Shocking news from Bloomberg for goldbugs (as if they weren’t hurting enough):
Gold dropped 23 percent this quarter, heading for its biggest loss since at least 1920
Spandau Ballet’s 1983 anthem Gold could be the national anthem for the world’s inflationistas.
Always believe in your soul
You’ve got the power to know
Always believe in, because you are
Stephen Foley, the FT’s markets correspondent, says a number of forces have combined to sour the outlook for the precious metal, and none of them seem likely to abate any time soon.
Cue great excitement. All those pre-written articles and commentaries on the S&P 500 passing its previous closing highs can be rolled out, and there is something for the 24-hour TV to talk about other than the rather small queues at banks in Cyprus.
Just a couple of small flaws: Read more
The argument for a gold standard is simple: it stops the ravages of political interference with the currency. A dollar was worth the same in 1933 as it had been a century earlier, with $20.67 buying one ounce of gold. The example almost every supporter of gold comes up with is that at the start of the 19th century an ounce of gold would buy a very nice men’s suit, as it would at the end of the century; it still will.
There’s no doubt that doing away with paper money stops politicians abusing it, printing money to fund their favourite spending schemes and, in extreme cases, destroying the currency and the economy altogether. Read more
Is it more accurate to refer to QE∞ instead of QE3? Unlike the previous doses of US QE, this campaign of asset purchases has no official limit, and will carry on until the unemployment rate has improved “substantially” – a word that the Federal Reserve can define, and redefine, as it sees fit over the years ahead.
I have already argued that this should be regarded as stunningly aggressive. In the latest Note video, Gavyn Davies, a fellow FT blogger, agrees. The key point, he suggests, is that over the last year the Fed’s reaction function has changed. It is not just that the employment situation has worsened but also that, for whatever reason, it has decided to give the full employment part of its mandate greater emphasis than before. There are plenty of possible reasons for this, which we discuss in the video: Read more
The most profitable way to be wrong over the past five years was to bet that frantic printing of money by central banks would create inflation – so buy gold. Since the start of 2007 gold has risen at an annualised 19 per cent, a tasty return, particularly when compared to equities.
Yet, there’s been no sign of consumer price inflation, even as the US Federal Reserve explicitly targets asset price inflation (Fed jargon calls this the “portfolio channel” for monetary transmission of quantitative easing; in English that translates as rigging the market). Read more
The argument for gold is very simple: it is hard money at a time when every other major currency is being watered down by central bank money printing.
On that basis, Europeans should have been panic-buying gold this summer as the European Central Bank prepared its plan to hoover up peripheral country bonds (although it will try to “sterilise” the plan, taking in deposits in some form to keep net money issuance stable, even as its balance sheet expands). Read more
My colleague Gillian Tett wrote a nice column today on talk of using the gold reserves of struggling European countries to help lower their financing costs.
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