En Voyage_Issue#11_Flickbook
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Business<br />
ALL THAT<br />
GLISTERS IS NOT…<br />
GOLD<br />
ALWAYS BELIEVE IN YOUR SOUL.<br />
YOU’VE GOT THE POWER TO KNOW<br />
YOU’RE INDESTRUCTIBLE.<br />
ALWAYS BELIEVE IN ‘CAUSE YOU ARE<br />
GOLD<br />
Spandau Ballet, 1983<br />
BY ROBIN NEWBOULD,<br />
MANAGING DIRECTOR, BULLIONROCK<br />
Brexit, the possibility of “Italeave”,<br />
the on-off trade war between<br />
the US and China, and mixed<br />
messages about inflation and<br />
interest rates from the Bank of<br />
<strong>En</strong>gland, all add up to a muddled<br />
political and economic backdrop.<br />
Historically, such an environment<br />
has been profitable for precious<br />
metals. With the recent return to<br />
our ranks of Robin Newbould –<br />
MD of BullionRock and one of<br />
the founders of Ravenscroft in<br />
the Channel Islands – it seemed<br />
apposite to ask whether it is<br />
indeed a good time to own, in<br />
Bruno’s words, some “24 karat<br />
magic”. Robin, over to you…<br />
‘I often assume that everyone<br />
knows what I know about precious<br />
metals, but then I remember that<br />
some of the “fundamental truths”<br />
of investing in gold, silver, platinum<br />
and palladium were new to me six<br />
years ago when I established the<br />
business that is now BullionRock.<br />
As someone who can, for fun,<br />
boggle my own mind calculating<br />
financial mathematics, the world<br />
of precious metals is an oasis of<br />
simplicity and common sense.<br />
The pricing of gold, at least<br />
for valuation, is based around a<br />
benchmark that is fixed twice daily<br />
by the London Bullion Market<br />
Association (LBMA), whilst the<br />
moves-up-and-down-all-day price<br />
is made in the same manner as, say,<br />
the exchange rate for GBP and USD<br />
– a ‘spot’ price that reflects market<br />
participant supply and demand.<br />
The external factors that can<br />
usually be found changing the<br />
price of gold seem fairly obvious,<br />
being the fluctuating state of:<br />
• global economics – gold<br />
generally does well during<br />
global economic slowdown,<br />
since it is considered a<br />
safe haven, but historically<br />
performed less well<br />
during boom times<br />
• geopolitics – again, gold<br />
tends to do well during<br />
geopolitical uncertainty, but<br />
not as well during times of<br />
real (or imagined) stability<br />
• the US dollar – the gold price<br />
is typically denominated in US<br />
dollars and this implies that the<br />
exposure gained from buying /<br />
selling gold is influenced by the<br />
changes in the exchange rate of<br />
US dollars compared to other<br />
leading currencies and to the<br />
base currency of the investor.<br />
The strengthening of the US<br />
dollar has historically resulted in<br />
a decrease in the value of gold<br />
• Central Bank activity – these<br />
are major holders of gold as<br />
a reserve asset. Selling and<br />
buying by Central Banks can<br />
materially impact the gold price<br />
• interest rates – increases<br />
in interest rates generally<br />
tend to have downward<br />
pressure on prices, since the<br />
opportunity cost of holding<br />
gold, which generates no<br />
income, increases; and<br />
• inflation – decreases in global<br />
inflationary pressures tend to<br />
drive demand away from gold<br />
and more towards other assets,<br />
negatively affecting the price<br />
of gold. Conversely, during<br />
times of rising inflation, gold<br />
prices have, historically, risen, as<br />
investors are put off by falling<br />
or low real (inflation adjusted)<br />
returns from bonds and cash<br />
So, now we are all up to speed,<br />
back to the question: is this a<br />
good time to invest in gold? Well,<br />
unfortunately, I have not yet been<br />
able to get my hands on the<br />
requisite crystal ball, but I do see a<br />
world where it could be argued that:<br />
• the current health of the world<br />
economy is questionable<br />
• geopolitics is on the<br />
agenda, seeing changes<br />
on an almost-daily basis<br />
• the US dollar could be set for a<br />
tumble as the US trade deficit<br />
hits record highs and erodes<br />
that currency’s safe-haven status<br />
• emerging-market gold<br />
reserves have almost doubled<br />
in the last 10 years; and<br />
• interest rates are forecast to<br />
be slow to rise – and might<br />
only do so if inflationary<br />
pressures take hold<br />
Whilst every reader will have their<br />
own investment circumstances and<br />
objectives to consider, I am always<br />
intrigued by those who could afford<br />
to have some exposure to gold but<br />
decline. After all, what is not to like<br />
about a liquid, non-correlated asset<br />
held, without counterparty risk,<br />
in the exact form requested and<br />
available for collection at any time?’<br />
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