As we approach Christmas Day and indeed the end of the year there is one big financial news story in town. Let is start via an organisation which has a lot of egg ob its face on this issue the Financial Times.
Gold and silver prices rose to record highs on Monday as geopolitical tensions combined with bets on US interest rate cuts to prompt a renewed jump in the precious metals. The price of gold rose as much as 2.4 per cent on Monday, to $4,442 a troy ounce. Silver also hit a record, rising as much as 3.4 per cent on Monday to $69.44 an ounce. Analysts said the intensifying US blockade on Venezuelan oil was a partial explanation for the rising precious metals prices, as investors seek “safe haven” assets.
I think that the concentration on Venezuela is a continuation of the problem that got the Financial Times in its present pickle which is imposing narratives rather than thinking. After all if it was an issue the price of Brent Crude Oil would be a lot more than US $62 per barrel Also whilst we have seen lower interest-rates in official terms bond yields have moved much less with the US ten-year Treasury Note at 4.15% as I type this. So the interest-rate impulse has in fact been much weaker than one might have expected yet someone seems to be printing out a past text book. The emphasis is mine.
Traders have also been increasing their bets on interest rate cuts by the Fed next year. Expectations of lower interest rates support gold prices as investors, expecting a lower return from holding bonds, look to other assets.
That is a denial of events in 2025 as I pointed out on social media over the weekend.
There is a lot happening but in a nutshell 2025 can be described as central banks like the Bank of England cutting interest-rates expecting bond yields to fall and then watching them rise ( and repeat).
The US Dollar
As some of you have been pointing out in the comments section a higher Gold price in itself is a type of devaluation for fiat currencies and of course the leader of the pack is the US Dollar. People often associate a Gold rise with a US Dollar and this week we are seeing that. For example the Japanese Yen has rallied a big figure to 156 overnight. Now you can argue that was driven by some open mouth operations by the Japanese Ministry of Finance. But the UK Pound £ is above US $1.35 too so it looks like a broad based move.
Curiously the Financial Times rather tip toes around this issue.
“It’s a reminder that geopolitical and debasement worries have the same hedge — gold,” said Arun Sai, senior multi-asset strategist at Pictet Asset Management. “Debasement” refers to the theory that precious metals, such as gold, are a hedge against the eroding value of traditional currencies such as the dollar.
The area of debasement has sub-plots too.
Inflation and the Cost of Living
This area is perhaps my main line of work and I have spent a lot of time offering my views at the Royal Statistics Society and Better Statistics over the years. This year I wrote to the parliamentary inquiry on this issue and I am number 16 on the correspondence list of PACAC for those interested. The main point here is the way that inflation and the cost of living have been under recorded and my work on the issue of Imputed Rents got another tick in the box via the recent US CPI announcement.
This is totally inexcusable. The BLS just assumed rent/OER were zero for October. I am sure they have a good technical explanation for this, but the only way you get a two-month average for rent of 0.06% and OER at 0.135% is assuming October was zero. There is just no world in which this was a good idea, but here we are.” (@fcastofthemonth )
For those unaware OER or Owners Equivalent Rent is what we would call Imputed Rent and yes they put it in as a zero when they had no readings/survey to use due to the US government shut down. That may well have unsettled people as once you start that sort of thing…
CBDCs
I think that central bank digital coins or CBDCs are also factors in the background. Why? Firstly there is the element of control that this would give central bankers. Let me highlight this via a speech given by Pierre Cipolini of the ECB on the 19th of this month.
In the retail space, we are working on the potential issuance of a digital euro. Assuming that European co-legislators adopt the Regulation on the establishment of the digital euro in the course of next year, a pilot exercise and initial transactions could take place as of mid-2027, and the digital euro could be ready for first issuance in 2029.
For people like him technology is a disruption and a nuisance.
Technological disruption is transforming money and finance.
That is why the Euro area has been left behind.
If we simply rely on foreign private solutions, we will import technologies, standards and dependencies and risk fragmentation and instability.
Actually that is exactly what their ossified structure supporting zombie banks has achieved. Rather than adapt what he wants is ever more control.
Central banks are no exception. If they want money to remain stable, trusted and usable in a digital world, they must help shape that world and modernise central bank money.
Note the use of the word “must” which is in that speech a lot. That is of course why CBDCs are driving people towards alternatives like Gold.
There is another factor which is that I have often argued over the years the objective here is a -3% interest-rate. Suddenly the cost of carry for Gold changes enormously! I looked at this issue on October 19th 2023 if you wish to look it up. Plus these is this from February 2021.
ECB‘S Panetta: Minus 1%-2% Remuneration On Digital Euro Could Not Be Enough To Prevent Capital Flows Out Of Banks In Crisis ( @LStrade2 )
Silver
It has been the case that Silver has done even better than Gold this year. Back in the day it was it that drove mercantilism and was the sort of thing that drove the Spanish empire back then. Over my career that have been loads of stories about places like JP Morgan being full of silver loans and selling to depress the price. How much that is true is hard to define but we do know that it is behaving as if someone was caught in large size and has tried to get it back.
Comment
Let me leave you with a some further thoughts. Is the rise in Gold and Silver clear wealth or also more inflation. With the rise in the price of Copper is Dr,copper also a precious metal now?
Finally a warning as the mainstream media joining in is usually a sign that buyers are doing this.
Our time is running out
Our time is running out
You can’t push it underground
You can’t stop it screaming out. (Muse)
