Year: 2020

History contains clues which investors should be aware of, says gold expert.

Announcements that vaccines for Covid-19 are almost available has seen the world relax – but that means it is a good time to buy gold, according to expert Tony Coleman.

“We have seen a fall in the price of gold in the last month – but gold is stilI up 25 per cent over this time last year and I expect more positive price activity in the first quarter of next year,” says Coleman, managing director of New Zealand Gold Merchants and a veteran market watcher.

“It makes sense to buy in a dip and sell on a high,” he says. “And what does a dip look like? It pretty much looks like right now.”

With news that vaccines are close and that the pandemic may finally be curbed, the gold market has dipped as investors sell off the precious metal many buy as protection against a crisis and the day when other investments drop markedly or even crash.

“This softening of price was caused by a general feeling of lower risk due to the announcement of vaccines ‘to save the world’. It’s created downside momentum that traders and bullion banks have helped move prices lower,” says Coleman.

However, he believes there are still upwards forces that will reward global gold investors – one being the Democratic win of the presidency of the US and the likely spending to emanate from that, plus the fact that continuously low interest rates and high fiscal stimulus from governments around the world provide “the perfect environment” for gold prices to move higher “but with increased volatility”.

There is, he says, another strong factor – history, as expressed by the Strauss-Howe generational theory, often called “The Fourth Turning”, which poses the theory that a recurring generational cycle shapes the world – and that the world is coming due for a big shake-up.

The theory is based on authors William Strauss and Neil Howe’s research, tracking history back 500 years where they maintain a repeating pattern of boom and bust can be seen, usually applying over periods of 20-25 years in four cycles. The cycles are:

• “The New Beginning” – 1955-1968, the euphoric post-war rebuild with rising standards of living, jobs, emotional relief and the feeling of a new era.
• “The Disruption” – 1968-1986, the Vietnam war and protests, oil shocks, rising inflation, the rise of financialisation, loss of power by workers.
• “The Collapse” – 1987-2008, the dawn of digitisation, the dotcom bubble, the rise of central banks and debt-based economy, the global financial crisis.
• “The Climax” – 2009-2032, after the collapse, a new world order arises, decisive events taking place that completely re-shape the social and political order of the world. The last fourth turning, according to Strauss and Howe, was the 1929 Wall St crash and the Great Depression, right through to the end of World War II.

“It’s only a theory,” says Coleman, “but it’s pretty persuasive if you look back in history. Who knows what the next fourth turning will bring – it could be another financial collapse, it could be the world moving to a form of green socialism to save the planet, it could be violence and the fight between the haves and have-nots.

“It could be corpocracy – the world being run by large corporations and maybe we are already starting to see that. I’m thinking of Qantas telling us that no one will be allowed to fly on their planes if they do not have a Covid-19 vaccination certificate.”         

Whatever happens, Coleman says, if the fourth turning occurs, gold will be a hedge against disaster, historically holding its price when other investments tank.

There are also historic indicators of when is a good time to buy gold, he says: “It’s when we have a high New Zealand dollar and US gold is under a bit of pressure. The New Zealand dollar is strong right now and it seems to me it’s because the world loves a country with no Covid-19 and a stable government – but that dollar will slide in time.

“All we really have to remember is that more global monetary expansion will continue to raise asset prices and when (not if) we have a currency event, we will all be thankful we have a mobile, highly liquid asset supporting us.”

The decision on how much gold to buy is simple, he says: “My overriding belief is to buy an amount that does not keep you awake at night if the price falls.

“The history of gold also tells me that we gain confidence over time – and people add more gold on the dips that present themselves from time to time.”

*NZ Gold Merchants began in 1975 and brothers Tony and Richard Coleman began buying, refining and selling gold and trading in precious metals in 2006. They were the first New Zealand company to produce local silver bars and the first to offer gold chain manufactured with local gold.

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Experts say gold price ready to rise further as global bubbles look set to burst.

The victory of the Democrats in the US presidential election will likely see a rise in the price of gold.

That’s the belief of gold expert Tony Coleman, managing director and founder of NZ Gold Merchants Ltd, who has two main messages for would-be investors: Winter is coming (to paraphrase hit TV show Game Of Thrones) but gold has plenty of summer left in it yet.

Coleman says Joe Biden’s accession to the presidency will likely do what normally happens when the Democrats gain control of the US economy: “We will see a tremendous amount of fiscal stimulation now the Democrats are in. They like spending money, so I expect to see expansion of the central bank balance sheets.

“That will be inflationary and, as there will be more currency and assets, so the price of assets [like gold] must go up,” he says.

Last year there was a 35 per cent increase in the gold price, Coleman says, adding that this year’s overall increase will be about the same. But he thinks 2021 could see a 40-45 per cent rise.

Gold, he says, is still in a growth phase – out-performing stocks and shares if measured over a 15-20 year period since 2000 (though shares clearly out-perform gold if measured over a longer period, like 100 years).

An Investopedia analysis published in September tracked the performance of gold and shares in recent decades, with gold increasing by about 360 per cent from 1990 to 2020. In the same period, the Dow Jones index gained 991 per cent. However, measured from 2005 to 2020, gold increased in price by 330 per cent, with the Dow Jones putting on 153 per cent.

