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View from the Vault – The Decade of Gold

By Adrian Ash/ April 2009

It doesn't matter which currency you earn, spend or squirrel away for the future. Gold has dominated the 21st century so far for investment returns – a fact which will look plain to future analysts, even if only a handful grasp it today.

Can gold now extend or repeat this performance? "People rightly buy gold when they fear inflation ahead," as William Rees-Mogg, a keen historian of gold, recently put it. Indeed, global demand for gold jumped 26% at the end of 2008, according to the GFMS consultancy, just as the US, British and Swiss central banks moved to begin quantitative easing – a.k.a. printing money.

But on the other side of the trade, however, jewellery consumers are just as likely to stop buying and even start selling when they get squeezed by tight credit and falling incomes. Dealers and retailers don't need reminding, but consumption demand collapsed and scrap recycling soared in the face of 2008's record-high prices.

Full-year 2008, say our friends at the excellent GFMS consultancy over on Regent Street, saw global scrap-metal flows rise 27% to more than 1,200 tonnes. They surged again to reach 500 tonnes in Q1 2009.

New jewellery demand, meantime, halved to just 420 tonnes.

Indeed, this reversal of consumer demand meant that traditional importers such as world No.2 Turkey have now become gold exporters, says GFMS chairman Philip Klapwijk. While in the industrialised West, high-margin operations such as Cash4Gold have made selling gold so much easier for cash-strapped consumers, that one attendee at GFMS's recent Gold 2009 presentation put the flow of scrap metal higher again, perhaps as high as 1,000 tonnes for the first quarter. (At the same event, gold-market historian Timothy Green said India last failed to import any gold during the Great Depression of the 1930s.)

Which side will win out in this battle for gold prices? Will it be jewellery consumers selling old scrap, or anxious investors trying to get a jump on inflation? With the G20 meeting in London crowning "the biggest interest-rate cuts in history...an unprecedented fiscal expansion," as UK host Gordon Brown put it in London, gold investors may only view price dips as a chance to build their hoard further.

And as renowned mining-stock analyst Doug Casey noted earlier this month, the late 1970s bull market "had nothing to do with bracelets."

Adrian's Previous Blogs:

Mar 2009: Greed Down, Fear Up
Jan 2009: Investors vs. Consumers, 2009
Dec 2008: Something Odd Stirs in Mayfair


The opinions expressed in Adrian's Blog are his own.

Adrian Ash
Head of research at BullionVault – the world's fastest growing gold ownership service – Adrian Ash has been analyzing and investing in gold for more than 8 years. A respected contributor to leading gold investment sites and services, Adrian's views have been sought by the Financial Times, PBS radio in the United States, Der Stern in Germany, and the BBC in London.