A few days ago I recorded a conversation with Bron Suchecki of The Perth Mint, Australia. Bron is Head of Research and Strategy at Perth Mint which can be found here: https://www.perthmint.com.au/
Bron contributes to several internet fora, including an occasional contribution of his 2 cents at TFMR. Some of his more interesting posts in the mix of fora and blogs, he adds to his personal blog here: https://www.goldchat.blogspot.ie/
Our conversation was planned to be about 20 minutes in length, but we got talking about some pretty interesting angles of the pricing of gold, and it went a little over 40 minutes in what seemed no time at all.
One of the things we talked about is the trading strategies of large financial entities, like banks and hedge funds, who manage a multi currency exposure. The interest rates of each currency, as received when their bonds are bought, is the yield of that currency in the funds' or banks' eyes, and gold is another currency to them. But gold yields no interest rate (unless you lease it away), and therefore gold is a de-facto zero coupon bond in it's own currency. Zero coupon (zero interest rate ) bonds have no yield, but their value increases from a discount at the start to full value at maturity, so their "interest yield" is included in their price, and varies as time passes. So if gold is looked at by the asset allocation team of a bond fund, these are things they pay great attention to when they compare gold with eg the JGB, TBond, or any sovereign bond. Now since bond yields (interest rates for each currency) have been traded, and/or massaged to historic low levels, this also feeds into the value of zero coupon bonds in those currencies, and into the value of gold which is a zero interest rate bond in gold.
This particular angle of the price of gold gets neglected in the PM blogosphere, who tend to regard gold much more as a high value commodity, and gold is that too. But carry cost vs yield is highly significant when it comes to who is buying and selling gold spot, or at a future delivery date. For instance, if interest rates are high, then a bank could sell gold spot (depressing the price now) and on full settlement in 2 days turn around and buy the future (raising the price later) for which a margin, not full payment is required. Then they can invest the cash raised in a higher yielding bond in some currency. This is called a carry trade. At maturity, they can roll it over, selling spot and buying future, or unwind it.
We went into this aspect of the price of gold in some depth, and also talked about several other matters too, like the Perth Mints own allocated and unallocated clients, and how their inventory is managed, the gold refining business, refining LBMA bars into Metric bars for Asia, and about the fast growing Asian exchanges' business, India and China gold.
I hope you find this video interesting and worth watching.
The video conversation with Bron can be accessed by clicking here: https://www.greenhobbymodel.com/sdcharts/AM-Bron-Suchecki-Interview-final.mp4
Resources and Links
For readers who would like to explore the interaction between currency values (including gold) and their interest rate (bond yield in those currencies) I enclose some links which provide explanation about forward contracts and spot-to-futures arbitrage here:
https://www.babypips.com/school/undergraduate/freshman-year/carry-trade/what-is-carry-trade.html
https://en.wikipedia.org/wiki/Forward_contract
https://www.sharemarketschool.com/futures-arbitrage-its-meaning/
https://www.stlouisfed.org/publications/re/articles/?id=448
Argentus Maximus
The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author & his work can be found here: RhythmNPrice.
