Will the Gold Price Hit $1,800 Again?

Interview: Ned Naylor-Leyland/Morningstar

Wall: And looking at U.S. dollar terms although we are situated in London the gold price is around $1,200 and something, it was $1,800 and something in 2011, 2012, 2013. Can you as an investor expect to see those kinds of prices again?

Naylor-Leyland: Well in my view undoubtedly yes. And even more so with silver. In fact, if you look at gold and silver on an inflation adjusted basis over a very long timeframe you are going to find there is nothing else you can buy which is trading at a fraction of where they were 30, 40 years ago on an inflation adjusted basis. Really, these are absolutely counter-cyclical hedge assets. Now you may not have needed to own them for 40 or 50 years. But I’ll tell you that cyclically this is a moment where you do need portfolio insurance, and so you are just getting it at a much cheaper price than you might otherwise have had three or four years ago.

MK note:  Naylor-Leyland expresses a viewpoint similar to one emphasized here at USAGOLD especially with respect to the real rate of return on gold and dollar-based investments.  Take a look at this chart on the real rate of return for gold.****  Note in the chart two periods of escalated returns – in the mid-to-late 1970s, the other more recently in the aftermath of the 2007-2008 financial breakdown.  The first occurred during a highly inflationary period; the second occurred under distinctly disinflationary circumstances.

The most obvious lesson here is that you would have wanted to own gold in either situation. Less obvious is that prior to either period the investors who owned gold could not have known with certainty that a crisis was imminent – not in the sense that they  might have identified a start date.  What they might have understood, and probably did understand, is that financial markets’ repeatedly cycle between dearth and abundance, i.e. good times and bad times.  With respect to the next financial crisis, it is never a question of “if” but “when”. . . . . . .Mike Kosares

****The real rate of return is represented by the extension of the gold bar (%age return on gold year over year) beyond the top of the black bar (%age change in consumer prices year over year).



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