Sunday, July 4, 2010

Gold Rountable Special On Financial Sense Newshour

The second segment of this week's Financial Sense Newshour podcast was devoted to a gold roundtable with four experts discussing where the gold market is [.mp3 file]. The consensus was, the gold bull market was still intact and it shows little signs of froth. The chief difference between this bull market and that of the 1970s was the relative smoothness of this one. The '70s one was punctuated by a severe downturn in '75 and '76; this one hasn't had a multi-year drop.

The supply situation was also discussed. Although there are new discoveries, the capital costs of bringing new "elephants" into production has multiplied. Bringing the biggest new deposits onstream costs $2 billion, which makes it prohibitive for any except a major with access to that kind of capital. Jeff Christian dissented, as based on overall reserve replacement. Christian added the point that smaller companies will likely fill any production gap should gold keeps going up. Later, Bob Morarity dissented too by arguing that production was crimped because of margin squeezes. Still, the overall impression given was gold miners running out of world.

Investment demand is one of the drivers of gold in this present bull market, but there's little to no sign of any selling. Gold is coming in to its own as a store of value and even potential money; even some central banks are accumulating gold. The possibility was broached, but the consequence of a selling spree were basically minimized except by Jeffrey Christian. He noted that central banks becoming more responsible at the margin could tip off a real selling cascade.

In the third segment [.mp 3 file], John R. Ing disussed his observations about ballooning sovereign debt and his impression that the debt levels are such that the developed world is moving into a pre-hyperinflationary phase. He said that there was going to be no deflation because the money supply won't be falling, like it did in the early 1930s. In the next interview, with Frank Barbera, Jim Puplava discussed the possibility of a new and bigger quantitative easing program in the offing which would work this way: the U.S. government would spend the money directly and the Fed would directly monetize the resultant (added) deficits. Since the banks don't seem to want to lend that much, and creditworthy borrowers aren't borrowing in great numbers, QE through the banking system hasn't done the job. There's the possibility that the Obama Administration is looking to undertake a more fiscal-centric reflationary program.

Both segments were quite educational, and even eye-opening. I have to say that I share Jeffrey Christian's concern about central banks becoming more monetarily responsible at the margin, which can be "relatively less irresponsible" from a more distant view. Investment demand turning into divestment supply would be a major blow to the gold market, whatever be the cause.

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