RE: Printing money19 Mar 2020 16:34
Interesting, but long read from an article published Sep 23 2011 (seems a little familiar):
Over the past couple weeks, gold has fallen from a high of around $1920/oz to an intraday low of around $1730/oz (about a 10% drop). On Sept. 22, 2011, alone gold fell about 3.7%. This has happened as the global economy marches ever closer to Lehman 2.0 – a three-pronged collapse of the European banking system, the US economy and the Chinese economy. I am being inundated with questions from people wondering why gold is falling as the financial crisis worsens. After all, isn’t gold some sort of safe haven?
The first thing investors need to understand is that gold is priced in US dollars. This means that as the dollar rises the price of gold falls, all things being equal. The dollar is quickly rising because it is a safe haven (US Treasuries are a safe haven that must be purchased in US dollars) and because asset liquidations around the world are gaining speed causing a growing shortage of dollars.
The second thing investors need to understand is that gold, as an asset that has performed well, is a source of funding for margin calls made on declining assets. This means that gold is undergoing a degree of "forced selling."
One only has to go back a couple years to see how gold reacts during a financial crisis. The chart below shows the price of gold during the financial crisis that arguably began with the collapse of Bear Stearns in March 2008. (There are multiple ways to define the true start, but I had to draw a line in the sand and the first major i-bank collapse sounded like a good place to start.) During this time, gold prices fell by about 25% and subsequently recovered all losses. This was a scary ride for anyone holding gold at the time, but it’s an incomplete view of gold’s performance during the crisis.
The second chart below shows gold during the same period priced in US dollars, euros and Canadian dollars (indexed to 100 for comparison purposes). During the 2008/2009 crisis, as the US dollar was rising while the euro and Canadian dollar were falling and this is reflected in the different gold prices. Gold priced in Euros and Canadian dollars fell less and recovered faster than gold priced in US dollars. This is precisely because the US dollar was so strong during that period. However, as the monetary response began to unfold (QE1 announced December 2008) and trillions of US dollars were unleashed to backstop the financial system, gold in all currencies began to rally dramatically.
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