February 22, 2016

When your parent bestows a nice little gift of a Queen Victoria 1899 gold sovereign (£1) to you on Chinese new year, you cannot help but spend some hours furiously searching up on these little coins and what they are worth.


Alas, the little sovereign is asking for about £300 for its 116 odd years, just slightly more than its weight in gold, a tad disappointing if you had idol worshipped Indiana Jones in your youth.

For the little sovereign coin weighs 7.98 grams, against the US$1,230 per troy ounce (31.1034768 grams), is worth US$315 which is £220, implying it commands a 35% for its antiquity, provided you can sell it at the market offer price.

Putting that into perspective is not as easy as it looks.

Consider this.

It was worth £1 in 1899 and £300 now which means that is a 30,000% return for 116 years.

The mental challenge comes in visualising the journey of this little gold sovereign on its bull run that largely happened only in the past 60 years.


Source: SeekingAlpha

Gold prices were pegged for the larger part of the 20th century and under the US Gold Reserve Act in 1934, it was illegal for U.S. citizens to own gold in the form of gold bullion, without a special license and all gold and gold certificates had to be surrendered to the US Treasury. On January 1, 1975, these restrictions were lifted and gold can now be freely held in the U.S. without any licensing or restrictions of any kind.

Gold prices were US$18.93 for over 100 years before they were raised to 20 then 34 dollars till the late 60’s. Prices only floated in the 70’s and we had a free market since.

Now that is only a 6,376% gain for my little gold sovereign in US dollar terms which has the serious implication that the Sterling pound has depreciated quite a lot against the US dollar in the past 100 odd years when £0.2 bought a US dollar to its £0.55 at the present.


Source: Wikipedia

Now who won the century long currency war?

Without a doubt, it is the Japanese yen. From 2 yen to a dollar in 1900 to its 112 right now, 5,600% return.

Yet, that still means that Gold wins hands down for its lack of economic use even against working assets like crude oil which was trading at US$ 1.17 in 1946 when credible record keeping began.

Gold is also arguably the best performing asset class in 2016 gaining 15% against the USD with treasury bonds paling in comparison with their measly looking 4-5% price gains. Silver, with her 11% rough gains, is slightly less impressive than Lean Hogs (+15%) and Tomatoes (+15%).

Nearly 3 years into the biggest 1 day percentage drop in Gold prices since 1980, 33 years later on 14 April 2013, investors are hesitantly taking prices higher (approaching its 12 month high) after the metal hit its 6 year low of 1,046 against the USD only in December, or just 2 months ago.

The only reason for the resurgence of interest can only come from the mind boggling central bank actions in this new year where we had Sweden’s Riksbank cutting rates to -0.50% that follows Switzerland’s -0.75% and then BoJ topped it with their negative rate on certain deposits which served to decimate their market credibility (for a G3 currency) and let loose the panic demons in the already nervous marketplace.

Talk of abolishing the €500 note heightens the uncertainty along with the sinister echo from Larry Summers, a former front runner for the Fed chair person job, who made a public call for outlawing the US 100 dollar bill at the same time.

In a world faced with negative interest rates, the regulators are taking away the option of keeping money under the pillow as well and BoE member Haldane let the “real” cat out of the bag in an interview that  “holding cash in a NIRP world “could encourage people to take their savings out of the bank and hoard them in cash. This could slow, rather than boost, the economy…. Andy Haldane, a member of the Monetary Policy Committee (MPC), the UK’s equivalent of the FOMC suggested that to achieve properly negative rates, the abolition of cash itself might be necessary.”

For the discerning investor, Gold is Zero yielding, a tad more palatable than negative yields.

As for the other reason for holding gold, which is the inflation hedge reason, the analogy of the fall of Roman civilisation after its pursuit of currency debasement is making its rounds, yet again (since the last time they were widely circulated during the onset of QE).


Source: Omnifeed

It is more than safe haven reasons then, for the loss of confidence in central banks, worries on negative interest rates or hyperinflation, it is about the lack of a physical medium as a store of value as well in a world with central bankers on a rampage and pockets of resistance grow against their authoritarian mandates.

I say, we have a good case for Gold and my little gold sovereign that I shall cherish as a reminder of the early days of 2016.

Market positioning turning cautiously long as we hear of queues forming at the UOB gold bullion counter for discretionary retail buying, the market Commitment of Traders Report is showing a sharp build ups along with the year to date price gains.


Yes, I shall hold on to the little gold sovereign which has outperformed as a store of value in the past 116 years.  There is little compelling reason not to be bullish Gold with US$ 1,330 in sight and a little head start over the rest of the market that has yet to understand the repercussions of  this year’s policy actions.