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Buying gold
should make financial crises fun. Which alongside silver, it has
surely done to date, a handful of 20% and 50% plunges aside.
But if you've been buying gold since 2007 – or you're now ready to start
– do spare a thought for everyone else. Because pointing and laughing
at others' misfortune can be an ugly habit. It only makes us "gold
bugs" more boring to meet at parties as well, as Christmas 2011 proved
yet again. A little sympathy, and a stab at empathy
too, might go a long way to social redemption. And it would surely be better
than pride preceding a pratfall.
Crowing about being so very right is forgivable, though. Hitting a 22-year
low in July 1999, the price of buying gold has since risen sharply year-on-year against the
dollar, euro, yen and sterling, as well as every other currency you can name.
Silver bullion has done better still over the last 10 years, that decade
straddling both the Tech Stock Crash and its screeching offspring, the
Cheap-Money Bubble, sired by meek academics wielding godlike powers at the
big central banks.
The permanent emergency following that inevitable blow-up has only increased
the outperformance of gold against the fund-management industry, too.
Source: BullionVault via LBMA, BoE, MorningStar.
Includes upfront & ongoing fees.
In most
cases, this acceleration of dumb bullion's Schadenfreude has come
thanks to its own faster gains, plus the flagging performance of the world's
finest investment minds.
But not in Japan. There, in the land of the zero interest rate, retained
savings have grown so used to earning nothing – nothing! – in
return for credit or capital risk, that even gold and silver slowed their
rate of gain during the first half-decade of today's permanent emergency.
Japanese
savers buying
gold at the start
of 2007 have since gained just 8.8% per year (compound annual growth rate,
after costs). That's down from a 15% annual gain over the five years before,
and compares with 20% for euro and dollar investors. Silver slowed more
dramatically still vs. the yen, cutting the pace of its annual gains by more
than two-thirds to just 6.1% per year. And all because, of course, the yen
has rallied sharply during the global financial crisis so far.
Remember, Japan was long into depression when this global crisis began. Its
own on-shore bubble exploded in 1989, dragging GDP, wages and even shop
prices into deflation since then. Japan thus got the absurdity of zero
interest rates almost a decade ahead of everyone else, helping knock the
all-too-powerful Yen down on the currency market in 2000-2008 (see chart
above) but still failing to reflate Tokyo's bubble economy.
Come the big bang of late 2008, and the yen reversed a huge chunk of its
fall, as hedge funds (and others) suckered into selling it short by the Bank
of Japan's zero-rate gambit realized that every other central bank was about
to try the same gag. Gold plunged in yen terms, and silver fell harder again,
but net-net since the global crisis kicked off in 2007, both metals have
still offered the best store of value (barring just two mutual funds) to
Japan's household investors. It's simply that they've both slowed their rate
of return to what, compared to the 20% annual gains for dollar, sterling or
euro investors, looks like a crawl.
Depressed
returns in a depression are to be expected, of course. But gold and silver
already pay nothing in interest, putting them well ahead of the game as US
and European yields set like concrete at zero. Gold and silver are further
unique, however, in being entirely free from counterparty, credit and
rent-seeking risk. That's made them stand-out stores of value in
depression-weary Japan, just as much as in the US and Europe.
Only difference, since 2007, is that precious metals have had worse-still
rates of return on all other assets to beat. So if gold remains the best home
for your savings, and this depression wears on, don't rely on making 20%
year-on-year gains.
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