Gold and money

As some of you wish to move on from the thoughts prompted by the funeral of Margaret Thatcher, let me give you this opportunity to do so.

In recent days gold has plunged in value. Some see this as the predictable decline of a barbarous relic. Why should it be so highly priced, they ask, when it only has value for adornment? Others see this as an unwelcome interruption to the steady climb of true money’s value, serving to highlight the way many Central Banks around the world actively debase their currencies in the now famous race to the bottom, the attempt to get trade advantage from competitive devaluation.

Gold’s critics say its high volatility show it is unsuited to return to a monetary role. Gold’s advocates claim its long rise in recent years has shown that the world would be a less inflationary place if gold returned to a role in our monetary system.

What are your thoughts now on the future role of gold? How do you explain the extreme price actions both on the way up and now on the way down?

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103 Comments

  1. Cheshire girl
    Posted April 17, 2013 at 6:33 am | Permalink

    That’s kind of you John., but I don’t wish to move on.just for today, anyway. I wish to spend this sad day watching Margaret s final journey and wishing her a heavenly rest.

    Thank you for your kind comments about her and for being her friend when despite her great achievements it appears she had so many enemies. The tributes from her friends gave great comfort to such as us who have been such long time supporters. We had hoped we would never see this sad day. She will be for ever remembered with love and respect .

    • Edward2
      Posted April 17, 2013 at 5:55 pm | Permalink

      May I add my thanks firstly to our host for his excellent recent posts on the sad passing of a wonderful Prime Minister.
      And to you Cheshire girl for your well chosen words.

    • Disaffected
      Posted April 18, 2013 at 8:47 am | Permalink

      It was so pleasing to see Lord Tebbit get a rousing welcome from the crowd, more than any of his peer group of the Thatcher government. The ‘November criminals’ should hang their heads in shame and should have had the decency to stay at home.

      Note to Cameron: you backed the wrong horse again and showed, once more, your lack of judgement.

      • lifelogic
        Posted April 18, 2013 at 4:44 pm | Permalink

        Exactly

    • Peter Davies
      Posted April 18, 2013 at 10:15 am | Permalink

      Very kind words. In reality I think she had far more friends than enemies.

      • APL
        Posted April 18, 2013 at 8:10 pm | Permalink

        Peter Davies: “In reality I think she had far more friends than enemies.”

        Apparently, not in the Tory party! The treacherous weasels that had no backbone then, now are lauded as the big beasts of the Tory party.

    • Duncan
      Posted April 19, 2013 at 6:48 am | Permalink

      Gold has been store of value for thousands of years. The situation is unlikely to change. What is presently in question is its price – I would suggest buying when it is below its 200 day moving average, to the tune of 10-20% of ones net-worth. When to sell? Hopefully one would never have to!

  2. Andyvan
    Posted April 17, 2013 at 6:39 am | Permalink

    Like all financial markets now the paper gold market is massively manipulated. This price fall was started by a massive sell off in a very short time. Who but governments could sell enough gold to trigger a major fall in price?
    This is a good opportunity to buy some precious metal as then fundamental case for owning it is just as strong today as it was last week.

    • Leslie Singleton
      Posted April 18, 2013 at 6:08 am | Permalink

      Andy–Who but governments? Well, everybody, and in a panic, for fear (correctly) that everybody else will sell before you causing you to lose big time from the panic-induced drop. It does not have to be a few enormous sales, millions of smaller ones is if anything even worse.

  3. Mike Stallard
    Posted April 17, 2013 at 6:41 am | Permalink

    Gosh! I wish I had money to invest in gold! I would bet my shirt on it! What an opportunity just before the bankruptcy of the Euro/Dollar/Pound Sterling!

  4. APL
    Posted April 17, 2013 at 6:43 am | Permalink

    JR: “What are your thoughts now on the future role of gold?”

    Gold is in a bubble, just like a lot of other asset classes were.

    It is also high in price because the fiat currencies are being devalued. We’ve probably seen some of the gold price bubble deflated, which may account for the fall in the value of gold.

    Another view is that this drop in the price of gold is a result of deleveraging and may indicate another financial crisis is imminent …

  5. margaret brandreth-j
    Posted April 17, 2013 at 6:58 am | Permalink

    If all the reserves are sold off because of a scare, then obviously it is not retrievable however many of my patients are Asian ladies and it is still apparent that their perception of the value of gold differs considerably.

  6. ken from glos
    Posted April 17, 2013 at 7:00 am | Permalink

    Manipulation by banks and states.

  7. Nick
    Posted April 17, 2013 at 7:15 am | Permalink

    1. Cyprus announces gold sale
    2. Market drives down gold price
    3. Market buys Cypriot gold cheap
    4. Market drives up gold price for a profit.

    Meanwhile, UK government carries on printing to pay its 7,000 bn debt, all bar 1,200 bn of which is hidden off the books because MPs can’t tell people the truth.

    • Jerry
      Posted April 17, 2013 at 5:48 pm | Permalink

      @Nick: If the best part of “7,000 bn” (I assume that is GBP, not USD or even widgets, you didn’t say!) is hidden off the books how do you/we know about it, could it be that nothing is actually being hidden, never mind “off the books”?…

      • Robert K
        Posted April 18, 2013 at 8:09 am | Permalink

        I assume this is a reference to PFI and pension liabilities

    • Vanessa
      Posted April 17, 2013 at 6:16 pm | Permalink

      Gordon Brown all over again ! Why do governments announce they are selling gold. I seem to remember Switzerland sold a lot of gold quietly without announcing it to the world and got a very good price. Why are those in the EU so stupid ?

      • lifelogic
        Posted April 18, 2013 at 2:42 pm | Permalink

        Why are those in the EU so stupid ?

        Perhaps because if they weren’t so stupid they would come out of it.

    • suchan104
      Posted April 17, 2013 at 9:43 pm | Permalink

      Nick,

      Markets don’t “drive” anything. Prices respond to supply and demand. If a large quantity of gold is being sold then the market will be flooded and the price will go down. If gold is being hoarded and so is in demand, then the price will go up.

