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TOPIC: Gold's murder weapon
#22249
Gold's murder weapon 1 Year, 8 Months ago Karma: 75
According to Kitco commentator, Peter Hug, gold's murder weapon will be interest rates greater than 3%. When interest rates begin to rise somewhere near that level, and the economy gets "solid tracking," gold will begin to die. According to him, anything over 3% will be extremely negative for the precious metals. If I understand him correctly, interest rates over 3% will be extremely negative for the precious metals, but apparently the rest of the market will be going gangbusters at that point. Apparently even the U.S. Treasury will not mind and will be happy to be paying 3%. Is it just me, or does the scenario he envisions seem unlikely? Perhaps there is some internal logic to his view that I fail to grasp. Perhaps I've just been brainwashed by all my fellow gold bugs over the years, but it seems to me that interest rates can't rise over 3% in a vacuum without inflation also rising to act as countervailing force. I cannot imagine that the Fed wants interest rates to rise that high--ever. I cannot imagine that the U.S. Treasury could avoid going bankrupt with rates over 3%. Furthermore, are central banks, such as those of China and Russia, going to stop buying because interest rates rise above 3%? I'm an amateur, heavily influenced by whack job goldbuggery, so my view could be naive and overly simplistic.

agau121
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#22251
Re: Gold's murder weapon 1 Year, 8 Months ago Karma: 21
Agau, i am more of an amatuer but an avid reader.

I know what you mean by the Fed not wanting high interest rates - as we would be in a scenario like Greece. Interest on the debt would dampen any possiblity of Growth. Growth? what the heck is that in America.

But i can see interest rates going up. I think they rise when the FED LOSES CONTROL OF THEM. And when that happens, i guess, the entire scam comes down and we see the Wizard behind the curtain. And the middle class (whatever that is now), and whatever is left of it - will be impoverished. With an ever-decreasing valued dollar.

Does that make any sense?
arihalli
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#22253
Re: Gold's murder weapon 1 Year, 8 Months ago Karma: 75
arihalli wrote:
Agau, i am more of an amatuer but an avid reader.

I know what you mean by the Fed not wanting high interest rates - as we would be in a scenario like Greece. Interest on the debt would dampen any possiblity of Growth. Growth? what the heck is that in America.

But i can see interest rates going up. I think they rise when the FED LOSES CONTROL OF THEM. And when that happens, i guess, the entire scam comes down and we see the Wizard behind the curtain. And the middle class (whatever that is now), and whatever is left of it - will be impoverished. With an ever-decreasing valued dollar.

Does that make any sense?


Yes, it makes sense. I'm far from an expert, but I am capable of reasoning, and it seems to me like the Fed is in a trap from which there simply is no escape. In simple terms it looks like this:

1. An extended zero interest rate policy and ongoing quantitative easing lead to eventual high inflation or even hyperinflation.

2. A policy of intentionally raising interest rates leads to deflation, reduced government revenues and higher costs to service debt, and the government goes bankrupt.

3. There is a continued policy of suppressing interest rates, but whatever is left of a free market in bonds puts downward pressure on bond prices, which raises interest rates, and the government goes bankrupt.

Perhaps there are other scenarios I cannot think of right now.

Additionally there is what seems like the central bank fantasy scenario:

The real economy recovers, and employment improves, creating more revenue for the government, and the debt begins to be repaid from real economic activity.

Ruling out the fantasy scenario, there are only the three scenarios outlined above, and all of them lead to some form of economic instability, which I understand should be favorable to gold prices, similar to how the 2008 crisis was (ultimately) favorable to gold prices.
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#22254
Re: Gold's murder weapon 1 Year, 8 Months ago Karma: 263
OK, congrats for getting 1/2 of the reason why this is absurd nonsense. Yes, as I've been known to observe myself; should the U.S. ever be forced to pay market-interest rates it would be instantly bankrupted. So following that line of reasoning further; if the Fed's phony game of "buying" all the U.S.'s bonds comes to an end (when it comes to an end), because this would result in U.S. default this would still be gold-bullish.

