… gold and silver prices are NOT reaching new highs! This annoys IFO so much, she’s going to post again on this topic. The coin dealers continue to talk about new highs, but anyone can look at kitco.com and see this isn’t true.
Both metals hit new highs about a year ago – August of last year, to be exact, according to Jesse’s Cafe Americain, or crossroads cafe.
Today, gold closed at $1,544, down $12 in one day, or .78%. Silver was down 46 cents, to $27.72, or 1.63%. Crude oil closed at $93.42. The big jump in West Coast gasoline prices has been explained as due to reduced supply because some refineries have been closed for … whatever – very complex reasons.
Gold bugs and other pundits argue that gold simply MUST go up, given the “printing” of money that the world’s governments have been doing. It still might happen, but consider that we are in the midst of a credit collapse – slow-moving to be sure, but inexorable.
Not just the commodities, but sovereign debt (Greece, Spain, Italy, etc., etc.), real estate and now, again, the stock market – all are going down, or in the case of govt debt, the interest rates are going up, reducing the market value of the bonds debt-holders bought.
That’s counter-intuitive, but consider: if the market interest rate goes up, the market price of a bond carrying a lower interest rate must go down in order to make the bond yield come in at the new higher rate.
Okay, you might ask, but if that’s true, why did housing prices go down, even as the govt was pushing interest rates lower and lower? Simple: people stopped paying on their mortgages, reducing the value of the mortgage, and hence, the ‘value’ of the house. Value is in parenthesis because value is simply what a buyer is willing to pay and a bank is willing to loan.
Why would a bank lend money on a house when the market is dropping like a stone? We say the householder “owns” the house, but that’s wrong. The bank owns the house until the loan on it is paid off. If the resale value of the house is smaller than the loan value, the BANK is “upside-down” on the loan.
Want to know what keeps financial people up at night? The prospect of interest rates on mortgages and other domestic debt going back up. The real estate market would swoon!
Sometimes experts and pundits get too caught up in the minutiae of their jobs and forget basic principle of economics, like supply and demand.
If this deflation keeps up, the monkeys (see Friday index reports) will probably commit hari-kiri.