One of the old routes for a traveller from England through France and on to Italy passed through the French city of Troyes, situated between Reims and Dijon (nowadays at the junction of the A5 autoroute (from Paris) and the A26 autoroute (from Calais) – the A26 is still called the Promenade des Anglais and to this day sees a steady procession of vehicles bearing UK plates heading to & from the Channel).  Many centuries ago the only way for travellers to pay for goods & services was with gold & silver coins.  Troyes gave its name to the troy ounces in which gold is still traded today.

However there was no standardised system of weights & measures in the Middle Ages and merchants who travelled across Europe had to contend with each different city they arrived in having its own definition of how much an ounce or pound weighed.  There were the pound of Toulouse, pound of Cologne, the Wool Pound, Mercantile Pound and London Pounds.  Pity the poor traveller who was handed an ounce of gold in one city which weighed less than an ounce of gold when he got to Troyes.  Never mind the fact that there are 12 Troyes ounces in a Troyes Pound but we all know today that there are 16 ounces to the pound we use in cooking, etc (strictly called the Avoirdupois ounce).  And we haven’t even touched upon the Kings’ habit of debasing their currencies by having coins minted of alloys which contained progressively less and less than 100% pure gold – there were many ways in which the merchants of the Middle Ages could be hoodwinked! 

Silver is also traded in troy ounces.  Sterling Silver is an alloy which contains 92.5% pure silver (the rest is usually copper).  Centuries ago the Spanish minted silver and gold coins.  The Spanish silver coins were called Reales and a 1 Reale coin contained 0.125 ounces of silver.  Thus the 8 Reale coin contained one ounce of silver - the 8 Reale coins were the Pirates’ fabled Pieces of Eight.

Gold is once again in the headlines now it is trading above $1,000 per troy ounce.  The Comex gold futures contract (symbol GC) is based on 100 troy ounces of gold which means if you own one contract at expiry you will receive 3 one-kilogram gold bars of at least 99.5% purity.  This is not quite 100 troy ounces of pure gold but it makes the GC futures market function better.  Being short-changed in gold is something people have got used to over the centuries!

In terms of grams, a Troy ounce = 31.1034768 grams whereas an Avoirdupois ounce = 28.349523135 grams.  Curiously a Sterling Silver coin weighing exactly one Troy ounce contains nearly one Avoirdupois ounce of pure silver, just as today’s Krugerrands (made of 22 carat gold alloy) actually weigh more than a Troy ounce so as to contain exactly one Troy ounce of pure gold.

So don’t fall for the age-old trick of thinking that your 9-carat rose gold bracelet which your kitchen scales tell you weighs one ounce is worth anywhere near one thousand dollars.  In fact as rose gold is usually gold alloyed with copper and 9-carat gold only contains 37.5% gold, your rose gold bracelet would be more accurately be described as a copper bracelet.  All that glitters is not gold – as the merchants may well have said in the taverns of Troyes after a good day’s trading in the Middle Ages!

I am Antonne Owen-Thursfield and this is me pictured onboard the Venice Simplon Orient Express train (highly recommended but not in the height of summer as the train lacks air-conditioning!).

After graduating from the University of Bristol with a degree in Maths I spent the next two decades working in the City of London, trading international markets.  I now work from home and get to see plenty of my two boys as they grow up.

I started this blog as a way of keeping track of my thoughts as I follow the ups & downs of the markets.  Please follow the link to my ”Diamonds are a Girl’s Best Friend” blog-post for a fuller description of my thoughts on investing from the viewpoint of a long-term investor.

All this currency printing (Dollars, Sterling, Yen & Swiss Francs) by central banks as they engage in their various forms of quantitative easing is leading to a depreciation of their currencies against real assets. This is being disguised by talk of currencies engaging in competitive devaluations against one another but eventually it will show up in the price of real assets increasing as measured against these fiat currencies. By real assets we are talking about Oil, Real Estate, Gold and Equities (the first three of which God ain’t making any more & equities are a claim on nominal GDP). Government bonds are being propped up by heavy central bank buying and may well remain expensive for years (there is no point in fighting concerted central bank buying of government bonds – John Maynard Keynes pointed out that “markets can stay irrational for longer than speculators can stay solvent”). Don’t read too much into “failed auctions” of Government bonds such as happened this week in Gilts – this is a brave new world and market participants are still feeling their way towards what they should be paying the DMO for 40-year gilts when the BoE is busy buying 5- to 20-year paper. The head of the DMO (whose job it is to sell gilts as expensively as possible) should have kept quiet rather than allow himself to be quoted as saying “Yields at these levels are not all that attractive”. However the general idea to issue longer-dated gilts than the BoE is buying back is surely the correct strategy for the DMO to execute whilst gilt yields are this low, even if the execution is proving a little untidy at times.
As usual the ECB is the slowest of the Western central banks to act – they have yet to commence quantitative easing but the central bankers of Portugal, Ireland, Italy, Greece & Spain (collectively called the PIIGS) must be praying for the ECB to start buying government bonds soon as there are few other buyers of PIIGS bonds at the moment and they have lots to sell. The ECB has a practical problem to overcome if & when it decides to implement quantitative easing, namely which eurozone countries does it choose to favour by buying their government bonds? If the ECB wishes to ease tight credit conditions then it should logically buy the PIIGS’ bonds and squeeze their yields back down towards German levels (the great “convergence trade” would be back on with a vengence), in the process helping to allay market fears about any of the PIIGS leaving the Euro. Once could reasonably expect squealing from any eurozone country whose bonds were not purchased by the ECB. Not a pretty problem for the ECB to overcome whilst other central banks already have the printing presses rolling flat out.

Post-Script (23 April 2009) :  One possible way for the ECB to execute Quantitative Easing would be for the ECB to spend its money by buying equal amounts of each eurozone member countries’ government bonds.  In this way the policy could be sold as being “fair” to all whilst having the desired side-effect of a greater impact on the PIIGS due to the smaller size of their economies relative to Germany, France, et al.