The FT has a headline, just out:
As they note:
Gold soared to an all-time high and the dollar weakened to a multiyear low as sharp increases in US coronavirus cases and flare-ups around the world weighed on investor confidence.
The price of the precious metal, which investors typically view as a haven in times of uncertainty, climbed as much as 2.2 per cent to a record $1,944.71 per troy ounce on Monday. Its value has jumped by more than a quarter this year, making it one of the best-performing asset classes.
A series of thoughts inevitably follow.
The first is that this is the clearest possible indication that there is a savings glut in the world.
Second, it strongly implies that this savings glut is most extreme amongst the best off, who are those who typically save using gold.
Third, it also very clearly suggests that they do not think that conventional savings media, such as property and shares, have anything to offer them at present. And they may be right: coronavirus is undermining the property market and many companies appear bankrupt of ideas, if not actually bankrupt.
Fourth, this indicates the conservative nature of most wealth ownership. There is, of course, no productive value to gold, but the owners of this wealth do not care about that. What is of concern to them is the preservation of their status, indicated by wealth, and that is what motivates this decision.
Fifth, this does very clearly indicate a capacity to tax wealth more: if the wealthy cannot put their wealth to productive use then they might as well pay tax with it.
Sixth, also be worried about the spillovers. When gold hits peak values other markets being to fall. When the stock market falls the banking, life assurance and pension sectors may all be in trouble. Peak gold prices are never a sign that things are going well.
Seventh, worry. That is the right reaction.
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Except it’s not property and equities which are seeing the outflows – it’s government bonds. Equities especially are holding up very well all things considered.
And honestly, who is surprised by this? Government bonds yielding low or even negative rates offer nothing, and once you factor in inflation most have quite significant negative rates. Then add in that governments are doing large amounts of QE and issuing huge amounts of new debt, and that Gold is a good hedge for inflation and currency depreciation, and is safer than government bonds. Nobody should find it surprising that gold is doing well.
And yet it produces not a single cent of return……
True – but neither do government bonds. Thanks to inflation most government bonds are returning around the -1.5% mark, so why not take gold which is safer and at least returns you a flat zero, rather than negative. And that’s before you take into account any currency depreciation. Gold is more liquid and transaction costs are lower too.
Gold is safer?
You must be in a parallel universe? Have you seen the price over the last decade?”
I would suggest anyone who chooses to buy gold when it is the most expensive it has ever been could be looking at a loss of much more than 1.5%. That’s not to say we’re at the peak, but buying gold is clearly a massive and unproductive gamble.
The saying is buy low sell high, not buy high sell low.
In USD terms it’s up about 60%. In GBP terms 90%. Thats end July 2010 to today.
UK Gilt total return (including reinvestment) is 72% for the same period.
So over 10 years not a huge difference between them – though gold wins.
Go back 20 years and the contrast is even more in gold’s favour.
But at least with gold you are hedged against inflation and negative real rates, so you are likely to see gold beat bonds hands down going forward. Even more so if governments decide to start printing money.
So yes, gold is pretty safe. It’s a store of value, there is a fixed amount of it and available supply is quite low, and it is a very useful industrial material to boot. What’s not to like? Government bonds have huge supply, little demand at current levels and are only backed by government’s promises, which are only as good as their economies and are going to be worth less and less thanks to inflation and more so if a government debases it’s currency.
Come on – you are ignoring the volatility
Gold has returned +25% since the start of the year – so much for ‘not a cent of return’!
No, that’s no return at all to gold
That’s a speculative gain
And that is very different
If you do not know that why are you commenting?
You are clutching at straws now. Volatility doesn’t matter that much to buy and hold investors – who are the type you are talking about when you talk about savers.
Even then, 10y UK gilt index volatility 6.3% annualized, gold 8.7% annualized. So gold is slightly more volatile, but when compared to equities (typically over 20% standard deviation) there isn’t much in it.
I’d rather take a couple of % more volatility in SD returns than guarantee losing 1.5% a year – which is what you are doing now if you buy Gilts at these levels. Won’t always be the case, but at the moment there really is no reason to buy Gilts over gold.
