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Category: Gold

Gold vs Silver Investment: Pros and Cons

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Before we begin, it’s worth noting that at Glint we don’t offer any investment advice. What follows is intended to help you in your understanding of terms as well as potential pros and cons of investing in gold and silver.

Investing in a precious metals like gold or silver may be considered by many as a safe bet for your money. But aside from the initial purchase cost, how do you decide which metal is the right asset for you?

While gold and silver are both precious metals – a type of commodity that is generally considered by many as a safe investment – there are certain factors that affect their long-term value. It’s important to understand what these are before you invest, so you can be sure you’re putting your money in the right place.

Again, Glint doesn’t offer any investment advice, however, to help you choose the right precious metal to invest your money in, we’re taking a look at the pros and cons of gold and silver, and the things you should consider. Whilst we are passionate about gold, we’re not involved in investments, so you can rest assured the information here is completely impartial.

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The Key Differences Between Gold and Silver Investment

Investing in gold and silver may sound comparative, but the reality is there is a lot that separates these two precious metals. Below, we take a look at the key differences between gold and silver that could affect your decision to invest.

Silver is More Readily Available

The volume of new silver pulled from the earth is considerably higher than gold, with close to 1 billion ounces brought into the silver supply market each year. In contrast, the total volume of new gold currently sits at around 120 million ounces per annum.

What does this mean for the value of silver? Because it’s more prevalent and readily available, silver is nowhere near as valuable as gold, and is, therefore, less able to offer as great a long-term return. It is, however, much cheaper to buy, so new investors will need to weigh up whether silver is worth their time and money.

The prevalence of silver also has an impact on its price volatility. With such a liquid market for silver, its value can increase and decrease at a much higher rate than gold, so investors need to be prepared for silver’s unpredictable and volatile value profile.

The Applications for Silver Make it an Important Commodity

Of all the precious metals, silver is among the most widely used in day-to-day applications, particularly in the industrial and manufacturing sectors. Indeed, over 50% of the total supply volume of silver is used for industrial purposes, compared to around 10% of gold.

Why is silver so prevalent within industrial sectors? Firstly, its affordability and ready supply make it much easier to source than other metals. It’s also renowned for its electronic and thermal conductivity, which makes it an indispensable component within the manufacturing sector.

This is all well and good, but why is it important for investors? Given the industrial demand for silver, this goes some way to explaining its widely fluctuating pricing. For example, in a strong economy when demand for raw materials is high, the price of silver goes up; when there’s a recession, demand drops, and with it silver’s value.

In contrast, the value of gold is less likely to suffer such industry-related value volatility. With only a small proportion of total annual gold reserves used in industry, its value is scarcely affected by commercial demand, and more readily influenced by other factors, including economic outlook and currency values.

Silver is Much Larger than Gold – Meaning Significant Storage and Administrative Costs

One of the key differences between gold and silver that many would-be investors fail to grasp is the difference in size and weight between the two precious metals.

Silver is much less dense than gold, with pure silver being up to 84% larger than pure gold by volume. That means that a huge amount more space is needed to store silver reserves than gold – and with that comes significant storage, logistics, and related costs.

To put the size-to-value difference between gold and silver into perspective, here’s a quick example. Say you invested $10,000 in gold; you could hold the total volume of metal in one hand. If, however, you invested the same in silver, you’d need around two medium-sized boxes to carry it all.

The size-to-value variation between gold and silver may not seem all that important from an investment point of view. But with silver requiring significantly more storage, logistics, and transportation infrastructure, administrative costs are something to consider. Add to that the fact that silver requires very specific storage conditions compared to gold (to avoid tarnishing) and managing the commodity safely and securely in the long term can require careful planning and budgeting.

The Pros and Cons of Investing in Gold

Interested in buying gold? Take a look at our essential guide to the pros and cons of this precious metal below to find out if it’s the right commodity for you.

The Pros 

  • Retains its value exceptionally well – gold is considered one of the very best assets in which to invest your money, with reliable and predictable value retention that make it a safe bet in the long and short term.
  • Can be used as an inflation hedge – because gold is a physical commodity, it’s considered a safer means of hedging against inflation. So, when the value of more liquid assets drops due to peaks and troughs in the economy, gold is used as a potential safe haven to avoid the likely losses associated with inflation.
  • It’s a popular portfolio diversification asset – for the reasons listed above, gold is among the most popular assets for investors looking to strengthen their portfolios against financial shock. It allows investors the opportunity to balance the volatility of their other assets against a steadfast, physical commodity, which ultimately provides greater fiscal confidence in times of uncertainty.
  • Investing in gold is easy – compared to other assets (particularly those associated with the stock market) gold is very easy to invest in, making it a popular choice for new and beginner investors. Click here to learn more about the benefits of investing in gold.