      • lifelogic
        Posted April 19, 2013 at 9:27 am | Permalink

        Perhaps to copy Mrs Thatcher – there is no such thing as a markets – just lots of people buying and selling things and acting in what they believe (sometimes & often mistakenly) to be their own interests. This done in a building or virtual building called a market.

      • suchan104
        Posted April 19, 2013 at 11:45 am | Permalink

        Suchan,

        You have a very simplistic view. Do you imaging that the gold that has been ‘sold’ actually exists and is in the hands of those who have ‘sold’ it?

        In fact gold has been ‘sold’ by people who do not actually own it, on the hopes that they can ‘buy’ it back at a future time for less money (i.e. they have shorted gold). Looks like they won the bet this time. However this has nothing to do with real supply and demand. If real physical gold had to be accumulated before it could be sold, then this could not happen.

        So in this case, the markets can and do “drive” the price.

        Take a look at the price of real gold – Sovereigns or Britannias for example, and the drop is much lower. (If you can find any for sale)

        • Andy
          Posted April 19, 2013 at 11:47 am | Permalink

          Previous comment should have been submitted as “Andy” not “suchan104” – cut and paste error, sorry.

    • Leslie Singleton
      Posted April 18, 2013 at 6:17 am | Permalink

      Nick–Except that there is no such thing as the (big bad) market, just a myriad of buyers and sellers, some large, some small, some individuals, some companies banks governments (including Gordon Brown) etc, but all acting as they best, but inadequately, see to try to maximise their profits or minimise their losses, just as you would expect.

      • APL
        Posted April 18, 2013 at 8:15 pm | Permalink

        Leslie Singleton: “Except that there is no such thing as the (big bad) market .. ”

        There is no such thing as a market at this level, there is a big bank(rupt) cartel.

  8. lifelogic
    Posted April 17, 2013 at 7:17 am | Permalink

    When you buy gold or a painting you are betting on someone else buying it off you for even more later – the next fool paying more than the last. It gives no income and even costs money to store and insure.

    It is not something I would want to invest in. It perhaps has its place as a store of value against deliberate currency devaluations by governments, in times of crisis and as a convenient way of moving money. Equities, Property, farm land ……… which give rents, dividends or other returns are clearly a rather better bet over the long run. Gold does not even have many industrial uses. Other commodities like platinum, silver, copper that are used up and have more real uses (beyond adornment)……….. are surely a rather better bet.

    • StevenL
      Posted April 17, 2013 at 9:19 pm | Permalink

      I don’t have any interests in gold prices. I’m with Lifelogic on this, it works on the greater fool theory. I would bet on gold price movements in the short term if I was looking to make a punt, but would shun it for carefully picked equities in terms of saving for the long term.

      • lifelogic
        Posted April 18, 2013 at 2:46 pm | Permalink

        Indeed just look at the long term. Equities with dividend reinvested and gold over say 50 years. Better with farm land, property, equities and productive assets in general. Or at least ones that are used up like oil, copper, platinum or other commodities.

  9. John B
    Posted April 17, 2013 at 7:30 am | Permalink

    Given how much has been written about the free market, how much evidence of how it operates, that it is called ‘free’ because – like evolution – it is a complex, dynamic, chaotic, trial and error interaction of trillions of fragments of information, feedbacks, events, Human actions and failures, to produce serendipitous outcomes, which are unforeseeable, many not even be close to the intentions of those who participate in it, many people still cling to the notion that predictions of what the market will do can be accurate.

    We still have most politicians who believe they know better than the free market where to build railways and airports, what interest rates should be and what every individual needs, wants and should have. They even think they can tax and legislate to control the climate.

    They are encouraged in their view by the occasional intervention which has a direct result, like poking a stick into the spokes of a moving bicycle will bring it to a spectacular halt.

    My view on Gold? You pays your money, you takes your chance, just like anything else.

  10. alexmews
    Posted April 17, 2013 at 7:31 am | Permalink

    as gold is finite and scarce – I would have thought it would have taken a very small relative shift out of gold and back into equities to drive the gold price down. gold has been attractive since the 2007 crash while, in comparison, most if not all other asset classes have been sideways or worse. this seems to me a shift in investor sentiment, right or wrong.

  11. David Hope
    Posted April 17, 2013 at 7:37 am | Permalink

    I think it is fair to say that gold would not be half so unstable if it was actually used as money rather than as a safe haven on and off as it is now.

    With regards the recent change Thomas Pascoe was suggesting possible market rigging with so much hitting the markets on Friday.

    Peter Schiff on the other hand said (before monday and tuesday) that he thought the euro situation was not helping the price. Obviously Cyprus doesn’t have enough gold to make a huge difference but other southern european states do and there is fear amongst traders of them being forced to sell gold in the future.

    Overall I think it’s fair to say that any commodity of limited supply would be welcome now with the state of continual central bank “stimulus” whose only effects are to push up inflation, making everything difficult from the household shop to factories purchasing energy. Not to mention the longer term effects of central bank policy that many Austrian economists and even Steve Baker and D Carswell often blog about.

  12. oldtimer
    Posted April 17, 2013 at 8:09 am | Permalink

    Fiat currencies also can be, and frequently are, highly volatile. I can remember the time when there were c9 Swiss francs to the £ and when there were c8-9 DM and c900 Yen to the £. Like any commodity, gold will be subject to volatility caused by changes in supply and demand. Its advantages, compared with fiat currencies, is that its value is not at the whim of any one government, it actually has other uses both industrially and it is worn as an adornment by hundreds of millions of people around the world. This will assure gold a lasting life in the world of the human economy.

  13. Gary
    Posted April 17, 2013 at 8:34 am | Permalink

    Three points :
    1. Physical gold demand is “exceptionally high” and supplies are very tight.

    2. The price of gold is fixed using the nearest month futures paper derivative price NOT the physical cash spot price.

    3. The real interest rate is falling and has been falling for over 10 years, (See any chart of the Treasury Inflation-Protected Securities (TIPS-bonds)). The price of gold measured in the paper money of the day moves inversely to the real interest rate, and Keynes after studying 200 years of data concluded that was the strongest relationship in all economics. He called it Gibson’s Paradox and said “it is one of the most completely established empirical facts within the whole field of quantitative economics” (Keynes, 1930, vol. 2, p. 198).

