LAWRIE WILLIAMS: Gold ends the month flat. Silver still in the doldrums.
Equities and bitcoin recovered a little towards the end, but both had a pretty torrid second half of November, U.S. equities falling sharply on many days and Bitcoin at one stage crashing to the mid $3,000s before pulling back to a little over $4,000 by the month end. Under these circumstances we might have thought precious metals would perhaps do rather better with something of a return as safe haven investments, but gold, silver and platinum did not really perform at all - indeed all remained weak. The exception was palladium which ended the month only around $50 short of the gold price. (See: Palladium closing the price gap with gold). Platinum, palladium, and to a lesser extent silver should, perhaps, all be primarily classed as industrial commodities than precious metals and their usages as industrial metals has an additional, and often dominant, bearing on their price performance.
Indeed [perhaps the only reason equities did not do worse was the indication that the U.S. Fed might be easing back just a little on its proposed tightening programme which gave markets a boost on Wednesday. While the odds still heavily favour a continuation of its 25 basis point increases at the December FOMC meeting in just over a week’s time, the latest statement from Fed chair Jerome Powell, and the release of FOMC minutes, suggest the Fed might be beginning to blink lest its tightening programme be seen as strangling whatever U.S. economic growth there may be. While statistical indicators suggest that all is well a number of respected economists and commentators seem to have their doubts that President Trump’s claimed growth can be sustained. Should no deal be reached in the trade stand-off with China at this weekend’s G20 meeting in Buenos Aires and the anticipated dinner meeting between Presidents Trump and Xi, we could well see further equities weakness next week, although should some kind of deal appear to be on the table markets may breathe at least a temporary sigh of relief.
As for bitcoin, that’s probably something of an irrelevance in terms of precious metals and financial markets these days, and the comparisons with gold as an inflation hedge or a haven, so prevalent when the crypto-currency was soaring last year, have very much gone away. Even after the minor recovery seen over the past couple of days, BTC is down nearly 80% from its peak. We have never been a fan of bitcoin and wouldn’t be at all surprised were it to halve again in value by the year-end. It is, in our view, purely an investment speculation - there is no real foundation behind it - and as perception of its value falls away, so does the price!
So what of precious metals. The powers that be seem determined to control the price of gold and silver by fair means or foul - surely the U.S. Department of Justice investigation into the activities of a JP Morgan trader in spoofing and manipulating the silver market is only the tip of the proverbial iceberg? But then all financial markets are prone to manipulation by those with access to the big money given there has been no real limitation on such activities since the end of any kind of gold standard since 1971 when President Nixon closed gold’s association with the U.S. dollar - then, as now, the world’s reserve currency.
We attended an interesting presentation pertaining to the possible return of some kind of gold standard at the Mines & Money conference this past week, given by Grant Williams (no relation), in our view one of the most astute financial analysts around. He has been giving effectively this same talk at a number of conferences since the mid-year, but it is none the less apposite for that. In his address he maintains that a gold standard return is not necessarily imminent, but perhaps inevitable in the long term as the existing reliance on fiat currencies collapses (as history suggests they will). But be warned, it will probably take an unprecedented global financial crisis to bring this about as the bankers and politicians all fear the restrictions that would be imposed on them by a gold standard-type framework and will resist the idea strongly
Williams’ presentation was entitled ‘Cry Wolf’and looked at the parallels in the re-introduction of the grey wolf into the Yellowstone National Park which spawned huge opposition. In effect the return of the ‘apex predator’ into the Park, albeit in very small numbers, has been hugely successful not only in reducing the numbers of deer and elk over-grazing - possibly the primary purpose - but also in an unanticipated massive restoration of the whole eco-system in the area in which the wolves were released.
With the return of gold to a primary ‘apex’ position in the global financial system in some form, Williams feels that the disciplines this would re-introduce would curb the profligacy of the bankers, financiers and politicians to the benefit of all. It looks like China, Russia, and now some other central bankers, may be beginning to realise that longer term gold may well play an increasingly important role in the global financial system and are beginning to dump dollar- based instruments in their reserve mix in favour of gold. Could they be on the right path?