When in September 2011 the price of gold hit a temporary high, the investor community very widely assumed the rally would continue. Now, 700 dollars down, they are declaring the end of gold. “Gold will fall below 1,000 dollars” – investment companies and commodities experts have reached a consensus on this. What the value is will soon emerge. Nothing can be excluded as the price of gold can fluctuate very widely in the short term. In 2014, the price plummeted within only a few weeks by more than 20 percent. However, in the long term gold can offer the requisite portfolio diversification, as it often behaves unlike other investments such as equities or bonds.

A decade ago, a fine ounce of gold actually cost less than 1,000 dollars, only for an extraordinary rally to commence, reaching a high of over 1,900 dollars in August 2011. There were three key factors in play: First, fears of a collapse of the banking system after investment bank Lehman Brothers bellied up, triggering a financial crisis. In its wake, Euroland found itself in existential difficulties, spawning the second factor: Round the world, the central banks lowered interest rates. This made bank savings less attractive than gold. And third, energy prices climbed, raising the price of mining and extracting gold.

It was exactly these three factors that have since 2011 run in exactly the opposite direction. Concerns about a collapse of the global financial system have dwindled, also because above all the US banks have returned to smoother waters. In summer 2012 the President of the European Central Bank promised with his historical statement “Whatever it takes…” to do all he could for the euro and then the words were followed by deeds in the form of a trillions-heavy bond buyback program. Admittedly slowly, but as of 2013 US interest rates started to turn around. One year later the oil price collapsed, which in the final instance took the price of gold back by end of 2015 to just short of 1,100 dollars.

End of the bear market

Since then there have been grounds for believing the bear market may end. For some of the fundamentals have since changed. Several large gold mines were no longer able to operate profitably at the price and were forced to close. The latest recovery in the price of oil has upped the pressure of costs. As regards interest rates, there’s a latent risk here to the price of gold. Although the three interest rate increases the Fed has announced for 2017 may prove as illusory as the four in 2016, which then dwindled into only one. But interest rates will rise, that we can assume after Trump’s massive promise of growth and given inflation rates are climbing again.

Risks wherever you look

Which leaves us with the third factor: uncertainty. And here the newcomer to the White House made such a mark in his first two weeks that quite a few are already playing through the scenarios of what the world will look like after four years of Trump with protectionism instead of globalism and trade wars instead of free trade. And the risks are not just economic. For while the global financial system is relatively stable, the geopolitical tension both in the Middle East and in regions like the South China Sea are rising. Moreover, in Europe key political decisions lie ahead, that together with the Brexit could leave the European Union again struggling to master them.

In summary, we can say that the three factors driving the price of gold are at present fairly balanced. And even if it is too early to speak of a new clear upward trend, gold can play a key role in a portfolio owing to its long-term properties, such as value preservation and diversification. The risk of rising interest rates in the USA can be offset precisely for Euro investors by the fact that with rising rates the US dollar should become more attractive a prospect and thus the price of gold will rise in euro terms without the precious metal itself having to gain in value.

Of late, opponents of gold have called it one long story of a misunderstanding in investments. And even some of its fans relinquished their love of the precious metal in recent years as it no longer glittered the way it had for centuries. No love is squandered completely and misunderstandings can be explained. If the object of desire is now 40 percent cheaper than at times when everyone wanted to own it, then this could be the right moment for gold to emerge as the new zeitgeist.

Giles Keating

The key thing – price has actually come down off the peak. In Euro they came down relativly modestly, in dollar a lot. Since we expect a stronger dollar in the future we recommend the in dollar dominated asset Gold for Euro investors.

Robert Ruthmann
Robert Ruttmann

In 2017 Gold could be a save haven. We have a new U.S. administration which is actually raising the risk of protectionism and of a trade war. And we also have very key elections in Germany and France with the risk that far right parties which want to leave the EU come to power.

Start now with Werthstein Invest

Not ready to invest real money yet? Try Werthstein Thoughts for free.

More Zeitgeists

Green Yield

Supporting investors and the environment

Floods, drought, tsunamis, the Munich Re study lists them all and carefully tots the natural disasters up. And concludes that the number of “damage events” between 1980 and 2015 has almost quadrupled. These statistics are by no means about surprising exceptions for the figures are steadily climbing, or so the re-insurers noted in March 2016. At first sight it the politicians who must to act, for example by introducing international treaties and agreements in order to brake the global warming underlying this process. That said, corporations must also act as their production processes contribute to the warming. And the more the companies rethink things, the better for their investors, too. A linkage that is becoming ever more important.

Passion for Sports

Let me entertain you

Football, basketball, American football – in many sports, it’s all about the right combination of offensive and defensive elements. The winger’s sprint, the scoring of a goal. This can lead to striking scenes, full of passion, and at the same time, to a multi-billion dollar market, which is also of interest for investors. Care for some examples?

The fight against sugar

From fat to fit

It was not that long ago that star investor Jim Rogers used to slip the people he was talking to one of those little sugar packets just like the ones served at all cafes for your coffee. That is because he wanted to draw attention to the immense investment potential of commodities, especially “soft commodities”. This is just the sort of commodity that everyone needs. He was proven to be correct. It is well known, however, after the boom that the time to invest is before the boom. So where could the next major buzz be, the new and upcoming zeitgeist investment? Right at the point where pleasure and health meet.

Want to stay updated? 


Subscribe to the free Werthstein newsletter