Gold as a monetary metal
Comment of the Day

November 11 2021

Commentary by Eoin Treacy

Gold as a monetary metal

Eoin Treacy's view

Gold is a monetary metal. That’s true even if we never use it for everyday purchases. It’s also true even if we never go back to a gold standard. The reason it is a monetary metal is it has a history as a unit of exchange and it is possible for it to become a unit of exchange in some potential set of future circumstances.

The times when gold becomes interesting as a store of value is when it appreciates against a host of different currencies at once. At present no central bank wants a strong currency. A number are being forced to raise rates, and in some cases aggressively (Brazil), but that is born of necessity rather than choice.

The volume of debt issued to deal with the shock of the pandemic is on par with world war spending. Servicing the debt is going to be an increasing challenge because no country wants to endanger their recovery by imposing fiscal austerity. That points to a global trend of financial repression lasting for years, even as major central banks toy with beginning to normalise policy. Rising inflationary pressures have served to alert both the public and investors to this threat to living standards.

Gold is breaking higher when denominated in Turkish Lira, Japanese Yen, Euro, British Pounds, Canadian Dollars, South Korean Won, Polish Zloty, Swedish Krona and South African Rand.

It is firming in US Dollars, Australian Dollars, New Zealand Dollars, Brazilian Real, Russian Ruble, Israeli Shekels, Mexican Peso, Singapore Dollar, Indian Rupee, Indonesian Rupiah and Malaysian Ringgit.

During the last big bull market for gold, the times when it was the strongest currency in the world coincided with the biggest flows into the market.

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