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14 December 2019

2019 – The Year of Gold

Money isn't worth a thing - blog image.

It’s been an eventful year for gold and for Troy Gold.

This being our last article for 2019, we will take a look at the main events that shaped the gold industry in 2019.

We will also reflect on Troy Gold’s launch year, and provide a sneak peek of our future plans.

Gold – the story remains interest rates

When measured against the South African Rand, the gold price increased by 22% over the past year.

This in a South African landscape of negative-to-flat returns over all asset classes – equity, bond and property markets.

In US Dollar terms, the gold price increased by 18% over the past year, having broken the $1,500 oz mark – this amid equally buoyant equity and bond markets.

Gold’s strong  performance  is largely as a result of the continuation of the ol’ inflationist play in the Keynesian playbook as orchestrated by central banks worldwide.

A record 60% of global central banks eased monetary policy in 2019. More informally stated, this means that central banks worldwide are once again creating a record amount of currency, out of thin air, to stimulate their economies.

The Federal Reserve’s balance sheet went from $88 billion pre-GFC to $4.5 trillion in 2014. Last year, when the Fed attempted to withdraw liquidity to reduce its balance sheet, the global economy buckled. And so, in 2019, the Fed backtracked and carried on its merry way to zero [Federal Funds Rate].

Slightly more surprising though, but extremely telling, is the fact that central banks, across the globe, started buying record amounts of gold.

According to the World Gold Council (WGC), central banks, led by Poland, China and Russia, bought a historic high of 374.4 tons of gold in the first half of 2019, with the second half of 2019 continuing the trend.

The European Central Bank (ECB) and 21 other central banks, signatories of the Central Bank Gold Agreement (CBGA), decided not to renew the Agreement that coordinated planned gold sales among the signatories.

Why – well, that’s because they’re gearing up for a buying spree.

While central bank purchases account for only 16 percent of gold demand, the fact that they’re buying, gives us a great idea of what’s happening to our money.

More simply, if the Masters of the Universe that control the value of your currency are buying gold, it may be a pretty clear harbinger of things to come. With the implicit support of the political class of central bank easing, we can anticipate low interest rates coming soon to an economy near you.

And this is ultimately what we believe has been the biggest driver of the gold price in 2019, and will continue to be so over the next foreseeable future.

The strategy is pretty clear – politicians are going to keep the nominal GDP growth stable (as its good politics for maintaining power), and they’re going to do that by continuing to slowly erode the purchasing power of your money.

Again, it’s politically necessary to do so and it keeps people completely unaware.

Note: We’ve seen pundits attribute the strong gold price to the general geopolitical uncertainly in 2019 – ranging from the China-US trade war, to Iran and Brexit. We believe these factors to play a far less fundamental role in the gold price than global interest rate policies did.

Troy Gold

Firstly, we would like to express our sincere appreciation for the unwavering support of all our clients in Troy’s debut year.

Troy Gold officially launched in March of this year, has grown to over 3,000 registered users in South Africa, and to date is storing over 20 kilograms of gold for our clients.

Our local troubles – primarily anemic economic growth; our failing State Owned Enterprises (SOEs); the ESKOM power constraints; general labour tensions; and looming ratings downgrade – have certainly spurred demand for our product.

However, we’ve seen the largest demand come from users who were previously unable to own gold due to the high financial barrier to entry.

Troy Gold’s Fractional Ownership Technology, enabling gold ownership from as little as R1, has opened an entirely new market for gold ownership in South Africa – and with fractional ownership currently constituting 80% of the ownership base, it’s been the primary driver behind Troy’s successful launch.

So what does the future hold for us?

There are material risks inherent in our South African economy, and we will continue penetrating the South African market, to be able to give every South African the ability to protect themselves from the erosion of their savings and purchasing power.

Our users can look forward our new app design being unveiled in January 2020, as well as a number of exciting gold fintech products added to the platform.

We are also extremely excited for the imminent launch of our international gold platform – watch this space for more details in the near future…

We wish all our loyal customers a safe and blessed festive season – see you all next year for the ride up in gold!

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