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Why gold and silver will continue to be the perfect hedge in 2015

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December 22, 2014 - 11:50pm

Gold’s up 12 per cent against the yen this year, 9.5 per cent against the euro and for Russian holders up 80 per cent. It’s been the perfect hedge in a very imperfect world of currency wars and money printing. Investors stocking up on bullion at current depressed prices know what they are doing.

It is of course never quite that simple. ArabianMoney can see three different scenarios for gold and silver prices in 2015.

2015 gold scenarios

First, US stock markets crash in anticipation of a rate rise in June. Falling markets will briefly pull the price of bullion down with them. QE4 is launched. Then prices recover sharply by the end of the year and actually exceed all other asset classes in performance. That’s something of a repeat of 2008-9. In addition, QE4 might crash the bond market and send gold prices to the moon.

Secondly, the global economic contractions becomes so bad by mid-year that the Fed abandons rate rises as impossible. Stock markets correct as the profit outlook is also therefore bleak. But as the threat of higher interest rates to bullion is gone then gold and silver have a positive year alongside bonds which have another surprisingly good year.

Third, Goldman Sachs gets it right and the US economy storms ahead. Interest rates and the dollar go up. US investors dump their remaining gold because buying equities looks more attractive again. Indian and Chinese buyers continue to snap up gold at relatively cheap prices, and it tracks the dollar higher regardless, acting as perfect hedge against the declines in other currencies.

Then the US economy becomes hopelessly uncompetitive due to a higher dollar and multinational profits shrink. The stock market slumps. QE4 is launched. Bonds crash. Gold and silver rocket.

Perfect hedge

Where else are you going to get a perfect hedge for 2015, a year of great unknowns, unless you think the madness of crowds on Wall Street is actually a positive indicator. If so well you’re most likely going to end the year poorer rather than richer in our humble estimation. Just have a look at 2014 more closely.

For all the noise from Wall Street actual stock market gains for 2014 will be almost nothing when adjusted for inflation. Even in US dollar terms – and the dollar has enjoyed a sparkling year – gold will not have lost much, and if like many people around the world you hold other currencies you are laughing.

Stand up if you are from the world’s largest economic bloc the eurozone or the next largest European economy Russia, or Japan, Canada, Australia, Brazil, South Africa, Nigeria, Thailand, Indonesia. Gold and silver have worked for you in 2014 and will most probably again in 2015, possibly exceptionally so. Why not hedge your positions will bullion?

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About Peter Cooper / Commentary Author

Peter Cooper is the editor and publisher of the ArabianMoney investment newsletter and the popular financial comment website www.arabianmoney.net.

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