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.

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Benn vs McDonnell: how Brexit has exposed the fight over Labour's party machine

In the wake of Brexit, should Labour MPs listen more closely to voters, or their own party members?

Two Labour MPs on primetime TV. Two prominent politicians ruling themselves out of a Labour leadership contest. But that was as far as the similarity went.

Hilary Benn was speaking hours after he resigned - or was sacked - from the Shadow Cabinet. He described Jeremy Corbyn as a "good and decent man" but not a leader.

Framing his overnight removal as a matter of conscience, Benn told the BBC's Andrew Marr: "I no longer have confidence in him [Corbyn] and I think the right thing to do would be for him to take that decision."

In Benn's view, diehard leftie pin ups do not go down well in the real world, or on the ballot papers of middle England. 

But while Benn may be drawing on a New Labour truism, this in turn rests on the assumption that voters matter more than the party members when it comes to winning elections.

That assumption was contested moments later by Shadow Chancellor John McDonnell.

Dismissive of the personal appeal of Shadow Cabinet ministers - "we can replace them" - McDonnell's message was that Labour under Corbyn had rejuvenated its electoral machine.

Pointing to success in by-elections and the London mayoral election, McDonnell warned would-be rebels: "Who is sovereign in our party? The people who are soverign are the party members. 

"I'm saying respect the party members. And in that way we can hold together and win the next election."

Indeed, nearly a year on from Corbyn's surprise election to the Labour leadership, it is worth remembering he captured nearly 60% of the 400,000 votes cast. Momentum, the grassroots organisation formed in the wake of his success, now has more than 50 branches around the country.

Come the next election, it will be these grassroots members who will knock on doors, hand out leaflets and perhaps even threaten to deselect MPs.

The question for wavering Labour MPs will be whether what they trust more - their own connection with voters, or this potentially unbiddable party machine.