Gold: A Boring Commodity

Thursday June 29th 2023 Monaco 64 home of alternative economics and contrain views today we're going to look at why gold is a boring commodity yes we've had another one of these uh this time not in the Ft but on bloomberg.com before I start though I like to go through some headlines that have uh in my opinion been quite important of late and this just goes to

show how everything is unraveling and why is that well because our monetary Masters kept interest rates negative or near zero or in real terms negative for too long they printed too much money and it gave not just individuals uh households the wrong signals to borrow big mortgages but also corporations uh governments of course and today's headline is uh to do with Thames water which is the

bomb as well in my opinion why well because the only reason they're able to take over these companies is because they borrowed so cheaply and now with interest rates going up it looks like we the taxpayer are gonna have to bail out this company and I'm sure the directors and the Executives of these Pride private Equity groups they're going to be fine they're going to be

their wealth is going to be ring ring fence and we're going to end up holding the bag so UK government looks at nationalizing Thames water as crisis deepens ministers on standby to intervene in debt Laden business there you go a day after abrupt exit of CEO Sarah Bentley so they've got 14 billion in debt and I read that uh when they uh were privatized in 1989

I think I think the government got just under a billion pounds for it and it had almost no debt so here we are over 30 years later uh and uh 14 billion in that am I saying that privatizing private companies are no good that the government should own uh utilities like this not necessarily because I I think uh the uh way they run these companies and

the way they're regulated is not any good either but then we have to go to the Crux of the matter is that when governments and central banks manipulate the price of credit for so long we don't have a free market and we get stuff like that and uh we're gonna get a lot more of these problems elsewhere uh yes last year we got problems in the

the defined benefit uh final salary pension uh system here in the UK this is another accident I guess and it's gonna happen so what what else is going on here that I thought was uh interesting in letting you know about well I wanted to know to uh show you a story that shows that crime pays of course not all the time only if you're connected to

the district of criminals or Washington DC or even the city of London or Westminster of course we've seen that Boris Johnson bought a four million pound house recently on a salary of less than 200 000 as a politician and now we see that uh Anthony fauci according to isource news fauci buys exclusive 150 acre luxury Retreat on the Potomac rumored 18.9 million price tag makes it

the most expensive estate in in the area so I guess it pays to be a bureaucrat longtime bureaucrat in the district of criminals so there you go uh back to gold and the boring commodity well many of you of course have heard about this editorial that I've talked about many many times editorial from the Ft of course that that said that uh gold was pointless and

that yeah it was pointless holding bullion and that the pointlessness of that was continued to sink in going going gold and this editorial is written on April 16 2004 and at the time gold was struggling to get back above 400 which uh if you remember well and probably many of you don't you haven't been around as long as I have and follow gold as long but

400 was always a key level uh back in the early 2000s because it was an important level that we got up to in the mid late 80s and we failed there a few times 400 was like the 2000 I would say of present day and uh yeah lo and behold uh people who read this editorial and uh believed what the Ft said they're probably kicking themselves

right now because they could have done very well by just holding a boring commodity that's really easy to hold right in your hand especially in other currencies other than the dollar I mean in British Pounds at the time I think we were 240 uh pounds an ounce now we're at 1500 and we've been almost up to 1700 and in my opinion it's gonna get even worse

for the Fiat currencies so what am I trying to say here we're going to go through the Bloomberg editorial in a minute well I'm trying to say that a lot of people don't understand gold uh this particular Economist thinks gold is a boring commodity he doesn't understand money of course he doesn't uh understand what happened also in the 70s but let's uh go through it and

am I saying that this is a contrarian indicator I think so I think so uh and um of course many people are going to read this on Bloomberg and in five ten years time they're gonna regret not having bought gold because they read this and said well you know it's a boring uh it's just like any other uh any other asset like he says and is

it any wonder I saw a headline yesterday that uh OPEC has banned uh CNBC Bloomberg and the Wall Street Journal from from its meeting uh they the journalists for those these organizations can't attend it maybe OPEC is uh twigging on to operation Mockingbird and if you don't know what that is Google it and look it up I don't have time to talk about it but uh