But, perhaps even more importantly, Coleman says gold is low-risk, providing an effective shelter if and when a wintry financial storm affects world markets.  Gold prices often go up in tough times as investors look for a safe haven if investments like shares and property are in a downward spiral.

“Gold does very well when there is instability,” he says, “and I believe we will be going into six or seven years of global instability. What we have seen over recent years is a move from risk-free interest to interest-free risk – and that’s created global bubbles.

“Companies and investors have taken on more and more risk to get a return, using leveraged positions – so if the proverbial hits the fan, many will lose their shirts. Gold, however, is essentially devoid of risk.”

The sharemarket is in a bubble, so is property, he says, and banks and government s around the world will try to stave off financial collapse by printing money and borrowing. If the crash comes, the gold price will benefit; if governments keep putting more money into the system, the gold price will benefit, Coleman says.

“We are not saying that people should put all their money into gold. Our advice is always that it should be part of your investment portfolio – and anyone who’d done that over the last 15-20 years would have done a lot better, because gold balances out the negatives.

“I personally believe we’ll see, as people and companies take more risk to get a return, that less risky investments will come up to balance things out.”

Financial history proves that no fiat currency has ever survived the test of time, they have all failed, says Coleman: “Gold protects your wealth from such events, and we consider it the ultimate insurance in times of monetary quackery, a good hold in a financial portfolio.”

The mean average for investment in gold is approximately 3 to 4 per cent current investment in gold as a percentage of global finance.

“Right now gold is at at 0.3- 0.5 per cent, so a move back towards the mean average of gold will have a dramatic lifting effect on the gold price.”

*NZ Gold Merchants began in 1975 and brothers Tony and Richard Coleman began buying, refining and selling gold and trading in precious metals in 2006. They were the first New Zealand company to produce local silver bars and the first to offer gold chain manufactured with local gold.

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Gold touted as golden bet

NZ gold investment house suggests prices will continue to rise next year because of Covid-19.

Tony Coleman, one of the pioneers of investment in precious metals in New Zealand, did the math to see who came out on top – KiwiSaver, shares or gold.

It was a calculation spurred, he says, by gold’s record-breaking returns over the pandemic and lockdown months when it punched through the US$2000 per ounce mark for the first time in history – but also to see how gold compared as a longer-term investment.

“I decided to go right back to the formation of KiwiSaver in 2007,” says the managing director and founder of NZ Gold Merchants Ltd, “and see how the managed fund performed vis a vis the NZX share market and against gold.”

To assess KiwiSaver, he used an ANZ balanced fund return, compounded over 13 years, finding an average compounded return of 10.18 per cent per year.

For the NZX, he assumed a $10,000 investment based solely on the index – and calculated a 21.4 per cent return per year over those 13 years.

Gold? Even with two poor years in 2012 and 2013, Coleman says gold produced an average of 23.4 per cent per year over the same period.

Coleman says there are three main stages which explain why gold has performed so well during the pandemic and lockdowns around the world – and why it still has a bright future, he says. Gold climbed to a record high of US$2060 per ounce before settling back to a range hovering between US$1890-$1915 per ounce.

First, panic, as people looked for a safe haven back in March in the face of what seemed to be a global downturn sparked by the virus. Gold’s price actually dipped – because many investment managers had to sell up to support other investment positions they had.

Second, FOMO – fear of missing out – applied. People with cash seized on gold’s lower price and bought…and bought, sending the price through the US$2000 mark.

NZ Gold Merchants, which dates back to 1975 and refines gold as well as trading in gold and silver for customers, felt the surge of demand. They had, says Coleman, orders for 500kg a day over lockdown – but could only produce 200kg a day. “We have only just now caught up with orders from April and May.”

The third stage was over-buying as more jumped on the gold bandwagon, with profit-taking following soon after. Gold settled back in that range around US$1900 and Coleman says he believes the price will rise yet.

Often, he says, he advises people not to buy gold, waiting for the right time. He thinks now is still the right time: “Last year there was a 35 per cent increase. This year, it will be about the same – 35 per cent up. Next year, I think we could see 40-45 per cent.

“What’s happening around the world is that governments are having to borrow or create money to live through the pandemic – which is distorting everything. Large amounts of money creation and borrowing will continue to feed this market; an increase in the money supply means we are hyper-inflating the [US] dollar.

“Other markets will do well too but, when I talk to customers about buying gold, I mostly talk risk – because gold has less risk. You have to be a bit of an expert to do well in shares while the risk in gold is more perceived than real – you just have to look at gold’s performance over a great many years to see that.

“If you buy at the wrong time, sure, it can take a long time to really pay off. But if you have money sitting in the bank, that is not a great place for it right now – you are effectively losing money every year.”

The 2012 and 2013 downturn in gold was sparked by the 2008 global financial crisis, he says. In the aftermath, credit became cheaper and people felt less need for the protective shelter of gold – instead investing in property and a rising market worldwide.

“So I always say that the upside of gold is very, very good while the downside is very, very limited,” says Coleman.

*NZ Gold Merchants began in 1975 and brothers Tony and Richard Coleman began buying, refining and selling gold and trading in precious metals in 2006. They were the first New Zealand company to produce local silver bars and the first to offer gold chain manufactured with local gold.

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