How the gold price has gone nowhere – fast and
aggressively – ahead of 2013...
WHAT A FUSS
over nothing! Gold crept back Friday morning to right where it stood before
last Friday's sudden 1.4% jump, trading at $1730 the ounce.
That meant it also unwound half of this week's sharp 2.0% plunge from
Wednesday. It also puts the gold price in US Dollars right back where it
stood a month ago. Which is also where gold stood 12 months ago, at the start
of December last year.
And then it went and slumped $15 again, taking gold pretty much right back to
its monthly average for November.
Hey-ho. Many people are surprised both by this volatility, and by the lack of
action it actually leaves behind when the shouting is done. Because the
long-term crisis in money has only grown worse this year, flattening Greece
and squashing savers and retirees beneath the wheels of zero interest rates.
And the looming fiscal cliff in the United States – followed
immediately by a fresh "debt ceiling" row in Feb. 2013, plus urgent
debt repayments for Spain and Italy all through next year – must surely
be good for gold investing. Which leaves analysts
scratching their heads.
The gold market is "nervous" says one today. It's becoming
"increasingly confused" says another, mistaking his own confusion
for the millions of savers, investors and traders who make up the bid and
offer in bullion.
Unlike the last 5 years, however, there has been no panic or crash in the
broader financial markets in 2012. Indeed, stock markets globally have risen
almost as well as gold since New Year.
That breaks a 7-year run of gold beating the US stock market hands down. Gold
has only underperformed the S&P500 twice since 1999. It has risen 19.1%
per year on average since 2004, versus the US stock market's 3.8% average
Now, extending that run in 2013 might look a big ask.
This year's return-to-date on gold – some 12.0% according to most data
providers – is also flattered by end-2011's own volatility. (Contrast
the PM London Fix from
Dec. 29 with the AM Fix on Dec. 30th.) But while the absence of an immediate
panic this year has left gold little changed so far, the background rumble of
crisis and monetary stress has grown louder. Because the bald fact, like the
gold price, remains unchanged too. The fact that countries which cannot repay
their debts have only two options – either default or devalue.
The developed world is pushing ahead with trying to inflate away its
obligations. This week Greece was given leave by its lenders to start writing
off 20% of its debt. Yet if you're looking for an over-extended bull market,
look no further than government debt.
Buying US Treasury bonds has delivered negative returns in only 4 of the last 31 years.
That relentless rise has taken down interest rates worldwide. Because bond
payments are a fixed sum, whereas the interest they pay shows that sum as a
percentage of their market price. So the higher the price, the lower the
interest rate. Now they stand next-to-zero.
Unless interest rates go negative – as a small band of central-bank
policy wonks would like – then bond prices really can't rise much
further again. Gold of course already pays nothing in interest. It's been way
ahead of the curve during this depression so far. It remains uninflatable and undefaultable
as 2013 beckons. No one's to print, and no one's to destroy, gold is still
the opposite of debt.
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