Your SlideShare is downloading. ×
The Case for Gold in the 21st Century
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

The Case for Gold in the 21st Century

389
views

Published on

Published in: Economy & Finance, Technology

0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
389
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
0
Comments
0
Likes
2
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. The case for Gold in the 21st century An orderly currency in a disorderly world
  • 2. The Case for Gold in the 21st Century An orderly currency in a disorderly world Background • A new world order commenced in 1944 - Bretton Woods • Since 1971 currencies have been backed only by confidence in the issuers and by extrapolation their economies • Monetary disorder may be brought about by structural weakness in a country, its economy and its currency • “In good times gold is a commodity, in bad times gold is a currency.”
  • 3. The Case for Gold in the 21st Century An orderly currency in a disorderly world The Makings of A Disorderly World The Best of Times • 1989 ushered in optimism • Reagan had set off deficit spending • Greenspan commenced easy money • The dollar was strong • America dominated • Balance sheets were strong • Regulation was high • Inflation was on the decline • Strong productivity gains via technology • Globalisation
  • 4. The Case for Gold in the 21st Century An orderly currency in a disorderly world The Makings of A Disorderly World The Blow-Off Phase • From 1994 the super-sizing of financial leverage • Deregulation of the financial sphere • Greenspan and “The Great Moderation” • Credit became plentiful and cheap • Fed support for impenetrable financial instruments • Consumption frenzy • Serial asset price bubbles • Rating agencies culpable • Savings rates fell to zero • “Greed is Good”
  • 5. The Case for Gold in the 21st Century An orderly currency in a disorderly world The Makings of A Disorderly World What was the Inflection Point ? • In order to have the maximum possible blow-out everyone had to be involved • the stockmarket boom to 1998 • the IT and dotcom boom up to 2000 • the “EVERYTHING” boom up to 2007 • the “EVERYTHING” boom got “EVERYONE” involved – via the residential property boom blow-off • The first cracks…. • after the parabolic rise in residential property the problems would reveal themselves starting at their source – the CDO’s
  • 6. The Case for Gold in the 21st Century An orderly currency in a disorderly world US Household Debt 1974 – 2009 ($ billions)
  • 7. The Case for Gold in the 21st Century An orderly currency in a disorderly world US Business Debt (non-financial) 1974 – 2009 ($ billions)
  • 8. The Case for Gold in the 21st Century An orderly currency in a disorderly world US Private Sector Debt 1974 – 2009 ($ billions)
  • 9. The Case for Gold in the 21st Century An orderly currency in a disorderly world US Private Sector Debt and GDP1974 – 2009 Z
  • 10. The Case for Gold in the 21st Century An orderly currency in a disorderly world US Public Debt 1974 – 2009 ($ billions)
  • 11. The Case for Gold in the 21st Century An orderly currency in a disorderly world US Public Debt 1974 – 2009 (as a % of GDP)
  • 12. The Case for Gold in the 21st Century An orderly currency in a disorderly world Sovereign Debt in the rest of the World National Debt as a % of GDP 2010 2014 U.S. 95 107 Japan 200 234 Germany 77 91 Britain 100 88 France 90 90 Italy 120 129 Top 10 richest 106 114 - 150* *IMF Sources: CIA World Factbook, The Economist, OECD, IMF and SA Bullion Research
  • 13. The Case for Gold in the 21st Century An orderly currency in a disorderly world The US Picture Today • Ultimate demand comes from highly-employed, well-paid labour. This demand is collapsing and will not recover for years…. • Government to the rescue: • 0% interest rates • Quantitative easing • $2 trillion fiscal deficit • $1 tillion in MBS and bond purchase, TALF, TARP • Trillions in FDIC quarantees • THE BIG QUESTION: Can they reflate to achieve 5% nominal growth again?
  • 14. The Case for Gold in the 21st Century An orderly currency in a disorderly world Commentary • Government Accountability Office – March 2009 Update “updated simulations continue to show escalating and persistent debt that illustrates the long-term fiscal outlook is unsustainable” • Warren E Buffet – 19 August 2 “The United States is spewing a potentially damaging substance into our economy – greenback emissions… unchecked greenback emissions will certainly cause the purchasing power of currency to melt.”