The Cons

  • Storage, insurance, and admin fees – while the logistical costs of storing and securing gold aren’t as expensive as silver, they’re no less a consideration. Storing gold in a vault typically means you’ll be subject to storage and insurance fees.
  • Minimal income generation – as with all precious metals, gold isn’t considered an income stream. Instead, it’s more of a security against financial turbulence, which is why investors typically use it to diversify their portfolio.

The Pros and Cons of Investing in Silver

The Pros

  • Affordable – silver is cheaper to buy outright than gold, so if you’re looking to kick-start your investment portfolio on a small budget, it could be a good option.
  • A safe long-term asset – while the value of silver is much more volatile than gold, it’s still a physical commodity, which means it’s a safer place to put your money. That means, much like gold, it can be used to hedge against financial uncertainty.
  • Decent rate of return if sold at the opportune moment – given the huge peaks and troughs in value that silver experiences, you could make a return on your investment if you choose to sell at the right moment.

The Cons

  • Expensive to store and manage – as outlined above, silver is among the most expensive precious metals to store, transport, and manage. Be sure to factor such costs into your investment decision.
  • Minimal income generation – like gold, silver offers little in the way of income, and unless you’re very savvy, you may find it difficult to make a return by selling it on at the right moment.
  • Poor liquidity – because silver is a physical asset, it can’t be easily utilized as day-to-day currency. You can change it into a currency within your country of origin, but this may accrue additional fees and service charges.


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.

What Affects the Price of Gold? Factors and Historical Trends

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Gold has long attracted investor interest, and its appeal isn’t wavering. Gold prices have increased significantly over the past half a century, with growth in exchange traded funds (ETFs) among the factors driving up the cost of the world’s favorite precious metal.

But, as with any commodity, predicting the price of gold isn’t a cut-and-dry process. A huge range of factors affect its per-ounce cost, so those interested in buying the precious metal need to understand how, why, and when its price is likely to fluctuate.

If you’re looking to buy real, physical, allocated gold, that you can spend, but would first like to know how its value could change over time, our guide on what affects the price of gold is for you. In it, we cover the factors that drive gold prices, how gold ties into inflation, and our predictions for what your gold reserves could be worth in five to 10 year’s time.

Ready to get started? Use the links below to navigate or read on for the full guide.

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What Factors Affect the Price of Gold?

While gold is considered a low-risk commodity, its per-ounce price can fluctuate due to several key driving influences. Below, we outline the factors that can affect the cost of gold month on month, year on year.

Demand and Supply

Despite being in use for roughly 5,000 years, gold remains one of the world’s most desirable precious metals – and it’s this which can impact its cost. Global demand for gold remains high, particularly in jewelry and manufacturing industries, so its price is affected by the basic theory of supply and demand (as in, when demand is high, prices rise).

Hedging and Wealth Protection

The innate value of gold means it can weather more economic uncertainty than other commodities, making it a safer bet for investors during turbulent periods. This, in turn, means it’s a popular hedging option, as it helps protect against economic shock from rising inflation and currency devaluation. Consequently, as more investors hedge on gold, its per-ounce price can soar.

The Value of the US Dollar

Since gold is a dollar-denominated precious metal, its per-ounce cost is directly affected by the value of the US dollar. So, when the dollar is strong, gold prices tend to be lower, and vice versa when its value drops. This is because investors want more gold for their money, so may wait until the dollar is weak before purchasing. The eventual knock-on effect is a higher per-ounce price due to increased demand.

Geopolitical Crises and World Events

Remember: gold is considered a safer bet for investors, so in times of global crises or geopolitical disruption, its demand can soar. The metal outstrips all other assets in terms of economic viability and stability. This is because gold’s cost of acquisition and product is rarely hit by significant fluctuations, the element is incredibly durable, and the supply is high enough to comfortably meet demand.

So, it remains the go-to fallback option when economies take a turn. Naturally, this increased demand for gold can cause significant price spikes.

