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Category: Economics

Central bankers’ renewed love

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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

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“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?

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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?

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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.

Gearing Up For A Return To The Gold Standard?

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Since 1971, when the gold standard finally died, killed off by the US government, the value of the dollar has fallen almost 4% per year. You need more than $6 today to buy the same item or amount of stuff that you purchased back then.

Is it conceivable that President Trump might try to turn back the clock, and return to the gold standard? He has chosen Judy Shelton as his nomination for the board of the US Federal Reserve, America’s central bank. Shelton is a true believer in the gold standard. She has published a book describing her thoughts on fixing the dollar and benchmarking its value to gold. She believes that the Fed has becomes unnecessarily involved in trade polices rather than sticking to its role of regulating the monetary system.

Returning to the gold standard would set global markets on edge as well as probably sending the gold price stratospherically higher. It would be an explosion in the world’s financial markets; no-one can predict the consequences. Shelton believes the gold standard helped the United States to prosper for several hundred years. In today’s world, this thought is deeply unconventional – but Shelton believes that gold is a steady commodity, a long-term store of value, and will help to stabilise the US dollar.

Currently across the globe, many countries link their currencies to the likes of the US dollar or the Euro. This means that they have little or no control over their own local currency and are at the risk of the monetary decisions made by the US. As the Euro or the Dollar weaken this has a destabilising impact of the global economy. Shelton believes that gold would provide the stability that our world requires. Today, market forces are a driving factor and dictate how capital is spent and what is produced. These forces are controlled and manipulated by governments around the world. One way to control money is through the credit markets, by printing more paper currency and government bonds, which creates a pile of debt that keeps rising. Throughout history we have seen that this leads to a spike in inflation and higher prices. If the United States went back to the gold standard, this would radically curtail the US government’s ability to print paper money. Goodness knows what it would mean for the vast quantity of US government debt held around the globe.

In this macroeconomic uncertainty it’s perhaps little wonder that countries are ramping up their gold buying programmes. China and Russia are leading this charge, as they build their gold reserves to build confidence in a world where trust in the Western system is faltering. This will lead to a drastic rise in the price of gold and eventually lead to a de facto reinstatement of gold as the lead international currency, with the US dollar dislodged from its dominance.

It’s Dirty Harry time

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Clint Eastwood plays a San Francisco detective in Dirty Harry, the 1971 Hollywood movie, in which he has an unforgettable line towards the end. He has shot and wounded a psychopathic killer and, as the killer is lying on the ground, thinking about making a lunge for his weapon, asks him: “I know what you’re thinking: ‘Did he fire six shots or only five?’ Well, to tell you the truth, in all this excitement, I’ve kinda lost track myself. But being this is a .44 Magnum, the most powerful handgun in the world, and would blow your head clean off, you’ve got to ask yourself one question: ‘Do I feel lucky?’ Well, do you, punk?”

Some truly bizarre things are going on right now in the financial world. And they remind me of Dirty Harry’s words – do we feel lucky? Some of these bizarre things are being touted by very clever people. People who like it to be known that they have a PhD and are “global head” of something are rather special – but they can be as daft as the next person.

Take Jean Boivin, PhD, Managing Director, and Global Head of Research at the “Blackrock Investment Institute”. I am unacquainted with Mr Boivin but I am sure he’s nice to his family, pats dogs and all that stuff. But when it comes to macroeconomics he seems to me to be two sandwiches short of a picnic.

This week he published an extraordinary piece in the Financial Times. There he correctly identified a problem, perhaps the biggest problem of our age: “there is not enough monetary policy space to deal with the next downturn. Conventional and unconventional monetary policy mainly boosts growth by lowering short and long-term interest rates. But this requires rates to go lower, and there is nowhere left for rates to go.” Quite right. Then he goes and spoils it all by saying that central bankers, in order to generate “higher inflation”, need to take an “unprecedented venture” and go direct and set about “finding ways to get money more directly in the hands of entities that can spend it, including consumers.” This kind of suggestion, that central bankers should collaborate and flood the world with cash, in the hope that it will make the next recession less ghastly, is not only out-of-the-box thinking; it’s out of this world thinking.

But of course Boivin has an agenda; there is always an agenda. Blackrock wants more cash to flood the financial system because that cash will have to go somewhere-and some of it will trickle Blackrock’s way.

