Gold’s two consecutive days of nominal record highs have seen some profit taking as oil is flat, the dollar is marginally higher and the euro has fallen. The ECB’s 0.25 % interest rate hike may lead to further profit taking today but rising interest rates in an increasingly inflationary environment will be positive for gold as it was from 1965 to 1981 (see charts below).
It is only when real interest rates turn positive (nominal interest rates are again above the nominal rate of inflation) that gold and silver’s secular bull markets may be challenged. Inflation in the eurozone is 2.6%. Today’s interest rate rise will leave eurozone interest rates at 1.25% well below the 2.6% rate of inflation meaning that savers continue to lose out due to very low yielding deposits.
Similarly in the US, the cost of consumer goods and services has climbed 2.1% (as measured by the CPI) over the past year while Ben Bernanke has kept interest rates at 0% for over two years now.
These inflation numbers are official government statistics and are subject to hedonic and other peculiar statistical adjustments which underestimate the real rate of inflation as being experienced by the public who are feeling the pinch from rising food, energy, insurance, healthcare and other costs.
Negative real interest rates will likely lead to precious metal prices continuing to rise or rather very low yielding fiat currencies falling in value versus non yielding finite gold. Rising interest rates are bullish for gold also as they may see the primary asset classes of equities, bonds and property come under pressure again.
The safe haven, inflation hedging, liquidity and diversification benefits of gold have never been more needed by the investment and savings public.
Gold’s Two Consecutive Days of Nominal Record Highs Ignored by Non-Financial Media
Despite this need for gold as a safe haven and diversification to protect from inflation and negative real interest rates, most of the non-financial media has ignored and barely reported gold’s record nominal highs in recent days, despite the incredibly uncertain geopolitical and macroeconomic conditions facing people internationally.
Total Known Gold ETF Holdings GoldCore
Total Known Gold ETF Holdings
In the same way that sections of the media ignored and downplayed the risk posed by debt, derivatives and property bubbles prior to the subprime debt crisis and bursting of various property bubbles, so today the monetary and macroeconomic risks and the risks posed by inflation to the public and our economies are being downplayed and largely ignored.
What little coverage there is of gold, it continues to often be slightly biased with negative terminology such as “gold hits new peak”, “gold peaked today”, “investors piled into gold”, “investors flock to gold” and “speculators hoard gold”. All of which are factually inaccurate and misleading.
Headlines regarding “gold peaking” have abounded since gold rose above $700/oz. Given our inability to forecast the future movement of any asset it is always best not to predict if something has ‘peaked’ - especially in a headline.
Also, many journalists continue to fail to report the important fact that the record highs are nominal highs and that adjusted for the significant inflation of the last 31 years, gold remains well below its inflation adjusted high of $2,400/oz.
The primary indicators of investment demand for gold - the Commitment of Traders (COT) data and Total Gold ETF Holdings continue to clearly show that little or no one is “piling into” gold – not even the speculators.
It is interesting that such negative terminology is rarely used with regard to equities and bonds – especially as bonds are likely the largest bubble in the world today.
When the non-financial press cover gold, they often quote bankers, stock brokers, CFD providers and other financial service providers warning about gold and suggesting gold is a bubble and is risky. It is interesting that these same individuals never advised their clients to own gold but now they believe they are experts on the gold market and can advise people not to buy or to sell.
Instead of urging diversification, they give simplistic reasons as to why gold may or “will fall”. Diversification is what they should have been advising for years and their clients would be in a far better position if they had.
Since gold rose above $800/oz in 2007 there have been umpteen definitive statements that gold was in a “speculative” bubble and would fall. If I had an ounce of gold for every time I have heard such “experts” warn regarding gold being a bubble, I would be as rich as Croesus.
To be fair, it is likely that part of the reason for the very limited coverage and somewhat negative treatment of gold is that some journalists and editors genuinely believe that gold is a speculative bubble. They may be being cautious after the experience of recent bubbles when much of the media failed to warn regarding, and indeed cheer led, recent equity and property bubbles.
They are right to be cautious in this regard. At the same time, they have a duty to report all of the facts in a non biased manner and to offer a plurality of opinion regarding all markets – including the gold market. Focusing on any one asset class and ignoring others is a failure to report the markets.
Lack of knowledge regarding financial markets, investments and savings is detrimental to the wealth of individuals, families and nations. In the coming years many will look back at the lack of and biased coverage of the gold market and wonder as to how it could have been so biased and myopic.
Gold is trading at $1,457.87/oz, €1,021.49/oz and £894.34/oz.
Silver is trading at $39.47/oz, €27.65/oz and £24.21/oz.
Platinum Group Metals
Platinum is trading at $1,783.00/oz, palladium at $778/oz and rhodium at $2,350/o