phone icon (877) 258-0181

Category: Economics

What is a Stablecoin and How Do They Work?

  |   By  |  0 Comments

You’ve heard of bitcoin, crypto and blockchain, but what about stablecoin? If you’re unfamiliar with this new, up-and-coming digital currency, it’s high time you studied up to realize its benefits and potential.

To help you get to grips with stablecoin, we’ve put together this need-to-know guide covering what it is, how it works and – most crucially – whether it’s safe, secure, and worth investing in.

Quick Links

 

What is a Stablecoin and How Do They Work?

Stablecoin is a digital currency that is backed by assets such as gold and fiat currency. It was developed as a safer alternative to other cryptocurrencies, which have historically been highly volatile and liable to peaks and plummets in value.

While the rise of cryptocurrencies was meteoric, they remain a divisive asset among investors. This is largely due to their instability and unpredictability, which make it difficult for investors to choose the right coin and forecast their expected return.

Stablecoin goes some way to solving this problem, affording investors greater certainty of value. Unlike other digital currencies, these coins are attached to ‘stable’ assets such as gold or fiat money, which means they circumvent the dramatic peaks and troughs in value that other crypto can suffer.

As well as this, stablecoins are also decentralized; they’re not attached to a single organization, system, or agency like other crypto. This affords greater liquidity, simpler access, and enhanced autonomy, so they’re much easier to trade and transfer.

To summarize then, stablecoin essentially bridges the gap between fiat money and cryptocurrency, providing a safer and more attractive prospect for investors. And while it does have its risks and drawbacks (including low yields compared to other crypto), it’s fast becoming one of the most popular ways to invest in the cryptocurrency ecosystem.

What Affects Stablecoin Prices?

Stablecoins act much differently to other cryptocurrencies. Because they’re pegged to fiat money, commodities or physical assets like gold, their price is affected by economic performance, demand for US currency and the current monetary policy of the Federal Reserve.

When looking at the value of stablecoin, it’s worth touching on an important point: the likelihood of making a return.

In the eyes of many investors, one of the key drawbacks of stablecoin is the low rate of return compared to other crypto. This is due to stablecoins being tied to the performance and value of other assets.

For this reason, you shouldn’t see stablecoins as a boom-or-bust investment like other cryptocurrencies. Their stability means they offer a low-risk but ultimately low-reward investment opportunity, with interest the only real way of making money in the long term.

Instead, consider stablecoin a safe jumping-off point into the world of digital currency. With the security of fiat money backing and streamlined accessibility, it affords an attractive means of dipping your toe in crypto without taking a huge risk.

How Safe Are Stablecoins?

In short, very. Not only are stablecoins backed by a combination of fiat money, gold, and commodities, but their value is also monitored and maintained by algorithmic mechanisms, which further enhance their safety and stability.

To put it another way, stablecoins are subject to the same risks as the assets that back them. So, just as the US dollar can rise and fall in line with economic health, so too will the value of stablecoins.

One thing to note, however, is that many people believe you should always look to invest in decentralized stablecoins, and not those linked to a single agency or organization. That’s because they’re much more vulnerable to theft, disruption and interference when stored in a central location, as opposed to being open, global, and accessible.

It’s worth remembering, too, that stablecoins are a relatively new type of digital currency. And given the pace of change within the crypto ecosystem, there may yet be some undiscovered risks associated with this type of coin, so be sure to undertake the appropriate due diligence before you invest.

How is Stablecoin Regulated?

Despite being billed as a safe digital currency, stablecoin isn’t currently regulated in the US and many other parts of the world. This is despite plans to regulate it having reached the halls of Congress, where it is still being debated by members months later.

The issue of regulating stablecoin is a complex one. While many high-profile corporations, including Meta, have come forward in support of regulating the currency, the President’s Working Group on Financial Markets, who are tasked with assessing stablecoin’s viability, have raised questions about what bringing the currency into the mainstream could mean for market integrity and economic health.

It argues that while the majority of stablecoins are claimed to be pegged to fiat money, some are actually backed by other assets, including US Treasury Debt (USD Coin) and Tether, another type of cryptocurrency. This ultimately makes general regulation much more difficult, since there may be huge variances in what different stablecoins are worth at any given time.

So, while stablecoin regulation could well happen, the currency has a few hurdles to overcome before it’s officially rubber-stamped.

Different Types of Stablecoin Explained

As if the world of stablecoin wasn’t confusing enough, there are four types of coins you need to be aware of. We’ve broken these down below.

  1. Fiat-collateralized stablecoins – these are the most prevalent form of stablecoins and comprise of a digital currency backed by a fiat currency like the US Dollar. Since they’re based on real money, they can easily be exchanged and transferred, so they’re among the simplest stablecoins to manage and purchase.
  2. Commodity-backed stablecoins – commodity-backed stablecoins are those backed by assets including gold and other precious metals, as well as things like oil and gas. Though not as liquid as the fiat-collateralized variant, they’re more likely to fetch a higher return since the value of commodities isn’t tied to currency rates.

