En Voyage_Issue#11_Flickbook

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