From the editor...
“By 2027-2028 around a fifth of all taxpayers will be charged 40% on their income”
History is full of misattributed quotations. Marie Antoinette never said “Let them eat cake”, while Niccolo Machiavelli’s The Prince does not contain the sentence “The end justifies the means”. It is also important to realise that Humphrey Bogart’s last words were not in fact “I should never have switched from Scotch to Martinis” (after all, how much difference could it really have made?).
Much of the financial media, meanwhile, reports that John Maynard Keynes dismissed gold as a barbarous relic, but he didn’t: he said that about the gold standard, the monetary system prevalent at the time.
Gold itself, he said, retained “magical properties” as an asset and a store of value, as Giovanni Faresi, a professor of Economic History at the European University of Rome, points out in a letter to the Financial Times.
An asset and store of value with magical properties sounds ideal at a time when the news is so discouraging. Companies are leaving the London market in droves (see Max’s cover story on page 26). We may have dodged recession for now, but the economy is crawling along somewhere between stall speed and first gear (see pages 5 and 12). The stasis is partly selfimposed, with regulations piling up (see page 20) and the state sector too big (see page 16). These are two reasons for our poor productivity, an issue we will explore thoroughly in one of the panels at the next MoneyWeek Wealth Summit on 29 September (save the date).
Fiscal drag
One consequence of an expanding public sector is higher taxes to pay for it, and one way to impose them is fiscal drag. The Institute for Fiscal Studies said this week that by 2027-2028 7.8 million people, 20% of all taxpayers, will be paying income tax at 40% – a fourfold rise in the share of adults in this tax bracket since the early 1990s.
More than 25% of teachers will be higher-rate payers by 2027-2028. On top of all this, as we often point out, the stagflationary backdrop likely over the next few years makes profiting from equities much harder than it used to be.
It’s all the more important, then, to have some insurance in your portfolio that can thrive when everything else is struggling – an asset for which bad news is good news. This takes us back to those magical properties.
Look back over the past two decades and the value of this insurance becomes clear. Since the turn of the century, gold has outperformed global equities, as measured by the MSCI
All Countries World Index (comprising developed and emerging markets) by a factor of 2.4. And that’s with dividends reinvested. Gold in sterling terms, meanwhile, has outstripped the FTSE 100’s total return by a factor of 3.8.
With investors fretting about the US debt ceiling (see page 5), central-bank buying at a 55-year high and inflation unlikely to dissipate soon, gold’s prospects remain auspicious.
Ron William notes in the Halkin Letter that the years after previous “post-shock recessions” of 1929, 1974, 2000 and 2008 saw a rise in inflation along with gold bull markets; gold could be embarking on “its fourth greatest bull era in a century”. During these cycles, moreover, silver did extremely well – see David J Stevenson’s update on the other monetary metal on page 24.