Analysis of gold's duality

Hi everyone,

There are essentially two sides intrinsic to gold. It behaves like a currency and or a commodity. Gold as a currency shines when an IMF basket currency loses value. Gold as a commodity shines when a major economy does well, which reflects in the practical uses of the precious metal in areas such as jewellery. Investors were attracted to precious metals after 2008 when IMF currencies went down with economies running and being sustained by the liquidity of bond programs and low lending rates. That is, gold shined when it's intrinsic traits were unbound by one another which formed a v shape instead of a / or \ shape. That is, it dint go up on one side and down the other. It's rise appeared meteoric. Since then there has been rampant speculation on what would cause another meteoric rise or even a modest one.

There are several offshoots of the duality that could warrant another rise in the precious metal. But let us examine the scenario that is on everyone's mind. That is could there be another bull run, which exacts similar circumstances to 2009. The answer is that is unlikely. Sorry to disappoint anyone. The potential for loss was evident more so back then and that potential is less evident today. Several major economies went down with their corresponding interest rates. Currencies went down and lending went up sustaining the everyday running of their economies. Savvy investors then locked in currency value by switching to the premier currency of the world, gold, and with the economy sustained everyday sales of jewellery carried on as per usual. A repeat would require a reloading of currencies strengthening first. Can the currencies strengthen in a manner that allows the economy to run as per usual. Chairman of the federal open market comittee seems to think Keynesian ideology makes this possible and is most likely to attempt this at a snails pace, as opposed to the 27 rate rises that proceeded 2005 leading into the 2008 crisis. However, there is the possibility that if Yellen succeeds then that would allow for an exact repeat of the scenario in that an IMF reserve currency could lose value and the economy could fall from earlier gains, which makes the environment ripe for another meteoric rise just being short of a catalyst. So there is hope for a repeat but we would have to lose before we win. Perhaps that makes our low a value investing opportunity limited by our patience. Perhaps we need not be as patient as we have been led to believe.

Golds value as a safe haven is as essential as ever as to say the world will never crash again is arrogant. Gold's safe haven status is attributed to it's intrinsic value as a currency that has surpassed all other currencies in terms of reliability over time. Yes, bitcoin has managed to surpass it momentarily but pulled back substanitally with the drama associated with the black market and unregulated market rorts. However, in a time of needing safety there are bonds, property and strong currencies. Should currencies recover enough to fall again or should currencies just plummet like the Rupel then we need examine the options. The bond market has opened up all the way down to 0 % interest rates. There are too many bonds out there for bonds to be a viable option due to negative coupons being the likely consequence of raising rates. Property is tried and tested and it's rise has been head to head with gold. Australians will benefit from negative gearing and foreign investment to prop up prices. However, our American counter part is dealing with a lack lustre property market that is threatened by the very same rate rises that threaten the bond market. Subsequently, raise rates and property goes down with bond coupons. This leaves strong currencies as the last resort when a basket currency loses value. A growing trend amongst developing economies is to introduce negative deposit rates, which we have seen in Germany and with the Swiss not to mention the proposal to tax deposits locally. This measure discourages savers and funnels them into assets, which is what the fed wants as our intended safe haven. With exception to gold, assets are threatened by interest rates too and asset inflation is likened to being a ponzy scheme reliant on gdp growth but that is another analysis all together. Gold as a currency is not threatened by interest rates as it thrives from higher inflation and does not have a yield. This independence means that in the event of another crisis, there are not many options for safety whilst interest rates are being raised. Putting off interest rates just makes the debt soar. Perhaps until rates are risen then debt would be the smart investment. Perhaps, Yellen blinks and lets debt rise at the expense of rates. Anything could happen...

Every decade markets have faced one crisis or another that warranted safety. In the 70's it was US inflation. 80's saw the wall street sell off after the collapse of the Berlin wall. 90's saw the collapse of the soviet union and the Asian debt crisis. The noughties saw the dot com, sub prime and derivatives crash. We are five years in to the tennies and nothing so far. Perhaps markets have found inner peace but I doubt that. I see the next crisis being a bond and property crisis that begins in June or July.