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 rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

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