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.