Why is the price of gold not soaring?

Here’s why it should be.

Yesterday the Bank of Japan, (BOJ), announced unprecedented steps, (for them), aimed explicitly at the creation of inflation, with a stated target of 2 per cent in two years. The new boys at the BOJ helm, (who were carefully hand-picked to ensure they would do this), used their first meeting to push through a raft of measures which more than sated even the market’s craving for action. This was heady stuff for central bankers, (especially Japanese ones, who for years have been notorious for under-delivery); they will aim to double the money supply to Yen 270 trn, (roughly USD 3 trn), in two years, almost doubling the amount of monthly bond purchases and lengthening the maximum permissible maturity to include 40-year bonds, increased the pace at which they will buy Exchange Traded Funds and Real Estate Investment Trusts, and even decided to ditch, (temporarily at first), its so-called ‘banknote’ rule, under which its total bond purchases were hitherto limited to the amount of Yen in circulation.

Not surprisingly these measures caused the yen to dive on the foreign exchange markets and Japanese 10-year government bond yields fell below 0.5 per cent. Only in Japan would investors be happy to buy these bonds, with that yield, 0.5 per cent per annum, when the government and the central bank is intent upon creating inflation of at least 2 per cent per annum-only in Japan because over 90 per cent of Japanese bond issuance is snapped up by domestic investors-individuals, pension funds, life insurance companies, government entities.

Will this continue happily forever? That depends on the degree of "success" which the BOJ’s policies enjoy. Japan Inc. had certainly better hope so, with interest rate payments already accounting for more than a quarter of government spending-even with interest rates at 0.5 per cent and lower for shorter maturities!

This is where gold should come into the picture - how can the world’s third largest economy embark on such an explicit inflationary policy without investors rushing to secure an inflation hedge by acquiring the age-old comfort of gold? One explanation is simply inertia; the market has endured nearly two decades of deflation in Japan and will take time to get worried about inflation there, secondly it will take time for Japanese liquidity to find its way into the global economy, but most importantly, the Cypriot and the North Korean crises loom large in investors’ minds and the only challenger to gold as a safe-haven is the US Dollar-hence an unstable equilibrium has formed with regard to the price of gold expressed in US Dollars.

If you believe that the Cypriot crisis will ultimately fade from memory and, pray God, North Korea is playing its old game of sabre-rattling to extort more aid, then someday soon gold will have its day and now is it great time to buy.

Photograph: Getty Images

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

Photo: Getty
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The Prevent strategy needs a rethink, not a rebrand

A bad policy by any other name is still a bad policy.

Yesterday the Home Affairs Select Committee published its report on radicalization in the UK. While the focus of the coverage has been on its claim that social media companies like Facebook, Twitter and YouTube are “consciously failing” to combat the promotion of terrorism and extremism, it also reported on Prevent. The report rightly engages with criticism of Prevent, acknowledging how it has affected the Muslim community and calling for it to become more transparent:

“The concerns about Prevent amongst the communities most affected by it must be addressed. Otherwise it will continue to be viewed with suspicion by many, and by some as “toxic”… The government must be more transparent about what it is doing on the Prevent strategy, including by publicising its engagement activities, and providing updates on outcomes, through an easily accessible online portal.”

While this acknowledgement is good news, it is hard to see how real change will occur. As I have written previously, as Prevent has become more entrenched in British society, it has also become more secretive. For example, in August 2013, I lodged FOI requests to designated Prevent priority areas, asking for the most up-to-date Prevent funding information, including what projects received funding and details of any project engaging specifically with far-right extremism. I lodged almost identical requests between 2008 and 2009, all of which were successful. All but one of the 2013 requests were denied.

This denial is significant. Before the 2011 review, the Prevent strategy distributed money to help local authorities fight violent extremism and in doing so identified priority areas based solely on demographics. Any local authority with a Muslim population of at least five per cent was automatically given Prevent funding. The 2011 review pledged to end this. It further promised to expand Prevent to include far-right extremism and stop its use in community cohesion projects. Through these FOI requests I was trying to find out whether or not the 2011 pledges had been met. But with the blanket denial of information, I was left in the dark.

It is telling that the report’s concerns with Prevent are not new and have in fact been highlighted in several reports by the same Home Affairs Select Committee, as well as numerous reports by NGOs. But nothing has changed. In fact, the only change proposed by the report is to give Prevent a new name: Engage. But the problem was never the name. Prevent relies on the premise that terrorism and extremism are inherently connected with Islam, and until this is changed, it will continue to be at best counter-productive, and at worst, deeply discriminatory.

In his evidence to the committee, David Anderson, the independent ombudsman of terrorism legislation, has called for an independent review of the Prevent strategy. This would be a start. However, more is required. What is needed is a radical new approach to counter-terrorism and counter-extremism, one that targets all forms of extremism and that does not stigmatise or stereotype those affected.

Such an approach has been pioneered in the Danish town of Aarhus. Faced with increased numbers of youngsters leaving Aarhus for Syria, police officers made it clear that those who had travelled to Syria were welcome to come home, where they would receive help with going back to school, finding a place to live and whatever else was necessary for them to find their way back to Danish society.  Known as the ‘Aarhus model’, this approach focuses on inclusion, mentorship and non-criminalisation. It is the opposite of Prevent, which has from its very start framed British Muslims as a particularly deviant suspect community.

We need to change the narrative of counter-terrorism in the UK, but a narrative is not changed by a new title. Just as a rose by any other name would smell as sweet, a bad policy by any other name is still a bad policy. While the Home Affairs Select Committee concern about Prevent is welcomed, real action is needed. This will involve actually engaging with the Muslim community, listening to their concerns and not dismissing them as misunderstandings. It will require serious investigation of the damages caused by new Prevent statutory duty, something which the report does acknowledge as a concern.  Finally, real action on Prevent in particular, but extremism in general, will require developing a wide-ranging counter-extremism strategy that directly engages with far-right extremism. This has been notably absent from today’s report, even though far-right extremism is on the rise. After all, far-right extremists make up half of all counter-radicalization referrals in Yorkshire, and 30 per cent of the caseload in the east Midlands.

It will also require changing the way we think about those who are radicalized. The Aarhus model proves that such a change is possible. Radicalization is indeed a real problem, one imagines it will be even more so considering the country’s flagship counter-radicalization strategy remains problematic and ineffective. In the end, Prevent may be renamed a thousand times, but unless real effort is put in actually changing the strategy, it will remain toxic. 

Dr Maria Norris works at London School of Economics and Political Science. She tweets as @MariaWNorris.