London Bullion Market Association 2013 Conference
Some important points from analyst Andy Smith (highlights are mine):
My view:
The analyst is correct in stating that the gold market is a psychological one. What he does not mention, is the fiat currency system, and therefore the government bond market, is also a psychological market.
Some commentators have stated recently that gold will drop as interest rates rise - as we know rates have been rising recently.
I believe this view is incorrect.
Rates are rising for reasons that are not tied to organic demand for money.
Rates are rising as investors are gradually losing confidence in bonds and the near zero rates of returns they offer (in the developed world).
As governments in the west continue to overspend and not rein in their deficits, investors are likely to continue to demand higher and higher yields.
At the same time, gold, which offers no yield, will become more attractive.
The primary reason for the shift will be a gradual realization that gold may not offer yield, but is does not contain counterparty risk, or government overspending risk, unlike bonds and currencies.
One item that has not yet become public knowledge, is the shortfall in public pension plans.
When the public has their pension contributions increased and eligibility decreased, then we will see a shift in demand away from fiat currency and government bonds, to the oldest form of money - gold.
Some important points from analyst Andy Smith (highlights are mine):
Some key points of his presentation were:- The hyperinflation of Weimar Germany in the 1920’s in coming- Gold will be the only saviour - from a financial perspective- Gold is a psychological market- Retail gold investors are far more intelligent than is assumed- Inflation is neither a necessary nor sufficient conditions to push gold prices much, much higher.- All that is necessary is a change in people’s psychology regarding the value of paper money- India is a role model for the west when it comes to household savings into gold. That is the only social security system which will protect people in the coming years.- The Indians are wise as they are right not to trust governments or banks to protect their wealth- Silver will not be as valuable as gold in a hyperinflationary environment- Government is clever enough to call wealth confiscation other names - say redistribution, welfare etc.- Asset confiscation or ‘outright theft’ by desperate governments - including of deposits and pensions is coming
My view:
The analyst is correct in stating that the gold market is a psychological one. What he does not mention, is the fiat currency system, and therefore the government bond market, is also a psychological market.
Some commentators have stated recently that gold will drop as interest rates rise - as we know rates have been rising recently.
I believe this view is incorrect.
Rates are rising for reasons that are not tied to organic demand for money.
Rates are rising as investors are gradually losing confidence in bonds and the near zero rates of returns they offer (in the developed world).
As governments in the west continue to overspend and not rein in their deficits, investors are likely to continue to demand higher and higher yields.
At the same time, gold, which offers no yield, will become more attractive.
The primary reason for the shift will be a gradual realization that gold may not offer yield, but is does not contain counterparty risk, or government overspending risk, unlike bonds and currencies.
One item that has not yet become public knowledge, is the shortfall in public pension plans.
When the public has their pension contributions increased and eligibility decreased, then we will see a shift in demand away from fiat currency and government bonds, to the oldest form of money - gold.
What would you rather own?
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