In this week's Economic Intelligence: What's really behind the recent surge in the price of gold - and what does it mean for investors? Subscribe here[1] to get the full column direct to your inbox every Tuesday.
The gold fraternity was in ecstasy at Monday’s Mining Journal forum in London. The long frustrating grind for the bullion markets is over. Spot prices have sliced through five-year resistance[2] at $1380 like a hot knife through butter.
There is nothing more beautiful for a gold mining executive than the spectacle of total capitulation by the US Federal Reserve. City bankers are already talking about emergency cuts of 50 basis points in July. Markets are pricing in three cuts this year.
The start of a Fed loosening cycle is a rare event and invariably a catapult for gold[3]. This time the effect is turbo-charged by the onset of negative real interest rates across the US maturity curve. It is happening against the backdrop of a disintegrating world trade system, a Sino-US superpower showdown, and the end of global Pax Americana.
Hedge funds are loading the boat on the CFTC futures market. Ole Hansen from Saxo Bank says the last three weeks have seen the biggest jump in ‘spec long’ gold positions since records began. Net longs have reached 190,000 lots. The G4 central banks are moving together like a peloton.
The European Central bank has flagged a cut in rates to minus 0.5pc in a desperate effort to hold down the euro. “It is a race to the bottom,” said Mr Hansen.
Over $12 trillion of bonds are trading this week at negative yields, including Portuguese sovereign debt out to five years, or Spain out to...