US, WASHINGTON (ORDO NEWS) — have never been a fan of gold.
This yellow metal does not produce cash, does not grow crops, does not provide reliable shelter and does not provide useful services. For several decades now, it has not been an official currency. It is not a “safe haven”, because it always falls, then grows, then falls again. And it is not an effective way to verify payments after Samuel Morse invented the telegraph.
But here’s the fun thing: gold is growing in price. And quite significantly. And without any common reason for growth.
There is no inflation. Prices are currently rising at about 1.6% per year.
There is no noticeable economic downturn. The growth of the US economy is about 2.1% per year.
And there is no financial panic. Stock markets are rising. Wall Street sets new records. Junk bond yield spreads — the extra interest that risk-ready companies have to pay to get loans — remain low.
Despite all this, the price of gold over the past two months has increased by 11%. And over the past year – by 15%. This is more than the ES&P 500 stock index (S&P 500) or the Nasdaq Composite. And this is more than an indicator of the growth of the largest five high-tech companies (Facebook, Apple, Amazon, Netflix and Google), which are very popular on Wall Street.
“Something is happening here”
What’s going on? And even more interesting is the question – “Maybe it’s worth a deal?”
Crispin Odey, manager of the hedge fund Odey Asset Management, believes that this precious metal attracted his attention during a decline in the stock market last fall.
“Gold was supposed to go down last year,” he says, sitting in his posh office in the Mayfair district of London. “It was supposed to finish last year at $ 1,000 (per ounce).” Instead, it settled at around $ 1,200. Then I thought: something is happening here. ”
Is there an explanation? Some of America’s largest geopolitical rivals are buying gold. Especially China and Russia.
And they continue to do so. Recently, the People’s Bank of China released data that suggests that it increased its gold reserves by 74 tons in six months (through May inclusive). The Russian Central Bank acquired about 96 tons of gold in the first half of this year.
US dollar hegemony
There is also an objective reason for China to buy gold. He wants to end the hegemony of the American dollar — the hegemony that former French President Charles de Gaulle called America’s “over privilege”. Beijing wants to make its yuan currency a global player. And Odie considers buying gold bars a natural step. Gold reserves should increase the world’s confidence in the Chinese currency.
In other words, the president of the United States, with the help of his slogan “Make America Great Again,” may make gold great again.
Does China and Russia really need large reserves of this mysterious yellow metal in order to break the deadlock of the American dollar on the neck of the global financial system?
Is it not possible to simply issue a new currency supported by the volume of its economy, as Europe did when it launched the euro 20 years ago?
Maybe yes, and maybe not. But, apparently, China is betting on the path he has already chosen.
We are at a very rare inflection point in history: a shift in economic hegemony. The Chinese economy has already surpassed the American in one key parameter, as America once did in relation to Britain. Transitions of this kind throughout history have been unstable times.
Do not try to compete with central banks
Ody, who used to be skeptical of gold, now pays special attention to this metal, and he does it in a characteristic way for himself. Its flagship hedge funds Odey European and Oi-ii-ui-ui-ui-ui-ui-si (OEI MAC) at the end of June invested about 40% in gold.
“There is a desire to do what central banks do,” he says with a smile.
And where can gold go? Nobody knows, and Odi gives no predictions. In theory, some gold fans believe that destroying the hegemony of the dollar could lead to a spiral rise of gold by several hundred percent. Wait and see.
Falling interest rates throughout the developed world also provides gold with a tailwind. Who cares that it will not provide interest? Trillions of dollars in bonds in Europe today have in reality negative interest rates. Against this background, cynics say, 0% on the coupon may seem like a good deal.
The easiest way for a small investor to bet on gold is through a traded Gold Index Fund (SPDR Gold Shares). And whoever wants to take a sharp step without too much risk to his capital, can always acquire freely tradable options of this fund.
We can say that Odi is a kind of crazy genius. He was right in one notable case, for example, he predicted the financial crisis of 2008 – 2009 and thoroughly purchased at bargain prices. But he also makes big bets in a different direction.
In general, he will get a good margin on market indices in the long run, even after paying all the commissions. But if you want to follow his example and invest in gold, you should keep in mind that his rates are not for the faint of heart.
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The article is written and prepared by our foreign editors from different countries around the world – material edited and published by Ordo News staff in our US newsroom press.