ANALYSIS: The fall and rise of Gold, the rise and fall of property. Time to be a contrarian.


GOLD & PROPERTY: contemporary weirdos explained

 In the opening post today, I postulated that ‘indeflation’ involves a situation where taxes and prices go up, and the value of assets goes down. Following that original Slogpost from 2010, I returned to the subject several times, the last time before the Bilderberger Conference of last year, when I predicted:

‘As more sovereigns and banks collapse under the weight of their debts, notional funny-money obligations will start to seep into the real system, and nations the world over will print fiat currency in order to turn the abstract into the concrete…or put another way, silly bankers’ games into a millstone. That will depress asset values, and inflate currencies.’

A year on, that outlook is a way from reality as yet, but there are solid reasons for that: I simply cannot seem to get it through my head that those in charge are all sociopathic hoodlums who will do anything to keep the plates in the air. Looking at ‘funny-money obligations will start to seep into the real system‘ for instance, I once again underestimated the capacity of central bankers to slow down that process. As my valued source in New Mexico rightly avers, “This excerpt echoes a reasonable possibility for what is going on behind the scenes of the much ballyhooed “currency war”.  The central banks have agreed to plug whatever  hole is draining the system via debt deflation in the shadow bank and OTC derivatives sphere.  The BIS acts to coordinate.”

Nevertheless, along the way there has been some heavy-hitter support for my theory. In Q4 of the influential Hoisington Report, Van Hoisington and Lacy Hunt note as follows (my emphases):

‘To be sure, prices of many items are
rising, partially due to legislative changes in 
taxes, fees, regulation, compliance costs, medical 
mandates and other non-market forces. However,
competition in the marketplace has created
downward pressure on market driven prices. Thus,
we have an unusual paradox whereby legislative 
and regulatory changes elevate the cost of living, 
yet with this inflation, there is no associated growth 
in income and standards of living decline. In this
circumstance, real income falters, and purchases of
non-mandated and discretionary items decline in
value and price. Call it “the deflationary paradox
of legislated increases in the cost of living.”’
This is pretty much word for word ‘indeflation’ as I first described and predicted it four years ago. I also wrote at length that, like it or not, the falling world demand for manufactured goods was bound to produce the all-time demand slump. This time we are well on the way to that, and early up, Hoisington and Hunt nail the point firmly: ‘The global economic environment is best characterized by an insufficiency of aggregate demand. That is, the capacity to produce goods far exceeds the final demand for those products.’ You may observe that this is a blinding glimpse of the obvious, but on the other hand everyone from George Osborne via David Cameron and Ben Bernanke to even Jim O’Neill has been in apparent denial about it – and remains so.
I think the asset decline is about to hit big-time this year, but at the moment that looks wrong. That is, I remain certain that property and durable prices will fall, but gold will be the exception because (a) it is still a safe haven in the end and (b) it is no longer an asset: it is increasing turning into a currency guarantee. However, right now the opposite seems to be happening.
UK and US house prices aren’t rallying, but they aren’t plummeting either: and yet the asset gold is now quite clearly challenging the lower reaches of its recent historical price. While this doesn’t make sense in terms of ‘fundamentals’, the name of the élite game in 2013 is hammering the fundamentals against the wall to ensure they can’t escape.
A top-end ‘glitz bricks’ bonanza has produced boom-time in upmarket parts of the world’s most secure places, because the mega-rich rightly saw that it was the only haven left not being manipulated: a piece of pre-Armageddon insurance against loss of wealth, not the search for somewhere to live. And one UK Government scheme has unlocked a little more mortgage credit than would’ve been available via the shredded balance sheets of the banks. But everything is now in place for a massive price correction in the mainstream sectors of the Western property markets: lack of buyer confidence, falling disposable incomes, nervous lenders, a worsening economic situation, and falling full-time employment make it a certainty.
So what’s the story on gold? I don’t think anyone could today accurately audit the relative value of all the factors involved in the shiny metal’s short-term decline. But some of them are obviously influential. One is manipulation of the price downwards, in order to render this soon-to-be central bank asset/currency hybrid more affordable for those allegedly in charge. Another is the markets effectively helping in this process – by sticking to fundamentals as the basis for analysis, and thus scaring off investors in gold. The International Business Times, along with most other main sites, observed yesterday that ‘The big news out of the gold pits Wednesday is that futures violated the psychologically important $1,600 an ounce level. At this writing, Comex-traded gold is trading just under $1,568 per ounce. Arguably, the bigger news is the technical condition gold’s slide has caused….’. This refers to the most repeated phrase of the last 48 hours: that gold is passing its technical ‘death cross’ – suggesting a long-term bear market in the metal.My own feeling remains that a bear-market couldn’t be maintained while trading gold remained legal.
Finally, there is a more commonsense view (which I partly share) from Jim Steel, chief commodities analyst at HSBC:”What’s really behind this is we’ve had three major risks that supported the gold market last year, which was the fiscal cliff, the possibility of Greece leaving the euro and the euro zone crisis, and the third was a hard landing in China..and all of those risks have mitigated this year, and I think that has undercut the bullion market.”

