The Lucre of Gold

Gold dipped below $1100 on Monday, a 5-year low, and a far cry from the heady days of 2011 when it peaked at an eye-watering $1,921.  Back in those heady early days of the financial recovery, gold bugs were on their soap boxes spreading the word that gold, the ultimate safe-haven asset and hedge against inflation, was just getting warmed up, and would smash the $3,000 barrier before the year was out.  They proclaimed it was the only asset class to have held its value since biblical days, which as it happens is tough to argue against, but is a little short of the full picture.

One of the problems of owning gold is that it doesn’t do much more than look pretty, albeit mighty pretty it does indeed look across the right neck line.  The point is that it doesn’t produce any income.  So, although gold has indeed held its value since biblical times, that is to say it has made a zero real return in 2000 years, which is a little less seductive.  And then there is the volatility.  It was around 15 years ago (1999-2002) that Gordon Brown, with spectacular timing, famously sold half the UK’s gold reserves at an average price of $275 to balance the books, in what wags have since dubbed “The Brown Bottom”.

So, for the above reasons, though we think gold is magnificent in the decorative sense, we do not believe in it as an asset class.  The lucre of gold might have been responsible for one of the greatest Bond villains of all time (and who could forget his talented first pilot Pussy Galore), but that is where the story ends.


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