What’s going on with gold? It was up 17% in the first quarter, in US dollar terms. That was the best first quarter since 1986. And it followed three straight years of falling prices (on an annual basis). Charlie Morris from The Fleet Street Letter says the second quarter is usually gold’s worst. Behind you are the Chinese New Year, Diwali and Christmas. Charlie points out that over the last three decades, you wouldn’t have been hard-pressed to make money in the second quarter. On the other hand, you would have done best if you’d sold in March and bought in May.
That doesn’t mean you should sell now, though. Gold rallied on stock weakness in the first quarter. The resumption of the stock rally hasn’t seen a fall in the gold price. That’s the good news. Also, the talk of Federal Reserve “normalisation” should subside the closer we get to the political conventions in the US. Of course the Fed could raise rates on “frothy” economic data. But my point is the lure of rising US bond yields is unlikely to be a headwind for the gold price.
What about the miners? That’s a different story. Take a look at the chart below. If you’re sitting on profits from a good Q1 gold trade, you’ll want to have a close look.
The gold miners rallied in the first quarter too. They’ve plateaued. They don’t exactly look over-bought, though, do they? But if the 10-day moving average (blue line) crossed the 35-day moving average (red line) you have a technical bearish move. In other words, if you’re sitting on profits in gold stocks from Q1, keep an eye on your trailing stops.
Banks under attack from blockchain
Any conversation about cash, gold and money isn’t complete without a mention of bitcoin and the blockchain. This from today’s International Business Times:
Circle, the leading digital payments company which uses the blockchain as a settlement rail, is launching a social payment app in the UK with the help of Barclays.
It’s the first time the Financial Conduct Authority has granted an E-Money Issuer license to a consumer Internet firm for cross-border payments with blockchain technology.
Circle said the app, which will be available on iOS and Android, will allow UK consumers to send and receive cross border payments with instant conversion between pound sterling and US dollars with zero fees, and that euro and other currencies will follow.
This is just the tip of the proverbial iceberg. The banks are desperate to preserve their role as the middleman in the payments system. If you can do business with whomever you want, safely and securely, across borders and anonymously, without using a bank as an intermediary… well that’s bad for the banking industry.
That’s why the banks are keen to roll out their own digital payment systems. It’s the same reason the Bank of England is keen to roll out some form of digital legal tender. The racket of making money by printing it (seignorage) and making money by creating it out of thin air and lending it at interest (banking) is a good one.
Technology threatens that racket. That’s bad for the banks and good for consumers. Unless banks can be first to market with a product that co-opts the technology and preserves their role in the payments system. Let the games begin.
Category: Economics