If the gold price is unpleasantly high now, what will the price be if the world ever realizes that most of the gold it thought it owned doesn’t exist…
10:14p ET Tuesday, July 29, 2020
Dear Friend of GATA and Gold:
Appended is tomorrow’s editorial in the Financial Times, which, taking note of gold’s sharp rise in price, begins with a factual error, goes on to sulk for six paragraphs, and concludes with the hope and expectation that gold will go back in the dumpster eventually.
The error beginning the editorial is the assertion that gold doesn’t pay interest. Gold doesn’t automatically pay interest like a bond because it doesn’t have to, since holding gold incurs no risk. An ounce of gold today will be an ounce of gold tomorrow, whatever happens in the world, even as many borrowers have failed and even currencies have failed as the regimes issuing them have collapsed.
Gold is money in itself and no one else’s liability. But gold can pay interest if its owner wants to lend it, just as fiat currency cash can pay interest and just as central banks themselves have charged interest in lending their gold to investment banks for hypothecation and price suppression.
The FT attributes gold’s rise to “uncertain times” — geopolitical tensions and the failure of the U.S. government to get the virus epidemic under control. The FT offers not a word about what is likely a bigger cause — the implosion of the fractional-reserve gold banking system built in part on the central bank gold leasing the FT also fails to acknowledge.
If the FT thinks the gold price is unpleasantly high now, what will the price be if the world ever realizes that most of the gold it thought it owned doesn’t exist and never did? If the world ever finds out, it may fairly ask why the FT never reported it, though documentation of central bank gold price suppression policy has been delivered to the newspaper many times over the last 20 years without prompting the newspaper to put a single critical question to any central bank.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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Gold’s Rise Is a Sign of Uncertain Times
From the Financial Times, London
Tuesday, July 28, 2020
Gold is not a particularly good investment. It yields no interest and pays no dividend. The only way its owners can earn a return is if other investors value the shiny metal more tomorrow than they did today. For a “haven” asset, which investors can use to preserve capital in times of crisis, it is remarkably speculative; aside from some niche industrial uses, most of the permanent demand comes from jewellery. Its rise in value this week to a near-record high of $2,000 per troy ounce reflects that many other options are even less attractive, rather than any intrinsic merits.
Many traditional “safe assets,” such as government bonds, similarly either yield nothing or will gradually lose their value thanks to inflation and negative interest rates. As with gold, earning a return on U.S. Treasuries relies on speculating that prices of the bonds can continue to increase. With interest rates already at virtually zero in the United States and little indication that the Fed intends to drop them into negative territory, that does not strike many as a good bet. In that situation, some investors see gold, which is less vulnerable to inflation, as more attractive.
The current rise in gold is also an indication of fear. What gold primarily offers investors is an alternative to the dollar. Adjusting for changes in overall prices, the metal has been more expensive only twice before: during 2011, when a congressional standoff over the U.S. debt ceiling and the potential for the eurozone to break up drove demand; and in the early 1980s, when a new Islamic revolutionary regime in Iran contributed to concerns that the partly oil-driven inflation of the 1970s would erode the value of the greenback. Gold’s rise today once again reflects worries over the safety of investing in the world’s largest economy.
The dollar has likewise lost value this week against the euro, the British pound, and the Japanese yen. Not only are geopolitical tensions with China rising — gold’s value also rose this year during a standoff between the US and Iran — but the U.S. government continues to mishandle the pandemic. A congressional stalemate over a second stimulus package has also prompted investors to look for alternatives to the international reserve currency.
The dollar’s premier status owes as much to the fact there are few good alternatives to the currency as to the greenback’s own advantages. The euro, the only currency with similar standing, lacks the liquidity and depth of the greenback — though the launch of mutual bonds to pay for the bloc’s post-coronavirus recovery fund may help to change that. For some, gold is also a means to bet against fiat currencies and unrestrained money printing in general.
This is the backdrop against which the Federal Reserve, currently in an interest-rate meeting that will end on Wednesday, will announce its latest decision. The members of its rate-setting committee should ignore the decline in the dollar, which, if anything, provides relief to U.S. exporters and a bit of extra monetary stimulus. There is little, however, they can do to help the American economy at the moment. Market trading is orderly and, until the virus is contained, even cheaper money — whether through negative interest rates or yield-curve control — will do little to boost growth.
Gold’s rise may be overdone. History suggests that it rarely maintains these sorts of levels, and the wave of fear over the future of the U.S. and world economy that propels it eventually breaks. For the moment those fears are grounded, but gold’s disadvantages may soon become clear again.
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Toast to a free gold market
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