I think he’s right about the cause, but totally wrong about the risk diagnosis: all of the risks are still in place, and ready to blow up in every face once the subdued fundamentals start to assert themselves. It’s no longer if, but when: and when they do, the price of gold must sky-rocket. For more on why I think all that, stay tuned for this afternoon’s final analysis of indeflation: a term whose time has come. Allegedly.

Earlier at The Slog: Getting the most out of indeflation

55 thoughts on “ANALYSIS: The fall and rise of Gold, the rise and fall of property. Time to be a contrarian.

  1. Pingback: John Ward – Analysis : The Fall And Rise Of Gold, The Rise And Fall Of Property. Time To Be A Contrarian – 21 February 2013 | Lucas 2012 Infos

  2. “I simply cannot seem to get it through my head that those in charge are all sociopathic hoodlums who will do anything to keep the plates in the air”
    bab on knee; john, having spent most of your life in ad business i imagine that it is rather hard to realise that the beast that you not only fed, but openlt abbetted, is about to eat everything that it can; will read the rest as soon as poss


  3. House prices it would seem, if the figures are to be believed, which I doubt, are rising, especially here in the South of England, although I note in my limited travels that many that had sold have now re-emerged back on the market. It does seem odd to me that wages and real employment are falling and prices are rising (food, goods) yet no one seems to be putting 2 and 2 together on this.
    What about the bond market, is it about to pop, as people have suggested recently?
    Everything is sooo eerily quiet, isn’t it?
    Did anybody see Cameron in India dressed in a blue hat and a yellow scarf? He looked very Liberal Democrat, didn’t he?
    Are the Old Bill about to arrest any top Tories? Seems they were planning to, perhaps they have taken a leaf out of the EU book, and are just planning a plan for an arrest plan…..


  4. That (assets not durables) relies on government mandated cost of living increasing faster than money is printed.
    UK house prices have remained steady because Sterling has taken the strain. The BoE recently clamored for more QE.

    I cant see anyone in the UK complaining if Sterling dropped to parity with the dollar. It was 1.3ish when I first started looking all those years ago.


  5. ‘They’ will rig the market ’till silver is unavailable and then they’ll peg the national currencies to gold.

    99% of the population won’t have a clue what’s just occured, why their paper assets have returned to their intrinsic value, food and fuel are out of their price range, and will accept government cheese via a ration book.

    Bleak, but the sheeple will not wake up before the ‘silver bomb’ – as some call it – implodes the fiat currency markets.

    I still reckon silver’s a better buy than gold, John.


  6. House prices IMHO will not drop as no one is building at the moment. Added to that the huge influx of immigrants seeking somewhere to live and the young wanting to get on the ladder,why would it? Unemployment ,if its to be believed is falling,the pound is weak,so foreign money is looking for a home.
    I have been involved in buy to let in the SE for some time and we never get voids so demand for rental is high and with the crap rates of return in the banks and low mortgage rates I still have faith in property. Face it where else can you invest? The property doom and gloom predicters have been saying the same thing for decades


  7. Re gold price: its manipulation alright. Every day on the comex open, particularly mondays. You can nearly set your watch by it. TPTB must be very fearful to be so predicatable. Physical vs paper disconnect is coming very soon.

    Good to have you back john.


  8. Ken, this is pretty bog standard in modern “democracy.” I seem to recall GW Bush telling some nation or other who they must not vote for. GW, was at the very least, a great comedian? Obarma does not make me laugh at all. Would you vote for Silvio?


