Cashing In Your Golden Insurance

One nation's recovery is another's credit crisis. Time to sell gold...COTTON is it, for the second anniversary? Today marked two years since gold hit its all-time peak so far.

Tuesday 6th Sept 2011 was wet and windy, both in London and gold. Late Asian trade had seen the wholesale gold price rise 1.4%, reaching $1921 per ounce. Prices then turned lower, and by the time New York opened the air was hissing out of gold futures.

London's benchmark gold price fixed at $1895. That repeated the Monday's PM Fix and came just shy of Monday morning's record Fix of $1896.50. The gold price then dropped $300 within three weeks. It's since dropped $740 from 2011's peak to June 2013's low. Wet and windy indeed.

Prices need money, however. And the Sterling gold price also hit record highs two years ago today. Peaking at £1194 in the spot market, gold was fixed at a record high of £1182.82 per ounce on 6th Sept 2011.

But the peak gold price in both Euros and Swiss Francs didn't come for another 12 months. Japanese savers got their peak price in April 2013. The world's biggest buyers, Indian households, paid the very highest prices in history only last month. Because the Rupee has, yet again, become a miserable way of trying to store wealth.

Might the Dollar, Sterling or Euro join the Rupee anytime soon? No one rings a bell at the top, nor the bottom. (Although we should have spotted the irony in gold's new fan on 7 September 2011.) So buying gold or silver is always a choice. Sometimes better, sometimes worse. But a private decision, freely made – and freely rejecting cash, stocks and bonds with a little or more of our savings.

Added together, such private choices make a market. And that choice was the market's to make once again today, as the US jobs data was released for August. A strong number, and everyone thought the Federal Reserve would be sure to start cutting its quantitative easing at this month's policy vote. Weak growth, however, might keep Ben Bernanke's QE tapering in the bathroom cabinet, next to his beard trimmer, until October or perhaps year-end.

Quite what the outcome means – being neither strong nor weak (if you discount the LA porn industry's brief shutdown) – we'll have to wait and see. Either way, less money printing equals lower gold, apparently, the obvious "vice versa" of what QE did for gold investing when it began in 2009. Quanticipation in gold certainly helped drive 2012's rally, alongside that peak in Eurozone stress. Then the mere thought of less QE did for gold prices this spring. It's hammered emerging-market economies, too. And fundamentally, gold and the rise of emerging Asia have been joined at the hip during the 21st century so far.

Back here in the tired old West, meantime, the immediate panic over Syria has ebbed, even with the US and Russia going head-to-head over Assad's chemical weapons. That leaves pundits and analysts to claim gold's two-month rally is done. The longer-term bear market is back.

Who are we to argue? There are plenty of bullish analysts besides, and it's important to see what the other side thinks. Precious metals are about insurance, however. And the sense of crisis has plainly receded since the financial meltdown peaked in 2011.

But waiting for a crisis to make headlines is no way to buy insurance. And if not war today, with Obama and Putin squaring up at the G20 summit in St Petersburg, there's still lots of good reason for a financial backstop. Central bankers are committed to creating inflation, in the hope of juicing up growth. The Western world's debt has yet to stop growing, even 5 years after the Lehmans' collapse. Asian standards of living continue to rise long term, leaving fewer resources for the rich world to squander.

Gold and silver are a big part of that story. Because they're the first thing most Asian households will buy when allowed discretionary savings. But the picture is mixed short-term, of course. This week we heard that China's gold imports climbed yet again at last count. Indian households, in contrast, are locked out of the imports they would otherwise buy. Tight supplies in the domestic market have in fact prompted a wave of Indian selling, say jewelers.

Amid India's financial crisis people need the money, because bank lending has dried up. The current high prices – due to the collapse of the Rupee – make this a good time to take profits on previous gold investing.

Sell high, in short. For Indian households who need it, now is the time to cash in some of their golden insurance.

Adrian Ash

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Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.