Wednesday , 24 July 2024

Does What Happened in 2014 Refute, Or Just Delay, the Gold-bug Case?

12 short months ago, the immediate future looked like a lock yet 2014 turned out to bejoefridaygoldbugsdoublebottomdec26-675x315 a pretty good year for the powers that be and the economic theories that animate their behavior. 2014 should not have happened, but it did, and now the sound money community is left trying to figure out what it missed and, crucially, whether what happened refutes the sound-money/gold-bug case, or simply delays it. This article has the answer.

By John Rubino ( originally entitled* 2014 In Review: How Could Gold Bugs Have Been So Wrong?

12 short months ago, the immediate future looked like a lock:

  • overvalued equities had to fall,
  • ridiculously-low interest rates had to rise, and
  • beaten-down precious metals had to resume their bull market,

yet 2014 turned out to be a pretty good year for the powers that be and the economic theories that animate their behavior…and the evidence was overwhelming [go here for the details].:

  • equities boomed,
  • interest rates fell,
  • the [U.S.] dollar soared,
  • gold ended the year below where it started, and
  • gold miners, after a year of operating at an aggregate loss, have seen their market values crater.

2014 should not have happened, but it did. There’s no way to sugarcoat it:

  • the gold bugs were wrong,
  • Austrian economics was wrong, and
  • the Keynesians were right,

and now the sound money community is left trying to figure out what it missed and, crucially, whether the problem was merely one of timing or of fundamental worldview…([Go here for] a few explanations for the debacle that was 2014.)

Back to the big question: Does the above refute the sound-money/gold-bug case, or simply delay it?

[The answer is] almost certainly the latter – a delay – [as a] rising dollar-denominated debt leading to a stronger dollar is not a perpetual motion machine. All it does is:

  • allow the U.S., and the rest of the world, to take on even more debilitating levels of debt than would otherwise be possible,
  • [allow more time for the U.S.] dollar to become just one of many global trading currencies [as exemplified by] China, India, Russia and Brazil who are actively bypassing the dollar in favor of trading in their own currencies, while accumulating pretty much all the gold being produced by the world’s mines and
  • make it impossible to continue to artificially depress bond yields and support stock prices (already crazy) with any amount of fiat currency.
    • The yield on some Japanese bonds recently dropped below zero, and
    • US 10-year treasuries are around 2%.
    • US equity prices, margin debt, corporate share repurchases and most other measures of overvaluation are all in record territory. Unless we’re moving to a world of negative interest rates (which is a whole different theoretical discussion) and dot-com era P/E ratios, the end for these trends is near.


This has to, and therefore will, blow up, and when it does, the world’s central banks will respond with debt monetization on a scale that will dwarf QE3 and Abenomics. “Inflate or die” will become official global policy – and gold will behave as it always does in such situations, by going parabolic – but when?

What seemed imminent a year ago now feels a little further out, as

  • oil keeps falling…,
  • the dollar keeps rising and
  • everything else is flat to down.

Maybe instead of focusing on the numbers, which clearly don’t mean as much as they would in a world of actual functioning markets, we should think in terms of philosophy and psychology. Here’s a snippet from James Howard Kunstler that gets at the spirit of things without predicting ‘when things stop working:’

“One reason this is happening to us is that we allowed reality to be divorced from truth. Karl Rove wasn’t kidding back in the Bush-2 days when he quipped that “we create our own reality.” The part old Karl left out is that there’s a price for doing that. In the short run, it allows you to pretend that you have superpowers and can act in defiance of the way things really are. In the longer run, your view of the world comports so poorly with the facts of the world that things stop working.”

[The above article is presented by  Lorimer Wilson, editor of and and the FREE Market Intelligence Report newsletter (sample hereregister here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. This paragraph must be included in any article re-posting to avoid copyright infringement.]

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