However, there's actually a more fundamental reason why this "analysis" is nonsensical; and it comes from understanding basic beliefs about the utility of gold as an asset. Whenever "real interest rates" are substantially positive (so the argument goes) no one will want to hold gold because they're supposedly better off collecting interest (and paying tax on those profits - lol). "Real interest rates" meaning the nominal interest rate minus the rate of inflation.

But here's the point: what's being implied by this buffoon is that 3% interest rates would represent a substantially positive "real" interest rate -- because in the propaganda machine's fantasy world; U.S. inflation is below 2%.

Thus to translate this half of the argument back to the real world; given that actual inflation in the U.S. is at least 12% (if not higher), in order for gold to be "unattractive" versus holding paper interest rates would have to rise to around 14% or higher...and that's today. With inflation continuing to escalate; the threshhold at which gold (and silver) are supposedly unattractive continues to go higher and higher.
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#22257
Re: Gold's murder weapon 1 Year, 8 Months ago Karma: 75
Whenever "real interest rates" are substantially positive (so the argument goes) no one will want to hold gold because they've supposedly better off collecting interest (and paying tax on those profits - lol). "Real interest rates" meaning the nominal interest rate minus the rate of inflation.

Yes, I have heard this argument many times, and, at least on the surface, it makes sense to me. You seem to be implying that even in an environment of positive real interest rates, PMs will still be held and will continue to maintain their value. Is that correct? If so, I'm wondering if you can elaborate. I do not see what motive there would be to hold them in a positive real interest rate environment, other than as a form of insurance against future financial upheaval.

But here's the point: what's being implied by this buffoon is that 3% interest rates would represent a substantially positive "real" interest rate -- because in the propaganda machine's fantasy world; U.S. inflation is below 2%.

Yes! Yes! Not to indulge in mockery, but seriously: How does one make statements like he made with out having been lobotomized? I know I'm making a joke, but I'm also serious. Is it possible that he really believes that inflation is below 2%? Also, that it won't continue to rise? He cannot be stupid. Is he just mistaken? Delusional? Dishonest? Of course, I don't expect you or anyone else to be able to get inside his head and know what he's thinking, but I'm continuously flummoxed whenever I see people such as him making statements such as this. In my mind he represents an entire category of people whose reasoning appears to have gaps. When confronted with it, in addition to questioning the reasoning, I also stop and question my OWN reasoning at least briefly, which I think is a healthy activity so long as it does not devolve into crippling self doubt.

Beyond the shear content of what he said, I was also struck by his nonverbal communication, his demeanor. Granted, he had very little time to speak or elaborate any point he was making, but nonetheless he struck me as glib. I've seen him on other occasions on the Kitco site, and he always strikes me as glib. I'm not necessarily questioning his character. I'm only saying that intuitively, despite his being presented by Kitco as a knowledgeable expert, I find myself lacking confidence in him. He strikes me as the sort of person who is a victim of conventional thinking.

Thus to translate this half of the argument back to the real world; given that actual inflation in the U.S. is at least 12% (if not higher), in order for gold to be "unattractive" versus holding paper interest rates would have to rise to around 14% or higher...and that's today. With inflation continuing to escalate; the threshhold at which gold (and silver) are supposedly unattractive continues to go higher and higher.

Hmm...Does this tie in with your idea that "all roads lead to higher bullion prices?" In other words, the circumstances under which interest rates would actually be positive, i.e., higher than inflation, are an impossibility? I'm just sorting this all out in my mind. Grasping nuance is one of the most gratifying things in the world to me. Being able to teach it to others is even more gratifying. My test is always that if I can explain an economic or investment concept to my father, then I'm satisfied because, while he has a sharp and analytical mind, he has difficulty with the sorts of things we discuss on this forum.
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#22264
Re: Gold's murder weapon 1 Year, 8 Months ago Karma: 263
AgAu, I'm thinking that you could answer some of your questions by either reading a little more carefully or thinking a little more carefully about what has been said -- both here and on other threads.

