This Gold Bug Ain’t for Turning!

Whoa…this is getting interesting. Gold crashing on Monday…slight recovery now. Stocks crashed on Monday too…now bouncing.

What happened to gold? No one knows. There were reports of a really big sell order on Monday. But from whom? Why? Nobody knows.

In the financial markets we spend most of our time waiting for something to happen. Then, when years go by and nothing happens, we assume that nothing will ever happen. Then, when it does happen we are totally surprised.

Is something happening now? A major change of direction? Is another shoe dropping?

We don’t know yet.

Everyone believes the gold market has reversed direction. The bull market of the last 14 years has finally ended. It’s all downhill from here, they say.

But if that is true, what else will have to be true? The last bull market in gold ended when the Fed changed course. Arthur Burns was replaced by Paul Volcker.

A loose money policy became a tight money policy. Interest rates – which had trailed behind the inflation rate – were suddenly jacked up so high that real interest rates (the difference between nominal interest rates and the CPI) were as high as 5%.

‘Don’t fight the Fed,’ they say on Wall Street. Those who fought the Federal Reserve back in the early ’80s were wiped out. The Fed was tightening up. Volcker was determined to bring inflation rates down.

That was not the time to own gold. It was the time to own bonds. You could buy a ten-year T-note with an 18% coupon. And interest rates (along with inflation rates) were headed down. Your bond would go up in value for the next 30 years.

By contrast, gold went down…down…and down. By the end of the bear market in gold there was hardly a single gold bug who was still sober or still solvent.

But what’s the Fed doing now? Has it reversed course? Has Ben ‘Bubbles’ Bernanke been replaced with a tough-as-nails inflation fighter? Has the Federal Open Market Committee vowed to stop printing money? Has the loosest monetary policy in US history given way to a tight policy?


Has the bull market in bonds ended? Have the lowest interest rates in half a century suddenly started to turn up?

Nope again.

Then what has changed to reverse the fundamental direction of the gold market? Nothing we know of. Instead, the Bank of Japan has recently joined the central banks of America, Europe and Britain, promising to keep printing money ‘as long as necessary’ to get the inflation rate UP!

Every major government in the Western world is running a big deficit. Every major central bank is printing money. And every saver, as David Stockman put it, is being ‘crucified on a cross of ZIRP’.

That’s right, too. Savers had a field day when the Fed changed direction in the early ’80s. They were paid to save… and paid well.

Now, savers are being punished. They earn less in interest than the real rate of inflation. Is that changing?

At the time the last bull market in gold ended, everything stopped in its tracks and turned around. Stocks had been going down for at least 16 years; they suddenly started going up. Bonds had been going down too, ever since the end of WWII; they too started moving in the opposite direction. Savers were rewarded; borrowers were punished. And gold reversed course and began an 18-year bear market.

Is there any major turnaround now that would justify or at least signify an historic turn in the price of gold?


Central banks and central governments are committed to a particular course of action. Does it lead to more valuable paper money? Does it lead to price stability? Does it lead to growth and glory?

Or does it lead to bubbles, crises, booms, busts, and an eventual blow up? As far as we can tell, central banks are looking for trouble. We still want to own as much gold as possible when they find it.


Bill Bonner
for Markets and Money

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Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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5 Comments on "This Gold Bug Ain’t for Turning!"

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slewie the pi-rat

IF central banks are committed to deflation here, rather than further asset bubbles, the answer to these Q’s would most likely be: YES.

it appears that there will be nomo bailing out banks w/ public money in either the US (dodd/frank we WRITTEN for this) or the EU. BOTH monetary venues will re-fi and re-cap by bailing in, which IS deflationary.

if only .01% of “pundits” grok dodd/frank, the only problem i see is ignorance of the relevant FACTS, and i have been seeing it, online, for a VERY long time.

slewie the pi-rat
it is pretty difficult to “tell the future” b/c timing bites you in the arse almost every time. i told my dad that i thought the wheels were coming off in 1971 and i don’t see how they can stay on too much longer after the “crash” so maybe gold is not a bad idea. at least some? with all this freaking debt? and paper wealth propped up by OPM? “…oh! i’m fine with bonds, thanks!” L0L!!! then he sez: “…of course, you’re right, slewie. just,… not yet.” so, with 160+ years between, us we ended up rolling on the… Read more »
slewie the pi-rat
this is the “dollar” chart: to me, it looks like “they” don’t want to lose control, here. and this is the air brakes? L0L! in slewienomics, when this “dollar” goes from ~73 to ~83, it means we are “exporting inflation”. certainly a convenient delusion. at the least. and, a popular subject (inflation). japan is, apparently, buying? or trying to? europa? keep drinking, people!!! china is trying to figure out the biggest WTF in monetary and fiscal herstory? they haven’t balanced their freaking checkbook since kissinger and nixon arrived w/ “western” banking. come to think of it, neither have we!… Read more »
justin king

I notice the “powers” are holding gold at $1,399 for dear life.- What a transparent joke.

Seamus O'Flaherty

“…gold went down…down…and down. By the end of the bear market in gold there was hardly a single gold bug who was still sober or still solvent.”

Hey, c’mon, Bill. Gold had three decades below $800… and silver two decades below $10.

You helped push PMs to great heights, so you can’t bleat if they crash back to their long-term trends….

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