Gold/Silver: Higher Than They Have Been For More Than a Year

Gold and silver had a pretty miserable end to 2015, with gold dropping to a little over $1,000 an ounce and silver hovering around $14. It was bleak, to say the least, and while many were predicting a turnaround, it seemed that just as many others were predicting more stagnation and even more of a fall.

Going into 2016, that changed, and significantly so. In fact, from its 2015 low, the value of an ounce of gold climbed nearly $300 higher, while silver made a push for $18 and fell a fraction short. So, what happened? Where did this rise come from and what are the reasons behind it?

Struggling dollar

When the US dollar falls, precious metals rise. That’s because precious metals have a very close relationship with the dollar, as indeed do most commodities. This began back when the Gold Standard still existed and the value of a dollar was tied to the value of gold, but it continued when gold moved to floating exchange rates, at which point it became very susceptible to the fluctuating value of the dollar. Simply put, when the dollar drops, gold goes up, and when the dollar increases, gold drops.

When the dollar struggles, the value of other global currencies increases, thus increasing the demand for gold, which is traded in dollars. And for anyone who has invested in the dollar, gold provides a reliable alternative when the value of the dollar is plummeting. The same applies to silver and platinum. Both of these metals also experience increased demand when the dollar drops, and their value is closely tied to the value of gold.

In 2016, the dollar has taken several hits, and while it is still relatively strong in relation to previous rates, those hits have pushed many investors towards the precious metal markets.

Safe Haven

Gold has always been viewed as an investment safe haven, a secure and stable way to invest your money when everything else is struggling. And because the stock markets have received one blow after another in 2016, gold has just continued to rise.

Oil has struggled to return to the heights of a few years ago, and while it is performing a little better than it did last year, it’s still languishing around $40 a barrel, and that’s having a negative impact on the markets. There has also been concerns regarding the future of the Chinese markets, and at the end of April, the Bank of Japan decided not to expand its monetary stimulus program, and the Fed decided not to change interest rates, which delivered more blows to global markets and gave the precious metal markets yet another boost.

What Will Cause a Hike in the Price of Gold?

Gold investors tend to profit when others do not, and that’s the beauty of precious metal investment. To all serious investors, gold is a hedge, something that guards against failures in other markets. To put it simply, the best outcome for the price of gold is for the stock markets to crash, the dollar to bottom-out and the world to be in disrepair. At that point in time, money has little to no value and we’re all forced back into a bartering system, and one when commodities with intrinsic value are the only things that are worth anything.

This is the extreme, but the best thing about gold is that it will also improve during every step that takes us to that extreme, and it will also improve whenever investors worry that we are heading towards it. In a world of uncertainty, a world where it seems that everyone is waiting for the next crash, the next recession and the next bubble, it’s perhaps no surprise that gold, the only safe, secure and reliable investment, is doing so well.

Why is gold nearing a six year low?

As we enter the final month of 2015, gold is in an unsteady position. It had been on an ever increasing rise, but it has taken several hits over the course of the year and it is now just a fraction away from hitting its lowest point in 6 years. There is no one factor causing this, and there have been many events in 2015 that have attributed to it.

The following events have triggered both increases and decreases in the price of gold in the final half of 2015.

Terrorist Attacks

As everyone who invests in gold understands, global events can have both a positive and negative effect on the price of all precious metals, and it seems that the terrorist attacks in France had a slightly positive effect on the value of this particular precious metal. The world is worrying that Islamic State are getting bigger and bolder, and that their rise will cause global markets to plummet, which in turn will cause buyers to rush to commodities with an inherent value. And they are right, in a way, but IS are still very much a terrorist organization. They certainly have power and influence, but they are not an all-powerful country, and they will surely not have as much of a detrimental effect the future of the first world as they hope.

When the markets opened for trading on Monday, following Friday’s atrocities, gold increased by 1.3%, but by Tuesday it had lost those gains, and before the week was out it had slid even further.

Greek and Chinese Woes

As things began to worsen in Greece, the gold markets began to climb. There was a huge demand for this commodity, both from Greek investors and from global investors. After the crises took a backseat, moving away from the front pages, there were worries in China. In a matter of weeks, the value of all of their major companies was dramatically cut short. The stock market took a huge hit and the government were forced to dip into their own pocket in order to alleviate the chaos.

Closed ATMs in Greece

Many uninformed investors were predicting that this would cause another sharp rise in the price of gold, but in actuality it went the other way, causing one of the worst declines in gold’s spot price for several years. To understand why this happened you need to understand the gold market when it is stable. Yes, it is true that an economic crash in a major country causes people to rush out and to buy gold, but in a stable environment much of the gold that is sold goes to Chinese buyers and Chinese companies. The Chinese buy more of the yellow stuff than anyone else, with huge markets in bullion, numismatics and in precious metal jewelry. If you take away their investments, their expendable income, and you add the worry of a collapsing economy, then you have legions of buyers who previously propped up the gold markets, and suddenly want nothing to do with the metal.

US Dollar

One of the main reasons gold has struggled this year is because the US dollar has not. Gold is backed against dollars, so whenever the value of the dollar increases then gold drops, and vice versa. This year has been very strong for the US dollar, which means that gold has struggled even away from the events discussed above.

