In February Canada sold off all its gold reserves, leaving just a tiny 77 ounces as a keepsake. In fact Canada had been slowly selling off its gold reserves since 1965 but this final divestment came as something of a shock, reminiscent of Gordon Browns 3 year fire sale of the UK’s gold reserves for which he received a miserly $275 per oz. Out of 100 central banks Canada now ranks 100th, behind Albania at 99th. If the UK had kept its gold reserves they would now be worth $16 billion even at todays reduced prices.
Maybe Canada thought gold, which at the beginning of the year was forecast to slide down to about $900 per oz before the end of the year, was a no brainer. Instead it has now surged to $1269. Why couldn’t Canada have waited just one month, for its sale.The answer may be because the world was panicking and the price of all commodities were collapsing like a badly built house of cards.
This was not just a price adjustment as global economies weakened, it was a rout which had gone on month after month as commodity prices fell to unbelievable levels. Until January we were in a commodity slump the likes of which had not been seen in a lifetime, except that strange signs were beginning to appear. In 3 months the price of iron had risen by 69% from the days of doom and devastation which had seen the price slump to $37 per tonne.
Then on the 8th March the world went crazy. Iron ore enjoyed its largest ever one day rally with a rise of nearly 20% taking the price up to $62 per tonne. Out came the champagne as other commodities joined the party. But the cork was soon back in the bottle. Only 7 days later iron ore had dropped to $51.70 and on the 8th March came the big collapse with a one day fall of 7%. The party, not surprisingly, was over.
Can world economies survive this unexplained volatility in the prices of its main commodities. The world fears and faces deflation, so gold, the hedge against inflation surges.There is a huge surplus of energy, so oil surges. It looks like everything has surged and nobody knows why. Is the real reason for such irrational behaviour, panic, fear of being caught short, fear of being caught long, fear of not being seen at the party.
The Chinese have at long last officially admitted that their economy has crumbled and that their growth statistics were a mere fiction. Nobody still knows the real truth about the Chinese economy, the worlds powerhouse and thus commodity prices rise and fall violently as hope replaces despair, almost on a daily basis.
The world’s central banks have used their last round of ammunition in attempts to stave off deflation and it has not worked. The cupboard is bare, more panic. When overnight panic buying, replaces overnight panic selling, there is a major problem.
Have we now seen the last throw of the last dice in the last chance saloon. I think so.