  1. Algorithmic stablecoins – this is where the world of stablecoin can get confusing. The algorithmic variation is controlled by unique mechanisms that monitor supply and demand, raising or reducing the number of available stablecoins to match. Unlike other stablecoin types, there’s no commodity or cash backing here, so investors are more at risk of sizeable losses.
  2. Crypto-backed stablecoins – backing stablecoins with cryptocurrency may sound counterintuitive, but it’s all about optimizing decentralization. Typically, stablecoins of this type are backed by a combination of cryptocurrencies, spreading the risk while allowing the opportunity to make a greater return on your investment.

We understand that the stablecoin ecosystem can be confusing. But with millions currently being invested into this type of digital currency each year, it’s something many investors are looking to consider in the future.

 

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.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

Which Investments Are the Best Hedges Against Inflation?

   |   By  |  0 Comments

Inflation has long been a thorn in the side of investors, influencing where they place their money and how much they’ll get in return. The good news is there are ways to combat the negative effects of inflation, and this all starts with hedging.

Hedging against inflation is a sensible option for investors looking to safeguard their assets against loss of value. But how do you do it? And what’s involved?

In this post, we’re looking at the best hedges against inflation, covering what the inflation hedging process involves and the key things to consider. Whilst we are passionate about gold, we’re not involved in investments, so you can rest assured the information here is completely impartial.

Quick Links

How to Hedge Against Inflation

To understand inflation hedging, you need to be clear on what inflation is and how it can affect the value of an investment. As a quick refresher, we’ve included a definition below, but please skip ahead if you’re already familiar with the term and its implications.

What is Inflation?

 Inflation represents the rate at which the value of a currency is falling, and the price of goods and services is rising. It’s a quantitative prediction that uses price changes over a range of products and services to give an indication of purchasing power within an economy.

So, back to the issue of hedging against inflation. Used by investors, it involves taking steps to protect an investment from the negative effects of inflation – retaining value where possible.

Without diversifying your investments to hedge against inflation, you might see losses. For example, if you’ve invested in something that’s increasing in value by 3% a year but inflation is 4%, you’ll see a -1% decrease in value.

That’s why hedging against inflation is such a popular tactic. It helps to retain the value of your investments even when inflation is on the up.

So, how do you do it?

Essentially, to hedge against inflation, you need to build a diverse investment portfolio that offers fallback against currency value change. That means investing in assets that aren’t easily affected by inflation, and which hold their value even in times of economic uncertainty.

Examples of assets that are typically used to hedge against inflation include gold, silver, and other precious metals, commodities such as oil and gas, stocks and bonds, and other physical assets, including real estate. We’ll look at the best inflation hedge investments in more detail below.

What Are the Best Inflation Hedge Investments?

Diversifying your investment portfolio is good practice for lots of different reasons, not least hedging against inflation. But what assets are best for safeguarding your investments against the effects of inflation?

Let’s take a look.

Gold

Gold is one of the most popular and well-documented inflation hedge investments. Why? It comes down to gold’s reliability and value retention, as well as its resistance to economic shock and uncertainty.

Generally, the value of gold outperforms or keeps pace with the inflation rate, so the risk of value loss is low compared to cash assets. There have been times, however, when the value of gold has fallen out of step with inflation, so it’s by no means a guaranteed silver bullet against future inflation.

Silver

Silver protects against inflation in the same way as gold. Since it’s a precious metal, and thus a tangible, physical asset, it’s widely considered a safe place to put your money when inflation is on the up.

Like gold, however, silver offers no guarantees against inflation. Indeed, the reason gold is often favored is that silver’s value is more volatile, with more external factors affecting its day-to-day price.

Commodities

Commodities like energy, food, and other essential services are rapidly becoming a popular inflation hedge. And when you think about it, this makes sense, because inflation is driven by the rising cost of goods and services compared to purchasing power.

As inflation rises, so too does the value of commodities and the share prices of companies that provide them. So, investing in commodities such as oil, gas or food can be an effective way to hedge against inflation – provided you choose the appropriate goods and services to invest in from the outset.

Stocks

Investing in stocks can be a safe way to protect your money from inflation, but you need to perform the appropriate due diligence and buy into the right businesses. Remember that, as inflation rises, most companies need to increase the retail cost of goods and services, meaning that your investment should, in theory, keep pace with inflation.

That said, there are no guarantees with stocks, and price volatility is much higher than with precious metals like gold and silver. Still, if you invest wisely and are willing to accept the risk of value liquidity, investing in shares can be an effective way to hedge against inflation.

Real Estate

Real estate is another inflation hedge that has proven increasingly popular over the past two decades or so. Given that property prices generally increase when inflation is on the rise, buying domestic or commercial premises is a safe bet to combat value degradation.

Of course, there are lots of ways to invest in real estate, and some (e.g., becoming a landlord) are more hands-on than others. You can invest in real estate without any long-term commitments, typically through a real estate investment trust (REIT) which effectively treats property like a stock or exchange-traded fund (EFT).

 

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.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

Asset Class List: Categories of Investment Explained

   |   By  |  0 Comments

Glint is a gold-based digital payments platform, enabling its clients to buy, save, send, and spend real, allocated gold and other fiat currencies. But whilst our core service is unrelated to investments, we understand that gold is part of a wider conversation about investing – a topic which is in-depth and sometimes convoluted.

