further evidence we are entering the blow-off, page-7

wateva

I think we will need to factor in real interest rates into the equation - when government interest rates are above the rate of inflation in the major economies (USA, Europe, China, Japan) then the exit signal will be quite clear. In 1980 the USA probably represented 30% of world GDP compared to around 21% now so it may now take more than just higher interest rates in the USA but instead at least 2 of the above major economies to have a similarly negative effect on the USD POG as when Paul Volker raised rates.

Just look at what high inflation, negative real interest rates and rapid credit expansion has been doing to the Chinese housing market - people offloading their cash for untenanted prosperities (and now also going into gold).

The negative real interest rates look like being sustained a long time in the USA - Bernanke has made this promise and Europe is in a similar situation. So is Japan. With aging populations they need an extended period over which to reduce the cost of government promises. Stealth inflation is the mechanism for doing this, while financial institutions are recapitalised over time by transfers from borrowers (paying higher interest charges) and the taxpayer (government buying up crook debt). Consumer and government deleveraging has to be undertaken in many countries. The alternative to what government are doing is a massive depression to re-adjust economies over a shorter time frame, coupled with major reductions in government programs (which is needed anyway).

So gold will continue to be bought as an investment to hedge against economic uncertainty and stealth inflation while real interest rates are negative. One thing I still fear is a major selloff of gold if the economies around the world turn down and people liquate their assets again (as in 2008). Trade wars could be a trigger for this.

loki