Below is a synopsis of, and comments on, a very well balanced article on physical gold which is rather rare in this day and age. The article challenges everyone who owns gold, or is considering owning gold, to think for themselves and then come to their own conclusions as to whether physical gold is, indeed, the ultimate inflation hedge that it is so often claimed to be. Words: 800
So says Ian R. Campbell of an article* written by Michelle Smith (www.goldinvestingnews.com) entitled Gold: The Ultimate Inflation Hedge?
Campbell goes on to say, in part:
In essence, the article says:
- one reason investors purchase gold is because it is considered a hedge against inflation;
- in its 2012 Investment Returns Yearbook, Credit Suisse Global says gold “can fail” and there’s history to prove it;
- finding assets that protect purchasing power is the primary reason for investors to attempt to hedge;
- Credit Suisse says that “if gold were a reliable hedge against inflation, its real price would be relatively unwavering. However, gold is volatile and its purchasing power fluctuates”;
- “with gold’s bull run spanning more than a decade, some investors may be unaware, some may have forgotten, or others may even deem irrelevant, the metal’s broader history, as it often seems that we are experiencing unprecedented economic conditions”;
- Credit Suisse has reviewed data over 112 years and for 19 countries that “brings time passed back into focus and reacquaints investors with the reality that gold has not always traveled up”;
- Over that 112 year period, the real return on gold measured in British pounds was 1.07%;
- “in 60% of the episodes when inflation surprised to the upside in the post-World War II period, gold has underperformed inflation”; and,
- Nouriel Roubini, the widely quoted New York University economist, has warned that gold prices only rise (1) when inflation is high and rising, and (2) when there is fear of ‘near depression’ and investors fear for fiat currency security.
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My own thoughts having read this article are that there is little doubt:
- currently (and for the past several years) pundits continuously push the view that ‘there is going to be high inflation going forward, and that will push the physical gold price higher, and in the case of some of those pundits, much (and maybe ‘much, much’) higher [Read: Gold: $3,000? $5,000? $10,000? These 153 Analysts Think So! and Update: 51 Analysts Now Maintain that Gold is Going to $5,500 – $6,500/ozt. in 2015!] ;
- where some pundits have been for some time forecasting high (and in some cases ‘hyper’) inflation [see here for the many, many such articles] , particularly in the United States, that has not as yet occurred, even as U.S. Cumulative National Debt has spiraled and spirals out of control; and,
- the price of physical gold denominated in U.S.$ has continued to trend upward since 2001, so there clearly are factors other than ‘actually experienced’ inflation at work that have positively impacted the gold price. [Read: Gold’s Current Bull Market Will Be Even Bigger Than The One In The 1970s – Here’s Why and I’m Bullish On Gold for 3 Good Reasons – Here They Are among others.]
- the current market price of physical gold may very well be ‘pricing in’ some of the pundits enthusiastic and repetitive views that ‘high (or hyper) inflation is on its way, and [that] it is just a matter of time…[before] it ‘strikes the U.S.$ with a vengeance’. The comment in the article that: “some investors may be unaware, some may have forgotten, or others may even deem irrelevant the metal’s broader history, as it often seems that we are experiencing unprecedented economic conditions” has to be important. That said, unprecedented may be a strong term, as dramatic negative economic events have periodically been experienced in the past. A better way of putting it [would be, in my opinion]: ‘abnormal economic conditions in the developed countries as measured against economic conditions in those countries experienced in the last half of the 20th century’. Current economic uncertainty has to be impacting the gold price, and has to be being continually priced into the gold market as current economic conditions continue to evolve;
- my previous comment ties into the second ‘gold price rise’ criteria cited by Roubini, being that “gold prices rise when there is fear of ‘near depression’ and investors fear for fiat currency security”; and,
- trades in physical gold ‘paper’ – which paper in circulation is estimated by some to be as much as 100X the ‘paper value’ of the world’s entire above-ground physical gold store – impact the day/day price of physical gold in a manner that confuses analysis of the day/day gold price.
My Concluding Thoughts
There are no sure answers to whether the price of gold trends higher or lower from here, or to what higher or lower price levels they go. The only certain thing about the price of physical gold is that, like everything else, there is uncertainty attached to it – and that conditions affecting it in the current economic environment can change every day for better or worse as world and country specific events unfold in ways that that influence world and country specific economic risk.
*http://goldinvestingnews.com/24050/gold-ultimate-inflation-hedge-credit-suisse-investing.html (To access the article please copy the URL and paste it into your browser.)
Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
Other Comments on Gold By Ian R. Campbell
When forecasting, many economists and commentators fail to focus on the dramatic change in inter-country dependence in our ever more globalized world…and fail to let the actual markets influence their views. Below I critique two articles, rationalizing what they see for the price of gold for the balance of 2012. Words: 730
If you hold, or are considering holding, physical gold or silver or both, [it is imperative that you] read as many ‘balanced opinions’ as you possibly can with respect to ownership of each. [Here’s why]. Words: 337
Lately analyst after analyst (161 at last count) has been climbing on board the golden wagon with prognostications as to what the parabolic peak price for gold will eventually be. That being said, however, only 51 have been bold enough to include the year in which they think their peak price estimate will occur and they are listed below. Take a look at who is projecting what, by when and why. Words: 644
153 analysts maintain that gold could eventually reach a parabolic peak price of at least $3,000/ozt. before the bubble bursts of which 103 see gold reaching at least $5,000/ozt., 17 predict a parabolic peak price of as much as $10,000 per troy ounce and a further 13 are on record as saying gold could go even higher than that. Take a look here at who is projecting what, by when and why. Words: 844
The fundamentals supporting a mania in gold and gold stocks are such that I think a strong case can be made [to support my contention] that the current bull market in gold is far stronger than the one from the 1970s. [I present below] the major observations I feel…support such a thesis. Words: 700
I was taught years ago that “gold is not about price… gold is about value.” Be measured, be balanced and don’t make more of it than it is. Gold is just a tool, an anchor to sound money; to value. [Let me explain.] Words: 1120
In my opinion, there are three scenarios that could occur in the coming years when analyzing the global economy – and all three have the potential to offer bullish environments for the price of gold. [Let me explain the first and most likely reason.] Words: 660