news.goldseek.com >> 10 November 2009

Why Changes In Gold Production Don't Matter
By: Steven Saville, Speculative Investor
Most analyses of the gold market consider the annual change in the amount of gold produced by the mining industry to be an important determinant of the gold price, with bulls regularly supporting their case by citing the mining industry's inability to ramp up production and bears sometimes claiming that increasing mine production will eventually weigh the gold price down. Our contention, however, is that the annual supply of newly-mined gold is so small relative to the existing aboveground supply that changes in mine production should be ignored when assessing gold's prospects.

news.goldseek.com >> 3 November 2009

Bank Reserves and Inflation
By: Steven Saville, Speculative Investor
We think it is fortunate that banks have, to date, chosen to 'sit' on their reserves, because if they decided to use the reserves to support trillions of dollars of additional lending then the inevitable result would not only be an even more troublesome debt burden; it would also be an inflation problem of immensely destructive proportions.

news.goldseek.com >> 27 October 2009

The "Long Run" is a Sequence of "Short Runs"
By: Steven Saville, Speculative Investor
Even within the ranks of analysts who have some understanding of the problems caused by fiscal and monetary "stimulus", it is commonly held that an economic/financial crisis requires "liquidity injections" and government intervention in order to overcome the immediate obstacle. It is acknowledged that the 'assistance' provided by the government and the central bank will have negative consequences in the long run, but it is generally argued that the long-term negatives can be dealt with after the dust settles.

news.goldseek.com >> 20 October 2009

Popular Misconceptions
By: Steven Saville, Speculative Investor
The "circular flow of income" theory favoured by Keynes and his disciples holds that one man's spending is another's income, the implication being that if consumer spending is boosted then economy-wide income will be boosted and the overall economy will strengthen. It follows from this theory that an economy-wide increase in savings will lead to a weaker economy, since the only way to increase savings is to reduce current spending.

news.goldseek.com >> 13 October 2009

Gold and Saving
By: Steven Saville, Speculative Investor
It is very likely that two ultra-long-term trends reversed direction over the past two years, the first being the expansion of private-sector credit in the US and the second being the contraction of the US savings rate. The trend reversals are, of course, inter-related, in that the new trends towards less debt and more savings are being driven by economic hardship in the present and the revelation that the economic future will not be as rosy as previously thought.

news.goldseek.com >> 29 September 2009

The "Credit-Based" Monetary System
By: Steven Saville, Speculative Investor
In summary, the monetary system is only "credit-based" up to a point, and even if it were totally "credit-based" the central bank would still have practically unlimited ability to expand the money supply. Does this mean that deflation is impossible under the current monetary system unless the central bank is willing to allow the system to deflate? Yes.

news.goldseek.com >> 22 September 2009

Mini Inflation Blow-Off
By: Steven Saville, Speculative Investor
Coming into September the markets had the potential to experience either a deflation scare or a mini blow-off in inflation-related plays. Within the first few trading days of September it became apparent that it was more likely going to be the latter.

news.goldseek.com >> 16 September 2009

Is This the Top for the Gold Sector?
By: Steven Saville, Speculative Investor
The following chart shows the HUI and the HUI/gold ratio. Of importance is that the HUI traded as much as 22% above its 50-day moving average on Friday and ended the week 19% above this moving average. There is no telling how 'overbought' a market will become before it begins to retrace, but note that the HUI has rarely, in the past, been as far above its 50-day moving average as it is right now.

news.goldseek.com >> 8 September 2009

Gold Money Versus The Monetary Ambitions Of Governments
By: Steven Saville, Speculative Investor
China's government follows a mercantilist trade policy, meaning that it attempts to manipulate international trade -- via tariffs, subsidies, regulations and exchange rates -- in order to maximize the amount of money that flows into the country. This policy is unlikely to change anytime soon.

news.goldseek.com >> 1 September 2009

The Inflation Process
By: Steven Saville, Speculative Investor
In our 5th August commentary we explained that the central bank couldn't simply withdraw monetary stimulus in order to avoid an inflation problem, because injecting new money doesn't just alter the general price level; it also changes the STRUCTURE of the economy. In the world of economics there are few things of greater importance than the concept of how monetary inflation really works, and yet hardly anyone understands it. Of special relevance, the current Fed chairman appears to have absolutely no idea how monetary inflation affects the economy. We'll therefore take another shot at explaining it; this time, for the sake of clarity and brevity, in point form.