    The reason is quite simple and quite reasonable. People will demand a risk premium for holding paper money and when the real interest rate they are paid for doing so falls, they move into holding gold instead. And vice-versa. Gold pays no interest because it is seen as risk free IN A FREE MARKET.

    So, I conclude that the price of gold measured in the paper futures derivative spot price is being manipulated to make the paper money appear more attractive.

    • Gary
      Posted April 17, 2013 at 9:12 am | Permalink

      The physical gold demand link I posted is the wrong one. That one is out of date. This is the correct link showing the paper ETF outflows are large while demand for physical gold is strong :

      “The outflows from the gold exchange-traded funds this year are masking strong physical demand, says a gold strategist and an ex-director of the U.S. Mint.”

      http://www.forbes.com/sites/kitconews/2013/03/19/focus-etf-outflows-overshadowing-strong-physical-gold-demand-ex-us-mint-director/

      • Nina Andreeva
        Posted April 17, 2013 at 7:26 pm | Permalink

        On a lower level you can still see the demand for physical is there by looking at the shortages shown on the coin dealers websites. Also some of them, in the Channel Islands particularly, reflect this too because their prices do not seem to recognise the new lower spot price. I have taken a five figure “loss” over the past few days, but I am still buying because I have no trust in the Anglo American politico banking elite

  14. GJ Wyatt
    Posted April 17, 2013 at 8:48 am | Permalink

    Unlike money, governments cannot create gold, so it cannot be debased. Newly mined additions to the global stock are tiny compared to the existing stock. So supply and demand on the gold market reflect the behaviour of hoarders. They will only release it when confident about price stability, so low gold prices correspond to global expectations of low inflation or price stability. And conversely high gold prices occur when hoarders expect high or increasing inflation. Buying gold as an “investment” is a punt on skepticism about economic management. Selling it expresses blithe confidence in benign and competent government. Brown’s sale of our gold was as cynical a ploy as his imposition of a 50%income tax rate two weeks before demitting office.

  15. English Pensioner
    Posted April 17, 2013 at 8:49 am | Permalink

    Reading articles in the media over recent days, it would appear that the price seems to be governed by the trading of “paper gold”, contacts, futures and various financial devices that I don’t profess to understand. How do we know that the gold forming part of these contracts actually exists, or is it just as fictitious as the money our banks claimed to have before they crashed? Or perhaps the price is being rigged in the same way as LIBOR and other indices have been rigged in the past? A point made by one of the columnists was that he had been unable to buy any physical gold at the current “low” price.
    Actually there are some uses for gold apart from jewelry, mainly in the semi-conductor and electronics industry and also, I believe, in medicine.

  16. John Eustace
    Posted April 17, 2013 at 8:52 am | Permalink

    I see the gold price as a “fear index” reflecting our views of the likely debasement of currency by central banks – and holding physical gold as an insurance premium against a complete collapse of the banking system.
    The complete collapse is perceived now as less likely than a few years ago. Debasement of the currency continues through QE, albeit more cautiously in the UK than in the US for now at least. We have still to see Mark Carney’s approach.

    The market expects increased gold supply as Germany forces Cyprus to sell its reserves to fund it’s “bailout”, to be followed perhaps by Portugal which holds large reserves. And markets usually overshoot on the up and downsides.

    I would be interested to hear your views on Bitcoins – digital gold, or digital black tulips?

    • Denis Cooper
      Posted April 17, 2013 at 5:12 pm | Permalink

      Digital tulips, but far less easy to understand and far less attractive than tulips.

  17. Gordon Riby
    Posted April 17, 2013 at 8:52 am | Permalink

    Logical really. In recent times the smart money bought gold to protect themselves from currency. Gold’s recent decline can be explained in various ways:
    1. Corrective behaviour – As I mentioned it’s gone up sharply in recent years. Time for it to dip to it’s real value
    2. Market Activity – I.e. Cyprus is selling gold. Increased supply. Institutional investors also selling to react to decline adds to this.
    3. Recovery/Confidence increase – Investors may be more confident about trading other asset classes. “Green shoots” of a tentative recovery maybe…
    4. Pseudo Currencies – Bitcoin and others give investors an alternative place to hide from currency devaluation
    Despite all this gold and other things will always fulfil this type of role to a certain extent. Relic though it is, it’s something tangible in an unstable climate. It will always have a role but I believe it will be reduced for the forseeable future – Until the next megabolic meltdown in the financial markets.

    • Christopher Ekstrom
      Posted April 17, 2013 at 8:13 pm | Permalink

      Hesseltine should be cold-shouldered by any decent & true friend of Lady Thatcher. The US President exercised his usual bad taste & Mau-Mau sense of manners by not sending a suitable representative of his regime. But it’s for the best; his entire administration are a disgrace. Best not to have GW Bush (….., fake conservative) or Clinton (utter disgrace) there; neither were worthy to clean her boots. Major smiling & greeting the other vile politicians was quite enough; that fool would had us in the Euro yet still whines about the Lady correcting his idiotic EU policy.

  18. lifelogic
    Posted April 17, 2013 at 9:11 am | Permalink

    Sell your gold and buy something that produces a real return and perhaps creates useful jobs too, but not in the intentionally devaluing sterling and the likes, nor government debt. That is surely the message.

    Watching the arrivals at Lady Thatcher’s funeral she seems to have graciously invited far more of her enemies than her friends- especially from the Tory party. Perhaps two to one at best.

    • Nina Andreeva
      Posted April 17, 2013 at 6:30 pm | Permalink

      Complete balls! Kyle Bass has pointed out that one of the best performing stock markets of recent years has been Zimbabwe’s. However if you had owned the index you would now have a enough money to buy three eggs. You seem to be forgetting that BrItain still has a mountain of debt. When that collapses under its own weight the benefits class will be telling you where you can shove your title deeds when they come a calling for what they see as theirs. At least with my gold I have some Danegeld to buy them off or something that is easily hidden and transportable to place of sanctuary.

