The Longest Record Broken: Gold/Silver Ratio Hits Highest in Over 5,000 Years

[tecate]

In other words, have assets that are capable of producing a return while you own them. Even with negative ECB interest rates, I can earn 0.01% from my cash. With gold I get nothing until I sell it.

Surely all assets have their own merits and there's a place for hedging risk and diversifying?

0.01% is your reward for handing control of your money to a bank who can lend as they please. Banks have failed, as us Irish should well know. Last time depositors were lucky enough to get bailed out at the expense of other taxpayers, but the ECB have said any similar future crisis will involve "bail-ins", as happened in Cyprus.

History continually repeats itself in that department. People in countries that have known relative stability are complacent - although I have no earthly idea why - as the Greece/Cyprus scenario and Euro crisis isn't that long ago.

Equities and bonds again involve giving your money to somebody with no guarantee of getting it back.

That's very true - albeit people should note it's also an issue with 'paper gold'. The ratio of paper gold to physical gold is believed to be in the region of 200-250:1. It's quite difficult to get your hands on physical gold and there are difficulties around moving it and storing it. Some studies put the paper silver to physical silver ratio at in excess of 500:1. Can anyone really be sure that physical reserves are there to meet paper silver/gold? A couple of weeks ago, it emerged from Wuhan, China that 83 tonnes of fake gold were being used as collateral.

Gold and silver are comparable with a 50 euro note, which yields no return. The problem with the 50 euro note is the ECB can produce billions more at the touch of a button, which they have been doing throughout the COVID situation.

The temptation at any given time for governments/CBs to tamper is too great. I've been trying to follow this whole modern monetary theory/rampant money printing deal in these virus days. There has been very little commentary from CB circles about the dangers. However, the Governor of Australia's Reserve Bank came out the day and stated exactly that.

 

[cremeegg]

Gold and silver are comparable with a 50 euro note, which yields no return. The problem with the 50 euro note is the ECB can produce billions more at the touch of a button, which they have been doing throughout the COVID situation.

You can always settle a €50 tax bill with a €50 note. Who knows what you can do with an ounce of gold.

 

[tecate]

You can always settle a €50 tax bill with a €50 note. Who knows what you can do with an ounce of gold.

When sovereign currency was backed by gold (pre-'71), it would be akin to the same thing I guess (to a degree, there's still counterparty risk) - and that would get over golds lack of utility as money due to non-divisibility. Everything has its own merits - clearly that's one for a €50 note. However, I'd hope that nobody here has to hand over all of their wealth in tax. I don't think it's a case of anyone having or wanting to hold just one asset. Monetary metals like gold and silver can have their place and the individual can still be in a position to settle that €50 tax bill with their €50 note.

 

[tecate]

Both gold and silver have now responded to the unprecedented money printing - with gold hitting a historic record high.

 

[WolfeTone]

Bitcoin not doing too bad either.

 

[Allpartied]

Not a big fan of gold or hedges like this. I suppose if the world goes mad and govt hands out checks for a million quid to everyone, it might be useful.

Is there really any sign that money printing, or QE or any other fancy mechanism is going to produce inflation. I mean normal inflation, 3 or 4 %. Hyperinflation looks even more unlikely.

Is there any sign that people are going to spend quickly, in large numbers across developed economies. Is the velocity of money going to increase, because the govt increases bond buying, or backs loans in dodgy derivatives? At the moment people are fearful, uncertain and will likely hold on to cash. This will, likely, produce deflation and make cash more valuable than any commodity.

Japan has been printing money, borrowing like good o, and no inflation, not a jot.

Everyone points to the German experience in the 1920's, but the circumstances were entirely different and nothing to do with the type of fiscal stimulus being advocated in Europe and US. In more recent times hyperinflation is found in countries who have been subjected to embargoes or sanctions or have been unable to collect their taxes properly.

The boom in gold and silver, look like bubbles to me. As for Bitcoin, it's become a joker in the pack, surging up and down in value for no apparent reason.

 

[joe sod]

because the govt increases bond buying, or backs loans in dodgy derivatives? At the moment people are fearful, uncertain and will likely hold on to cash.

Governments issue bonds, they don't buy them, I doubt the Irish government has ever bought a bond ever, central banks are the main buyers which they print cash to buy , therefore every time they buy a bond they have increased the money supply. In 2008 most of that cash was swallowed by the banks to shore up their balance sheets, now the governments are giving that cash directly to people it's going straight into people's pockets, that will be inflationary especially when the economy opens fully and is not restricted.
The reason why we did not have much inflation up to now is because of the entrance of China and cheap manufacturing, but that is also ending with the looming trade wars which are escalating and now some countries are stripping Chinese technology out of their telecoms networks. Therefore the China effect is being reversed

 

[tecate]

Not a big fan of gold or hedges like this. I suppose if the world goes mad and govt hands out checks for a million quid to everyone, it might be useful.

You don't have to dominate your wealth with disproportionate amounts of gold/silver. As regards cheques, what government hasn't pushed out free money? The free money cheques are coming to an end in the US but they're expected to renew that deal.

Is there really any sign that money printing, or QE or any other fancy mechanism is going to produce inflation. I mean normal inflation, 3 or 4 %. Hyperinflation looks even more unlikely.

I've been trying to get my head around this over the last few months but not much more the wiser. The reality is that we have not had this level of money printing before - it's unprecedented. Therefore, nobody really knows. There was no inflationary wave following the use of QE after the last financial crisis - but then economies never got weened off QE. Apparently, that's going to be an ongoing problem.
The distribution of the free money was confined to the banking system back then - there was no PPP or free money cheques arriving in the mail. Even if they manage to work their way out of this relatively unscathed, the practice is inequitable with those closest to the free money faucet benefitting most (The Cantillon Effect).

At the moment people are fearful, uncertain and will likely hold on to cash. This will, likely, produce deflation and make cash more valuable than any commodity.

There's a case being made that tech is making deflation an inevitability. However, monetary metals can still be a hedge in this instance too...if we're going to have negative interest rates.

Japan has been printing money, borrowing like good o, and no inflation, not a jot.

I don't claim to fully understand it but some commentators make the point that the Japanese scenario is somehow unique in that their debt is owned within Japan.

As for Bitcoin, it's become a joker in the pack, surging up and down in value for no apparent reason.

There's a logic to it. Bitcoin is comparatively young relative to gold/silver/sovereign currencies. Volatility is part of its evolution. It has already been shown to have reduced its rate of volatility - and that will continue over time as its market cap expands and price discovery continues. When you zoom out, you see the higher lows that bitcoin puts in year-on-year. That's symptomatic of it grinding out its place in the world and due to it having a fixed cap supply.

 

[WolfeTone]

Is there really any sign that money printing, or QE or any other fancy mechanism is going to produce inflation. I mean normal inflation, 3 or 4 %.

Yes, I would have thought the same, but now I think it just props up asset prices. I see that RTE is reporting that houses prices here have increased last month, albeit by 0.3%.
First monthly increase since January
The report is interesting insofar that global economies are falling off a cliff and even at our national level, house price sales have crashed by 33% yoy.
Despite this, house prices went up in July! Does not make sense to me.

 

[tecate]

Yes, I would have thought the same, but now I think it just props up asset prices. I see that RTE is reporting that houses prices here have increased last month, albeit by 0.3%.

House prices can go up and it doesn't affect the reported inflation rate given that CPI doesn't take account of assets.

 

[WolfeTone]

Yes I know, it's the fact that house prices have risen in the midst of the fastest economic slowdown ever that has me perplexed. Sales of houses fell 33% yoy, yet four months into this health crisis and prices are going up?