The Bedrock Case for the Return of the Gold Bull

Source:

...What I’m arguing here is that the dollar’s giant spike over the past two weeks -- and gold’s corresponding fall -- are a sort of faulty “all clear” signal. With oil and gold falling and the dollar spiking, Wall Street is indulging itself in the hope that the worst has passed. Good times are here again...It’s a massive hope jag... a bold assertion that von Mises was wrong, that the dollar won’t be destroyed, that all will be well and the Fed has won the war...Justice Litle

...But what I really want to talk about today is the “bedrock” case for gold... the reason why I have every confidence the yellow metal will rise again...

Business downturns are natural things for a healthy economy. They are the economic equivalent of breathing in and out. In a normal downturn, debt levels are cut back, weak businesses close, resources are gathered up and redistributed, and the economy overall takes time to heal and restrengthen.

When this process isn’t allowed to happen, however, the shaky parts of the economy get built up too much. Expansion ceases to be healthy. Ongoing stimulus leads to excessive debt creation, the debt builds up to unsustainable levels, and eventually the whole shebang implodes on someone else’s watch. Von Mises memorably described the phenomenon as follows:

"There is no means of avoiding the final collapse of a boom expansion brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

The “final and total catastrophe of the currency system” -- in this case the U.S. dollar -- is what we are headed for...

In a nutshell, gold is not done because the great unwinding is far from done. We have not yet seen “the final collapse of a boom expansion brought about by credit expansion” that von Mises called for...

What I’m arguing here is that the dollar’s giant spike over the past two weeks -- and gold’s corresponding fall -- are a sort of faulty “all clear” signal. With oil and gold falling and the dollar spiking, Wall Street is indulging itself in the hope that the worst has passed. Good times are here again.

It’s a massive hope jag... a bold assertion that von Mises was wrong, that the dollar won’t be destroyed, that all will be well and the Fed has won the war...

As far as gold goes, I believe we’re in the midst of a short-term “sigh of relief” window right now... and it’s a window that will close. The dollar may be rallying hard now, but the von Mises prophecy still applies. The situation on the ground hasn’t changed...

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