      Meanwhile as the stupid gwei lo’s artificially suppress the price China is busy swopping it’s crappy $ denominated assets for gold (they bought 150 tonnes last Feb alone) Just imagine how we will survive when they hit “critical mass” and have enough gold to introduce a Renminbi that is part/fully backed by gold

    • Disaffected
      Posted April 18, 2013 at 8:44 am | Permalink

      I cannot imagine for a moment she would invite Borroso or Heseltine. I suspect that is a Cameron government touch. The November criminals were there and using it for their own purposes, not to celebrate the extraordinary life of Margaret Thatcher.

  19. Kenneth
    Posted April 17, 2013 at 9:48 am | Permalink

    There appear to be 1,000’s of theories about gold movements, past and present.

    My own, for what it’s worth is that the rise was due to the increasing threat to paper through money creation, currency wars and, perhaps mainly, due to very low interest rates on money.

    This has led to a sustained rise in the price of gold.

    The recent and sudden drop came about for a number of reasons that all came together at the same time:

    1. The Cyprus event may have triggered some panic in Russian investors and some quick liquidation of gold holdings in order to maintain cash

    2. Talk by the U.S. Federal Reserve that money creation may stop or ease up. This information was mysteriously leaked in advance

    3. The Cyprus and Fed episodes may have been a catalyst for a much bigger drop as technical levels were breached, thus triggering larger sell-offs by computer trading. The drop happened on a Friday and at the start of a new financial year and so there may have been positions to close, thus exaggerating the movement. There may have also been further panic liquidations, leading to a steeper fall.

    4. The computer system that administers physical gold trading crashed on the Friday, preventing physical holders from re-stocking at low prices. Whether this had any further affect, I don’t know, but it appears, with the physical market not trading, upward pressure on the price of gold from physical buyers was not present.

    There are also the usual conspiracies such as gold being shorted in order to snap up Cyprus gold on the cheap etc and all the above being orchestrated by someone with manic eyes stroking a cat

    I believe the fall was due to a combination of the above factors all happening at once.

    I suspect the catalyst was the Cyprus situation and the Fed comments. Both, you will note, not natural market events but situations brought about by governments. As usual.

    As to what happens next, I would be very rich if I knew that, but my bet is that commodities will inevitably rise as faith in paper diminishes and countries like France and the U.K wreck their economies. The U.S. may be saved from the worst through fracking, but the Dollar itself is being debased. Because most other paper is also being debased, they do not look bad against each other. However, real stuff like gold cannot de diluted (as far as I know) and so I can only see it rising in value versus paper, with the recent movement being a mere blip.

  20. Kenneth
    Posted April 17, 2013 at 9:52 am | Permalink

    NB Don’t stop the thoughts on Margaret Thatcher. I found your recent insights very interesting.

    I think her legacy should teach us much for the future and it is important to counterweight the myths being put about.

  21. stred
    Posted April 17, 2013 at 10:09 am | Permalink

    If gold were to be adopted as a worldwide currency, would countries which mine large amounts, such as South Africa, become very wealthy? Politicains and civil servants will never give up their ability to print money of course. And banks to lever it.

    • A different Simon
      Posted April 18, 2013 at 12:02 pm | Permalink

      Stred ,

      If Gold became a World currency then the market would respond by ramping up exploration and production and we might find that it’s not anywhere near as scarce as we’ve been lead to believe .

      This is what the market has done with oil and gas , especially tight gas and oil , and it looks like there will be a glut for the next few decades .

  22. behindthefrogs
    Posted April 17, 2013 at 10:50 am | Permalink

    As the old proverb says:

    Don’t put all your eggs in one basket.

    Polititians have made the mistake of switching the basis of their currencies between various things. We should not use gold as a single base but as one of a number thus ironing out the huge fluctuations of using a single base.

  23. Roy Grainger
    Posted April 17, 2013 at 11:01 am | Permalink

    Just a temporrary pullback in the gold price I assume as currency debasement continues apace. The Bitcoin experiement is interesting although it is clear now it is just a bubble. If a company like Amazon or Google wated to make a some money they’d launch a worldwide virtual currency like bitcoin but backed by physical gold.

  24. Terry
    Posted April 17, 2013 at 11:09 am | Permalink

    Due to the defamation and the deliberate devaluation of fiat money, Gold has become the only real currency in the world. It is the international standard of value and compensates for any inflationary effects upon individual National currencies. Prior to the USA dumping the gold standard for the US Dollar in 1971, inflation was merely a word. In the 70s, it became a nightmare and now it is a part of life.

    That inflation, caused by the lack of any standard supporting the US Dollar, has caused its purchasing power to fall by around 98% in the past century. The average price of a Troy ounce of Gold in 1913 was $19. Today, after the fall, about $1390. Bread was 6c in 1914 and $1.70, today. No Gold Standard to stabilise the ‘notes ‘ means runaway credit and increased inflation and the proof is right in front of us.

    Successive governments, USA and UK , have abused their currencies by undermining their values. They have borrowed relentlessly with little or no consideration of the debt to be re-paid at a later date – after they have left office. Now the mucky stuff is about to hit the fan that started spinning in 2007. The USA biggest creditors, Japan and China, must be alarmed at the demise of the Dollar which has been deliberately being driven down by the vacuous QE programme in a blatant attempt to devalue the US debt (Likewise the UK).
    Because of the persistent abuse of the world’s reserve currency, I suspect that the Chinese are slowly increasing their gold stocks with a longer term view of reviving the gold standard to make their own currency, the Renmimbi, the new, world reserve currency.

    The downside for gold is that it is heavy, not easily transported and is difficult to trade with. It is a commodity, an asset and assets can fall. Especially in times of deflation. And that is what happens next. Deflation.

