Hawaii Six O - Gary Wagner
Great News, Gold is Down
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
My long-term subscribers and readers of my daily column know that I have an intrinsic bias towards gold. This bias is in relationship to the finite quantity of gold when compared to fiat currencies.
Gold and silver were utilized as some of the earliest forms of currencies. The earliest types of government currencies were minted coins made of gold and silver. More importantly, the value of those coins was based solely on the value of the metal within.
That meant that the country with the most gold had the most wealth. By the mid-1800s most countries sought to standardize trade transactions. To that end, they adopted various currency standards based on gold. Paper currency or notes were government IOUs redeemable for an equivalent amount of gold.
In 1913 Congress created the Federal Reserve in order to stabilize currency and gold values. However, that all changed after World War I when European countries temporarily suspended the gold standard in order to print whatever currency was needed to pay for their involvement.
Most countries went back to some sort of a gold standard, which they modified so that they could print currency partially backed by gold. This, of course, was the beginning of the end of the gold standard. The net result of this action was the creation of fiat currencies.
It is the new relationship between government-issued fiat currencies and gold that formed my intrinsic bias for gold.
Gold as a Safe-Haven Asset
Gold also reacts as a safe-haven asset group in times of increased geopolitical conflicts. This was the underlying cause that fueled the most recent rally in gold.
The current trade dispute between the United States and China, an impending military strike by the United States in Syria, and the nuclear ambitions of North Korea collectively heightened geopolitical concerns taking gold pricing higher.
Recent declines in gold prices this week have been largely attributable to these geopolitical events either subsiding or concluding.
The military response by the United States and allies occurred as a one and done event that appears to have concluded. Trade war fears in regard to the current dispute between the United States and China have at least for now been moved to the back burner. As remarkable as it seems, the United States and North Korea will sit down in attempts to resolve North Korea’s nuclear armament.
In other words, it is excellent news that gold is down. While I continue to have an intrinsic bias favoring gold over fiat currencies, it is the safe-haven aspect of the precious yellow metal that no one wishes to exploit. Lower gold prices reflecting a more peaceful geopolitical environment present an easy pill to swallow.
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Wishing you as always, good trading,