Gold, Silver, and Currencies

The Turkish lira hit a new record low against the dollar this week as the country's central bank held rates steady. The Wall Street Journal's Caitlin Ostroff and David Gauthier-Villars report: The lira fell 2.1% on Thursday, with $1 buying 7.9792 lira, after the central bank left its key, one-week repo rate at 10.25%, surprising the majority of investors and analysts who anticipated an increase. For several months, the central bank’s main policy rate has been negative when adjusted for inflation, making holding the Turkish lira an unattractive proposition for foreign investors and … [Read more...]

There is a movement afoot in central banking circles to shift from paper currency to digital currency. Sounds convenient and probably like a good idea to many, but the goal from the central banking crowd has almost nothing to do with convenience. Digital dollars would make the job of intervening in markets and manipulating spending and interest rates much easier. Think about an economic stimulus credited to your government issued debit card that has an expiration date. How better to force consumers to spend than to give their money an expiration date? Or what about negative … [Read more...]

In The Economist, Buttonwood explains why "a zero-rate world might plausibly imply more currency volatility," writing: It is natural to think that if interest rates are glued to their effective lower bound, exchange rates will be similarly stuck. An axiom of foreign-exchange analysis is that shifts in policy rates, or in expectations of policy rates, drive currencies up and down. Yet a zero-rate world might plausibly imply more currency volatility. There is little scope for interest rates to adjust to economic trouble. So something else must. The exchange rate is the likeliest … [Read more...]

Prices for gold have soared over $1,800 an ounce, a range that hasn't been reached in nine years. Neil Hume reports for the Financial Times: Gold prices rose to more than $1,800 an ounce on Wednesday for the first time in nine years as data showed investors had stashed a record $40bn of cash into funds backed by the precious metal during the first half of the year. The commodity, widely favoured by investors as a store of value in times of stress, breached $1,810 during afternoon trading in London, with a gain of more than 1 per cent on the day. Gold has risen about 19 per cent so far … [Read more...]

Is Lebanon's currency collapse a harbinger of things to come in other emerging markets? Chloe Cornish reports for the FT: A dramatic collapse in the value of the local currency sparked protests across Lebanon on Thursday night, as the government and central bank struggled to stem the country’s worst economic crisis since its civil war. The Lebanese pound, which has officially been pegged at L£1,500 to the dollar for two decades, fell to L£6,000 to the dollar on the parallel market on Thursday. Local media reported prices as low as L£7,000 to the dollar in some places, amid panicked … [Read more...]

Laurence Fletcher and Henry Sanderson report in the Financial Times about hedge fund efforts to use gold to fight fiat currency inflation. They write: Some of the world’s largest hedge funds are raising their bets on gold, forecasting that central banks’ unprecedented responses to the coronavirus crisis will lead to devaluations of major currencies. Paul Singer’s Elliott Management, Andrew Law’s Caxton Associates and Danny Yong’s Dymon Asia Capital are all bullish on the yellow metal, which has risen about 12 per cent this year. They are wagering that moves to loosen monetary … [Read more...]

Henry Sanderson reports in Financial Times on the historically wide gap in the valuations of the two most common precious metals for investment. He writes: Investors are betting on a rally in silver, after the gap between gold and the industrial metal soared to its widest level in more than three centuries. In March the price of an ounce of gold was 125 times higher than the same amount of silver — a record going back to at least 1687, according to data compiled by Ross Norman, a veteran gold trader. But since then the gap has closed to about 113 times, and analysts say more gains for … [Read more...]