Quote from fickletrader:
The long end of the treasury curve blowing out is probably good for gold. If you don't understand why, reading FOFOA is a good start. Let me summarize it like this: the long end blowing out with the short end staying pinned basically means a loss of confidence in the fed's ability to maintain the pin without inflating the money supply so much that long bonds have little chance of retaining purchasing power.
The scenario that is devastating for gold is the opposite, where short rates are jacked up higher than long rates. I think this is nowhere in sight.
It's obvious that you are assuming a frictionless market if you think you'll be able to get all the physical bullion you want when you perceive the eleventh hour. The bullion run has already begun, with Turkey being the next country in line for their bullion held by the big money centers. The front month comex gold contract briefly went into backwardation today. Bi-lateral trade agreements being signed everywhere, announcements of cashless societies, etc. Signs are everywhere. Godspeed my friend.
Shades of gray... were the long end of the curve to truly "blow out," the economy would be fucked. The scenario that is good for gold would be
1) long end threatens to blow out via UST dumping
2) The Fed panics and monetizes in suicidal size (supporting the bond market via $USD creation)
3) Runaway printing press activity leads to gold supernova
It's the Von Mises prophecy (paraphrase): "In the end, either the economy or the currency is destroyed." The Federal Reserve would rather destroy the currency than the economy; they can exercise this option in defense of the long bond market with infinite fiat purchases if need be.
But note the above scenario does not actually entail a long end blowout occurring, because the Fed would not let that happen (cost to economy too high). The dollar would be blown out, not bonds.
The rising rate scenario which hurts gold is not the "blowout" one, but the one in which long rates go up enough to induce a tightening bias, without sending the Fed into panic mode. (Note too that, in this scenario, there is a window where gold could fall sharply BEFORE the Fed panics.)
I find that the arguments for gold tend to be polarized toward extreme scenarios. It is true that if something "blows out" one way or another gold probably does well; but this is precisely my concern, as the real world tends more towards the middle of the bell curve than the outliers -- for extended periods of time rather -- and it is not inconceivable that gold falls into the big hole in the middle before rising later (where rates rise but do not skyrocket; global growth creeps but not leaps; systemic risk fears gradually fizzle down, and so on). If gold goes back to $1,000 before it goes to $3,000, a lot of present day bulls will be hurt badly.
As for your last paragraph, I really can't get too worked up about TEOTWAWKI.
I make my living in financial markets -- if the system becomes so screwed that the global financial system shuts down, mass panic over physical gold ownership etcetera, then my present way of life is toast anyway... in the true "only physical will do" scenario, access to handguns, bottled water and basic bartering and trade skills probably matter more than anything else.
