Tuesday, May 28, 2013

Gold is Different (by David Evans)

Just a brief post today to share a recent article on Gold by David Evans. Those who have been reading my blog long term may remember that I saw David present at the 2011 Gold Symposium and he also founded Gold Nerds, a research tool for picking stocks in the precious metals sector (a tool I've subscribed to in the past and can recommend).

You can view the article embedded in Scribd below or download the PDF from original source here (1Mb).

Without a doubt it is the best article I have seen on Gold this year (easily comprehended even by those not familiar with the Gold market). Starting with an explanation of debt money and how it is created, "bank money is created by the act of lending, bank money is also debt" and detailing why it needs to continually expand in order for the system to remain solvent, "last year’s debt basically has to be repaid with interest. It means that there has to be more money around each year or some people cannot pay back their loans" continuing that Central Banks and governments had to step in when the private sector had maxed out its borrowing and what would result if they didn't "if the money supply doesn't increase, there will be widespread business failures and then bank failures". Following this David goes on to say that Gold is money, in competition with the currency provided by governments and provides an excellent explanation of the 3 tiers to the Gold market (futures, paper & physical) and how they interact. He then ties the interaction in this structure to recent price activity and how it may have been the cause of the April price collapse...


[Update 29/05/2013] Post updated with a revised version of the paper.

20 comments:

  1. Hell of a good read! Thanks!

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  2. Hi BB,

    The slide pack David did for the gold symposium was fantastic I thought.

    This article he wrote a while back is great also....

    http://sciencespeak.com/ManufacturingMoney.pdf


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  3. David's outlook to 2028.

    http://jonova.s3.amazonaws.com/guest/evans-david/gold-price-16-years.pdf

    Without commenting on the prices mentioned in his forecast, it's surprising to think the gold bull could potentially run for another 10-15 years...

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  4. Comex gold futures set the world price? ....and arbitrage is slow and hard? I wasn't impressed by this article...Struck me as just another (incomplete) guess as to the reasons behind the April beat-down and without mentioning Structured Products and ETF abandonment by Macro Tourists investors chasing equities, leaves it looking lame. Also, Cullen Roche would have something to say about this simplistic description of Money Creation. Reminds of that observation by [insert your favourite central banker/tycoon]: There are only two people who understand the gold market, unfortunately they disagree,

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  5. It's worth noting that the paying of interest does not result in money leaving the system. The money ends up in depositors accounts or with the bank shareholders. So interest on debt does not necessitate an ever increasing money supply. The paying down of principal will decrease the money supply.

    ReplyDelete
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