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Nobody is about to give up monetary sovereignty to a shiny metal

‘Golden Balls’. That was the name of a not-very-successful UK game show from 2007. It was also what the British used to call David Beckham, arguably the most talented footballer of his generation locally. He bestrode the world football stage like a colossus from Manchester United to Real Madrid to LA Galaxy. Everyone around the world knew him and loved him. And yet, Becks never won anything when playing where it really mattered most – internationally, for England. There were several times when his England team almost nearly kinda could shoulda woulda won something…but never did. All they ever had were flashes of brilliance from Golden Balls and a memory of when they were winners in the distant past

All of which seems appropriate, to me at least, given there is so much obsession with gold at the moment. We are now close to USD2,000 and there seems no stopping it. Will we get to USD3,000, as one major bank with a Beckham-esque name is claiming, or will we go to USD5,000, as a razor-sharp friend suggested to me yesterday? Either is possible given the current trend. And, if you buy gold, technically that is going to make you money.

And yet that money is still going to be priced in US DOLLARS – and that gives the whole game away. Like fans of the England football team, gold fans can dream of the distant past when gold was the centre of the global monetary system; but they can keep dreaming if they think those days are ever going to return. Gold may be an appreciating asset, but all the evidence suggests that it won’t be one that is of any direct relevance to day-to-day life, finance, and business. Your currency won’t be tied to it. You won’t get paid in it. You won’t spend in it or save in it (other than to the switch back to US Dollars). You won’t be doing deals in it or importing in it.

Yes, as the gold bugs rightly point out, there are spooky parallels between today’s trends and those of the 1930s. Uncertainty abounds. We have political polarisation and the collapse of the centre almost everywhere, albeit tapered by the welfare state for now (on which front, the Republicans have apparently agreed on the details of a new US1 trillion stimulus package).

We also have the international environment to match. Yesterday I shared the summary of global defense strategists that within three years US-China conflict is seen as “almost unavoidable”, while it is also “likely” within 12 months. Here’s an even better summary of the reality of the world as it stands today – Philippines’ President Duterte stating of the South China Sea that falls within their own national economic zone, according to international maritime law: “China is claiming it. We are claiming it. China has the arms. We do not have them. So, it’s as simple as that.” Other areas, even including the territory of EU members, are seeing a similar dynamic play out.

That is exactly the kind of zero-sum, might-is-right, mercantilist world that prevailed the last time we had a gold standard, and which is part of its architecture. As David Graeber’s “Debt: The First 5,000 Years” shows, during historical periods of global exogenous money (e.g., gold) we see an increase in inter-state violence to get that gold compared to periods of endogenous money. That said, once the war starts, the fiat money certainly kicks in too, as we all know.

The missing link, for all of the constant muttering about the US going back on gold, or China linking CNY to gold, or Russia doing something mysterious and Russian with gold, is that during the 1930s almost everyone went OFF gold to deal with the ruinous socio-economic problems they faced as a legacy of WW1 debts and then going back ON the gold standard with a consequent need for austerity. (Which, like violence, is part and parcel of a gold standard’s architecture.)

Look around you: does anyone look like they are ready to embrace austerity right now? Quite the opposite. That Beckham-seque US investment bank is now saying that the Federal Reserve’s balance sheet could soar to USD20 trillion ahead, or nearly 100% of GDP: we had said the same thing in our recent report on MMT, as that’s the only way to finance 8-9% fiscal deficits for years ahead; and indeed, we made that prediction years ago when describing the big picture trends now emerging – apart from a virus as the proximate trigger.

Indeed, some central banks are backing vast state spending as their government tries to prevent a depression; some are doing the same with their government talking about national security, rearmament, and bringing home supply chains; the ECB are doing it to save the planet; and the New York Fed, representing the rapacious Wall Street that drove globalisation, caused the global financial crisis, and necessarily cheers asset- and not wage-price inflation, now says on its website it is dedicated to eradicating structural inequality and to working towards a “more equitable economy and society for all”. None of the above are going to work with the strait-jacket of a gold standard; and nobody is about to give up monetary sovereignty to a shiny metal at a time when it is needed more than ever to retain physical sovereignty.

So you can buy gold because others are buying gold. Yet you can’t buy gold with the expectation that it is ever going to be anything other than something heavy you need to schlep.

