Jan Nieuwenhuijs https://goldbroker.com/author/jan-nieuwenhuijs [Article originally published on April 25, 2020] On April 23, 2020, the gold price breached €51,000 euros per Kg for the first time in history. The gold price in euros has increased by 555% since the euro was created in 1999. Put differently, since inception, the euro lost 85% of its value against gold. Technically, the euro was launched on January 1, 1999, although euro notes and coins started circulating in January of 2002. The first gold price recorded in 1999 was €7,879 euros per Kg - or €7.88 euros per gram (we'll use euros per gram as the gold price in the remainder of this article). By now, the gold price has crossed €51 euros per gram, a new all-time high. Over the course of 20 years, the price of gold in euros has increased by 555%. From a historic perspective, the euro is a young currency, but already lost 85% of its value against gold. This reveals the instability of fiat money. To evaluate by how much the euro has devalued against gold, it mu... Wed, 02 Mar 2022 05:07:13 +0000 https://goldbroker.com/news/since-inception-euro-has-devalued-by-85-against-gold-2641 Written by Jan Nieuwenhuijs for The Gold Observer The more debt is being accumulated on the balance sheets of European central banks, the more likely they will revalue gold to write off this debt. When I asked the German central bank if they consider this option they replied: “at this stage, we prefer not to speculate about any potential decisions … that might or might not be taken in the future.” “There is no limit on gold’s price.” — Kenneth Rogoff (2016) Government debt to GDP levels in many countries are at all-time records and I’m not aware of any politician or economist that has outlined a clear strategy to lower the debt burden. Technically, there are six ways to lower government debt to GDP: Economic growth Default Higher taxes Austerity Debt relief Inflation I don’t think option one, two, three and four are viable, which leaves debt relief and inflation. Inflation is currently elevated and shifting wealth from savers to debtors. But can in... Sun, 20 Feb 2022 14:32:24 +0000 https://goldbroker.com/news/german-central-bank-doesnt-rule-out-gold-revaluation-2657 Written by Jan Nieuwenhuijs for The Gold Observer A detailed analysis of the current gold pricing framework and why this framework is unsustainable. In the current framework gold is priced based on the 10-year TIPS yield. In my view, the current framework becomes more nonsensical the longer the TIPS yield stays below zero. At the time of writing the TIPS yield is –0.74%. Introduction Part one was an introduction to the current gold pricing framework. We discussed that the gold price in U.S. dollar was inversely correlated to ex-post real interest rates (the nominal Treasury rate minus consumer price inflation) from 1968 until 2005, and since 2006 the gold price is inversely correlated to ex-ante real interest rates (the expected real rate measured by the 10-year TIPS yield). Causality between gold and the TIPS yield is hard to prove, but the correlation is very strong (correlation coefficient -0.933) and there is a “rational” narrative. There are three... Fri, 14 Jan 2022 08:19:21 +0000 https://goldbroker.com/news/what-drives-the-price-of-gold-part2-2615 Written by Jan Nieuwenhuijs for The Gold Observer Averaging stock market capitalization to GDP ratios from seventeen developed economies over the past 150 years reveals the world has never witnessed an equity bubble of the current magnitude. The weighted average of seventeen stock market cap to GDP ratios reached 162% at the end of the third quarter of 2021, which is the highest ever since 1870. It’s unlikely it has been higher previous to 1870, because economies were not as intertwined then. Most likely, equity bubbles were more local. In addition, before 1870 countries were commonly on a metallic standard that prevented long periods of excessive speculation. During the dot com bubble in 2000 the weighted average of the developed world market cap to GDP ratio reached 123%, and during the credit bubble in 2008 it hit 116%. Before the 1980s it only once transcended 75%. Clearly, something drastically changed in financial markets around the 1980s. Perhaps you w... Sun, 28 Nov 2021 23:28:19 +0000 https://goldbroker.com/news/we-are-in-the-biggest-global-equity-bubble-ever-2560 Written by Jan Nieuwenhuijs for The Gold Observer In general, the gold price in U.S. dollars is set by long-term inflation expectations and interest rates in the United States. The price of gold in other currencies depends on the exchange rate between a particular currency and the dollar. In a previous series of articles we discussed how the international gold market functions, and how the price of gold is set by institutional supply and demand. In this series, we will examine what economic variables change supply and demand of gold, and thus the gold price. To save your precious time I will start this article with a summary and add a historical background, to subsequently expand on the details in forthcoming articles. In my opinion it is important to understand the current framework, if only to question its longevity. Since 2006 the price of gold in U.S. dollars is inversely correlated to (expected) real interest rates derived from the 10-year U.S. Treasury I... Mon, 22 Nov 2021 16:46:27 +0000 https://goldbroker.com/news/what-drives-the-price-of-gold-part1-2549 Written by Jan Nieuwenhuijs for The Gold Observer How the physical gold price is set, and how physical and derivates markets around the world are connected and interact. Founding Members of The Gold Observer may submit a topic for an article. One of the first Founding Members was Marko Viinikka, who asked me to write an article about how the global gold market operates and how the physical gold price is set. An excellent topic! How can we ever understand gold if we don’t know how the global market functions? Introduction