"What gives the artist real prestige is his
imitators."
—Igor Stravinsky (Russian, 1882-1971)
Word for the day
Paranymph (n)
A groomsman or a bridesmaid.
Malice towards none
Heard in Shastri Bhawan canteen in New Delhi.
"Gone are the days when EGoMs were set up to finalize
the color of the uniform of Ministers' drivers, and it took years to decide.
Now the Shenshah reigns. Decision happen
instantaneously."
First random thought this morning
It seems the government has surreptitiously established an Central
Authority for Certification of Patriotic Credential of Citizens (CACPCC) with
Mr. Subramanian Swamy as its Chairperson.
While preparing my application for certification, I wonder what
would be status of the families of soldiers who fought for Mughal and British
forces. There are Indians who still receive pension from the British Crown for
serving the British Army in two World Wars. Some PIOs may be serving Pentagon,
FBI, CIA etc. WTO may also have some Indian officials who might have to decide
against Indian interests in disputes brought before them!
Random thoughts on gold - 2
Yesterday I expressed my serious doubts over the
future growth in consumption demand of gold. (see here)
The argument was pretty simple, in my view.
However, the demand of gold as store of value is a deeply complex
matter. In past gold had been a preferred asset to store value both during
economic as well as political (including geo-political) crises.
Gold has served as reserve currency whenever the paper currencies
have lost faith of people due to a variety of reason, particularly high
inflation and fiscal profligacy. It has also been used as such during
transition periods in global strategic power equilibrium.
However since end of Breton Wood agreement in 1971, gold has not
been used as reserve currency. Post fall of Berlin Wall in 1989 the strategic
supremacy of USA, and consequently USD, has remained mostly unchallenged.
Post Breton Wood there have been two instances of global financial
crisis.
In 1970s the world faced serious stagflation as the demand
generated by post WWII reconstruction activities faded and Iranian revolution
created a worldwide energy crisis. Gold jumped 10x in real terms during the
decade of 1970-1980), to give back most of the gains in the following two
decades.
Again in the decade of 2000s, as the dotocom bubble hit the global
economy, interest rates crashed leading to sub-prime crisis that culminated in
a major global financial crisis. The gold jumped 5x in real terms during this
decade (2001-2011).
Gold is down about 33% from its 2011 high. But given the negative
rates in large economies like EU & Japan; persistent deflationary pressures
despite unprecedented and obscene amount of money printed by Central Bankers;
poor economic growth outlook; and war like situation in global currency markets
- the gold is reemerging as a favorite asset to store value.
At present the interest in gold appears to be more intuitive
rather than analytical. It is being presumed that the end game of the
non-conventional monetary policies currently in practice will be prolonged
stagflation, complete disintegration (or euphemistically restructuring) of the
present monetary systems where USD may longer be the sole reserve currency,
massive debt write off resulting in near complete erosion of savers' financial
wealth.
The popular commentary and trends in places like UK and US suggest
that it is generally believed that gold held in paper form may face huge value
erosion just like bonds and currencies, at the same time when physical gold
value soars.
I intuitively find that most of the current analysis suffers from
some degree of cognitive dissonance. It is trying to dress a trading opportunity
into a secular trend. I do not see any reason why gold should ever touch its
1980 high in real terms and why not go below its 1971 lows (in real
terms)....to continue next week
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