Onn 22 July this year Rick Reider, BlackRock’s chief investment officer of global fixed-income and a colleague of Boivin’s, published a piece in the FT which called for the European Central Bank to print money in order to buy shares in European companies to “improve European growth prospects”. If you think this idea is obviously a non-starter, think again – the Bank of Japan has been buying share in Japanese companies for years, for all the good it has done Japan’s GDP growth.

Blackrock is the world’s biggest asset manager, with some $4.3 trillion assets under management. What it – and its executives – say, and where they say it (the FT still has a bit of status) carries weight with policymakers. By calling for free money to spend and invest it is serving its own interests. That doesn’t mean that politicians won’t do what it says. For they have no-where else to turn.

With the Bundesbank forecasting that Germany is about to enter a recession, and the USA’s National Association for Business Economics this week publishing a survey in which 38% of economists believing a recession will begin in 2020, and another 34% reckoning a recession will start in 2021, policymakers are indeed worried. They have no more ammo in their locker. This week Germany issued 30 year bonds that pay no interest at all. Imagine that – locking up an investment with no return, for three decades.

Which brings us back to Harry. If you have a Glint card and load it up with gold, you can protect yourself against the storms ahead. And there sure are storms heading this way. The European Union itself is forecasting that the GDP growth for the EU in 2019 is 1.4% and 1.6% in 2020 – figures that are so finely calculated that they are well within the margin of error. In times of recession, gold does well. And in eras of macroeconomic madness (such as now) when central banks hand out free “money”, gold does super-well. So don’t ask yourself “do I feel lucky?” Get a Glint card and know you’re lucky.


A Sweltering Summer

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August is here and naturally everyone is thinking about holidays – well, if you live in the northern hemisphere that is. It’s time to relax, maybe. The last thing you want to do to pestered by boring stuff like finances, credit cards, bills, fraud…so here’s hoping you are not a Monzo cardholder; if you are one of those unfortunates you will have to spend some of your valuable holiday time checking your account for fraud, changing your pin number, and other boring stuff.

It turns out that Monzo, the UK digital bank, incorrectly stored about 480,000 customer pin numbers in files that were encrypted, but could be decrypted and accessed by any one of its engineers, roughly one hundred people. Who may or may not be honest people. Whoops! So 20% of the Monzo’s customers now have to go to a cash machine and reset their PINs. And are the other 80% confident that all is well; or might they feel a little uneasy? Monzo calls itself “the bank of the future”, but slips like this seem very much like how banking used to be.

The marketplace for new start-up digital “challenger” banks in the UK is getting very crowded and their story is all about very rapid expansion. While some may be very good, and Monzo dislodged First Direct in the Which? consumer survey late in 2018, but they all have one problem as far as we are concerned: they might be super-trendy but they all deal in paper money. Avoiding the risk of you bank’s PIN number being hacked and used fraudulently is one thing – but dealing in paper money is runs the risk of you being subject to fraud of an entirely different magnitude.

The first, most important, and perhaps the only point you need to bear in mind is – who produces the dollars, pounds, euros or whatever paper currency you use? Who controls the amount of that paper money there is in the world? The answer is obvious – governments.

We have all become accustomed to thinking that governments – our government – is basically kindly and concerned to ensure our welfare. We have lost our scepticism; we have lost our willingness to question from first principles. We believe we are living in a settled environment – even though it’s a very unsettled world indeed, and one that shows no sign of regaining its balance very soon. One simple fact ought to be enough to demonstrate what we mean: governments today across the world have collectively borrowed $10 trillion on negative interest rates. This is a highly dangerous Everest, and unlike the real mountain this metaphorical heap just keeps growing.

The US Federal Reserve, which takes a leading role in setting the world’s interest rates, believes that interest rates now will settle at 2.5% in the long run; if 2% is deducted – the Fed’s target for inflation – that means the return in invested capital will be a meagre 0.5%. In Europe and Japan the return will be even lower. So what, you say?

The ‘what’ is that monetary policy is broken. When the next recession hits, central banks will have nothing left in the locker to fight it. In order to stave off misery, demonstrations, civil unrest of all kinds, governments will be forced to step in with further mass printing of money, and to flood the market with free money. And so this mad carousel – indebtedness, low interest rates, money printing – will continue.

