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This Is What Gold Does In a Currency Crisis
This Is What Gold Does In a Currency Crisis.
To say that gold is in a bear market is to misunderstand both gold and markets. Gold isn’t an investment that goes up and down. It is money in the most basic store-of-value sense. Most of the time it just sits there, and when its price changes in local currency terms that says more about the local currency than about gold.
But when currencies collapse, gold shines.
Consider the above from the point of view of a typical Russian. The ruble is tanking (no need to understand why — all fiat currencies go this way eventually and the proximate cause is almost irrelevant). Russians who trusted their government and kept their savings in, say, a bank account, are losing their shirts. But those who own boring, doesn’t-pay-interest, in-a-bear-market gold have seen their capital appreciate in local currency terms by about 60 percent in just the past month. They’re not “making money,” but they are preserving wealth.
Russian Currency Crisis and Defaults Could Create Contagion in West – GoldCore United States
Russian Currency Crisis and Defaults Could Create Contagion in West – GoldCore United States.
Russia’s currency market witnessed further huge volatility again today. The finance ministry said it would start selling foreign exchange which are primarily in dollars. This appeared to reduce selling pressure on the battered rouble.
The fall of the rouble this year has been severe, with a 50 percent fall against the dollar and of course gold this year. The slide has been precipitous as in the past two days alone, it fell about 20 percent against the dollar and gold.
On Monday, the ruble fell 10% against the dollar and gold followed by another crash of 11% on Tuesday, despite a massive rate hike.
The heavy selling pressure this week, made the central bank sharply increase its key interest rate by an unexpected 6.5 percent or 650 basis points. The move did little to buttress the currency in the short term as speculators and traders continued to sell the rouble.
Ruble crisis could shake Putin’s grip on power | Reuters
Ruble crisis could shake Putin’s grip on power | Reuters.
(Reuters) – Russia failed to halt the collapse of the ruble on Tuesday, leaving President Vladimir Putin facing a full-blown currency crisis that could weaken his iron grip on power.
A 6.5 percentage point interest rate rise to 17 percent overnight failed to prevent the currency hitting record lows in a “perfect storm” of low oil prices, looming recession and Western sanctions over the Ukraine crisis.
Putin has blamed the ruble’s crash on speculators and the West, while a presidential spokesman on Tuesday attributed the market turbulence to “emotions and a speculative mood”.
The rouble lost 11 percent against the dollar on Tuesday, its steepest one-day fall since the Russian financial crisis in 1998. It has fallen 20 percent since the start of the week and more than 50 percent this year.
As Moscow faced up to the brewing crisis, U.S. Secretary of State John Kerry said sanctions could be lifted swiftly if Putin takes more steps to ease tensions and lives up to commitments under ceasefire accords to end the Ukraine conflict.
Market Turmoil Will Test the Post-Crisis Financial System – NYTimes.com
Market Turmoil Will Test the Post-Crisis Financial System – NYTimes.com.
Washington has been trying to bolster the financial system for the last five years so it can deal with mayhem in the markets. The turmoil this week will test those rebuilding efforts.
Investors, after months of piling into risky markets in search of returns, are now stampeding out.
In recent weeks, they have dumped junk bonds issued by American companies, particularly energy companies that have borrowed heavily to exploit the shale oil boom. A steep slide in the price of oil could now cause some of the companies to default, analysts say.
The most dangerous pain, however, is occurring abroad. Russia has a full-blown currency crisis, caused partly by the oil price decline. And oil’s move has fed fears about other countries. Turkey’s currency reached a record low on Tuesday, and Brazil’s currency has weakened sharply in recent days. Venezuela’s government bonds have plunged to levels that indicate that investors think a default is probable.