That’s why we’ve put together this comprehensive guide detailing the characteristics of common asset groups, including their benefits and risks.

Use the links below to navigate or read on for the complete guide.

Quick Links

What is an Asset Class?

An asset class is a way to group assets that share similar characteristics. For example, equities (stocks) are comparable in terms of risk, return, and methods of trading, so they fall under a single asset class.

That’s not to say that all assets within a class are the same, however. Some assets carry higher risks or may be less liquid than others, but they’re still largely comparable and thus are treated within a single asset class.

The differences between asset classes are much broader than for individual assets. For example, how assets are regulated can play a significant role in defining their classification, with stocks and bonds treated wholly differently from a regulatory perspective.

So, now that we’ve covered the broad definition of what asset classes are, let’s move on to look at the main asset classes, their characteristics, and benefits.

What Are the Main Asset Classes?

While there are no hard-and-fast rules on asset classification, there are three principal asset classes that are considered the traditional categories. These are:

  • Equities (stocks)
  • Fixed income (bonds)
  • Cash (and cash equivalents)

Let’s take a closer look at the typical characteristics, benefits, and risks of these three main asset classes.

Equities

Characteristics

Equities in the form of stocks are typically shares of ownership in publicly traded companies. Highly liquid, equities are very sensitive to peaks and troughs in the economic landscape, making them a high-risk, high-return investment prospect.

Benefits

Managed well, and equities can bring high, long-term returns, providing both capital growth and sustainable income. They also have low transaction costs compared to other asset classes, and are considered among the easiest starter assets for beginners at the start of their investment journey.

Risks

With huge fluctuations in share prices, equities are a high-risk asset by nature. Prices move considerably faster than other asset classes, which means careful management is needed to curtail risk and protect capital. Equities are also within the asset class most easily influenced by performance drivers, including market confidence, economic growth, and individual company profits.

Fixed Income

Characteristics

The fixed income asset class is primarily based around bonds, a type of loan that’s issued by an investor to a borrower (usually a business or government). Since fixed income assets are a form of debt, they’re sensitive to interest rates and credit risk, with returns consisting of bond price per growth and income (in the form of coupon payments).

Benefits

Fixed income assets offer unique benefits from an investment perspective. First, they’re considered less risky than equities, since bondholders are always paid before shareholders, so there’s more assurance of reliable returns. This, in turn, makes them a reliable income source, as well as an excellent means of diversifying an existing investment portfolio.

Risks

Though considered marginally safer than equities, naturally, fixed income assets aren’t without risk. Steeply rising interest rates and inflation can cause income to flatline for bondholders, while there’s also a risk of losing high capital volumes should a company go belly-up. What’s more, it’s generally more difficult to understand what you’re investing in and how your money is being used with bonds, which can be disconcerting as an investor.

Cash

Characteristics

A cash asset refers to cash that’s available to hand, either in a bank or savings account, or in items that can be easily and readily converted to cash (such as life insurance or marketable securities). Other examples of cash assets include treasury bills, commercial papers, and money market funds. Cash is the safest and most liquid asset, though low returns may mean they’re not the most lucrative option.

Benefits

Cash assets are without doubt the safest asset class, with none of the risks associated with equities and bonds. They’re also the most liquid, meaning they can be used quickly within the market at a price that reflects their intrinsic value.

Risks

The disadvantages of cash assets are less about risk and more about missed opportunities. Without strategic investment and placement, cash assets offer very little by way of returns. What’s more, their value can be eroded by inflation in the long term, so careful management is needed to get the balance right.

Alternative Asset Classes Beyond the ‘Big Three’

Of course, there is a whole lot more to the investment landscape than these three traditional asset classes, and new categories and opportunities continue to emerge. But where else do investors place their money beyond the ‘big three’ asset classes? Let’s take a look.

Commodities

Commodities have long been a popular means of portfolio diversification, offering a way to hedge against inflation while making reliable returns in times of economic disruption. There are lots of commodities out there, but some of the most popular (and lucrative) include gold and other precious metals, agricultural commodities, and energy.

Real Estate

A low-risk, low-return asset, real estate assets include sales of both residential and commercial property, as well as land. While real estate is sensitive to changing market conditions, it does generally offer consistent returns in the form of capital gains and income. Of course, location and purchase price are key value drivers for this asset class, while transaction and administrative costs are high.

Infrastructure

Providing a good inflation hedge and lower risk than equities, infrastructure is a long-term asset class that shares similarities with real estate. Examples of infrastructure assets include roads, railways, water and energy production, storage, and distribution.

Private Equity 

Like standard equity, private equity is a stake in a business. However, such opportunities aren’t traded on public exchanges, which means they can offer higher returns but also higher risk than their public counterparts. As such, comprehensive due diligence is needed to assess volatility and risk.

Other Asset Classes

Today, there are a huge number of asset classes out there, and investors are always looking for new avenues through which to diversify. From insurance and hedge funds to art, collectables, wine and forestry, each asset class brings its own pros, cons, and prospective returns, so careful management is needed to balance risk with reward.

