After stocks and real estate, gold's pattern repeated all-time highs. Gold, which was around $280 an ounce in 2000, was around $2,300 an ounce in the past few days.
If I remember correctly, the Bank of Greece during the summer of 2003 during Kargana's administration, was selling at around $300 an ounce, hoping for a small increase as an opportunity.
In 2000 one could buy gold pounds for 50-60 Euros each. Today each pound costs about 500 euros. Neither real estate nor stocks provide such returns in Greece.
A person who invested 100 euros in Greek bank stocks in 2000 would not have 1 euro today. The film would be good if it had some stakes like Titan, 3E or motor oil etc.
Of course the picture would be different if it held foreign shares.
First, gold rises for the same reasons that real estate and stock prices rise. This happens because the exchange rates of all currencies fall.
Central banks and governments are stripping money of its purchasing power and value in order to maintain socialist models of income redistribution with zero interest rates and taxes.
Markets compensate for these losses by increasing prices. This is one of the main factors driving the long-term trend. Gold has rallied in the short term in recent weeks, as have stocks, as they discount the start of interest rate cuts. The central bank has hinted that three interest rate cuts are possible throughout the year.
But there are other reasons that support the rise of the yellow metal as a currency (the primary medium of exchange and store of value) for more than 5,000 years.
These are as follows:
a) Demonetisation
As soon as the war in Ukraine started, rich Western countries imposed economic sanctions on Russia. One of them froze all dollar accounts of the Russian government and Russian citizens. Seeing this, many central banks of developing economies are reducing their foreign exchange reserves in US bonds and dollars and switching to gold.
They believe that this way they will not succumb to the pressure of financial constraints. Today 60% of international transactions are done in dollars and over 15% in euros. BRICS wants to replace most of this trade with each other in these currencies.
The world of 40-50 years ago is no more. In the early 90s the G7 (rich countries of the West) represented 45-50% of global GDP and the BRICS (Brazil, Russia, India, China, etc.) a little more than 15%. From 2020, BRICS adds up to a larger GDP than the G7.
They will demand that transactions are no longer made in dollars and euros. Questioning the dollar reinforces the value of gold as an alternative currency, which cannot be affected by anyone, as is done with the dollar, euro, etc.
Of course, the largest gold reserves are owned by the Fed and other western central banks.
b) Geopolitical tension
After the invasion of Ukraine, everyone began to take up arms. Geopolitical tensions are on the rise. Gold was a safe haven during times of war and great crisis. During times of war, governments increase defense spending and create deficits and debt. This creates inflation and currency exchange rates depreciate.
Gold emerges as a guarantee of value.
c) Reversion to inflation
Many believe that the inflation we have experienced in recent years is not temporary. A number of long-term factors such as population ageing, globalization, energy transition, rising defense costs, etc. will put upward pressure on prices and wages. According to this interpretation, inflation will return more sharply. The rise in gold prices is most intense during periods of inflationary stress.
d) Small offer
Companies that mine other precious metals, such as gold and silver, have cut costs in recent years. This means, deposits are less. As the production of older deposits is exhausted, supply decreases. If demand remains unchanged or increases, this will help prices rise.
If we start now to increase investment in finding new deposits, they will start producing after at least 5-7 years. If demand from central banks remains stable over the next 5-6 years, it will drag down demand from individuals and we may see surpluses.
If there is some increase in stocks and gold strengthens, stays flat or falls, many investment funds around the world prefer to keep a percentage of gold-linked bonds in their portfolios as a hedge. If this happens demand will explode further.
So the rise in gold prices is not temporary, it is part of a cycle that started in 2000, when central banks started keeping interest rates lower and lower in order to avoid recessions after the dot.com crash.
The price of gold is controlled when the victors impose a global economic new order after major crises. After 1945, the United States made the dollar the world reserve currency with the Bretton Woods Agreement, whereby every dollar given to them would be converted into gold at a rate of $33 an ounce. The costs of the war in Vietnam forced the printing of more dollars to cover the deficit. In August 1971, Nixon took the dollar off the gold standard. Since then, it has been on an upward trend with fluctuations.