  9. House prices have to hold or rise – they are all that is keeping a lot of banks’ balance sheets solvent.

    A drop in house values with have a further impairment effect on mortgage lending.


  10. Saw an interesting article on ZeroHedge the other day about how the Chinese and Russian acquisition of physical gold could be a herald of an attack on the dollars position as the petro-currency.

    If the dollar lost its position as the petro-currency and was replaced by something else (the article suggested petro-gold) then the dollar would implode.

    All speculation granted, but it does keep things interesting!


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  12. I don’t know what you think about this JW

    Paper gold effects the spot price and drags physical gold down with it but eventually there will have to be a break between the two because there will be a greater demand for physical gold and then physical gold will rise sharply.


  13. A little game and a twisted thought … I have started to visualise it as 3 things, fiat money, paper money and assets.

    The fiat money and paper money (that shares,bonds or anything that is not fiat money but still paper) are in a symbiotic relationship. People seem certain that shares are actually worth something, an asset. It is still a piece of paper but the powers that be are determined to make this appear as a hard asset by pumping the values up. The dead cert mentality, good value is it not?

    Now then asked to do a calculation of total asset value (real + illusionary) against debt, that’s alright mate we got x bits of paper that are a sound asset. No mention they are just another IOU, backed by a fiat currency that is also IOU.

    Getting harder to do now though, because how can a company with shares with the same number of people, doing exactly the same thing, with if anything a lower aggregate demand (as mentioned in the article) for their products actually increase in share value at such a rapid rate because they have become more productive.

    Till we get to this …
    A German may say 1kg of German gold in the hand is worth 2kg in say New York, London or Paris supplied from “Mali” over the next 6-7 years.


  14. @KFC – What the house price figures don’t state is that more then half of the houses put onto the market simply haven’t sold at all, even in the south east. Just like all other financial and Government statistics once you start looking closely nothing is quite as it first appears.

    Its going to be very difficult to put a value on anything once the QE gets under way once again. Maybe things should be priced in Gold Sovereigns rather the fiat Pound.


  15. Its only rigged until the rules change, eg massive physical shortages causing a disconnect vs the paper price. The premiums on the real stuff are not at all reflective of what the comex price says.

    Given AUs historical (and future) significance as a hard back currency, the recent invention of paper manipulation in it is an aberration. In times of crisis, people look for a safe port. The metals are one of the few remaining.

    And the rigging goes both ways, once they’ve shaken the weak hands out of the tree you’ll see them switch positions and go long once again. Like the two faced, motherless c***s that they are.


  16. Gold in dollars faces a major test at 1538, if price dips and stays below that figure, we are in a new bear market for gold. Might make no sense fundamentally but thats a fact.
    House prices look good because in a market like this only the best sells around valuation and the rest just sits there as there are no forced sellers.
    I live in a posh part of Scotland and higher end stuff is selling, but many properties which have been ‘under offer’ have fallen through in the last few months.


  17. Define collapse? House prices would have to fall by how much? 20%? Even if they did so what? It’s still a physical asset. Look at Spain,that’s a collapse but in 5 years time,maybe longer,prices wil go up making today’s values look cheap. Same here. Prices have fallen in real terms over the last 10 years,prices in the SE have remained static or fallen a little. If you are geared correctly,someone else has been paying off the mortgage in buy to let. The returns ave been better than the bank. The banks themselves can’t foreclose on the toxic stuff. Personally I’m optimistic. I think it’s time for a mini boom. People will switch from classic cars,stamps,wine and move back to property. In fact I think it’s started.


  18. You presume that Spain even Greece have bottomed out,that Britain has also reached the bottom,there was many false dawns of hope during the twenties,in monopoly your assets are worth only the value of money left in the hands of the losers,you have no one else you can sell to


  19. In quite a few town in Essex, there don’t seem to be many houses on the market, & the prices haven’t dropped at all. People seem to be sitting tight & waiting for better things…….
    With regard to the pound being weak, I saw yesterday it was at 1.14 against the Euro, today it’s at 1.15. Up & down like a yo-yo. Only a little while ago, it was at 1.22.


  20. I have been saying for a long time now that all hinges on the Dollar’s hegemony. If it were to lose that position, then all hell will break loose.