Why Asset Class Diversification is Important

Typically, investors seek to ‘diversify’ their asset portfolio as a means of making the biggest return with the least amount of risk. That means the most successful financiers acquire a carefully considered mix of assets, usually from two or more asset classes.

Diversification is all about mitigating risk while driving potential returns. So, a single investment portfolio might contain assets of multiple classes, each counteracting the other to ensure reliable long-term income and reduced risk of loss.

Say, for example, you were to invest in an equity. Though capable of generating big returns, such assets are high risk, and susceptible to external influences and market conditions. Investing in other assets, such as commodities, can counteract this risk, ensuring reliable income in times of economic uncertainty.

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.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

Around the campfire: Pandemics, Parsnips and Pounds

   |   By  |  0 Comments

Jason Cozens, Glint’s founder and CEO, reflects on the important things in life…

The pandemic has brought many things into focus, especially the things we need most. It has made me think about food. Not just snacking, but nutritional stuff. Where does it come from? How is it made? How much effort? What’s its value?

The first thing I did when the pandemic started was to build some sustainable home-grown food production, such as tomato plants, and a raised vegetable bed. Heath Robinson-style I used whatever I could get my hands on. And it worked! I harvested the first fruits of my labour yesterday – some lettuce.

It was so perfect, so beautiful, it didn’t even need cleaning. I appreciated its value like never before. It took a bit of hard work and careful tending, but boy it was worth it. It tastes great, like the lettuce I remember as a child.

What do you need to do, to feed a family of four? The first thing, if you are a novice like me, is to do your research:

https://www.growveg.co.uk/guides/growing-enough-food-to-feed-a-family/

My local pub has turned itself into an outdoor market, selling locally produced things. I’ve got a bit of a sweet tooth and always liked a bit of cake. At first, I was shocked that a few slices of cake cost £10, but then I thought: how much would I sell my home-made cakes for? Suddenly £10 didn’t seem that expensive at all.

https://ourcommunitynow.com/news-national/grocery-prices-suffer-highest-spike-in-46-years

The cost of food is going to go up, partly because supply chains have been disrupted; and it will go up even more as the value of our money is eroded due to global currency debasement.

The new lens, through which we now view the world, doesn’t just make us look afresh at our food. We all are now, (or should be), re-assessing the nature of everything around us. It’s making people like you and me look again at the nature of money: where does it come from, how is its nature defined, how does it work?

As the world borrows gigantic amounts of money, people are turning to real gold (not paper money), as a reliable and incorruptible store of wealth. That’s why Glint’s time has arrived – because it enables you to own, some actual, solid gold and use it as money.

Gold and Covid-19

   |   By  |  0 Comments

Everyone seems to be fleeing for the exit right now. At a time of global fear, gold is proving its mettle as part of your portfolio. When the world is losing perspective, it is time to inject some – and one obvious point is that gold is a safe haven during these difficult, globally nervous times.

The spread of the coronavirus – Covid-19 – now seems to be much faster outside China than within its country of origin. The head of the World Health Organization (WHO), Tedros Adhanom Ghebreyesus, says almost eight times as many cases have been reported outside China as inside in the previous 24 hours, adding the risk of coronavirus spreading at a global level was now very high.

Certainly we seem to be just a few steps away from a global pandemic not so much of Covid-19 but of Covid-19-inspired fear. With the number of cases now exceeding 90,000 and more than 3,000 deaths – a mortality rate of more than 3% – that fear seems justified. But set that against data for common-or-garden seasonal influenza, which, according to the Montreal-based Centre for Research on Globalization, accounts for five million ‘severe’ cases worldwide and 650,000 deaths annually and Covid-19 anxieties seem overplayed, at least for now.

Nevertheless global stock markets lost some $6 trillion in the week ending 28 February (but have since rallied), and the gold price swiftly sped to a seven-year high of $1,689/ounce. It has since eased to $1,643/ounce, the decline explained by some as caused by a large seller of gold selling to cover margin calls in other tumbling investments. Gold has gained 6% in US dollar terms and 8% in Sterling this year. It would be comforting to say that the spread of Covid-19 is a clear buying ‘signal’ for gold and to some extent that is true. When all other assets seem to be in meltdown, gold traditionally is regarded as a safe haven. Certainly the head of global commodities research for Goldman Sachs, Jeff Currie believes that “while so much about the current environment remains unclear, there’s one thing that isn’t: gold, which – unlike people and our economies – is immune to the virus.”

