Tuesday, July 03, 2012

Is gold still fairly priced?

The nominal price of gold has soared over the last decade, prompting some to worry that it may be something of a bubble. And ceratinly its price path is erratic, reflecting sentiment more than monetary fundamentals.

But whether you look at the US monetary base, or alternatively at the growth of total credit market debt, gold is slightly below its 42-year average in relation to these benchmarks:

I didn't have the money in 2005 to pile in as I wanted to; but I'm starting to buy small amounts of physical gold now - no longer to make a killing in real terms, but as a hedge against inflation.

Why? A number of reasons:
  • the British Government is still not offering index-linked National Savings Certificates (I've written about this to my MP, who has written to the Chancellor, who has not replied so far);
  • the high streets around my area are still boasting a number of shops buying gold, not selling it;
  • China has (some time ago) announced its determination to build up a stock of 10,000 tonnes;
  • other central banks are buying;
  • you can still purchase gold in the UK without VAT.
There are so many prophets around, but which one of them will turn out to be correct? My feeling is that we face a deflationary/stagnatory phase, which will become so painful and (in a sort-of democracy) unsustainable that somehow or other, the monetary floodgates will open.

In the medium term, I kind of expect UK housing (ex-London and some other chi-chi areas) to cheapen as unemployment, uncertainty and bank crises continue; by the time we get to sub-Weimar I hope to have moved house (using much of our spare cash) and then with what's left I'll hope to be in fairly defensive stocks (utility companies etc), gold and maybe Marc Faber's beloved emerging markets.

For now it's cash, plus gold plus anything officially guaranteed to hold its value.


Nick Drew said...

seconded !

Paddington said...

How about fags? They're light, yet soon to be worth more than their weight in gold to the addicts like me.

Sackerson said...

ND: I'll take that as an indication I haven't gone mad.

P: How far are you from Virginia?

Paddington said...

About 5 hours by car.

Sackerson said...

But no quotas and no import tax!

Paddington said...

Actually, in theory there are both, if you get stopped.

James Higham said...

Not just unemployment but underemployment as well.