Money, gold and geopolitics
The permanent relationship between money and gold as a wealth metal has always been a very delicate one. The efforts to sever the link between money and gold were always very dubious. John Law (1671), Nixon (1971) and the most recent by Wim Duisenberg (2002 Aachen acceptance speech).
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A run on gold caused tightness in the physical gold market in the first quarter of this year. Due to the coronavirus, many planes are on the ground, which makes it more difficult to get physical precious metal to the right place in time. In recent months, these logistical problems have led to longer delivery times and disrupted the pricing of gold in New York.
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The world economy was in a bad shape in March 2009. In the eighteen months before that, the economy took beating after beating. What started as a housing crisis in the United States, turned into a bankrun among banks and a financial crisis like the world had never seen before. Central banks pulled out all the stops to shore up banks and the financial market, but each time a different financial bomb exploded in the system. Only after bail-outs by governments – taxpayers – the markets stabilized.
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Last week we saw a remarkable movement in the gold market. On Tuesday the price of gold on the New York stock exchange was $70 per troy ounce higher than in London, the biggest price difference in 40 years. These prices often diverge, but under normal circumstances traders are entering the market to eliminate this difference. This did not happen last week, resulting in two different gold prices and tightness in the New York gold market. How did this happen?
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ABN AMRO leaves gold investors empty-handed, as the bank closes all weight accounts for gold, silver and platinum. Approximately 2,000 customers who have precious metals in their weight account at the bank have to sell them before April 1. If they fail to do so, ABN AMRO will sell their positions at the current market price. The bank cannot guarantee that they will sell the precious metal at a favorable price.
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In the future, Turkey will play an important role in the European energy supply. The construction of various new pipelines will create a southern transport route to bring natural gas from Russia and Azerbaijan to the European market.
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The Federal Reserve announced new long-term repo operations to avoid liquidity problems in the money market by the end of the year. In addition to daily and 14-day repo operations, new liquidity injections of 28 and 42 days will be made.
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Long-term low interest rates may jeopardize the profitability of US banks and encourage bankers to engage in risky behavior, which could jeopardize financial stability, the Federal Reserve said in a new report published on Friday.
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Instead of bolivars, the central bank of Venezuela is increasingly distributing euro banknotes to its own banking sector. As a result, the euro is gaining market share in domestic payments, at the expense of the virtually worthless bolivar.
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After Hungary and Poland, Serbia has also recently added gold to its reserves. On the recommendation by President Aleksandar Vucic, the central bank bought 9 tons of gold in October. As a result, the country’s total gold stock rose to 30.4 tonnes, about 10% of total reserves.
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Mario Draghi will go down in history as one of the greatest ‘monetary fools’. That’s what former head of the Federal Reserve Bank of Dallas, Richard Fisher, said in an interview with Bloomberg.
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