Gold market prices tell a lot clearer story than the stock indexes.
Posted by Adam King on October 28, 2011
If you want answers, turn to the gold market.
October 28, 2011 – Gold market prices tell a lot clearer story than the stock indexes. Already the exuberance of the previous two days on Wall Street has waned while the gold market keeps climbing, and for plenty of good reasons.
For one, the Greek haircut constitutes default as Fitch Ratings was quick to point out in the Wall Street Journal. “Fitch recognizes the significant challenges that the Greek sovereign will continue to face following the proposed debt exchange, against a backdrop of anemic growth, austerity fatigue—possibly reducing the capacity to implement tough but necessary structural reforms—and continuing high debt levels, the service says.
China joined the chorus, backing away from previous statements about its willingness to help out with the European sovereign debt crisis. “We of course must wait until its structure is extremely clear,” says Zhu Guangyao, a vice minister finance. “And moreover, this investment must be decided on after serious, technical discussions.”
China appears to be laying the groundwork for concession contingencies. Last month China Investment Corporation’s sovereign wealth fund chairman Jin Liqun let the world know what China thinks of the efforts so far to solve the crisis. “There are some things governments have to do to deserve the sincere support of the rest of the world,” Jin said.
The governments – ours included – still refuse to do those things and the gold market knows.
OK, so the European crisis may not be over, but what about the great news with our GDP?
In the first place an annualized rate of 2.5% for Q3 is nothing to crow about. But a least it is treading water, and there have been three quarters in a row now that the GDP has grown, right?
Well, yes and no. The figures do provide a common measure, and by that measure there are positive signs of growth. But the GDP is not the bellwether it’s cracked up to be, says John Tammy in Whiskey & Gunpowder.
Economies don’t work in isolation and they don’t work in unison rendering national GDPs virtually useless. More to the point, however, the GDP can be inflated by factors that are economically destructive.
Rising prices resulting from currency devaluation raises the GDP. Government spending raises the GDP. And declining imports, which directly reflect a declining economy, raise the GDP.
In short, like the CPI the GDP is a merely mathematical slight-of-hand devised and employed by the government to make things appear better than they really are. “With so much of our economy directed towards work of little to no economic value, but which ultimately factors into the GDP calculation,” Tammy says, “we’re restrained from doing what we need to do to truly advance ourselves.”
America is getting wise to the tricks. We know that Wall Street lives in a world apart from our own. And as the volatility in equities heats up we are increasingly turning to the gold market for answers.
Stewart Lawson
Senior Staff Writer – Certified Gold Exchange
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US Gold Market
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