2 reasons why gold is not rising

By 18/10/2021News

Gold  1770,99

EURUSD   1,1591

DJIA  35191

OIL.WTI  82,805

DAX  15579,50

With inflation at its highest since the 1980s, the gold metal serves as the last bastion against growth. Indeed, oil, metals, timber, foodstuffs are getting more expensive. Anything. Except the asset, which, as we are taught in books, must grow first. And not just because of inflation, but because of the huge issue of paper money. Why is this happening?



It seems to us that there are two main reasons.
1. How is the price of gold formed? It is based on futures contracts. And also paper gold, in the form of ETFs, which are traded on stock exchanges.
What is wrong with this pricing? The point is that you cannot buy physical gold on an exchange. You just buy receipts. And the volume of receipts traded is a hundred times higher than the volume of physical gold that is produced in a year. Of course this is completely absurd. If the buyers would demand to exchange the given volume of paper gold for the physical metal, the price of the latter would increase by 10 times.
However, ETF holders cannot demand this metal. States and central banks do their best to keep the price of paper gold from rising. By the way, it is easy enough to do. You can sell an unlimited number of futures contracts on it. It’s just a receipt, not a real asset.
Why do the governments of the world’s major countries and central banks need this? If you let gold float freely and stop manipulating its price, the following will happen. The price of gold will not just increase several times. Not only that, but buyers will want the physical metal. And then it will quickly become clear that there is far less of it (even at the higher prices) than the quantity required for delivery.
But the most important thing will be (for governments) something else. Investors will realise how much paper money has depreciated in real terms. And they will start to sell off government bonds by investing in rising gold. And this threatens to cause huge problems with the servicing of government debt.
2. Of course, bitcoin is also to blame! In fact, investors are exchanging old gold for new digital gold. And with the introduction of bitcoin ETFs, this process only threatens to accelerate. Most likely, this will not lead to a drop in the price of the yellow metal. But it will make it easier to manipulate its price.

04.00 China retail sales for September
04.00 China’s GDP for September
15.15 US industrial production for September

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.