Warren Buffett is famously not a fan of gold.
“If you buy an ounce of gold today and you hold it 100 years, you can go to it every day and you could coo to it and fondle it and 100 years from now you’ll have one ounce of gold and it won’t have done anything for you in between,” the legendary investor said in a TV interview in 2012.
He was certainly right at the time, as gold prices crashed from $1,800 an ounce to below $1,200 in mid-2013.
But some advisers, including Nour Eldeen Al Hammoury, the chief market strategist at Abu Dhabi-based ADS Securities, say it might be gold’s time. He argues that now is a classic case when precious metals like gold and silver are “safe haven” investments to avoid a period of high volatility in the financial markets.
Oil prices have crashed and currency and interest rate markets in the major economies have been roiled by the inability of governments to get a meaningful economic recovery under way.
“The global economy is still suffering under huge debts and there have been no truly structural reforms,” Mr Al Hammoury argues.
Although the US Federal Reserve has pumped vast amounts of money into the economy over the past several years, the country’s growth has been fairly anaemic.
The Fed recently said it would stop lending the banks virtually free money (known as quantitative easing, or QE), even though there have been some signs – such as a slowdown in housing and manufacturing – indicating that the US economy is slowing again.
After years of hesitation, meanwhile, the European Central Bank announced recently that it would begin pumping money into the euro currency economies in a huge QE programme of at least €1 trillion (Dh4.2tn).
Mr Al Hammoury says this may be too little, too late. “We have reached the point where the cheap money effect will be negative for the economy,” he says, pointing to the diminishing ability of cheap money to stimulate the US economy over the past decade. A sharply lower value for the euro in the past year means that cheap money will also have a diminishing effect on economic growth there.
The result is a great deal of volatility for financial markets, which traditionally favours the precious metals. “I still like gold, silver and platinum; they are safe havens,” Mr Al Hammoury says.
The view has support from other investment advisers.
Francisco Blanch, a Bank of America Merrill Lynch commodities analyst, says that gold seems to be driven now more by interest rates and currency moves than by other commodities, such as oil, even though gold prices have moved broadly in tandem with oil prices for decades.
“Since gold prices crashed by $203 an ounce over two trading days in 2013, the influence of oil on the yellow metal has been fading,” Mr Blanch wrote in a note to investors yesterday.
Although gold has been out of favour with investors in recent years, “this trend may be about to change, in our view”, Mr Blanch adds.
One of the main reasons, Mr Blanch argues, is that investors have lost faith that putting their money in government bonds or leaving it in cash will protect its value. Even central banks have recently started to buy more gold, he noted.
Although Mr Buffett is right over the long haul, there are times when gold has been the safest place to store wealth. It just depends on getting people to go along with the idea.
As Mr Buffett pointed out, gold bugs tend to make their case forcefully. “Why do you think gold bugs get so irate?” he said. “You can knock almost any investment and nothing happens. But when you talk about gold it’s different. Of course that says something about their motivation for ownership. They want people to agree with them … They want people to be as afraid as they are.”
amcauley@thenational.ae
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