Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
THE INFLATION MEGA-TREND QE4EVER! - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Gold War - Thinker, Trader, Holder, Why?

Commodities / Gold and Silver 2014 Aug 20, 2014 - 11:00 AM GMT

By: John_Mauldin

Commodities

By: Grant Williams

Sometimes, just sometimes, you need to stop for a second, take a step back, and reconsider the simplest pieces of any puzzle.

David John Moore Cornwall was a real-life spy. A spook. An agent. He worked for Britain’s MI5 and, later, MI6 intelligence services.


Whilst there, Cornwall began a little hobby that, in today’s world, would be unthinkable for a serving intelligence officer: writing novels about the secret world in which he lived and worked.

He chose a nom de plume with a certain je ne sais quoi: John le Carré. The hero of le Carré’s first two novels, Call for the Dead andA Murder of Quality, was George Smiley, a somewhat ordinary spy who grew up in a middle class family and attended an “antiquated Oxford college of no real distinction” but who, apparently, had“the cunning of Satan and the conscience of a virgin.”

Smiley was everything other spies of the time — fictional ones, at least — weren’t:

(Wikipedia): The spy novel writing of John le Carré stands in contrast to the physical action and moral certainty of the James Bond thriller established by Ian Fleming in the mid 1950s; the le Carré Cold War features unheroic political functionaries aware of the moral ambiguity of their work, and engaged in psychological more than physical drama. They experience little of the violence typically encountered in action thrillers, and have very little recourse to gadgets. Much of the conflict is internal, rather than external and visible.

Unlike the moral certainty of Fleming’s British Secret Service adventures, le Carré’s Circus spy stories are morally complex. They emphasise the fallibility of Western democracy and of the secret services protecting it, often implying the possibility of East-West moral equivalence...

In 1979, the BBC adapted what is perhaps le Carré’s most famous novel for television, casting the great Alec Guinness as Smiley in a seven-part miniseries that changed the face of television.

The series, Tinker, Tailor, Soldier, Spy, was a smash hit in a time before box sets and gratuitous action scenes; and despite its measured, almost glacial pace, millions tuned in each week to watch le Carré’s masterpiece of cross and double-cross unfold before their eyes.

The fictional Smiley operated during the very real Cold War between NATO and signatories to the Warsaw Treaty Organization of Friendship, Cooperation, and Mutual Assistance. (Those communist countries LOVED a good, long title. We in the West called it the Warsaw Pact, and it essentially included the Soviet Union, Bulgaria, Czechoslovakia, Yugoslavia, East Germany, Hungary, and Poland. You know, all the powerhouses.)

Looking back on it now, the Cold War was more Ali vs. Cooperman than Batman vs. Superman; but at the time, the world lived in fear of a cataclysmic resolution to the conflict. It seems like a lifetime ago; but those years between 1946 and 1991, when communism finally gave up the ghost, were fraught with fears over a rogue USSR.

Throughout the entire episode, the price of gold — the ultimate barometer of fear — performed as one would have expected it to — once Richard Nixon removed the shackles on August 15, 1971, of course.

Fear of conflagrations along the borders of the Soviet Union led to consistent buying of gold year after year and decade after decade. Yes, there were flare-ups, during which gold saw large spikes; but as “immediate” dangers eased, so did the price — exactly as one would expect.

To be fair, it wasn’t all about “those darn Russkies.” No. The gold price was certainly helped higher by an irritating inflation problem (as you can clearly see from the chart on the previous page). Once Nixon closed that damn window, gold wasted no time in playing catch-up and responding to inflationary pressure as well as to perceived Cold War threats; but either way, once the downward pressure of a fixed price was removed, gold exploded higher — rising 82% in the first 12 months and 419% in the space of 4 years.

There are a couple of interesting points to make about the action of the gold price during those darkest of postwar days (points I’ve made before, but will expand upon this week).

Let’s begin with Asia.

During the 1980s and 1990s, Asian central bank reserves (particularly gold reserves) were nothing to write home about. Thanks to the IMF and the World Bank, we can see exactly what they were:

As you can see, the huge run-up in the gold price during the 1970s occurred against a highly inflationary backdrop and the ongoing Cold War; but, crucially, WITHOUT THE PARTICIPATION OF ASIAN CENTRAL BANKS. (The IFC — part of the World Bank — classifies “East Asia & The Pacific” as China, Indonesia, Japan, Laos, Mongolia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, as well as the Pacific Islands).

If we switch our focus to those same countries’ total reserves, however, a completely different story emerges. From the mid-1990s onwards, total currency reserves soared from $300 billion in 1994 to $5.8 trillion by the end of 2013.

That relentless climb has given Asian nations two things they didn’t have the last time we saw gold being chased higher by the terror of surging inflation and the spectre of a large-scale conflict between opposing blocs: extraordinary purchasing power and the need to diversify their massive holdings of US dollars.

If we throw India into the picture (India is classified as part of South Asia by the IFC/World Bank, along with Bangladesh, Bhutan, the Maldives, Nepal, and Sri Lanka — countries we will leave out of this discussion for now), we can see a microcosm of that build-up in purchasing power laid out very clearly indeed:

Indian reserves doubled between 2008 and 2009, and by 2012 they had tripled to almost $300 billion.

Why is India so important on its own? Well, for one very good reason:

Click here to continue reading this article from Things That Make You Go Hmmm… – a free newsletter by Grant Williams, a highly respected financial expert and current portfolio and strategy advisor at Vulpes Investment Management in Singapore.

The article Things That Make You Go Hmmm: Thinker, Trader, Holder, Why? was originally published at mauldineconomics.com.
John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules