The Vomit of Midas and the TTTT

THE BALMORAL, EDINBURGH – If you’d only been observing the revelry on the streets over the weekend (both day and night), you’d have thought Scotland had defeated England with extreme prejudice at the match on Friday.

Still, a good result for Scotland nonetheless. I spoke to a bloke busking with a banjo on the Royal Mile that evening, who was worried about the mood on the streets should the game end in defeat. I trust he survived.

(While his choice of instrument would suggest he’s on the wrong side of the Atlantic, he sure knew how to play a tune. Sam Shackleton’s his name if you’re a fan of country music – he’s on Spotify.)

Anyhow, back to the markets. On the subject of mood on the street, it has turned substantially against gold over the past week. Gold is down over 4% in sterling terms over the last week, and 7% in dollar terms – so more of an American phenomenon, but you’ll find gold has been hit globally over the past seven days.

What is the cause of this puke in the gold price? Well, it’s due to what one reader calls the “TTTT” – which is not a motor sporting event on the Isle of Man sadly, but something rather less dramatic. They wrote in, describing how they were looking “ruefully at the effects on [their] portfolio (and [their] large allocation to precious metals in particular) of this week’s Thinking-About-Thinking-About-Tapering Tantrum. Nothing about it quite makes sense at present…”

So what’s the TTTT? In short, the Federal Reserve announced it was thinking, about thinking, about winding down some of its money printing measures (which currently stand at $120 billion of newly created money being rammed into financial markets a month). As the Fed issues the global reserve currency, this has an effect on the price of gold (and plenty of other assets) almost everywhere.

Rich Checkan of Asset Strategies International, a gold expert over in the States who I recently had the pleasure of interviewing for our Gold Stock Fortunes readers, summed up the action eloquently:

[Federal Reserve] Chairman Powell acknowledged a few things yesterday in his remarks…

  1. Inflation is higher than anticipated.
  2. The Federal Reserve has no experience with or predictive models for the current post-pandemic scenario.
  3. The Federal Reserve will begin talking about tapering asset purchases, and they may have to raise interest rates twice in 2023.

The market heard “interest rate hike.”

The market did not hear that those rate hikes will only come in a couple years.

Dare I predict that in the next two years, these planned rate hikes will be postponed or cancelled? They’ve plenty of time to come up with an excuse – lower economic growth or employment figures than expected, stress in the credit market, further lockdowns due to a new WuFlu variant (or hell, another pandemic entirely)…

The prospect of the Fed talking about maybe debasing its currency a little less in the future certainly isn’t enough to make me part with my gold. But I’ll happily buy more gold at a lower price now that other investors have ditched theirs…

I’ll be on holiday for a little while this week. I’m taking a few days off to unplug for a little while and pay the pubs here as much custom as possible prior to my departure.

But have no fear – Capital & Conflict will not go unattended in my absence. I’ll be sharing the sterling work of my colleagues here at Southbank Investment Research over the next few days, as will Southbank Investment Research’s managing editor Andrew Hutchings.

One last thing before I go: do make sure to check in with the Beyond Oil Summit before it closes. Our energy analysts Kit Winder and James Allen have put on quite the show – and they’re determined for every Southbank Investment Research reader to get aboard what they describe as “one of the greatest investment trends in history”…

All the best,

Boaz Shoshan
Editor, Capital & Conflict

PS When I’m back, I’ll be collaborating a lot more with the team over at Fortune & Freedom – make sure you’re subscribed (click here) to be kept abreast of the developments as they arrive.

Category: Investing in Gold

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