Some of us worry about the impact of our saving
You clearly don’t
And as is clear, I was not clutching at straws
First you said gold doesn’t produce a return. Then you said it isn’t safer than bonds. Then you said e should not ignore the volatility. You’ve basically tried every which way to discredit gold as an investment over government bonds. Now you are saying we should “worry about the impact of our saving”. So not clutching at straws at all.
Don’t you think that the impact on pensioners forced in vest in gilts, which are massively overpriced and offering negative real yields is also something people would worry about? It is essentially impossible for Gilts to provide a positive return now or in the future if you buy at these current levels. What Adam H says about Gilts is equally applicable to Gilts as gold – Gilts are at all time highs as well and if yields move higher you stand to lose a LOT of money. At least with gold there is a possibility of a real return, which Gilts have a slim to none chance of providing at the moment.
Safety is relatively important, but so is making a return on your savings if you are looking for those savings to support you in retirement or similar.
If by “impact of saving” you mean handing money to the government to spend, you are more than welcome to just write out a cheque to HMRC. Probably more efficient than buying a Gilt.
I think we can sense the ridiculousness of your political outlook
Please don’t call again
You literally add nothing but economic illiteracy to debate
As you know the last high in the dollar gold price was in September 2011, at circa $1923, after which the gold price went down considerably until December 2015, reaching circa $1050. During the intervening period between 2011 and now the gold price has been suppressed on the western gold exchanges by the so called ”bullion banks” who created synthetic, pretend paper gold in the form of gold contracts, and these were created out of thin air. This pretend gold was utilized to completely dominate the price and quite apart from the bullion banks the Bank of international settlements often intervened at strategic times to dump billions of dollars of paper gold onto the market, often at quiet trading times for maximum benefit in pushing the price down. The scheme is now coming to an end and I am sure you know the various reasons. Why not do a piece on this.
Best wishes,
Keith
It sounds like you could offer a better primer
So why should I, who has no interest in gold at all?
I think we should all take an interest in gold Richard if for no other reason that the gold price has a direct effect on the value of the dollar although there is no direct linkage.
If the gold price goes too high the US will sell gold, the gold price will fall and the dollar will rise.
The US only need to announce that they
will be selling gold without actually doing it to achieve the same result.
Watch out for such announcements in the weeks ahead.
I also understand that China and other countries are actively increasing their gold reserves and presumably have good reasons for this course of action.
And? The US goal would be?
The Conservative government has decided to attempt to give the housing market in the UK to temporarily remove stamp duty clearly they could do the reverse to encourage productive investment by imposing a decent tax on gold trading. Of course, they’re highly unlikely to because this is a party funded by the super-rich for whom greed is just about all there is in life or their main obsessive focus!
The demand for gold reflects the fear that central banks are debasing currencies and the fear of inflation further down the line.
The savings glut you refer to is actually the crowding out QE has caused from sovereign bonds
No rational person has a fear of inflation in a world where no one now knows how to create it but every government knows how to reduce it
And if sovereign bonds have been crowded out why is demand so strong still?
Your claims make no sense at all. But they are good tropes
“ Your claims make no sense at all. But they are good tropes”
My claims? Well they just reflect the attitude of investors. The gold price is determined predominantly by instructional / pension / hedge fund fund flows into Gold ETFs and they are indeed worried by debasing of currencies and inflation down the line.
Maybe you are right and they are irrational fears but it is what they fear.
There are few so inclined to groupthink and her behaviour of the most irrational kind than institutional investors
I’m sure I’m displaying my ignorance here but, unless you keep your gold in the cellar, when presumably you’ll have to pay someone to deliver it, and probably your home/cellar insurance goes up, surely when you own gold you have to pay someone to store it.
Or are we to presume the BoE is storing Venezuela’s gold for nothing?
So even if the price stays stable, if you pay for storage then that is a negative return surely?
According to Bullionvault.com total costs for storage of $500,000 gold is £3,000 with costs to buy and sell after 5 year at around $1500 = $4500 costs. Which compares pretty well with investment fund charges.
@ Graham thanks – It may be an ‘investment’ return but even if it compares with investment fund charges that is still basically a negative return – and in the instance of gold – no ‘spread’ but just one metal!
