Gold great value protector in 2014 but silver tanked

LBMA Gold price end 2013: US$1201.50; Gold price end 2014: US$1199.00.

Lawrence Williams

LBMA Gold price end 2013: US$ 1201.50; Gold price end 2014: $1199.25 – only down a minute 0.19% over the year   Thus, by effectively marking time vis-a-vis the US dollar over the full year gold outperformed virtually all other currencies in maintenance of value.  Frank Holmes of U.S. Global Investors pointed this out neatly with the graph below in a recent article – but maybe he jumped the gun a little producing the graph just before the final year-end London gold price was set, with gold making a small recovery in the interim to bring it even closer to its 2013 closing figure (LBMA Fix – or London Gold Price as it is now called). However, the spot price did fall back to the $1180s after the final London price for the year was set.  Indeed its LBMA afternoon price on December 30th at $1206 was actually 0.4% higher than its 2013 close but something of a dollar rally on the morning of the 31st brought it down a little.   See Frank’s chart below comparing key currency performance with that of the U.S. dollar over the year.  To read his full original article click on Gold Beat All Other World Currencies in 2014.


Most gold investors will probably have considered 2014 a poor year with gold making early-year moves upwards before coming back down again in the latter part.  But if one looks at the strength of the US dollar (or perhaps this should be the weakness of other currencies vs the dollar) with the dollar index rising 12.4% over the year, an investment in gold in any other currency will have seen an increase of above this percentage over the year.  And if one lives in Russia or Argentina the percentage increase would have been large indeed!  Gold has thus, over 2014, performed extremely well as a wealth protector.  As an example – in Swiss Francs the gold price actually rose 9.5% over the year. In the Russian ruble it rose no less than 77% over the period.  Perhaps we are far too focused on gold’s US dollar performance to see its real value for those outside the USA.  Sometimes one needs to take a step back and look at other valuation parameters.

For the time being at least, gold seems to have found a price equilibrium at, or around the $1200/ounce level.  We might argue that this is the kind of level China is comfortable with – see: Path of the gold price is in China’s hands.  Whether China is, or is not, keeping the price at this level is obviously open to speculation, but it certainly has the capability of so doing and with so many of its citizens holding gold it may well have a strong interest in keeping prices relatively stable.

It is also widely believed that China is building its national gold reserve without reporting it to the IMF, and that this gold reserve is now very comfortably above the official 1,054 tonnes which it has claimed to have had for the past six years since its last upwards valuation.  But this again remains as speculation until and unless China reports another reserve increase.  The thought is that it may refrain from doing so until its gold reserve matches the official reserve of the U.S.A. north of 8,000 tonnes.

By comparison, silver investors have had a pretty dismal year.  Of the countries featured in Frank Holmes’ chart above, only silver investors in Russia and Argentina will have seen value protection in their own currencies.  Again, as we pointed out here recently silver investors take much more of a gamble than those investing in gold given the white metal’s vastly increased volatility over its yellow sibling.  See: Silver in 2015 – the gambler’s precious metal.   But even so, this year’s silver price performance, or lack of it could be considered remarkable vis-à-vis gold with which it usually has a closer relationship.  By many calculations silver is currently in a supply deficit, but this seems to have had no positive effect on price movement.  The key price drivers at the moment are purely speculative and as a much smaller market than gold, speculators have a far easier path to price manipulation than gold – and the general belief nowadays is that the gold price is being manipulated too by mega-money players.  If the manipulation premise is correct, then the gamble therefore with silver is in picking the point at which the speculators change tack to make huge profits on an upturn.  Maybe this point is near, but relying on this is not for widows and orphans.


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