Financial Times Editorial Comment: As good as gold

Financial Times Editorial Comment: As good as gold
Copyright The Financial Times Limited 2009
Published: May 8 2009 19:30 | Last updated: May 8 2009 19:30
http://www.ft.com/cms/s/0/99c7813e-3bfa-11de-acbc-00144feabdc0.html


In Goldfinger, the 1964 James Bond film, the dastardly Auric Goldfinger planned to make the US government’s gold reserves worthlessly radioactive by detonating an atomic device in the vaults at Fort Knox. This was intended to make Goldfinger’s personal bullion stash 10 times more valuable. Frankly, his investment strategy was needlessly complex. This supervillain should have followed a more time-tested mantra: buy and hold.

If Goldfinger had snapped up the metal in 1964 and clung on to it, his bars would now be worth 26 times more in nominal terms, and four times more in real terms. This is a much lower rate of return, but is still very respectable – and would not involve murdering anyone by coating them in gold paint or threatening superspies with lasers.

Goldfinger was eager to humble a central bank. But, again, patience would have paid off. Around 1999, some of Europe’s monetary authorities started selling gold – 3,800 tonnes of it for $56bn. Alas, they started the sales at the bottom of the market. Since then, the gold price has more than tripled. An astute evil-doer who snapped up all those ingots would have made $52bn from the central banks.

A large part of this money would have come from the Swiss central bank. Those gnomes of Zurich are $19bn poorer. The Bank of England takes the silver medal in the race for gold market ignominy, missing out on $5bn. The glistering store of value, unwanted in 1999, is back in fashion. Gold is the new black.

Since the start of the financial crisis in August 2007, its price has risen by 35 per cent. The metal is a hedge against the chance that the world’s central banks will prove no better at preventing high inflation than they were at choosing when to sell gold. This fear also explains why the reactionary idea of returning to the gold standard is enjoying a renaissance. One can see why the prospect of building economies on gold – an asset which would require an evil genius with a nuclear weapon to undermine – would now have a certain lustre.