Parselmouth : Is IMF Saying To Buy Gold ?

Shame on me. Tarnishing my image of cool, sophisticated intellect by talking about GOLD ? The low class, uncouth investment of the uneducated peasant class, the “barbarous relic” that Keynes disdained.

Hmm, given that I was mistaken for a maid not once but twice in the past week (once by my own self ! in a video taken by a friend), I guess I am more than Plebian enough to say a few words about Gold.

It was the first thing that came to my mind when I read that the IMF gave Draghi a huge setback by downgrading global growth, in particular European growth, after the ECB unveiled their trillion dollar bazooka last week.

Well, the IMF is not perfect and the thought of them conjures up images of the champagne sipping economist crowd , jet setting about and having their fair share of cocaine scandals like UN officials often get into.

Just a few days ago.

4th Sept 2014
Lagarde : IMF srtongly welcomes measures taken by ECB, which will help to counteract the dangers posed by an extended period of low inflation.

And then, they pronounced Bulgaria’s financial system “safe” just a fortnight before Bulgaria suffered a bank run.

And they trimmed US forecasts to 1.7% in July this year before suddenly giving them the thumbs up this time round. http://www.nytimes.com/2014/10/08/business/imf-lowers-world-growth-forecast-pointing-to-us-as-a-bright-spot.html?partner=socialflow&smid=tw-nytimesbusiness

Ok. Let’s assume that the report was not written under some drug or alcohol induced stupor because it has been pretty clear to us all these months that the equity rally was not really benefiting the population at large.

If the IMF is right that we are living in a period of the “New Mediocre”, there is every reason to believe that stimulus will be the mainstay.

Stimulus is inflationary because it is Easy Money and easy money finds home in assets which will then bubble up in prices.

Now, if they are pointing out that stocks are not the place to be. Then the obvious answer would be bonds.

But we have reached a point in the rally where company debt is outrunning profits, as Moody’s pointed out. https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_176097

And I am personally expecting a credit crunch to come. https://tradehaven.net/market/liquidity-crunch-time-for-your-bonds/

If every country sticks to stimulus because of lackadaisical growth, we have to prepare for currencies to trend weaker. And if currencies trend weaker, we need to find a hard currency to park ourselves in.

So I dug up the definition of a hard currency in our laymen dictionary.

Hard Currency –money that is backed by gold reserves and is readily convertible into foreign currencies. http://dictionary.reference.com/browse/hard+currency

It cannot be.

CNBC just reported that “even an army of discount-hungry Indian matriarchs won’t be enough to arrest the precious metal’s slide in the fourth quarter amid the onslaught of the resurgent dollar”. http://www.cnbc.com/id/102065011?trknav=homestack:topnews:5

The NY Times article cited a professor asking “can the U.S. continue to power along while the rest of the world acts as a drag on global growth” ?

My thoughts are that Gold is not the only investment class to consider for these turbulent times. For sure, there will be the bellwether stocks and the bellwether bonds (that yield nothing) and the other hard asset classes of commodities which I am also considering.

Perhaps I am inspired by the Exter’s Pyramid which I chanced upon while reading up for my previous post, FX Thoughts : Gold, Bitcoins and The Mighty Dollar – Animal Spirits Forever https://tradehaven.net/market/fx/fx-thoughts-gold-bitcoins-and-the-mighty-dollar-animal-spirits-forever/

 

So I bought some Gold (and silver too), paper gold and not Harry Potter’s type of wizarding money gold. I am hoping for 1225 and then 1265 in the near term but I dare not keep my hopes too high (FOMC 30 October).

gold 2014

Gold holdings have been annihilated in the past 7 weeks, the longest streak of declines since 2010. http://www.bloomberg.com/news/2014-10-05/gold-bulls-retreat-as-short-holdings-rise-to-highest-ever.html?hootPostID=5b0ca7e7a3d2986d55598032fa1dbce0

I think we could on the verge of a commodity bounce back at this rate.

And by the way, I am not a Pureblood Parselmouth. Who wants to talk to snakes ?