Gold Breaks Out
Paul Tustain
Bullion
Vault
Aug 24 2012
Following a quiet summer, gold has
risen to four-month highs. Bullion Vault founder Paul Tustain
puts the action in context...
Usually I focus on the reasons to Buy Gold
rather than the timing. Timing is not my territory. But as we approach
the anniversary of gold's all-time high, my thoughts turn to
the ebb and flow of the gold market.
Last year, on 6th September 2011, gold hit $1920 per oz. It had
shot up from about $1500 at the start of July, making new all-time
highs almost daily. Three short weeks later it was back down
at $1540. In sterling [UK] terms it was almost the same story, £930
at the start of July, up to £1194 and back again to £995.
Since then people have left gold alone, and many have sold. But
gold has not fallen away like almost everything else would have
after a ten year bull run. After a rally this week, it's currently
trading around $1660, or £1040. It has taken a breather.
I speak to prospective gold buyers all the time - and they are
worried about the situation of our currency - the Pound. Many
would like to drop the pound and Buy
Gold, yet when it was making new highs daily, like it did
a year ago, they worry, understandably, that they'll pay the
highest price in history. I do too. But then when it drops away
we worry that it has further to fall. In volatile markets buying
and selling is frightening.
What volatility? Here in the gold business we have plodded along
through July and August, and it's been dull. The rule of thumb
in the industry is to expect July and August volumes to be 30%
down on the rest of the year. Indeed not much has happened, in
fact it's been quieter than usual.
But in the last couple of days things have started moving. Volumes
are creeping up again, and prices too. In the 7 years since we
launched Bullion
Vault, September has always been a high volume month. This
week the holidays end. The money professionals get back to their
desks and look into their crystal balls. What will they see,
apart from this bowl shaped chart of the Gold Price?
Nothing has improved in Europe. Nothing has improved in the UK
- even if we feel temporarily lifted by the Olympics. Our government
has got weaker, and borrowed more money; July was dreadful. George
Osborne is now under concerted pressure to 'do something', and
it's coming from his own side as well as the opposition. As we
approach the latter half of a parliament we can reckon his worthy
pursuit of economies will weaken.
We are printing new money and adding to the stock at about £16
per working person per day - which all finds its way into the
economy via the wages of a bloated public sector. It spins around
for a few short weeks, generating modest economic activity, before
settling on savers. For some reason, which almost defies logical
analysis, they buy government bonds, thus completing the funding
circle; taking cash back out of circulation and leaving just
a bigger pile of government debt. Thanks to savers' appetite
for gilts we have not seen the retail price inflation which money
printing normally produces - but only because we are in this
unusual position of printing money without increasing the quantity
in circulation.
There will be a flood when those bonds turn back into cash, and
that looks increasingly imminent. Already there is a £1trn
in outstanding debt, which is evenly spread out to about 20 years.
Unfortunately every day it gets less spread out. It slowly concertinas
into the short end simply through the passage of time, and as
it does so it approaches the concentrated re-financing obligations
which finally did for Greece. It's just a matter of time.
For now we only have to finance redemptions and a budget deficit
amounting to a mere £500 million a day - which is close
to an indigestible quantity for the markets. Now remember, this
is a government which is too fragile to impose real economies,
which is already a trillion in debt, which is two years from
campaigning again, and which controls the printing presses.
Pick a number. 600 million? 750 million? 1 billion? Daily cash
demands on this scale will try the generosity of even the most
generous pension fund - which, of course, is using your money.
We are turning inexorably into Greece. Whatever we do now, the
concertina effect will impose these sorts of numbers in due course.
This would be true even if we were to cut the record budget deficit
today - which is politically impossible anyway.
When the market finally says 'no' to the government's need for
cash, the redemption of those outstanding gilts will require
printing real banknotes. You'll get your inflation then, and
with £6 frozen into bond markets for every £1 in
circulation savers will realize that the torrent of melt-water
cannot stop for years. That's when we all abandon the currency.
Any other store of value will do.
I believe the Pound has a weaker future than a German dominated
mini-Euro. But thanks to a year old price spike, and a dull summer,
for now at least we can Buy
Gold with Sterling at over 10% below its all-time highs.
Do you really fancy buying it when it's making daily all-time
highs again? I don't. I come out in a rash when I buy something
at highs. It goes against my investing religion.
Paul Tustain
23 Aug 2012
email: paul.tustain@bullionvault.com
website: Bullion
Vault
© BullionVault 2012.
All Rights Reserved.
Settlement-systems specialist Paul Tustain launched BullionVault
in 2005 to make the security and cost-efficiencies of the professional
wholesale gold market available to private investors.
Designed specifically to meet his own needs as a risk-averse
investor, BullionVault now cares for 30 tonnes of client gold
property, all of it privately owned in the user's choice of low-cost,
market-accredited facilities in London, New York or Zurich.
Please Note: This article is to inform your thinking,
not lead it. Only you can decide the best place for your money,
and any decision you make will put your money at risk. Information
or data included here may have already been overtaken by events
- and must be verified elsewhere - should you choose to act on
it.
321gold
Ltd
|