Gold’s ‘immunity’ to the virus is thanks in part to it being beyond any centralised control. The global macroeconomic outlook has certainly darkened considerably, but with interest rates either negative or close to zero, there is little policymakers can do to provide counter-balancing stimulus. Biggest news is that the US Federal Reserve cut its benchmark interest rate by a half-percentage point in an effort to support the economy in the face of the spreading coronavirus. It was the biggest rate cut since 2009 and sent a strong signal that it will not hesitate to do what it can to contain the economic repercussions of Covid-19. The Bank of England’s outgoing governor Mark Carney told the UK Parliament’s Treasury Committee this week that Covid-19 will cause an “economic shock that could prove large but will ultimately be temporary” yet will not be as bad as the 2008 financial crisis. He added: “The Bank will take all necessary steps to support the UK economy and financial system”. So far, Australia and Malaysia have cut interest rates because of the coronavirus outbreak. The OECD has said a prolonged outbreak of Covid-19 could halve the forecast global growth rate from almost 3% to 1.5% this year. Hong Kong’s government has taken the highly unusual (and certainly inflationary) step of introducing ‘helicopter money’ by pledging to give by mid-2020 HK$10,000 in cash to every permanent resident aged 18 and above. This will cost Hong Kong the equivalent of $10 billion. Paul Chan, Hong Kong’s finance minister, expects a budget deficit of $139.1bn for 2020-2021, accounting for 4.8% of gross domestic product, which would be the largest deficit on record. Macau is to give residents shopping vouchers and Singapore is to give residents up to $300 in a one-off payment. Making money cheaper, which is what interest rate cuts do, do nothing to combat the virus but the hope of policymakers is that they will provide a stimulus to keep economic activity going.

Yet the supply/demand macroeconomic shocks that trail in the wake of Covid-19 include a probable dent in the demand for gold jewellery, certainly in China. According to Zhang Yongtao, CEO of the China Gold Association, “people are not in the mood to shop for jewellery. Stores and shopping malls are closed because of the virus. The sales of gold jewellery and bars will drop substantially this year.”

So while in general Covid-19 so far seems only moderately lethal, it has nevertheless prompted a knee-jerk selling of most assets and a shift into gold. It is an ill wind that does no-one any good and disease and death are never cause for celebration, but it needs to be accepted that gold in these uncertain times is proving its merit.

Yet Glint Pay does not advocate obtaining and using its Mastercard on the basis of what will inevitably prove a temporary (although perhaps longer-than-expected) globally disruptive event. You have the Glint Pay Mastercard for the long-term because gold is real money. In our view, the ‘helicopter money’ in Hong Kong is a straw in the wind – the cheapening of paper money which this act signifies is alarming. Giving away paper money generates more demand in an economy without creating more supply and threatens to stoke inflation; and if that ‘virus’ spreads it will indeed be momentous for gold.

Motherhood, cream cakes, and everything you want

   |   By  |  0 Comments

Question: Why does 12 December feel like Christmas day?

Answer: Because both seemed like they will never arrive – and then they come in a rush.

12 December may not be, to quote President Roosevelt on 7 December 1941, “a date that will live in infamy”, but for the UK’s 46 million general election voters it certainly feels like that. The politicians of all parties in this election have promised the earth. Sometimes it feels like they have been promising to deliver heaven-on-earth.

The turmoil is financial as well as political. This election result will certainly produce a lot of confusion for currencies, as forex traders try to figure out the implications for the UK’s economy.

Currency traders will be at their desks before dawn on 12 December for a 24-hour slog. They will be glued to their multi-screens, trying to track the Pound Sterling’s moves against the Euro, the US Dollar, and other paper currencies. Their aim is to make money for big corporations, fund managers, private banks and others, who could win or lose a fortune on how the election goes – and how the Pound performs.

Their task has got more difficult thanks to social media. According to one, Jordan Rochester, “It used to be quite simple, you’d look at your Bloomberg and there’d be a headline up there saying Mark Carney said this or UK data says that. Now you refresh Twitter and it turns out there’s been some poll you didn’t expect to see.”

If this is a complex nightmare for big players, what’s it like for individuals trying to protect their savings? The currency moves will be fairly dramatic, no matter what. Christmas gifts could turn out to be cheaper if you paid for them in Euros – or they might cost you more.

Let’s imagine the Conservative Party wins a majority. Expectations of this are strong, and the Pound has risen against the US Dollar by more than 2% in the last two weeks, precisely on those expectations. The Pound will strengthen if they win a strong majority.

If on the other hand Labour wins a majority, currency traders expect the Pound to fall against the US Dollar.

No-one expects the Liberal-Democrats to win a majority but the vote might produce a hung Parliament – in which case the Lib-Dems could become a significant potential coalition partner.

This election is, objectively, another referendum on whether the UK should leave the European Union. That further complicates the outlook, for if the Conservatives win by just a small majority then the Brexit debate might drag on well into 2020.

The electioneering by all parties has verged on the hysterical. Whatever the result, don’t expect an old-fashioned gentlemanly shaking of hands and an acceptance that the best team won. The kind of rancorousness that has plagued the campaign will continue. Forex traders will need to sit at their desks long into nights to come.

Where is gold in this mix? Currency traders don’t look at gold. They ignore it. If you want to dip out of the frenzy and put your savings into real money; if you want to protect yourself against the ups and downs of currency movements, then try Glint. Not only can you buy things on your Glint card using Pounds, Euros and US Dollars. You can also buy Gold – and sit out the hairy ride ahead.

