I’m short gold. And it’s not feeling good.
As you may already know as a Capital & Conflict reader, betting against the value of gold doesn’t come naturally to me – I love the stuff. But I’ve ended up doing so, quite by accident.
My girlfriend booked a holiday for us a while back. As a thank you for arranging it all I suggested I’d pay her my share in gold, as she doesn’t own any yet.
But the bullion store I planned on bringing her to isn’t open on weekends… and there’s been so much work to do on The 2019 Gold Summit that I haven’t been able to go during the week!
Since then, the price of gold has been on the march… and the weight of metal I agreed to deliver is becoming ever more expensive.
It’s my own fault. Interviewing some of the finest minds in the gold space on what makes it such a great asset, while inadvertently shorting it… the irony is palpable.
Still – at least I’m hedged. I first bought gold when it was £700, and my hunger for precious metals has only increased. Eoin Treacy was telling me yesterday about investors he knows in China who just like holding gold, and derive a feeling of security from its weight and how quickly it warms up in their hands.
My appreciation for gold has not reached such “Smaug”-esque levels. But there’s something to be said for the feeling of security a gold bar provides, compared to a flimsy roll of banknotes. One of our speakers at the gold summit wanted to bring a bucket of pound coins with him. He wanted to pour them out across the table during his presentation, just to illustrate the illusory value of 250 pound coins, when all they can buy is a single gold sovereign. (Sadly, he flew in from the States, and none of the banks nearby could give him what he wanted as he wasn’t a local customer.)
Freshly printed banknotes are certainly not going to be in short supply in the near future. Bernie Sanders announced he was running for president (again) yesterday. Last time he aimed for the Oval, his chief economic adviser was Stephanie Kelton, a standard bearer and acolyte of Modern Monetary Theory, or as I call it, the Magic Money Tree.
MMT claims that all economic activity is ultimately driven by the government, and as a result the government should have total control of the money supply. Governments should never bother to reduce their debts, as to do so would be to hamstring the economy. Instead, they should spend and spend, until all the economic capacity in the country is being used, unemployment is low enough, and inflation is at a level the government thinks is OK.
It doesn’t matter how close Sanders gets to the White House in his presidential run. MMT, which gives control of the printing press to whoever can bring about its adoption, is rapidly becoming popular from opposite sides of the political spectrum. We may well see Donald Trump himself become an advocate, as it would allow him to pacify the Democrats with welfare spending, while funding his wall and a military revamp.
MMT allows the government to keep almost all of its campaign promises, by making its citizens pay for it in spades through inflation. Every boondoggle, every pet project, is suddenly feasible when the government can run the printing press regardless of what it can raise in taxes.
Global warming and wealth inequality are currently being used as excuses for its implementation, though I’ve a theory that it will be adopted so governments can wage Cold War II, and pay for a new space race and a shiny new set of hypersonic nukes.
Before the acolytes of the Magic Money Tree can get in charge, they’ll need to get past the old guard.
“MMT hasn’t worked out well for other countries. Consider Germany in the 1920s, or Venezuela and Zimbabwe more recently” said Bill Dudley, former vice-chair of the Federal Reserve.
But it’s men like Dudley who oversaw the mess we’re now in, and his voice will likely fall on deaf ears. And if the US starts adopting MMT, it will lead the way for other Western democracies. A global adoration of the Magic Money Tree will begin.
And that’s when you’ll really not want to be short gold.
With some of the world’s largest mining companies often sifting through a hundred tonnes of earth before they can find a single ounce of gold in it, scarcity is strongly in gold’s favour.
The argument for owning it – even if it’s a very small part of your portfolio – keeps on getting stronger to my eyes. But don’t just take my word for it. Tune in next week, and see what experts with decades of experience in the gold market have to say.
Now if you’ll excuse me, I’ve a short gold position to cover…
All the best,
Boaz Shoshan
Editor, Capital & Conflict
Category: Investing in Gold