August 15, 2022

Gold and Silver Recap: Has Gold Really Gone Up?

Another Precious Week in the Market

I know we’re among friends here and I know that saying that Gold isn’t going up is not only just short of insulting a person’s religion, and at the same time it’s pointing at the price just below this paragraph and saying that black is white.  Well, you’re thinking, good luck crossing the road with that attitude.

Precious Metals London Fix Prices
Gold $1,316.25 +25.25 (+1.6%)
Silver $21.95 +0.42 (+1.9%)
Platinum $1,679.00 +4.00 (+0.2%)
Palladium $571.00 +4.00 (+0.7%)

But here’s the thing, gold is going up in dollar terms.  And what’s the dollar been doing?  Weakening.  That’s right.  Gold is going up in relation to a weakening dollar.  A lot of things are doing that.  The price of cotton is going up against the weakening dollar.

So Kitco decided to do introduce an index which looked at a “weighted basket of currencies”.  Now there’s probably a lot wrong with their methodology (the prime point I’ll come to later) but the basic story is something that should make you sit up.  Their gold index has a 30 day graph and you see the price of gold going up against the dollar and marginally falling, yes falling, against the weighted basket of currencies.

It’s different over longer periods, where they basically follow the same direction, and this is a bit of an aberration.  But the aberration is what really matters.  The gold story in the last month, including its new records (which were reached this week) is really a dollar record.

But there’s still the killer flaw, and that is that the gold price is still being measured in comparison to fiat currencies.  And fiat currencies are being printed like there’s no tomorrow.  Competitive devaluation they call it in the fever swamps.

In the real world of precious metal, where you can’t simply print more of it, silver is the real winner.  Again.  Some of this is a catch up on gold, but a lot of it is because silver is seen as a clearer anti inflation play than gold at the moment – as all the wedding jewelery and end of the world types are creating so much white noise on the gold price.

One interesting fact about who’s selling gold is the gold mining companies are not selling gold.  Now that may sound like the second (really) stupid thing I’ve said in one post, but this is what’s happening.  One of the biggest gold miners, AngloGold Ashanti, has “eliminated its hedge book“.  Now this is the fact that they used to sell some of their gold in advance, before it came out of the ground.  This would go on to the futures market and Anglo would get the money, minus the pseudo-interest, early.  It kept them stable and less exposed to the turbulence of the spot markets.

Now Anglo’s going all-in.  No more future selling (which in itself meant a temporary shortage on the market as there’s less future gold being sold) and full exposure to the gold price.

Governments and Central Banks are being very quiet at the moment.  But Vietnam has started to allow some importing of gold, just in time for the wedding season.  In itself it will be a pinprick, but it’s a timely reminder of one vital support over the next few months.

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