Ha! I say.
When I posted "So Why is Gold Down? Look To the Real Interest Rate" I did not know that Izabella had already used a doppelgänger headline and gotten into the real-interest-rate angle.
And what she does better than I is ref the financialization of commodities which is, of course, at the heart of what the commod computers were seeing yesterday and today.
From Dizzynomics:
Why is gold selling off?
Gold is selling-off.
The easy explanation is that a Fed “taper” reduces the amount of liquidity that heads into gold.Although I don't see a timestamp on her post, the feedreader it came through says 11:59 which means that whether it is Geneva, London, New York or PDT she beat me to the nuts-and-bolts of the story.
But that’s too simplistic, since on that basis QEternity should have seen the gold price rise, which it didn’t (chart courtesy of goldprice.org):
I believe the issue lies with disinflation and the fact that USTs and US denominated assets generally (as well as other foreign bonds) offer much better returns in real-terms than gold can guarantee. And that is because bonds guarantee your principal back no matter what.
Gold doesn’t.
The only way gold can guarantee your principal back is if you hedge the price on the curve. But, as the gold bugs have been obsessing, gold is beginning to backwardate, and that means there is now a cost associated with hedging gold.
That means to protect your capital in gold, you have to suffer a negative carry. A negative carry which — in a period of disinflation or even deflation — is likely to be greater than the negative carry in the money markets — at least for as long as banks still guarantee zero or slightly positive rates to depositors, thanks to the IOER phenomenon (even if many banks and non-banks are already beginning to suffer from negative interest margins — they are the ones absorbing those losses for now).
This is especially true if you consider that in the last six months the Japanese market has offered very attractive yields compared to norm.
As we’ve been saying, and this applies to all commodities, when rates are higher than the natural rate destocking (and monetisation) is encouraged, when rates are too low vs the natural rate collateralisation and warehousing are encouraged instead....MORE
