Photo: flickr / Gary Stevens
Despite the announcement of more aggressive monetary easing by the Fed in the form of QE4 and the Evans Rule, gold has been taking a beating as of late.Yves Lamoureux, long-time gold bull who quit the rally in September 2010 and President of the macroeconomic research firm Lamoureux & Co., thinks he knows why.
According to Lamoureux, a lack of synchronicity in monetary easing has been the prime culprit behind gold’s poor performance. The Fed is not providing the totality of global liquidity by itself, and the failure of the ECB and BoJ to adequately encourage short-term liquidity explains why gold has been going nowhere.
In terms of money supply, the U.S. is on a cruise while Japan has been running on a treadmill, and Europe just isn’t hitting the gas pedal like it needs to.
In the past, central bank easing had been more coordinated and synchronised, which had allowed gold to reach its highs. Yves notes that similar contractions occurred in 1980, 1988, 1991, 2000, and 2008 which all negatively impacted gold.
Yves, also offered another reason why gold was particularly hard hit this week. Gold is considered a safe haven asset, and the rise in long term interest rates gives gold more competition. Investors can receive a higher rate of return on their fixed-income assets without worrying about the impact any volatility in the price of gold may have on their portfolios. Yves forecasts “more pain ahead, because rates are going higher.”
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