All this is a long way from parties and parasols, but you really should not rest easily under the sunshade. Only one form of money – gold – is beyond the control of governments. And Glint gives you the power to save, invest in, and spend gold as money. So enjoy the vacations and join this growing band of people who – intelligently – put their trust in Glint, in gold.

Gold and Standards

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US Presidential nominations for a seat on the board of the Federal Reserve – America’s central bank – rarely attract the kind of media attention as did that of Judy Shelton, President Trump’s nomination for one of two vacant seats in early July.

Shelton is an economic adviser to President Trump, and currently the USA Director to the European Bank for Reconstruction and Development (EBRD).

The USA’s indifference to the EBRD, which it (correctly) regards as a vast waste of time and money, is registered in Shelton’s attendance record at EBRD Board meetings – she has missed 42% of them in her first year in the job. That kind of behaviour irritates all those who feel the West has a duty to assist the ‘economic development’ of the satellite states of the former USSR. This flow of taxpayer funds from West to East shows no sign of letting up, almost 30 years since the taps were opened. When will the former Soviet empire be ‘developed’? It’s a rhetorical question…We know what Shelton thinks though: “It’s the wasteful government spending that ends up being the problem.”

Be that as it may, the nomination of Judy Shelton is fascinating choice for anyone interested in gold. Her choice reveals a great deal about President Trump’s view of the way the world is, and perhaps should be. For Shelton has made no secret of her interest in putting the USA back onto the gold standard.

Put simply, if a country is on a gold standard that means the government of that country can only print as much money as it holds in gold. Having a gold standard therefore enforces fiscal discipline – and removes the resource which all governments resort to in times of crisis, the printing press. The clue is in the name – standard.

It’s conventional to argue that standards are not what they used to be, but in the case of central banks and the governments who run them, standards were never what they used to be. Since time immemorial governments have been fiddling with money, from shaving slivers from gold coins to running the banknote printing presses until they start steaming. We all just accept as natural that the Federal Reserve, the Bank of England, and other central banks, set their sights on annual inflation of 2%. It never seems to occur to anyone to ask why we accept any inflation at all. After all, inflation is corrosive; 2%/year is like pancreatic cancer – a silent killer.

Governments and conventional economists everywhere start frothing at the mouth whenever someone mentions going back to the gold standard. “Whoever today dares to hint at the possibility that nations may return to a domestic gold standard is cried down as a lunatic. This terrorism may still go on for some time…What all the enemies of the gold standard spurn as its main vice is precisely the same thing that in the eyes of the advocates of the gold standard is its main virtue, namely its incompatibility with a policy of credit expansion.” So wrote the great Austrian economist Ludwig von Mises more than a century ago.

It’s not surprising therefore that Judy Shelton has come in for mainstream and social media attack; the accusations, by and large, are abusive – “Another lazy, do nothing entitled Republican” is one – but they are really letting off steam against the American President. Shelton herself seems thoughtful, modest, and balanced. What she wants – like millions of others – is an end to governments playing fast and loose with the money supply. She wants a currency that is not debauched. She wants to have certainty that a dollar is a dollar and that it will buy the same amount of goods today, tomorrow, and always. She wants a standard that people can live by and have faith in. Good luck with that. The USA has more than 8,133 tonnes of gold in its reserves but that isn’t anything like enough to pay off its debt owed to foreign investors. When gold hit $1,895/oz in September 2011 China, Japan, and other countries owned $4.7 trillion in U.S. Treasury debt. That was 10 times more than the $445 billion in gold reserves at Fort Knox. So a return to the gold standard is a good idea in principle but a non-starter in practice.

Looser monetary policy – pumping more freshly printed cash out – is on the cards for as far as the eye can see; even supposedly responsible newspapers such as the Financial Times are calling for precisely this. This is a catastrophic situation, like being locked in a room whose walls are gradually moving inwards, with no escape.

Fortunately there is a way out, a way of protecting one’s wealth; a universal gold standard may not be feasible and exist only as a fantasy, but one can have one’s very own gold standard. That personal gold standard is called Glint. With Glint you can save in gold; you can spend in gold; you can put all your wealth into gold. And then you can sit back and watch with indifference the madness of the banknote printing presses working over-time in the USA, Europe, anywhere.


