Peter Brimelow: Gold May Be Signalling Hyperinaflation

That opinion isn't (necessarily) his own; it's his distillation of goldbug opinion over last week. Both gold and gold stocks, as measured by the Amex Gold BUGS Index, did well last week. Trader Dan is of the opinion that gold will make a try for $1,550. Unsing Fibonacci analysis, an anonymous ScotiaMocatta analyst says gold is clearing the way for a try at $1,600. The Aden sisters like what's happening to gold stocks, as based on their proprietary advance-decline line comprised of 26 gold stocks.

This sense of financial crisis is widespread. On Friday, The Gartman Letter uncharacteristically engaged in a blistering denunciation of the Fed for letting the “adjusted monetary base” surge: “In only five months, the base has risen 30%. ... Where are the adults, we ask?”

From Australia, The Privateer notes: “Today, the Fed’s balance sheet is more than three-and-a-half times the size that it was in late 2007.”

At JSMineset, veteran Jim Sinclair pulls seniority: “Here we are at that place we have anticipated for the past 45 years, knowing that all the games being played had to play out.”

Sinclair predicts hyperinflation — in language that I won’t even try to get past MarketWatch’s editors!

Gold's Sluggishness Due To Tug Of War?

The Wall Street Journal's David Cottle answers that question with a "yes," as bad economic news and the Eurocrisis battle against unfavorable items for gold like the recent rise in the greenback and the ending of QE2 in about a month. Dennis Gartman believes that the current doldrums are a preface to gold rising again:

"There is a decided lack of 'frenzy' in the gold market at present, and indeed, we find it passing strange that with gold only a few dollars from its all time highs, there is very little if any speculative enthusiasm. Instead, bullish enthusiasm is high, but it is not rising and certainly it is not at 'nosebleed' levels consistent with previous interim peaks," he added.

It remains to be seen if gold can defeat the usual seasonal weakness that creeps in about this time.

Key To Next Leg Of Gold Bull In The East

Christopher Barker, of the Motley Fool, says that continued Asian (particularly mainland Chinese) demand is the key for gold going up to $2,000. Demand from that country and India alone make up 57% of total demand, according to the World Gold Council. Both peoples have a traditional attachment to gold, as well as rising incomes and inflation problems. These three factors in tandem have fueled an explosive growth in gold ownership, particularly in mainland China.

Gold's immutable legacy as an enduring store of value is firmly rooted in both cultural traditions: East and West. However, whereas the Western world shifted to an unmistakably negative prevailing attitude toward gold during the 20th century -- devolving ultimately into widespread prejudice against advocates of investment exposure to gold -- China is described by the WGC as sharing a "similar gold culture and heritage" with India. Thus, it may come as no surprise that we are witnessing a much faster cultural reprioritization of gold as a broadly popular investment asset in China than we have observed in the West to date. Indeed, for all the widespread bull-market hoopla surrounding gold, total consumer demand for gold (jewelry and investment demand combined) in the United States actually fell by 3% over the trailing 12 months through March 31, 2011; while in China that demand grew by 37% over the prior-year period.

Because of that rising demand in the East, Barker forecasts gold will reach $2,000.

Flight Into Gold A Flight To Quality

That's the take of Bob Chapman at the Centre of Research into Globalization. He says that the Fed's near-zero interest rate policy and quantitiative easing will eventually produce 14% inflation. [I believe he's using John Williams' gauge; by William's measure, inflation is already above 10%] He also predicts another round of quantitiative easing, in order to cushion the economy from more damage due to still-slumping housing prices and to give the stock market another boost.

