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Category: Bullion Bulletin

Bullion Bulletin: The tethered mustang

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Central banks of the Eurozone, the UK and the US all put up interest rates last week – the Federal Reserve by the (widely expected) 0.25%, taking the federal funds rate to 4.5%-4.75% – and the Bank of England (BoE) by 0.5%, putting the UK’s base interest rate to 4%. The European Central Bank (ECB) joined in on Thursday, putting the Eurozone’s base rate up by 0.50% to 2.5%.

They do this to drive down demand in the economy; the aim is to extinguish high inflation. Making borrowing money more expensive is a blunt instrument with time-lags measured in months of even years. The risk is that central banks raise rates too high and consequently don’t just slow demand but slash it so much that an economy moves into recession, with all the associated downsides, such as rising unemployment rates, more expensive mortgages and increased public unhappiness over the cost of living. It’s a perpetual tightrope act, made all the more tricky by these central banks aiming to achieve 2%/year inflation.

The leadership of all three banks showed a determination to quash inflation. Jerome Powell, chairman of the Federal Reserve in the US, where inflation in December was 6.5% (versus 7.1% the previous month and a four decade high in June of 9.1%) said “we are going to be cautious about declaring victory and sending signals that we think the game is won, because we’ve got a long way to go”. Andrew Bailey, governor of the BoE, said “we need to be absolutely sure that we really are turning the corner on inflation”. Inflation may be cooling in all three zones but only very slowly. The UK’s official rate (from December) is 10.5%, close to its highest in more than four decades.

Central banks are having a tough time figuring out the basic direction of their economy. With interest rates in the US at their highest level since September 2007 and even apparently well-paid Americans struggling – an end-December survey found that 51% of Americans earning above $100,000/year said they live from one pay cheque to the next – the signal to the Fed should be that interest rate rises have reached recession-point. But other data says the US labour market remains very tight – some 7% of jobs are unfilled while the unemployment level is 3.5% and recently was at an historic low. Moreover those in work are working on average 33 hours/year less than they did in 2019. In the UK, the story is similar; more than 20% of the working age population is “economically inactive” (neither employed nor looking for work).

Financial markets as usual immediately tried to guesstimate what the banks’ next moves might be. Opinion was divided as to whether interest rates will go even higher in the US, even though Powell said further tightening was on the cards. The ECB said it would “stay the course” on rate rises but the BoE’s rate setting body, the Monetary Policy Committee voted seven to two in favour of this latest rate rise, raising markets hopes that the peak rate for the UK is in sight.

There are signs that the US may escape a serious recession, although alarms are ringing about a “second wave” of inflation being imminent – medical costs are set to increase at the highest rate in 14 years. As for the Eurozone, Spanish inflation surprised many by going marginally higher in January. In the UK, a de facto general strike (500,000 people walked out) on 1 February spoke of deep anger among public sector workers at their wages being eroded by inflation – this is a problem without an easy solution.

Gold futures prices rose 1.3% (to $1,968.30) on Powell’s comments after the US rate rise, as the market detected a willingness to be less drastic with interest rate rises. Inflation appears to be calming, but appearances can be deceptive. Like a tethered mustang, gold seems to be champing at the bit – but it will have a while to wait.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Bullion Bulletin: Peak gold is a myth

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By now it’s no news that the world’s resources are finite. So, are we approaching ‘peak gold’, that point when gold production starts to decline? Or has it already happened?

Recently published scientific research purports to show that the world will run out of newly mined gold by 2050 – less than 30 years from now. For some that’s a horror story, for others a promise of future wealth as gold prices soar; much as we hate to spoil the party the ‘gold running out’ story is old and almost certainly inaccurate. Simple economics means there will always be gold around – at a price.

Furthermore, this is an old story. Aaron Regent, then president of the giant gold producer Barrick, said in 2009 that there was a “strong case to be made that we are already at ‘peak gold'”. Almost a decade ago the (former) president and CEO of Goldcorp, a Canadian gold miner since acquired by Newmont, was interviewed by Mining.com; the headline was “we have hit peak gold”. Peak gold has been around a while. World mined gold production has ‘peaked’ four times since 1900 – in 1912, 1940, 1971 and 2001, each peak higher than the previous.

