With central banks ok with banks leveraging 60 times plus with loans to Greece, the sky seems the limit for gold prices

Sir, Jamie Chisholm in “Trading Post” January 28 writes: “There has been much talk recently about how investors are growing fearful that central banks are becoming a source of uncertainty rather than suppressors of volatility… It’s a view that… along with a large swath of global debt sporting negative yield, is bolstering demand for gold”

Of course, how could it be different? The irresponsibility and or stupidity of central bankers are the most important drivers of gold prices.

Here we have central banks that first, when regulators imposed Basel I, had no problem with the fact that banks needed to hold so much less equity when lending to sovereigns than when lending to citizens; and then when Basel II arrived in 2004, had no concerns with how segmenting the private sector into the AAArisktocracy and “the risky” could distort the allocation of bank credit to the real economy.

With central bankers like that, the sky seems the limit for gold prices.

For some of us the gold of Venezuela, in Venezuela, even though worth less, is pure profit

Sir FastFT refers to the losses derived from that “Hugo Chávez… no fan of what he called the “dictatorship of the dollar”, and forced the central bank to hold most of its reserves in bullion rather than greenbacks.”, “Venezuela faces double blow as gold and oil prices slide” November 5.

But what the report misses is that Hugo Chávez forced the central bank to hold most of that gold… in Venezuela! That made these reserves much less operative, much less negotiable… something many of us who despair to see so many resources being dilapidated in our country, find not all that bad.

In February 2012, in an article published in El Universal I wrote: "I must express great satisfaction with the arrival of our gold to Venezuela, at least what came was saved, at least for the time being. Where that gold was stored it could easily disappear, in a flash, with the government just writing a check."

PS. After writing for El Universal for 14 years in July 2014 I was one of the first four censored by the new pro-government owners. (So you see FT is not alone in its opinions of me :-))

Would US Treasuries been safer, had there been no debt-roof discussions, just business as usual?

Sir, John Plender holds that as a consequence of the “debt-ceiling imbroglio”, and the recent partial closure of US government, “that anyone who can diversify out of US Treasuries will now feel impelled do so as far as possible.” “Treasuries have turned anything but risk-free”, October 23.

If Plender implies that had only the US just gone on lifting the debt-roof of which it has to jump off, sooner or later, and kept on spending as usual, while there is no tapering of the QE, and all without even a discussion, that then the US treasuries would be safer, I do not agree. That is not what “a responsible custodian for more than 60 per cent of the world’s official reserves” should do.

But that there are reasons to diversify, on that there is little doubt. The doubts are with respect to, diversify into what? Though Plender mentions China’s rising to challenge US hegemony, I do not think he is seriously thinking about putting his savings in Chinese banks. Could Plender have gold in mind?

What did Mohamed El-Erian really hear? Should we buy or should we sell gold?

Sir, with interest I read Mohamed El-Erian’s “We should listen to what gold is really telling us” May 21.

Unfortunately I could not understand what Mohamed El-Erian really heard... should we buy or should we sell gold at current prices?

But also beware of the much greater risk derived from excessive lack of testosterone and dopamine

Sir, the fundamental problem with good articles like Sarah Gordon´s “Call in the nerds – finance is no place for extroverts”, April 25, is that they tend to analyze risks from the perspective of when risk-taking goes bad, without caring much for when risk-taking goes right.

The problem we are facing now is that bank regulators, with too little testosterone, and too little dopamine, and too little understanding of what they were doing, gave the banks extraordinary incentives to lend and invest in what was perceived as “safe” and to stay away from what was perceived as “risky”… and so the banks did… and loaded up on AAA rated securities, Greece, Spanish real estate and others safes.

Indeed if regulators had incorporated more behavioral analysis then they would not have based the capital requirements for the banks based on perceived risk, like that in credit ratings, but based to how bankers react to perceived risk. And then, instead of more-risk-more-capital less-risk-less capital, they might have applied a somewhat inverse capital requirements, since bank crisis have never ever resulted from excessive bank exposures to something perceived ex ante as “risky.

PS. As gold is mentioned, just as a curiosity let me remind you that in the Report on Global Financial Stability 2012, of April last year, the IMF listed 77.4 trillion dollars in safe assets and therein gold represented 11 percent.

If not the dollar, then no other fiat currency either

Most of the world´s concern with the dollar is in fact not with the dollar itself but more of the “if not the dollar then what?” type, since, if looking at the forest and not the trees, makes it clear that no country´s fiat money stands a chance to survive a dollar failure. That is how globalized we have become… that is why some non US are even toying with the notion of supporting a tea party, no matter how doubly distant they feel from some of those partying there … no matter they serve corn on the cob instead of cucumber sandwiches… and others buy gold.

Let us suppose the US officially presented to the world the possibility of a 40% haircut on its debt. Would that be the same as an Argentinean haircut? No way José, since the day after the US would again find unwilling willing takers of US debt, and at quite low rates, because it would think that the day after the US imposed some debt ceiling that really became a real roof.

China, India? Good luck Warren Buffett, but we do not have all that much money to afford the luxury of trying.