Doesn’t look a great scheme to me…
Isn’t much of the gold investment derivative based?
https://www.investopedia.com/terms/d/derivative.asp
Yes…
Richard,
Demand for government bonds really isn’t that strong, that’s why the BoE has to create £300bn of artificial demand to keep yields at their current levels.
That’s no doubt why every issue is over-subscribed
Would every issue be oversubscribed without £300bn of artificial demand?
Tell me what is artificial about QE?
Ok, in that case, you must think that a government buying £300bn of its own debt is entirely normal.
But it clearly isn’t.
It was entirely predictable
In that case what surprises you?
“this does very clearly indicate a capacity to tax wealth more: if the wealthy cannot put their wealth to productive use then they might as well pay tax with it.”
Surely this is to put the cart before the horse – most wealth is an indication that someone has ALREADY been productive? They have created value in order to get money, and then have then spent money to buy things, and are now storing their surplus? Demanding that this surplus be forcibly made productive too seems like double jeopardy?
No
Most wealth is inherited
Much of the rest comes from the abuse of monopoly privileges granted by the state
Very little has to with productivity
That produces normal profits and not abnormal wealth
You clearly don’t know a lot about entrepreneurship or market economics
Or that the wealthy still want as little as possible to do with trade
“ Most wealth is inherited”
That’s what you want to believe
In my experience most wealth is built up over 20-30yrs and with hard work
The evidence does not support your small world view
I’ve had a look at the Top Twenty richest men in the world – 18 look to have started from nothing.
Bill Gates, Mark Zuckerberg, Warren Buffet, Elon Musk, Jeff Bezos, Sergey Brin, Larry Page, Larry Ellison, Steve Jobs – they all started their businesses from nothing.
Interestingly, your claim appears to be true for women – of the Top Twenty richest women in the world, all but three inherited (and those three are all Chinese, so may have government connections as you say?)
The evidence is a little unclear for your claim.
Now look at proper studies…
At least 59% of wealth is inherited
And do you anyway think there is anything acceptable about the accumulation of unearned wealth by those you note?
Of course in terms of numbers of people 59% of wealth isn’t inherited. And it is disingenuous when discussing wealth to roll in Jeff Bezos, the Duke of Westminster and the large number of people who work for 30-40yrs saving into a pension and isa and accumulating wealth through hard work for a time in life when they are unable to earn.
Of course you could choose to tax aggressively the ultra wealthy but the hard left seem preoccupied with targeting those who have succeeded in life by working hard and saving. Often the motivation is jealously I suspect.
Jealousy of what?
Or is a concern for inequality and the issues it creates not compassion but what you think jealousy?
How do you manage that?
A recent study of 10,000 millionaires in the US showed that only 21% of those millionaires received any inheritance at all. Just 16% inherited more than $100,000. 3% received an inheritance at or above $1 million. (source, Chris Hogan)
Another study of the ‘ultra wealthy’ defined as those with assets exceeding $30m, showed that 67.7% were self-made, while 23.7% had a combination of inherited and self-created wealth. Only 8.5% of global high-net-worth individuals were categorized as having completely inherited their wealth. (source wealth-X).
You want to create an impression of a rigged game when there isn’t one. By dedication, persistence and sensible saving, people can become wealthy by the time they retire. If you aren’t, you should be looking at yourself, not ‘blaming the game’
Another example of it not being that the left know nothing, it’s that they know so much that isn’t true.
That’s the US
In the UK best estimates are that at least 50% of health is inherited
But keep hurling the abuse: it shows you don’t have a case to make
“In the UK best estimates are that at least 50% of health is inherited”
I quoted my sources, will you quote yours?
Piketty says 80%
This paper says 18% – 48% http://faculty.econ.ucdavis.edu/faculty/gclark/The%20Son%20Also%20Rises/Is%20Most%20Wealth%20Inherited%20or%20Created.pdf
But what is ignored is that most ‘self made’ people rely on inherited wealth to get them going
So take the high end of estimates such as that I note because of the massive impact inherited wealth has on further wealth creation
My own experience as an accountant informs this view
You call it inequality others call it enjoying the benefits of working hard and saving for 30-40 yrs. why can’t people enjoy that instead of being shown the inequality card all the time.
