Bah Humbug  

Posted by Big Gav

The Eureka Report's Alan Kohler takes a jaundiced look at the gold market which is sure to annoy most gold bugs. While I think gold's value is largely based on herd psychology, even the most hard bitten gold bug should be able to concede the difference between oil and gold is that oil is depleting while our stocks of gold just keep rising - which is why I prefer energy stocks to gold (the twilight of the majors notwithstanding).

Some gold bugs believe part of the reason for gold's recent rise has been a fall in the standing of Alan Greenspan. James Grant, the publisher of the newsletter Grant's Interest Rate Observer, says "Greenspan, the figurehead of the dollar, was trading at three times book in the late 1990s; I think he may return to book value.”

Grant believes gold's virtue is that it's a monetary asset because of its scarcity and its history. I don't buy that. In fact, its history as a form of currency actually created the great market overhang, in which a quarter of the all the gold that has ever been mined currently sits in central bank vaults ready to be sold to augment taxation.

It's true that in 1999 central banks tried to calm the market by making an agreement to restrict sales, which was extended in September last year, but many would still like to sell, and eventually will. The Bank of France, for example, said recently that it wants to offload 500 tonnes over the next five years.

I think the gold market is best understood as a common, everyday, rigged commodity market, like oil. The crude oil market has the OPEC cartel controlling supply to regulate the price, and therefore demand; the gold market has the central bank cartel doing likewise. The price is rising, along with most other commodities, because of demand from China and India, which the cartel is able to exploit.

But here is where gold and oil part company. As Dr Sandra Close says in today's interview, global production of gold is currently falling 1,000 tonnes a year short of demand. Can you imagine what would happen to the price of oil if that sort of consistent shortfall occurred? Or copper or nickel?

The gold shortfall is met from stockpiles — and it's not even from the infamous central bank holdings, but private holdings. Virtually every ounce of gold that has ever been mined still exists in someone's safe: no one needs to mine any more for a decade for demand to be met.

How do you invest in an asset like that? Yes, it's true that gold is the only investment that is not someone's liability, which is another way saying it is a hedge against inflation and the corruption and incompetence of human beings.

That just means gold is the investment of choice for pessimists. The 1970s were the golden age of pessimists; the past decade has been the Age of Optimism, and it is not over yet, in my view. And the mere fact that gold is at a 25-year high does not signal that it is.

"Free Market News Network" has previously published various bits of nonsense by the likes of Jerome Corsi about abiotic oil and the like, but have changed their tune a bit recently, publishing a grab bag of stuff from "The Daily Reckoning" about peak oil.
United States Peak Oil: Iran and Iraq

Iran is not quite at its production peak, but within 20 years, even the most optimistic estimates forecast that Iran will cease to be a net oil exporter. (This may also have something to do with Iran's desire to develop a nuclear program.)

And Iraq? By 2025, Iraq may be an oil exporter, not to mention an eastern province of Iran. But considering the looming and inevitable decline in daily world oil production, who will be able to afford whatever gets exported? (Hint, do you speak Chinese?)

The point is, on the other side of Peak Oil, the United States will be fortunate to receive any oil at all from the Mideast, let alone the Bush goal of only 25% of current (or forecasted) imports. The planners, who are connecting the dots of the past, and mechanistically extrapolating out into the future with no allowance for Peak Oil, are living in a fantasyland. They are planning, if anything, for the failure of the American economy and the attendant decline of American civilization.

Still, our Mr. President raised the subject. To recall an old phrase: "What does the President know, and when did he know it?" If G.W. Bush is onboard with Peak Oil, he failed to bring up the subject with specificity in his State of the Union speech and give the concept the publicity and credibility that such a speech would merit. Then again, maybe the president saw the movie A Few Good Men. Maybe he is imitating Jack Nicholson's character, a colonel in the Marines, who said, "You want the truth? You can't handle the truth." Maybe, to Mr. Bush's way of thinking, he is just doing the best that he can.

There are people who plan for the long term. There are Japanese companies with 100-year business plans. Can anyone predict what the world will be like in 100 years? No. But these companies, reputedly, intend to be around when the next century rolls over. One way or the other. It might be the founder's great grandchildren, but they will be around. As the saying goes, "It's not the plan, it is the planning." (This is a famous quote from General Eisenhower that is painted on the wall of every staff college of the U.S. military.)


United States Peak Oil: Reduction of Dependence

Yes, we have been hearing this "We will have to reduce our dependence on foreign oil" B.S. for 30 years. And for 30 years, it was easier to let the daily oil markets dictate that the nation did not have to get serious. What were we going to do, put a $4.00-per-gallon tax on gasoline and kill the driving-based economy? Sorry, guys. Democracy gave you Hamas in Palestine, and Ahmadinejad in Iran, right? Well it also has given cheap gas in the United States for the past century. It was fun while it lasted. Now, Mother Nature is at the door, telling you that it's payback time. Uh-oh.

WorldChanging has a look at the new Honda FCX in a piece entitled "On the Brink of the Fuel Cell Future ?". The debate over whether or not fuel cells or batteries are the way of the transportation future remains unresolved - but I suspect both will be out there in 10 years time.
The hydrogen fuel cell vehicle concept, once the darling of the cybergreen/hypercar crowd, has diminished in luster over the past few years. Perhaps it was due to the sluggish pace of development. Perhaps it was due to the all-too-eager embrace of the technology by political and corporate figures well known to favor continued dominance of the petroleum economy. Perhaps it had just started to feel dated, like talking about freezing your head after you die -- a vaguely-embarrassing symbol of a particular era of futurism. That proponents of hydrogen cars kept talking about them being "just a decade away" even as the years progressed didn't help matters.

Honda may change all that.

Last month, Honda announced that it would begin production in Japan of its fuel cell FCX vehicle within the next three to four years. The FCX line has been Honda's fuel cell vehicle prototype for a few years now, and beyond a handful of experimental locations, the car seemed ill-suited to regular use. Tiny, somewhat underpowered, and saddled with a range about half of a typical gasoline-fueled car -- not that you could go long distances away from the one or two hydrogen fueling stations in the state anyway -- the FCX simply wasn't an attractive option. The new FCX design, however, changes all of that, and manages to induce something that previous hydrogen fuel cell vehicles couldn't: auto lust.

Richard Duncan has a new draft of his Olduvai Theory (pdf) out that continues his particularly dismal set of prognistications about the post peak future. He is predicting available energy per capita will steeply decline from 2008, with blackouts spreading across the various electrical grids in subsequent years and human population plemmeting to 2 billion within a few decades.

Various tinfoil examinations of the "clash of civilisations" demonstration put on for our collective benefit that was generated by the Danish cartoons brouhaha have begun to surface, with many of them insisting they are a deliberate neoconservative provocation to generate increased hostility between the west and the middle east - see Xymphora and Kurt Nimmo for examples (while I link pretty wildly to all sorts of stuff I might just note that I'm not endorsing either of these 2 sites - they are just representative of some of the theories flying around - and as RI is too busy examining the occult basis of fascism - other than a brief mention in this odd mix of Bushes, UFOs, Jimmy Carter and religion - I'll have to make do with lower quality conspiracy theorists)...


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