In truth, if we would still use fiat money, then the Dollar II would still be better positioned than all other.

Is John Auther a closet-paper-money-bug?

Why would John Authers categorize the buying of gold as an “irrationality”, an act of faith, and thereby imply it is entirely rational to trust a piece of paper issued by politicians and marketed with what seems more of a slogan to them namely the “In God we trust”, Remember 1980: all that glisters is not gold” October 23. Could it be that John Auther is a closet-paper-money-bug?

Gold is not a substitute for stocks and properties… but it sure can come in as a handy complement in times when most countries seem to want to win the devaluation race?

How many ounces of gold richer am I?

Sir when reading Gregory Meyer and Henny Sender report that “Paulson starts gold fund amid record prices” November 19, and all of the rest noises or sounds on gold, I cannot but help questioning how long it is going to take before we ask our private investment bankers inform us not only of the returns produced in dollar or euro terms, but also of the returns measured in ounces of gold.

The safe-haven is always in the eyes of the beholder

Sir you conclude “Dollar worries” May 23 with “currency traders are pricing in the tail risk that the US will be forced to resort to the printing press”. Sir whether forced or not the fact is that with the Fed’s quantitative easing they are already using the printing press, a lot.

Do you have any idea where the rates would be if it had not been for the quantitative easing? It sure puts a big question mark when it needs to recur to quantitative easing in order to sell itself as a safe-haven. The greatest mistake made by the US government and Congress in their current handling of the crisis is that they might have taken the world’s wish for a temporary safe-haven as a wish for a permanent home.

Behind our backs bank regulators in Basel decided that lending to a triple-A rated government required zero bank equity while lending to an ordinary non-rated private company required 8 percent... and the governments loved it... wouldn’t they? The markets though requires x percent return for lending 100 to triple-A rated governments and y percent return for lending exactly the same 100 to a non-rated private company all without any reference to capital requirements.

Therefore though you can subsidize governments and temporarily confuse the market by means of arbitrary regulations in the long term you cannot simply instruct markets to behave as if a dollar lent to the government is any different than a dollar lent to a private company. Having then to reduce the current implicit subsidy to the governments contained in the minimum requirements for banks will also put further pressure to increase the interest rates on public debt... just when the world seems least to afford it.

The gorilla is there in the room roaring and pounding his chest... let’s pray we’ll never have to pay him off, informally, over the counter, with some gold coins.

And what if China buys a million houses in the USA?

Sir David Hale follows a quite plausible story line in his “There is only one alternative to the dollar” January 6 but he arrives to the wrong conclusion. Clearly if the confidence in the dollar drops demand for gold could go up but it is really hard seeing gold reassuming in today’s world its traditional role in backing currencies and many other developments, no matter how crazy, might be in store for us.

For instance what if China decides to buy one million of the actual stock of American houses to better guarantee their somehow shaky dollar exposure and to prop up the US housing market that was a main pillar in a business model that seemed to be working quite well for them?

Gold is but an insurance

Sir in “Gold is the new global currency”, January 8, you express hope that gold’s most bullish fans are proved wrong… but really, so do most of them. We all know that gold is one of those worthless things that can become extremely valuable just because other valuables become extremely worthless, and so we regard the increase of the gold price with the same enthusiasm we can have about someone collecting on our life insurance policy.

We are all in this together

Sir Krishna Guha, in "The world's currency could become America's problem" November 10, describes several scenarios for the decline of the dollar but steers clear from the big question of whether the markets will keep their confidence in our current monetary and financial system if the dollar goes haywire.

After the dollar gave up the last appearances of gold backing in 1971 (Guha might have only been a child then) the world basically accepted a system based on the capacity of their governments, or politicians, to guarantee some sort of financial discipline and which so clearly amounted to an act of faith that it was made explicit by including the "In God we trust" on the currency.

In this respect if the markets come to completely lose their trust in the word of the US governments and their politicians this does not necessarily imply that they will have more trust in the word of other governments or politicians but it could in fact lead them to lose their confidence in all of them, at which point the dollar-yen-yuan-euro value becomes utterly irrelevant, leading to a global scramble for assets to barter, at any price, and perhaps having the prices of the shares on Wall Street quoted in ounces of gold.

And so what do we do now with this piece of knowledge? Unfortunately very little, since while the markets keep having trust in the system there is no major benefit being short of faith. Whether we know it or not we are in fact all in this together.

About ageing in today’s financial world.

Sir, Nigel Andrews end his review of “No Country for Old Men” May 22 describing the bewilderment of an ageing sheriff that far from having “seen everything before” scarcely understands anything as “a murderous materialism is taking over his part of the world, sweeping up even semi-innocents in its dust-devil vortices”. Keeping the distance that review rang a bell when, just at a three pages distance, we read how John Dizard “Gold tells a sad story of asset deflation in the future” seems really to be pulling at greying and diminishing hair in pure bewilderment over what is happening in the financial world, so much that he ends with a “So sell gold now, but wait for it to begin a dramatic rally next year”. Just to make it clear, perhaps even though “much” younger than the Sheriff and Dizard, I also include myself in the list of the ageing and lost.