We believe that for the past 2-1/2 years the price of gold has been mainly driven by a flight to quality, as gold vied with the dollar for supremacy, as the world’s reserve currency. As we have witnessed gold has won that battle. The only way the dollar or any other world reserve currency can compete is by being backed 25% by gold. The elitist’s royalty of Wall Street and the City of London are quite upset with these developments, because they want all currencies to be fiat, so that they would not have to have a gold backed international monetary unit. Over the last six months another historic factor has come into play in evaluating gold versus currencies, and that is the interconnectivity of gold’s relationship with inflation. In the late 1970s this was the underlying factor for the rise in the prices of both gold and silver. At that time they never had the luxury of strength also coming from recognition of being monetary units. We hear the manic claims that gold and silver are bubbles or are manias. That cannot be because gold is and always has been the only real money. Every time the major media makes these bogus claims they always fail to mention that both gold and silver have appreciated in value in excess of 20% annually versus nine major currencies. They refuse to point out gold and silvers’ 11 years track record having risen from $260.00 and $3.80 respectively to more than $1,500 and $50 per ounce. This shows you the massive deception by the major media, which is totally controlled by the elitists from behind the scenes....

As for Williams' Shadowstats service: whether one likes it or dislikes it, it has the virtue of consistency over time. It demonstrates that calculating inflation the same way as was done in the 1970s, shows inflation this past decade to be just as bad as during the 1970s.

Dennis Gartman Says Gold Prefered Coin of Eurorealm During Debt Crisis

Although he says that the U.S. dollar and Swiss franc will benefit, Dennis Gartman says that gold is the currency of choice now that the Eurocrisis is flaring up again.

Gold is the preferred "coin of the realm" during Europe's sovereign-debt crisis as investors seek to protect themselves from a weakening euro, said Dennis Gartman, an economist and the editor of the Gartman Letter....

"Dollars are a reasonable alternative, and increasingly the Swiss franc is one also," Gartman wrote in his Suffolk, Virginia-based report today. "But the 'trump card' currency of choice is gold and in all likelihood it shall become even more readily embraced, not less so, in the days and weeks ahead as Europe's problems worsen.

Goldman, Sachs also reversed their bearish call on commodities and recommended buying gold.


The metal has gone up more slowly in Euros than in greenbacks, but it did hit a record in Euro and pound terms yesterday.

Mark Hulbert Asks If Short-Term Bottom Formed At $1,480

In his latest Marketwatch piece, Mark Hulbert points to some evidence that suggests gold has made the second half of a double bottom. In addition to the chart, which shows buying coming in at the $1,480 level, Hulbert's sentiment guage shows gold timers skittish. From a contrarian standpoint, that means there's little excitement and a lot of potential buying power to push gold up. Skittishness also suggests there isn't that much selling power left.

Consider the average recommended gold market exposure among a subset of the gold market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). The day after the first half of gold’s double bottom, for example, this average stood at 40.3%. It today stands at just 7.0%.

In other words, while gold is patiently doing the technical work to form a bottom, the average gold timer is building a wall of worry that bullion will be able to climb.

Hulbet does point out that it's possible for sentiment to rocket up should gold make a leap, which would be a bad sign sentiment-wise. Skepticism means that there's buying power still in reserve.

Thinking Of Gold As An Investment May Be Misleading

That's the opinion of Nick Barisheff, who says that gold is neither a good or bad investment because it's money. This take explains why gold pays no interest or dividends; nor does cash stored in a safety deposit box. Although all currencies are fiat, gold is still seen as money; Barisheff offers three pieces of evidence why:

• Gold, silver and platinum are traded on the currency desks of the major banks and brokerage houses, not the commodities desks. Traders understand that gold is money to be traded against paper currencies.

• The world's central banks hold about 30,000 tons of gold in reserves. Although there has been a lot of media attention given to central-bank sales in the past, gold holdings have declined only by about 2,000 tons since 1980. Central banks have become net buyers since 2009 and have been adding gold to their currency reserves.

• The turnover rate among members of The London Bullion Market Association is more than $20 billion per day, with volume estimated at five to seven times that amount. Clearly, this has nothing to do with jewelry sales and everything to do with the exchange of money.

Although it may be misleading to think of gold as an investment, it's useful to think of it as portfolio insurance - a kind of counter-investment.

Those who like to see gold as portfolio insurance should own a fixed percentage of their portfolio in gold, and rebalance recurrently. Rebalancing is especially indicated when gold goes nuts, although it does take an effort to sell some when it's rocketing up. Doing so is best thought of as cashing in some insurance when it pays off, and rolling the proceeds into regular investments. This approach meshes best with thinking of gold as an investment.