Central bankers’ renewed love

   |   By  |  0 Comments

You may have missed the news that Poland repatriated 100 tonnes of gold recently – 8,000 good delivery bars, each weighing 12.5 kilos; it bought the gold in the first half of 2019 and shifted the last batch in the autumn to Poland’s central bank, Narodowy Bank Polski (NBP). The NBP now has 228.6 tonnes of gold. There’s likely to be more to come.

Poland’s gold buying follows that of China, Hungary, Russia, and other national central banks in the last couple of years. Even Serbia bought nine tonnes in October; it intends increasing its total gold reserves to 30 tonnes by the end of 2019, and to 50 tonnes in years to come.

The chart above – produced by the economist and gold analyst Matthew Turner – shows the amount of central bank gold buying in the past three years. There’s been a net addition of 550 tonnes to central bank gold reserves so far this year alone, outstripping purchases in 2017 and 2018. The purchases by national central banks are obviously one factor that has helped push the US dollar-denominated gold price up by more than 17% so far this year.

Central bankers have fallen in love with gold again. The two-decade long divorce has turned out to be merely a trial separation. But why did central bankers, those ultra-cautious individuals fall out with gold in the first place?

More than 20 years ago the world seemed a more rational, friendly environment. History was ‘dead’, we learned. The Cold War was over; China was still a secondary power; the USA had a popular if morally flawed President (some things don’t change); and the European Union appeared to be united. Duped into a more relaxed frame of mind, central bankers appeared to have forgotten economic history. ‘Surely gold is a relic?’ they rhetorically asked themselves.

They then pursued a hasty programme of ad hoc selling of gold. On 24 October 1997, the Swiss Finance Ministry and the Swiss National Bank published a joint report which, inter alia, recommended that Switzerland sell 1,400 tonnes from its 2,590 tonnes of gold reserves. The news from Switzerland rocked the gold market – for decades Switzerland had almost been synonymous with holding lots of gold as a reserve asset. Argentina, Australia, Belgium, Canada, and the Netherlands sold almost 2,000 tonnes in the decade of the 1990s. It seemed that the final blow to gold’s status as the central bankers’ reserve asset par excellence came in May 1999, when the UK’s Treasury announced it intended selling 401 tonnes (at an average price of $275/ounce) out of the Bank of England’s total 715 tonne reserve. Yet thanks in part to the relentless buying of gold by central banks in recent years, the gold price has sharply risen, by more than 400% since the dog days of 1999. This policy reversal has largely gone unacknowledged by the bankers themselves, almost as if they are embarrassed at their former hasty selling.

For example, the Dutch National Bank (DNB) sold 1,100 tonnes of its gold reserves between 1992 and 2008, yet on the DNB’s website today there’s no reference to those sales. Instead there’s a ringing endorsement of gold’s status as a reserve asset: “…central banks, including DNB, have traditionally held considerable amounts of gold. Gold is the perfect piggy bank – it’s the anchor of trust for the financial system. If the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.”

The DNB currently has 600 tonnes of gold, worth (very approximately) $21.6 billion. I wonder if Klaas Knot, President of the DNB since 2011, ever looks back with regret? After all, if the DNB had held onto those 1,100 tonnes that would be an extra $40 billion or so in the kitty.

It should go without saying that the past is no guide to the future, and the gold price is as vulnerable to sentiment as any other asset. “Nobody really understands gold prices and I don’t pretend to understand them either,” said Ben Bernanke in 2013, when he was Chairman of the US Federal Reserve. He might have added: “And no-one really understands the thinking of central bankers.” Mind you, when all the world’s central banks looked as though they were gold sellers, the USA wisely held onto its 8,133.5 tonnes of gold reserves.

 

 

The Cake-And-Eat-It era

   |   By  |  0 Comments

“It’s difficult enough even in normal times to get people to think about the unthinkable.” That’s according to William White, formerly of the Bank for International Settlements, ex-chairman of an OECD committee on economics and development, and one of the few economists who spotted the early warning signs of the 2008 Great Recession. A year ago he came out with another warning, the gist of which is that we are still living in abnormal times. His thoughtful worries can be watched here.

White is alarmed about the many instabilities of the global financial system, none of which, he argues, have been corrected since the 2008 crash. Not the least of those, he asserts, is the astonishing level of indebtedness today. We are experiencing that unusual phenomenon, a debt super-cycle, in which debt is not a problem as long as it is sustainable. Which is a bit like saying a balloon can carry on being inflated until it pops.

The chairman of the US Federal Reserve, Jerome Powell, does not share White’s nervousness however. On 14 November Powell told the US House of Representatives “if you look at today’s economy, there’s nothing that’s really booming now that would want to bust…it’s a pretty sustainable picture.” It’s Powell’s job to reassure markets, but his sanguine remarks cry out for a context.

Let’s personalise this for a moment. Even if you are debt-free your ‘share’ of the total global debt of $250 trillion (according to the Institute of International Finance), is about £23,000 for every man, woman, and child according to this alarming story from Bloomberg.  Global debt rose by a remarkable $7.5 trillion in the first half of 2019.

The overwhelming majority of this debt has been run up by governments trying their best to get their stagnant national economies working again, by essentially printing money and hoping these crisp new notes feed into the real economy. But, as many have said, hope is not a strategy.