yeah anyone there um yeah they're waking up the boys and girls from OPEC and OPEC plus of course which includes Russia so let's quickly get to this uh editorial gold is no longer a good hedge against bad times the precious metal has become just another cyclical asset no longer a useful harbinger of Social and economic collapse so we're gonna go through this and I'm gonna tell

you what I think the purpose of gold and why it's a good money to have really because that's what it is those who remember or read about the 1980s May uh consider the price of gold to be a highly dramatic valuable uh variable during the post-war Bretton Woods Bretton Woods ears the price of gold was packed at 34 dollars an ounce but after Richard Nixon severed

the dollars final link to gold in 1971 prices soared to more than 800 announced by 1980. fortunes are made gold bugs proliferated and the price of the precious metal became a daily Fascination many commentators considered the high price of gold to be a harbinger of disaster for both fiat currency and western civilization well 1970s what happened to the price of gold yes Nixon uh close uh

defaulted of course in 1971 August 15th price of gold uh went uh to 200 by the end of 1974 and then uh it dropped to uh just over a hundred dollars in 75 and it didn't really recover about that above that 200 level until I think 77.78 so it wasn't all plain sailing that's what I wanted to uh let you know Tyler Cohen of course has

not really looked carefully at what happened in the 70s he just said it went from 35 to 800 and that's it even if it's trading around a record high of two thousand dollars these days gold is a little boring and likely to remain so for the foreseeable future according to a new study from the National Bureau of economic research gold prices have followed some fairly standard

principles since at least 1990 to put it simply gold prices decline when real interest rates rise well we've had negative real rates for eons and uh of course these economists and even Wall Street and the city of London they look at the tips and the expected rates right which is BS of course uh that is because gold itself has zero direct yield so at high interest

rates the opportunity cost of holding gold goes up in this regard goat is like many other assets including crypto tech companies and real estate don't quite get that because uh fiat currency notes or dollar bills Bank of England notes if they sit there and you don't lend it they don't give you an interest either real estate gives you a rent I'm not sure what this guy

is talking about the other thing I would say it's been a really boring asset hasn't it since 2000 as you can see here in all the major Fiat currencies gold has gone up 9.3 percent per annum we've been lied to about currency debasement and why well as I've always said because they equate a two percent or three percent CPI or one percent CPI would something being

good but no it's a tax uh against you and your currency and even prior to 2020 and what's happened in the last year and a half or two uh we all knew that things were going up in price uh we had shrinkflation it's nothing new so that's what gold does it's an honest uh indicator of currency debasement and of course this uh guy probably doesn't understand

inflation anyway uh Tyler Cohen he probably thinks it's the CPI right so let's continue There You Go a boring commodity in a world of rising interest rates and slow economic growth gold just doesn't hold much appeal well it's the same thing in the 1970s Mr Cohen uh treasury rates and the FED funds went from around four or five percent all the way to 15 and 20

and there was stagflation and gold did well all all I think is happening right now is a pause before the dollar and all of the currencies uh crash versus gold so let's continue here at the price of gold also goes up and down when demand for it as a major commodity goes up and down so if say China becomes a major global economic power the Chinese

economy will need more gold if only for its commodity uses and then in turn will boost gold prices as it is starting as it did start in 2002 there's also a sizable gold jewelry demand from India so that country becomes wealthier that too will boost demand for gold and does its price again he hasn't looked in the into the uh uh stock flow the average stock

flow stock to flow ratio excuse me of gold which is around 84 years so supply and demand for jewelry that that's another can another uh fallacy about the gold price the gold price is more related to the uh to the inflation of the currency really and that's what it's all about we we've been inflating the currency and I think the Bernanke speech in 2002 was for

me a great uh indic not a signal that you had to have gold and keep stacking it that's what it's all about he doesn't even cover the um all the Central Bank buying that has been happening the the biggest uh Central Bank uh not go buying in recorded uh data from the world gold Council last year and it's continuing this year um under both mechanisms uh

gold is no longer a good hatch against bad times as it correlates with how with both low interest rates and global economic growth gold becomes another cyclical economic asset that is a big part of the reason why gold prices are no longer fall so closely or seen as useful harbingers of Social and economic collapse instead it is perfectly fine to have a high or Rising price