For those who think of gold as money, and wish to save, the best approach is an accumulation plan of physical coins or bars. It's best to dollar-cost average using this approach, as less is bought when the price goes nuts and more is bought when gold's driven down. Selling the accumulated savings when gold's gone manic is an option, but some (perhaps many) would prefer to leave their savings be. Of course, savings can be cashed in for this homely but still imporant reason: simply needing the money.

Mark Hulbert Reports Gold Timers Now Gloomy

In his latest Marketwatch column, Mark Hulbert says that last week's more than hundred dollar decline in gold has finally sunk into gold timers' models. Initially stubborn, expecting another mere fall out of bed, the gold timers that Hulbert watches shed their bullishness this week at a surprisingly rapid rate:

Consider the average recommended gold market exposure among a subset of the gold market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). Just a week ago this average stood t 73.7%, one of the highest readings for this index in several years.

Today, in contrast, it stands at just 7.0%.

This sixty-seven percentage-point reduction in a week’s time is impressive, and most definitely enough to get the attention of contrarian analysts.

The good news for contrarians is that sentiment seems to have shrunk a bit despite gold's recent bounce-up. From a contrarian's standpoint, skepticism about the bounceback would be heartening because it suggests there's reservoirs of buying power not yet committed.

David Stockman Provides Six Reasons Why The Gold Standard Beats Fiat

In a talk delivered to the New York Historical Society on May 8, 2011, David Stockman says that the gold standard isn't a perfect system but it beats fiat hands-down. His six reasons why, are:

1. The gold standard would have prevented the U.S. current account deficit from getting out of hand over the last forty years. There were no chronic trade deficits when the gold standard was in operation.
   
2. Because the gold standard does not allow the creation of imaginary capital, it keeps debt levels from bloating up. Total (public-sector and private-sector) debt was 1.6 times GDP under the gold standard; it's now more than double that ratio.
3. The gold standard takes away the 'flexibility' that permits moral hazard to grow and Wall Street bailouts to be effected. Back in the gold standard days, financiers had to be less imprudent than they are now.
   
4. The gold standard kept fractional-reserve banking from imploding by limiting leverage. Under fiat money, the only limits are statutory and judgmental. These, 'flexibility' tends to erode.
5. The gold standard provided negative reinforcement when chronic budget deficits were resorted to. With fiat money, even perpetual deficits can be monetized by the fiat-issung central bank.
6. The gold standard also moderated business cycles. Look at how volatile U.S. inflation and economy have been since the United States went to full fiat in 1971.
   

The last point deserves a little emphasis. As we now know, fiat money does not provide immunity to new Great Depressions. If it did, then why all the panic in the official sector in the crisis of '08? Why Japan's continued troubles?

A lot of the criticism of the gold standard amounts to it not being perfect, not matching up to a hypothetical standard. That worked when fiat money was new. But now, fiat has a 40-year track record. We now have to periods that can be compared, and the fiat-money period does seem wanting.

Last Week's Plummet Didn't Change Much For Gold

That's the conclusion of a Mineweb article, which says that gold's long-term prospects still remain the same as they were before the metal's run-up above $1,500 and spectacular fall last week.

Mineweb finds itself asking the same question it did during the metal's first breach through $1,500: "What has actually changed".

It is a question very succinctly answered by Adrian Ash, who wrote on Mineweb, "Nothing. Absolutely nothing. There's no more or less of it in the world today than there was a day or a week ago, and very little more than a month ago. There's barely 15% more today, in fact, than there was a decade ago at $270. Gold still has very few industrial uses - only 11% of 2010 global demand - and the stuff remains indestructible. It never changes or does anything. Hell, it won't even rust. But what is changing is everything else - the volume and quality of debt, in particular, and the volume of US Dollars most especially."

In other words, the same long-term drivers are in place for gold to stick to its long-term bull market. Gold got ahead of itself late last month.


This conclusion may seem trite, but such reassurances have their place. Seeing a $100 fall over the course of a week isn't a pleasant sight, and such plummets do tend to induce fear that the bull market is over. Gold may have a tough time in the next several months, but there's no reason to fear that the long-term bull market's over as of now. These reminders help when bad news swamps the news cycle and gold skeptics have their day in the sun.

