The decade’s best performing asset class averages 16% annual returns

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Thursday, 07 January 2010 17:02

Will gold's ‘bubble’ finally pop in 2010?

Leading online gold dealing and ownership service BullionVault.com offers its outlook for gold in 2010 and reflects on its performance over the past decade from Adrian Ash, Head of Research.

‘2009 should have been the year gold took a breather having forged new ground in the previous year,’ begins Ash. ‘This decade’s best-performing asset class bar none, gold has already matched the US stock-market’s longest ever run of year-on-year gains (1982-1989), averaging 16% annual returns since 2001. Yet, the barbarous relic only rose further in 2009, hitting fresh all-time highs against all currencies except the Japanese Yen.

Bubble

‘Will gold’s ‘bubble’ finally pop in 2010? Fund managers, economists and bankers now forced to re-consider gold are quick to note that it pays you no income. Modern metrics thus cast gold as invaluable, too often confused for worthlessness. Nouriel Roubini claims gold has ‘no intrinsic value’; in the absence of rapid inflation, he says, this must be a bubble. Little-used by industry however (just 14% of average annual demand since 2004), gold’s economic value comes rather in its social use – a store of wealth when everything else fails.

‘The Noughties were the worst decade for equities since at least the 1820s. They also gave the developed world its first synchronized real estate slump. Bond-buyers have enjoyed a three-decade run, but to continue that bull market in 2009, zero per cent interest rates seemed the final insult to retirees and savers. UK cash ISAs, however, have long paid nothing above inflation. Six-month Deposit Certificates in the US averaged just 0.8% real returns per year this decade, twice what they paid during the ‘70s but down from 2.4% in the ‘90s and 4.4% in the 80s. Low to subzero real rates of interest negate the opportunity cost of holding gold – that rare, indestructible, simple and crucially non-defaulting lump of pre-modern money. Low real rates are also the common denominator between this decade’s four-fold gains in gold and the inflationary 1970s,’ concludes Ash.