You seem to be implying that even in an environment of positive real interest rates, PMs will still be held and will continue to maintain their value. Is that correct?

Not really. First of all, I pointed out that "positive real interest rates" (i.e. real "positive real interest rates") would lead to instant domino debt-defaults across the Western world, totally destroying the Western financial system -- which (sadly) is bullion-bullish.

However, I implied that even if (hypothetically) there were (sustainable) real, positive rates that this should not necessarily lead to lower bullion prices. But since such a hypothetical reality is in no way plausible, there is no point in considering this scenario (until after debt-default has swept across the Western world).

How does one make statements like he made with out having been lobotomized? I know I'm making a joke, but I'm also serious. Is it possible that he really believes that inflation is below 2%?


I say here (again and again): brainwashing. When I first began writing on this site, I suggested that there was considerable evidence that mass, (military-style) brainwashing was being conducted against our populations.

There is only ONE (known) phenomenon which can produce sustained belief in the absurd: brainwashing. If you encounter an entire population who ALL (or nearly all) emphatically believe that 2 + 2 = 5; you have not encountered "a society of idiots" -- but rather a collection of brain-washing victims.

When we see our own living expenses soaring at a (robust and accelerating) double-digit rate, while the Sheep "believe" that inflation is 2%; then we KNOW the Sheep have been brainwashed.

Hmm...Does this tie in with your idea that "all roads lead to higher bullion prices?" In other words, the circumstances under which interest rates would actually be positive, i.e., higher than inflation, are an impossibility? I'm just sorting this all out in my mind. Grasping nuance is one of the most gratifying things in the world to me. Being able to teach it to others is even more gratifying. My test is always that if I can explain an economic or investment concept to my father, then I'm satisfied because, while he has a sharp and analytical mind, he has difficulty with the sorts of things we discuss on this forum.


I thoroughly understand the "understanding/teaching" dynamic. However, you have produced your own caveat here with respect to seeking understanding through asking questions (in referring to your father):

...he has a sharp and analytical mind, he has difficulty with the sorts of things we discuss on this forum.


We regularly discuss subjects which are both contrary to mainstream propaganda and are not intuitively obvious...primarily as a result of decades of saturation-level propaganda and brainwashing.

Having both learned and taught concepts which are not intuitively obvious; I can state from experience that the most-effective mode of learning is not via "Q&A" -- as is the case with more straightforward subject-matter. Rather, the only tried-and-true method for learning DIFFICULT things in at least a quasi-efficient manner is "osmosis": repeated exposure to something, which (inevitably) "sinks in" over time.



Thus (as pretty much a general rule) if any reader reads a commentary or views a post here on the forum and they have "lots of questions" (on that particular item); this is an unequivocal indicator that the reader either needs to do more reading, or (quite often) just allow some "digestion time" for the material to sink in.

Some people actually engage in conscious cogitation, and try to "think their way through" some idea they can't quite wrap their heads around. But even for those who are not so inclined, we have our wonderful subconscious mind to do that for us -- the real mental-workhorse between our ears.

Unlike the short-term attention spans of our rather lazy "conscious" minds (which actually require sleep); our subconscious mind works 24/7 -- hence the phrase "sleep on it", where questions too difficult to answer the previous night miraculously become simpler by the next morning.

The other interesting thing about the "osmosis" learning process is that it is always apparent when osmosis has achieved its optimal level of comprehension: instead of having "several questions" when a reader reads something they will only have one (and, perhaps, the occasional closely-related follow-up).



Similarly, when one reaches the level where they now feel comfortable/confident explaining things to others; this is another indicator that one has progressed beyond the (optimal level of) passive modes of learning -- reading and osmosis -- and thus Q&A assumes primacy as the best mode of learning.

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