From the editor...
MoneyWeek has a lot of time for Warren Buffett, but he has always been wrong about two things. Firstly, his longstanding fondness for Cherry
Coke is mystifying (in 2017 an Chinese advertising campaign for the revolting drink featured his face on the cans). When we consider also his reported dislike of alcohol, it is a miracle he has lived so long. Secondly, he doesn’t like gold.
In the late 1990s he complained that it “gets dug out of the ground… then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” The long gold bull market that began in the early 2000s, and shows no sign of slowing down, appears not to have changed his mind.
Matching the S&P 500
Gold is hardly without utility: around a tenth of global production is used in industries ranging from medicine and electronics to defence. And the more people, whether watching from Mars or not, learn about the financial system and its history, the more they appreciate the need for an asset that acts as insurance for investors’ portfolios.
It is hitting new highs as I write, and AJ Bell points out that in dollar terms, the yellow metal has matched the S&P 500’s capital appreciation since 1971, when the gold standard fell apart, the era of fiat currencies arrived, and governments began to borrow and spend as much as they like. They are still doing so (see page 4) and much of the eye-watering burden will have to be refinanced at interest rates considerably higher than those prevalent in the 2008-2022 period.
The US is already spending more than $1trn a year servicing its debt, and is keen to reduce interest rates, but stubborn inflation won’t let it. The monthly fuss over the US inflation figures has obscured an interesting trend: the annual rate of American consumer-price inflation has been broadly stable for eight months.
It seems to be starting to bed in at just under 4%, almost double the central bank’s target. At 4%, remember, your money loses half its purchasing power in 18 years. So one key reason for the latest surge in gold (see page 5) is a fear of monetary debasement. (Bitcoin is also sometimes talked about as a safe haven and alternative currency, but its tendency to post massive falls in a weekend may gradually undermine that impression.) In this cycle, gold has not yet reached its inflation-adjusted high of roughly $3,000 an ounce, but over longer stretches it is the ultimate store of value.
One event that would greatly allay fears of systemic trouble would be a growth spurt. There is always growth somewhere to pep up your portfolio – see Rupert’s cover story on the African mobile money boom on page 20. But this week we feature the transformative potential of space in Simon’s Briefing on lunar mining on page 13 and Merryn’s column on how to play the space economy, which could give us free and infinite solar energy, on page 24.
Incidentally, gold is used extensively in aerospace, too; it is a key ingredient in satellites, and recent research suggests that if lasered, it actually strengthens rather than falls apart. Anyone watching from Mars, or indeed Earth, should have no doubt about its utility.
“American consumer-price inflation has not made new lows for eight months”