The Phaserl


Gold Two Steps Forward … One Step Back

from Gold Core:

The deluge of negative publicity regarding gold in recent weeks would give one the impression that it was now worthless and serves no function in a portfolio. We believe this publicity is greatly exaggerated and will be seen as folly in the coming months.

In the years running up to the financial crisis of 2008 gold rose dramatically despite the warning signs being widely ignored. It continued to act as a reliable store of value as the crisis deepened and then began to fall back following the stability – temporary, we believe – provided by central banks creating more debt to deal with a crisis of over-indebtedness.

The negative publicity has generally focussed on the performance of the gold price in dollar terms which is not particularly relevant to investors and savers in other currencies.

Gold rose from €300 in 2000 to around €1,400 at the height of the crisis. It has since fallen back to €1,000. In this context, one can see that gold’s function as a store of value and as a safe haven is still clearly evident. Gold’s recent performance in euro terms has been reasonably strong with a very respectable 13% rise last year and 2% gains so far this year.

History, academic research and independent research show unequivocally that gold acts as a safe haven. As GoldCore’s research director Mark O’Byrne pointed out on RTE Radio 1’s Morning Ireland this morning [click to listen] gold has an inverse relationship to other financial instruments.

The recent negative publicity points out that gold should have seen gains during the recent crisis in Greece and thus failed to act as a safe haven. This is not strictly correct. The uncertainty caused by the crisis should equally have caused stock markets and bond markets to falter. They did not and therefore gold’s inverse relationship to these assets was never tested.

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