This week our blog is a light-hearted look at three events which may, or may not, support a rise of the Gold Price. In a free market – free from manipulation – one would expect all three to slightly or gravely, depending on the exact circumstances, push the Gold Price higher. Because there is logic behind each one:
1) The Apple Watch
The new Apple watch was launched this week amid, as usual, way too much attention. Having said that, I have the latest Apple iPad Air 2 and I can’t imagine life without it in the sense of useability and connectivity to the information, global voices and close friends I enjoy every single day. It really is a blessing which I fully utilize. But as the author of this review in Business Report states: “Don’t get me wrong: I want one, even though it’s basically a smaller version of the iPhone, which in turn is a miniaturised iPad, which itself is just a small iMac, all of which I already own.”
But seriously, why would the Apple Watch be able to push up the Gold Price? Well, the high-end model of the watch is the Gold Apple Watch, containing an estimated 2 ounces of Gold! “Apple may consume up to 756 tons of gold per year in the production of its new luxury Apple watch,” was Friday’s breathless e-mail from a company called Goldcore, which provides buying and selling services for precious metals. “This equates to roughly one-third of gold’s total annual global mine supply. May have enormous ramifications for gold market and propel prices higher.” (Mark Gilbert)
“Apple, if the gold bugs are to be believed, will hoover up a third of the world’s gold every year to bling its timepieces. But that incredible claim relies on some very sketchy assumptions at almost every step.” It’s a stretch at best. Mark Gilbert concludes: “At the current gold price of about $1 175, wrapping 2 ounces of gold around its watch technology would cost Apple $2 350 per timepiece. At gold’s recent peak of $1 900 in in September 2011, that climbs to $3 800. (Apple’s treasury department will need to spend a lot of time hedging itself in the futures market – or stockpile a lot of metal – if it doesn’t want to be at the mercy of market volatility.) It’s clear why gold bugs want the Apple story to be true.”
Who knows? We’ll wait and see; because we’ve learnt not to be surprised by much in this business.
2) Iran and the Strait of Hormuz
This topic isn’t quite as light hearted! The threat of Iran closing the Strait of Hormuz has been bubbling under the radar for several years. Here is Jeremy Herb of The Hill talking about such a threat 3 years ago!
“A closure of the Strait of Hormuz, even if short lived, would disrupt the world’s oil markets, something that the United States hopes to avoid. Approximately one-fifth of the world’s oil travels through the strait.” Listen to his closing line, in light of this week’s past events in Congress and Iran: “The United States and its allies suspect Iran of attempting to seek nuclear weapons, while Iran insists its nuclear program is for peaceful purposes only.” It is sad to see how far the bar has fallen in keeping Iran accountable in just three short years due to weak foreign policy on the part of the Obama administration.
But it’s been an epic week, with certain Heads of State and some very gutsy Republicans standing up to Iran and proposing “no deal, no nuclear program”. So once again, Iran has been screaming from the headlines, as Congress does exactly what it was designed to do and tries to stop the over-reach of the executive branch of the United States (ie: Obama) making a bad nuclear deal with Iran, which would affect the UK, Europe and the States.
But if Iran become unhappy, the threat of closing the Strait of Hormuz rises again. But the closure of the Strait of Hormuz is child’s play to the growth of a nuclear Middle East, but just to say it is worth noting that global oil wars affect the Gold price. Most wars affect the gold price but this one will particularly, as oil is such a foreign-policy motivator. Reduce the oil supply, and the price of oil goes up. The price of oil goes up, the price of food production, transport and oil-based plastics goes up (ie: a high proportion of daily consumer products). That inflation feeds up the Gold Price. Once again, this is assuming a free market within the metals industry. We may see the opposite, we may see a delay. But Iran is worth watching.
3) The US Debt Limit Ceiling (again!)
So we covered this one before, when the debt ceiling reached an impossible-to-grasp $14 trillion dollars of debt in 2013. US Debt is now estimated at over $18 trillion dollars! The debt limit deadline is up for this coming Monday 16th: As Rick Moran asks in The American Thinker: “Are you ready for another debt limit lalapalooza?
“In a Friday morning letter to House Speaker John Boehner and other House and Senate leaders, Treasury Secretary Jack Lew, said that his office will be forced to suspend the issuance of State and Local Government Series securities on Mar. 13 unless the debt limit is raised. The U.S.’s top finance official said the U.S. will hit its debt limit on Mar. 16, but would begin taking “extraordinary measures” to finance the government on a temporary basis, according to the U.S. Treasury.
“Accordingly, I respectfully ask Congress to raise the debt limit as soon as possible,” Lew wrote in his letter.
As we have covered many times, an increase in sovereign debt precedes currency collapses. As much as we don’t want this to happen, it is important to realise the scale of the hole the world’s economies are in. Words can’t really get these types of numbers across, so after much searching we have found this short but rather powerful and thought provoking article. Please watch the 2 minute video at the end for the full impact of this presentation: The US Debt Visualized. Note it is based on the 2013 figure of $14 trillion, so it is visualizing the debt as already too small but it is one of the more powerful and clear visualizations we’ve come across.
Whether the Apple watch really will affect the price of Gold we don’t know, but what we do know from history is that all three factors – in theory and eventually practice – rise the price of Gold and Silver:
1) increased demand for the physical product
2) threat of or actual war
3) devaluing of currency value and sovereign debt
Throughout history, when a currency collapses, the population rushes into Physical Gold and Silver, usually too late as the price sky rockets out of their reach. We are seeing an elongated buying opportunity as the paper price of Gold and Silver consolidates, keeping the price of the physical metal on a general plateau.
We recommend not waiting until the price begins to run. Browse our website now for Gold and Silver bars and coins now and call one of the Bleyer team to find out more about holding your Gold in a Pension, safes and secure storage and our current special offers.