I recall my time, originally as a Bank Manager and more latterly as a Wealth Manager when my customers would ask me what are the best accounts they can place their money in to get the maximum interest possible. Diligently I would refer them to some form of High Investment Account subject to a notice period or Money Market Account for overnight deposits.
Then in the 80’s and 90’s – Privatisations resulting in wider share ownership – opened all sorts of avenues to stock market investments, unit trusts, investment trusts, mutual funds etc for the ordinary «man in the street». More serious investors and corporations placed their money into hedge funds, corporate bonds and other more elaborate on and off-balance sheet investment vehicles.
In addition to the above, Property Investment became prevalent and anyone with capital or access to borrowing became a «buy-to-let» property investor. The less risk averse individuals took courses on, and dabbled in, options and other highly geared investment strategies.
All of the above have their place and have provided wealth to a large number of individuals. However, that wealth has been eroded to some considerable extent by inflation, currency devaluation and taxation.
It’s wonderful to earn a capital gain on an investment which then becomes less exciting once 40% tax (or more in some countries) is levied. It’s wonderful to see one’s savings rise each year, and less attractive when those savings purchase less than they would have done the year previous, even allowing for the addition of interest earned.
Now I come to the «Boom and Bust» Scenarios in Property, the Stock-Market and Currencies. For those who purchased those investments when their price was at an all time high then experienced 10%, 20%, 30%, 40% falls within weeks. I remember the 1987 Stock Market Crash when I sold all of my shares at a considerable loss and these bubbles and collapses continued in each passing decade.
I remember purchasing a House in 1989 having to wait 5 years before it reached the price I originally paid.
Despite all of this, the one investment I have made which has protected me against inflation, stock-market crashes and property fluctuations and most important of all, currency devaluation, have been my investments in gold.
My only regret is that I did not have more liquid funds available in which to invest in this commodity.
The past 10 years has witnessed the rise in the price of gold from $360 per oz to $1900 with it currently standing at $1360 as I write this article. A number of experts predict that $1200 is the approximate extraction price of gold (i.e. the cost to get it out of the ground) and therefore, if accurate, the downside appears very limited indeed.
What captures my interest in Gold is the number of Countries, which in recent years have purchased considerable volumes of the commodity, especially China and India (Two of the world’s fastest growing economies). They consumed 52% of the world’s gold in 2010. In 2011, increases in demand from China and India have driven a 7.5 percent increase in demand for gold jewellery during the first half of the year, despite a 25 percent increase in the price. In 2012 China averaged an import of 65 tons of gold per month placing it in the top 6 World holders of gold.
Even conspiracy theorists advocate gold investment because of the information derived from Wiki-Leaks (now in the public domain) which specifies China’s motives for this investment onslaught:
«The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency.They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold.»
– Leaked Wiki-leaks Cable
Quantitative Easing, resulting in currency devaluation and the building up of future hyper-inflation, only bodes well for Gold (and Silver) as an important asset to own for the future.
All of these circumstances lead to only one logical conclusion (in my view) and that is the inevitable rise in the Gold Price over the long-term.
We have seen in the UK, Europe and the US major pension devaluations and with an increasing aged population, the need for increased personal pension provision has never been greater.
With currencies devaluing at the rate of 40% every 10 years, hyper-inflation being predicted for the latter end of this decade and unemployment rising to unacceptable levels, to me, it makes sense for everyone to consider Gold as both an investment purchase requirement (not just a hedge) for existing portfolios and any retirement plan.
As Billionaire Thomas Kaplan who has $2 Billion invested in gold recently stated:
«People view gold as emotional, but when they demythologize it, when they look at it for what it is and the opportunity it represents, they’re going to say, «We really should own some of that.’ The question will then change to «Where do we get the gold?»