There’s no doubt that getting gold out of the ground and refining it has become much more costly. One source estimates that the ‘all-sustaining costs’ (AISC) per ounce in 2000 was $300, and rose (in the first quarter of 2022) to $1,232.

But newly mined gold is not the only source of supply; recycled gold is a big component, and readily available. The biggest supplier of recycled gold is also a country with a huge appetite for gold – India. Households in India may collectively hold as much as 25,000 tonnes of gold, most in the form of heavy jewellery that is reserved for special occasions such as weddings. This gold plays two roles in India – ostentatious demonstration of wealth in decorative form, and as a means of saving that can be cashed in (recycled) when needed, when prices climb, or when fiat currency turmoil erupts.

The easy days of low-cost mining ended long ago – and new rich discoveries are becoming rare. Even when a new gold discovery happens (and exploration is constant) it takes around 20 years between discovery and producing an ounce of gold. Getting hold of new gold is more expensive, because more difficult, as old seams are depleted; what gold there is derives from more unstable countries, which pushes up the mining risk premiums. At the turn of the Millennium, Australia, Canada, South Africa and the US accounted for almost 50% of all gold mined; today they produce less than 25%, while China and Russia are the two biggest producers.

S&P Market Intelligence said in May last year that its “major gold discoveries identified 341 deposits discovered over the 1990-2021 period, containing 2.7 billion ounces of gold in reserves, resources and past production, up from our 2021 analysis of 329 deposits containing 2.58 billion ounces in 1990-2020”.

As newly mined gold becomes scarcer – an inevitability it seems – prices are likely to rise, simply on the basis of supply undershooting demand. But the cure for high prices is high prices – high prices will stimulate greater exploration efforts and more recycling. ‘Peak gold’ does not mean ‘no more gold’.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Bullion Bulletin: IMF gold gets eyed up again

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As more and more countries struggle with their accumulated vast foreign debts, it’s no wonder that one of the world’s biggest holders of gold – the International Monetary Fund (IMF) is once again coming under pressure to offload some of its gold, valued at more than $4 billion, to fund debt relief.

Lebanon, Russia, Suriname and Zambia are already in default, Belarus is on the brink. Last year, Sri Lanka defaulted on repayments of its $50 billion foreign debt; Ghana suspended payments on most of its $28.4 billion external debt last December. Pakistan’s external debt is now more than $138 billion and servicing that debt costs more than $15 billion a year. It’s estimated that as much as $400 billion of debt owed by countries to foreign creditors is in play, and more than 40 nations are at risk of default.

Carmen Reinhart, former chief economist with the World Bank, said last June that there are “more Sri Lankas on the way… There are a lot of countries in precarious situations… I do think things will get worse before they get better… My sense is that we will see more difficult times before we turn the corner”.

How did the world get into this position? Like so many simmering crises we have to go back to the Great Financial Crash of 2007 and its aftermath. Governments responded to that crisis by slashing interest rates, making it cheap for everyone – including sovereign states – to load up on debt. The recent high inflation around the world has forced central banks to start putting up interest rates, and countries (already burdened by high costs for energy and food) are now in debt distress – trying to restructure their debts or falling behind on interest payments.

This high indebtedness is prompting a number of responses, including a call for the IMF to conduct “modest” gold sales to “benefit Africa and LICs”. But it’s obvious that even if the IMF sold all 90.5 million ounces (valued at somewhere around $4 billion ) of its gold, that would barely touch the sides of the current emerging markets’ ticking debt bomb.

In the past, the IMF has sold gold for debt relief; in 2009-10 the IMF sold an eighth of its gold, some 403 tonnes, for about $15 billion. The proceeds were channelled through the IMF’s Poverty Reduction and Growth Trust (PRGT), which aims to provide support for low-income countries (LICs). Under the IMF’s Articles of Agreement it can only conduct gold sales with 85% support from its Executive Board – and getting that kind of support now, with a war raging in Europe making everyone nervous, would not be easy.

