Buying Gold in Financial Repression

Suddenly financial repression is everywhere. Apparently there's no escaping it.

The forced imposition of real losses on savers, aimed at cutting the real value of government and banking debt, financial repression has become a hot topic for analysts and hacks alike. Yet no one's talking about how to wriggle your way out. Which is odd. Because the classic escape from financial repression – buying gold bullion – has never been easier, nor more cost-effective.

The Financial Times alone has printed 15 stories about financial repression in the last month. Only two mention buying gold bullion. Worldwide in English, says the archive on Google News, financial repression has been featured in 103 stories in the last fortnight. Yet scarcely one-in-four mentions gold. Half of those only mention it to contrast today's enforced losses in government bonds with the return of capital promised under the classical Gold Standard of 1870-1914.

Why run for exit marked "bullion"? No one's debt, and no one's liability, gold cannot suffer default, unlike government bonds or cash-in-the-bank. Rare and tightly supplied, it cannot be created at will – aka "inflated" – thus depressing its value. And since gold never pays any interest, its yield cannot be repressed any further. It is what it is, and it does what it does, i.e. nothing at all, eternally indifferent to mankind's latest wheezes, diktats and frauds.

An incorruptible element when you trade only fine gold (as the international wholesale market centered in London does), gold doesn't even rust. And for savers trapped or coerced into holding guaranteed losses on prescribed investment products inside their own borders, physical gold is a stateless asset wherever you own it.

So, in all this blather about financial repression, we ask again: Where is the gold?

The finance industry's sudden interest in financial repression is unsurprising. Real interest rates, after inflation, have now been squashed below zero for more than three years in the US and Europe, and nearer 10 years in Japan. Fund managers running the world's $30 trillion in pension savings must all invest a certain, ever-larger portion of that cash in their domestic government bonds. The yield paid by those bonds has fallen sharply as central banks have created money to push national-debt prices higher, while the supply of inflation-linked bonds has been capped well short of unmet demand. And while bankers get a good deal, at face value, by sitting on tax-financed bail-outs and then printing the difference between what they charge borrowers and what they pay savers, they too have to keep an ever-greater chunk of their core reserves in "Tier 1" assets. Meaning government bonds. Including those issued to raise the cash to rescue the banks.

"Financial repression is what we are in," concludes Robert Farago, chief of asset allocation at Schroders Private Banking in London, as if it's news. But how do you get out? Bill Gross's latest (and much-followed) monthly outlook for bond-fund giant Pimco is entitled The Great Escape. Yet like Farago's comments to the Financial Times, and even Merryn Somerset Webb blogging at MoneyWeek, he dare not whisper gold by name, recommending instead "Real as opposed to financial assets...For commodities, favor inflation sensitive, supply constrained products."

Could Bill Gross scream "buy gold" any more quietly? Western and Asian savers alike enjoy unparalleled freedoms in the gold market today. That may of course change, but if it does, it certainly won't be thanks to economists, analysts, fund managers or financial journalists pointing out the door marked "Exit" to the people they're supposed to be helping escape financial repression. Hell, one analyst from RGE Monitor, writing an 800-word report on financial repression in India last week, didn't mention buying gold once. Not once. In a report on India. Which leads the world in physical gold demand. Where private households buy over one ounce of gold in every five sold worldwide!

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