Peter Schiff Says The Herd Is Turning...Towards Gold

The herd in question is composed of major institutional investors. For most of gold's 10-year bull market, they ignored the metal. But recently, daring institutional buyers like the University of Texas' endowment funds have been putting some funds into gold as a portfolio hedge. The board member who convinced them to do so was Kyle Bass, the Hayman Capital hedge fund manager.

The purchase is certainly causing a few heads to turn.

Now that a major endowment has taken this step, other fund managers are going to be emboldened to follow through on their gut instincts. These are smart guys, after all; they are aware that although their funds may be posting nominal gains, they are losing much more in purchasing power. I’m sure many have privately bought precious metals, but now they have cover to do so professionally....

As endowment after endowment decides to sell billions of Bernanke’s dollars and diversify into gold, what might this do to the gold price? If these colossal funds start getting the idea that holding 5% of their portfolio in gold is more conservative and intelligent than holding the current average of 1%, what will this mean for gold demand? The answer is obvious and the ramifications huge.

What makes for those huge ramifications is the fact that there's a lot of institutional money relative to the supply of gold. If all private foundations followed the University of Texas' lead and put 5% of their portfolios in gold, they'd have to buy about 400 tonnes of the metal to make good.

Schiff concludes by saying that the smart money is waking up and about to veer towards gold.


I can't really fault him on his logic, as what he says gibes with what I know about institutuonal investors. They do often act like a herd when one of their own takes a daring risk that pays off hugely, although there's often a lag time. Should they pile into gold, the metal might well go parabolic...making them all look very smart.

For a time, anyway.

Commodity Bubble Popped?

James B. Stewart of the Wall Street Journal suggests limiting exposure to inflation-hedge investments, including gold, now that the correction/bear market has visited the commodity markets.

This doesn't mean I know the commodity market has peaked. Hedge-fund investor John Paulson, now legendary for shorting the subprime mortgage market and for betting on gold, remains a big gold bull. I'm even less inclined to predict the future direction of commodity prices than I am the direction of the stock market. What I do know is that these assets have had huge run-ups, at rates that simply can't be sustained over long periods of time.

I still maintain that all investors should own hedges against the possibility of future inflation, and commodities and stocks of commodity producers provide such protection. But in my view they shouldn't exceed 10 to 20% of a portfolio for most investors—and now is the time to rebalance.

It's good advice in general; my only quibble is with the timing. The plummets in inflation-linked commodities seem to be over right now. Even if they're destined to keep falling, a plummet of this magnitude often offers a second chance to get out through a relief rally. Rebalancing now would mean selling prior to a possible relief rally.

As a matter of timing in general, although it tends to being out the queases, the best time to rebalance is when everyone thinks the inflation hedge in question can go nowhere but up. With respect to gold, a good indicator of a near-top is when I throw in my hand after making warning noises about a pullback. I have to admit that I'm no pro when it comes to timing.


Disclosure: I should add that I threw financial prundence to the wind earlier this morning and bought some precious metals on my credit card. Not gold, but a 100 oz. bar of silver. I figured that the gray metal was at least due for a bounce, so I now have an interested opinion about where silver's going to go. Although I don't own any gold, my position in silver is likely to spill over into optimism for the yellow metal. Just letting you know so you can discount any optimistic noises from this blog.

Market-Manipulation Meme Spreading

In his latest Marketwatch column, Peter Brimelow says that more people are wondering if the gold market is being manipulated now that Richard Russell has jumped on board. Even Dennis Gartman is open to the possibility, albeit with respect to the stock market. Brimelow quotes from a well-known market-manipulation claimant, Dennis Slothower:

Remember what the media present as the most obvious thing to do is really what J.P. Morgan Chase & Co. and Goldman Sachs Group Inc. want you, the public, to do. And last month, crushing the dollar and forcing investors to buy gold and silver at the top of the market gave the primary dealers plenty of liquidity to sell their gold and silver positions into the top of the cycle.”...

