We usually hear two criticisms of gold, first that it gives no yield and second that it is bought in times of uncertainty.

As we see negative yields popping up in several countries and likely more to come, gold is now ‘yielding’ more than such currencies. Mervyn King, ex-Governor of the Bank of England, pointed out yesterday that interest rates are now a central bank tool to lower exchange rates. It is traditional thinking to believe that yield is very important and they will run to deposits as low-risk places to park savings. Today, such thinking is almost irresponsible, because you could deposit your money in the U.S. dollar, say, a month ago, to get a miniscule annual yield [before fees] and see it fall 4%+ within just a month! It’s worse in most other currencies! Gold, meanwhile, is an anchor to value.

As to gold being bought in times of uncertainty, what uncertainty? Economic uncertainty, or currency uncertainty? We suggest that it is currency uncertainty, which reflects central bank handling of currencies and their values. In each country this is different. With the dollar bull market now over, other currencies are going to struggle to fall, but all are likely to fall against gold as global currencies continue to fall, but not so much against each other, but in credibility.

In the developed world, there is a point at which investors will want to turn to gold heavily, but likely it will be too late to get low prices, as Asia has been sucking up available supplies for years now.

The classic example of distrust in a government controlled financial system is India, where distrust of government and banking has led to the population having an alternative financial system based on property and gold, usually out of sight of the government, because of the corrupt system of financial policing and bureaucratic interference.

In the developed world, trust in government and the banking system is complete, with the banking system essentially controlling all our transactions and taking fees from them. Until 1933 gold was an alternative, but this was removed as such, by confiscation. What happened to that gold? Government in the U.S. banned its use by individuals for 41 years and placed it in their reserves. Why? Governments needs that gold as insurance against their potential failure in managing currencies. If government trusts gold so much, shouldn’t you?

Gold ETFs There were purchases of 2.676 tonnes of gold into the SPDR gold ETF yesterday but no change in the Gold Trust. The holdings of the SPDR gold ETF are now at 821.661 tonnes and at 192.72 in the Gold Trust. While the purchase of gold into the SPDR gold ETF was significant it was not a huge amount relative to recent purchases. What is significant is that these sales did not touch gold prices until this morning in Asia.

Silver – The silver price continues to run ahead of gold and is showing a sterling performance today. It hasn’t broken away from gold yet and remains reliant on gold to give it direction. We continue to believe it is priced as a monetary metal, not on its fundamentals.