Overnight we have seen quite a significant move in an area which amongst other things frequently pops up in the comments section on here. It continues a powerful move and we now see a big figure change to the number 4.
I just woke up to see gold blow through $4,000. It’s up over $50, trading above $4,035. Silver is up over a dollar, trading just below $49.Gold mining stocks sold off yesterday as nervous investors expected $4,000 resistance to hold, resulting in a correction in mining stocks. ( Peter Schiff)
For those unaware Peter is a 100% Gold Bug and congratulations to him and all those who have invested in it as it has been quite a year. I have kept the gold miners bit as they always seem to under perform rallies. Perhaps they fear the next downturn. But we already have a couple of pieces of economics.
Firstly we can start with all of those who have invested because they fear for their own currency with in general the Argentine Peso and Turkish Lira being headline acts. Those who invested in those countries must feel like financial Lords ( and Ladies) of all they survey. Plus if we look back only to my subject of Monday we see something more nuanced as the Gold price in Japanese Yen has passed 600,000. Maybe we see some of the push for Gold via the reality that the world’s number three currency has been slip-sliding away to quite Paul Simon and is at 152.50 versus the US Dollar as I type this. If Japanese investors had bought Gold ahead of the news about Takaichi-san then they can afford to get out their best Sake and glasses.
JP Morgan
This is an issue that has been around nearly the whole of my career.My first real introduction was at Baring Securities where the chartist Teddy Clarke followed precious metals and the charts were rumoured to be red with blood when things went pear shaped. I did not see that personally but was introduced to the concept of Silver Loans which kept the price below US $5.
Now let us leap forwards to 2020.
(Reuters) – JPMorgan Chase & Co has agreed to pay more than $920 million and admitted to wrongdoing to settle federal U.S. market manipulation probes into its trading of metals futures and Treasury securities, the U.S. authorities said on Tuesday.
The landmark multi-agency settlement lifts a regulatory shadow that has hung over the bank for several years and marks a signature victory for the government’s efforts to clamp down on illegal trading in the futures and precious metals market.
There have been rumours about JP Morgan and others being involved in trying to keep the Gold price lower for many many years. Being short Gold is a choice not a crime but the claims have been more than that. If so then positions there must look awful right now.
The Financial Times
The FT has been arguing against investing in Gold for as long as I can remember and deserves not only a slice of humble pie but the whole pie and maybe bake a new one as well. Here is Alan Beattie from the 4th of May 2011.
The continued run of the gold price is a global investment sensation. Recently it broke the $1,500 an ounce barrier for the first time, 30 per cent higher than a year ago. Surely this lays bare the extraordinary foolishness of Gordon Brown’s announcement, 12 years ago this week, that the UK Treasury would sell off some of Britain’s gold holdings?
According to Alan it was crtics of this who were the fools.
Actually, no. On this one occasion, Mr Brown’s decision was the right one. Let speculators go gambling on a shiny metal, if they want to. For most governments in rich countries, holding gold remains a largely pointless activity.
In a sense this is a classic of the genre in two ways. Firstly via the scale of the losses that must be in any top ten and may even reach “the class of one” described by Brian Clough. But the other is the name calling via “speculators” of which there are some but then some will be speculating the other way. That ignores the fact that more than a few will have always considered themselves to be investors. On a day like this who can argue with someone who sells above US $4000 whilst listening to the Steve Miller Band?
Hoo-hoo-hoo
Go on, take the money and run
Go on, take the money and run
Hoo-hoo-hoo
Go on, take the money and run
Go on, take the money and run
Hoo-hoo-hoo
Let me also point out that in City terms one definition of Investment is a speculation that has gone wrong.
Brown’s Bottom
It is a continual source of amazement that people still listen to Gordon Brown after he sold 395 tonnes of UK Gold at US $275. Even Alan Beattie had to point out this.
With hindsight, of course, Mr Brown could have gained a better price by waiting. At current rates, the $3.5bn the UK received selling bullion between 1999 and 2002 would have been closer to $19bn.
A quick back of the envelope calculation suggests around US $53 billion now. If we switch to the language of another Labour Chancellor that the Financial Times has supported that is certainly one “Black Hole” and maybe two.
Inflation
Over the years this as a cause of a Gold price rise is very difficult to quantify. There were periods in the Cost of Living crisis when it under performed. But there are also sub plots. As I pointed out earlier there are clear cases for Argentina and Turkey. Plus we have seen a much larger player as the Japanese have joined the chat. We can see inflation elements here as for them inflation persisting around 3% is a lot and we have seen over time a weaker Japanese Yen which has picked up again recently. With the new likely government I think investors might reasonably decide to add some Gold to their portfolios.
For the rest of us all currencies will have fallen against Gold even the Swiss Franc which as I pointed out on the 25th of September has missed most of the inflation. Here I think we are seeing the impact of loose fiscal policy around the world and thus the fear of future inflation. Ironically a central banking concept that of inflation expectations works here except it is nothing to do with their nonsense claims.
Lack of Trust
This may be a tenuous concept to pin down but this from my home country today is an example of this.
The Office for National Statistics has revised down UK government borrowing figures for the current fiscal year by £2bn following an error in the tax receipts used to calculate the data.
The ONS said on Wednesday that HM Revenue & Customs had alerted it to inaccuracies in VAT receipts the statistics agency relied on for its estimates for government borrowing published on September 19. ( Financial Times)
In the grand scheme of things this is what I think in the Godfather series of films was called “small potatoes”. But there is a much deeper issue as UK official statistics fall further into disrepute as we see not only error after error but frankly basic ones.
Central Bank Digital Coins
Maybe the increasingly loud mood music marching in this direction and the ability to impose negative interest-rates of up to -3% makes the 0% o Gold attractive.
Comment
This has the feeling of a “blow off top” now. But we have also seen equity markets behave like that and then set new high after new high. My home country the UK has done that as I type this with a new all-time FTSE 100 high at 9540. This recent surge has come after years indeed decades of stagnation. So as they used to say on Hill Street Blues.
Let’s be careful out there