Demand from ETFs

Gold is a popular asset within ETFs, where it’s bought and sold like shares. Unsure what an exchange traded fund is? Think of it as an investment vehicle, whereby investors can buy and sell commodities (such as gold) on a stock exchange like regular stock. Currently, ETFs represent a significant share of total gold demand volume, and thus have a major impact on its per-ounce cost. Note that at Glint, we do not deal with ETFs, the gold you buy with Glint is real, solid, allocated gold. There is nothing that stands between our clients and their gold.

Gold Production

Don’t forget that, unlike other modern assets, gold is a physical commodity available in finite quantities. That means gold production must come into the pricing equation, with the metal’s real-time supply volume affecting cost in the same way as demand. And, as time goes on and mining becomes more complex, we’ll likely see gold’s innate value increase as its raw material becomes more scarce.

The Price of Gold Over Time – And Why it Matters

While gold is considered a stable asset, its value has fluctuated significantly over the past century. But why should this matter? And what can historical gold values tell us about where prices might go in the future?

When choosing the best time to buy gold, investors pay careful attention to historical pricing data. That’s because it can reveal a lot about the gold market’s current state of play, and how the metal’s price could change in the weeks and months to come.

For example, in 2011, the per-ounce cost of gold hit an all-time high of around $2,000. Since then, it has dropped back a little, but many analysts see this as only temporary, and predict that gold will continue this upwards trajectory in the longer term.

Historical pricing data can also help investors spot the right time to buy gold from a demand perspective. For instance, when a weakened US dollar caused the price of gold to drop in the past, at what point did it start to rise again as demand grew? Such analysis can help reveal the best time to buy to guarantee maximum value from your gold.

By understanding historical gold prices, you can make assumptions about the metal’s future trajectory, and make better-informed decisions about the right time to buy and sell.

How to Predict Future Gold Prices

Much like for other commodities, predicting the future value of gold is difficult, and there’s a simple reason for this.

Commodity markets are like auctions. People seek to buy before the price rises, but by doing so, drive the price up. This is the nature of supply and demand within a physical asset market such as gold; demand will always cause prices to go up.

Of course, it is possible to make assumptions about gold’s future value. But as with any investment, there are no guarantees that things will follow as predicted.

Investors typically consider five factors when buying and selling gold. These include:

  1. Supply and demand – is demand likely to increase, causing a spike in value? If so, now is the best time to buy, but waiting could pay off if you’re looking to sell.
  2. Inflation – is inflation set to rise? Gold is a popular hedging tool to protect against inflation, so investors track this figure carefully.
  3. Interest rates – historically, gold prices have dropped as interest rates have risen, so this is another relationship to consider when predicting future changes in value.
  4. Currency rates – as touched on throughout this guide, currency rates are a major deciding factor when it comes to investing in gold. When predicting future price changes, investors typically look at the health of the US dollar, British pound sterling, and the Indian rupee.
  5. Crises and world events – what is happening around the world that could the value of gold? From oil and gas prices to crises such as fuel shortages and pandemics, a huge range of external factors can influence the price of gold, so investors need to carefully assess the state of play before buying and selling.


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.

Soap Box: What drives the gold price?

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In response to the tragic events leading up to civil unrest in the US last week, the US dollar gold price rose by 0.9% on Monday 1 June to above $1,741 a troy ounce. For Michael McCarthy, chief strategist at CMC Markets, one reason was clear: “concerns about the unrest in the United States at the moment appear to be weighing on market sentiment,” Reuters quotes him as saying.

Uncertainty coupled with fear underpins a higher gold price. The reverse is true too. When the world feels more at ease with itself, gold’s price drops.
Yet the relationship between fear and the gold price is, like all quasi-emotional links, indirect.

It’s difficult to recall now how shattering was the news of the terrorist attacks on the Twin Towers in New York on 9 September 2001.

One metals’ analyst described the situation that day as “complete pandemonium”.

Yet the gold price responded fairly calmly, going up (as measured by what was then the world benchmark, the twice-daily London fix), by almost 6%, from $271.40 in the morning to $287 in the afternoon.

Gold analysts are as prone to hysteria as the rest of us. The ‘pandemonium’ of that day did not register that much.

A jolting spasm in world affairs is not enough in itself to drive the gold price higher. Context is everything.

