What’s Next For Gold? Bear vs. Bull Debate

How should investors approach sub $1,300 gold? Our analysts each take a side and answer five questions – here we present the Bull and the Bear case.

What's Next For Gold?  Bear vs. Bull Debate

 

Special thanks to those who made this possible:

American Bullion – The Gold IRA Experts

GoldSeek.com – Your source for precious metals information and financial truth

Cambridge House – Canada’s largest investment conference company

Euro Pacific Canada – Thanks to Dima Cash, Research Analyst

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What’s Next For Gold? Bear vs. Bull Debate

Our analysts each looked at the following questions from both perspectives:

1) How does the interest rate impact gold?
2) What is the inflation impact on gold?
3) What is the international impact on gold?
4) What is the short-term outlook for gold?
5) What is the long-term outlook for gold?

16 Responses to “What’s Next For Gold? Bear vs. Bull Infographic”

  1. holdenstyle says:

    On the Long-term gold section for the bullish side, would gold be considered a currency or potential to a return to a gold standard/currency as the bearish side indicates that gold IS NOT a CURRENCY and is an asset/commodity.

    Thought this was worth mentioning

  2. VC-Rob says:

    Hi Josh,
    Thanks for the comment.
    A return to the gold standard would be a disaster on so many fronts, that it will never happen. Any country that has a debt larger than their gold holdings would essentially be bankrupt. Yes, things need to be done on the political and monetary front to “right the ship” but moving back to the gold standard is not really a feasible option. However, if you were to take the extremist view, then yes moving back to the gold standard would increase the demand for gold by an exceptionally large margin.
    The bullish long-term outlook for gold is based on increasing currency debasement relative to gold’s store of value. The debasement comes from increasing the money supply and low real interest rates. As the dollar looses value, people will purchase assets that retain value such as gold.
    Cheers,
    Rob

    • Iron says:

      Staying with token money is what frigging destroyed the Roman empire. Anti-gold standard nuts please learn history. The disaster on so many fronts has been using token money. Paper gold is being shorted, so naturally the nuts all come out and act like that is material to the fact that there is no escape from a gold standard. The world has always returned to gold and gold backed money. It is not a CHOICE. The disasters you speak of will be well underway by the time gold takes over by force. They will have been caused by the failure of the current monetary system.

      And BTW, High interest rates have never in the history of markets been negative for gold. EVER. They indicate failing debt and failing government. Volcker did not save the dollar with high interest rates. That is a myth. Gold was already fairly priced to back the dollar by the time he was done. All Volcker did was screw up and panic, then act like he saved the day to cover up for the fact that he caused a needless recession.

    • mike says:

      The financial crisis that began in 2007 would never have happened had the Federal Reserve kept the value of the dollar stable. A housing bubble of the proportions that unfolded–not to mention bubbles in commodities and farmland–would not have been possible with a stable dollar. The Fed has also created a unique bubble this time: bonds. It hasn’t popped yet (nor has the farmland bubble), but it will.
      The American dollar was linked to gold from the time of George Washington until the early 1970s. If the world’s people are to realize their full economic potential, relinking the dollar to gold is essential. Without it we will experience more debilitating financial disasters and economic stagnation.
      What should a new gold standard look like? Representative Ted Poe (R-Tex.) has introduced an original and practical version. Unlike in days of old we don’t need piles of the yellow metal for a new standard to operate. Under Poe’s plan–an approach I have long favored–the dollar would be fixed to gold at a specific price. For argument’s sake let’s say the peg is $1,300. If the price of gold were to go above that, the Federal Reserve would sell bonds from its portfolio, thereby removing dollars from the economy to maintain the $1,300 level. Conversely, if the gold price were to drop below $1,300, the Fed would “print” new money by buying bonds, thereby injecting cash into the banking system.
      An effective gold standard can be that simple. What gets lost in the discussion is that the yellow metal is merely a means of measuring the value of the dollar. The fact that a foot has 12 inches doesn’t restrict the number of square feet you can have in a house. The fact that a pound has 16 ounces doesn’t restrict your weight, alas–it’s simply a measurement.
      The virtue of a properly constructed gold standard is that it’s both stable and flexible–stable in value and flexible in meeting the marketplace’s natural need for money. If an economy is growing rapidly such a gold-based system would allow for rapid expansion in the money supply. For example, in the 1950s and 1960s Japan’s economy grew 10% a year. The yen was fixed to the dollar, which, in effect, meant that it was fixed to gold. Yet the yen money supply mushroomed to fuel this boom.
      The Poe bill’s basic operating gold-standard principle and its specifics provide plenty of grist for the discussion mill, which is all to the good. Monetary policy is a boring subject, but getting it right is absolutely crucial for our future prosperity and liberty.

      source…
      http://www.forbes.com/sites/steveforbes/2013/05/08/heres-what-a-new-gold-standard-could-look-like/

  3. dan says:

    “Any country that has a debt larger than their gold holdings would essentially be bankrupt. ”
    -It s not like we ll be asked if we agree to go back to a gold standard as currencies collapse.On a goldstandard, gold would of course be revalued in proportion to GDP. China would need about 4 tons of gold in order to implement a gold standard becauuse the US supposedly has 8 tons

  4. judejin says:

    “Any country that has a debt larger than their gold holdings would essentially be bankrupt. ”

    depends on how high you value gold.

