Tuesday, March 5, 2013

2 Reasons Why Gold Is Falling

"Gold is falling for two reasons. First of all, we have reduced the tail risk of a collapse of the Eurozone, of another global financial meltdown, of a war in the Middle East. And one of the situations where gold does best is when there is huge tail risk. When money is not safe in the banks and you want to drop everything and buy gold. The other extreme situation in which gold does very well is when there is a massive risk of inflation. But in spite of all these QE`s, of course base money has doubled, tripled, soon quadrupled, that`s not creating inflation for 2 reasons. One velocity has collapsed, most of this money hoarded by the banks in the form of excess reserves and there is no credit creation or very little. Secondly there is a huge slack in the labor market, wages are growing less than productivity and labor costs are falling. There is excess capacity, firms don`t have a lot of pricing power. So, the combination of slack in the goods and labor market means that inflation is the least of the concerns for the Fed, for the ECB, for the BOJ, for the BOE and so on. And therefore there`s no reason of inflation for going to gold. That`s why gold is going down." - in Yahoo Finance
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