By Ed Attwood
Gold's meteoric rise has dominated the headlines - and it shows no sign of stopping
Do you remember the days when Ramadan was considered a slow news period? This year, of course, it has been anything but. If it’s economic, political or social news headlines you’re after, the last few weeks have had it all, in spades. Whether it’s bourses crashing, dictators departing, or youths looting, the globe has been gripped by a succession of stories that has had a devastating effect on investor sentiment.
But, as we all know, if there has been one index that has remained relatively constant, it’s that of the gold price. At the time of writing, the price of gold had shot through the $1,900 an ounce ceiling, before settling down to just over $1,700. It seems like only yesterday that predictions of a $1,000 price would have had analysts holding their sides with laughter. Nowadays, not one of those analysts is ruling out the possibility of gold reaching $2,000 before the end of the year.
The reason that gold is proving such a valuable commodity is, of course, down to one simple sentiment. Fear. It is something of a sad indictment on the global economy that investors see as their safest bet not currencies, or government bonds, or big bank equities, but instead a yellow metal that may look attractive, but has limited actual use.
But that’s the whole point, isn’t it?
To your average flinty-eyed investor, gold is exciting — ironically — precisely because it lacks all those key traits which make its value subject to the whims of foolish human interference.
Gold is, as the fantastic Societe Generale analyst Dylan Grice put it earlier this year, “the cleanest insurance against overconfidence” — in other words, it’s a protection against human stupidity. While central bankers claim that their control of monetary policy is water-tight, history clearly teaches us otherwise. And while the US seems to be in hock to the ratings agencies, many have conveniently forgotten that these same entities were the ones giving those mortgage-related securities such a stellar review prior to the Lehman Brothers collapse.
Grice’s musings on the importance of holding gold are worth repeating in full.
“How can such a commodity-sceptic as I be so comfortable owning physical gold? Gold is not like other commodities, and other commodities are not like gold,” he says. “It lies at the heart of the absurd contradiction innate to the human condition: how can a species as capable of the creative resourcefulness embedded in space travel, wireless communication, genome mapping, and Viagra, be at the same time, so hopelessly incapable of learning past wisdom, and apparently doomed to repeat past follies?”
Of course, one of gold’s more alluring traits is that there’s a limited supply of the stuff out there. According to the World Gold Council website, we have only ever managed to lay our hands on about 150,000 tonnes of the precious metal throughout our entire history.
And despite the vast amounts of money being spent by the world’s big mining companies, there isn’t going to be the sort of discovery that will make a sudden, significant percentage gain to that overall stockpile. But those same mining companies are still posting solid profits, and some stocks have — in relation to gold bullion — fallen to near-25-year lows. That alone should attract some investor interest. In Saudi Arabia, state-owned mining firm Ma’aden is making good on a promise to access gold deposits in the kingdom, as well as various other joint ventures. Is Ma’aden on your ‘stocks to watch’ list? It looks like it should be.
What is more certain is that as long as European sovereign debt and the US double-dip recession compete for headlines - and despite last week’s blips in the price - there is only one way for gold to travel. Up.
(Ed Attwood is the deputy editor of Arabian Business. The opinions expressed are his own.)