But even if the IMF voted a new round of gold sales, in the current geo-political context that’s unlikely to dent the price by much or for very long. Central banks have been buying gold in record volumes – 400 tonnes in one quarter last year, the same as they would normally buy in a whole year. As one Bloomberg commentator put it in November: “In a world where you can trust no one, it makes sense to bulletproof yourself with metal”. When the IMF made its 2009-10 sales the Indian central bank snapped up 200 tonnes and other central banks – including that of Sri Lanka – took the rest. The gold price averaged some $972 in 2009; last year it averaged more than twice that.

So if the IMF doesn’t have enough gold to solve the record $300 trillion global debt, what will happen? Some argue that the only solution will be a ‘great reset’ in which policymakers come together to orchestrate some form of debt write-offs. If that doesn’t happen then we will watch the dominoes topple this year – and gold is likely to become more important as a defensive asset.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Bullion Bulletin: China’s gold buying

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China is buying a lot of gold. 32 tonnes last November, 30 tonnes in December – officially its total reserves are now 2,010 tonnes although many suspect the total is several times higher than that and could be as much as 30,000 tonnes. Officially gold represents just 3.5% of China’s reserves but as the world’s biggest gold producer, which for years now has churned out hundreds of tonnes a year and exports none of it, that’s clearly inaccurate.

The composition of foreign exchange reserves in China is a state secret. State secrets under Chinese law are defined as “matters that concern state security and national interests and… are known by people within a certain scope for a given period of time”. This woolly definition is appropriate given that what a state secret might be covers not just matters of national defence and foreign affairs but anything at all that the ruling communist party doesn’t want to talk about, including how much gold China has. The state secrecy of gold is not unusual in China. Data on all kinds of items – such as stocks of grain, cotton and other major crop – are state secrets.

The amount of gold is a secret and so too is the purpose of such accumulation. China is not likely to adopt a gold standard (i.e. pin its fiat currency to gold) but its gold accumulation will certainly give potential investors in the country much greater confidence and thereby strengthen its move into a Central Bank Digital Currency (CBDC), which (along with displacing the Dollar as the international reserve currency) is its long-term aim.

It’s obvious why China wants its money to gain international reserve status and knock the US Dollar from its perch – apart from the sheer delight in being the monetary ‘top dog’ – it would make life cheaper for its exporters, who would have lower borrowing costs, and with more contracts priced in Yuan China would be more impervious to the Dollar’s value.

As a paper published by the US National Bureau of Economic Research (NBER) last August (and revised this month) says: “While the Renminbi has a long way to go to rival the U.S. Dollar as an international currency, China’s real economic size and the size of its capital market could make the integration of its capital market into global financial markets a major shift in the international monetary system”. Untangling the academic language, China is approaching the point where its currency might challenge the Dollar’s reserve status. There have already been steps in this direction – in 2015 the International Monetary Fund (IMF) awarded the Yuan reserve currency status, giving it a 10.92% allocation in the IMF’s Special Drawing Rights (SDR, the IMF’s foreign exchange reserve assets) since when it has been raised to 12.28%.

Last October, Dong Dengxin, director of the Finance and Securities Institute of China’s Wuhan University of Science and Technology said the two-way deregulation of China’s capital market paves the way for the greater use of the Yuan in cross-border settlement and investment and for the Yuan to be increasingly adopted as a global reserve currency. The amount of gold might be a state secret but the aim of toppling the Dollar isn’t.

Bullion Bulletin: The receding pivot

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Those hoping for the arrival of the long-discussed Fed ‘pivot’ (a reversal of the US central bank, the Federal Reserve’s, policy of ever-higher interest rates) will be disappointed, following publication of the minutes of December’s Federal Reserve policy meeting.

