Monetary Metals Gold Brief 2022

This is a brief of our annual analysis of the gold and silver markets. In the full Outlook Report, we take an in-depth look at the market players, dynamics, fallacies, drivers, and finally give our predictions for gold and silver prices over the coming year.

Our unique analysis of precious metals, encapsulated in our Supply and Demand model, is a true signal in an otherwise very noisy market. It has achieved over 75% accuracy in predicting future price moves over the last decade.

So, how exactly do we do it?

 

 

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Implications from the Federal Reserve’s Paper

Our first comment is that every monetary change from the Founding of America through present has been to move away from free markets, and to adulterate our currency. An analogy could be made to the Ship of Theseus, with each good plank replaced with an unsound board. A Zombie Ship of Theseus, decaying, but still afloat.

Let’s walk through the Fed’s paper. The very firstparagraphon page 1 says, “The Federal Reserve, as the nation’s central bank, works to maintain the public’s confidence by fostering monetary stability, financial stability…”

Monetary stabilityis defined as2% debasement per annum, an Orwellian twist. Andfinancial stabilityin the Fed’s regime is a myth.Interest rates shot the moon between 1947 and 1981, and since then have been falling—with volatility—into the black hole of zero.Meanwhile debt grows exponentially, and the marginal productivity of debt—how much GDP is added for each new dollar of debt—falls decade after decade. It is not only unstable, but unsustainable, heading towards an ultimate heat death of the economic universe.

 

 

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The Zombie Ship of Theseus

The Ship of Theseus is an old philosophical thought experiment. It asks a question about identity. Suppose you replace all of the boards of a ship with new ones—is it still the same ship?

We are not going to try to resolve this millennia-old paradox. Instead, we are going to add one more element, and then tie it to the monetary system. The additional element is what if the replacement boards are adulterated in some way. That is, each new board is warped, or weakened, or otherwise not fit for purpose.

It should be clear that replacing boards with unsound wood does not alter reality, only the ship. It does not remove any constraints such as the need to be watertight. It does not make anything better, only adds new flaws.

Let’s call this new ship, with each original board replaced with these adulterated boards, the Zombie Ship of Theseus. It looks like the Ship of Theseus. However, it does not work like it. It has been corrupted to work in a different way, i.e. to lull sailors into going out to sea, where a storm will drown them.

 

 

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Inflation and Gold: What Gives?

In the last Supply and Demand update, we discussed some different theories which attempt to explain what causes the gold and silver prices to move. We mentioned the:

“…attempt to hold up a famous buyer of metal, while ignoring the thousands of not-famous sellers who sold the metal to said famous buyer.”

Since then, Ireland has bought gold for the first time in over a decade. And predictably, most voices in the gold community see this as a bullish sign.

By the way, we did not see any data about the prices paid on what dates, but the articles on December 1 mention a series of buys over a few months. Assuming a few means two, it looks like Ireland may have paid more than the current price.

 

 

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I write this with sadness, still, at the news of the death of my friend Heinz Blasnik. He is better known by his nom de plume, Pater Tenebrarum, who published the economics blog Acting Man and wrote for many other financial sites.

I met Heinz twice, at his home in Vienna. He was a kind and gracious host, sending his driver to pick me up and serving Austrian delicacies for lunch. When I met him, he was struggling near the end of a long illness which was the result of a youthful adventure. Even so, he retained a benevolent sense of life, and a positive spirit.

But this is not why I wanted to write this. We were friends because we shared some ideas. Important ideas. Ideas about the nature of the world, and mankind, and how man can work together and coordinate their productive activities. Economics and business are my life, and Heinz was the same way.

What better basis for a friendship than sharing important values?

Heinz was deeply, passionately interested in helping people understand economics. I know not how much time he gave to this cause—unpaid, as blogs do not make money—but it was surely more than I spend. He engaged with those who were interested. Sadly, Austrian economics is not mainstream, though there are more than enough people to keep a teacher—or sensei—busy. He was willing to correspond with me, and I credit his articles and emails for helping shape my own views.

We did not always agree. If you put 3 economists in a room then you have at least 4 opinions. But even when not, he listened with benevolent intention and did not make it personal. It was always about the ideas. I think this is an important and uncommon virtue.

On one of my visits, we discussed life, the universe, and everything. And he told me a bit about the Austrian welfare state. Which led me to write The Service Economy. I have traveled around the world, and I have shared food and drink with friends in many countries. Yet that one conversation with Heinz stands out as interesting and important. I can only recall one other discussion with one other friend that led directly to me writing an essay.

I don’t think Heinz believed in Heaven, but I hope everyone will understand when I say this. I would look forward to a day—many years in the future, I hope—when I could meet Heinz for beers in Heaven, and continue our conversation where it left off in 2021.

Adieu Heinz.

 

Dr. Keith Weiner is the president of the Gold Standard Institute USA, and CEO of Monetary Metals. Keith is a leading authority in the areas of gold, money, and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads. Keith is a sought after speaker and regularly writes on economics. He is an Objectivist, and has his PhD from the New Austrian School of Economics. He lives with his wife near Phoenix, Arizona.

 

     

 

 

Putting the World on a Paper Standard

Half a century ago one of the most disastrous monetary policy decisions in US history was committed by Richard Nixon.  In a television address, the president declared that the nation would no longer redeem internationally dollars for gold.  Since the dollar was the world’s reserve currency, Nixon’s closing of the “Gold Window” put the world on an irredeemable paper monetary standard.

 

Richard Nixon during his televised speech on the “temporary” closing of the gold window (effectively a debt default). [PT]

 

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Lessons to be Learned from East Asia

The world should take a lesson from how East Asia ran itself in 2020. Japan had no lockdown. None. With an aging population, its death rate has been creeping up for many years. In 2020, it fell by 0.7%, as if Covid-19 was a life-saver.

 

Daily new cases in Singapore – Covid-19 seems to be pretty much under control there. [PT]

 

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Scavengers Out in Full Force

I have just returned from a visit to my family in India. It was hard to escape. To get to the US from India, I needed a COVID test. The Indian government has seriously restricted who can provide COVID testing, treatment, and vaccination. Private doctors and hospitals that are not approved face brutal legal consequences if they provide COVID treatment.

 

India’s experience with the COVID pandemic was particularly unpleasant… [PT]

 

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Shooting from the Hip

[ed. note: the tweets linked below mainly show videos from various lockdown phases]

 

Reminiscent of his demonetization effort in 2016, on 24th March 2020, Indian Prime Minister Narendra Modi, appeared on TV and declared an immediate nationwide curfew. No one was to be allowed to leave wherever he or she happened to be. All flights, trains (after 167 years of continual operation) and road transportation came to a complete, shrieking halt.

 

Stranded in India… [PT]

 

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Value Traps and Economic Ignorance

A financial analyst is often, or at least should be, more of a psychologist than a financial expert. There are companies that I knew fifteen years ago that had inherent value a multiple of what their stocks were trading at. Today, there continues to be similar upside, except that upside targets and share prices are lower. What went wrong?

 

A problem reaches the far North faster than climate change can melt all the ice. [PT]

 

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Dead Men Don’t Spend

The checks went forth yesterday.

And all the peoples rejoiced.

 

Stimulus blinders firmly attached! Let’s go! Mars is within reach! [PT]

 

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The Stress of Losing Billions

Up until the WallStreetBets crowd short squeezed Melvin Capital for a $7 billion loss, Robinhood had it made. But losing billions is stressful. And when your product blows up your customer the clucking that follows comes hot and heavy.

 

A surprise revival of business at Game-Stop… [PT]

 

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