• 13 hours Walmart Reaches Out To Chilean Government For Protection
  • 17 hours The Most Exciting Gold Find Of The Decade
  • 19 hours Mining Boom Sparks Deforestation Concerns
  • 2 days The Cannabis Culling Has Wall Street Disappointed
  • 2 days Vigilante Offers $100,000 Bounty To Hack Banks
  • 3 days The Dairy Industry Is Dying
  • 3 days The Most Impressive Electric Vehicle Of The Year
  • 4 days Gold Miners Are Having A Stellar Second Half
  • 5 days How 3D Printing Is Turning Each And Every Industry On Its Head
  • 5 days Is The $3.5 Trillion Healthcare Industry About To Get Much More Transparent?
  • 6 days Gamblers Are Betting Big On Trump’s Impeachment
  • 6 days Even Banks Can't Answer Aramco's Trillion Dollar Question
  • 7 days Will Bezos Buy The Seattle Seahawks?
  • 7 days 6 Tech Trends Transforming The Travel Industry
  • 8 days Ousted Uber CEO Cashes Out $500 Million In Stock
  • 8 days Trump Prepares For Another Key Tariff Decision
  • 8 days The Free Money Bubble Is About To Burst
  • 9 days The Crushing Reality Of Poverty In America
  • 9 days Should You Buy Into The World’s Largest IPO?
  • 9 days The Infinite Possibilities Of Cosmic Energy
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

Arkadiusz Sieron

Arkadiusz Sieron

Writer, Sunshine Profits

Arkadiusz Sieron is a certified Investment Adviser. He is a long-time precious metals market enthusiast, currently a Ph.D. candidate, dissertation on the redistributive effects of…

Contact Author

  1. Home
  2. Markets
  3. Other

Gold News Monitor: In Gold We Trust 2015

Gold News Monitor originally published on July 31, 2015, 9:18 AM.


 

Last month, the 2015 edition of the In Gold We Trust report was released. What can we learn from this publication?

As always in June, Incrementum AG (an independent asset management & wealth management company based in the Principality of Liechtenstein) published its annual "In Gold We Trust" report, the extended version of which can be downloaded here. We know that it was published one month ago; however, it took a while to dig through the 140-page text. Because it offers many interesting insights into the current global economy and the gold market, we provide a short summary for you today.

The main idea of the report is that there is a constant struggle between deflationary and inflationary forces. Since 2011, disinflationary forces have clearly dominated the market (think about the declines in commodity prices). According to the authors, this is why so many market participants have lost faith in gold. However, if the inflation trend reverses, excellent opportunities in inflation-sensitive investments such as gold will emerge. They point out that we now actually witness inflation, not consumer price inflation, which occurs always later, but rather asset price inflation. The authors believe that governments and their central banks will eventually tackle the increasing debt problem with money printing and inflation.

We doubt that inflation is the main driver (especially in the short term) of the price of gold (in 80s and 90s the price of gold was falling despite inflation). We argue that the price of gold reacts more to the faith in the current monetary system, and it is in a sense a reciprocal of the credibility of central banks. The authors agree with that, since they explain the disappointing gold performance in dollar terms last year, by pointing out that "at the moment, it appears as though faith in the omnipotence and infallibility of central banks is at an all-time high". They also mention other factors behind the weak trend, such as strong disinflationary trends and the associated increase in real interest rates, the Fed's tapering and declining money supply growth rate, rising opportunity costs due to a rally in stock markets, increase in risk-appetite, and rising expectations of a Fed's rate hike.

Although the report seems to attach too much importance to the relationships between debt, inflation and gold, and to Asian demand, and it incorrectly predicted China's official reserves ("we believe it is realistic that China now holds 4,000 to 6,000 tons"), it provides interesting information. For example, the global gold price (gold price not in US dollars, but in the trade-weighted foreign exchange value of the dollar) already entered a new uptrend in the autumn of 2014, gold exhibits clear seasonal trends with the second half of the year being the strongest, and the global gold trading volume amounted to 550,000 tons last year, which is roughly equivalent to 188 times annual mine production (this fact explains why the mine production does not drive the price of gold).

In the context of the FOMC July meeting and the Fed's possible hike, they point out that although the federal funds rate and gold prices exhibit clear negative correlation, some periods can be observed during which the relationship collapses (indeed, three of the largest gold rallies of the post-1971 era occurred in rising nominal rate environments).

To sum up, the last edition of the In Gold We Trust report is a very lengthy, but interesting publication. Although we recommend skepticism on the authors' long-term gold price target of $2,300 per ounce within three years (it seems that they have stuck to this target since 2007), they properly define gold as an "antithesis to paper money" and a monetary asset (not as just another commodity), realize gold's safe-haven and portfolio diversification features, and cite convincing explanations for the relatively weak performance of the price of gold (in U.S. dollar terms) last year.

Regards,

 

Back to homepage

Leave a comment

Leave a comment