In the past, higher interest rates have tended to depress demand for gold (and hence lower its Dollar price) as gold bears no interest. Thus the outlook for 2023 of further Fed interest rate rises, if past precedent was followed, ought to weigh on the Dollar gold price. And yet, and yet…

Confronted by inflation rates rocketing to a 40-year high last year, the Fed has determined to cool the US economy; in 2022, it thus raised benchmark lending rates seven times, taking them to 4.25%-4.50%, the highest since 2007. Given that the labour market is still running hot – 1 .7 jobs were available for every unemployed person in October – the Fed’s policymakers still fear inflation more than recession.

The minutes reveal that Fed policymakers believe “a restrictive policy stance would need to be maintained” until clearer and more decisive evidence that inflation is on a sustained downward path. None of the participants in the meeting thought it appropriate to begin reducing the federal funds rate target in 2023. The Federal Reserve expects higher interest rates to remain in place for “some time”, as it continues to see inflation as the major threat to the American economy, despite increasing fears over a potential recession.

US consumer prices rose at an annualized rate of 7.1% in November, the lowest in 15 months and against what may be the peak, of 9.1%, in June. The next consumer price index figure, for December, will be published on 12 January. However, even though inflation is slowing in the US it is still currently more than three-and-a-high times higher than the Fed’s ‘target’ of 2%/year. The ‘terminal’ rate – the point at which the rate will come to rest before the Fed starts reducing rates – is now expected to settle some time in 2023 at around 5%.

And yet after the minutes were published gold reached its highest in seven months; investors seem eager to sniff even the faintest scent of a ‘terminal’ point. Back in March 2020 the federal funds rate was 0%-0.25%; 2022 was the year when the Fed started raising interest rates and US Treasury Bills became relatively more attractive for investors. Even as the fed funds rate climbed in 2022 the Dollar gold price kept its head up – over the year it made a modest gain of 1.6%.

If the Fed continues to tighten monetary policy too far the risk is that a recession will happen. High levels of government debt – $31.5 trillion in the US for example – means that higher interest rates are as painful for governments as mortgage-holders. US interest payments last year were probably around $399 billion and could triple over the coming decade. Even at the historically low 4.50%, the US is forced to pay money that could be much more useful elsewhere. A commodity analyst at UBS reckons that “it’s too early to call for a Fed pivot… it’s not yet time to buy gold… in 2023 there will be a period where it’s interesting to buy gold when the market starts to smell that the Fed will cut interest rates”.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Bullion Bulletin: Russia’s Wealth Fund

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Just before the New Year celebrations Russia’s finance ministry sprang a piece of news that, while intriguing, should surprise no-one. It doubled the amount of Chinese Yuan and gold its national wealth fund is permitted to hold. In order to make investments in the fund “more flexible” (according to the finance ministry) it raised the potential share in this fund of Yuan to 60% and gold to 40%.

Almost simultaneously the country’s largest bank, the majority state-owned Sberbank, said it would start to issue gold-backed digital financial assets (DFAs). Alexander Vedyakhin, first deputy chairman of the Executive Board of Sberbank explicitly linked the gold-backed DFAs to a broad ‘dedollarization’ which he posited is now happening.

Russia has been steadily accumulating gold over the last decade; its gold-buying has been given an extra impetus by the sanctions imposed by the US and other countries after the invasion of Ukraine. Its interest in digital assets has fluctuated wildly in the past couple of years. In 2017, President Vladimir Putin said Russia would develop a digital currency called the CryptoRuble, to be issued by the Russian government. It was reported in 2018 that one of Putin’s economic advisors, Sergei Glazyev, said during a government meeting that the CryptoRuble “suits us very well for sensitive activity on behalf of the state. We can settle accounts with our counterparties all over the world with no regard for sanctions”. The CryptoRuble was due to be tested by the Russian public in 2022 but it’s yet to appear. Following the Ukraine invasion one of the sanctions imposed against Russia was to eject it from the SWIFT payments platform, to which Russia’s finance ministry responded by saying it would legalize the use of virtual currencies in cross-border payments, while they would remain illegal for domestic usage.