news.goldseek.com >> 25 August 2009

Bank Reserves and Inflation
By: Steven Saville, Speculative Investor
Recent arguments between deflationists (those who are forecasting deflation) and inflationists (those who are forecasting inflation) often boil down to opposing views about what will happen to the huge quantity of reserves that the Fed has supplied to the US banking industry over the past year.

news.goldseek.com >> 11 August 2009

Withdrawing the Stimulus
By: Steven Saville, Speculative Investor
There has been a lot of discussion in the mainstream financial press about how and when the Fed will withdraw the "monetary stimulus" it has provided over the past year. Also, Ben Bernanke has recently gone into considerable detail about the methods he will use, once the economy is on stronger footing, to gradually remove any excess money before an inflation problem arises. Unfortunately, these discussions and Bernanke's detailed plans betray a terrible misunderstanding about how money-supply changes affect the economy.

news.goldseek.com >> 4 August 2009

Getting Some Things Straight Regarding China
By: Steven Saville, Speculative Investor
The conventional wisdom has it that the massive foreign currency reserve held by China's government is primarily due to the US trade deficit, and that the US economy will be in big trouble should China ever decide to stop financing the trade deficit. As is often the case, this piece of conventional wisdom is wrong.

news.goldseek.com >> 28 July 2009

Gold Stocks: The Big Picture
By: Steven Saville, Speculative Investor
During 2001-2007 there were some hefty downward corrections in the gold sector, but although these corrections seemed dramatic in real time they didn't come close to matching either of the primary corrections that occurred during the bull market in gold stocks that began in the early 1960s and ended in 1980. However, the 2008 downturn was every bit as severe as the primary corrections of 1960-1980.

news.goldseek.com >> 21 July 2009

M3’s False Signal and the Japan Myth
By: Steven Saville, Speculative Investor
During April-June of last year we described the rapid growth in M3 money supply that was occurring at the time as a "major league false signal". We thought it was a false signal because it contrasted starkly with the performance of the monetary aggregate known as TMS (True Money Supply). Whereas TMS was suggesting that the rate of monetary inflation was relatively slow, and, therefore, that a deflation scare was a distinct possibility within the ensuing 12 months, M3 was pointing to an inflationary shock to the system.

news.goldseek.com >> 7 July 2009

Inflation: Expectations and Effects
By: Steven Saville, Speculative Investor
In 2006, 2007 and 2008, rising inflation expectations during the first half of the year prompted a sell-off in US Treasury Bonds. And in each case inflation expectations peaked in June, leading to an intermediate-term bottom in the T-Bond market at that time. Interestingly, but not surprisingly from our perspective, this year has followed a similar pattern to date.

news.goldseek.com >> 23 June 2009

The Depression Case Reiterated
By: Steven Saville, Speculative Investor
In a semi-free country such as the US there are two prerequisites for a peace-time economic depression, where a depression is defined as a period of 5-10 years or longer of economic stagnation or outright contraction. The first is a massive expansion of credit based on fractional reserve banking (supported, nowadays, by a powerful central bank), and the second is a far-reaching attempt by the government to prevent the corrective process from running its natural course after the credit bubble has burst.

news.goldseek.com >> 16 June 2009

The Government Bubble
By: Steven Saville, Speculative Investor
It is clear that a concerted effort is being made to replace the ruptured private-sector debt bubble with a government debt bubble, although the effort is generally not labeled as such. Moreover, the dramatic increase in government debt that we are seeing is really just a symptom of expanding government. In the case of the US, for example, GW Bush presided over a rapid expansion of government power and the trend has accelerated under Obama.

news.goldseek.com >> 2 June 2009

Money Confusion and Inflation/Deflation
By: Steven Saville, Speculative Investor
The total supply of US dollars, as measured by TMS, is about 10% higher now than it was a year ago. Also, the total amount of credit within the US economy is higher now than it was a year ago thanks to the government's yeoman-like efforts to replace the bursting private-sector credit bubble with a public-sector credit bubble.

