Today we tackle a subject we have ignored for far too long.
It is, in fact, my favourite subject. And the favourite subject of many a MoneyWeek reader: gold.
As regular readers of mine will know, I’m a gold bug. You have togo back about as far as Croesus to find a bigger gold bug than me.
I like it even more when the price is going up, which, for the past six months, it has been.
After four years of gruelling bear market, I haven’t wanted to jinx it by writing about it, so I’ve avoided the subject. But today the call has come in from on high – John Stepek emailed me – and so we look at gold.
Let’s start with some numbers.
The remarkable revival of gold and silver
From its low last December of $1,045 an ounce, it has risen by just under 30% to a price of $1,344 as I write. The high came in at $1,360 during the Brexit panic almost a fortnight ago.
Of course, one of the reasons to own gold is as a hedge against government. Ours has, on a number of different levels, shown itself to be lacking, and there is no sign of any saviour on the horizon galloping to save us.
The forex markets have delivered their verdict and the pound has taken up residence in the swanny. There were signs of a rally, but the Bank of England’s Mark Carney knocked that right on the head last week when he started hinting about rate cuts.
But every cloud has a silver lining, or, should I say, a gold lining. Let’s look at gold measured in sterling. From £690 an ounce in December, we now sit at £1,014. That’s a 45% gain and counting. We’re at highs last seen in early 2013.
£1,207 is the all-time high, by the way, in September 2011. Another 20% and we’re there. It’s been a horrible few years, but gosh I’m glad I managed to hold on.
For those of you that follow these things, if there’s a more textbook “double bottom” than the one in that chart, I’d like to know what it is.
If, like me, you used pounds to buy your gold, and if, like me, when the time comes to sell (assuming you ever sell), you will take pounds in exchange, the sterling price of gold is all that matters. We follow the dollar price because that is the way the gold price is reported, but, actually, the pound price is what counts.
Silver, by the way, is up the small matter of 66% from its lows in sterling terms – from £9 an ounce to £15. I should never have been so cynical! I own some, but not nearly as much as I wish. Ain’t that always the way? In a bear market, you own too much. In a bull market, you don’t own enough.
I could argue that this is a peak – but I won’t
Usually when you hit peak points of elation, such as the one I’m displaying now, that is a sign to be selling out. And I can easily make the argument to be taking profits.
Gold and, especially, silver have moved too far too quickly. They are overbought. Sterling will recover. There’s too much speculation and hot money. The commitments of traders data (which shows the positions of the futures traders) is indicative of a top. I can make all the usual arguments and more.
The bottom line, however, is that this is a bull market. Some bull markets go on for a long time. Others don’t. I don’t know how long this one is going to go on and neither do you. But in a bull market you want to be long.
In addition to a trend that, quite definitely, is rising, just a cursory glance at the world around me says “hang on”. We don’t know how this political crisis is going to end in the UK. We don’t know what the public reaction to an unelected prime minister will be. We don’t know exactly how we are going to leave the EU and on what terms.
We’ve got the US election too, in which neither candidate has you exactly salivating, then France and Germany – whose leaders are unpopular – have their own elections in 2017.
Meanwhile – and I don’t say this lightly – something dodgy is going on in the European banks. I’m not brainy enough to tell you what. If I start looking at liabilities and derivatives books, I don’t think I’d be any more enlightened.
But I do follow price action – and Deutsche Bank’s share price, in particular – beneath its global financial crisis lows – suggests something big is not right. The Italian banks, meanwhile, seem to slip lower every day.
Then you start seeing commercial property funds – two at the last count – closing out redemptions, and you put it all together and think, it’s all looking a bit 2008-y. If anything, I should be buying gold, not selling it.
So I shall be continuing with my current strategy of being long gold and bullish about its prospects. I shall sit back and enjoy the political fun in the comfortable knowledge that I am hedged. And if the markets punish me for my complacency (they usually do), well, so be it.
Dominic Frisby will be performing his show, Let’s Talk About Tax, at the Edinburgh Festival this August.