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20/20
YOUR FINANCES
Precious Metal
Predictions
byTOBY BIRCH
(2000 – 2010 – 2020)
MANAGING DIRECTOR
Guernsey Gold Limited
As one who predicted the credit crisis by publishing a market, resurrecting the terrible twins of boom and bust.
book in 2007 called The Final Crash, I am often asked
for forecasts on all manner of markets. In October 2006 So where does this leave gold?
at a commodity conference in London I stated that the In 2008 the metal failed to offset falling share prices as excess
gold price would climb to $1,000 in 18 months and it leverage led to widespread liquidation; a case of the baby being
duly did so. Allow me to go on record now by saying that thrown out with the bathwater. As the old saying goes, the only
the price will be $2,000 when the 2010 issue of 20/20 thing that rises in a crash is correlation so asset prices fell in
magazine is published. The topic of gold investing tandem like climbers on an ill-secured rope. Gold should not be
generates extreme opinions in both pro- and anti- camps. viewed as a short-term safety net but as a long-term ledge to
Those who worship it with religious fervour are often cling to. Those who are longer in the tooth will view this
called gold bugs; perhaps rightly so. Unfortunately, statement cynically because the gold price was effectively
proponents of gold bullion as an attractive asset class stagnant for 20 years following its spectacular peak in 1982.
also tend to be lumped into this lunatic category. This was an era of disinflation and high interest rates where
gold served little purpose. It was then the turn for financial
It is frequently claimed that in times of turmoil gold is the markets to shine. We are now in a long-term shift out of
ultimate form of payment. However, recent history shows it is financial assets into real assets which is why risk-ridden equities
not the currency of choice to buy labour and materials even and bonds are such a bad bet for the next decade. The perfect
when inflation is rife. Most people simply don’t own it and would approach to gold is to be totally unemotional. It is neither a
rather barter useful items. It is however a useful store of value ‘barbarous relic’ (as described by Keynes) nor a mystical metal;
when money is being diluted through mass production, either on it is simply an insurance policy. With apologies to those diligent
a printing press or via a computer keyboard in the brokers in that business, insurance policies are just not that
case of credit. The unprecedented volume of its interesting. Still, one needs to own enough ‘cover’ to
creation in the West gives ample counterbalance the losses on paper investments which
cause for concern. In the will be emaciated by inflation. However, if stock
natural world, God gives markets keep rising and the
us signals that some propagandists are proved right, then
species are injurious by gold will be dead money, like the
endowing them with bright premiums on an insurance policy.
primary colours. Taking a dispassionate approach also
avoids the lure of falling in love with
For financial markets the best the lustrous metal which has fascinated
warning sign of impending crash is an mankind for millennia. Gold is a cruel mistress
exponential growth curve, or worse still the and will break your heart at some point.
parabolic variety that climbs straight up the page. This is
exactly the pattern that we are witnessing for the manufacture Britain already spends more on interest than it does on defence;
of money in both Britain and America, euphemistically called a situation which will deteriorate as the national debt doubles by
Quantitative Easing. The problem is not just the volume but 2014. You can bet your bottom dollar that interest rates will not
also its velocity, which is currently glacial. Any uptick in only stay low but well below inflation to burn off liabilities. While
activity could trigger some nasty spikes in inflation. Sadly, the wealthy investors will inevitably lose money, it is the poorest
corporate mind-set is enamoured of exponential growth and that bear the brunt of higher food and energy prices; the very
makes the all-too-human error of assuming a trend will never people who cannot afford bullion as protection. At the risk of
end then extrapolating it into the future. This is why sounding like a gold bug Militiaman, this is the stuff revolutions
businesses expand and borrow so much at the top of the are made of.
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