Sunday, March 15, 2015
Gold - The Suppression of Physical Gold Price comes from an unforeseen factor
Gold - I mean it just does not add up. Mines are closing so less is being produced and yet demand is sky high plus the physical price is not becoming overly divorced from the paper price as most experts said it would have to. So what is going on? There is a new supplier in town, and he is very secretive.
Gold and silver typically rise together with economic improvements in emerging markets and Europe when the U.S. cannot cope with this pace.The euro has strong positive correlation to gold, they often move together. This third factor is the most important one, because it represents a “pre-indicator” for inflation, central bank intervention in times of crises, real interest rates/financial repression but also for the availability of easy money to push up commodity prices. The growth difference between investment-driven growth in Emerging Markets and often consumption-driven growth in the U.S may lead to a “fear factor” incorporated in such “global imbalances”.
The Fed fights this fear factor with easy money. Between 2009 and summer 2011 emerging markets continued their ascent but high oil prices and the weak housing market hampered the United States. A similar situation happened in the 1970s when Southern America and Europe showed far higher growth than the U.S. because US monetary policy was too easy.
The rise to 2011's record peak of $1,920 came as several of the Arab Spring revolutions descended into civil war, Greece was brought to a standstill by a general strike against the Eurozone's austerity demands, and England suffered its worst rioting of modern times.
Priced in sterling, gold's rise since 1968 has been 40pc greater than its rise against the dollar. Over the past 10 years gold has gained 273pc for British investors against 255pc for US buyers – and its strongest gains came when the dollar was also rising.