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Cometis: At today’s London PM Fix, the gold price was recorded at US$1,690.00 per troy ounce. But on this day one year ago it spiked
to an all-time nominal high of $1,923/oz. Why has
gold fallen out of favour
with investors over the
last 12 months? Is the metal
back in a bear market?
Alasdair
Macleod: On the charts there has been a normal bull market
correction. As to whether it
has fallen out of favour with investors you have to bear in mind that the run-up to almost $2,000 attracted speculative buyers, who would
become sellers when their profits were threatened, and that is indeed
what has happened. However, private individuals who look to precious metals as providing insurance against systemic risk have continued to accumulate holdings of physical
metal, as our own experience at GoldMoney confirms. It’s also worth pointing
out that some respected figures in the investment
world such as George Soros
and John Paulson – two
men who could be fairly described
as knowing a good deal when
they see it – have been big gold buyers of late.
In the background, the central banks
for the advanced economies
have worked hard to contain
panic in the markets, and part of this has been to stop gold and silver
prices rising further. The short-term speculators unwinding their long positions did the rest. More recently, other central banks, such as China’s and Russia’s, as well as several other important central
banks in Asia are buyers of gold; so at current prices
bullion is transferring from West to East.
This puts a floor on
Western intervention and suggests the correction is coming to an end.
Cometis:
Historically gold and the US dollar have often
been negatively correlated.
This seems to have changed
with the euro crisis and
gold and dollar often move together.
Can you explain what has happened and if this is a new paradigm?
AM: There have been times when there has been a negative correlation between gold and the dollar, but the real correlation is with real US dollar interest
rates, adjusted for inflation. That relationship appears at first sight to have broken down, but when you take into
account the purging of speculative excesses over the
last year, and the central banks’
obvious interest in keeping a lid on precious metal prices, we have a better explanation. The fact that real US dollar interest rates are negative and
that official policy is to keep them
there for the next three years, tells us that precious metals are undervalued. It is not a new paradigm.
Cometis:
How
has the global economic situation changed within the past year and how do you expect the gold market to develop in the coming year?
AM: The global economic
situation has deteriorated significantly.
It is easier to list the exceptions: there are
none. The eurozone is faced with break-up and the whole European banking system with collapse, unless the European Central
Bank finds a way to accelerate its money-printing without collapsing the euro. The
UK is sliding back into economic contraction, as is the US. All countries in the West are faced with escalating
debt, both on and off
balance sheet with future
welfare liabilities off
the charts. Growth in the
emerging markets has slowed. And why Japan with a
government debt to GDP
ratio of over 250% has not already collapsed is a mystery to observers.
These are surely
times when ordinary
people will take out
protection against these systemic risks in increasing numbers by buying
gold and silver. They
are already doing this in China and India, which between them represent 35% of the world’s population. I expect
this trend to grow and spread elsewhere.
Cometis:
Will
we see another all-time high in the gold price
anytime soon?
AM: There is
no way of knowing for
sure, but the prospect of a eurozone collapse and its likely effect
on the euro suggests that
there is substantial European demand for gold in the pipeline to add
to that of India and
China. If that happens,
the previous high at
$1,923 could be taken out fairly quickly.
Cometis:
In
the light of the current economic
situation, will gold be
able to maintain its status as a safe haven in the future? And is it still profitable for Europeans to buy gold?
AM: From
time immemorial gold has been money, the medium of
exchange for buying and selling
goods and services. Today’s
fiat currencies are a recent
phenomenon that look increasingly likely to fall over, as did the German mark in 1920-23. I am particularly worried about the next year or two for the euro, and find it hard to see how history will not be repeated.
That being the case, owning
gold will become a
question of survival rather
than profit.
This interview was arranged and conducted by Cometis
AG, and originally published
at Goldmoney.com
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