This time is different

Now that gold has broken through $4,000/ounce, some are feeling feel worried that this form of money is going to repeat its last stonking performance.

Back in the late 1970s gold had a roaring bull run. 1979 saw it start the year at $233/oz, moving through $300 in July, above $400 by October, $500 in November and $600 by the start of 1980. So the price then went up by more than 150% around a year. That's more than twice the increase than we have seen so far this year. Since the start of the current Millennium the price has risen more than 1,000%. So far this year the price has risen by more than 50%.

But the 1980s and 1990s were dismal decades for gold investors. The gold price ended those years less than half of what it had been. Investors recorded huge losses and probably missed a massive run in stocks in the 1980s and most of the 1990s. Is history about to repeat itself?

What's different?

One big difference today is the behavior of central banks.

Instead of net sellers - the Swiss National Bank (SNB) being the biggest seller, ridding its gold reserves of 1,550 tonnes between 2000 and 2008 - they have become big buyers.

Between 2019 and 2020 central bank purchases fell from 630 to just 273 tonnes. But by 2021 central bank purchases sharply rose to 460 tonnes; the following year they were around 1,140 tonnes. For the third year running they have bought more than 1,000 tonnes of gold.

It's not just China that has been buying a lot of gold for its official reserves. There's no objective information about how much gold China has in its reserves but speculation is that it's more than 5,000 tonnes. Many other central banks have been buying gold - emerging market central banks have been leading buyers.

Of course the bigger question is - why have central banks changed their view?

Gold can also be called trust

At its briefest the answer is - trust.

Since 2008 trust has been the most premium, the scarcest, asset. As it has slowly been lost in a wide sense, the gold price has risen.

Trust in government started to be eroded during the 2008 Global Financial Crash. That eradicated trust in banking. It also blitzed our trust in governments, who at huge cost bailed-out reckless bankers.

Shortly after that we had Covid-19. Government responses to the pandemic have still to be properly analyzed but the global lockdowns cost millions of jobs, trillions of Dollars, and millions of deaths. And started to split the world.

Perhaps the most cataclysmic blow to trust came in February 2022, with the Russian invasion of Ukraine.

Never mind the destruction of infrastructure or lives, the damage to international fiat currencies has been enormous. Rather than a shooting war the West's politicians have preferred 'softer' measures against Russia - economic sanctions. The freezing of some $300 billion of Russian assets in European and American sites has killed off the world's belief in the security and stability of the US Dollar. The G7 and European Union (EU) have agreed to lend $50 billion of this to Ukraine.

In the Middle East whatever peace will be brought to Israel versus Hamas will brim with bitterness and continued mutual loathing.

On top of all that the US now has a President who has spent his first months in office sending the previously reliable, certain, accepted and understood principles of US government into turmoil.

More to come

No one has a clue whether this staggering bull run for gold will continue or stumble. Investors have different ambitions but central banks are government institutions charged with defending their country.

So some investors will no doubt sell at such high prices, but it is very unlikely that central banks will once again ditch gold. They seem to be building a defense against something that has long been forecast - the end of the Dollar's international status.

On this basis the only sensible advice that can be extended is to hold onto what gold one has, and buy more with any price dips that come along. Particularly buy with Glint, because Glint gives you the chance to use gold as money.