    QE Trillions of Dollars and Billions of Pounds have done little to encourage economic growth but that loose money has pumped up commodity prices and the accelerated Financial markets at a huge cost to the Treasury Bond yields. This has devastated depositors savings returns and pension funds invested in Bonds. Cash is short and credit is poor. And all because these was no standard to stabilise the value of the fiat money. Gold is not dead, it is just sleeping for a while.

  25. Demetrius
    Posted April 17, 2013 at 12:20 pm | Permalink

    William Jennings Bryan 1896 “You shall not crucify mankind upon a cross of gold”, although he was a believer in bimetallism with silver rather than simply printing paper money regardless of the consequences. What we forget is that gold too often becomes the target for speculators, credit based high frequency dealing and the rest, down the ages. Just after The Battle of Waterloo when things were jumpy I believe (someone -ed) tried to corner the market in gold. Peterloo followed not long after.

    • Christopher Ekstrom
      Posted April 17, 2013 at 8:15 pm | Permalink

      (I removed the name of a bank from an allegation you made as I do not have time to check it out and have no wish to get involved in legal actions about it-ed)

      • Demetrius
        Posted April 18, 2013 at 3:22 pm | Permalink

        Waterloo was in 1815 and Peterloo was in 1819. See Wikipedia for the family in that period or the Oxford DNB.

  26. Chris
    Posted April 17, 2013 at 12:24 pm | Permalink

    Interesting piece in the D Tel yesterday by Pascoe, indicating that all is not as it seems:
    http://blogs.telegraph.co.uk/finance/thomaspascoe/100024081/the-gold-price-crash-is-further-evidence-of-market-rigging/

    • Jon Burgess
      Posted April 17, 2013 at 9:29 pm | Permalink

      Look at the previous articles by this same journalist about Golden Gordon’s gold sell off. He suggests Browns decision to sell and the method of sale were specifically designed to help out a US Bank.

  27. Denis Cooper
    Posted April 17, 2013 at 12:25 pm | Permalink

    It’s always good to have some gold in reserve, cautiously add to your holdings when the speculators have driven down the price and unless you’re left with no alternative only sell it when the speculators have created a bubble and you can get a good price.

    The central bank of Cyprus has been left with no alternative, it has been ordered by the ECB to sell most of its gold reserves and hand the money over to clear part of its debts – not clear part of the government’s debts, but part of its debts to the ECB.

    So we can see how through the euro the national central bank of a supposedly sovereign country is reduced to being a kind of local branch office of the ECB.

    In fact that is said to be one reason why the price of gold has dropped, not just because it is known that the Cyprus central bank will be unloading gold onto the market but also because there is an expectation that other eurozone central banks may follow.

    However it has to be said that even at recent bubble prices the value of gold held by states is usually small compared to the value of their economic production.

    For example the US gold reserves of about 8000 tonnes would have a value of about $400 billion, while US GDP is 40 times greater at about $16,000 billion.

    And even if Brown hadn’t sold more than half of our gold at very low prices it would now only be equivalent to something like a week’s worth of GDP; if the UK government wanted to hold gold reserves with a current value equivalent to a year’s economic production then it would have to acquire nearly a third of all the gold ever mined.

  28. frank salmon
    Posted April 17, 2013 at 12:26 pm | Permalink

    Gold is NOT on the way down. Gold is the currency of last resort just as the Bank of England is the lender of last resort. It is a commodity which can go up or down in value. The trend is up, and as long as we have governments debasing currencies, gold will be a good investment against the worst possible outcomes. We can predict, for instance, that current government policy on UK sterling is inflationary, but we cannot say how inflationary or when it will happen. As long as people hoard money and reduce consumption, inflation will not take place. Whilst this abeyance might be seen as a good thing, it will ensure low economic growth into the forseeable future. Yet higher economic growth is essential to government plans. If we got that, we would get the inflation. Hence, government policy to manipulate money is only storing up problems for the future and quite possibly making them worse. If we had gold as the standard, governments would not be able to manipulate it so well and the straight jacket it imposes would be applied immediately problems arise, rather than being postponed into the future….

  29. Nationalist
    Posted April 17, 2013 at 1:12 pm | Permalink

    Paper money must be considered a temporary currency. One day the value will fall to the cost of the ink and paper. Sterling lost 95% of its value during the 20th century and I see no reason not to suppose it won’t do the same during the 21st. (In Zimbabwe they found that no matter how many zeros they put on a banknote it wasn’t worth enough to cover the printing costs! The Zim dollar was abandoned.)

    So forward thinking individuals are rightly looking for a better store of value and medium of exchange. Gold and silver seem to fit the bill. It’s true you cannot eat them, but they are durable, divisible and have a guaranteed scarcity. Silver would be more useful than gold actually because gold is too expensive for small transactions. You could buy a car or house with gold but the morning paper would cost a near-invisible fleck.

    The US state of Arizona just last week made gold and silver coins legal tender. Their lawmakers openly admit that the paper dollar is not long for this world and some preparation is a good idea. Being legal tender means there is no sales tax on it and no capital gains tax, thus it is suitable for use as a medium of exchange.

    In the UK we have a VAT exemption for gold (perhaps the only good thing Gordon Brown ever did!) but not for silver; and no CGT exemption for either. This is a good start but more legislation is needed to “monetize” the precious metals.

    I believe that moving to a physical precious metal currency system would usher in an era of economic prudence. There are techniques we could use to move from paper sterling to PM coins quite seamlessly. After the necessary tax changes we could “back” paper sterling with silver at a sliding discount, eg first back it at 10% of current value then gradually raise the rate until one day the backing would be one-to-one. Then we should promptly start using actual physical coins and bars (for larger amounts) and reject paper as untrustworthy.

    A bi-metallic system with gold for savings and silver for transactions seems like the best idea to me. There’s an old saying: Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants and debt is the money of slaves. We should aspire at least to be gentlemen.

  30. Atlas
    Posted April 17, 2013 at 1:16 pm | Permalink

    … some of those gold bars probably started out an an item in an Egyptian Old Kingdom Pyramid, so I think they will be around, undimished in quality, long after the present generation of race-to-the-bottom fiat money perpetrators are just so much dust.

