Home > Gold Prices: Why Have Gold Bugs Been So Wrong? (GLD, IAU, PHYS, SGOL, DZZ)
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Gold Prices: Why Have Gold Bugs Been So Wrong? (GLD, IAU, PHYS, SGOL, DZZ)

July 31st, 2012

Jeff Harding: While I am an advocate of gold investments and gold money, I find that many gold bugs take rather simplistic views of  gold markets, gold investments, and the economics behind it. I saw recently saw headlines from another site which thundered warnings about an immediate economic collapse or imminent hyperinflation. Many gold bug forecasters have been predicting hyperinflation and collapse — for years. Yet they still trumpet this clarion tune even four years after the biggest economic collapse since the Great Depression. Where have they been? Why have they been wrong? They tell us that it is inevitable; just wait.

Many of these folks claim to be hard money advocates and even quote Mises, the famed Austrian economist and my personal hero, as their source. After all, it was he who talked about the inevitability of the crack-up boom-bust. Things are lousy here and in Europe, so there is little to argue about the failure of contemporary economics and political fixes. But I think many of these advocates of sound money recite the sacred text, but perhaps haven’t understood the sermon.

All of the bad things that they have been predicted could happen. The questions are: will they and when? They predicted hyperinflation. It hasn’t happened. They predicted high price inflation. It hasn’t happened. They predicted social panic and collapse. It hasn’t happened. They predicted gold will go to the moon. It hasn’t happened. They predicted a socialist dictatorship. It hasn’t happened.


It’s far more complicated than they think. GET A FREE TREND ANALYSIS FOR ANY STOCK HERE!

They fail to explain low price inflation and even deflation. They fail to understand that hyperinflation is a political decision rather than an economic inevitability. They fail to explain the “Japanese disease” of stagnation and ZIRP. They fail to understand the impact of malinvestment and the government’s ability to perpetuate it for a long time. They fail to understand the depth of the pool of real savings (capital) here and the ability of the economy to correct its’ mistakes despite a tide of government policies that hold back entrepreneurial and business activities.

And worst of all, they fail to understand the dynamics of the gold markets. This was called to my attention by the reference in Tim Price’s new article (“An Olympian Hurdle“) to the Erste Group’s article, “In GOLD we TRUST.” This research paper was issued a year ago and does an excellent job evaluating the role of gold in history and the economy, explaining the problems behind the current crises, the drivers of gold prices, and just about everything you would want to know about gold if one were contemplating an investment in it.

There is one little problem with their study. They forecast the price of gold would be $2,000 by now.

Oops.

How could they get it wrong?

Please don’t take this to mean that gold is not a good investment for a lot of reasons, most of which are explained in the Erste report. But if you had followed their advice and bought at the top of the market, you would be down 15% as of today. To make money in anything, you’ve got to have good timing. GET A FREE TREND ANALYSIS FOR ANY STOCK HERE!

This is the problem with gold bugs. They are like the proverbial broken record. I love gold and have invested in it and have made money. Personally, I believe that our market experts here at the Daily Capitalist (DoctoRx and Keith Weiner) have been much more accurate and I’ll listen to them.

Written By Jeff Harding From The Daily Capitalist

The Daily Capitalist comments on economics, politics, and finance from a free market perspective. We try to present fresh ideas the reader would not find in contemporary media. We like to call it “unconventional wisdom.” Our main influences are from the Austrian School of economics. Among its leading thinkers are Carl Menger, Ludwig  von Mises, Friedrich von Hayek, and Murray Rothbard. There are many practitioners of this school today and some of their blogs are shown on the blogroll. We trace our political philosophy back to Edmund Burke, David Hume, John Locke, and Thomas Jefferson, to name a few.

Our goal is to challenge contemporary economic thinking, mainly from those who promote Keynesian economics (almost everyone) and those who rely on statist solutions to problems. We apply Austrian theory economics to investments, finance, investment risk, and the business cycle. We have found that our view has been superior in analyzing and understanding economic and market forces. We don’t consider ourselves Democrats or Republicans, right wing or left wing. But rather we seek to promote free markets and political freedom.