Moreover, whether gold goes up or down **IN US DOLLARS** is ultimately a product of the real US interest rate. The Fed, who start a two-day meeting today, are obviously going to be at zero and expanding their balance sheet for years to either keep people in work, bring back jobs, build a better army, or a better society, or world. Yet that does not necessarily mean the Fed are going to succeed in hitting the one target they were supposed to be focused on in the market’s mind – inflation. Japan shows even a 100%+ central-bank balance sheet is no guarantee of any inflation at all. If the US were to slip into deflation, meaning positive real rates again unless the Fed goes negative, how will yield-free, no-end-use gold look?

In short, it’s pretty clear where the momentum is right now on gold, and on the USD (although as noted yesterday, not vs. many emerging markets, with Turkey’s TRY the latest to have a sudden wobble). Summer volatility is likely to amplify both. However, once one realises what the underlying global architecture –rotten as it is– looks like and requires, then one sees that talk of a ‘golden future’, for all the fancy footwork, also has the intellectual gravity of David Beckham

Gold price climbs again after Citi says record is “matter of time”

The rally in the gold price regained momentum on Monday as investors continue to pile into hard assets amid a flood of easy money on financial markets in the developed world and expectations of a prolonged period of ultra-low interest rates and currency debasement.

Gold for delivery in August, the most active contract on the Comex market in New York with 17 million ounces traded by early afternoon, touched a high of $1,823.40 an ounce, just short of a near 9-year high.

Gold is now up 19.7%, or $300 an ounce so far this year. The last time gold traded above $1,800 an ounce was September 2011, but it ended that year at $1,565 an ounce.

Bloomberg reports, according to Citigroup’s third-quarter commodities outlook, the price of gold “is expected to climb to an all-time high in the next six-to-nine months, and there’s a 30% probability it’ll top $2,000 an ounce in the next three-to-five months.” CLICK for complete article

For years the gold market was not a popular place to be. But when the stocks move, they move quickly, which has been the case in this rally as well. And now with gold above $1,800 per ounce, some of these companies are making a lot of money. In this Arcada Economic interview listen to what CEO Stephen Swatton of K2 Gold joined the show to discuss. ~Ed

K2 Gold Corp. is a North American mineral exploration company exploring for gold deposits in California, the Yukon, and Alaska.

K2 Gold Corp. is a part of Discovery Group, an alliance of like-minded mineral exploration companies that leverage industry relationships, global knowledge and strong technical skills DiscoveryGroup. Based in Vancouver, Canada.

Watch the interview here:

Gold Tops $1800/ounce


The synchronized breakouts in both gold and silver have raised speculation about a further extension. Especially golds move above $1800 has, from a technical perspective, opened up for a move towards the 2011 record high. However the intense focus on the $1800 level in recent weeks may trigger some sooner-than-expected exhaustion with short term tactical positions already positioned for break. On that basis while we see further upside, today’s price action could end up being critical for the short-term direction of both metals. Full Story


Mongolia Set to Establish World Class Mining Potential in Coming Years

It was announced on June 24th that the Mongolian People’s Party would retain a strong parliament majority. The election result marks the first time a single party has retained an absolute majority in consecutive elections.

This is excellent news for Mongolian mining investors as the Mongolian Prime Minister Ukhnaa Khurelsukh pledged to put more considerable effort to promote national development and improve livelihoods for the citizens of Mongolia. 

On Thursday the prime minister emphasized on four goals to be achieved in the coming four years with one notable goal which was to: “Increase and diversify its exports”.

“The way for the Mongolian economy to become debt-free, competitive, and an active participant in regional trade is to increase exports,” he said. 

“To achieve the goal to become an exporter, Mongolia will provide policy support to domestic producers, develop mining, food and agriculture, organic food production, energy, tourism, creative industries, information technology, transportation and logistics as priority sectors, and strengthen the partnership between the public and private sectors,” the prime minister said. “In particular, we will work hard to support agriculture, meet domestic food demand, and become a food exporter.” CLICK for complete article

Moon richer in metals than previously thought — NASA

Plans to start mining the Moon as early as 2025 became more attractive this week after a US National Aeronautics and Space Administration (NASA) team found evidence that the Earth’s natural satellite may, underneath its surface, be richer in metals than previously thought.

Using data from the Miniature Radio Frequency (Mini-RF) instrument onboard NASA’s Lunar Reconnaissance Orbiter (LRO), a team of researchers came to the conclusion that the lunar subsurface contains higher concentration of certain metals, such as iron and titanium, than estimated. The study, published in the journal Earth and Planetary Science Letters, contends the most popular theory surrounding the Moon’s origins. The hypothesis contends the satellite was formed when a Mars-sized object collided with Earth, vaporizing large portions of the Earth’s upper crust…CLICK for complete article