Dear Readers,
I live in the country. I used to live in the city. The most striking difference is the noise. I adore the peace of the country. But there’s a lot I learnt from my decades in the noise.
In London, there are the instantaneous sounds; the screech of black taxi cabs, passing groups of revellers (usually friends!), Tube doors, bus-stop buttons, newspaper sellers, air flows full of music spilling out from shops, restaurants, jazz cellars. These sounds punctuate the day. But they come and go.
Living in London through the height of the I.R.A. threat and safely for many years afterwards, my mind learned to either ignore or react to these many attention-grabbing but momentary sounds. 90% of the shrill sounds could be rejected. But occasionally the noise had a noteworthy message. Theatre shows exited en masse mid-performance, Tube trains exited backwards the wrong way, even once being ushered out a building urgently in our pyjamas.
The daily attention-grabbing news headlines are often like this. 90% of it is just noise; a distraction from the real focus in life. The skill is in acknowledging that no matter how occasionally grating to the soul, 10% of it might be worth acting upon.
But underneath the London noises, often at night in the hour before sleep, I would hear another sound – a constant, unbroken hum. We once sat up on a hill in Richmond Park until after night fall and from there you could hear it really clearly. The park was quiet, except for the crunch of a few walking deer. But the city lit up in front of us was humming. It continued all the time through all the years I lived and worked in our capital city. That constant hum was the background, the base note, and it never changed.
Listening to what’s going on in the world, especially financially, is a lot like this. The headlines are the shrieks and fleeting bangs – they sure get our attention but they don’t last long. Yes, sometimes they require urgent action but not nearly as much as we might emotionally be tempted to believe. But the constant hum is the market and geo-political fundamentals, they are the constant base notes and they are worth listening to.
The price of Gold and Silver may make some jolt moves, either up or down, but what’s the trend? What’s the base note?
These monthly updates will be about doing my best to acknowledge the headlines – the fleeting noises – to spot any to which it would actually be astute to react, but then to look beneath at the hum to the overall trend. Do the recent headlines either distract us from the underlying direction of Gold and Silver or do they help us?
Today we’ll look at three recent headlines to keep our eye on those that help us hear the base notes:
1) Interest Rate Rise
Traditionally, when interest rates go up, the price of Gold and Silver initially go down. This is because the mainstream view is that during higher interest rates it is more beneficial to put one’s capital in to savings accounts. Investors tend to trade in their Gold and Silver E.T.F.’s to instead park the cash where it can earn interest, which then lowers the price of Gold and Silver, as more paper certificates come onto the market.
So, if interest rates are looking as if they may be raised, it might be prudent to see that as a buying opportunity to accumulate more physical Gold and Silver.
And it doesn’t have to be our U.K. interest rates. If the U.S. rate goes up, that will obviously effect the price of Gold and Silver. For example:
“Gold prices took a hit on Wednesday as investors absorbed fresh comments from U.S. Federal Reserve officials, who dropped heavy hints that a March interest-rate increase was up for consideration.” (1st March 2017, Market Watch)
We encourage all our readers to keep an eye on this Federal Reserve announcement on 15th March and get ready to possibly buy Physical Gold and Silver on a price dip.
2) The Housing Market Bubble
This is one of the most significant background hums. And it’s hitting the current headlines again. If the housing market pops, everybody listens. It’s more real and accessible to us than say, the Bond market, which we’ll get onto next.
“Whisper it, but is the house price bubble about to burst? And yes, this is the classic dinner-party conversation from hell, but still. A Rightmove survey out this week found prices still inching up but much more slowly now; there is much estate-agent chatter about buyers refusing even to look at madly overpriced houses, a classic signal of a market beginning to turn. And how you react to this news is pretty revealing.
If it’s with an air punch and the words “FINALLY! YAAAS!” you’re probably under 35 and still renting. If it’s with a feeling of creeping dread, you’re probably older and have just sold a kidney to buy a place you didn’t completely love in an area even the estate agent lookedembarrassed about describing as “up and coming”.
And if it’s with a snort of derision, then you probably live in one of the fairly sizeable parts of Britain – the Blackpools and the Middlesboroughs and the bits of Wales never mentioned in the papers – where house prices haven’t even recovered to pre-2007 crash levels yet, never mind shot up.” (21st February 2017, The Pool)
A house price crash is an unnerving event and affects how secure we feel as a society. So, watch for the signs of an increasing over-stretched housing bubble. When it pops, the general sense of unease often lifts the price of Physical Gold and Silver.
One of the signs to look for is the return of 100% mortgages. These returned to the U.K. via Barclays Bank last year. Before the 2008/2009 crash there were even some 125% mortgages on offer. Any economy that works on being able to take out more credit than even your house value secures is a very fragile pack of cards about to fall.
3) The Bond Market
A bond (or Gilt as they are called in the U.K., due – wonderfully – to their original gilded gold edges on the paper) is a debt bought up by another country. If the U.K. government need more money than they have they borrow it from another country. But because the U.K. is seen as a country in which one can have confidence, the interest rate on that debt isn’t too high. But once the other country loses confidence in the U.K. economy the interest rate on the debt goes up. Which in turn makes it even harder to repay.
Max Kieser recently appeared on The Andrew Marr Show. They had a great discussion, specifically about the U.K. Bond market:
MK: “The Bond Market is now on the verge of a major correction. The Gilt Market was at a 300 year high.” (Meaning it’s about to pop, just like the property bubble).
AM: “The cost of insuring a British debt is rising which means this government’s fiscal stance doesn’t have credibility. If the people who lend us money to pay for this huge deficit we’re running, if they lose confidence, what’s the consequence?”
MK: “The cost of funding [those debts] is sharply revised upwards [interest rates on debts will rise]. Mortgages, of course, will go up, which will trigger another real estate crisis.”
So, the Bond Market bubble is one of the major hidden background hums to watch. As that pops, so will the housing market. So, this recent financial headline helps us hear the underlying background hum. The Bond Market is the section of the financial iceberg that is out of sight below the surface to most people. The Housing Market is the top section sitting above the water. If you watch the Bond Market, you’ll get an earlier heads-up on when the price of Gold and Silver are about to rise substantially, rather than only watching the Housing Market.
How These Three Factors May Affect the Price of Gold and Silver
Max Kieser specifically addressed the price of Gold and Silver in the Andrew Marr Show!
MK: “What’s happening is that every single currency in the world is depreciating against Gold and Silver. Gold is now becoming the de-facto World Reserve Currency. That’s why Germany is repatriating their Gold. That’s why the Netherlands is doing the same.
AM: “They’re taking back their Gold from the Fed aren’t they!”
MK: “And also from France. Because they don’t trust each other. That’s why the Bond Market is problematic. They don’t trust each other [note: i.e. why buy another country’s debt if you don’t trust that they can pay you back?] They want their Gold back in their own vaults. Countries around the world are repatriating Gold. Gold is sitting at new all time highs against currencies, it’s trading up against the British pound.”
MK: “I’ve been saying for 5 – 6 years to position in Gold and Silver because these policies are completely irresponsible.”
In Conclusion
That last statement there is the background hum. That fact is the constant base note that has remained a truth in the economic world since the crash of 2008, regardless of the attention-seeking headlines of this or that. But when the background hum actually becomes a headline it’s worth taking note.
So, to sum up, two out of three of these current news headline indicators move the price of Gold and Silver up (the housing bubble and the bond bubble), while the other might push it down in the short term (an interest rate hike.)
We hope you’ve enjoyed this brief monthly review of key headlines. Browse Bleyer’s website or call one of the team on 01769 618618 for friendly help in purchasing your own Gold and Silver.
