"Let us be clear; we are not saying that gold will trade up to USD1,700/oz in the near term, but when viewed against the aggregated balance sheet of the 'big four' global central banks (the Fed, ECB, BoJ and PBoC) the argument can be made if we view gold as a currency, the metal is worth closer to USD1,700/oz, versus the spot price of USD1,326/oz."
To be sure, this isn't an argument for gold as a currency, and there are arguments against that notion. For one, gold isn't a legal tender that's widely paid or received in exchange for goods and services, partly because it's not as easy to print or transport as paper cash.
But the argument that Hsueh and Sporre make is that gold price percentage changes have historically moved in tandem with the rate of central bank balance-sheet expansions, but gold is not keeping up right now:
Some analysts believe there is a correlation between the price of the yellow stuff and the expansion of central bank balance sheets. After last week's big focus on Jackson Hole the dollar has strengthened and gold prices softened. Earlier today gold futures were trading lower, 0.21%, or $2.75 an ounce, to $1,325.15. Fed Chair Yellen and Vice Chair Fischer did their best at the much watched meeting to let investors know higher interest rates were expected sooner than later. That would mostly likely signal a stronger dollar and softer gold prices, depending on how the market interprets such.
Though ZIRP might not yet be on the Fed's monetary policy radar, the Fed's balance sheet is set to expand. In fact, many believe the current sheet will never be balanced. Time, however, as usual will tell how much credibility investors think the Fed has left. We like gold here on further weakness for all the wrong reasons, according to MSM, and think if the Fed's remaining credibility gets any thinner it could become a late night weight loss infomercial
Read more:
businessinsider.com/gold-and-central-bank-balance-sheets-2016-8?
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