of gold price of gold seemed so dramatic in the Years surrounding 1980 because markets and prices had been suppressed for so long in the previous years I guess it doesn't know about the current price suppression so at that time it was very hard to know what gold truly was worth because various prices had not been tested much in the markets and by market procedures for trial

and error and value discovery there is a broader lesson here including perhaps for crypto if governments wish to normalize an asset in its pricing they will often do best with a dose of benign neglect in the simple passage of time um I'm gonna stop here I don't want to go on for too long uh I'm gonna put the the link to this article under archive.ph of

course because Bloomberg you have to pay to read their articles so you can read the whole thing but I think this is just a very good contrarian indicator and gives us even more reason to hold on to Gold when uh some Bozo from what where is he from George Mason University uh talks out of his ass really and I'm sorry to use that term but basically

that's what it is so he finishes by saying commentators on financial markets love to stress Mysteries speculative Bubbles and eventual crashes but sometimes the actual truth is more mundane than that and we see this even for gold prices this is a bit of a shocking contrarian idea but a lot of the world including the economic world just makes plain sense let's enjoy that feeling why it

lasts so yeah gold is the anti-dollar and what's the uh well anti-fiet dollar and uh we've seen with the uh debt situation that that ceiling impassed earlier this year that things are not going to get better the uh debt held by the public is forecast to to go to double to like almost 48 trillion by 2033 and that's not me saying it that's the Congressional budget

office and uh of course the Fiat dollar is backed by government bonds so the more you issue the more the government borrows uh out of thin air the more diluted that currency becomes yes you could argue oh we're going to have economic growth and that's gonna ride off the debt with the well but the economy needs to grow more than the debt do you really think

the economy is going to double in size in the next 10 years I doubt it especially seeing that the only reason we're seeing positive GDP is because of deficit spending uh so there you go that that's how I I see it and uh I told you I would say at the end what I think gold is really all about well you saw it from the uh

incrementum a scorecard for gold for the last 23 years and someone asked me uh yesterday about the manipulation can can it keep going uh not forever and why do they do it well they do it to keep you out of gold because eventually the price will go a lot higher because it's a natural law because gold is money and uh the Fiat dollar is the anti-money

and if you keep inflating the Fiat dollar it's going to become worth less and less in terms of gold because gold uh is limited in Supply and that's what it's all about they they don't want gold going up in the straight line because uh then you know everyone would be getting on it uh so what they do and they they talked about this in the Wikileaks

uh documents from 1974 before gold was legalized that they needed to have a Futures Market very speculative to keep people away from physical gold so that's what they do they keep gold speculative and they keep it suppressed for a while and then all of a sudden they they let it go but then most people by then who will have uh lost patience so patience is the

most important thing and it's a long-term uh thing it's not for everyone it has worked for me and it has been frustrating at times but um yet patience is the most important thing and uh I think uh what's his name again Mr uh Tyler Cohen will be proven wrong just like whoever wrote this for the Ft was proven wrong so there you go uh with that

let's quickly look at the markets this morning uh it's 8 35 a.m London time we've got spot gold at 1905. Heisman 13 and the low has been 0-2 uh Silver's up 9 cents 22.80 Heisman 89 low has been 64. the uh Dow futures is down 15 the NASDAQ futures down 15 as well s p down four to the currencies they look pretty much unchanged really uh

with the exception of the dollar versus the U1 that's a little higher 725 17. um Aussie dollars up a quarter of a percent 66 20. uh the uh dollars on change versus The Looney 132.65. and the Kiwi dollar is up about 0.2 at 60 83. uh to the general commodities uh WTI Crude is down a third at 69.40 uh Brent is down a third as well

just below 74. Platinum is up four dollars trading at 920 and high grade copper is unchanged at 373.90 so we're going to finish off with the bond market uh the two-year yield is up uh 11 basis points at 5.25. yesterday it got up about above 5 30 and then it dropped quite a bit uh very volatile in today's back up to a 525 let's check the

uh treasury market U.S treasury market the two-year yield is up five basis points at 476 and the 10-year is uh pretty much stuck around three and three quarters it's up for basis points though so there you go with that I'm gonna wish you all a very good day take care bye