Gold 1770,99
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EURUSD 1,1591
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DJIA 35191
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OIL.WTI 82,805
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DAX 15579,50
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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?
XAUUSD
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
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