Back in 2001 the world was emerging from a lengthy period in which massive gold sales by the world’s biggest gold holders – central banks, closely tied as they are to governments – had been net sellers of gold. Switzerland had led the way by selling 1,550 tonnes of its gold reserves (more than half the total) from 2000.

The relatively weak gold price during the 1980s and 1990s encouraged gold mining companies to sell forward, to lease, their gold to bullion banks. Gold that was not yet dug out of the ground was sold forward to banks in a process known as hedging. These banks then lent the gold to whoever they liked, for a small interest payment. During the long bear market, when gold experienced a prolonged price deadline, that felt like a win-win situation – the gold miners, who expected the future price of gold to be weaker, made more money than they hoped, and the banks made a bit of interest on the lent gold. But this created a paradox of perpetuating the low price.

The gold price has recovered significantly since 2001 and hedging by gold miners has largely dried up. Thanks to the low-to-zero global interest rate environment we are living in, banks do not make money from gold leasing. Also, gold miners have stopped their hedging because the price of gold has been going up. Why sell ounces that are still in the ground at today’s prices, when tomorrow’s price may well be higher?

Many other factors underpin the gold price. Are central banks (the US holds more than 8,000 tonnes) buying or selling gold? Since 2010 they have turned from net sellers to net buyers.

In India, with some 10 million weddings annually, gold is sought after as part of the country’s traditional dowry practice. India typically buys (and stores) a lot of gold, held against a rainy day.

Demand for physical gold has slumped in the past few weeks, hit in part by the high prices and partly in India because the government more than doubled (to 3%) the tax on gold. India’s gold imports in May this year collapsed by 99% (compared to the same month in 2019) because the country has been in ‘lockdown’. The US dollar price of gold in May we should note started the month around $1,700 per troy ounce, slipped a little by 7 May, peaked at $1,764.01 per troy ounce on 18 May, fell again to around $1,700 by 27 May and is now back at above $1,743. This is an astonishingly strong performance during a month when the world’s biggest gold consumer halted its buying.

As any chart of the long-term gold price shows, gold has been since 2002 in a strong bull market, with the price steadily rising. Will it continue to rise? There cannot be any certainty. All that can be said is that the world, which has introduced unprecedented economic stimulus packages worth trillions of dollars – all borrowed money – is experiencing enormous political and monetary uncertainty.

If one is looking for a reason to get a Glint card and put some gold on it, there can be no stronger justification than the example of what’s going on right now – while India stopped its gold buying, the gold price stayed close to its all-time peak in US dollars.

Around the campfire: “Don’t say that – I’ve just bought a house”

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When I had the idea for Glint during the global financial crisis of 2008, it seemed obvious to me that the world deserved a reliable form of money. We all needed a form of money that insulated you from the destructive effects of inflation and from potential breakdowns in the highly leveraged financial system. To me, then and now, the answer was – incorruptible gold.

The everyday man and woman on the street easily understood the idea. My mother would often say: “Son, money doesn’t buy you what it used to.” London cabbies would tell me that “gold, always holds its value”. Experienced high net worth individuals, those who had worked hard through cycles of booms and busts over the last 50 years, they also got it.

But many of the younger analysts and fund managers, those who control the wallets of the big venture capital companies, didn’t get it. They had never experienced double-digit interest rates or difficult recessions.

The 2008 crisis was not allowed to play out. Instead of toppling over the economy was propped up by huge amounts of central bank stimulus. That led to the biggest period of growth seen in over 100 years. No bad thing one might think. Except, what was that growth built on, apart from illusions and credit?

The existing monetary system benefitted some people hugely, even during that 2008 crisis. Easy for them to get a multi-million mortgage; money poured into the funds they managed, fat bonuses returned.

I remember saying to one investment committee that just because house prices were going up in London, it didn’t mean that they always would, and explaining that a house in Japan worth 16 million in 1990 was now, twenty years later, worth 5.5m. The head of the committee looked alarmed and said: “Don’t say that, I’ve just bought a house”. It was probably a very nice and expensive house that was paid for with money lent at very low interest, nearly free, of course only available to those who has a big enough deposit. They were clearly quite short sighted… they didn’t invest in Glint.

Glint continued to find funding from contrarian investors, including many individuals who have worked hard all their lives to build up their wealth. People who have experienced the cycles of boom and bust and who worry about where the global economy and central bank policy is heading.