NYSE:GLD, NYSE:IAU, NYSE:PHYS, NYSE:SGOL


 

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  1. will hutch
    December 8th, 2013 at 19:12 | #1

    Gold? I invested in 22 bullets at 9 bucks a brick and am up 500 percent.
    Wish I had more than five bricks. Anyway, the same will occur again with gold/silver as the dollar and yen become corrupted beyond belief. The only thing holding back inflation is the fact that the money press fruit is going into banks to bail them out…and staying in the banks which is the same as cash in a computer that is there but not issued…yet. If/when this massive wave is unleashed from the bottle there will be untold pain as gas et al will go through the roof.

  2. Ruby
    June 4th, 2013 at 07:53 | #2

    Perhaps gold and silver bugs ARE the optimists.

  3. Agent P
    April 3rd, 2013 at 13:13 | #3

    Whenever a writer uses the term ‘conspiracy’ in the pejorative sense – as was obviously demonstrated here, it is a Giant Red Flag on credibility. Those who like to consider themselves ‘above the fray’ usually resort to calling those who have credible evidence of clear market manipulation for obvious reasons, ‘conspiracy theorists’, in order to elevate themselves as more credible sources of accurate data, forecasting and ‘wisdom’, than the lowly ‘gold bug’. It’s a well worn tactic, very clever – but much alike Al Pacino’s ‘Hassa’, it don’t fly straight…

    To suggest that the ‘conspiracy theorists’ have it all wrong – or are simply dreaming stuff up as an excuse to comfort their losses, is to suggest that an essentially bankrupt government has no worries nor interest in making sure that confidence in an inflated currency remains strong in the face of their debt profligacy. Nor does it recognize the movements around the globe to accumulate gold, engage in trade agreements outside $USD trading, etc.

    In the end, $USD global economic hegemony will last until it no longer can, or blocs of other nations decided they no longer want to trade in it – for whatever reasons, and they certainly don’t have to be economic in nature… Of course, everyone thinks that cannot, nor will not ever happen. Why? Well, because it just can’t…

  4. Abraham Daniel
    March 26th, 2013 at 11:54 | #4

    There is a prediction by one of the Prophets in the Bible that a day is coming when all rich people will throw away their gold. I don’t remember which chapter it is but I will look for that.

  5. March 1st, 2013 at 16:24 | #5

    @Sean In a real economic collapse, your bags of gold will be worth nothing as well. What are you going to do? There won’t be food at the grocery stores for sale at all. There won’t be fuel for sale at the gas pumps. There won’t be any markets at all, so who cares about whether you have a bag of useless metal or not? You can’t eat your gold.

    Physical delivery of gold only places greater danger on your life and wealth and safety. SIPC insures brokerage accounts up to $500,000, and I sure as heck don’t want $500,000 worth of gold sitting in my house. I couldn’t afford the armed guards necessary to protect it and my family.

  6. Sean
    October 27th, 2012 at 19:55 | #6

    I am curious as to whether all of you investors out there in GOLD are actually putting your hands on the metal itself, or if you are investing in GOLD tracking funds and/or if you are getting certificates.

    Unless you are putting your hands on the metal, what is the difference between you and everyone else holding a piece of paper, whether it has Geo Washington on it, or claims you are entitled to xx ounces of a metal somewhere.

    In an economic collapse, both pieces of paper are good for kindling.

    sean

  7. Hey You
    October 6th, 2012 at 00:46 | #7

    Don’t sell your precious metals. There may be a short slide down, but you will probably see $50 for an ounce of silver this time next year.

  8. thinker
    September 16th, 2012 at 03:01 | #8

    gold rate gonna decrese..itz jus that some big forces are manipulating and taking away the attention and making benefit..soon this increasing trend gonna reverse n u’ll find euro strenthening at the end of the story.and there are better options than investing in gold .soon u’l here people are gonna invest in euro..

