clear its intention of pumping up the money supply to revive that country's economy.

Lastly, financial markets should not be automatically assumed to be rational at any given point in time. The idea that markets are rational, that all available information is assimilated into current prices, assumes that equilibrium is a normal state of affairs. Unlike orthodox neo-classical economists, Austrians do not accept that supposition. For Austrians, markets are merely tending towards equilibrium, rather than being in equilibrium. In other words, there is almost always going to be information that is not reflected in current prices. A big part of what entrepreneurs do in the economy is to uncover and exploit such information to generate profits.

And this leaves open the possibility that the gold traders which happen to be moving the market right now are not adequately factoring in the implications of what our central banks are doing to our money.
Tomas Salamanca is a Canadian Scholar.

Latest Economy
- Schiff: The Shadow Rate Casts Gloom
- Neil Cavuto Embarrasses Student Who Wants Free College and Has No Idea How to Pay For It
- Pocketbook Pain: The Rapidly Rising Cost of Living Is Absolutely Killing The Middle Class in America
- The Three Industries That Love The TPP: Hollywood, Big Pharma & Wall St.
- Sexist Markets - 77 Cents On The Dollar?
- Former Reagan Administration Official Warns That Financial Disaster Is Dead Ahead
- QE's Creeping Communism
- Peter Schiff on Fox Business: Cost of Government Is Not What It Taxes, But What It Spends

No Comments Posted Add Comment

Add Comment


Verification *
Please Enter the Verification Code Seen Below

Please see our About Page, our Disclaimer, and our Comments Policy.

This site contains copyrighted material the use of which in some cases has not been specifically authorized by the copyright owner. Such material is made available for the purposes of news reporting, education, research, comment, and criticism, which constitutes a 'fair use' of such copyrighted material in accordance with Title 17 U.S.C. Section 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. It is our policy to respond to notices of alleged infringement that comply with the DMCA and other applicable intellectual property laws. It is our policy to remove material from public view that we believe in good faith to be copyrighted material that has been illegally copied and distributed by any of our members or users.

About Us - Disclaimer - Privacy Policy

Advanced Search


Remember Me
Forgot Password?

Prosecutors Pissed Colo. Juries Keep Acquitting Marijuana DUI Suspects - 11/23Undercover Cop Dressed In All Black Shot While Placing GPS Tracker On Car - 11/20'War On Cops': Cop Stages Fake Shootout, Sets Own Cruiser On Fire, Calls In Bomb Threat to School - 11/23Innocent Man Beaten By Cops After Being Mistook For Suspect Now Paralyzed - 11/23Cop Caught Stealing Cash & Gold Chain From Dying Crash Victim Loses Pension - 11/23Cops On a Rampage, Looking For Suspects, Raid Innocent Man's Home and Kill Him - 11/23Donald Trump's Presidential "Heel Turn" - 11/23Police as Prey: What a Real "War On Cops" Looks Like - 11/23

Man Follows Speeding Cop, Finds Out He Was Speeding To Buy PeanutsMission Creeps: Homeland Security Agents Confiscate Women's Panties For 'Copyright Infringement'Cop Shoots Couple's Dog, Threatens Jail For Trying To Save Dog's LifeSWAT Team Shoots Teen Girl & Her Dog During Pot Raid On Wrong HomeDurham, NC Cop Testifies Faking 911 Calls To Enter Homes Is "Official Policy"Indiana Sheriff Says US A "War Zone" To Justify New MRAP Military VehicleTampa Cops Surveil Pot Dealer, Catch Him Selling Pot, Raid His Home & Kill Him"You Just Shot An Unarmed Man!": Witness Says Police Shot His Friend With His Hands Up