The US economy has been getting stronger under Obama’s second term. This also has a knock-on effect, because when the dollar is strong and gold is weak, then investors turn to the green stuff as a way of securing their money, staying away from gold. It is good news for the United States and by association it is also good news for many other major economies, but it seems to be bad news for gold investors, at least for now.

Economist Thomas Piketty’s 25 Truths on Greek’s debt

Thomas PikettyThe author of Capital in the Twenty-First Century denounces the Troïka’s and the IMF’s hypocrisy in regard to the debt issue.

  1. In the past, Greece’s public debt has been much more important than what it is today. It is now at €312 billions and represents 170% of the country’s annual production. Greece’s debt, in reality, is a paltry one because the country’s economy only represents 2% of the Eurozone’s GDP cialis original livraison rapide. So Greece’s debt only represents a mere 3% of the Eurozone’s GDP and does not represent a danger for Europe’s economic stability.
  2. Great European powers such as France, Germany and the United Kingdom, have had in the past debt over 200% of their GDP, notably in the 19th and 20th centuries and, each time, a solution was found.
  3. “In the 20th century, France and Germany stand out as two countries that have never repaid their public debt.”
  4. “It is somewhat ironic” to demand that Greece repay its debt while forgetting that “Europe was built after the Second World War on a number of principles, one of which was, notably, forgiving past debts in order to invest in the future.”
  5. To the point, in 1953, Europe decided collectively to abandon all of Germany’s external debt, because it had “chosen the future”.
  6. There are several ways to deal with debt. The slow and inefficient way, as is being done with Greece at this moment, consists in asking the country to produce budget surpluses (more revenue than public spending) and allocate them to debt reimbursement. This method’s shortcomings are that it will take a very long time, more than a century, that it will stunt economic growth, and that it will bring social chaos.
  7. “Above a certain amount of public debt one must use faster methods.” Three have been used in the past: moderate inflation, exceptional taxes on personal wealth and, above all, debt forgiveness.
  8. “There have been debt cancellations in the past and there will be some in the future.”
  9. “Governments do not have the courage to talk about debt forgiveness”, although it is inevitable if we wish to get out of this crisis, and “the sooner the better.”
  10. People in Greece are depicted as living above their means. But, nevertheless, actually, under Alexis Tsipras, Greece’s budget is balanced, if we exclude servicing the debt. There is even a “light primary surplus”, equivalent to 1% of GDP in 2015, or 1.83billion euros. Reimbursing the debt is untenable, considering that private banks have made loans to Greece at loan shark rates, reaching 18%, which makes it mathematically impossible to repay the debt.
  11. International financial institutions are demanding that Greece, under the accords imposed in 2012, allocate 4% of its GDP to reimburse the debt for the next 30 years. “The whole budget of Greece for its higher education system represents less than 1% of GDP. So this is like asking the Greek taxpayer to allocate, for the next 30 years, four times as much money to pay prior debts as it takes to finance the whole higher learning system in the country. Is this the right way to prepare for the future? Of course, not! It is absurd.”
  12. “At the end of the Second World War, and it was a good thing, Germany, France and other European countries were never asked to do that. Debts were forgiven – this is what helped rebuild Europe in the ‘50s. Freed from the weight of the debt, public resources could be allocated for the infrastructures, education and growth.”
  13. “Europe, with the 2012 budgetary treaty, is choosing, like the British in the 19th century, decades and decades of hardship, instead of doing what Europe did after the war by projecting itself into the future.”
  14. “There is an extremely serious amnesia in regard to History. It is mind boggling to realise how little our leaders know about it.”
  15. “The French government is highly responsible” for this situation by refusing to go against Germany’s sternness. “Hollande must be more responsible and declare that debt restructuration must happen now.”
  16. Without strong action there is a risk of “extending the period of uncertainty”, which has a big impact on growth, and of “throwing Greece back into recession, which is extremely serious.”
  17. “There are no more debt problems in Europe than there are in Japan or the United States.”
  18. “There is much hypocrisy in all of that because the French and German banks are quite happy to see the financial assets of rich Greeks being transferred to them and, of course, they don’t tell the Greek fiscal authorities,” thus robbing Greece of fundamental sources of revenue and being accomplice to a gigantic fiscal fraud.
  19. Since 2010, the international financial institutions have made “enormous mistakes in Greece.” Even the IMF recognises having underestimated the consequences of austerity measures in terms of recession.”
  20. Those austerity measures “have led to extreme inflation of the Greek debt” because the GDP declined by 25% between 2010 and 2015. “This is what pushed the debt to 170% of GDP, from 110%.”
  21. “I’m putting myself in the place of the young, in Greece. Are they responsible for what Prime Minister Papandreou did in 2000 and 2002? They are no more responsible for those mistakes than the German youth was, in the ‘50s and ‘60s, responsible for errors of the past. God knows that German governments had done much worse things than Greece’s.”
  22. “The whole eurozone debt has to be restructured. A portion must be forgiven, as has always happened in History.”
  23. “The Greek government has been asking for six months for a debt restructuration,” each time facing the obstinate refusal of the Eurogroup.
  24. Nevertheless, in 2012, Europe had promised Greece that when the country would create a light surplus, the total amount of the debt would be negotiated.” Today, Europe refuses to honour its promise.
  25. “The apprentice sorcerers who pretend that kicking out a member of the European Union in order to discipline the others are extremely dangerous. The European ideal is being destroyed by the decisions of those apprentice sorcerers.”