Gold Bugs, Stop Laughing!

Owning gold should make financial crises fun. Which alongside silver, it has
surely done to date, 20% and 50% plunges aside. But if you already own physical
bullion or youre about to consider it spare a thought for everyone else.
Because pointing and laughing at the misfortune of others is an ugly habit. It
only makes us gold bugs more boring at parties as well. A little sympathy, and a
stab at empathy too, could go a long way to redeeming us socially. And it would
be far better than taking a pratfall of our own, youll agree. Crowing about
being so right, so early is understandable, of course. Hitting a 22-year low in
July 1999, the price of investment gold has since risen sharply pretty much
year after year against the euro, yen and sterling, as well as every other
currency you can name. Silver bullion has done better still over the last decade
that decade straddling both the tech stock crash and its offspring, the
cheap-money bubble, sired by meek academics wielding godlike powers at the big
central banks. The permanent emergency following the inevitable blow-up has only
accelerated golds outperformance against pretty much every other financial asset
you can name, too. Number of Mutual Funds Beating Gold Country Over 10 years to
end-2011 Over 5 years to end-2011 France 1 1 Germany 0 0 Italy 0 0 Japan 4 1
United Kingdom 3 0 United States 15 1 Source: BullionVault via LBMA, BoE,
MorningStar. Includes upfront & ongoing fees. In most cases, this acceleration
of dumb bullions schadenfreude has come thanks to its own faster gains, plus the
flagging performance of the finest investment minds. But not in Japan. There, in
the land of the zero interest rate, retained savings have grown so used to
earning nothing nothing! in return for credit or capital risk, that even gold
and silver slowed their rate of gain during the last half-decade of permanent
emergency. Since the start of 2007, gold has returned just 8.8% per year to
Japanese buyers (compound annual growth rate, after costs). Silver slowed more
dramatically still, halving its 10-year CAGR to just 6.1% per year. And all
because, of course, the yen has rallied during this crisis so far. How come?
Japan was long into depression when this global crisis began, youll recall. Its
own domestic bubble exploded in 1989, dragging GDP, wages and even shop prices
into deflation since. Japan thus got the absurd joy of zero interest rates
almost a decade ahead of everyone else, helping knock the all-too-powerful yen
down on the currency market in 2000-08 (see above) but still failing to induce
the magic reflation. Come the big bang of late 2008, and the yen reversed a huge
chunk of its fall, as hedge funds (and others) suckered into selling it short by
the Bank of Japans zero-rate gambit realized that every other central bank was
about to try the same gag. Gold plunged in yen, short term, and silver fell
harder again. Net-net, both metals have offered the best store of value (barring
just two mutual funds) for Japans household investors. But theyve both slowed
their rate of return to what compared to the 20%-or-so annual gains for dollar,
sterling or euro investors looks like a crawl. Depressed returns to investment
are only to be expected in a depression, of course, not least from lumps of
metal that never promised a yield in the first place. But even the best stores
of wealth meaning gold and silver since 2002 and especially 2007, in Japan just
as much as in the U.S. and Europe might be vulnerable. Zero growth, and the
zero rates through which central banks hope to undo it, are starting to set
around investors like concrete. Adrian Ash is head of research at BullionVault .