Hint: Because it’s the Credit Default Swap of the Next Financial Crisis

Submitted by Gonzalo Lira

Credit default swaps were the insurance—the hedge—against exactly what happened in 2008: Bonds threatened to default, during the Global Financial Crisis. So the CDS’s insuring those bonds rose in value—until suddenly, they didn’t: CDS’s stopped rising in value just when the markets collectively realized that the counter-parties to those CDS contracts might not be able to pay up.

What if the price of gold is drifting not because the markets don’t trust the world’s reserve currencies to continue to devalue, but because the market doesn’t trust gold?

Since everyone with any sense realizes that this is the endgame of the current race to the bottom, gold ought to be rising dramatically, but that is not happening. Gold rose steady and strong from 2000 through September 2011—but since then it’s been drifting jaggedly.
So why would gold—which is an actual, physical commodity—be acting like credit default swaps did right before the 2008 crisis?
For the same reason: Gold buyers don’t trust the counter-parties selling gold. [Read more...]