I agree with the inequality of obscene wealth especially that inherited aka the duke of Westminster etc, I would happily see that all brought down.. but don’t bracket and penalise those who have worked hard all their life alongside that lot.
The the so called inter -generational inequality. I remember leaving university in 85 and thinking I’ll never get on the property ladder or be able to afford foreign holidays etc. But I eventually could. The younger generation today perhaps expect too much too quickly and are often reluctant to roll their sleeves up and graft. It seems many are keener on moaning, protest and getting something for nothing. The term “snowflake generation” has some truth to it.
The likely rewards of that process are unlikely to be taxed by any known wealth tax
The rewards from unearned property inflation may be
And yes, so too might the value of private companies be subject to tax – I’d accept payment by shares into a national wealth fund though – to reflect the fact that the employees will always have created a lot of the value without getting the reward in most cases
And any real entrepreneur would not be put off in the slightest
But with your crass snowflake allegations it would seem you’d understand none of that – it looks like you’re the one suffering a lot of jealousy that you’re now in your 50s
Predictable but not normal, which is the point you seemingly miss..
Clearly you have not noticed developments in economics since 2008
Please don’t waste my time again
I really can’t help pointing to the terrible irony of the impact on small artisan jewellers. Highly skilled, frequently operating hand to mouth on the breadline, and the only people actually doing something useful with the stuff. It’s a beautiful metal to work…
Thank you for doing so
Bloody hell – gold fever seems to have taken over here.
I understand that the amount of gold in the world (that we have got out of the ground) is roughly the equivalent in size to two Olympic sized swimming pools?
Why would we constrain the world’s money by that measure of value, when you consider the under-utilised and more expansive potential of sovereign fiat money – controlled of course – by decent tax systems in order to have a better world?
PSR, I don’t think you are thinking apocalyptically enough, which is surprising given some of Richards recent posts. In a world of potential currency collapse, bank bail ins, cashless society talk and rising nationalism some people don’t trust banks or paper currency as they once did. Gold has been an easily shiftable store of value for 5000 years. If you ever become a refugee it may be the most valuable and tradeable asset you or your children can secret on your person. That being so wouldn’t it be prudent to own some if you have cash you can convert?
Who actually has the gold?
How is it shifted?
How do you know it exists?
Or do you just have a promise to pay?
Just asking…..for a friend
Its all about the physical. If you don’t hold it you don’t own it. Just don’t forget where you buried it, or you could make someone very happy in the next 2000 years…
Almost no one has their gold
Anyone who thinks they have bought gold but don’t hold it in their hands is asking to be ripped off in a collapse. Very naive. You don’t have to be a goldbug to think it’s worth owning some for insurance, but the old adage don’t put all your eggs in one basket is very appropriate in this situation.
Good without possession is rather like a very poor promise to pay…..
Although it could be characterized as a very conservative investment, it is not only conservatives who buy gold. When gold goes up it’s a sign of dangerous times, which certainly seems to be where we are right now.
[…] Cross-posted from Tax Research UK […]
In 2018 PWC did a study aimed at the largest investors in the world (sovereign wealth funds). In it they concluded that gold had outperformed both shares and bonds for the prior 10 and 20 year periods. This was before the recent gold price runup.
Today Goldman Sachs opined the following:
“Today the risk is from debasement of fiat currencies that sows the risk for inflation and gold is the best hedge against debasement. Given the size of the bond portfolios built over the past decade that will need to be hedged against inflation risks, the sheer size of investment demand for commodities is likely to be massive, underscoring the need to act today.”
Best practice is individual outright ownership of physical metal (not ETFs, which carry counterparty risk from multiple providers and do not protect from systemic risk). Custodied by an independent vault provider (Brink’s Global Services). Independently audited for weight and purity by Bureau Veritas (in that business since 1874). Insured against damage or theft by Lloyd’s Of London. There are a number of online providers who do this but reading their fine print is essential.
The idea is not speculating on up, down, or sideways prices. The idea is the long-term preservation of purchasing power. Bonds, gilts etc did a reasonable job of that in past years. That has now ended as debt instruments reach their (ZIRP/NIRP) event horizons.