“The Fed has played out its hand with this quantitative-easing program and is about to bring the economy to ruin again. We have a government that believes it is their right to pillage and plunder us. The name of the game is delusion (false economy), diversion (OBL) and the division (or plunder) of your wealth.

“If you are holding gold, or any investment for that matter, you now need to have an exit strategy, should that day come. I will repeat that: YOU NEED TO HAVE AN EXIT STRATEGY!

Regardless of whether or not Slothower's claims are true, he does end with good advice. A well-aimed exit strategy would have helped last week.

What To Do If Gold Hits Mania Phase

Brett Arends brings up an unusual paradox. He keeps hearing gold is in a bubble, but the bubble buyers seem to be leprechauns. He can hardly find any ordinary Joe, the stereotypical cab driver, who owns gold. Thus, he concludes that gold is on the cusp of a bubble.

That’s when you make the real coin. In this case, gold coin.

Will this happen? It’s anyone’s guess. But there are reasons to think it might. Gold enjoys some of the key characteristics you need for a bubble, including a “this time it’s different” storyline....

If you want to bet on a mania, you have any number of options.

One is to buy in stages — to ease yourself in, as it were. If you want to buy $10,000 worth of gold, and you are terrified you’ll take the move the day before it peaks, then just buy in $1,000 lots over time. (I’d suggest this seems a particularly good idea at the moment, because gold has risen a long way lately. The dollar may be overdue for a sharp bounce.) A second is to buy gold mining stocks. So far they’ve been left behind by the rise in the metal. John Hathaway, manager of the Tocqueville Gold mutual fund, says many big gold mining stocks, in particular, are cheap in relation to gold.

A third may be to take a wager on “out of the money” call options on the iShares Gold Trust, an exchange-traded fund that owns one tenth of an ounce of gold per share. This is a particularly high-risk, high-octane bet on gold going vertical, fast. Options allow you to make big profits in a mania, while only risking a small stake.

I should add that Mr. Arends is a gold skeptic, which makes his advice cynical. He's convinced that no-one knows how to value gold.

U.S. Dollar Drop Quick Fix, Won't Solve Anything

This commentary is an interesting one, as it comes from a Website that's both goldbug-friendly and left-wing. It described the debasement of the greenback as a quick-fix stopgap that's being used to avoid the structural problems with the U.S. economy.

Dollar weakness that has continued will continue. That is to make US goods cheaper and more saleable as exports, but the flip side is that imported goods are more expensive and that creates inflation. Such a policy is foolhardy versus foreign nations that have export advantages....

Price fixing is an exercise in futility and so is a course of mandatory wage increases pursued to play catch up with runaway inflation. Even though higher numbers show sales growth they are misleading and only a reflection of higher pressing inflation. This is not economic growth; it is price inflation. Such an exercise is geared to keep people and business solvent, but in the long term it accelerates inflation and leads to worse problems down the road. The economy is exhibiting deterioration at the edges and that is to be expected for an economy that has been so badly misused. What is left of manufacturing is in decline and until the system is purged such deterioration will continue....

The proliferation of fiscal debt will continue, as will the exorbitant creation of money and credit. They cannot stop. If they do the system will collapse. That will happen, but only when those driving and controlling the system allow it to do so. We have just witnessed the disinformation calculated to deceive the public into believing that there is a recovery afoot. Nothing could be further from the truth. What little upside that was seen was a lift via price inflation. When figures are released there is never an addendum explaining that if inflation were removed, what the statistics would really be. That is why we have a 5 to 10 year bull market in gold and silver ahead of us, whose presence is so powerful that no governments or central banks can regulate, suppress or overwhelm it....

The author is one of those people who think that global trade is unbalanced, and recommends tariffs as a fix. He also recommends regulatory reform of the banking sector.


Free traders won't like it, but he has a point when it comes to the debasement fix. Needless to say: if competitive devaluation is the new way to kick the can down the road, then gold will keep going up.

Warren Buffet Sticks To Anti-Gold Narrative

True to form, Warren Buffett criticized gold investing in his speech for the latest Berkshire Hathaway shareholder's meeting.

The 80-year-old sage of Omaha told shareholders at Berkshire Hathaway's annual general meeting gold "doesn't have utility" adding he would "bet on a good producing business to outperform something that doesn't do anything".