news.goldseek.com >> 26 May 2009

Thoughts on the Gold Standard, Risk and Speculation
By: Steven Saville, Speculative Investor
The most commonly cited reason against returning to a gold standard is that there isn't enough gold in the world, but no one with a good understanding of money's role within an economy would argue against a gold standard on the basis of insufficient gold supply (for the uninitiated, Frank Shostak explains why in: How Much Money Should There Be?). There is, however, a good reason to argue against a gold standard.

news.goldseek.com >> 19 May 2009

Why We Are Gold Bulls
By: Steven Saville, Speculative Investor
The actions of the US Fed and Treasury between September and December of last year prompted fear in some quarters that the US was speeding towards a Zimbabwe-style hyperinflation. However, while we view hyperinflation as inevitable over the very long-term at no stage have we viewed it as a serious intermediate-term threat. In our opinion, the probability of the US experiencing hyperinflation within the next two years is close to zero.

news.goldseek.com >> 12 May 2009

Everyone Is Wrong, Again (Except The Gold Bulls)
By: Steven Saville, Speculative Investor
One of our readers sent us a very interesting article from itulip.com entitled "Everyone is wrong, again -- 1981 in Reverse Part II: Nine Signs of Inflation". The article is an explanation by Peter Warburton (the author of the book "Debt and Delusion") of why generalised 'price inflation' is likely to become an issue by early next year, with comments by itulip's editor (Eric Janszen) interspersed.

news.goldseek.com >> 5 May 2009

Central Planning Is Back In Vogue
By: Steven Saville, Speculative Investor
At the root of central planning ideology is the belief that a group of well-meaning government officials and/or experts is more capable than the unrestrained free market of allocating resources for the betterment of society. However, whenever and wherever central planning of the economy has been attempted it has always been a failure, with the magnitude of the failure generally being proportional to the breadth of the central planning experiment.

news.goldseek.com >> 28 April 2009

The Effects of Inflation
By: Steven Saville, Speculative Investor
The effects of monetary inflation are three-fold. First, it brings about an unwarranted transfer of purchasing power (resources) to the creator of the new money and/or the first user of the new money. Another name for this unwarranted transfer is theft. Second, it has a NON-UNIFORM effect on prices, leading to mal-investment and the wastage of resources.

news.goldseek.com >> 14 April 2009

Greenspan’s Mistake
By: Steven Saville, Speculative Investor
Former Fed Chief Alan Greenspan has stridently argued that his decision to lower the Fed Funds Rate (FFR) from 6.5% to 1.0% during 2001-2003 was NOT the cause of the housing bubble. Does his argument have any validity?

news.goldseek.com >> 7 April 2009

What’s Happening On the Inflation Front?
By: Steven Saville, Speculative Investor
The Fed scaled back its money-pumping efforts over the first three months of this year, which is not surprising given that it would have been almost impossible to sustain the frenetic pace achieved during the final four months of last year. But even though the Fed's actions have become less frenzied of late, the Fed-Treasury tag team has made sure that the rate at which new money is borrowed into existence continues to exceed, by a substantial margin, the rate at which money is extinguished via debt repayment.

news.goldseek.com >> 24 March 2009

Gold: The Big Picture
By: Steven Saville, Speculative Investor
However, on a long-term basis the gold price generally does what it should do based on our understanding of its most important fundamental drivers, which is why we rarely devote any space at TSI to gold market manipulation. We'll use the following long-term chart of the gold/CRB ratio (gold relative to a basket of commodities) to illustrate what we mean.

news.goldseek.com >> 17 March 2009

Market Value, Money and Credit
By: Steven Saville, Speculative Investor
One of the arguments regularly made to support the claim that deflation is underway goes like this: "While the supply of money is expanding rapidly, the amount of additional money created is miniscule compared to the reduction in the market value of assets." In our opinion, this is not a valid argument.

news.goldseek.com >> 10 March 2009

Sentiment in the Gold, Stock and Commodity Markets
By: Steven Saville, Speculative Investor
When the gold price rose to $1000 in late February there was naturally a lot of enthusiasm about this market's prospects, which, combined with the almost uninterrupted $200 rise over the preceding five weeks, paved the way for a downward correction. The gold price then fell for eight trading days in a row, with the eighth down day being last Wednesday. The stage was thus set for a rebound, but as noted in last week's Interim Update the fact that the 8-day decline had barely put a dent in bullish sentiment suggested that the overall correction from the February high had not yet run its course.

