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Gold is not a coin

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Good day. The American GDP of the fourth quarter reached 2.3 percent, weaker than expected, which brought the growth rate of the end of the year from 2024 to 2.8 percent. The consumption was particularly strong, and although the investment was soft, although that may have been with temporary factors. All of that seems to validate the decision of the Fed to stop the cuts of interest rates. Send us an email: Robert.armstrong@ft.com and aiden.reiter@ft.com.

Gold is not a currency (a historical anecdote)

Gold reached a historical maximum yesterday. Regular free readers will know what we have mixed feelings About metal. We do not like investments that do not generate cash flows, and gold is a terrible hedge of inflation to start. On the other hand, there is no discussion with performance, and lately Gold’s performance has been incredible.

Congratulations, then, to readers who have jumped on the gold train. Keep in mind, however, that while gold works better in times of chaos, it is not a contract, like other financial products. It is one thing.

An example. A few days ago, our colleague Leslie Hook had a good piece About the promotion in gold reserves in New York and shortage in London:

An increase in gold shipments to the US has led to a shortage of bullion in London, since merchants accumulate a reserve of $ 82 billion in New York for fear of Trump administration rates.

The wait to withdraw tilts stored in the vaults of the Bank of England has increased from a few days to between four and eight weeks. . .

Shipments are also the highest prices result in the exchange of futures in New York than in the cash market in London. The unusual arbitration opportunity has encouraged merchants to send metal through the Atlantic.

The story came with this surprising table:

Comex Gold Inventory Line Graph (ounces of MN Troy) showing gold inventories in New York on the fears of the Trump rate

What surprised me was not the great recent increase in Comex inventories, but the absolutely crazy Do it before the rates. imposition. But why should people want more gold in New York during a global pandemic?

I put this question to John Reade, Market Strata of the World Cup Gold Council, who sent me by email the following surprising answer (for me).

Financial investors who want exposure to gold often take positions of long futures in the exchange of Comex; The other side of that trade is usually an intermediary, typically a bank. These futures contracts are generally not resolved with the exchange of physical gold. They are sold or moved. However, if they are physically established, this has to happen in a registered vault of Comex in New York. But banks on the short side of commerce in Comex often have their long position and compensation in gold in London, where (for some reason) it is cheaper to do it than in New York.

Here is the strange bit: the physical settlement in Comex and in London requires Different gold bars sizes. In London, they are 400 oz gold bars. COMEX receives delivery in bars of 100 oz or packages of three bars of 1 kg. The conversion of London’s gold bars for the delivery of New York can be done in a short time in the refineries (wait) in Switzerland. Gold takes to New York (Airplanes! To solve a financial transaction! In the 21st century!).

But in 2020, Covid hit Italy just on the other side of the border from the refineries, which closed or reduced the capacity, and the planes stopped flying from London to Switzerland and from Switzerland to New York. There was panic, and the shorts in New York rushed to buy gold to cover their positions, driving the price of New York gold to a great cousin over London. This attracted the arbitrations, which obtained their hands in bars of size of one and rented aircraft (Airplanes!). They sold Comex futures with that great cousin, and used the profits to buy the gold of London and fly it to New York, driving the inventories of London, as the previous picture shows.

I asked Reade if all this merger of gold and plane flight did not seem a bit outdated. Your answer:

In theory, changes could be made in the two gold markets that would make dislocations, as we have seen recently and 2020, less problems. . . A common delivery standard could be adopted, [or changes could be made] allowing delivery to be made in other places. . . But I think that the gold market likes the situation as it is. It allows arbitration between the two exchanges and, due to the differences in the specifications of the contract, the friction allows opportunities. Of course, when these little frictions intensify dramatically, some players are hurt, but in general I believe that great players in the gold market like things as it is because of these opportunities.

It is easy to think of gold as a financial asset, a kind of super currency. But it is stuff. In moments of stress, it acts again.

Aiden picks

Monday, Rob offered Very sensible and conservative selections for this year’s FT print Competition (JPMorgan, Vulcan, McKesson, Google and maybe UPS, after it was crushed yesterday). Bored. Recent winners have gone to high betas or heterodox calls. Without real money on the line, I will follow your example. My elections:

  • Long microstratge: Trump says he will take the moon cryptography. Microstrategy is essentially a leverage bitcoin game, with a business underneath. The action has decreased this week over a Potential fiscal problem. I think it is exaggerated, which makes this a good time to buy.

  • Long blue owl capital: Despite the IMF task on private capital, 2025 will not be the year in which the industry implies. On the other hand, risky lenders as Blue Owl will receive impulse from a lax regulatory environment and a frenzy of mergers and acquisitions.

  • Long Budimex: If a peace agreement is reached in Ukraine in 2025 or 2026, the largest construction company in Poland, Budimex, is well positioned to capitalize on the reconstruction of Ukraine.

  • Short Glencore: Glencore is more a merchant of basic products than a miner. It will face winds against whether tariffs rise throughout the world, Chinese growth wobbles and green technology decreases in the United States.

  • Short Google: He could bite me again, but listen to me. Of the magnificent 7, Google is probably the largest loser of Depseek’s news: its patented chips seem a loss of money, and the cheapest applications will harm their search business. In addition, their recent antitrust problems mean that you may have to sell or turn to Chrome or Android, or alter your advertisement sales model. This will damage your underlying business. As a kicker, Rob is Long Google and it will be fun to crush it.

Readers: Join at contest And he beat the two.

(I reiterate)

A good reading

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