UNDERSTANDING GOLD'S TRAJECTORY (and by extension the entire Hard Asset class).

 

Expensive is a psychological determination.

Stable is a psychological determination.

For the last 50 years the United States has gone through periods of relative stability and relative price gyrations.  There was the Viet Nam war and the social unrest surrounding that.  There was the massive inflation of the 1970's and the social unrest surrounding that.

The enormous difference between then and now is the United States was a Creditor Nation with the world's unchallenged reserve currency.  Households did not amass debt.  Corporatioins did not amass debt. The Government was paid for with tax receipts.  And the government was run by relatively well educated serious people who cared about solving probelms. 

Through all the unrest our House was in order.

Even the protesters realized that.  They were angry that solutions they wanted weren't being offered.  But they saw that solutions were possible.

Stable.

Now the United States is a massive debtor nation.  And most of the major central banks of the world are aggressively de-dollarizing.  Led by China, Russia, Iran - but also including Saudi Arabia and other oil producing countries in the Middle East and South America. 

Households are drowning in debt.  80 percent of the country lives paycheck to paycheck, and their kids can't afford college and will never ever be able to afford a house.  And food is too expensive.  Food is shockingly expensive.

Unstable.

And 20 percent of every dollar the Government spends is borrowed  - which means PRINTED and injected into the economy.  And the percentage increases every year.  And the more you print and the less other countries want your debt - the higher inflations soars.

Now when you have social unrest it is expressing an anger born of Hopelessness.  Solutions are not obvious.  Solutions do not even seem possible.   The problems of debt once they reach the point that the debt can never ever be realisitcally paid off - or even paid down - it simply has to be rolled over for ever - mean you have problems that have no solutions.

That can go on for an indeterminate period.  But as you print more and more money to support this unstable structure all the wealth accrues to the top few percent and the everybody else gets ground under the pityless wheels of inflation.

This is a very unstable situation.

And Gold and Hard Assets are the only assets that survive in a massively unstable society.

Right now we are at the point where gold price is just beginning to reflect the Central Bank buying  of China, Russia, India, Iran, Saudi Arabia and others preparing for a period of massive instability.  These are very old societies that remember centuries of prior instability.  It's baked into the psychology.

Here in the US we have been conditioned by 50 years of stability.  The psychology is that of a very young country that has no shared long term memory.

But psychology is strange.  It can flip.  And when it does, it tends to move in the new direction for quite a wbile.

It is just beginning to dawn on Americans that the problems we have are grinding them down in a way that doesn't present any obvious solutions.  The politicians we have now have no interest in solving or even addressing these problems.  They are far more interested in taking advantage of the social rifts that develope from the underlying problems.

All we hear here is invective against fellow citizens who have become our enemies.  That's so much easier than addressing the massive unfunded liabilities.  Or the problems of a predatory financial industry like private equity.  Or our unwillingness to allow large institutions to be responsible for their own losses.

And still many here remain hopeful.  Because we are coming off 50 years of prosperity.  Somehow things will turn around.

But every day that possibility seems more and more remote to many.

At some point Psychology flips. And people become frightened.  And Angry.  They stop spending on crap they don't need while the things they do need become ever more expensive.  And that makes them even more frightened.  And Angrier.

If you think that the last vestiges of hope are born of realistic possibility for solutions then the gold price would be a blip to be ingored.

If you think that hope is misplaced and the problems we have will get worse for quite a while before serious people come in and try to address them - then gold and hard assets will go much much higher than they are now.

Simple as that.