The bull gold market will someday wind down, but the time to get off won’t come until there is a protracted reversal in the conditions that are driving the market.
Paul Krugman, de facto spokesperson for the prevailing school of economic thought, recently gave the New York Times this description of the situation we’re in: “We’re suffering not from the teething pains of some kind of structural transition that must gradually run its course but rather from an overall lack of sufficient demand.”
Professor Krugman goes on to identify the lack of jobs as the cause of the lack of demand and “the biggest problem facing young Americans today.” To that extent we agree. According to a recent study 9% of recent college graduates were unemployed as were 23% of high school graduates.
Yet Professor Krugman also acknowledges “growing evidence that the corrosive effects of high unemployment will cast a shadow over the economy for many years to come.” And that’s the definition of a structural problem.
In addition to the unemployed there is a much greater number of underemployed. College graduates are being forced into lower positions, frequently outside their field – jobs that historically had been open to high school graduates.
Being underemployed or unemployed for an extended period, regardless of age group or career level, will knock anyone down the ladder a rung or two. The younger people are the less will be the wealth they spend over their lifetimes, and wealth directly relates to demand.
Structural unemployment, is a crack in the foundation of our economy that is spreading to wherever it finds a weakness. Its choking effect on growth is felt across all sectors and demographics.
It will take a generation or more to completely untangle the mess we’ve made, and government spending will only tangle it more. I will address my thoughts on that in the next post.
Regardless, that day will come. Somewhere in between, gold will either again be money or it will be tightly linked to the basis of currency.
Only then will I even entertain the notion of dismounting the bull gold market.