Yield Curve Inversion – Good for Gold

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A yield curve gives us an idea of future interest rate changes and economic activity. In the US, this curve is at its widest spread since the financial crisis, which is an alarming situation as it has previously signalled forthcoming recessions.

This is not the first time that the curve has inverted this year; it also happened in March after the Federal Reserve announced a much longer than expected pause in tightening of monetary policy. Furthermore, yield curves around the world have plunged to new record lows, making these worries even more significant. It is important to understand that it is not just about whether the curve is inverted or not, but also how long for. In previous periods the longer the curve remained in a steady inverted state the more positive the outlook for gold became.

Fears of a recession is potentially one of the reasons why gold has risen in recent weeks; this paired with the threat of an intensifying global trade war is forcing investors to look for safe havens such as gold.

Throughout the last few decades we have seen that gold performs well during periods of an inverted yield curve. It may be premature to call a US recession, but the negative news keeps piling up. Following its initial rally, the gold price is now consolidating just as we had predicted and written about over the last two weeks. Once it settles further and if conditions remain the same, we would expect gold to perform well in the coming period.

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A French Farce

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If it wasn’t so tragic it might be funny. The next president of the European Central Bank – as everybody knows but is too polite/afraid to mention – comes with baggage.

The superbly coiffed Christine Lagarde is seguing from her position as managing director of the International Monetary Fund (IMF) into the seat kept warm since mid-2011 by Mario Draghi, and is to become president of the European Central Bank (ECB). She is officially negligent, however, if nothing more sinister.

The negligence judgement was imposed on Christine Lagarde by the French Cour de Justice de la République or CJR in 2016. The CJR was established in 1993 by the then President, François Mitterrand, with the sole remit to try cases of alleged ministerial misconduct.

Lagarde was French finance minister in 2008 under President Nicholas Sarkozy – who is himself now facing trial, accused of fraud and bribery. The CJR court judged that Lagarde was guilty of negligence in a complex case involving the award of €404 million to the businessman Bernard Tapie; the CJR did not hand Lagarde any punishment however, other than the slap on the wrist. She could have been given a fine and one year imprisonment. In 2007 Tapie backed Sarkozy for the Presidency…wheels within wheels.

Lagarde did not appeal the ruling against her, which spoke volumes. She merely said at the time: “There’s a point in time when one has to just stop, turn the page and move on and continue to work with those who have put their trust in me.” It’s the phrase of today – just ‘move on’, nothing to see here.

Why does any of this matter? What has it got to do with gold?

It matters because Lagarde’s appointment to the most powerful banking job in the EU’s eurozone is a bit like giving the job of chief fire prevention officer to someone who may have pyromaniac tendencies. That someone so powerful, so richly endorsed by the great and the good, could be judged negligent in a multi-million case by a French court, surely should have been considered a black mark against her.

That she is about to steer the Eurozone economy at an incredibly difficult time, trying to pull it out of stagnation – something which former Goldman Sachs employee Draghi failed to do after years of trying – is worrying. Lagarde is no economic hawk – indeed, we expect her to be much more of a dove than Draghi; which in turn means oodles more quantitative easing.

Reuters calculated in December 2018 that the ECB’s “asset purchase program, a monetary experiment known as quantitative easing” (launched in March 2015) has seen €2.6 trillion pumped into the Eurozone economy in four years; that’s €1.3 million a minute. A tidal wave of cash will have bought…economic growth struggling to be more than 1% this year.

We find ourselves paradoxically placed. As scrupulous defenders of honest government and cleaner-than-clean people in political office – and the president of the ECB is a political office – we do not feel we can welcome Lagarde into her new role, although congratulations Christine on landing a €400,000-plus a year job. After years of media acclaim Lagarde clearly thinks she now has carte blanche to espouse a gender-agenda, telling a recent interviewer that “when it’s bad, you call women to the rescue.” Nope. When things are bad you call on someone you know is not negligent, male or female.

On the other hand, this is terrific news for gold. As the eurozone economy continues to drag its feet like a child on its way to a yelling, Lagarde and her advisers can only deliver more of the same – much, much more printing of increasingly devalued paper money. The great compromiser, Lagarde will not want to be known as the person who imposed austerity on the EU and nor would that work either – it would simply exacerbate the tendencies for the EU to fracture. So our very best and honest advice is – get your Glint card now, download the app and upload the gold. And hold onto your seat, because it will be rocky.