Tuesday, November 17, 2009

One year later: Bernanke's gold prediction wrong

One year ago, I mentioned that Ben Bernanke claimed:

1) the dollar is now strong and considered a safe haven by foreign investors.

2) central banks are selling their gold.

I also mentioned the counterpoint offered by, perhaps, the only elected official in Washington with the intellectual capacity to engage in a philosophical discussion on economics with Benny - Congressman Ron Paul:

1) the dollar only appears strong momentarily as foreign investors by US dollars as a prelude to buying US assets, such as factories and buildings. So it's not that "smart money" wants US dollars... they want US assets.

2) selling gold is a short-term tactic, not a long-term strategy, to build confidence.

Fast forward one year and we see Kim Kyoungwha reporting:

Nov. 18 (Bloomberg) -- Gold climbed to a record for a second day this week on speculation that central banks and investors will boost holdings to guard against a further decline in the dollar and the threat of rising inflation.

The International Monetary Fund said this week it sold 2 metric tons of gold, valued at about $71.7 million, to Mauritius. The sale followed India’s $6.7 billion purchase of 200 tons, which was announced earlier this month. The IMF plans to sell a total of 403.3 tons to bolster its finances.

“Sentiment continues to be very upbeat,” said Stefan Graber, an analyst with Credit Suisse Group in Singapore. “We are likely to see more central banks stepping up gold purchases. Gold prices could extend their rally into yearend.”

Bernanke needs to go.

Geithner needs to go.

Summers needs to go.

And if President Obama won't fire them - and start gearing his monetary policies, banking policies and economic policies toward the American people - then President Obama will definitely need to go in 2012. Obama's economic team does not have America's interests as their #1 priority. They need to be fired.

Tim White


mcjk said...

Tim, if Bernanke was to say gold was going to rise he would be saying the dollar is going to fall and that would run counter to the strong dollar policy. So it is not that he was wrong. He was just doing his job in talking strong dollar.

When the price of gold rises, this is the prime signal that the currency is being debased.

So some argue that gold is an inflation hedge and its pricing runs inverse to the dollar. However Martin Armstrong argues gold is a hedge against the goverment failing.

tim white said...

I see your points. But I'm sure you've read my view that we really should transition back to some sort of sound money. Bernanke's printing presses are not improving the situation for the American public.