Gold Bugs, Stop Laughing!

By: Adrian Ash | Fri, Jan 13, 2012
Print Email

Zero rates are starting to set around investors like concrete...

Owning gold should make financial crises fun. Which alongside silver, it has surely done to date, 20% and 50% plunges aside.

But if you already own physical bullion - or you're about to consider it - spare a thought for everyone else. Because pointing and laughing at the misfortune of others is an ugly habit. It only makes us "gold bugs" more boring at parties as well. A little sympathy, and a stab at empathy too, could go a long way to redeeming us socially. And it would be far better than taking a pratfall of our own, you'll agree.

Crowing about being so right, so early is understandable, of course. Hitting a 22-year low in July 1999, the price of investment gold has since risen sharply - pretty much year after year - against the Euro, Yen and Sterling, as well as every other currency you can name.

Silver bullion has done better still over the last decade - that decade straddling both the Tech Stock Crash and its offspring, the Cheap-Money Bubble, sired by meek academics wielding godlike powers at the big central banks. The permanent emergency following the inevitable blow-up has only accelerated gold's outperformance against pretty much every other financial asset you can name, too.

 

Number of mutual
funds beating gold
over 10 years
to end-2011
over 5 years
to end-2011
in France 1 1
in Germany 0 0
in Italy 0 0
in Japan 4 1
in the UK 3 0
in the US 15 1
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 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 last half-decade of permanent emergency.

Japanese Gold vs. Yen

Since the start of 2007, gold has returned just 8.8% per year to Japanese buyers (compound annual growth rate, after costs). Silver slowed more dramatically still, halving its 10-year CAGR to just 6.1% per year. And all because, of course, the Yen has rallied during this crisis so far.

How come? Japan was long into depression when this "global crisis" began, you'll recall. Its own domestic bubble exploded in 1989, dragging GDP, wages and even shop prices into deflation since. Japan thus got the absurdist joy 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 above) but still failing to induce the magic reflation.

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, short term, and silver fell harder again. Net-net, both metals have offered the best store of value (barring just two mutual funds) for Japan's household investors. But they've both slowed their rate of return to what, compared to the 20%-or-so annual gains for Dollar, Sterling or Euro investors, looks like a crawl.

Depressed returns to investment are only to be expected in a depression, of course, not least from lumps of metal which never promised a yield in the first place. But even the best stores of wealth - meaning gold and silver since 2002 and especially 2007, in Japan just as much as in the US and Europe - might be vulnerable. Zero growth, and the zero rates through which central banks hope to undo it, are starting to set around investors like concrete.

 


 

Adrian Ash

Author: Adrian Ash

Adrian Ash
BullionVault.com

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the head of research at BullionVault, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the secure, low-cost gold and silver exchange for private investors. It enables you to buy and sell professional-grade bullion at live prices online, storing your physical property in market-accredited, non-bank vaults in London, New York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people from 97 countries used BullionVault, owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical silver (US$129m) as their outright property. There is no minimum investment and users can deal as little as one gram at a time. Each user's unique holding is proven, each day, by the public reconciliation of client property with formal bullion-market bar lists.

BullionVault is a full member of professional trade body the London Bullion Market Association (LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development body the World Gold Council (www.gold.org) joined with the internet and technology fund Augmentum Capital, which is backed by the London listed Rothschild Investment Trust (RIT Capital Partners), in making an $18.8 million (£12.5m) investment in the business.

For more information, visit http://www.bullionvault.com

© BullionVault 2006-2014

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events - and must be verified elsewhere - should you choose to act on it.

</body>
All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/