I have a love-hate relationship with gold but like any good investor I do feel I need to hold some.
It breaks lots of my investment rules and one of the most important principles I have is “don’t buy what they are trying to sell you.”
I think most of us can agree the market and media like myself is always pushing gold.
You simply cannot go far in the financial press without stumbling on someone predicting the end of the world or at least the dollar and strongly pushing the need to buy gold before fiat currency is shredded into confetti by Zimbabwe-style hyperinflation.
I suppose it could happen, but even though there has been elevated inflation in two periods of my life, the dreaded moment of the death of money has never been close in Europe or America. Yet not a month has gone past without some doomster saying the world economy was going to implode and gold was going to the moon. Over the length of my not considerable time, nothing even close to this has happened and in the end all these voices are just shilling gold.
I won’t mislead you, I love the stuff. It is yummy, but through decades of non-financial apocalypse and of the dollar not losing its ascendancy, I’ve long considered the noble metal to be just another commodity.
It is, however, now a commodity with a tremendous looking chart. Gold actually looks able to go “off the chart.”
This is what I’m looking at:
We could be at a top, I suppose, but unless gold gets stuck around here for a very extended period it looks simply poised to go much, much, higher. It is always easy to come up with some words to explain the potential. War, inflation, currency debasement… Blah blah… but I prefer to challenge the question of “why not?”
Why not? For starters, they are digging 3,000 tonnes of it out of the ground each year. That’s $250bn of the stuff. It’s no wonder there is a chorus of gold promoters. Happily, central banks are buying about a third of that a year but even so, what remains is about an added 1% to all the existing gold out there. That 1%, added to the pile every year, has to be mopped up by investors and users and if there is not enough hunger for it, then prices will surely fall.
What the chart suggests is that something is in the works that will roughly double the price of gold in the next few years.
I think it will simply be central bank buying because it appears that international political tension will rise and I’m sad to say that the main use of gold is simple.
Gold is the currency of conflict. Central banks don’t buy gold because it is currency, they buy it because it is universal money.
The cost of war is immense and it is only paid for in gold when a war must be paid for by importing resources from third parties. No one wants a countries ‘stinkin’ paper when they are in a desperate war. They don’t take credit, or cash, they take payment in gold.
To give you an idea, the awful war in Ukraine is costing in total a year about the equivalent of the worlds new production of gold. If the demand from central banks to have sufficient in an increasingly unstable world is to buy more gold, the price will rise accordingly and it will not take anything more than tension to do it.
If you cannot imagine the world getting any more relaxed, then it’s fair to speculate gold can only rise. That is my position, and just like the central banks I’m buying gold as often as in convenient.
Disclaimer: I own gold.
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