Financial Markets

The sales of futures on the COMEX market, now seen almost every day, are colliding with a background trend for the purchasing of gold by the other central banks, which are starting to lose patience and want to cover themselves in relation to the risks of devaluation of their assets in terms of state bonds and currencies, which are significantly impacted by the current levels of inflation.

Like many fixed-income securities, the gold prices are completely detached from supply and demand. The mechanism for determining prices is distorted by ‘tools’ that enable the monetary authorities to alter the perception of their inflationary monetary policies.

As sympathetic as the Wall Street Silver movement is and as effective as it is in drying up the retail supply chain, it is the Basel III rules that will revolutionize the silver wholesale market and the global demand for photovoltaics, which is going to push prices upward at the end of 2021 and more so next year

With the foregoing risks at play, the best tactics for the current economic pitch involve longer-term preparation, a respect for historical lessons and a fundamental recognition that further and inevitable monetary and fiscal expansion can only mean further currency debasement and hence the longer-term re-pricing (i.e., rise) in gold valuation.

Banks clearing gold trades in London can apply for an exemption from tighter capital rules due in January 2022, a British regulator said on Friday, removing what some said was a threat to the functioning of the market.

The American and European central banks - the Fed and the ECB - would have us believe that they will be able to raise their key rates when the time comes. In reality, they will have to choose between several crisis scenarios.

We note an average gold's performance of +8.17% per year, then +8.69% per year over the last twenty years. No liquid asset has performed this well over such a long period. It is reported that an investment offering an annual return of +7.18% can double its capital in ten years. Therefore, gold investors have, on average, doubled their investment every ten years for half a century!

What was it that caused the sheer scale of this fall? Did the Fed raise interest rates brusquely and sharply, leading to a reaction like this on gold? The conclusions of the Fed’s meeting last week are far from dramatic, though. Nonetheless, they had the effect of an electric shock.

Investing successfully is primarily about managing risk rather than maximising profits. As we reach the end of the biggest bull market in history, investors feel so secure that risk has become an irrelevance.

The intervention by the central banks on the markets is scrambling the message. Assets that have become at risk, in this inflationary backdrop, are being given excessive valuations. By contrast, the values that protect against the upcoming inflation are still being evaluated at very low levels. At any event, this is a very favorable backdrop for assets like gold.