Hello it’s January 20, 2021 and today we look at gold, which has had rather a disappointing start
to 2021. And by the way somebody on YouTube has been impersonating me, so if you get a message
from someone with my photo asking to phone a broker in Oslo to buy bitcoin, it is not me.
Right so gold. It began the year around the $1,950 an ounce mark, having had a strong finish
to 2020. Things were looking up, and a retest of its previous high seemed to be on the cards.
It promptly fell off a cliff and lost $150. Today it sits around $1,850 having crept back up
a little over the last couple of days. As is so often the case, the miners
have been worse than the metal. The miners are now, on average,
just under 25% off their August highs – the smaller, more speculative plays, have lost more.
That’s official bear market territory. Although with miners the swings can be so great that the
official bear market threshold (falls of 20% = a bear market) perhaps should not apply.
Nevertheless the elation of the second and third quarters of 2020
has turned to grinding despondency. We are nowhere near the sentiment lows
of 2015. Money is still being raised. Exploration is still taking place. A genuine discovery will
find some reward in the marketplace. But investors are certainly cursing.
Particularly galling for the investor who has got into gold because of his
concerns about money printing, is the fact that the other alternative, apolitical money – bitcoin,
or “gold 2.0” as some are now calling it – keeps going higher and higher.
I’d like to console gold bulls with an observation I’ve made several times over the years.
When gold has one of its big runs up, as it did in 2020, going from circa $1,450
in March through to $2,080 in August, it tends to go into these periods of
frustrating consolidation that can last a year or more.
Veterans might remember the gold bull market of the ‘00s, and super veterans that of the 1970s.
They might remember these decade bull markets as times of bonanza and elation. But these epic
bull markets were all frequently punctuated with extended periods of consolidation and pullback –
bear markets even, if you want to use that word – that went on for many months, in some cases years.
I remember one in the ‘00s when gold made a high in spring 2006.
It then went nowhere for 18 months, and didn’t get above its 2006 high until
the winter of 2007. It made another high in early 2008 that it didn’t get through until late 2009.
In the 1970s gold didn’t get above its 1974-5 high until 1978.
So extended periods of consolidation are common features of long-term bull markets.
If you’re convinced of the investment case for an asset, often some patience is required until
the rest of the market comes round to the same way of thinking as you, and the price starts to go up.
Even the apparently immune asset that is bitcoin
enjoys extended periods of “consolidation” – “crypto winters”, they are known as.
The case for gold – sound money in age of money printing – remains strong.
What does concern me is this, and it is a subject I have touched on before.
The rise of digital technology has seen extraordinary value ascribed to digital assets,
whether they be tech stocks or crypto currencies. The digital economy has, since the late 1980s,
eclipsed the physical economy for growth. Gold is as physical an asset as you can get.
Being indestructible, it is in many ways the most physical asset there is: the ultimate analogue.
But in a digital age, who cares about analogue assets? This is the age of the digital nomad,
the asset-light generation that rents rather than owns.
It’s something that has troubled me for quite a while. It’s all very well
saying gold is natural money, that gold has been money for thousands of years.
The horse was transport for thousands of years and then along came the car. Is gold
as irrelevant to the modern economy as the horse now is to transport?
Something else that I’ve thought about with digital technology is its longevity.
You compare all the information you might have on your bookshelf
and all the information you have on your computer. How long will your hard drive last for?
What will last longer: the photo on your phone that you never print – or the photo that you do
actually print, and realise in the physical world? So I was quite excited to see an announcement
from Canadian-listed company, Goldmoney a few days ago for a new technology in
one of its subsidiary companies, Totenpass. Totenpass has been developing and I quote “a
permanent digital storage drive constructed from solid gold that requires no energy and has no
movable parts. Digital data is written onto the drive by way of a proprietary light-diffraction
process which imprints images, documents, and other files that can be stored as either human
readable without the aid of computers or machine-readable with the employ of a smartphone.
“This technology allows for the permanent storage of precious digital data, thereby
eliminating any future dependence on the internet and the vast amounts of energy required presently
to store content. By consequence, this technology will empower both individuals and corporations
to decentralize, preserve and fully control their precious digital data once and forever.”
Here, it seems, is a very modern application for the extraordinary permanence of gold. I cannot
begin to comment on how well the technology works, but it makes intuitive sense to me. It’s like a
modern version of Egyptian hieroglyphs, but even stone erodes. But pictures instead pictures etched
into gold, are even more permanent. Hopefully, it will allay some of my
concerns about this very analogue asset. Thanks very much for watching everyone.
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