  31. Christopher Ekstrom
    Posted April 17, 2013 at 1:25 pm | Permalink

    Gold is losing value due to (near-term) concerns about inflation (interest rates) abating. Of course it’s a global slow-down (& only Cast Iron davey-boy could slow the UK by his idiotic anti-growth Green/Gay priorities) that have precluded inflation fears. Yet price inflation has been surging for a decade; but that just affects the good old Middle Class. So the message is: down with Western Civ, up with Main-Chancers New Way! And screw the patriotic, decent, fair British (of the sort who view being Scot or Welsh or Irish as incidental) lets go Gay & Green! WRONG: Up with Thathcerism & a new Gold Standard! That will set the BRIC’s straight & let’s put a nice picture of Wonder Boy davey (in trouble-ed).

    • Christopher Ekstrom
      Posted April 17, 2013 at 8:03 pm | Permalink

      Trouble, indeed!

  32. Mike Wilson
    Posted April 17, 2013 at 1:54 pm | Permalink

    The future role of gold? As it has always been – a safe haven for those who do not trust fiat money.

    Extreme price actions? The consequence of paper trading and electronic exchanges. If the gold had to be physically delivered each time it was bought and sold, the price movements would be dampened. And speculators would be less able to move the markets.

    • Kenneth
      Posted April 17, 2013 at 7:20 pm | Permalink

      There does appear to be a disconnect between physical and ‘paper’ gold. Whether this amounts to fraudulent activity I don’t know.

      I think a safer bet would be to put money into gold mines where the stuff is in the ground.

      Mind you, that’s fun as well. Some companies claim the cost per oz of getting the gold out of the ground (including amortised capital) is around $1200 per oz. Others say it could be nearer 1900 $ per oz. Take yer pick. I suspect the truth to be an average between the 2 figures. If that’s so, some mines may be facing mothballing, fire-selling or some companies may go bankrupt.

      There are some companies on the AiM exchange which are sitting on gold mines that have not been developed yet and are therefore carrying no overheads. They are already pre-mothballed. That’s where my money is…

      • A different Simon
        Posted April 18, 2013 at 12:13 pm | Permalink

        Kenneth ,

        I don’t invest in gold but like the idea of multi-metals mines which have zones which are alternative rich in gold , copper and silver so the company can target whichever metal is giving the best return at the time .

        As you say gold miners should give leverage to rises in commodities prices eg if gold doubles their market caps should quadruple but that has not happened – prices of miners have fallen whilst gold has risen .

        This makes me think that gold price is all about speculation and manipulation .

        However , the inverse may well be true – if commodity prices fall the fall the leverage may magnify the losses on miners .

        I think it is revealing that AIM insiders are trying to persuade the incredibly naive George Osborne to send them some new meat (ISA holders) rather than clean their act up .

        It might be less dangerous to invest in non London based exchanges like the ASX or even TSX (not venture) as there is at least a modicum of regulation on these exchanges .

  33. Derek W
    Posted April 17, 2013 at 2:05 pm | Permalink

    I believe that Gold is the province of the rich.It is sim ilar in its economic value to old Masters (oil paintings).It produces very little, but those with the cash can boost it up by making it a rarity.Cocaine is similar.The world ruling class could help countries like say Italy by persuading the political elite to sell Italy’s gold reserves.I find that microeconomics is much better situated for the real world, as politics has not such a major effect.Perhaps some of your more erudite readers might comment.

    • A different Simon
      Posted April 18, 2013 at 12:24 pm | Permalink

      A fantastic painting has a value beyond money but I’d argue that they have an economic value too .

      An old master in a museum can be a real draw and help fund the whole enterprise .

  34. sm
    Posted April 17, 2013 at 2:20 pm | Permalink

    (words left out ed)
    If dominant actors (state or private) can move the market using fiat debt based leverage or other supports not available to others then what does that say about the balance of competition and capitalism in global context.

    Re: Money
    What would the level of interest be required by a commercial bank if it had to lend to itself with its current risk profile? Compared with return to at risk savers?

    Why has the government knowingly allowed risk caused by excess leverage to be assumed by unsophisticated risk averse depositors rather than the risk takers?

    Money seems to be being used as a means of control and repression rather than an instrument of democracy.

    Perhaps the corruption of power results in tainted money or vice versa and when old and new alternatives appear they also seem subject to some manipulation.

  35. Electro-Kevin
    Posted April 17, 2013 at 2:34 pm | Permalink

    Ask Gordon Brown.

    (Then surmise the opposite.)

  36. shortorlong
    Posted April 17, 2013 at 3:59 pm | Permalink

    shortorlong: chart art update: final wave up in gold in this bull market, is near its start
    http://t.co/SkOE97oUs6

  37. Aatif Ahmad
    Posted April 17, 2013 at 4:01 pm | Permalink

    It was partly the gold standard in the 1930s which made the recession that started in the late 20s into a depression. Those countries which hung on to gold such as France and to a lesser extent the US suffered the worst, with US real GDP collapsing some 25%. On the other hand, pragmatic countries such as the UK, which quickly devalued (in 1931 I think) soon returned to growth (UK output fell only 5%). The ability to create inflation is a handy tool for capitalist countries with large government spending and large public and private debt. Today’s gold standard is the euro and it has crippled Club Med economies.

  38. Robert Taggart
    Posted April 17, 2013 at 4:36 pm | Permalink

    Does this mean Blighty can recover all that gold which Broon gave away ?!

    • Mark
      Posted April 17, 2013 at 5:51 pm | Permalink

      The “Brown Bottom” was at around $250/oz, far below today’s prices.

      • Robert Taggart
        Posted April 18, 2013 at 10:41 am | Permalink

        Dammit, will have to wait longer !

  39. The PrangWizard
    Posted April 17, 2013 at 4:37 pm | Permalink

    I am another who finds it difficult to think about gold today. I watched the funeral service on Sky. With Alistair Bruce they do these things much better that than the BBC and without their inevitable bias. The service in St Paul’s was very moving; although I was Baptized and Confirmed into the Church of England I have not attended many services, but I am persuaded to do so again as a result. Lady Thatcher gave me hope when she was alive, and she is inspiring me in her death. I hope she rests in Peace.

