Gold reclaimed its bullish energy Wednesday as fears of additional international economic stimulus re-surfaced and the dollar remained sluggish. While equities are also up, the resurging appeal of both the shiny metal and stocks stems from central bank policies that force investors to assets that do not rely on yields from interest. Why? Because there’s no interest to be had… Of course this begs the question: What happens when markets turn bad?
In the wake of Brexit, and its worldwide economic consequences that will be unfolding over the months and years to come, the precious metal quickly resumed its traditional role as a safe haven for investors fleeing market uncertainty. According Bernard Dahdah, financial analyst at Natixis:
“Gold prices can continue to benefit from an uncertain economic picture for the UK and Europe after the Brexit vote and also from any quantitative easing, which also means low interest rates….”
Interestingly, this ascent continues in the wake of a strong jobs report – ordinarily a signal for a retreat in price. While this may be attributed to the Fed’s continuing hesitancy to raise interest rates, the fact is investors are wary, and gold’s their reassuring asset of choice.
In a Commodities Corner inteview, Macquarie Group analyst Colin Hamilton suggests gold has moved up despite the weakness of Indian demand – usually a key driver of the market, although many experts note that Indian demand tends to slump midsummer, as Indians ramp up for big buys in September for Diwali.
Hamilton also suggests some aficionados may have switched to silver to capitalize on its popularity as an industrial metal. Right now, the fundamentals of silver are strong, particularly in light of a five percent drop in silver mining.
But make no mistake – as long as doubt and fear haunt the global economy, gold will continue to thrive. While Brexit has served as the most recent trigger of higher gold prices, the burgeoning Italian banking crisis has also clearly affected investor sentiment, despite the fact that, for now at least, J.P. Morgan has agreed to come to the rescue of Italy’s third largest lender.
But some observers feel this kind of bailout only amounts to a financial Band-Aid, and fails to address the true problem with the global economy: central banks’ successive failed attempts at quantitative easing. In a Wednesday CNBC video interview, Euro Pacific Capital’s John Browne bluntly asserts the Federal Reserve, the Bank of Japan, and the European Central Bank are the three biggest monetary sinners, having collectively poured trillions of dollars of “synthetic money” into the global economy.
As part of a solution to this gargantuan problem, Browne suggests a return to a partial gold standard – say, currency that’s forty-percent backed by gold. When asked by the whether there’s enough gold available to implement this broad a world gold standard, he replied, “There is – at a price.” Whereupon Browne put forth the possibility of ten thousand dollar-an-ounce gold.
What about you? Do you think Browne knows what he’s talking about? I’m not willing to blithely dismiss him as a gold-bug crank. He’s a former member of Britain’s Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher.
Even if the world’s central banks decide not to adopt a gold standard, by following the smart money to this most tangible of assets, you’ll be protected if central bankers persist in their mindless printing of “synthetic money.” One thing no one has ever said about gold? That it’s not a genuine asset.
And what if Browne is right and gold does reach that magic number? You’ll be almost seven and a half times up on your money over Thursday’s price, and you’ll still be protected.