I just want to write this post to wish everyone a Merry Christmas!
But before I do, I also need to add that something quite odd is going on in the gold market.
I’ve been investing in gold for quite a while, on the grounds that I think one day fiat currencies – ie currencies not actually backed by anything, other than government fiat - will collapse, based on simple maths, and the fact that every other fiat currency in history ever tried has, eventually, also collapsed. The temptation for a government to print money, if there are no constraints on creating it (ie it’s not backed by anything), eventually just becomes too overwhelming. Subsequently, people lose trust in the bits of paper being issued, realise it's all just made up, and the whole thing goes down the swanny.
This is the first time an entire hemisphere has tried this process at the same time, which should be quite wild when it ends.
Buying physical (or non-physical, but allocated) gold is the simplest and, arguably, best way to hedge against this (ps I AM NOT GIVING OUT FINANCIAL ADVICE! ASK A PROFESSIONAL). Silver, too. Houses also used to be good, as long as the rate of debt interest against them was fixed, but I suspect Rachel’s increase on property taxes in the budget is only the beginning.
Recently, the gold price has been increasing by quite large amounts – although to be technically accurate, I’d once again point out that the value of gold has been staying the same (most stuff priced in gold is – within quite a wide tolerance - more or less stable): it’s just that the number of £s needed to buy the same amount of gold has been increasing, as the value of the currency slowly (for now) disintegrates. It’s currently about £3,200 an ounce – when Gordon Brown sold a big chunk of the UK’s (our) gold c. 2000, it was about £175 an ounce (whoops), just FYI. Idiot.
As a side note, this poses a bit of a problem for a gold “investor” – if you buy gold to hedge against a collapsing pound, and it’s gone up in £s more than you think – should you sell? Seems unwise to sell gold in order to get more £s than you thought you could, as the £ has collapsed faster than you thought it would….but I digress. The price of gold often actually initially goes down in a market crash, as that's the only thing that can be liquidated in a panic to cover margins.
Now to the odd bit. Recently, gold has experienced something called “backwardation”. Backwardation is a term used by coke snorti….sorry, I mean traders at investment banks, to describe a situation where the spot price – ie today’s price – is higher than the futures price: a futures price being a contract for future delivery. For example, in the middle of winter, the immediate price of wheat might be quite high, as there’s a shortage: but there’s a harvest in a few months, and there’ll be more then (unless mad Keir takes all the farms away, not out of the question) so the futures contract price for wheat is lower. This would be a case of backwardation in wheat.
However: THIS SHOULDN’T HAPPEN TO GOLD, and in fact almost never does. There’s no shortgage of gold, and no sudden production surge on the horizon – and as it remains constant, ergo no backwardation happens in the gold market. Ever. Except….erm, well, it’s happening now. As of last month.
Why?
Well, this suggests that coke snorti….sorry, I really should say traders, are losing faith in futures delivery contracts. In other words, they no longer believe in the bits of paper being issued: they’d rather have physical gold, now, than a bit of issued paper in a few months time, even if this means they lose out on other bits of paper. Basically, they’re losing trust in the bits of paper.
This is quite concerning – if the people right at the heart of the system are starting to think that some of the bits of paper they trade with each other every day are actually made up (gosh!), then how long before everyone else realises the same about all of the other bits of made-up paper - basically, everything else…..?
I still think we're not quite there... but when they do – the system will collapse. When everyone works out that what they think of as money is actually just worthless bits of paper based on a credit somewhere that won’t be paid, then there’s no energy production, as there’s no hydrocarbons to produce energy (note: mad Ed Miliband is doing his best to get to this bit on his own). And if there’s no energy, then there’s no commercial food production. And what’s the carrying capacity of the UK in this scenario…? I think it’s probably not 70 million, anyway.
So I thought I should point this out, as it is odd.
Anyway, I got sidetracked – I’m sure we’ll be fine. Have another mince pie. Merry Christmas!