So you may feel as though your personal debt level is low – or even non-existent. But that won’t save you from the financial chaos that may result from the eventual unwinding of this debt. “Ominously,” said the Investor’s Chronicle in January this year, “the last debt super-cycle ended with World War II.”

Let’s hope however that the demise of the current super-cycle follows previous patterns: debt expansion is followed by bubble conditions for asset and equity prices; that’s followed by peak borrowing; and then step four is depression, with Gross Domestic Product (GDP) falling by 3% or more – which is what happened during the 2008 Great Recession.

But instead of central banks using the 2008 experience to encourage debt reduction, they have overseen 10 years of debt expansion. We have been living through what might be termed the great ‘Cake-And-Eat-It’ era, a period in which central banks have been printing money (Quantitative Easing) and sliding into negative interest rates, encouraging everyone to think that economic downturns are a thing of the past. Yet it is a patent absurdity that creditors are now paying for the privilege of lending money to governments.

We are not alone in thinking that many markets could be reaching exhaustion. Companies that essentially lack substance, such as Uber or WeWork, both of which no doubt provide a great service, have vastly inflated valuations yet have been loss-making for years. Or take Beyond Meat, which went public in early May this year and at its peak was valued at $15 billion, yet its 3rd quarter 2019 results showed gross net income was just $4.1 million.

If you incline more to the Jerome Powell view of things, then relax and hope that this massive debt bubble is sustainable – which it is, until it pops. But if you are more likely to think William White might have a point, then consider buying some gold on your Glint card. It seems to me that Kevin Duffy, co-founder of the US-based firm Bearing Asset Management, got it right when he said in a recent interview that “faith in central banking is at the heart of this bubble”. He added, significantly, that “precious metals are the inverse of faith in central banks.”

“The economy is not understandable and controllable, it is not a machine…you can’t understand where you are going until you understand where you have been.” The imbalances of 2007 and 2008 resulted in massive fiscal expansion, designed to encourage consumption, was very “inventive” says White. The global debt to gross domestic production ratio has gone from 192% to 230% by November 2017. “We have let this go on for such a long period of time – the debt trap big economic problems many big political problems too.

Who will save the European Union?

   |   By  |  0 Comments

In this uncertain world it’s good to have some certainties.

One certainty is that under its new President-elect, Ursula von der Leyen of Germany, the European Union (EU) is more determined than ever to get greater integration of its members. Von der Leyen was a little-known figure, even in Germany, and was plucked from the ether to take charge of the lives of more than 513 million people.

But she had the great advantage being the longest-serving member of Chancellor Angela Merkel’s cabinet, spending the last six of her 14 years in government as Germany’s defence minister, and is thus, from the viewpoint of the most powerful member state of the EU, a reliable pair of hands. The EU is going to merrily carry on sailing in the direction it chose more than 60 years ago. If the EU was a person it would be looking to its pension.

You can of course be elderly but perhaps avoid dementia if you exercise, stay alert, and keep abreast of developments. If you slump in an armchair and only listen to stuff that suited you decades ago, you’re going to wither. Is the EU going to wither or flourish? The betting has to be on the former right now.

Rose Ladson – as von der Leyen was peculiarly known in London in the 1970s when she studied at the London School of Economics – announced the EU’s new Commissioners on Tuesday this week. In her choice (here’s the list of new commissioners) there are no surprises; the names could have been pinched from her predecessor’s playlist. This is understandable perhaps, as von der Leyen has form when it comes to plagiarism. She studied medicine at the Hanover Medical School in 1987; after she was accused of plagiarism, an investigation in 2016 judged that von der Leyen had indeed plagiarised large amounts of the thesis she submitted for her doctorate, but it did not revoke her degree.

All the new Commissioners could be described thus: “Virtually unknown to the wider public, she is adored by EU integrationists, having worked for former European Commission President Romano Prodi, led France’s European Movement and founded the federalist Spinelli Group in 2010.” That’s Politico’s brief guide to Sylvie Goulard, “the ultimate EU insider” according to Politico. Goulard gets the job of leading the bloc’s decisions on industrial policy, defence and the single market.

Phil Hogan, an Irish politician and a very strong critic of the UK’s decision to leave the EU, has been given the Trade portfolio, which will be a sensitive post in the next few years. He attacked the current UK Prime Minister as being “unelected”, although no-one elected Hogan to become a Commissioner either. Commissioners are not elected but selected, in a process that almost defines opacity. Not so much a democratic deficit, more a black hole.

The EU’s 28 member states – including the UK for the time being – are all governed by the European Commission, which initiates organisation-wide legislation. It is indisputable that the EU has come a long way from what it used to be, but the 1958 Treaty of Rome, which established the EEC, forerunner of the EU, certainly agreed to lay the foundations of an “ever closer union” among member states. That’s the grand ambition.

It is an ambition that is not shared by more than half of the UK’s citizens however, and the jury is out for around half of the EU’s citizens from other countries, according to one of the most authoritative and independent research organisations. The Pew Research Center published in March this year a lengthy survey of opinions from EU citizens which found that, as it put it, “Europeans Credit EU With Promoting Peace and Prosperity, but Say Brussels Is Out of Touch With Its Citizens”.