  21. Also in the middle ages,money was rarely printed has little was really generated,the only way to increase your wealth was to destroy others,that is why the British burned French crops,it forced the price of the own crops up,unfortunately the peasants had to starve,because they could not work in the field or afford the price of the crops


  22. @KFC. Yes, I saw Camoron, what a plonker!
    Anyway, he IS a limpDem. Nothing conservative about him. Perhaps someone could tell me what exactly ‘conservative’ means now, ’cause I’m blowed if I know!


  23. How on earth can the US Dollar remain as the worlds reserve currency in which all commodities are priced if the Federal Reserve is going flat out with Quantitative Easing? They are turning the Dollar into a fiat currency joke. The Bank of England seem intent on doing exactly the same thing with the Pound. Come on China lets have a new Gold backed reserve currency that will sweep away all the worthless Fiat junk.


  24. All that needs to happen to burst the precarious housing bubble is for interest rates to rise, and the Government to start a grandiose job creation programme to built rabbit hutches for social housing. If Labour is returned to power in 2015 its quite likely they will start meddling in the rented market with a new Rent act. The socialists view buy to let investors as speculative parasites and a great untapped source of future tax revenue.


  25. Interest rates can’t rise much or any recovery will be snuffed out. There is no housing bubble at present. House prices are static and have been for a number of years. But you are right about the socialists. They’ve destroyed every other means of investing for retirement and with the help of the limp dems will get their wish of the pips squeaking


  26. @Gordie – Glad we agree about the socialist. As regards the housing bubble if the price of an average house costs more then 3½ times the price of the average salary (maybe up to 5 times in the south east) there is a bubble.
    As regards interest rates who knows? The Government clearly wishes to keep them at there present rate but what the Government wishes and what actually comes to pass are not necessarily the same, just remember the ERM fiasco 20 years ago. There are so many economic problems on the horizon now its impossible to know which part of the system is going to give way first.


  27. Agreed Chris.

    A (very) close relative of mine lives in HK and is directly involved in sovereign ‘yellow’ purchases on behalf of the PBoC – so much so that the ruling party dictate when he can and can’t leave the country and track his every move.

    Do not underestimate the Chinese – their appetite for the shiny stuff is currently voracious.


  28. I think gold is a bad investment for a financial Armageddon. For the price of one ounce of gold you can buy a really good metal detector, which can be used to search the grounds of a nearby “gold bug” (after the fire).


  29. Pingback: PRESERVING WEALTH: falling demand for manufactured goods + credit aridity + falling employment hours = plummeting property prices + rising sovereign debt + rising gold value. | The Slog. 3-D bollocks deconstruction

  30. All the debt we owe the Federal Reserve of the USA is in Dollars,all the payments will have to be in dollars even in the future,unless there is a shift to a one world currency.


  31. In my experience the housing market isn’t in a good way, even where I am in the South East. One house near me was on sale for nine months at a low price, then the owners decided to do it up, and now it’s on sale for 20k more. Still not selling. There are numerous mothballed developments around too, as you probably know – one block of new apartments near me that has been empty for literally years. I just don’t believe the hype about the housing market at all.


  32. Pingback: John Ward – Preserving Wealth – Falling Demand For Manufactured Goods + Credit Aridity + Falling Employment Hours = Plummeting Property Prices + Rising Sovereign Debt + Rising Gold Value. – 21 February 2013 | Lucas 2012 Infos

  33. JW, Sure I read today that the full time jobs thing has done a reversal. The Tories are blushing and farting over the employment figures, which do appear to show a goodly reduction of unemployed, 75% of jobs going to Brit born folks last year, and I thought it said something about full time jobs too.

    Might have misremembered that bit I suppose. I think, like the FTSE, that it is a temporary thing.


  34. Pingback: John Ward – Preserving Wealth – Falling Demand For Manufactured Goods + Credit Aridity + Falling Employment Hours = Plummeting Property Prices + Rising Sovereign Debt + Rising Gold Value. | My Light Warrior "OPPT-IN"

  35. There’s no “must” about it.

    If there is a power play by the east and they get enough backing from other major players then there is sod all the US could do about it.

    What are they going to do – roll out the tanks?


  36. Pingback: A COMING CULTURAL MAELSTROM: Why you don’t need ‘news’ to be ahead of the game. | The Slog. 3-D bollocks deconstruction

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