Gold, The Ultimate Bubble
Updated
The Gold Conspiracy
April 1968, the London Bullion Market Association (LBMA) add afternoon fixing and switch from GBP to USD. This indicates a blatant attempt to attract interest from USA at a time when it was still illegal for private citizens in the US to own gold.
The poorly regulated gold markets in London had something of a risky reputation and were seen by many as Wild West investing. In fact that same year, UK authorities halted gold trading in London for TWO WEEKS due to major financial irregularities of a speculative nature. This was in fact the start of insider accumulation.
A short time later, CME in Chicago began offering futures contracts ostensibly for industry. This was followed in 1974 by COMEX gold futures in New York and, before the year was out, US President Ford rescinded Executive Order 6102 on December 31, 1974. Thus US citizens were now allowed to own gold in arbitrary amounts and the bubble could grow.
Hence was the gold bubble born. Before this gold had traded sideways for 1000s of years, barely moving (the Bank of England actually has great data on this). The industry is now controlled by market makers (price fixers) on both sides of the Atlantic, ostensibly big banks. The most insidious aspect being that from the outset, gold was marketed to the paranoid and fearful as an "outsider investment", "real money" and of course most laughably a "store of value", a myth that sadly persists to this day, claiming new victims for the cult of libertarianism (the ultimate form of political and ethical solipsism), a cult which the extremely successful and self-made trader/investor George Soros dubbed the "Ultimate Bubble" (a man who knows a lot about the immorality of man and the amorality of the markets).
The Inflation-adjusted real price of gold
The chart shows the real price of gold, that is corrected for inflation. As we can see the current price is at the same level in inflation-adjusted dollars as the previous two market tops in 1980 and 2011. Most of the time gold trades far below this level. The current price is way overvalued. The chart makes it clear how there is literally ZERO EVIDENCE that gold acts as a safe haven or store of value.
April 1968, the London Bullion Market Association (LBMA) add afternoon fixing and switch from GBP to USD. This indicates a blatant attempt to attract interest from USA at a time when it was still illegal for private citizens in the US to own gold.
The poorly regulated gold markets in London had something of a risky reputation and were seen by many as Wild West investing. In fact that same year, UK authorities halted gold trading in London for TWO WEEKS due to major financial irregularities of a speculative nature. This was in fact the start of insider accumulation.
A short time later, CME in Chicago began offering futures contracts ostensibly for industry. This was followed in 1974 by COMEX gold futures in New York and, before the year was out, US President Ford rescinded Executive Order 6102 on December 31, 1974. Thus US citizens were now allowed to own gold in arbitrary amounts and the bubble could grow.
Hence was the gold bubble born. Before this gold had traded sideways for 1000s of years, barely moving (the Bank of England actually has great data on this). The industry is now controlled by market makers (price fixers) on both sides of the Atlantic, ostensibly big banks. The most insidious aspect being that from the outset, gold was marketed to the paranoid and fearful as an "outsider investment", "real money" and of course most laughably a "store of value", a myth that sadly persists to this day, claiming new victims for the cult of libertarianism (the ultimate form of political and ethical solipsism), a cult which the extremely successful and self-made trader/investor George Soros dubbed the "Ultimate Bubble" (a man who knows a lot about the immorality of man and the amorality of the markets).
The Inflation-adjusted real price of gold
The chart shows the real price of gold, that is corrected for inflation. As we can see the current price is at the same level in inflation-adjusted dollars as the previous two market tops in 1980 and 2011. Most of the time gold trades far below this level. The current price is way overvalued. The chart makes it clear how there is literally ZERO EVIDENCE that gold acts as a safe haven or store of value.
Note
But but but "Gold has utility"!!! Another myth. 50% of the gold market by volume is financial, 40% is jewelry-related and only about 10% is made up by industrial demand. Hence is gold almost entirely a speculative asset class! The price is determined overwhelmingly by speculation. The scarcity is artificial, caused by hoarding (hodl mentality) , in truth the actual amount of gold mined and processed is far, far, far in excess of utility-based demand. Top this off by the fact that speculators are buying because they believe the price will go up (by often ridiculous amounts, I must say). What do you think industry will do if price goes up by even say another 50% ?? Do you think they might be motivated to invest in alternative materials in electronics and chemical engineering (the two main applications of gold)? What about jewelers who mostly sell wedding rings to the young and fairly broke. Do you think a 10k gold price can support such industries? It can't. The more expensive gold becomes, the less utility it has. And bearing in mind jewelry and industry make up 50% of demand, that price of gold is strictly limited.
Ladies and gents, we are at that ceiling.
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