So what does it matter if the EU is “out of touch” with its citizenry? What’s that got to do with gold? Quite a lot, actually.

The EU’s economic future desperately needs some new thinking. Larry Elliott, the economics editor of The Guardian, put it well when he wrote in March this year that “the assumption was that the single currency [the euro] would make the single market work more efficiently and so generate faster growth. It hasn’t happened.” When it comes to producing economic growth the EU is not just elderly but sclerotic, flat out of ideas.

The same day that von der Leyen announced her new Commissioners, Citigroup coincidentally prophesied that gold could hit $2,000 an ounce within the next two years, in a world of abysmal economic growth, low-to-negative interest rates, and growing demand for gold by central banks. With the tired ‘talent’ now in charge of policymaking wherever you look, gold will easily go higher than Citigroup’s guess. Batten down the hatches; get your Glint card and stash some gold for yourself.

 

What is money?

   |   By  |  0 Comments

That’s a daft question, surely? Money is the stuff we carry around in our wallets, purses, handbags and so on – it’s the green/blue/red banknotes, maybe the coins, we use to pay for things. Even the small bits of plastic we use instead eventually refer back to actual money, don’t they? Everyone knows what money is.

Except they don’t.

A fascinating read in a recent issue of The New Yorker pointed out that money is an invention; all of us who believe that money has value are deluded, or at least naïve. John Lanchester writes there that the “instruments of trade and finance are inventions, in the same way that creations of art and discoveries of science are inventions – products of the human imagination. Paper money, backed by the authority of the state, was an astonishing innovation, one that reshaped the world.”

That “authority of the state” is interesting. States never like having their authority challenged, and control over money – or at least, the factitious version of it most of us use – is one of the main ways in which states demonstrate their authority. When paper money goes haywire (think Germany in the 1920s or Argentina more or less any time in the 20th century) then the state is very soon in deep trouble.

The creation of cards to use for payments is much older than we might imagine, although it feels more recent; not until 1993 did half of all UK adults hold a debit card. Cash is certainly on the way out almost everywhere – the Bank of England (BoE) has a helpful online page which tells us that 96% of all money in the UK is held electronically and only 4% in physical form. Sweden has almost eliminated cash entirely.

The BoE however is practising a deception, in its own interest, or the interest of its de facto boss, the British state. The same BoE page states that “money…helps you to store value…if you were given an ice cream worth £2, you could enjoy it right now…but if you were given £2 instead, you could spend it any time you like.” Reflect on that statement for a moment. “It helps you to store value” sounds good. After all, everyone wants to preserve what wealth they have. But think about what happens to those two pounds over time. Their relative value over the past 50 years has shrunk enormously. To buy that same ice cream in 1969 would indeed have cost £2; but today it would cost you anything between £28.73 and £84.86, depending what kind of measurement you apply.

So the idea that ‘money’ – paper and coins issued by the central bank – is a long-term “store of value” is frankly absurd. Maybe if you consider a week, a month, or even a year, to be long enough to hold onto your £2, then it might be true that ‘money’ is indeed a store of some value. It all depends on where you are, at which point you are in of the endless economic cycle. “Store of value”, when it comes to central bank controlled currencies – money as we all assume it to be – is a very elastic concept. No doubt Germany’s Reichsbank, with the full “authority of the state” thought in 1914 that the Marks that it issued were a great “store of value”, but by 1923 you would have needed 6,000 billion marks to buy a single kilo of butter. In the decade 1914-24 Germany’s prices went up a trillion-fold.

Let’s consider another measurement. Another item which is often spoken of as a “store of value”. Gold.

How has gold fared since 1969? Rather better than the pound in your pocket. Fifty years ago, when the USA was still just about on the gold standard, the gold price was around £16/oz; since then it has steadily climbed to £1,265/oz. Sure, there have been some dips – but it has never retreated all the way back down to £16/oz. Not only has gold been a store of value; in the past 50 years it has been an almost unrivalled source of wealth creation. What else has improved by more than 7,800% in the past 50 years?

You would imagine that the Government (of any stripe) or perhaps the BoE might be a a trifle shame-faced at this shocking decay in the national currency – the pound sterling. Not a bit of it. In fact, as is generally known, the BoE (and just about all nations’ central banks) officially seeks an inflation rate of 2% a year. Your money – the currency you own – is not a store of value, but a store of declining value. And intentionally so.

Back to the BoE website. Towards the end of the section we have already quoted from is a statement that is actually true – “carrying precious metals around is a considerable physical burden.” No question about that; carrying a bag of gold coins would weary the fittest person after a while. Which is one reason why we have invented the Glint Mastercard, so you can own physically allocated (meaning it’s yours and no-one else can touch it) gold, in comfort. This is a plastic card which is completely inflation-proof, thanks to the fact that it enables you to possess gold, conveniently. So don’t be naïve about money – it is yellow, cold to the touch, and hard. Very pretty: but definitely not paper.