Covid-19 slammed us into this economic crisis, one that many had expected, but which has turned out to be far worse than anyone imagined. Most people in the investment community that I speak to are now extremely worried about the economy and global debasement of foreign currencies, thanks to the vast government borrowings that have been built up in the space of a few weeks. Suddenly it seems, I am not the daft contrarian, but we at Glint may argue, the visionary.

Around the campfire: A golden immortality

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As a young man I didn’t think about death. Like so many young people I thought I was invincible. Even when I became a young father in my 20’s I never thought about what would happen after I passed away. It wasn’t just because I had no time to think of such things among the nappies, the bottles and running my eCommerce agency. Mortality was for others. Or so I thought.

And then I found God Gold…

From its birth in the heart of a supernova, I learnt that Gold’s nature is constant, never changing. It’s one of the reasons we use it as money, as an incorruptible and honest ledger of what we owe to each other, always retaining that value.

But it was gold’s ability to defy time, age and life…for it to be witness to macro-economic cycles, black swan events and span generations. All those supra-human things about gold made me think about the bigger picture. It very sharply brought home to me the meaning of legacy.

The only thing we can be certain of in the long term is the breakdown of order. Entropy is forever. As if to test us, the good times will never last: a personal or public crisis is always just around the corner. But just far enough out of reach to lull a new generation into a false sense of security and foster unsustainable excess.

So, I look into the eyes of my sons and wonder – what can I do to help them through the inevitable challenges they will face after I am gone? Any ‘words of wisdom’ I may have to offer might sink in, something about how I conduct myself might have a long lasting positive and useful influence on them; but money always helps.

If I manage to save some by the time I die then I won’t put it at risk through an investment in some flaky get-rich-quick scheme but in the only tangible constant they can rely on: gold, money that stands the test of time.

Finally, the Financial Times Gets It

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Reading the comments tacked on to Financial Times’ stories is often more interesting than the stories themselves. ‘Investor Maximus’ pithily added to an FT story on 2 October this year, headlined ‘Why Buffet is wrong to dismiss the benefits of gold’, that “Gold is the asset to hold when every currency is equally crap”. Which hit the nail on the head. When all else seems to be going to hell in a hand cart, then gold remains a friend, perhaps the only friend.

If you do a thorough search of the Financial Times you can find many more stories predicting the end of gold as an investment and store of value, than stories that actually look at some concrete data supportive of gold, such as this one from 2017, which identified that the gold standard – the tying of a fiat currency to some value of gold – “produced fewer catastrophes for Britain”. That latter story concluded: “None of this is to say that the gold standard is necessarily better — stability can be overrated and growth is worth having — but the data suggest the standard arguments against gold, and the standard arguments in favour of the flexible and “counter-cyclical” state we have today, need serious revision.”

The FT, which after all is a news paper, can never make up its mind whether gold is a good thing or a bad thing. Its views on gold, and much else besides, ebb and flow, a tidal depiction of the world as it currently is. It is therefore a bad guide to where the world is headed.

But at least FT journalists do a lot of reading, and make their livings (and reputations) by bringing good ideas to wider notice. One cannot hope to read everything – and the FT is perhaps most useful for pointing readers into wider, and sometimes deeper, knowledge.

Thus a recent piece about gold in the paper – ‘Gold is looking more attractive’ – caught my eye, largely because it was so unusual. Largely based on a speech by Ray Dalio, it correctly identified today’s truly massive public and private indebtedness; the vast quantitative easing (i.e. money-printing) that governments continue to indulge; the end to ‘austerity’ now signalled by all the major political parties contending for votes on the 12 December general election in the UK; the financially engineered (artificially created, that is) ‘growth’ that has been the achievement of governments everywhere from Brussels to Beijing since 2009…All of these mean, says Dalio, that “the world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns (because of the enormous amount of money that has been pumped into the hands of investors by central banks and because of other economic forces that are making companies flush with cash)” and that the investments “that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold…I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.”

The FT being the FT it cannot avoid ending the article with a dismissive reference. “No wonder gold bugs abound” says the journalist. The gold “bug” is the way the FT always dismisses those who hold gold as quasi-bonkers, as if rational thought and gold are incompatible. And no-one is suggesting that all of one’s assets should be put into gold; it is, after all, largely a defensive asset, although one that, thanks to Glint, can now be used as real money.

