Čtvrtek 28. března 2024, svátek má Soňa
130 let

Lidovky.cz

Should you try to catch gold fever?

  11:42

The world’s gone mad for the yellow stuff; however, if adjusted for inflation, its current price is half of what it was in 1980

foto: Česká pozice

The world has caught gold fever. Some four years ago, the precious metal cost $600 per ounce, suddenly it is around $1,400 an ounce. The mania for investing into gold has gotten where it is after the two-year crisis in confidence in financial markets invoked by the “unexpected” crash of Lehman Brothers. “The world has plunged into insecurity and confusion, only gold gives you certainty!” is how the slogan goes.

Proponents of gold say that the banks’ current treasuries are not big enough to store their clients’ new purchases of gold bars. Demand is rising; investment funds are vying for backing with gold investments (with their internal and own definition of the “goldness” of assets). Apparently central banks have restricted gold sales, they claim. Perhaps so, but the majority of them never sold the majority of their stocks (except, unfortunately, for ours – what is left is just for show).

“Buy space in vaults and small safety deposit boxes; trust us with your gold,” the current ballyhoo exclaims. “The world has gone mad over gold. It’s now or never.” “Buy ingots, ounce coins or any other round object with a golden gleam – get rich!” “In the less unfortunate case you might not get poor. Or you will have a feeling that you’ve insured yourself against the world and its gods – the market.” Are statements like these truth or illusion? Definitely the latter.

Are statements like these truth or illusion? Definitely the latter. In truth, only those that invested into gold in the decade before 2005, when it was $300 to 400 an ounce, have insured themselves. The current price of $1,400 per ounce is reminiscent of the situation at the end of the 1970s before the “miraculous” investment decision of the central banks to sell at $300. At that time, in January 1980, the price rocketed to $850. It was no whim; from today’s perspective, it was a transparent, rapid growth in a declared international political and economic crisis. And also an investment bubble.

All that glisters

Multiplying the price from 30 years ago by inflation multipliers (even the most conservative), we find that in today’s prices it would be $3,000 per ounce. Is it that price? No. Not even after removing the sharp peaks from Jan. 22,1980, we still haven’t reached even the average of 1980. We are at a half of the 1980 prices as weighted by an inflation multiplier. And once again it’s a bubble. Gold, with all its special characteristics, is a unique commodity, but it is still just a commodity.

We are witnesses to, and many even participants of, the greatest gold manipulation of the last century (1910–2010). There is more gold on the market than ever before, it is being mined three times more than a quarter of a century ago. New deposits are being opened up and old ones are being exhausted because of the price (even the unfortunate/fortunate old gold mine in Chile).

Gold is the only element in the world that is mined but is not consumed in the absolute majority. Oil, coal, platinum are being extracted— they are processed into energy resources or used as a catalyzer for combustion engines. As they are used up, then more must be mined. Today’s buyers are the ones who get the short end of the stick.

Not gold — that heaps up and overvalues. The retailer, middleman, global investor and companies offering storage make long-term earnings. Today’s buyers are the ones who get the short end of the stick. The same investment craze reigned in connection with the approaching millennium in 2000. And absolutely nothing catastrophic or earth-shattering happened at all. Only the International Monetary Fund (IMF) challenged the central banks to sell off their gold stocks.

And now? Today it’s about the form and manner of keeping indestructible gold — where, with whom, how. Why surely in bank safes. In Switzerland, just as in other countries, they guarantee its inviolability even in the event of the bank collapsing. But is it really so? In 1981 Franz Pick, an expert on gold, told me personally that banks close on Friday evening at five and open on Monday morning at nine — if they open at all.

In the meantime, there are events like the “Nuremberg Laws,” “Crystal Nights,” “Munich,” “February” and “Zápotocký currency reforms.” The small investor stands on the outside of the bank’s grille and looks gloomily at the understanding member of the bank’s security, police or army.

Nowadays there are terrorists — be they in the flesh or prowling cyberspace. And what about the gold inside?

“Gold” investment funds are even better — banks sell you gold under the condition that you have to keep it with them. What about liquidity? Who will pay you something useful, here and now, for your gold ingots? Maybe someone else, at some other time and somewhere else, but here and now? “Investment” diamonds are even worse.

Price should drop

But I am not a pessimist as concerns gold. Quite the opposite: I have always been its supporter and admirer. I have been interested in gold for 40 years, be it investment, monetary or whatever. I have written two books and a number of articles on the subject and have always recommended gold as a state, national or private investment. However, state and national gold has gone, and private investment — at today’s prices — is exorbitant.

Remember the 1980 price weighted by the investment multiplier. Over a 10-year horizon it has fallen by 60 percent on average. It called for preposterous sales in the mid ’90s. Today’s investor is not someone who earns multiples. It is a swing, as it was 30 years ago.

I even understood gold somewhat. Recently I have been contacted by several companies, people with requests for advice about starting business in gold. At their conferences I met managers that live from multilevel marketing. But for them gold and making money on it are beyond the time and space of the individual investor.

Don’t buy at $1,400 an ounce. It will be cheaper — even below $1,000 — definitely after 2012. Until then, try futures and speculate a bit. But don’t sell more than half and don’t buy more than half.

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