Manmade money has a built-in flaw: governments simply cannot resist the temptation to attempt to print prosperity. And to correct a misconception: gold does not “go up”. Gold stays the same. That’s what it does best, courtesy of Mother Nature. Debt-based bank currencies debase against it. It takes more of them over the long term to obtain the same troy ounce.
When you were paid to hold bank currencies (time preference) you could keep pace with the costs of goods and services by earning interest. That is no longer the case.
Lastly, there is no such thing as a “negative interest rate”. The correct term is “confiscation of principal”.
Gold is not money
The only money we have is fiat
Gold us only of interest to you because we have fiat currency against whose value you can speculate it
That is its appeal to you
If you wish to gamble you are permitted to do so
But please do not pretend you are doing more than that
Fascinating debate and I’m happy to engage.
It’s a mistake to conflate “the gold standard” with “the gold exchange standard”. Under the former we had the highest growth in the standard of living and some of the highest GDP growth in U.S. history. And yes: we had deflation. You know, when productivity rises and mankind gets more efficient from agriculture to industry? (Formerly known as “progress”). In particular, two periods in the 19th century of price deflations of 50% or more. When – horror- the costs of goods and services fell. So…um…people could own more of them for the same amount of income? The opposite of that view would be to defend the following: a farmer used to get 1000 potatoes per acre; he now gets 3000. Q: should people pay him *more* money per potato? Suggest reading the US Fed on the subject: https://www.minneapolisfed.org/research/staff-reports/deflation-and-depression-is-there-an-empirical-link
And indeed, as bankers extended too much credit (as they *always* do), we had financial panics. Those panics did one thing: they ended quickly. (Cue sidebar discussion about how we have yet to emerge from the effects of the GFC after 11 years).
As far as “limits to growth”, I will take GDP growth of 11% p.a. over anything we’ve had in recent decades. Closer to 2%.
And it’s instructive to have a look at why the gold exchange was abandoned. It was abandoned *in order to pay for war* that could otherwise not be paid for. So without endlessly expanding govt balance sheets we really might have a chance at a “decent, fair and sustainable society” without world war.
And before someone asks, “but you limit growth because there’s not enough gold!” I’ll just point out that of course there is, it’s simply a matter of the price.
I happen to believe two things about money. First is it should be able to extinguish a debt, which a debt-based currency cannot do. (You either need that or else you eventually need a Jubilee, a la Steve Keen). Second is the definition: money stores labor so it can be transported across space and time. I labored to plant wheat. I harvested the wheat but I don’t want to spend my wheat-labor until next spring when I go to the city. But can government money store labor? The minimum wage in 1965 was $1.25, or five silver quarters. The face value of those five quarters today is obviously the same, but the silver value is $21.00, which many would call a decent minimum wage today. The government money, which took no labor to create, was not able to reliably store my labor.
From what I understand of MMT, the sovereign is the issuer of the money (unlike the US, UK, etc but similar to China today, where the PBOC sets quotas for how much the regional and local banks *will* lend into existence each quarter). So far so good. (Trump came ever so close at the height of the pandemic when he proposed sending money from The Treasury direct to people’s accounts, but Democrats blocked him. Maybe UK is already doing this?) But what I don’t get is how is the sovereign supposed to decide *how much*?
Lovely to have a civil debate about this charged subject, thank you.
Wow! Let’s drop the civility – because it’s not required
It is apparent that you really are stupid enough to think the nineteenth-century agricultural depressions were a good thing
And to think that the same era of post slave exploitation of labour is something to emulate
You are clearly intent on economic destruction
Please do not call again
“if the wealthy cannot put their wealth to productive use then they might as well pay tax with it.”
If I don’t read the books in my library at home, the state might as well confiscate them for the public library. If I don’t drink the wine in my closet, the state might as well sell it and keep the proceeds. If I don’t use my leisure time “productively, the state might as well dragoon me for occasional free labour.
Inequality is destroying society and you don’t apparently care
Why?
Self evident truths:-
1. Gold has no return, try putting it on a shelf and see if it gets any bigger.
2. Currency(Cash) has no return, try putting it on a shelf and see if it gets any bigger.
3. The only way you can obtain a “return” is if you lend your asset to someone else at interest. Then your asset is “at risk” and the return is the reward for taking that risk.
