Economy & Politics

Gold is not toilet paper

The price of an ounce of gold has passed the 2000 point markimago images / Michael Weber

Gold has always been a raw material and a religion at the same time. A metal that magically attracts humanity, surrounded by legends, soaked in blood, accompanied by greed and megalomania. As a raw material, its function is clear and simple: it does not generate a return, but it has always had a value since people can walk upright. And you can store pretty and large amounts of it in a fairly manageable way. Gold is the often invoked “safe haven” or ultra-mega hedge: If everything collapses, you have at least a few Krugerrands as the basis of your assets.

The price of gold has passed the $ 2,000 an ounce mark this week, an all-time high, and as always with symbolic hurdles – that’s no different with the Dax, the euro, or Amazon stock – it is now being discussed what the reason is, what the has to mean strong increase. Is it a harbinger of major turmoil in the financial markets? The gold beetles and the group of crash prophets are already rejoicing: they have always said that something is going wrong with our financial system. And now all the new trillions of Corona debt …

Gold price (per ounce in dollars)


source: tradingeconomics.com

I never fully understood the preachers from the End Time Camp, because a world in which you can only pay with Krugerrand or 5 and 10 gram bars would have completely different problems. I would rather worry whether I can still drink the water from the tap, the electricity is running and my family will not be attacked at the next intersection. And not whether my Fiat Money bill still has any value. For me, gold was always an asset class among many (even if my advisors always wanted to cheat it out of my portfolio because they don’t earn anything from gold): five or a little more percent of your assets, done. My grandfather always had stocks of Krugerrand at home, but he also had sugar in the attic – the war generation.

We experience an “Everything Rally”

But what happens now? I am rather surprised at the fact that the gold price is rising: it was clear that with trillions of new debts and central bank pumps on hold, these interventions have an impact on all asset classes: This applies to real estate, bonds and stocks. The stock markets have been floating around on their V-curve for weeks and wonder why they have recovered so quickly. The word “Everything Rally” is already making the rounds. The new massive combination of fiscal and monetary stimuli is having an effect, it has to be.

The most important driver of the gold price – like tech stocks – is the correlation with real interest rates. In the United States, they have now fallen into negative territory, and the dollar has weakened. The phenomenon is known from Japan, the Eurozone and Great Britain. The US was seen as the last bastion of positive real returns on safe investments. The yield on 10-year inflation-protected US government bonds, however, fell below minus one percent to a historic low last week.

An attractive interest rate on safe bonds can no longer be found anywhere in the world – and that creates uncertainty about how much can be made with bonds in the next decade. So the money is pushing elsewhere, in the stock markets, but also in gold.

The endgame from the endgame

Yes, the uncertainty. Everything puzzles and oracles about further waves and slumps, and as long as there is uncertainty in the game, people choose security and their capital flows into supposed security. Or “safe havens”.

The Germans’ urge for gold has always been pronounced, sometimes something manic. But just because gold traders have been reporting on snakes in front of their shops for a long time, you shouldn’t go out. After all, gold is not toilet paper. If you own gold, you should keep it now (if you need liquidity, you can sell it now). If you don’t have one, you shouldn’t panic at these high prices. Especially not to use it as an end-of-the-day buffer.

All of this does not mean that the crash prophets and gold beetles do not have a point: the financial system is far from normal, or rather: the delicate attempt to normalize it and, for example, cut back bond purchases by the central banks, was abruptly and brutally interrupted, for well-known people Establish.

Anyone who previously felt that central bank play was an endgame will now experience the endgame from the endgame: Many years it will be a matter of managing, understanding and taming these gigantic financial flows, and this influences and distorts prices and leaves interest on for years to come disappear. It remains to be seen whether this is perceived as the “New Normal” or “New Abnormal”. I see it as a new old necessary evil. However, the price of gold does not determine the prosperity of tomorrow.


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