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Precious Metals
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General Market Commentary
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General Precious Metals
The Rebirth of Gold as Money
The debate over gold’s place in a modern investment portfolio has been well covered. Call it the “Pet Rock” versus the “End of Fiat Currency” grudge match. But the facts are not subject to such intense interpretation. For example, the average annual performance of spot gold measured in the world’s nine leading fiat currencies has been positive in 17 of the past 19 years (Figure 1).
Figure 1. Gold’s Superior Performance as a Currency (2001 - 2019)
Annual Performance of Spot Gold Measured in Prominent Global Currencies
| Year | Average Gold Performance | U.S. Dollar | Euro | Yuan | Rupee | Yen | Pound | CAD | AUD | Swiss Franc |
| 2001 | 7.51% | 2.46% | 8.13% | 2.45% | 5.90% | 17.62% | 5.25% | 8.65% | 11.80% | 5.32% |
| 2002 | 16.21% | 24.78% | 5.76% | 24.78% | 24.08% | 12.64% | 12.67% | 23.48% | 13.85% | 3.87% |
| 2003 | 6.91% | 19.37% | -0.21% | 19.36% | 13.52% | 8.04% | 7.80% | -1.81% | -11.22% | 7.32% |
| 2004 | 0.49% | 5.54% | -2.19% | 5.54% | 0.54% | 0.66% | -1.76% | -2.19% | 1.40% | -3.10% |
| 2005 | 25.91% | 17.92% | 35.09% | 14.98% | 22.23% | 35.70% | 31.44% | 14.06% | 25.84% | 35.97% |
| 2006 | 17.62% | 23.16% | 10.51% | 19.11% | 21.00% | 24.32% | 8.17% | 23.46% | 14.61% | 14.24% |
| 2007 | 21.32% | 30.98% | 18.46% | 22.46% | 16.64% | 22.96% | 29.28% | 11.40% | 17.77% | 21.96% |
| 2008 | 14.70% | 5.78% | 10.55% | -1.07% | 30.62% | -14.10% | 43.89% | 29.91% | 31.59% | -4.90% |
| 2009 | 17.14% | 24.37% | 21.09% | 24.40% | 18.88% | 27.38% | 12.25% | 7.90% | -2.39% | 20.40% |
| 2010 | 24.14% | 29.52% | 38.88% | 25.02% | 24.45% | 12.75% | 34.15% | 21.95% | 13.66% | 16.91% |
| 2011 | 11.94% | 10.06% | 13.51% | 5.22% | 30.74% | 4.35% | 10.65% | 12.53% | 9.81% | 10.63% |
| 2012 | 7.46% | 7.14% | 5.22% | 6.04% | 10.54% | 20.84% | 2.31% | 4.86% | 5.82% | 4.39% |
| 2013 | -24.39% | -28.04% | -31.13% | -30.15% | -18.76% | -12.42% | -29.45% | -23.13% | -16.30% | -30.09% |
| 2014 | 5.84% | -1.72% | 11.99% | 0.79% | 0.45% | 11.81% | 4.48% | 7.40% | 7.44% | 9.92% |
| 2015 | -4.62% | -10.42% | -0.25% | -6.38% | -6.16% | -10.15% | -5.27% | 6.65% | 0.33% | -9.90% |
| 2016 | 12.07% | 8.56% | 11.85% | 16.13% | 11.42% | 5.35% | 29.57% | 5.60% | 9.66% | 10.46% |
| 2017 | 6.11% | 13.09% | -0.79% | 6.03% | 6.22% | 9.15% | 3.23% | 5.33% | 4.47% | 8.24% |
| 2018 | 3.23% | -1.58% | 3.32% | 4.04% | 7.42% | -4.13% | 4.43% | 7.04% | 9.17% | -0.65% |
| 2019-08-09 | 17.43% | 16.36% | 18.87% | 19.47% | 18.60% | 11.99% | 22.86% | 12.95% | 20.65% | 15.13% |
Source: World Gold Council. Data through Friday August 9, 2019.
Furthermore, gold’s liquidity ranks within the world’s top-10 most highly traded assets (Figure 2).
Figure 2. Gold Ranks Sixth Among Most Liquid Asset Classes of 2018
Source: World Gold Council.
Alas, the Pet Rock team has enjoyed one significant advantage, which is that fiat currencies can be created, moved electronically in seconds to settle transactions and held in accounts as easily as Instagram pics. Until recently, holders of fiat currencies also enjoyed positive rates of interest on their risk-free electronic stashes, a situation which is quickly being converted into an extraordinary form of taxation under the ruse of government-sponsored negative interest rates. Meanwhile, gold has suffered because of its relatively high storage and transaction costs, wide retail customer trading spreads, as well as an inability to use its physical form to settle consumer transactions.
Gold’s Revenge
For the 48 years since the Nixon Shock, in which gold was stripped of its convertibility into U.S. dollars, the marketplaces for fiat currencies have exploded in size. The growth of economies, inflation, global trade, financial markets, derivatives, electronic payment systems and internet commerce have been the primary drivers of this growth. Gold was left far behind as a traded asset, although it was still growing rapidly in both value and volume, and despite greatly improved accessibility within financial portfolios through the advent of gold ETFs (exchange-traded funds).
We believe that the nascent digitization of the ledger representing physical gold stored in qualified vaults will be a game changer in this debate.
There are currently many FinTech ventures which have developed products to competently represent certificated physical gold, and there is now a race to establish the leading standard and the volumes required to back them. These technologies range from verification to trading, to customer dealing platforms and payment cards.
The Golden Advantage
Gold is truly the perfect asset to be certified, subdivided, encrypted and utilized through the internet, inside or outside the financial system. Blockchain is, in turn, the ideal engine to provide this encryption. Qualified vaults that offer encrypted storage certificates include government-backed mints and qualified independent vaults (such as Brinks) located in safe jurisdictions such as Canada, Switzerland and Singapore.