[Home] [Headlines] [Latest Articles] [Latest Comments] [Post] [Sign-in] [Mail] [Setup] [Help]
Status: Not Logged In; Sign In
|
World News See other World News Articles Title: Rickards: The Real Reason Gold Hasn't Exploded Authored by James Rickards via DailyReckoning.com, The world has changed radically in recent years. We’ve had the worst pandemic since 1918, and the third worst in world history. We’ve had a global supply chain breakdown. Inflation has been the worst since the early 1980s, despite the fact that it’s come down since peaking last June. Meanwhile, Europe is experiencing its worst war since the end of World War II. That kinetic war in Ukraine has been accompanied by a financial and economic war between the U.S., the U.K., the EU and Russia that involves extreme financial sanctions, including seizing the central bank reserves of the world’s 11th-largest economy. That financial war and accompanying sanctions disrupted supply chains on top of the disruptions that were already present. They still persist. And the world’s second-largest economy, China, locked down 50 million people in Shanghai and Beijing for months in a hopeless and misguided effort to suppress COVID. (China has finally seemed to learn that the virus goes where it wants). Meanwhile, tensions in the Taiwan Strait are high, with a lot of talk about a potential Chinese invasion or blockade of Taiwan. The list goes on. If gold is the ultimate safe haven for investors and the world has been dangerously unsafe, then the price of gold must have been skyrocketing, right? That’s not the case. Today gold is about $2,030 per ounce after gaining over $200 in the last month (that price fluctuates daily and intraday). That’s still lower than the $2,069 all-time high of Aug. 6, 2020. The bottom line is, gold is lower today than it was three years ago. There have been some spills and thrills along the way including two peaks over $2,000 and several smashes down into the $1,680 range, but always followed by a reversion to a persistent central tendency that hasn’t moved much at all. So, we’re back to the original question. With inflation, shortages, and war all around, why is gold not surging past $3,000 per ounce and making its way to $4,000, $5,000 and beyond? Supply/demand conditions favor higher gold prices. Global production of gold has remained fairly constant for the past seven years. Over the same seven-year period, during a period when global output was flat, central banks increased their official holdings by over 6%. China has added over 1,400 metric tonnes in the past thirteen years (that’s the official number; unofficially they probably own far more). Russia has acquired over 1,500 metric tonnes over that same period. Other large buyers have included Poland, Turkey, Iran, Kazakhstan, Japan, Vietnam and Mexico. Central banks in the Visegard Group (Czech Republic, Hungary, Poland and Slovakia) have also bought gold. What’s curious is that individual investors in the U.S. still seem indifferent to gold as a monetary asset. In theory, central banks are the most knowledgeable about the real condition of the global monetary system. If central banks are buying all the gold they can with hard currency (dollars or euros), it’s not clear what retail investors are waiting for. Of course, central bank holdings are only about 17.5% of total above-ground gold and there is far more demand from bullion investors and for jewelry (a form of wearable wealth). Still, central banks are arguably the most knowledgeable market participants; and their steady increases in gold holdings is meaningful. Interest rates also play a supporting role. Many of the directional moves in gold prices over the past three years have been tied to interest rate moves. The correlation is not perfect, but it is strong. The rally in gold prices in late 2020 was tied to a fall in interest rates (yield-to-maturity) on the 10-year U.S. Treasury note from 1.930% on December 19, 2019 to 0.508% on July 31, 2020. Similarly, the fall in gold prices after February 2021 was tied to an increase in interest rates on the 10-year Treasury note from 1.039% on January 2, 2021 to 3.130% on May 2, 2022. Rates are 3.44% as of today. But I believe that interest rates on the 10-year Treasury note will fall again and will continue to fall as global growth weakens. That’s good news for gold investors. Short-term rates have gone up because of Fed policy, but long-term rates will go down because investors see that the Fed will cause a recession. That correlates with higher gold prices. While market supply/demand conditions are favorable for gold, and the overall interest rate environment is also favorable for gold, neither has seemed to have the power needed to push gold sustainably past $2,000. What’s the problem? The real headwind for gold and the main reason gold has struggled to gain traction for the past three years has been the strong dollar. After all, the dollar price of gold is really