After breaking records in 2011, gold prices fell to a very low level a year later, and now stand at around € 1,000 an ounce. The newspaper Les Echos even posted its perplexity in the face of a vertiginous fall in prices of nearly 10% since the beginning of the year. And this decline does not affect only gold because silver and platinum follow identical paths. Yet, at the same time, a number of forecasters claim that the price of the yellow metal could start very sharply upwards, and become an interesting investment again. What are the reasons?
A Decrease in production
The least that can be said is that, as serious as they appear, the multiple searchable analyzes offer almost opposite results. On the one hand, at the end of last year, BMI Research announced that global gold production would continue to grow with an expected annual growth of 2.3%. This is confirmed by the World Gold Council which expects this production, which declined from 2001 to 2009, to continue to grow to almost 3,300 tons.
However, recently, Goldman Sachs announced that the next few years would be marked by a decline in global gold production, supported by Goldcorp, one of the largest gold mining companies in the world, which suggests that by 2022, gold production would fall to that of the early 2000s. This could be due in particular to the decline in exploration investment. When the US Geological Survey estimates that if production continues at current levels, the world’s untapped gold reserves will be exhausted by 2034.
In short, a cacophony difficult to interpret.
Growing Increase in Foreign Purchases
For example, Russia has bought nearly 106 tonnes of gold since the beginning of 2018 which it compensated by a massive sale of US Treasury bonds in order to boost its reserves to 2,000 tonnes, thereby increasing the gold in its reserves over the last decade. Two other major investors share the top spot for gold buyers: China and India. If China is the world’s largest gold producer, this production is not enough to meet the demand of its domestic market. It must therefore, in the short term, buy the surplus on foreign markets but also develop a very intense investment policy in mines located on other continents as in Argentina … or even in Russia. But the depreciation of the Chinese yuan and the Indian rupee could be (at least temporary) brakes on these massive buying policies. In addition, India has significantly worsened its gold import legislation as these massive purchases of gold abroad weaken the local currency. But let’s not forget the very discreet Japanese market whose gold purchases have made a good net in 2016 and which continues to grow.
This is evidenced by the increasing rise in smuggling of gold by Japanese customs. And, for the record, let us recall that Germany has transferred, just as discreetly, last year all its gold stock (374 tons all the same) deposited in Paris during the Cold War, to its own coffers in Frankfurt.
Refuge Against Economic Crises
This fall in prices remains inexplicable given the global economic situation. The escalation of the trade dispute, fears of an economic slowdown in China, rising US inflation, rising political risks should have normally weighed in favor of a rise in gold. But this decline, some predict that it could reach $ 1100 (for a little over $ 1,200 end of July) does not scare everyone, especially not individuals who seem to ride this bearish phase to build up cheap stocks. The British site Bullion Vault announces that it has had a record in storage on behalf of its customers with 250 kilos acquired between late June and early July. That’s 8% more than the same date in 2017.
Too technical, too mysterious and especially to fluctuations of course too unpredictable. In this area, gold also fluctuates, but much less important, but above all it exists physically and can be traded anywhere on the planet.
Then what to do?
Any investor, however modest, must hold a portion of his nest egg in physical gold. And to do this, he has a very wide range of products. Not everyone can afford an ingot (1 kg), let alone a bar (12.5 kg). On the other hand it is possible to offer quoted currencies of various values (Napoleon, Sovereign, 20 dollar, 50 pesos). In addition to their “stock market” value, these currencies have a real history, thus combining economy and culture. For lovers of more contemporary products, the famous “bullion coins” (coins traded at their metallic value plus a very reliable “premium”) are numerous enough to vary the pleasures: Chinese Panda , Australian Kangaroo , British Britannia, American Eagle, Canadian Maple Leaf , Austrian Philharmonic Orchestra. Finally we can opt for mini ingots (from 1 gram) some of which are even decorated with original engravings.
Of course, all this has nothing to do with old collectible coins, whose metallic value has, in most cases, no relation to its real value, related rather to its rarity and condition. But here we enter a non-Cartesian field, more emotional. This does not mean that it cannot be an investment, but it is not, in any case, the original function.
What is the weight of gold in the global economy?
This figure comes from the World Gold Council, which is based on the activity of the mining sector. However this point of view is quite partial: it neglects gold sales as such, both for jeweler and for investment. But above all, we reason here in terms of flow, while we must think in terms of stock, because the purpose of the act of buying gold is not to consume it and to make it disappear, but to store it. Only the computer sector consumes gold, in the classic sense of the word, and therefore makes it disappear in the production process like any other raw material, but this represents only 10% of the annual consumption of the precious metal (and this gold is more and more recycled).
Of course, if we reduce this new figure to that of the other major investment assets in the world, it becomes modest again: the public debt of the United States approaches the 18,000 billion dollars, three times the value of all the gold of the world! After all, everything is a question of choice: do we trust public debt, which continues to grow in the United States, Europe and Japan, all in a context of little or no growth? To ask the question, is to answer it.
The true weight of gold is, literally, its weight in kilos, and the price expressed in dollars or Euros evolves according to time and circumstances, but this aspect comes after. And gold is not an investment among others, it is the ultimate investment, the one that best resists all shocks, protects against currency manipulation, becomes the survival board in case of currency crisis . Beyond its fluctuating course, gold has been a standout since the dawn of time, adulated or feared, rarely scorned, like an oracle or a Cassandra, always sure of itself, whose value has never left the Men look, and this is worth far more than its price calculated in dollars.