Gold is not important: This is the message from the large banks that steer you away from it and propose their own products instead, which they say are better suited to your savings needs... which begs the question: Why are they taking so much risk in manipulating its price? In the United States, the Justice Department and the CFTC (Commodity Futures Trading Commission) are investigating several large banks in regard with presumed manipulation of precious metals prices, according to the Wall Street Journal, February 23. These banks are HSBC, JP Morgan, Société Générale, Standard Bank and Bank of Nova Scotia... just a bunch of nice people! We know how severe the fines imposed by the American authorities are, so why, then, risk so much for a supposedly uninteresting metal?
Does it mean that gold is to be trusted, even by these international banks that publicly bash it? In any case, gold is in the view of one of the emblems of world finance, now retired, whose words still carry a lot of weight, Alan Greenspan. He has been Fed chairman for nearly twenty years (1987-2006), he wasn’t shy with the printing press and artificially lowering interest rates, which led to the sub-prime crisis, but he is still sharp. In a recent conference, he was asked where the price of gold would be in five years, and he answered, “significantly higher”, and he confided that the era of quantitative easing and zero rates cannot continue indefinitely and that it will take a significant market event such as a crash or a prolonged recession to exit these policies and that, in this context, the price of gold will benefit.
Exiting these lax monetary policies will be very violent since an increasing number of countries have implemented them: more than half of the world population lives under the hold of central banks using this soft drug! In fact, to Europe, Japan and the United States (in the U.S., QE is stopped but zero rates remain), we must add the BRICs (Brazil, Russia, India, China) and a few other countries (Australia, Canada, Egypt, Turkey). The whole financial system is addicted to this perfusion, but it is a poisoned gift. For the moment, all this printed money is inflating the financial assets bubble, from stocks to sovereign bonds, while bringing liquidity to the banking system. The fall will thus be the more brutal.
So let’s follow Alan Greenspan’s advice and be certain that, once the – very abrupt – exit from the QE plans is realised, we’ll discover that several people and institutions had in fact hoarded some gold without making it public till then! Let’s take some bets: several bankers will have put some gold aside with the utmost discretion, as China and Russia have been doing until this moment. Let’s not be less savvy than they are, and let’s spread the news around.
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.