Outlook: Don't worry; the gold price means nothing

What a dreadful time for gold bugs. Or is it? The price of gold, it is often said, is in the eye of the beholder and never more so than now. While the headlines here and in the US scream that the gold price has hit an 18 year low, portending the start of a new age of deflation, that is far from the view in large parts of the rest of the world. Certainly the idea of the gold price as an indicator of what might happen in the wider economy is nonsense. A bar of gold is an entirely inert thing; its price tells you nothing about anything except supply and demand.

Right now, the price of gold depends very much on your location. This is because gold is denominated in dollars and over the past year, the dollar has been one of the world's strongest currencies. The US might like to think of itself as the centre of the world, but in terms of population, it's nothing special. If you happen to live in South Korea, Thailand or Indonesia, the price of gold is not at a new low at all; in local currency terms it is in fact at an all time high.

Furthermore, outside the US and Europe there is a radically different view of the intrinsic value of this strangely behaving metal. In India, the largest buyer of bullion last year, runaway demand for gold is in part being caused by the fear that the Indian Rupee might go the same way as the Korean Won. In this country at least, the ancient attributes of gold as something that holds its value through thick and thin still very much hold good.

As it does too in countries where banks have come to be seen as unsafe places to hold your cash. In South Korea, gold has performed better than almost any other investment, proving its credentials beyond any doubt as a safe haven in times of trouble. Moreover, even if it were possible to buy dollars with Korea Wons, most Koreans have grown wary of anything that needs to be held in something as unreliable as a bank.

So here we have a very different view of gold, one that continues to view it as a reliable store of value. Precisely what is causing it to drop in dollar terms right now is certainly a curiosity. Demand for gold last year reached an all time high and there is evidence that the low gold price might cause a contraction in supply as mines are mothballed or closed. Theoretically, the price should be rising. Against this, however, is the continued threat of large scale gold sales by central banks from reserves. That's caused a collapse in sentiment and prompted many traders to take out short positions.

Longer term there is no reason to believe the gold price will continue plummeting into the depths. Those who take this view do so largely on the grounds that because the gold price has done well in inflationary times, it must correspondingly do badly if prices are falling. Wrong. Apart from anything else, gold is not on the evidence a particularly good hedge against inflation. Its real - that is, inflation-adjusted - price has been gently falling for the past 20 years.

Nor would it be right to view its present, relatively low, dollar price as a clear deflationary signal. Gold is quite unlike most other commodities. Its purpose is often a purely decorative one. Elsewhere in the commodities markets, there isn't much evidence of deflation. And in any case, commodity prices rarely make good forward indicators. If you are not holding gold, don't worry about it. The collapse in its dollar price means nothing at all.

Suggested Topics
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
A scene from the video shows students mock rioting
newsSchool leaver's pic YouTube video features staging of a playground gun massacre
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
Morrissey pictured in 2013
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Robyn Lawley
ebookA unique anthology of reporting and analysis of a crucial period of history
i100  ... he was into holy war way before it was on trend
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmThe film is surprisingly witty, but could do with taking itself more seriously, says Geoffrey Macnab
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain