Brand-new year, same old saga

The worlds of money and politics echo with sound and fury but in the end show little progress toward the solutions we need. That does bode well for gold.

By Bill_Fleckenstein Jan 4, 2013 3:01PM
Gold bars © Photodisc/SuperStockA reader on my subscription site,, reminded me this week of some words I wrote almost exactly a year ago, which made their way into my first MSN Money column of 2012. Looking at them again, I was struck by the fact that I might just as easily have come up with them yesterday.

Here they are, with some recent editorial additions to illustrate my point:


"Precious metals bulls were extraordinarily frustrated late in 2011 -- and 2012 -- I'm sure, as gold and silver were sold regardless of the news. Certainly markets can be maddening (as well as unprofitable) at times, especially at the end of the year when forced selling (in some years, it is herd-driven forced buying) causes the markets to completely ignore favorable news, and sometimes that feeds on itself. Of course, when the trend in force is as powerful as the recent decline in gold was, I'm sure there were computerized trading programs jumping on the bandwagon as well, and betting on lower prices by getting short.


"In any event, as the year ended, the stage was set for a potent rally in the metals, and that was what I think we saw start on Tuesday -- or Wednesday, in this year's case. The questions now are whether the last week of December was the low for this entire decline, and will we get some sort of test of those prices (as well as what such a test might look like)."


With last year in the rearview mirror, we can now answer the last two questions, as gold fell slightly below the December 2011 lows in May 2012. Still, I found it noteworthy that the same sort of scenario with regard to the gold market I described a year ago seems to be happening again, even down to shorts getting squeezed.


For all the money unleashed by the world's printing presses that is now sloshing around, it is easy to forget that we still have not solved any of our fiscal problems. Thus, from that perspective, it makes a perverted kind of sense that a tiny slice of history may be repeating itself.


Witness the disgusting soap opera over the misnamed "fiscal cliff," which finally ended on New Year's Day with tax hikes (mostly aimed at the so-called 1%), and next to nothing in spending cuts. In others words, it was about what I had suggested might occur after we saw the election results. The economic impact is still going to be negative, as the restored payroll tax will affect consumer spending.


It probably won't be a cliffhanger

Congress and the administration are a total embarrassment, as this entire exercise has been about posturing rather than dealing with any real issues. Even worse, we are going to see this same sorry movie again as we approach the debt-ceiling debate in a few weeks, since it is extremely unlikely that anything of consequence will be done until that deadline is fast upon us.


Given how lame our legislators are, I don't expect much to come from that either. It is going to take a full-blown funding crisis to get us on the right track, with the government unable to sell bonds to finance its debt. This assumes we won't have gone too far down the road toward European-style socialism to regain that right track before the bond market takes matters into its own hands.


Though it is just a guess and a theory at this point, I do think we will see bonds roughed up in 2013, and perhaps the funding crisis could even hit this year. But as I say, that is just a wild-eyed guess on my part. I do have a rationale for believing it, which I have shared in the past, that being the fact that the world's central banks are printing money so recklessly it is virtually impossible to see how folks can continue to believe in deflation (though I am sure those who feel they have been cheated out of deflation still expect it).


Don't call it a comeback

As they were at the end of 2011, the metals obviously have been under pressure and mining stocks have been even worse, as somehow folks have concluded that the world's central banks are going to magically thread the needle with their money printing, even though they haven't gotten anything right for decades. I find the whole concept laughable, but that is where we are.


Gold has basically been correcting since the highs of September 2011, when it began selling off because QE3 -- a third phase of quantitative easing, or money printing by the Fed -- didn't commence. Now here we are with QE3 and QE4 being administrated in basically unlimited fashion, combined with money printing the world over, yet gold has not yet gotten back to those highs.


That suggests that gold might have gotten ahead of itself in 2011, but that given the developments since, once folks again become convinced of the need to own it, the price is likely to head substantially higher.


At the time of publication, Bill Fleckenstein owned gold.
Jan 7, 2013 12:47AM
One of the biggest problems causing volatility in the market places, is that there is too much money chasing too few assets searching for profits.  That huge amount of "hot" money continues to roil the market place and keeps creating asset bubbles and subsequent devaluations as the money flows in and out.  The problems is that the distribution of wealth is so uneven, with those with too much and those without enough.  The continuing sequestering of wealth into fewer and fewer hands leaves less for everyone else and a declining GDP as the less fortunate masses have less and less to spend and stimulate the economy.  If it weren't for the continuous expansion of the money supply diluting the holding of those fortunate few, the economies would decline to the point of stagnation, like it was during the thousand years of feudal times.  The wealth class moves around the world, as money is no object, and their continuing seeking of ever higher profits and ever greater wealth continues to influence the world's economies.
Jan 7, 2013 12:36PM
lets quick talking about "Congress" being dysfunctional and blame the Democrats who continue to avoid dealing with our debt crisis. The Republicans have at least tried to address the spending problem but are demonized for not just going along with tax hikes. Two of every three dollars spent goes the ss, medicare, and medicaid. Until we address these, nothing will change.
Jan 6, 2013 2:32PM
So far our bond prices have held up, because the rest of the world is worst off than us. So far Fed policy isn't creating any inflation and its bond buying is holding down interest rates. With all those reserves sloshing around in the banking system, they aren't creating any demand for credit due to a still very weak economy.

What drives Gold prices? A weak dollar, inflation, and fear? I don't know nor care. Every dog has its day, and if and when the economy gets back on track (we may all be dead by then), metals won't be so attractive. 

I see a rocky market ahead mainly due to the coming battles in congress. The market can't do well under a lot of political infighting over debt and entitlements and God knows what else. This is a perfect market environment to trade which is exactly what I intend to do. The market will react like a yo-yo under these circumstances. I doubt we'll see the market highest point for some time to come mainly because Obama's policies won't foster any confidence in the economy. 

The whole business makes little difference to me being a true capitalist.  I do what I have to to make a buck.
Jan 6, 2013 2:45PM

Then let me see ..............The stupid precious metal minors are selling there precious metals and are accepting worthless paper for the metals that have built and destroyed empires.

Wow......Are they that stupid.

Jan 7, 2013 1:55PM
I only have 1 question for you Bill. How many bills were you able to pay with your gold profits in 2012?
Jan 5, 2013 12:43AM
Denial...........and some day acceptance.
Jan 6, 2013 7:34AM
I read the body of your article and concur. I get to the end and don't. The piece you miss is about the bandwagons and the millions of zombie-investors causing them to be overloaded and unstable. In the midst of correction, metals crash and the trillions in them- evaporate. We are indeed over-printed and that fiat is indeed- sloshing around. Fiat has to go. It is destroying the fiber of economy worldwide. The flight to tangibility doesn't mean another wall made of gold, it means effort and reward. What takes us out of this is a shift away from pariah and sociopathic pursuits.
Jan 7, 2013 5:16AM
I want to know what this guy has been smoking!  I seldom smoke... but when I do.. I prefer Acapulco Gold with Dos Equis!  Stay high my friends and don't forget to share your joint with the ladies!
Jan 6, 2013 5:46PM
Bill needs a haircut too. He isn't 20 or cute (if he ever was).
Jan 6, 2013 1:23PM
Many chiefs and no Indians!  When we settle back to a barter system of trade, things will begin to stabilize. Goods for goods....fair the old days!
We cannot complain because we are all of the same mentality scrambling to gather, save and store material for the future...we do not do this collectively....and so we must pay the price for this developmental flaw during our tenure on this planet!

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Image: Bill Fleckenstein, MSN money

This column is a synopsis of Bill Fleckenstein's daily column on his website,, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.



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