This year the financial markets, they have
been led by gold, up 16% and gold mining shares up by 40%. Over time, gold has tended to do
well when investors and savers are worried about the security of their money. In Roman times, gold did well when they were
physically debased in the coinage. In the 1970s, gold did well when there was rampant
inflation and the dollar bills and pounds notes in people’s pockets were worth less
than that. So it’s a little bit surprising now when there is no inflation that we see
gold rising so sharply. So why is it that this has happened this year?
I think there are two reasons. First of all, we have seen a clear move towards negative
interest rates. We saw that in Japan in December last year; and the ECB has recently gone further
negative with these interest rates. And there are negative interest rates also in Denmark
and Sweden. So this means that savers who have money in cash on bank deposits are actually
losing money through doing that, and that’s something they feel very unhappy about. The second reason has been quite widespread
discussion around the world about the possibility of abolishing physical currencies. Obviously,
not quite there yet, but in times to come, you can see the (traction) having all money
purely digital. For governments, this means tax really is much easier to collect and also
it makes criminal activity, money laundering much more difficult. So there are clear advantages,
particularly for the authorities. For investors though and savers, this is quite
scary, because if all your money was held online, then in theory it becomes much more
vulnerable to being taken away by government dictate at any moment the government so choose.
So investors are now increasingly concerned and thinking about what really is money and
what really counts as wealth. For these reasons, I think we have seen a clear uptick in the
demand for gold so far this year.