According to a Russian-based economist, the Yuan “is becoming the ‘new dollar’ due to its growing liquidity and relatively low volatility”. Sanctions imposed on Russia have been a double-edged sword; while the richest Russian oligarchs lost almost $95 billion in 2022, the US Congressional Research Service (CRS) admitted in December that sanctions have “not delivered the economic ‘knock out’ that many predicted” and that they have “contributed to disruptions in global supply chains, higher global commodity prices, and a slowdown in global economic growth”.

Perhaps most importantly, they have so far failed in their main task – forcing Russia to abandon the invasion of its neighbour. It seems likely that this war will drag on through 2023, and that Russia will continue to bolster its foreign reserves by accumulating further gold stocks from its own mining (around 300 tonnes a year) and elsewhere. The National Wealth Fund, which originally was established to help cover deficits in the national pension fund, will continue to be used to help support the fight.

Bullion Bulletin: What price 2023?

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In the countdown to 2023 analysts have fingered their abacuses and come up with price forecasts for gold next year. Capturing more media attention than most has been the Danish investment bank Saxo’s “outrageous” set of predictions, including that spot gold “rises above” $3,000 an ounce. But given that another of Saxo’s predictions is that French President Emmanuel Macron decides to resign and retire from politics in early 2023 that $3,000/ounce looks remote.

Mind you, Saxo is not the only extreme forecast. Zoltan Pozsar, investment strategist at Credit Suisse bank has said it is “not improbable” that gold could reach $3,600 an ounce if Russia responds to the G7’s $60/barrel price cap on Russian crude oil by accepting payments in gold. This too seems a remote possibility – but analysts thrive on media attention, Pozsar got lots with this conjecture.

As for this year, few could have predicted or imagined one of the most dramatic events, Russia’s invasion of Ukraine. The gold price has seen a remarkable price range this year (peaking at almost $2,044/ounce on 7 March, falling to $1,627.84 on 25 September and now trading at $1,788 on 13 December) and few forecasts at the end of last year captured that range.

But given the dramatic events of the past 12 months – inflation in the US and UK the highest in more than four decades, the tremendous spike in energy prices, a belated catch-up by many central banks that had previously swallowed the ‘inflation-is-transitory’ line, record gold-buying by central banks – that’s perhaps not surprising.

 

Glint cannot and does not give investment advice and it does not make gold price predictions – a relief, given the high chance of getting it wrong. But if we look at what has happened this past year, it’s safe to say that gold has served one important purpose – it has kept its head while all about it seem to have been losing theirs. In US Dollar terms, by the start of December it was down 3.3% according to Incrementum, the asset manager, but in other major currencies was up, by 8.5% in Pounds Sterling and 16% in Japanese Yen. The S&P 500 meanwhile has lost almost 15% in 2022; the Dow Jones Industrial Average is down by almost 5% this year. The purchasing power of major fiat currencies such as the Dollar or the Pound have been significantly eroded by this year’s inflation. Gold is often referred to as a ‘defensive’ asset, i.e. one with lower volatility, more stability. The cryptocurrency market this year has experienced a huge crash, with the most popular, Bitcoin, losing about 70%.

No-one can know what the New Year will bring. The shiniest thing you can buy this holiday season may not be tinsel for your tree – for Gold is security and Glint its key. At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Bullion Bulletin: Own gold the best way

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What is the best way to own gold?

Allocated gold, of course.

What is allocated gold and why is it the best way?

Let’s take a fictional example to get an answer – the case of three gold buyers, person A, person M and person Z.

A decides to invest in a kilo of gold but doesn’t want to run the risk of being burgled and possibly having the gold stolen. She does a quick internet search and discovers that gold can be bought through an exchange traded fund (ETF). The average expense ratio for gold ETFs is 0.65%. A has a bit of financial sophistication so knows to avoid an actively managed ETF (which has a higher expense ratio so costs more to sustain) and also to avoid leveraged gold ETFs, which can magnify both gains and losses. A just wants to own a kilo, and not be bothered. A chooses what seems to be the safest option and invests enough to secure a kilo of gold into an ETF. A is ignorant of the wider risks and possibilities.

