Citing the expansionary monetary policy being followed by most Central Banks, Japan’s policy becoming significantly more so following recent announcements, and the Mario Draghi statement yesterday which emphasised the downside risks to the Eurozone economy and implied further extension of the ECB easing programme, Germany’s Commerzbank analysts see gold as being in strong demand in the short to medium term.
The analysts note also that, contrary to some reports, India appears to be seeing high gold demand levels, noting a statement from the former chairman of the All India Gems and Jewellery Trade Federation that Indian gold imports in the March quarter were running at around, or higher than last year’s 228 tonnes and anticipates imports increasing some 30% year on year in the current quarter as wedding season demand kicks in. India’s seemingly insatiable demand for gold appears to be continuing despite government efforts to try and make it less attractive to help solve the country’s balance of payments deficit. Demand appears to have been further enhanced by the drop in the gold price which is trading some 13% lower than its recent high in November last year.
Emphasisisng the connection between expansionary monetary policies and gold, writing today on Mineweb, specialist gold analyst Julian Phillips, comments “For so many fundamental reasons people all over the world buy gold for the very long term, not least that it is money in bad times. It is liquid in bad times. It is exchangeable all over the world. Enemies trust in it when they don’t trust each other. It is said that people don’t buy gold to make money, but buy gold because they have money.”
He further goes on to note that, in reality, the price of gold has not risen at all, even though it stands hugely higher than it did 40 years ago, but that this is an illusion as it is actually the price of money that’s fallen! And the more the world’s central banks carry on creating money out of thin air, the further the value of the money they are creating will fall. It may take time for this perception to take hold among the general populace – even among the investment community – but history tells us that it will, giving the quoted gold price yet another (illusory) boost when in fact it is constant money with fiat currencies all falling all around it.
Phillips also quotes Ayn Rand from Atlas Shrugged – in fact the same quote used by Frank Holmes in another recent article on Mineweb – so here it is for the third time should any of our readers have missed it: “Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values.”
Both Holmes and Phillips go on to note that Rand also noted that to her, gold was the objective value, “an equivalent of wealth produced,” as paper is only “a mortgage on wealth that does not exist.”
Salutary words. What isn’t quite so obvious is that the “destroyers” not only destroy money, but in doing so may also try to similarly destroy man’s inbuilt faith in gold as the safe vehicle for maintaining an important proportion of one’s wealth. This is part and parcel of the same policy. History again tells us that sooner or later they are doomed to fail which is why gold is perhaps the best bet in the medium to long term – as indeed the Commerzbank analysts point out. As another Julian Phillips quote suggests “He who ignores history is doomed to repeat it”.
iPad Version – Picture: Gold and silver bars are pictured in front of a safe door at the Austrian Gold and Silver Separating Plant ‘Oegussa’ : Lisi Niesner / Reuters