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.