The price of physical gold is set by supply and demand for physical gold. The global physical market can be divided into exchange trading and bilateral trading. In addition to the physical market there are multiple gold derivate markets that influence the physical market. To understand the entire machine, we will examine the workings of gold exchanges, bilateral trading (networks), and derivate markets separately, and finally how all derivatives are... Mon, 11 Oct 2021 07:16:18 +0000 https://goldbroker.com/news/mechanics-global-gold-market-2499 Written by Jan Nieuwenhuijs for The Gold Observer The rising 10-year U.S. Treasury interest rate is causing the gold price to decline. The gold price is inversely correlated to the “real interest rate,” as derived from the 10-year Treasury Inflation Protected Security (TIPS). The 10-year TIPS is a U.S. government bond that protects the owner from consumer price inflation. If the TIPS interest rate, for example, is 1% and annual inflation 3%, the owner of the bond receives 4% interest (1% + 3%). The owner of the bond is always protected against inflation. In the chart below you can see the correlation between the gold price and the 10-year TIPS rate. Note, the axis of the 10-year TIPS rate is inverted in the chart, because when the TIPS rate falls, the gold price rises, and vice versa. According to bond market math the 10-year TIPS rate equals the nominal 10-year Treasury interest rate minus inflation expectations. TIPS rate = Treasury rate – inflation expect... Fri, 05 Mar 2021 14:51:00 +0000 https://goldbroker.com/news/why-gold-price-is-declining-2192 Written by Jan Nieuwenhuijs for The Gold Observer For the first time ever the total value of the U.S. equity market is worth twice as much as the real economy. A true financial bubble. Previous highs of the equity to GDP ratio were followed by significant gains in the price of gold. This time around I expect the gold price to rise as well. A Brief Overview of the Past 100 Years In the beginning of the 20th century the U.S. was still on a gold standard. When the stock market crashed in 1929 the Great Depression and deflation ensued. In 1933 President Roosevelt devalued the dollar against gold to spur inflation and stimulate the economy. The gold price was increased from $20.67 to $35 dollars per troy ounce (see “#1” in the chart below). Internally the U.S. abandoned the gold standard in 1933, but externally the dollar remained convertible for gold at the Treasury against a fixed parity. This changed in 1971 when President Nixon suspended convertibility, enabli... Tue, 16 Feb 2021 17:30:00 +0000 https://goldbroker.com/news/us-stock-market-capitalization-vs-gdp-hits-record-200-percent-what-it-means-for-gold-2163 Written by Jan Nieuwenhuijs for The Gold Observer Since November 2020, the central bank of Uzbekistan (CBU) issues sealed gold bars with a QR-code for real time verification. With these new bars CBU aims to stimulate gold to be used as a store of value, as well as promote the circulation of gold. More and more governments and central banks around the world are promoting gold as a store of value. Not surprisingly, as gold has proven to preserve its purchasing power over thousands of years, and it’s becoming ever more clear the future of fiat currencies is shaky (yes, central banks are aware of this). Central bank of Italy: “Gold is an excellent hedge against adversity and high inflation. Gold cannot depreciate or be devalued. Gold … is not an asset ‘issued’ by a government or a central bank and so does not depend on the issuer’s solvency.” https://t.co/9iwqAd3zdk — Jan Nieuwenhuijs (@JanGold_) October 27, 2020 The above statement from the central bank... Sun, 06 Dec 2020 09:24:41 +0000 https://goldbroker.com/news/central-bank-uzbekistan-introduces-parallel-currency-gold-2052 Written by Jan Nieuwenhuijs for The Gold Observer During the Trump administration political ties between the U.S. and Germany have critically deteriorated. Recently, the U.S. imposed sanctions on companies working on Nord Stream 2, and announced to withdraw 12,000 troops from Germany. In 2013, when Germany repatriated gold from the U.S., the Germans communicated: we will not be threatened. Gold is a political metal. “Whoever has the gold makes the rules,” as the saying goes. Because gold serves as the backstop of the international financial system, the global distribution of gold influences the balance of power. This is true for gold ownership, but it also applies to storage locations. The more of its gold reserves Germany stores at the Federal Reserve Bank of New York, the more leverage the U.S. has over Germany. It wouldn’t be the first time the U.S. freezes gold assets in New York to pressure foreign nations. Since the launch of the Eurosystem Germany has been repa... Sun, 25 Oct 2020 23:47:08 +0000 https://goldbroker.com/news/will-germany-repatriate-its-gold-if-trump-wins-election-2007 Written by Jan Nieuwenhuijs for The Gold Observer Many years of loose and unconventional monetary policy have severely damaged financial markets and the global economy. Currently, central banks find themselves cornered, as the financial system is drowning in debt and addicted to ever easier money. Gold, however, provides multiple solutions. The other day I sent out a thought-provoking tweet, which addressed how gold can solve three problems central banks are currently facing: Lacking inflation Bad debt on their balance sheets Financial instability Gold is the only way out for central banks. CBs want inflation? They need a higher gold price. CBs want to repair their balance sheets? They need a higher gold price. CBs want to reset the system with an immutable, neutral, and evenly distributed reserve asset? That’s gold. — Jan Nieuwenhuijs (@JanGold_) October 9, 2020 The tweet was born out of several ideas I had for articles to write. One,... Tue, 20 Oct 2020 17:09:05 +0000 https://goldbroker.com/news/gold-only-way-out-for-central-banks-1996