Gold News

What I Told Alan Titchmarsh About $1920 Gold Prices

Three years to the day since gold prices peaked. Did you call it wrong...?
 
IT'S SAFE to say gold hasn't been much fun since prices peaked three years ago this weekend, writes Adrian Ash at BullionVault.
 
Maybe I should have guessed at the time. Because the same day that spot prices hit $1920 per ounce...Tuesday 6 September, 2011...I got to talk gold as a guest on UK television's biggest afternoon chatshow.
 
Gold on national daytime TV...? What more warning could gold bugs want? Hindsight screams sell.
 
Sadly for irony (and for all-knowing traders), my slot on The Alan Titchmarsh Show didn't air until the Thursday, two days later.
 
But the die was cast. Or so hindsight says. The drop which began the very next day was obvious.
 
Emerging-market central banks should have stopped buying. Gold miners should have sold forward their future production to lock in record prices. And gold investors should have taken profits...quick! 
 
Gold sank 20% between September and the last day of 2011. It then rallied only to plunge 25% in spring 2013. Since then it has now traded dead-flat for 12 months, some 35% below its peak of three years ago.
 
Should we all have seen it coming? I think not. 
 
"Business is certainly strong," as Paul Tustain, founder and CEO, noted to me here at BullionVault that same, hectic week in 2011. "But it's still a tiny proportion of the investing public.
 
"The huge majority of people and portfolios still have no gold at all. What we're seeing across the market is the prices being marked up by the dealers in search of supply, but no-one is being flushed out. 
 
"Gold owners simply don't want to sell, not while the economic situation threatens the wholesale destruction of value in currency assets." 
 
Re-read that last sentence again. Then cast your mind back to late-summer 2011...
  • US government debt was downgraded by the credit agencies; 
  • English cities and towns descended into rioting, looting and arson; 
  • Europe's single currency experiment looked set to explode in general strikes and violence. 
Put another way, unemployment in rich Western countries was surging to Third World levels. The state was losing control. And nothing was "risk-free" anymore.
 
Clearly, some smart traders chose to quit getting long of gold. Because prices fall when bids refuse to meet offers, and fall they did. But to the best of my knowledge, no pundits or analysts called the top in gold prices. Not with any more confidence than the perma-bears who repeatedly called the top from 2009.
 
How could they? The economic, financial and social situation across the West hadn't been this bad since perhaps 1939. 
 
Oh sure – Warren Buffett, the world's most famous money manager (and one of its most successful) once advised investors to "Be fearful when others are greedy and greedy when others are fearful." But you'd need some damned cold logic to overcome the fear sweeping the rich West in late-summer 2011. 
 
Indeed, you would have needed to get your head examined. 
 
Just what were the odds of a Eurozone break-up back then – better than evens? And the consequences of that? They could scarcely be imagined. Not when the only paper "safe haven"...US Treasury bonds...faced a genuine threat of default thanks to Washington politicians scoring points against the White House via the debt ceiling  farce
 
In short, the gold market was NOT mis-pricing risk in September 2011. Nor were new buyers. That summer's surge to record levels simply reflected the very strong chance that the crash of 2008 was only a warm-up. Investors, households and media all agreed. This time, the financial crisis really had landed. 
 
So forget hindsight. Buying gold at 2011's record prices was not a "mistake". Even if it has proven costly to date. 
 
There's nothing today which makes those losses less painful. But if you view every decision you make as an all-in bet, then insurance will always look like "dead money"...unless disaster strikes. 
 
What if the crisis of September 2011 hadn't eased off? Which outcome would you really prefer?
 
As I told Alan Titchmarsh three years ago:
"If you think the financial crisis is all over and everything's going to be sorted out, then gold [at $1920...£1194...or €1375] probably looks pretty expensive as insurance for your other investments right now." 
Gold is a lot cheaper today. Yet I'm far from sure the financial crisis has truly passed over just yet. 
 
I guess the European Central Bank agrees, now printing money to try and stoke the economy. Odds are that every other monetary power holding the cost of money at zero for the fifth year running thinks the same.
 
Maybe someone should tell the stockmarket. But then, no one rings a bell at the top. Not one you can hear at the time.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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