Here's Why Gold Is Losing Its Luster
Ed Yardeni | Nov 11, 2014 12:06AM ET
Gold is a hedge against inflationary monetary policy. So why isn’t it soaring anymore? Maybe it isn’t doing so because the ultra-easy monetary policies of the major central banks haven’t boosted inflation. Instead, they’ve become increasingly concerned about the prospects of deflation, especially at the European Central Bank (ECB) and the Bank of Japan (BOJ). At the Fed, the worry must be that the ECB and BOJ are exporting their deflation to the US by pursuing policies that are weakening their currencies. A strong dollar hasn’t historically been good for gold.
I’ve previously explained why ultra-easy monetary policy might be deflationary rather than inflationary. In brief, it might stimulate supply more than demand. In the past, easy money stimulated demand more than supply as borrowers borrowed lots of money and spent it all. Now their debt burdens are such that many may be maxed out. Meanwhile, suppliers have taken advantage of easy money to expand their capacity, assuming that “if you build, they will come.” That’s been a bad assumption for a lot of producers, especially of commodities.
Gold also tends to reflect the underlying trend in commodity prices, including the price of crude oil. Their trends have been mostly flat since 2011, and down more recently.
Today's Morning Briefing: More Relief. (1) Recalling the causes of October’s panic attack. (2) Where are we now? (3) Cocoa price as an Ebola thermometer. (4) Reversal of futures: Distant crude oil prices exceeding nearby ones. (5) QE termination anxiety in US dissipated by more of it from ECB and BOJ. (6) Eurozone economy crawling along. (7) Chinese curse: Prolonged soft landing. (8) Falling oil prices depress Energy earnings, but boost Transportation earnings. (9) US consumers have the will and means to spend. (10) Crude oil plunge yields winners and losers. (11) Evil doers in Russia and Iran among the losers.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.