  • 15. The Case for Gold in the 21st Century An orderly currency in a disorderly world US GDP Quarterly Growth 2000 – 2009 (% annualized)
  • 16. The Case for Gold in the 21st Century An orderly currency in a disorderly world US House Prices Index 2000 – 2009 (Case-Shiller Composite 20)
  • 17. The Case for Gold in the 21st Century An orderly currency in a disorderly world US Unemployment Rate 2000 – 2009 (U-3 Series, official rate)
  • 18. The Case for Gold in the 21st Century An orderly currency in a disorderly world US Public Debt per capita 1974 – 2009 ($)
  • 19. The Case for Gold in the 21st Century An orderly currency in a disorderly world The Curse of Cheap Money The Link to Currencies, Society and Politics: • Excessive credit expansion and asset price increases in the extreme ultimately leads to problems in the real economy – • problems of bankruptcies, credit contraction and unemployment • These problems mutate into currency, societal and political problems.
  • 20. The Case for Gold in the 21st Century An orderly currency in a disorderly world What choices does the US have? • US Choices: – austerity – default – Inflate • Austerity depends on: – the size of the debt – economic growth – the interest rate that government must pay • The prudent austerity route is unlikely as: – Monetary stimulus is essential – The economy will be weak – Big budget surpluses are unlikely – Tax revenues will be under pressure – Lenders will be unwilling without higher yields on their capital – The population is aging • Default is not an option • Inflation is the only possibility
  • 21. The Case for Gold in the 21st Century An orderly currency in a disorderly world The US Liquidity Trap and the escape hatch Private Treasury is Demand in Private Sector the only Real Demand source of Economy Sector credit For Credit via Deleveraging is Low demand tax cuts or negative growth Set off by asset Despite FFR Fiscal Stimulus Reflation price defiation at zero Fed prints money Expectations Quantitive of Inflation Spend Easing not hoard
  • 22. The Case for Gold in the 21st Century An orderly currency in a disorderly world The US Post Reflation High Increasing Unemployment Government 2-3% & Share Low short nominal Low of yields Consumer Economy GDP Growth Spending growth Down from Up from 4-6 % Weaker structure Weakening Dollar 5-7% to 10-15% of Economy The story Lower Decreased govt-backed is in the long leverage replacing profit growth Weath Practising private-backed bonds austerity leverage
  • 23. The Case for Gold in the 21st Century An orderly currency in a disorderly world Has Gold taken notice of the disorder Performance of gold (% change in US $) In US dollar 2001 2.5 2002 24.7 2003 19.6 2004 5.2 2005 18.2 2006 22.8 2007 31.4 2008 5.8 2009 to date 10.8 Average (p.a.) 16.3 Median (p.a.) 18.9 Source: London Bullion Market Association and SA Bullion Research
  • 24. The Case for Gold in the 21st Century An orderly currency in a disorderly world Gold Performance 1/1/2000 – to date (US$)
  • 25. The Case for Gold in the 21st Century An orderly currency in a disorderly world Gold Performance 1/1/2000 – to date (Rand)
  • 26. The Case for Gold in the 21st Century An orderly currency in a disorderly world In Good Times Gold is a Commodity In Bad Times Gold is a Currency • Gold is unlike a national currency. It has: – scarcity – security – perfect credit-worthiness • Gold is not stored on the balance sheet of a bank in order to earn interest; it presents a safehaven when banks are risky • The smart money turns to gold in bad times to achieve currency
  • 27. The Case for Gold in the 21st Century An orderly currency in a disorderly world The Case for Gold • Generational Problems: – Deleveraging – Weak economies – Low interest rates – High public debt-raising – Persistent easy money • Economies have to reflate • Debts have to be inflated away • Currencies have to take the pain • The South African Rand faces its own challenges as a commodity currency • Gold is benefiting and will continue to benefit as the currency for bad times…
  • 28. The Case for Gold in the 21st Century An orderly currency in a disorderly world What about Cash? Cash is King?... Or is it? • The future holds: – poor economic performance – low interest rates – leading to dollar debasement • The future for cash is not good, • But, • This does not mean that investors must be entirely forced into risk assets (which are very risky!) • As a result, • Gold is the ascending currency in a disorderly world

×