  9. walkup
    August 4th, 2012 at 02:55 | #9

    The gold bugs get so angry when their broken record position is challenged.

  10. Justin
    August 3rd, 2012 at 02:21 | #10

    Not a bad article & I have done well with gold getting in at $700 & out at $1800

    But this line…
    “Many gold bug forecasters have been predicting hyperinflation and collapse — for years. Yet they still trumpet this clarion tune even four years after the biggest economic collapse since the Great Depression.”

    I dont see it that way as all. You call that a collapse? We saw nothing of a collapse. We did see a hyper exchange of wealth to those that already had most of it….We did see criminals laugh…but collapse?
    Nada because they have propped it up with more of teh same & they have kicked the can into truly biblical territory now.

    But it is true what you say about timing & yes none can say when it will happen….But I am more on the side of it will than it wont.
    What the outcome will be I have no idea.
    But anyone who claims we survived the collapse of four years ago is drinking just as much koolaid

  11. marty
    August 2nd, 2012 at 15:01 | #11

    Commenters make me want to sell my silver.

  12. Anthony Teamson
    August 2nd, 2012 at 11:39 | #12

    It is a shame the people who know everything, understand everything and see the future in everything only invest in gold.

  13. Jack
    August 2nd, 2012 at 01:29 | #13

    Have you noticed that the professionals — the guys that have spent the last five years whipping us nobodies into a frenzy — are now blaming gold’s recent lackluster performance on . . . us? Now they tell us that we “don’t understand” or that we are “responsible” for doing our own “due diligence.” These cowards won’t take ownership of their role in luring millions of amateurs into precious metals. Of course, it could work out — and probably will — eventually. But, for now, the country bumpkins, i.e., all of us, have only ourselves to blame. Just ask Jeff Harding. He’ll tell you.

  14. Six Feet Under
    August 1st, 2012 at 22:30 | #14

    Why am I here? Reading this drivel… from the uninformed. You Mr Harding are nothing more than a loud mouth neighbor. The same neighbor who will be at my door asking if I might sell him some silver for some other tangible asset so he can make some kind of escape across some border than promises to make everything ok.

  15. jones
    August 1st, 2012 at 21:08 | #15

    It is good to see no one is taking this joker seriously. Hey, how was your timing on Face Book dude. Down 15% from its high. Big deal. Never met a trader or investor who did not take losses at some time and we could write a very large list of stocks that have lost way more than 15%. Why does the MS media have to hammer on about a 15% decline in the gold price from the all time high. A true goldbug did not buy at the high. That’s where the speculators jump in and get killed on margin. This writer is a goofball. Seems anyone can get in print these days.

  16. Adlane
    August 1st, 2012 at 16:21 | #16

    “we seek to promote free market”. this is nonsense, because if you did your homework regarding gold price suppression (and silver, by the way), you would have more respect for boldbugs, who swap paper currency, printable to infinity,with real money. No one can predict short term volatility, because of the manipulation and the lies spread around by clowns in suits, but in the long term and very likely medium term, gold (and silver) will win.

  17. mexrph
    August 1st, 2012 at 14:33 | #17

    Mr. Harding, you make absolutely no mention if a criminal tactic known as naked short selling in order to manipulate the gold market down and make their toilet paper fiat money look good. You really need to go to GATA’s website and find out about gold manipulation. You are woefully uninformed.

  18. Malkovich
    August 1st, 2012 at 12:19 | #18

    Did the author set himself a time limit on this article? Did he run out of time? He seems to just stop before he has finished the piece.

    OK, everyone else got it wrong. So what is the answer Mr Harding?

  19. Agent P
    August 1st, 2012 at 11:45 | #19

    ‘No high price inflation’…?

    Brings back fond memories of another blogger whose name begins with ‘M’ and ends with ‘SH’, who said a couple years back in regard to inflation at the grocery store: ‘You just need to look at items on sale and use coupons to see that there is no food price inflation’…

    Seriously.

