gold

Gold buying rose spectacularly in 2018 led by the world’s central banks, which increased their physical purchases by 651.5 tonnes.

Gold news has not received much media coverage lately. That’s not because what’s been happening is unimportant.

Several major central banks around the world, including the Federal Reserve in the United States, have set a goal of two percent price inflation. The problem is, what central bankers are targeting is a phantom that does not exist.

On August 11, 2017, the Wall Street Journal carried a front-page article on the Fed, raising a question of its storage of gold.

John Nothdurft and Donny Kendal present episode #70 of the In The Tank Podcast. Donny and John review 2016 and make predictions about 2017.

Eighty years go, on February 4, 1936, one of the most influential books of the last one hundred years was published, British economist, John Maynard Keynes’s The General Theory of Employment, Interest and Money. With it was born what has become known as Keynesian Economics.

It is hard for people to grasp the magnitude of the U.S. debt problem—and what the ultimate “day of reckoning” will be. The national debt reached $1 trillion for the first time in 2009. It is now well over $18 trillion. That’s the official total; the real total is much higher. Lawrence Kotlikoff, a professor of economics at Boston University, has calculated that based on Congressional Budget Office data the real debt is $202 trillion, more than eleven times the official debt. It is also about 3 times what the entire world produces, that is, global gross domestic product (GDP), which is $72 trillion. In 2013 Kotlikoff updated his debt calculation to $222. That’s $700,000 per person, $1.9 million per household.

Reckless government spending and an uncontrollable federal debt have created an unavoidable monetary disaster ahead. The door to unlimited federal spending was opened by President Nixon in 1971 when he severed the last link between the dollar and gold by ending foreign central banks’ ability to exchange dollars for U.S. gold. Politicians realized that more spending produced more votes to keep them in office; and with no limit on federal spending, the mountain of debt just kept on growing.

Eighty years ago, in the autumn of 1934, there appeared in English one of the most important books on money and inflation penned in the twentieth century, The Theory of Money and Creditby the Austrian economist, Ludwig von Mises. Even eight decades later, it still offers the clearest analysis and understanding of booms and busts, inflations and depressions.

Whether the price of gold is seen as a measurement of the value of a precious metal or as a report card on the economic, monetary, and fiscal policies that go into determining the value of the dollar, it’s interesting to think about what the trends, short-term and long-term, may mean.

For more than two hundred years, practically all of the leading advocates of individual liberty and free markets have assumed that money and banking were different from other types of goods and markets. From Adam Smith to Milton Friedman, the presumption has been that competitive markets and free consumer choice are far better than government control and planning – except in the realm of money and financial intermediation. They have been wrong on this important issue.

In 2013 the price of gold bullion lost 28 percent and closed near its low for the year. It was the first annual decline since 2000 and the worst since 1981. Gold ETFs experienced record redemptions, shrinking the funds 33 percent by year end, but they were the exception. Marcus Grubb, Managing Director of the World Gold Council, reported, “2013 has been a strong year for gold demand across sectors and geographies, with the exception of western ETF markets.” While investors were leaving ETFs, demand for gold jewelry, bars and coins was increasing, as were purchases by central banks. Globally, consumer demand increased 17 percent for gold jewelry and 28 percent for bars and coins.

A general optimism prevails in the United States and Europe that the economies have finally turned the corner and growth is resuming. Don’t get too excited.