Person M however realises there are possible risks with a gold-backed ETF. Such ETFs are securities which are designed to track the gold price. Buying a gold ETF does not give ownership of any physical gold – gold ETFs function similarly to stocks and currency – you don’t get access to physical gold, all you get is a piece of paper stating how much gold your investment is linked to. M understands that there is counter-party risk involved in buying a gold-backed ETF. Multiple people are involved in managing the ETF, which increases the risk of something going wrong.

If you buy a gold-backed ETF you don’t own any gold – you just own a share in the trust that runs the ETF. The ‘gold’ you have bought is unallocated. Unallocated gold is the most widely traded form of gold in the world. But it hides a way of advantaging as provider – usually a bank – by subjecting buyers to a risk they frequently remain unaware of. Your relationship is with the bank’s overall pile of assets, not with any specific pile of gold. The bank’s small gold reserve would be diluted by non-performing bond portfolios and other assets which don’t sell well in a crisis. So it is important not to be impressed by unallocated gold, or by it being physically stored in a bank’s vault, or by it being checked daily by bank regulators. Regulators are checking it to make sure the bank maintains a liquid reserve, and they are not interested in your entitlement as a bullion creditor.

Which means that if the ETF for any reason has to close up shop, you will find yourself at the end of a (potentially very long) line of creditors who want re-paying. And you pay fees for owning an ETF which will eat into the value of the gold investment. So M decides to buy some physical gold, pay the hefty premiums that come with bullion coins, shoulder extra costs for insurance, and be able to look at the gold whenever desired. M doesn’t consider potential obstacles for the future, such as selling the gold. Any future buyer might be suspicious – where did the gold come from? Has it been tampered with? Can M be trusted?

Z is the canniest of all three buyers. Z decides to buy gold via Glint. Glint provides its clients with allocated gold, making the client the outright owner of gold and you are no longer a creditor. Your allocated gold is your property; it can’t be used as anyone else’s reserve, so with allocated gold you get proper protection from systemic failure. And Z’s gold can be used as money, spent on everything from weekly shopping to an expensive holiday, and sent to other Glint clients. It’s the smart way to own gold – safe in Zurich vaults, owned by you, and as liquid as fiat cash.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Bullion Bulletin: Sliding dollar on hopes of inflation easing

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The US Dollar slipped from a 20-year high, falling some 4% against a basket of six other currencies, although it is still up more than 10% since the start of the year. The Dollar spot price for gold responded by gaining 0.6%.

The weakening of the Dollar is due to financial markets taking the view that inflation in the US is easing and therefore interest rates may not go up as rapidly or as high as formerly expected.

All eyes are on 13 December, when the consumer price index (CPI) data will be published. That data will reveal the annualized inflation rate for November; October’s CPI figure was 7.7%, down from 8.2% the previous month. June’s 9.1% figure was the highest (so far) for 2022 but it has crept lower (8.5% in July, 8.3% in August) since then; many are convinced the downward trend will continue.

13 and 14 December also see the next scheduled meeting of the Federal Open Market Committee (FOMC), the body which sets US interest rates. Opinion is sharply divided as to whether the FOMC is more ‘hawkish’ (i.e. is in the frame of mind to raise rates by 0.75%, which would be the fifth successive such rate increase in 2022) or more ‘dovish’ and will be content to raise rates by 0.50%. HSBC has sent its clients a note saying the Fed’s hiking cycle is ending and that “it has peaked”. The Federal funds rate is now between 3.75% and 4%.