"You can fondle it, you can polish it, you can stare at it. But it isn't going to do anything," he said.

It would be politer for him to say that gold investing is outside of his circle of competence, but that kind of politeness doesn't come easily for someone wrapped up in his business. Mr. Buffett, of course, has made lots of money focusing on value stocks and later value-growth stocks. As a businessman, he has to rally his employees and shareholders around his own model. Diplomacy comes a distant second to that vital goal.

Peter Brimelow Notes Divergence Between Gold And Gold Shares

In his latest Marketwatch column, writen before gold's tumble last night, Peter Brimelow notes a divergence between gold and the Amex Gold BUGS Index (the HUI.) Althouhg gold roared up to a new record, the HUI closed down on the day last Friday.

Weak gold shares always worry experienced observers. Pring Research noted the shares have “definitely been struggling. … It has managed to set up a negative divergence with the metal price. … This is a troubling factor”

And I recently noted Sound Advice’s warning: “We caution against getting caught up in the noise surrounding precious metals. … We know there are calls for gold to go to $2,000, $3,000, $5,000, but that is based on expectations of Armageddon, an event that always seems around the corner when times are difficult but which usually does not happen.”

The hard-core goldbugs were undeterred, even normally cautious ones like the Privateer.


That confidence doesn't jibe with the tumble last night, but gold does show signs of stabilizing. Needless to say, the divergence theory worked well this time.

How To Spot Gold Mania Cracking Apart

The author of this piece is far from being a gold skeptic: he's been in gold for about ten years. He reassures us that gold is far from being in a bubble right now, because it's underowned relative to housing in 2005 and tech stocks in 1999. But, gold's heading that way. Here's what to watch for:

Try starting up a conversation with your neighbor about the best silver stocks in the world... or why the geology of Nevada has made it such a prolific gold producer. Ask your personal trainer what the best places to store physical gold are. Chances are excellent you'll get a bunch of odd looks. They'll want to turn the conversation to baseball or the weather.

We'll know we're in the midst of a real gold and silver bubble when we can have those conversations at will. Or when, as my colleague Jeff Clark of Casey Research has pointed out, Silver Wheaton is a market darling... instead of a stock you occasionally hear about from "fringe" publications like DailyWealth.

In the gold bubble, we'll be able to ask any cab driver which gold stock he likes and get a quick reply. "Goldcorp," one will say. "It has the lowest cash costs and great growth prospects."

Or, even more alarmingly, a cab driver says "XYZ Exploration. Its drill results were so hot, it's guaranteed to build a mine!"


Pre-bubble investments are tricky except for those who like to hold on out of faith. To be frank, faith pays off when an investment's about to move into a bubble. The blockage to full bubble status comes from the investment's nosebleed level when compared to historical norms. That makes the ones who were there from the early days nervous. I remember a fellow who bought a lot of gold, from 2000 on up, selling in early 2009, when gold was around $900, because he thought gold wouldn't crack four digits. It's easy to smile in retrospect, but this guy was used to gold being much lower. $300 was a bargain. So was $500. $700? Not so much. The bulk of his accumulation was undertaken when forecats of $1,000 gold were mostly seen as absurd.

The tip-off towards a bubble approaches when an investment stays at nosebleed values long enough to assure people that there's not much risk at those high prices. Typically, these people are late entrants who hadn't heard about the investment until late in the bull market. For gold, this would be the new goldbug that got in because George Soros and John Paulson did. For the first crop of these people, $900 didn't seem that high. They didn't remember gold scraping along at $250-$300.

Those new goldbugs, if they held on, are sitting on substantial and fairly quick profits. They're also in a minority. The average Joe has heard about gold, but hasn't pulled the trigger - perhaps because gold looks so high and inflation isn't much of a problem right now.

It's those people that turn a third-stage bull market into a mania once they pile in: the cabdriver and personal trainer.