    • Bob
      Posted April 17, 2013 at 6:21 pm | Permalink

      @The PrangWizard
      “they do these things much better that than the BBC”

      I hate to gripe on such a day, but listening to R4 in the car and they seemed preoccupied in seeking out and giving disproportional exposure to Mrs T’s detractors, many of whom appeared to have been born after she left office, and on the whole they appeared to know little about anything. I would hazard a guess that most of them have never lifted a finger to support themselves and in some cases the children they were dragging around with them.

      Considering the way the BBC promoted the failed records chart campaign and the evident glee with which they have greeted her demise I think it’s time to revisit the issue of the BBC’s unique funding method, cessation of which would be an appropriate tribute to a great lady.

    • lifelogic
      Posted April 18, 2013 at 5:37 am | Permalink

      Indeed we do funerals and ceremonies in general very well, especially the cathedral choirs and music. Harder to take seriously when the priests, vicars, very reverends and the bishops start talking, giving their opinions and reading things out – but some of the English is good, even when clearly absurd and self contradictory.

      One does wonder how many people the country has sitting about, at rather large taxpayer expense, with their horses, uniforms, cars etc. – just to put on these shows, once every few years.

  40. Richard1
    Posted April 17, 2013 at 5:04 pm | Permalink

    Goldbugs should remember that one of the insights of Austrian economists was that specific predictions (eg the price of a commodity) are useless. I think the problems with a new gold standard would be: 1) the extraordinary gain to countries which either hold a lot of gold or produce it, and the loss to others (such as the UK) which don’t; 2) the fact that the total amount of gold in existence in relation to the size of the world economy is small, exacerbating problem 1); and 3) growth of the money supply would be related to the rate of discovery of gold (what if it becomes possible to mine it on astroid?!).

    However the principle that it is bad news for governments to be able to ‘solve’ economic problems by debasing the currency is important to emphasize.

    I prefer Hayek’s idea of competing currencies. Perhaps new technology will finally make that possible on a global basis.

  41. Iain Gill
    Posted April 17, 2013 at 5:13 pm | Permalink

    If you read the history of the Manhatten project you will find that due to a shortage of copper during the war the Gold and Silver in the American vaults was used to make buzz bars and other electrical equipment at Los Alamos etc…

  42. Acorn
    Posted April 17, 2013 at 5:26 pm | Permalink

    While I have a minute. You will have noticed that the labour data from ONS today, was a bit grim, but, not unexpected when you look at sectoral balance data.

    The coalition works to an economic model specified by economists Carmen Reinhart and Kenneth Rogoff, they are the mainstream Chicago monetarist school doyens. A while back they issued a paper called “Growth in a Time of Debt”. This is the bible that Osbo’ is religiously following. Lots of clever guys have been trying to replicate there findings with little success. In last few days their paper has finally been proved to be a load of Horlicks by several different peer groups. http://www.nextnewdeal.net/rortybomb/researchers-finally-replicated-reinhart-rogoff-and-there-are-serious-problems . Would someone please tell George “crocodile tears” Osborne, before he totally destroys our economy.

    • Electro-Kevin
      Posted April 18, 2013 at 9:19 pm | Permalink

      I don’t think they were crocodile tears. Though I doubt they were for Mrs T.

      He must be under immense pressure at the moment.

  43. Jon
    Posted April 17, 2013 at 5:48 pm | Permalink

    I’m glad she got the funeral she did. Those images will be replayed for generations to come. Hope it was a good service inside.

    I could say the reason for the gold price was that Mr Brown had just purchased a load.
    It indicates a turn of confidence in currencies, in the short term if there are no shocks ahead. I’d expect the events in Cyprus and earlier with Greece had a bearing. The US is trotting along. Is it profit taking or a change in confidence or a bit of both?

  44. Bazman
    Posted April 17, 2013 at 5:59 pm | Permalink

    You would think it would be wiser to invest in gold mining than gold as this must be more profitable than buying the end product?

    • A different Simon
      Posted April 18, 2013 at 12:31 pm | Permalink

      You would think so Bazman but that has not been the case .

      A doubling of gold prices might be expected to more than quadruple the profitability of a mine but prices for miners have risen slower than the price of gold and in many cases have even dropped .

      This could be taken as a sign of lack of confidence in the long term future of gold prices . Alternative it could be a sign that the gold market is totally manipulated by speculating “banks” .

      (attack on the practise of an Investment Bank deleted ed)

      • A different Simon
        Posted April 18, 2013 at 3:53 pm | Permalink

        How can a proprietary trading house which advises it’s clients to take a particular course of action whilst taking the opposite course of action itself in order to capitalise on a situation be considered an “investment bank” ?

        Calling this practise investment banking does not make it so or legitamise it .

      • Electro-Kevin
        Posted April 20, 2013 at 8:22 am | Permalink

        Of course the gold market is manipulated.

        Do you think a newly discovered, Yorkshire sized, seam of the stuff would be allowed to flood into the market ?

        • Electro-Kevin
          Posted April 20, 2013 at 8:24 am | Permalink

          True wealth is in tangibles such as fuel, food and armaments. In an overpopulated/under resourced world these will outweigh useless gold.

  45. Barbara
    Posted April 17, 2013 at 7:13 pm | Permalink

    How unfortunate for us here in the UK, G Brown sold our gold cheaply, we’d now have back up finance if we still held it. Like the Queen noted, all the gold she saw when visiting the B of E belonged to others not us. What does that tell us? Are we now so impoverished we can’t afford to refill our gold coffers? looks like it.
    Perhaps we should stop foreign and aid and refill our coffers to protect ourselves? Why we have become responsible for the world’s poor I cannot understand, yet, we are told we are in dire straits. Its something that has been thrusted upon us by different governments without our consent. When one reads articles like this one it does make you think, perhaps the idea, if it is, it’s working.

