Monday, January 24, 2011
Top 10 Posts:
Top 10 Countries by Page Views:
20 January 2011
Upon awaking and discovering that gold and silver had dropped a couple of percent overnight, I do what I always do. I immediately went to Kitco.com - for all of the anti-precious metals propaganda which would be put out to "explain" this move in markets. I was particularly well-rewarded today, as the gold bears at Kitco had furnished no less than four anti-gold headlines, telling all the sheep why gold and silver should be moving lower today.
With two of those items focusing on the economic data out of China, I will take that as my cue that the China news is the principal "explanation"of the propagandists for the moves today in bullion markets. The "news" was that China's economic growth accelerated faster than expected by the "experts".
What this directly implies is that China's demand for commodities (which includes gold and silver) will increase, the Chinese people will have more money in their wallets to buy these commodities, and this will increase inflationary pressures - making gold and silver much more attractive investments as hedges against that inflation. This is why virtually every time economic news of this nature comes out, gold and silver have been strongly higher on the day.
What did the propagandists have to say to justify their "reasoning"? Because of increased inflationary pressures, they expect China's government to raise interest rates, which is (supposedly) "bearish" for commodities because demand will go down rather than up. Let's look at this analysis more closely.
Unlike the interpretation I supplied (the usual interpretation of this data) where the "drivers" for higher commodity prices are direct, the interpretation supplied by the propagandists is not only indirect, but also built atop several assumptions. In other words, it's extremely speculative.
First, what the propagandists are saying is that higher economic growth in China will cause increased demand for commodities and higher inflation (both very gold-bullish), but that China will react to this bullish development with a bearish response. Not only is that indirect reasoning, but it assumes that (automatically) China will respond by raising interest rates, when there are many arguments that they would not (see below). However, that immediately illustrates the second assumption here: that any response by China's government would negate the upward pressure on commodities (and gold and silver).
In fact, we have two full years of empirical evidence which shows us commodity prices steadily rising despite weak demand from anemic Western economies - because the insane money-printing of Western bankers has meant that the speed with which they are destroying our currencies has overwhelmed all other economic fundamentals.
Have these Western bankers shown the slightest inclination to curtail their reckless money-printing? Not at all. Ben Bernanke has repeated again and again that he planned on finishing his latest batch of Bernanke-bills (totaling $600 billion) irrespective of whether he sees stronger U.S. economic data. Meanwhile, "across the pond" in Europe, we see the Euro printing press being ratcheted-up to an almost Fed-like level.
The propaganda is seen to not only defy conventional analysis, but to defy the empirical evidence of the past 24 months, and to defy the primary driver of commodity markets: Western money-printing. Another way to illustrate that this is shallow and meaningless drivel is to observe what the propagandists would have said had the "news" out of China been literally the exact opposite.
If China's economic growth had slowed below the level expected by the "experts", we would be told that this was the "reason" for the decline in gold and silver prices. The explanation we would be given is that the previous moves by China's government (raising interest rates and bank-reserve levels) were showing that China's economy was slowing, and that demand for commodities (and inflationary pressures) would lessen.
Note that unlike today's propaganda, that this is direct reasoning: China's economy slowed, which directly impacts demand for commodities and inflationary pressures. In other words, unlike today's propaganda, this would have been a much more plausible reason for a decline in gold and silver prices. Indeed, when such direct news reaches the market, the typical reaction has been for gold and silver prices to sell-off.
We see a general principle emerge: markets typically respond to direct drivers for asset prices rather than speculative, indirect drivers. This can be expressed as basic "risk/reward" analysis, or simply common sense - making today's propaganda "nonsense".
To further illustrate the absurdity here, what the propaganda implies is that if China's economic news had been terrible that gold and silver would have risen strongly today, because (using the same indirect reasoning) China would have reacted by lowering interest rates, which would have boosted commodity-demand and inflationary pressures.
In fact, alert readers will recognize this last example as a very common propaganda-tool used to pump U.S. equity markets higher. How many times have U.S. markets rallied on "bad economic news" in the past, because this (supposedly) meant the Fed would react by lowering interest rates or cranking up the printing press?
If readers merely take a moment to evaluate whether a particular piece of analysis is based upon direct or indirect reasoning, this will often provide a quick tip-off as to whether a news item is legitimate analysis or deceptive disinformation.
As I mentioned earlier, the bears at Kitco.com cited two other "reasons" for the drop in gold and silver prices today. It's worth taking the time to examine these other explanations as well. Speaking of the U.S. economy, bullish U.S. economic data was given as another reason for today's bullion sell-off.
However, unlike the reason given for bullish Chinese economic data "causing" this sell-off, even market sheep would have laughed at any suggestion that the Federal reserve might raise interest rates or bank reserve levels. So the propagandists had to invent new "logic" for this explanation. According to Bloomberg, stronger U.S. economic data has reduced the need for gold as a "safe haven".
But hold on here. While gold is off less than 2% today, silver was down well over 3% last time I checked. Knowledgeable readers will know that these same propagandists tell us again and again that silver is an "industrial" metal. So what we have in today's news is that the world's largest and second largest economies "surprised experts" with very bullish economic data (implying greater economic activity, greater industrial activity, and greater commodities demand), and according to the propagandists this is the "reason" why silver is down more than 3% today.
This brings us to the last "reason" for the drop in gold and silver prices: Brazil's government choosing to increase interest rates. At first glance, this actually seems like a legitimate reason for commodity prices to fall. A large economy raises interest rates, which directly implies lower economic activity and commodity prices. As the old saying goes, however, "looks can be deceiving".
Why is Brazil increasing interest rates? Because the reckless money-printing of Western bankers is causing horrible inflationary pressures on its economy (sound familiar?). Two observations must be made here.
First of all, the Brazilian government hated the idea of raising interest rates. Doing so causes its currency to rise versus the other fiat paper - reducing the competitiveness of its economy, while simultaneously drawing in dangerous amounts of capital into its debt and asset markets. It only engaged in this move as a desperation-measure, indicative of how extremely strong are such inflationary pressures (hardly "bearish" for commodities or bullion). This means that not only is Brazil unlikely to repeat today's move, but if there is any significant softening of inflationary pressures (i.e. lower commodity prices) it would seek to reverse this policy at the first opportunity.
The overall trend is clear: the reckless money-printing of Western bankers, which has rapidly pumped $trillions of their worthless paper into asset and debt markets is drowning-out all other economic factors (by a large margin). The propaganda with which we were bombarded today is nothing but a cynical attempt to (briefly) hide the monetary destruction caused by these bankers, parroted by mindless drones who lack the slightest understanding of the markets on which they report.
The lesson here for readers is look at the data, ignore the (so-called) analysis, and simply laugh at the absurd headlines. In the case of U.S. economic data, of course, we can't even trust any of that. This forces those looking for accurate information on the U.S. economy to go to Shadowstats.com (I wonder if John Williams is gracious enough to thank the U.S. government for their "contribution" to his enterprise?).
The other lesson is the "contrarian" lesson. If we are being bombarded on a daily basis with propaganda designed to frighten us away from the gold and silver markets, and discourage us from acquiring the world's only "good money", then what should we do?
I'll let readers answer that one for themselves.