news.goldseek.com >> 3 March 2009

Depression and Inflation
By: Steven Saville, Speculative Investor
Although we are anticipating another great depression we want to emphasize that we are NOT anticipating a replay of the 1930s. We are anticipating a drawn-out period of economic contraction, but the details will almost certainly differ markedly from previous depressions.

news.goldseek.com >> 27 February 2009

Silver in a Deflation
By: David Morgan, Silver Investor
As I have stated many times, the easy money has been made in the precious metals but the BIG money lies ahead, because if you think like I think, once this “disinflation” turns into a dollar collapse people will be looking for anything that will hold value, and that certainly includes both the precious metals.

news.goldseek.com >> 24 February 2009

Arguments Against the Depression Outlook
By: Steven Saville, Speculative Investor
Over the past two months we've explained why we think a great depression is on the cards. We are not 'doom-and-gloomers' who relish the prospect of an economic debacle; in fact, we very much hope that our depression prediction proves to be way off the mark. Our analysis of the economic situation is simply heading where logic takes it.

news.goldseek.com >> 17 February 2009

The End of an Era
By: Steven Saville, Speculative Investor
In a nutshell, there is no limit to the amount of bonds that the US government can issue to the Fed in exchange for newly-created dollars, or that any other government can issue to its central bank in exchange for newly-created currency. The only question is: what will the new money be spent on? The answer to this question gets to the heart of the biggest problem facing the economy today.

news.goldseek.com >> 10 February 2009

The Coming Great Depression
By: Steve Saville, Speculative Investor
In our 3rd December 2008 commentary we explained that the probability of an imminent great depression was uncomfortably high. Our reasoning, in a nutshell, was that the recent credit bubble was much bigger than any previous credit bubble of the past century and that the policymakers of today were blundering much more rapidly and on a much grander scale than their counterparts of the 1930s.

news.goldseek.com >> 3 February 2009

The Inflation-Deflation Debate
By: Steven Saville, Speculative Investor
For many years we have been expecting inflation (growth in the supply of money) and nothing but inflation as far as the eye can see, but there have been times, such as the past 12 months, when we have felt more affinity with deflation forecasters than with most other inflation forecasters.

news.goldseek.com >> 27 January 2009

It’s ONLY A Gold Bull Market
By: Steven Saville, Speculative Investor
One of our themes over the years has been that monetary factors are driving the major trends in the financial markets. To put it another way, we have tended to downplay the effects on market prices of non-monetary drivers such as the expansion of the internet, the industrialisation of China, and "Peak Oil".

news.goldseek.com >> 20 January 2009

Loan Defaults, Deflation and Bonds
By: Steven Saville, Speculative Investor
In the US and many other countries a lot of people are in default on their home loans, causing banks to suffer large losses. It is reasonable, then, to conclude that banks will be less able or willing to make new loans in the future than they were in the past; so although the loan defaults will not directly cause the money supply to fall they could result in slower future monetary expansion.

news.goldseek.com >> 13 January 2009

Bear Market Comparison
By: Steven Saville, Speculative Investor
A scenario favoured by many analysts is that a new bull market commenced last November. This view will undoubtedly gain traction if the stock market continues to strengthen over the next few months (as we currently expect), but it has almost zero chance of being proven right.

news.goldseek.com >> 7 January 2009

Monetary Delays
By: Steven Saville, Speculative Investor
Changes in money-supply trends affect prices in ways that are often difficult to predict, thanks in part to the lengthy and variable delays involved. However, it is still possible to explain much of what has happened to prices and much of what will likely happen to prices in terms of money-supply changes.

news.goldseek.com >> 4 January 2009

Gold Stocks During the 1930s
By: Steven Saville, Speculative Investor
There are some important similarities between the present and the 1930s. For example, in TSI commentaries over the past 6 months we've discussed the similarities between 1937-1938 and 2007-2008, both with regard to the economic situation and the performance of the US stock market. It is therefore apropos to review how the gold sector of the stock market performed during the 1930s.