Interview on the anniversary of gold’s peak at $1,923/oz

I recently gave the following interview translated into German to celebrate the anniversary of gold’s peak for distribution to the German media. The English version is posted at GoldMoney, here.

Cometis interview with GoldMoney’s Alasdair Macleod2012-SEP-05

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.

Alasdair Macleod

Head of research, GoldMoney

Mob: 07790 419403

[email protected]

Twitter @MacleodFinance

2012-09-05 19:08:42

Source: http://alasdairmacleod.blogspot.com/2012/09/interview-on-anniversary-of-gold-peak.html