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Encouraging
news that the gold bull market is far from over comes via this report at The Economist in
which, despite the metal’s impressive performance over the last ten
years and the recent eagerness of central banks around the world to buy the
stuff after dismissing it as irrelevant for the last few decades, they still
think the metal is a loser.
Savers
have to put their money somewhere. But if they make the wrong choice the
results could be disastrous for them. History is well stocked with bear
markets that wiped out wealth on a vast scale. When British government bond
yields were last down to 2.5% (their current level), in 1946, the subsequent
28 years saw them lose three-quarters of their value in real terms. Investors
who piled into gold at the last peak in 1980 saw the price fall by two-thirds
in the 20 years that followed.
Those
worried about inflation and looking for a hedge may be more interested in
real assets (property or commodities) than in paper ones. Until recently,
gold has been a very strong performer; it has been easily the best asset to
own since the start of the credit crisis in 2007 (see chart 2).
The
problem with gold, and other commodities, is that with no yield or
earnings they are hard to value. Demand from Asian countries has
certainly pushed up prices; non-oil commodities have trebled over the past
decade. But if the economy does start to slip into recession, commodity
prices could fall very sharply; they almost halved between March and December
2008.
Ah,
yes. But, gold was the notable exception, falling sharply in 2008, but
rebounding to end the year as one of the few winners with a gain of about six
percent.
Interestingly,
the title of this article is “I wouldn’t start from here”
which is ironic in many ways, not the least of which is that, for any new
gold investors, it would surely be hard to start from here (at just under
$1,700 an ounce), however, anyone who does will still probably come out ahead
of just about any other investment approach in the years ahead.
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