A truth that people don’t get, just like they don’t get MMT:-
Gold is money, everything else is debt.
We will be returning to a Gold Standard very soon and fiat currency will be consigned to the history books as the confidence trick it so surely is.
Of course we could return to a gold standard
And suffer a world liquidity crisis, a limit to growth, deflation, mass unemployment and the rise of fascism, and an environmental crisis
Or we could have a fully functioning economy when MMT is widely understood
Apparently that’s a no-brainier for you
Why do you want to destroy any chance of a decent, fair and sustainable society is my question?
That’s a bit harsh Richard. I am merely the messenger.
Trump is promoting a Gold standard and has already moved the necessary pieces into place.
The Federal Reserve has been moved into the US Treasury. The appointment of Judy Shelton is just the latest. She is a Gold bug. I don’t think it will be very long until they announce it. Export/Import settlement will move to payment in Gold. The Chinese being upset by the US printing currency to pay their Import obligations.
Don’t we choose the issues we deliver?
@Kangaroo
I find that interesting because I know of more than a few gold standard monetarists that are of the opinion that Shelton is not a true gold standard proponent, ad hoc Rev.2.0 – ???? Additionally I though much of the fluff with China was over the U.S. using the payment system for political outcomes [sanctions] and had nothing to do with “printing”. Hence activity to create a alternative payment system. Yet at the end of the day QTM was thoroughly refuted not that many decades ago, so the question begs who are driving this agenda and for what economic reasons -1934 again?
Kangaroo will not get the chance to reply
“Don’t we choose the issues we deliver?”
I understand you find the prospect of a Gold standard unpalatable as it will take us back to the situation where Government is running a “household budget” – a fixed amount of money depending on the amount of gold the Government has, thus curtailing spending. However MMT is a Ponzi scheme where they print unlimited amounts of currency and thus devalue it constantly. The people are therefore running on a financial treadmill and they can never catch breath. 1USD today buys 0.016oz when the Federal Reserve started in 1913 1USD bought 1.555oz that’s a 99.9% currency devaluation in just over 100years.
There are other ways of redistributing wealth without using a scheme which ensures the populace is perpetually being robbed.
This is, bluntly, so stupid a comment be cause you make claims that are so obviously not what MMT says that your time here is over
I suggest you stop wasting your own time making crass claims that are so obviously ridiculous
Sorry, I can’t see how to reply to your response – you said…
“…do you anyway think there is anything acceptable about the accumulation of unearned wealth by those you note?”
None of us have been forced to buy the inventions or innovations of these billionaires – we have filled our homes with software and Dysons and iPads because we valued them more highly than the price being charged. They merely profited from our purchases, as did we.
That these people have become billionaires (and have created so many jobs in the process) is surely an indication that vast numbers of us have approvingly paid our own money in order to acquire their products or services – to that extent, their wealth is a proxy for the degree to which they have enriched all our lives.
“Unearned”?
Yes, unearned
And if you don’t know how copyright and patent law is used to extract monopoly profit and suppress markets I suggest you learn
You’re siding with those who hate free markets
I am in favour of them
Well, without some way to protect the time and money they have invested in their businesses, entrepreneurs would presumably be less willing to start them.
But even with that SMP or monopoly power enabling them to charge more than free markets would have allowed, it remains true that the customers of Bill Gates, Steve Jobs and James Dyson valued their products and services enough to freely pay for them.
However, I realise you are probably at the limit of your intellect on this, so I won’t waste any more of your time or mine debating the subject – you’ve also demonstrated a very unattractive combination of arrogance and ignorance in this thread and others, and your site is not a pleasant forum in which to spend time, so I won’t come again.
It’s a shame that your obvious capabilities are wedded to such a thin skin and unpleasant manner with those whom you disagree. A man of your age and experience should have developed grace long ago.
Ah, the ‘if only you were more agreeable’ argument
Maybe you are not familiar with GBS, who said “ The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”
I have long been happy to be an unreasonable man
So much more is achieved that way
And the discomfort is all yours, I am pleased to say, as is my intent
I’d also wager that you have met very few entrepreneurs…..
If I wagered, that is