    USA has around 16 trillion dollars of debt and 8000 tons of gold(assume it is all there).
    every ton of gold just need to be valued at 2 billion dollars, or 60000 dollars per ounce.

    going back to the gold standard is extreme according to the mainstream view.
    allowing a central bank monopoly to print paper money at will is not extreme according to VC wisdom.

  5. Greg says:

    I love this graphic on Gold bears vs bulls. Simply explained in easy to understand graphics and words. Fantastic!

    One thing that would be interesting to see – can gold have ‘intrinsic value’ the way a company can? Is there some measure that puts gold in those terms? I guess production cots of mining it would be the closes analogy.

    Well done though, it’s fantastic.

  6. VC-Rob says:

    Thanks for the comments everyone, as expected it is quite the controversial topic!
    I am not an anti gold standard nut – I do however believe that using the Roman Empire, as an example of a failed economy is a bit outdated. The world has changed in many ways since then all thanks to growth and development. Modern finance is built around a growing money supply that encourages growth, development, innovation, and yes risk taking. Definitely, there are rising issues that need to be addressed but these issues must be met with forward thinking not backward. The Gold Standard is not the best option because while it yields fiscal discipline it chokes growth substantially. A gold standard results in a relatively fixed money supply, which would force a slowdown in lending and the overall economy. This leads to a less competitive economy on a global scale.

    • sz says:

      For thousands of years and with all countries/empires use gold/silver as money.
      People tried use fiat money countless times, all failed. You think it will be different this time? That’s why gold/silver called god’s money.
      You think Modern finance is good? It is a disaster. Americans feel rich because they are spending future money and other people’s money (china, Japan, aribic, etc)
      Let me see how rich Americans are whey they need to pay all the debt back.

      apologize my poor enlgish, it is not my first language

      • Wade says:

        Are you crazy, the U.S. and all the other superpowers are not going to pay anyone back. The world is one big game of RISK and the big boys are going to divie up this planet until all resources are exhausted and they are forced to fight each other. I’m not sure what is going to happen to the gold price …. the hysteria and psychology of people when all this happens will determine that.

        • Wade says:

          I agree with everything you said, in fact I’ve been saying the same thing for years now. To make this situation even more hillarious/interesting, my name is Wade as well. I guess everyone does have a twin out there. Keep fighting the good fight!!!

  7. Give what may come, accountability for the economic activity, has to be confined to realistic measure, this a miss. One reserved world currency, is the problem. How to bring about one world economic order is very important. Thus all the billions of human life can equal opportunity to live…which so far is lacking.

  8. Louis says:

    How is a system that relies solely on the infinite expansion of debt, in order to achieve infinite ‘growth’ a workable long term option?

    • Matt says:

      I also agree that as the FED continues to stimulate the economy by increasing the money supply, more zeros are being added to the $17 trillion credit card debt for the U.S. The dollar has lost 98% of its purchasing power since the early 1900s because of debasing monetary policies. Gold on the other hand continues to appreciate in value because of its scarcity and lack of dependence on other sectors. That is why gold will continue to rise in value over the long run, although the price is subject to fluctuations from time to time.

  9. Gbustic says:

    It’s true that the world has changed a lot since the times of the Roman Empire. However, it is also true that the current debt-based economic system that absolutely depends on growth at whatever cost is not necessarily a better system. It’s very possible we will never see a gold standard, but that is fine with me… as a gold investor, I can say with confidence that we will not need a gold standard to grow our wealth substantially. Currency devaluation, whether through high inflation, massive inflation, or hyperinflation, will be enough to greatly increase our wealth as gold gains value at a much greater rate than inflation in the long run (by the way, I am not looking forward to hyperinflation because the world will be chaotic and unpleasant).

  10. pau says:

    “In a competitive market, price equals marginal cost.”

    This isn’t really true. It is also necessary that consumer preferences don’t change. And consumer preferences actually change quite a lot. This is an even more significant factor when it comes to gold because many “consumers” are holding it with the intention of selling at some point in the future. (This is different from consumers of sandwiches who actually consume the sandwiches and will never resell them.)
    To the extent that the statement is true (i.e. when consumer preferences don’t change much), it rarely relevant. We don’t really have any significant “competitive” markets. There is too much competition-preventing regulation to have a real competitive market.

    “Gold is only worth what another person is willing to pay for it.”

    That’s true. But it isn’t relevant. This is true of all mediums of exchange. US Dollars are only worth what another person is willing to pay for them. They have no direct-use value. And while it is true that it is hard to find a place that will directly accept gold in payment for groceries, it is pretty easy to find a place to exchange your gold for a medium of exchange that the grocery store will accept. You can even get debit cards that will do this automatically. Just like a debit card used in another country automatically converts to your home currency, you can have a debit card linked to a gold account and the conversion will happen automatically.

    @VC-Rob, Do you have any recommended books are articles that support your statements regarding gold standards being a bad idea? I have done a lot of reading on this topic. Many people agree with your conclusions. However, I have never seen a thorough argument explaining why these conclusions are true. I can’t see any connection (logical or historical) between a gold standard and things like lower economic output or growth. Given that so many people believe there is a connection, I would really like to understand their arguments.

    Also, I don’t think this is a good way to look at things: “The bullish long-term outlook for gold is based on increasing currency debasement relative to gold’s store of value.”

    A higher nominal price for gold that is the result of currency debasement means that the real value (i.e. purchasing power) of gold is unchanged. That isn’t really bullish–that’s break even. It is a reason to hold gold instead of dollars. But “bullish” means going up. If it doesn’t go up in real terms, then I don’t think it is accurate to say it went “up” at all.

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