just the inverse of the strength of the dollar. A weaker dollar means a higher dollar price for gold. A stronger dollar means a lower dollar price for gold. It may seem paradoxical to imagine a strong dollar in the midst of all the inflation we’ve been seeing. But that’s the case. What’s extraordinary over the past three years isn’t that gold hasn’t soared; it’s that gold has held its own in the face of a persistently strong dollar. So that leads to the next question: What’s been behind the strong dollar and what could cause the dollar to suddenly weaken and send gold prices into the stratosphere? The strong dollar has been driven by a demand for dollar-denominated collateral, mostly U.S. Treasury bills, needed as collateral to support leverage on bank balance sheets and in hedge fund derivatives positions. That high-quality collateral has been in short supply. As banks scramble for scarce collateral, they need dollars to pay for the Treasury bills. That fuels dollar demand. The scramble for collateral also speaks to fears of a banking crisis in the wake of SVB’s collapse, weaker economic growth, fears of default, decreasing creditworthiness of borrowers and fear of a global liquidity crisis. We’re not there yet, but we’re getting close with no relief in sight. As weak growth turns into a global recession, a new financial panic will be on the horizon. At that point, the dollar itself may cease to be a safe haven, especially given the aggressive use of sanctions by the U.S. and the desire of major economies such as China, Russia, Turkey, and India to avoid the U.S. dollar system if possible. When this panic hits and the dollar is deemed no longer reliable, the world will turn to gold. Frustration with the sideways movement of gold prices is understandable. But behind the curtain, a new liquidity crisis is brewing. Investors should consider today’s prices a gift and perhaps a last chance to acquire gold at these prices before the real safe haven race begins. Even above $2,000, gold is so cheap right now, it’s practically a steal. Poster Comment: But the dollar will decline sharply. Post Comment Private Reply Ignore Thread Top • Page Up • Full Thread • Page Down • Bottom/Latest
#1. To: Horse (#0)
The minute they mention the pandemic being worse than 1918, I stopped reading. Because the pandemic was not real. It was a great way to vaccinate a lot of people with a death serum so that by 2025 they can liquidate about a third if not more of the population of Americans. Thankfully it was liberals that took the clot shots. We are under maritime law. Meaning that the United States is a ship and we the people are its cargo. When a piece of inventory is lost at sea, the ship gets a kick back. something to the effect of a couple million dollars per American that suddenly dies. Apparently our social security numbers are publicly traded stocks. If 100 Million people were to die in this country, the unfunded liabilities would not be as bad. How do you think Nazi Germany paid its debts so quickly with the massive roundups and purges as they too had the same maritime law banking system. If you want to go down the rabbit hole into why the massive die off is going to be profitable, do the math. If a third of America died quickly enough, the national debt would be paid down with the insurance benefits paid to the Federal Reserve via the Maritime law of the sea. It’s why in our courts we have the gold fringed flags. Admiralty law. Anyway, I am probably way off on this, but it’s the only thing that makes any sense to me with regards to the bullshit lie of the Plannedemic. "Call Me Ishmael" -Ishmael, A character from the book "Moby Dick" 1851. "Call Me Fishmeal" -Osama Bin Laden, A character created by the CIA, and the world's Hide And Seek Champion 2001-2011. -Tommythemadartist
It actually says the worst since 1918, which means the Spanish flu was indeed worse. Though it goes on to say it was the "third worst in world history" which is certainly ridiculous. Apparently the Spanish flu was one of the 2 that was worse.
No, it doesn't mean that. If this year my state receives the most rain since the year I moved here, it doesn't mean that there was more rain the year I moved here. It means only since that year there hasn't been a year with more rain than this year. "I haven't golfed since 1977" doesn't mean that I golfed in 1977. "I haven't seen John since Tuesday" doesn't mean that I saw him on Tuesday. "There has not been a manned mission to Mars since 1848" doesn't mean that ... You get the idea.
Well, not to over-parse things, I simply take the 1918 reference to mean the Spanish flu and not that year specifically. The flu ran into the early 1920's. I do interpret the "since" to imply that the Spanish flu was worse and the historic numbers, right or wrong, show more dead back then than covid is credited with.
|
||
|
[Home]
[Headlines]
[Latest Articles]
[Latest Comments]
[Post]
[Sign-in]
[Mail]
[Setup]
[Help]
|
||