2) About dividends and other myths
Dear Mr Stupa,
I am writing this after thinking and thinking as I have been reading recently about the great interest of the Greek bankers and inevitably the banking system to distribute dividends after years of the great adventure of the Greek economy.
There have been several talks with the European regulator ECB and the SSM about the amount of bank dividends from profits in 2023. Banks business plans (bp) are also planned for next years but I think every year is same. Each year will be negotiated on the basis of profit. However, the use of 2023 is of immediate interest, the future is unknown and statistically the BP is far from reality in the long term, and therefore has proven not to be of much value.
As you know, Greek banks have had a very long adventure over the years and thankfully are slowly starting to get back to normal. However, the quality of their finances is limited by what the balance sheets show because they reflect accounting and not financial facts. For example, there are deferred tax liabilities (DTCs), which form a very large part of all Greek banks' funding. I won't go into technical issues, experts in the field know better than me. But I have to remind you that especially for 2023, the huge profit of the banks came from an external factor that the banks did not control. Another gift from the ECB which raised interest rates very, very fast due to inflation. I believe that the householder should not share from the gift, he should use it to strengthen his home.
In the period 2002-2008, external conditions became more favorable (low cost of borrowing for the country) and instead of reducing Greece's debt, it led to excessive salary increases, high early pensions, etc.
I'm really surprised that the myth that dividends will increase bank shareholders' wealth holds good as stocks will increase in value even in 2024. This myth persists years later, when research based on statistical analyzes of historical data puts at least a question mark on this speculation. Much ink and gray matter has been spilled by those who have dedicated their lives to studying whether these correlations actually exist. While the author considers it a myth that a stock's dividend yield is inextricably linked to a stock's value, researchers, including Nobel Prize winners in economics on related topics, say the relationship is neither universal nor straightforward. However, Greek bankers confidently believe the opposite. In fact, a respected Greek central banker recently said that some dividend should be paid to reward shareholders. As shareholders are rewarded only by dividends! It looks like shareholders are waiting to be rewarded with dividends, which are currently enjoying huge returns from the rise in banking stocks in recent months. A shareholder looking for cash flow cannot sell some of his shares instead of receiving dividends. If it were that simple, these shareholders would sell a stock with a dividend yield of 4% and buy a stock that pays 8% (even in Greece). Too simple to be true. If you look at foreign stock markets, there are stocks with double-digit dividends. And a stock that had a 10% dividend 3 months ago is 12% today because despite offering such a high dividend yield, the stock price has simply gone down despite the stock markets rising over the same period.
When I read the analyzes of foreign stock analysts who urge their investor clients to buy stocks based on dividend yield, I run and cross the analyst's name off my list without a second thought.
What I believe is that Greek banks should strengthen their balance sheets as an important priority, increase the quality of their funds, and if things continue to go well there is time for the rest. Patience pays off. Money, whether divided or not, always belongs to the shareholder. The message the right partner (who should be attracted by the banks) gets is that there is prudent management, the banks have learned from their mistakes in the 2002 (adoption of the Euro)-2009 period and are now building a solid foundation. Not just for defensive reasons, but also for aggression when market conditions allow us to take advantage of opportunities. And with a strong balance sheet the cost of capital (borrowing rates) of bank bonds will decrease and the shareholder will benefit.
Given the Greek pie's size and growth, let banks see how to expand geographically with small and steady steps and invest in more technology as soon as possible. Let them spend the gray there because it really adds value. And there they will finally be judged at the end of the day, not on the dividend news that we're back to normal, we're good, we've started delivering.
For readers and investors, the Internet is a great and cheap source of knowledge. Literature and essays by serious people are very rich. Anyone who is really interested should spend some time reading the truth for its sake. Unfortunately myths are dangerous and often expensive.
yours truly,
Your Daily Reader