The strong Dollar looks as though it will eradicate more than $10 billion from the earnings of US companies in the third quarter. A so-called ‘Fed pivot’ (or change of direction, away from pushing rates up) looks unlikely in December. The Fed wants to ‘cool’ inflation and bring it back to close to its 2%/year target, but various data studied by the Fed are still showing signs of a buoyant US economy; for example US retail sales in October recorded their biggest monthly increase since the start of 2022. The jobs market is close to the tightest it has ever been since records began.

The Fed’s chairman, Jay Powell, said in August that the central bank would “keep at it” (i.e. stick to putting rates up) until it got price pressures under control, but it’s as yet unclear what “it” will require. We may learn a little more from Powell on 30 November, when he is due to speak at the Brookings Institute. So far this year gold has been relatively successful; the S&P500 is down some 17%, the total capitalisation of the cryptocurrency market is down 69%, while the Dollar price of gold is down less than 5%, despite the higher interest rates and the Dollar’s currency strength.

At some point the Fed will perform its ‘pivot’ and start to ease off the interest rate accelerator; as a global recession bites it will find it necessary even to start cutting rates. Investors who opted for cryptocurrency will be thinking twice about the security of the crypto world following the ghastly demise of FTX. Gold is well positioned to benefit from the Fed’s change of heart and the thump to crypto’s solar plexus.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Bullion Bulletin: Gold for oil

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Ghana vies with South Africa for the title of Africa’s biggest gold producer. Last year Ghana lost out, as its production declined from 4 million ounces in 2020 to 2.8 million ounces. South Africa dominated global gold production until 2009, when China displaced it from the top slot. Ore grades are in decline in South Africa and about two thirds of gold mining operations there in 2018 were either marginally profitable or loss-making.

Despite last year’s slowdown in its gold production, Ghana now says it is planning to buy crude oil and derivatives with gold rather than US Dollars. It plans to start paying in gold in the first quarter of 2023. Ghana’s Vice –President, Mahamudu Bawumia, said the new policy “represents a major structural change” and “will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency”.

Its currency, the Cedi, has so far this year been the world’s worst performing currency, dropping 57% against the Dollar. Ghana has ordered large gold-mining companies to sell 20% of their refined gold – for Cedis – to the country’s central bank.

Small-scale miners have also been instructed to sell their gold, also for Cedis, to the state-owned Precious Minerals Marketing Company. The west African country said in August this year that its central bank, the Bank of Ghana, would start buying domestically produced gold. Inflation in Ghana is currently running at more than 40% a year, four times greater than the central bank’s target; the country is currently negotiating with the International Monetary Fund (IMF) to obtain a $3 billion support loan. At the end of September Ghana’s fiat currency reserves fell to around $6.6 billion, against $9.7 billion at the end of 2021. Ghana’s annual import bill exceeds $10 billion according to the finance minister. His deputy has said the government is considering a ‘haircut’ on the debt – i.e. devaluing it – by “up to 30%”; Ghana’s total public debt is about $54 billion. Even before the Russia-Ukraine war Ghana was already classified by the World Bank as being at high risk of debt distress.

Ghana is an oil producer, and exports crude oil, but its only refinery has been closed following an explosion in 2017. It imports around 80% of its finished petroleum products, such as diesel.

Emerging market countries such as Ghana are increasing their official gold holdings; according to a survey by the World Gold Council (WGC) earlier this year found that of 57 central banks a quarter planned to add more gold.

Several points can be made about Ghana’s decision to pay for its refined oil product imports in gold. The first is that gold companies with mines in Ghana, such as Newmont or Gold Fields, will have mixed feelings about the decision. While they will probably welcome the official endorsement this gives to gold-as-money, they may well dislike being forced to take a sliding currency like the Cedi as payment. It will force them to think more, spend more, about currency hedging.

The second is that Ghana’s action is yet another step in the de-dollarization of the global economy. Whether this is by choice or force of circumstances is a different question. Whether other countries with a flourishing gold production sector, who need to import crude oil, may follow in Ghana’s footsteps is another open question. All that can be said with certainty for now is that this seems another chip away at the US Dollar’s global dominance, and is another fillip for gold as a universal currency.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.