The Gold market has always been a strange beast. Gold, as an investment and/or store of value has, for thousands of years, captured the attention of populations spread across the globe. At one point all major fiat currency was backed by gold, until continued bastardisation of the financial system led to the release of monetary policy from the shackles of fair value and prudence. As a quick recap of history, the US government (at the time, the custodians of the world’s reserve currency) held the price of gold at $35 per ounce. On August 15, 1971, President Nixon announced that the US would no longer convert dollars to gold at a fixed rate, thereby completely abandoning the gold standard.
Regardless of this, gold has continued to be a primary store of wealth for nations, investments funds and individuals alike. The plethora of different ‘gold holding’ models provides unique insight to the machinations of this age-old market. The relatively new development of Gold-backed ETF’s and their less tightly correlated ‘gold related’ ETF’s provide a channel by which investors can gain exposure to gold price movement, without actually having any exposure to the physical asset. Although this seems, prima facie, to be a convenient option, gold-bugs and their counterparts argue that the inherent safety of gold investment is only truly applied when an investment is made upon the physical product. This has been the strategy of nations and large funds for many years, and brings us to the intriguing element of ‘allocated gold’, unallocated gold’ and the range of categorisation opacity which may occur within the COT and related reporting authorities.
With Gold becoming increasingly popular amongst all investors as global central banks debase all manner of fiat currency into oblivion, prices have begun to accelerate, and that poses some very interesting conundrums for the physical holders, and their paper-holding counterparts. Read more…
Chart of the Day
Mark Mobius, co-founder at Mobius Capital Partners, discusses his expectations for v-shaped economic recovery, emerging market growth, and precious metals investment stragtegy on “Bloomberg Markets: European Close.”