Gold’s Perfect Storm
The comments below are an edited and abridged synopsis of an article by Richard Mills
US Treasuries are popular with investors in a crisis or pending crisis but lately, they have become much less popular as a means of storing wealth.
The reason is simple: T-bills don’t offer a good return, and neither do other sovereign debt instruments. Although Treasury yields have been climbing, partly due to Covid-19, this trend has reversed, prompting many fund managers to rotate money into safe-haven bonds.
There’s an old saying on Wall Street: “Six percent interest will draw money from the moon.” And it’s true, but what is also true is: As long as real interest rates are below 2%, gold is in a bull market, and real interest rates below 2% draw investors to gold.
Central banks know this, and so do educated gold buyers.
With Treasury notes paying such low net yields, gold becomes an attractive investment. And while the precious metal offers no yield, its status as an inflation hedge and store of value not subject to fiat currency manipulation are good reasons for central banks to purchase gold. Due to an increase in inflation every decade except the 1930s, the US dollar has lost 90% of its purchasing power since 1950.
Gold, on the other hand, has gone from $35 in 1970 to $1,750 in 2021, a 50X increase!
In October 2020, central banks sold gold for the first time in a decade. The sell-off was reported as profit-taking among gold-producing nations that wanted to exploit near-record prices to soften the blow from the Covid-19 pandemic.
Six months later, the tables have turned.
Up for discussion: China is back into bullion; other central banks pile on; 9.5% drop in gold supply; peak gold; gold reserves are dwindling; port shipments are going bonkers; and conclusion.