Yet it must also be asked – who should we trust more? Ray Dalio, the 70 year-old American billionaire (the world’s 58th wealthiest person as of June this year) and co-chairman of Bridgwater Associates, or a rather poorer journalist’s throw-away line in the FT? It’s a rhetorical question, of course.

Gold: it’s the season for buying

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It’s been a stellar year for gold so far, and the way things are shaping up 2019 is but a precursor to the major event ahead. In any terms, whether the US dollar, the pound Sterling, or the Chinese Renminbi, gold has significantly risen. There has been a change in sentiment towards gold, driven by fundamentals in the market that are not going away easily or soon. As a result, you are seeing gold do what it is supposed to do in situations that we are seeing unfold around the world. The real tilt in gold’s story is that there has been a shift in its narrative. For years it has been ignored by the investment community, as many were put off by its non-yield paying tendencies, but now we have an explosion in negative yielding debt. With negative yields set to be here for some time, we believe the story of gold has moved into a positive regime. As well as that inflation in the US looks as though it is starting to get a grip, as the chart shows.

Along with a significant shift in the backdrop surrounding gold, we are now in a good seasonal spot. Seasonality plays a major role the gold market, which is now entering a positive period. Demand for gold should ramp up with Diwali (in India) kicking off the festive period in November. During this period, gold is given as a gift and therefore there tends to be a significant jump in demand. Following on from Diwali, we will quickly move into Christmas and then the Chinese New Year. As India and China continue to expand and wealth grows within both countries, demand for gold is set to become more pronounced, especially given that people within these nations will be aware of how depressed the long-term price of gold really is. With a natural increase in demand for gold, prices will be pushed higher over the coming months.

Never a dull moment with gold

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In the past six months the Sterling price of gold has gained more than 21%, a remarkable rally. Yet in the past week it has lost more than 4%, although a little less in US Dollar terms, almost 3%. For the novice investor this rollercoaster might be alarming but for the long-term saver in gold all the comforting signs are still there – and even the bigger banks, usually somewhat hostile to gold, are starting to take note. Citigroup put out a note this week citing macroeconomic reasons why it believes that the US Dollar gold price could surpass the previous record price of $1,900/oz and reach $2,000/oz within the next two years.


Despite the short-term outlook for gold remaining weak, any move lower will be limited. Last week, the yellow metal had its biggest daily loss in more than three years after an optimistic tone from Jerome Powell, chairman of the US Federal Reserve Jerome Powell, who suggested that the US economy was performing well. Regardless of this the core market themes and worries are still intact and therefore allocating to gold during these next two weeks could offer a good entry point. The near-term weakness might have come at the right time. Trade tensions, weakening macroeconomic conditions and increased stock market volatility will continue to support the gold price. Gold is getting a tailwind from plunging bond yields, currency wars and elevated debt levels across the world. We would expect to see a substantial period of US dollar weakening, similar to that seen in the 2008 the financial crisis. Whichever way you look the relationship between the US dollar and gold is changing (and at times confused), which could lead to a sustained upward move in Gold. Currently, we are in a period where we will see some short-term consolidation but this is healthy and required for gold to make its next leg higher.


Gold, Time, and Interest

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What would you sooner have: £100 today or £115 next month? There’s no obvious answer. It all depends on your present and expected needs. If you lend something, you expect that something back, plus a little extra. So someone who lends his gold expects to receive it back, plus an extra amount – the interest. But what happens when we live through an era of very low-to-negative interest rates, like today? Lending anything becomes much less attractive; the best you can hope for is that you get your original loan back. Not much incentive there.

Gold has always a medium of exchange. It’s widely held by central banks and other institutions as a store of wealth. In the 1980s, gold was used as collateral for a carry trade, which worked like this. A central bank loaned a bank some gold, at a very low rate of interest. The bullion bank then sold the gold and invested in securities with a higher rate of return, such as government long-term bonds. The bullion bank effectively sold the gold short.

Now suppose the loan was called in by the central bank. If gold has risen in value, the bullion bank will have to go into the market and purchase higher priced gold. Indeed, if many banks are short, the unwinding of the gold carry trade could drive the gold price even higher.

The depressed price for gold and the gloomy noises about the future price of gold meant that central banks happily lent their gold; bullion banks happily borrowed it and invested in US treasury bills; and there was an explosion in the bullion business. Everyone was (more or less) happy – except for holders of physical gold, who blamed gold miners for helping to depress the gold price.

