Gold is holding firm above US$2,000, as doubts about the strength of the US dollar and the state of the US economy continue to undermine confidence.
Is the US going into a recession?
Opinions are divided on this, but influential voices like the Bank of America say yes.
In a way, it’s hardly surprising.
Because President Biden caused all that money to be printed in the quaintly named Inflation Reduction Act the Fed needs to keep interest rates high.
And high interest rates are designed specifically to slow an economy down.
Well and good, provided you haven’t also embarked on a policy of proxy war against the country with the world’s largest stockpile of nuclear weapons.
Add that war into the mix and you’ve got high energy prices, disrupted supply chains, and fear of Armageddon stalking the land.
Not surprising, then, that gold is holding on to its gains.
But is it really just all about the dollar, or is there more going on here?
To start with, it’s worth noting that the dollar isn’t performing that badly against other major currencies. According to the DXY, which measures the dollar’s performance against a basket of the world’s major currencies, the dollar is down over the last six months, but broadly flat over 12 months and three years.
Across those same time periods – 12 months and three years – gold is marginally up over the past 12 months, but about US$300 per ounce higher on a three year view. There have been fluctuations in between of course, but one of two things is happening here.
Either gold has become more valuable over the past three years as an independent asset class or, more likely, the world’s major currencies have all beggared themselves together. So, although the dollar has moved in tandem with other major currencies, give or take a premium for its status as global reserve, they’ve all declined in value against gold.
The litany of evidence is clear enough: gold is at or around all-time highs when benchmarked against many of the world’s major currencies including the pound, the euro and the yen, and some of its minor ones too, like the Bulgarian lev and the Indian rupee.
So, while it may remain true that fiat currency remains the easiest and the best way to transfer assets and value, it’s also clear that as a store of value, fiat currency no longer cuts the mustard. Because all these currencies are benchmarked against each other, it’s easy for central banks, governments and other vested interests to pretend this isn’t so.
But measuring the value of one fiat currency against the value of another fiat currency is just smoke and mirrors. Step outside of that bubble, say, into the arena of gold, and you get a truer pictures.
Smarter investors have known this for years of course. Some have been shouting it from the rooftops, partly in an altruistic effort of sauve qui peut and partly in an effort to talk up their own book. But there are those too, who prefer to remain quiet.
After all, gold is a finite asset in the way that fiat currencies definitely are not. Some estimates reckon that there is around US$10tn worth of gold in the world, and that’s that. If everyone rushed into it at once that would certainly queer the pitch for the long-term buyers and holders. These quieter types would rather have the more speculative money go into bitcoin – after all, that’s been leaping away again after a recent near death experience.
Gold will never die. But the Americans did nationalise gold once. If it’s put too much front and centre, there’s a danger similar ideas might rise again. After all, this current President seems to support all sorts of wacky ideas. Then again, copying something President Roosevelt did might appear far too sane for today's Democrats.