    The Hard assets arena is filled with good and bad advice, ne’er-do-wells, plants, crazies – the entire gamut. As has been stated for centuries, Gold does strange things to some people…

    Among the ‘crazies’ you will also find those who attempt to ‘elevate’ themselves above the rabble, by taking a semi-contrary position, presumably in order to make themselves appear more ‘credible’ and to distance themselves from the ‘gold bugs’. This can be seen all over the web in the gold writer space.

    I happen to agree with a gentleman above – ‘g kaiser’, in his assessment of the real reason to own real, hard money.

    I also agree with the old saw that ‘the market can remain irrational longer than you can remain $solvent’. I would only add that ‘the market’ is now a captive slave to government/banking interests, so perhaps we might want to revisit and/or revise that old saying at some point…

    In closing, I can tell you this much with reasonable certainty:

    We are rapidly approaching something – could be domestic, could be worldwide, could be geo-political in nature – could be all 3, but one thing we are Not likely to encounter in this day and time, and that is a muddling, protracted economic malaise that last for ‘years to come’.

    We are past that barrier, and all the signposts – if anyone cares to read them, point to rapidly accelerating event/s in the future. Almost every fiscal chart/graph that you can think of, that reflects the past 30 years of economic travels, points to a ‘hockey stick’ formation – housing prices, inflation, purchasing power, $deficits and $debt, etc. We are definitely headed somewhere – quickly.

  20. Jack
    August 1st, 2012 at 06:25 | #20

    The real broken clock investors are the bond investors. At least a broken clock is right twice a day. What do you call a clock that is never right?

  21. Vess
    August 1st, 2012 at 04:50 | #21

    High price inflation hasn’t happened? I guess you don’t eat and drive, then. Socialist dictatorship hasn’t happened? I suggest you take another look around.

    Yes, hyperinflation is a political decision. It will be taken down the road, too. It is coming. Just like societal collapse.

    As for the price of gold – I’m ambivalent on this. Anything can happen. The price shooting to the moon is the obvious possibility – but there are others. Ownership and trade in gold could be forbidden – and who can tell what the price of something is, if there is no market for it? Or the government may only allow the people to sell gold to it – at artificially low price. Or a 150% tax can be imposed on the capital gains from selling gold. Or whatever. A government fighting for its survival can do absolutely anything imaginable and then some.

  22. alickyip
    August 1st, 2012 at 03:33 | #22

    It seems that you are suggesting that the goldbugs ignore the timing factor and this led to their under-performance. I am sure this is their core problem ( otherwise not deserve the label of goldbugs ). But what are your timing arguments ? It seems that your advice is ” to follow Daily Capitalist “. Your article raised a question without an answer, unless your answer is to follow Daily Capitalist daily.

  23. g kaiser
    August 1st, 2012 at 02:05 | #23

    I buy gold for one simple reason. I don’t trust the leadership of the world. I don’t like the policies they try and implement, and I don’t like the criminals being in charge.

    I might be wrong on gold, but I don’t think so. The day they can print gold, is the day I will admit defeat.

  24. Hey You
    August 1st, 2012 at 01:22 | #24

    Sure, we’ve been wrong on timing. However, from my buying gold about in 2000 for $300/ounce and seeing it now at $1,600/ounce. I am somewhat satisfied on being partially correct.

    Incidentally, how’s your home value holding up?

  25. Spanky
    August 1st, 2012 at 01:18 | #25

    I don’t know if this guy is a plant for JP Morgan or just an idiot.

  26. tham
    July 31st, 2012 at 21:40 | #26

    We are well on our way to the modern version of a socialist dictatorship. This guy is asleep.

  27. Vivek
    July 31st, 2012 at 21:09 | #27

    You haven’t answered the question WHY in the whole article? The reports like Erste Group are for big trends to latch on to, not to micromanage the entries and exits…As Paul Maloney has already commented below, Manipulation might have something to do with this..but that would be a taboo topic I guess for mainstream media

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