I am a red-blooded American male and therefore easily distracted. Shiny objects divert my attention one way, then the next. (What’s that over there? Wait, what about this?) Maybe that’s why I’ve been fascinated with gold the past 12 years.
Obviously, I am not the only human to have an interest in gold, as it has been the obsession of entire cultures during certain historical periods. The post-World War II period has seen a curious counter-trend to gold’s history, but the more recent past suggests humans may soon rediscover our long-lost love.
Until the first use of paper money (by a Genghis Khan descendent in a Chinese territory), gold and other precious metals like silver served humankind as a universally accepted medium of exchange. Things pretty much stayed that way until President Franklin Roosevelt decided that confiscation of private property was the new American way, and he removed our currency from the gold standard, at least for U.S. citizens. Because we were the only country left standing at the end of the war, the U.S. dollar took the role gold had played for thousands of years. People—as well as countries all over the world—bought hook, line and sinker into the con of “Backed by the full faith and credit of the U.S. government.” Well, that was until about 11 years ago.
Over the past decade, things have slowly started to change. Gold, after lying dormant since 1980, began coming alive and making its intentions known. Understand that it intends nothing less than to take back the high ground as a universally accepted medium of exchange. The shiny metal has been more or less in a bull market since 2001, and all longer-term signs point to a continuation of this move.
Look around the world and think about this for yourself. If you are the Chinese government with $1 trillion U.S. dollars, are you going to keep buying the debt of a country that keeps running up more and more deficits? Are you going to put all of that money into the euro, which could collapse in the next 10 years? You might do a little of each, but you are also going to keep buying gold. China and India both have aggressive gold-buying programs. The world’s paper money (backed by nothing but increasingly higher debt levels) is going to look less and less attractive over coming decades.
I’ve heard a lot of conversations lately about how gold’s long-term run is over because the global economy is improving and investors aren’t as scared as they were six months ago. Gold hit a new all-time high a few weeks ago of $1,425 an ounce and has since pulled back to about $1,380.
This small drop brought a lot of gold bears out of hibernation, and now they are doing their best to convince the rest of us that gold has nowhere to go but down. They might be right for the short term, but that’s all it is—short-term noise.
Gold has been a little more correlated to stocks than most investors understand. While the bull move may have started in 2001, it wasn’t until 2003 when stocks took off again that gold really started moving. And the largest correction gold has experienced over the last decade was in 2008, which may bring to mind the large losses stocks suffered that year. Gold does not have to fall just because the stock market and economy move higher.
Again, I would be a little cautious about gold over the short term. Like stocks, things are a little overbought right now, and a temporary correction has been due for a few weeks. But like stocks, I don’t think the bull market is over, and I am looking to buy into the coming correction.•
Hauke is the CEO of Samex Capital Advisors, a locally based money manager. His column appears every other week. Views expressed here are the writer’s. Hauke can be reached at 203-3365 or at firstname.lastname@example.org.