The experience of many centuries trusting gold as a means of payment, first, and later as a refuge asset, store of value and protection against currency devaluation and inflation should have taught us not to mistrust it. Especially in times of crisis like the current one, with inflation rising to levels higher than in the last 30 years and the threat of an energy crisis.
However, history repeats itself and, periodically, it becomes fashionable to criticize gold, that ‘barbaric relic’ that many investors consider outdated and inappropriate for modern times, in which bitcoin and cryptocurrencies set the pace.
The Financial Times judgment
That is what Frank Holmes, an expert in the gold market, has done in a post published in US Global Investors . Holmes remembers an article published in December 1997 in the prestigious British newspaper Financial Times , entitled nothing less than ‘The death of gold’ .
The author of said article, Kenneth Gooding , states without shame that “gold is a failure as an investment” , arguing that in the crises of the previous ten years (the stock market crash of 1987, the Gulf War or the Asian financial crisis) the expected increase in demand for the precious metal had not occurred, so gold had been reduced to “a mere metal” and a “bad investment” .
Unfortunately (or fortunately, depending on how you look at it), this announced death of gold as an investment never came to pass. In fact, during the following decade the price of the metal began to rise steadily, reaching a record of $1,921 an ounce in August 2011 .
This high represented an increase of approximately 580% over the price of gold at the time the Financial Times published its prescient article.
The actual situation
Have we learned the lesson? It seems not. According to Frank Holmes, it is now possible to find the same “pessimistic forecasts” regarding the “barbaric relic” , mostly from people with little knowledge of the market.
Over the past week, the rise in the US Consumer Price Index to 6.2% in October over last year, led to a 2.56% rise in the price of gold , as expected.
Not only that: the metal staged the longest continuous rise recorded since last May and broke the downward streak it had been on since it reached its all-time high of $2,073 an ounce in August 2020 .
The asset purchase program by the US Federal Reserve began to be dismantled this November, after having reached a figure of 8.58 trillion dollars in assets , equivalent to a third of US GDP.
This, together with the rise in inflation, has caused a buying fever for gold coins, especially the American Eagle bullion minted by the United States Mint .
According to the latest figures published by the American mint, between January 1 and November 10, 2021, a total of 1,071,500 ounces of gold have been sold , between the different versions of the American Eagle (one ounce, 1/2 ounce , 1/4 ounce and 1/10 ounce).
This is the highest figure recorded since 2010 and probably the best year in terms of sales of this gold bullion in more than two decades.
Therefore, it is clear that gold continues to interest investors when the situation is looking bad.
Finally, we must talk about inflation, which has been the triggering factor for the latest rise in the price of gold.
Many economists are wary of the inflation measurement system, as they believe that the Consumer Price Index does not adequately reflect the loss of purchasing power suffered by consumers.
According to Holmes, if inflation were calculated using the same methodology as in 1980, the index would be closer to 14% than the 6.2% it registered last October.