    • Denis Cooper
      Posted April 18, 2013 at 8:37 am | Permalink

      As you could have learned if JR had published my comment yesterday, even if Brown hadn’t sold more than half of our gold at very low prices it would now only be equivalent to something like a week’s worth of GDP.

      If the UK government wanted to hold gold reserves with a current value equivalent to a year’s economic production then it would have to acquire nearly a third of all the gold ever mined.

      I don’t see why stating those easily verifiable facts should be enough to block moderation.

  46. Mark
    Posted April 17, 2013 at 9:07 pm | Permalink

    Gold is trading for around $44 per gram. World stocks amount to roughly 20 grams per head, worth $880, or of the order of $7 trillion. Real physical gold is no longer “enough money” to be money on its own, and is small enough in today’s vast financial flows to be susceptible to bubbles.

    Having seen the way in which bank deposits have recently been confiscated in Cyprus, there was recent speculation that similar measures might be applied to gold in an echo of the confiscation initiated by FDR in 1933 in the USA. Since gold itself is in tight supply, much trading in gold is via futures markets and other cash settled instruments: cancelling long positions at unfavourable prices would be rather easier than trying to locate and confiscate physical gold. Fear of such action might be enough to provoke a sharp selloff of “paper” gold. There are also suggestions that the selloff might have been the result of market manipulation.

  47. they work for us
    Posted April 17, 2013 at 9:13 pm | Permalink

    I too was moved by Margaret Thatcher’s funeral. I doubt we will seek her like again – we have managers in charge not conviction politicians doing what they think is right.

    On the subject of gold – it is no suprise that informed citizens wish to protect themselves from govts’ rapaciousness in devaluing their paper money (on which that citizen has already paid tax). One can understand the mindset of American survivalists in the backwoods of Tennessee who try to have as little interaction with the state as possible because interaction causes them hassle and expense. Is it not in “everyone’s” best interst to covert inflatable paper money into a non inflatable asset as soon as possible? If not , why not?

    • Bazman
      Posted April 18, 2013 at 6:53 pm | Permalink

      Gold is not going to protect you from the inflation of living costs such as food and utilities and as it cannot become more, might cost you.

      • David Price
        Posted April 20, 2013 at 10:04 am | Permalink

        Best join the ranks of us “peasants” and learn to grow your own food then eh Bazman?

        • Bazman
          Posted April 21, 2013 at 8:51 am | Permalink

          Do tell me how much land I would need and how many hours a day I would have to work to produce enough food or salable produce? 55 hours a week of the metal trade is quite a lot of work. Would being a peasant pay more? I am thinking of a career change. Making a few silly local woman pregnant for the benefits could also be combined this in my new ‘lifestyle choice’ of peasantry instead of being the working-not-so-poor.

  48. Martin
    Posted April 18, 2013 at 5:57 am | Permalink

    Gold like a lot of commodities is priced in US Dollars.

    Are price movements purely Gold supply/demand or US Dollar supply/demand?

    • A different Simon
      Posted April 18, 2013 at 12:38 pm | Permalink

      Martin ,

      Perhaps the opposite is true ; gold is also a competitor to the US dollar

      The US have proved they can print dollars without it impacting exchange rates . The UK have proved they can’t .

      Some country somewhere around the world is going to have to get tonked for the recent tragic events in the marathon .

      With America soon to go into another war the last thing they will want is any competitors to the dollar gaining strength relative to the dollar .

  49. Denis Cooper
    Posted April 18, 2013 at 8:28 am | Permalink

    The comment I submitted yesterday lunchtime apparently has something so wrong with it that it cannot be published.

  50. CantillonEffect
    Posted April 18, 2013 at 8:38 am | Permalink

    The gold dip looked like central bank action of some sort. Paper currencies can’t all devalue against each other, but they can all devalue against gold. I think we have a good buying opportunity here.

  51. Bazman
    Posted April 18, 2013 at 6:10 pm | Permalink

    How could the price of Vodka hold against gold. I bought two liter bottles of Blue label Smirnoff 50% in the late 1990’s for a tenner each. Drank one. Interesting…and saved one. Last time I looked was £23 in Tesco when it was avalible. Last indefinitely like gold and is as good a cash even better I would say. I gave it to a local pub raffle anyway in aid of disabled children. Winner looked happy! I still have a bottle of Riga Black Balsam Liqueur. That investment still has to mature.

  52. Mark
    Posted April 19, 2013 at 12:40 am | Permalink

    It’s worth noting that the recent sell-off has been across a broad sweep of commodities, including most metals and oil – not just gold.

  53. uanime5
    Posted April 19, 2013 at 3:27 pm | Permalink

    The price of gold usually fall because the high price of gold has made it economical to mine for more gold in gold mine that was abandoned because the low price of gold made it uneconomical to mine for gold there.

    Here’s an example to clarify my point. If gold is worth $10 an ounce then it’s uneconomical to spend £15 an ounce extracting gold from mine A because you’ll make a loss. But if the price of gold increases to $20 an ounce then it’s now economical to spend £15 an ounce extracting gold from mine A because you’ll make a profit. However all the extra gold will depress the price of gold, possibly making it once again uneconomical to extract gold from mine A.

    • Electro-Kevin
      Posted April 20, 2013 at 8:28 am | Permalink

      Uanime5 – Then the minute gold mining ceases the price should go up. Making it always worthy of mining.

      There are other factors at work here.

      • Bazman
        Posted April 21, 2013 at 8:53 am | Permalink

        Like scrap gold and make sure you check your house for valuable oil paintings, lost cash and antiques while you are at it.

    • Mark
      Posted April 20, 2013 at 12:20 pm | Permalink

      Gold prices are not very sensitive to changes in production. Here is a history of gold production since 1900:

      http://upload.wikimedia.org/wikipedia/commons/f/f5/Gold_world_production.png

      You will see that production was at its height when the price was low around 2000, and that production actually fell after 1971 when gold was demonetised. The influence of production is limited because gold once mined tends to remain part of the total supply.

      Compare the inflation adjusted gold prices here:

      http://www.macrotrends.org/1333/gold-and-silver-prices-100-year-historical-chart

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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