Time moves on. Today, the gold lending market has become so developed that for every ounce of physical bullion in the possession of banks there may be hundreds of paper liabilities. No one has a real idea of the true level of paper gold leverage that we have now reached. One thing is certain: a low and positive gold leasing rate has led to a substantial uncovered position. From a central bank’s perspective, if a lease is coming due then there is no incentive to renew it – would they really want to, given the unknown counterparty and systemic risks that may occur in today’s unstable economic climate?

It is clear that there is no real incentive today to lend gold. The appetite for doing so has vastly diminished. The gold price has recently moved rapidly from $1,200 to $1,550/ounce. With yields converging towards zero and even going negative, the likelihood that gold will be lent by anyone is illogical – and that ought to mean that as the supply dries up, the price can only go higher.


Making a virtue of necessity

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Is Mark Carney, the Governor of the Bank of England (BoE), a conservative or a radical? It’s doubtful that Carney is a bomb-thrower, but maybe his grey suits are hiding a desperado who yearns to overturn the apple-cart.

One the boring side of the scales are: he’s Canadian; he spent 13 years at Goldman Sachs; is a former Governor of the Bank of Canada; and his wife, Diana Fox Carney, likes to rub shoulders with the great and good. In six years as the head of the BoE he has made few waves, apart from his gloomy (and incorrect) warning that the UK’s departure from the European Union would bring disaster to the UK economy. That has yet to happen – three years after he made his guess. Who knows? It may yet turn out to be correct. On the other hand Carney knows his time at the BoE is running out – he leaves in January 2020 – and maybe he wants to go out with a bang.

Evidence for this is the speech he gave at the Jackson Hole Symposium last week. It was a remarkable speech – even a daring speech, the dull-as-ditch water title of which (The Growing Challenges for Monetary Policy in the current International Monetary and Financial System) seemed deliberately designed to throw journalists off the scent of something very meaty indeed. For Carney did nothing less than trash the US dollar as the international reserve currency. He pointed out that some $16 trillion “of global debt is now trading at negative yields”, a fact that should send a shiver up the spine of anyone, central banker or otherwise.

Carney spoke about the “international monetary and financial system” (IMFS), and said the consensus view that countries “can achieve price stability and minimise excessive output variability” through flexible inflation targeting and floating exchange rates was “increasingly untenable”. What do central bankers want? Stability of course and, if possible, growth. For Carney, the current IMFS is “not only making it harder to achieve” this stability but is also “encouraging protectionist and populist policies which are exacerbating the situation.” He told his audience that “in the new world order, a reliance on keeping one’s house in order is no longer sufficient. The neighbourhood too must change….We are all responsible for fixing the fault lines in the system.” In his view the “deficiencies of the international monetary and financial system have become increasingly potent…Even a passing acquaintance with monetary history suggests that this centre won’t hold.”

Parsing his central banker-speak, what Carney was saying is that the current international financial system is broken. The US dollar is losing its status as the world’s most sought-after reserve asset, while the Chinese currency, the renminbi, the leading candidate to replace the dollar, is not yet ready for the task. So, Carney reasoned, what the international financial system needs right now is “multiple reserve currencies.” He floated the idea of a “Synthetic Hegemonic Currency (SHC)” a kind of globally dominant public sector-managed digi-money, perhaps run by the International Monetary Fund, as an international reserve asset – although the IMF already has the SDR (Special Drawing Rights) as its unit of accounting.

Carney came up with the right diagnosis – the current international financial system is bust – but prescribed some very peculiar medicine, which was in any case undermined by his own analysis. For he mentioned the immense difficulty posed for the world by the shift away from sterling to the dollar in the early 20th century, driven by the First World War. Quite correctly he said that the “resulting world with two competing providers of reserve currencies [the UK and the US] served to destabilise the international monetary system” and “worsened the severity of the Great Depression.” If it was such an upheaval to swap one reserve currency for another, what might be the risks of letting several currencies compete for reserve status?

What to conclude from Mark Carney’s major farewell address? Several points emerge. We are living through a time when the house of cards – the world’s mammoth dollar indebtedness – could topple at any moment, or might just blithely carry on, for now. Central bankers are floundering when it comes to providing practical solutions, but then they are only human. Carney’s speech was the central banker’s equivalent of holding up a sign which says “your guess is as good as mine”.