Faith comes into play when a bull market transitions from its first to second stages, not just from second to third. The first-stage investor gets in because the investment's a bargain, and gets jittery when the investment rises above fair value. The second-stage investor gets in for growth reasons, and gets jittery when the investment becomes overvalued even by generous growth metrics. The third-stage investor gets in when the investment looks like a sure thing, largely becasue even rational skeptics have been throughly discredited as boys who've cried wolf too many times.

With respect to gold, the first stage covers the time when it was undervalued as a commodity. The second-stage growth story is rooted in global inflation, Asian demand and central-bank buying. Transitions between stages can be seen when the air is thick with cries of "bubble," as was the case when gold was at $650 in '06. The third stage is usually an exaggeration of the second-stage growth story with a kicker. The kicker in this case would be developed-world inflation taking off, with a plausible rationale explaining why central banks won't do anything about it.

Right now, gold's transitioning to the third-stage blow-off. I wouldn't be surprised to see second-stage goldbugs get jittery right now, except for the ones waiting for the blow-off. In this kind of transition time, faith helps. Needless to say, the first-stage goldbugs who've held on are getting jittery.

The trouble with faith is, it hurts terribly once the blow-off is complete. One of the lethal side effects of faith, which enables people to shrug off false alarm bells, is it encourages people to shrug off real alarms that were obvious in retrospect. An example would be the Fed finally raising rates enough to make for a 3% real return, or the U.S. Congress implementing a real budget-trimming plan. In mania times, these turning points are laughed off as insincere or politically unsustainable. Mainstream goldbugs didn't realize that Volcker was serious until 1982, when it was too late for gold.

52% Rise In BullionVault Trading Sparks Fears Of Bubble

The U.K.'s BullionVault reported a 52% increase in buying and selling of gold for last year, prompting concerns of a gold bubble.

Paul Tustain, chief executive of BullionVault, unsurprisingly dismissed such concerns: “Gold has by far the best long-term record of deep and liquid markets of any financial asset in history, and I see this continuing. Conversely, Western governments have dug themselves ever deeper into triple-A rated debt, from which I still don’t see a credible exit plan capable of preserving value for their creditors.”

Of course, such concerns are easier to dismiss for those with long memories. The supposed popping of the gold bubble has been called for even when gold was in triple digits.

Gold's Rise Inversely Correlated To Trust In Bankers

On the face of it, Julian Phillips's commentary about bankers reads like something you'd read in The Nation or The Guardian. He castigates bankers for single-mindedly pursuing profit while cutting ethical and even legal corners. He criticizes them for ignoring their "social responsibilites" - his phrase.

Yet, he ties distrust of bankers - in his eyes, thoroughly earned - to the bull market in gold.

We are of the opinion that there is little chance of bankers moving away from the profit motive or of lawmakers enforcing social responsibility on bankers.

What is remarkable in the last few years has been the increasing visibility of the actions of bankers and the very public loss of reputation. How long will it take for developed world investors to turn away from their financial systems as Indian investors have done for so many decades and use cash and gold and property in an ‘alternative' financial system? Or are they too locked-in to escape?...

In India, cash and gold yield income in the hands of its owners. Their activities escape corrupt bankers and government officials and corrupt lawmakers. They must laugh when they read reports such as the above and say, ‘haven't you learned yet?' Not only does gold provide for private commercial deals of many kinds, it increases in price. Their total return on gold has been nearly 500% in the last 11 years. What's been the return on the broad spectrum of developed world investments, including bank deposits? Who cares that there is no annual income on gold and silver, there's been an incredible total return? They would laugh at the concept of getting small ‘real interest' returns from their investment in banks.

Most importantly, gold and silver bullion, by itself, are places to escape dishonesty and all the common, unethical, core practices of the financial system. Precious metals don't lie, cannot be unethical, do not have conflicts of interest but are respected by all their investors, whatever the state of these investor's own morality.

So long as this situation persists in the banking world, gold and silver will be bought as long-term money and honest investments.

How's that for unusual? Given the central-bank bashing that's long been part of the goldbug world, and the increasing corporatist nature of the banking system, I wouldn't be shocked to see this long-term side effect of the '08 crisis: the rise of a new crop of left-wing goldbugs. It does seem time for the Guardian to take on a pet goldbug.

Stranger things have happened...