Gold is better value if you’re British.
Okay, that’s not strictly true, as you don’t have to be British to use sterling to buy gold.
Nevertheless, while gold is up six times in dollar terms over the past twenty years, it’s up seven times in pound sterling terms.
Gold was priced at just over £200 per ounce back in mid-2002, as against today’s sterling price of over £1,400.
And back in 2002, the dollar price was somewhere around US$300 per ounce, as against today’s price of around US$1,800 per ounce.
But the good news ends there for the Brits.
Because although it’s indisputable that putting pounds into gold back in 2002 would have been a very good investment, the flip side of that is that the pound is trending weaker over the long term.
In other words, gold may be worth seven times what it was worth in sterling terms twenty years on, but that doesn’t really matter, because sterling itself is worth less.
Of course, right now may not be an entirely representative time to make such a comparison, since the US Fed has just begun what looks to be a prolonged period of aggressive rate rises. Critics of the Fed argue that it’s been behind the curve for a long time.
But compared to the Bank of England the Fed is streets ahead.
True, the Fed hasn’t had to contend with the self-inflicted economic shock of Brexit. But both the Fed and the Bank of England were complicit in the unprecedented and immense amount of money printing that was initiated following the global financial crisis of 2007.
That 2007 was a watershed moment for currencies and gold is clear enough from the pricing data.
In dollar terms the gold price doubled between 2002 and 2007, from around US$300 to around US$600. But in sterling terms, it rose by a less pronounced 50%, from around £200, to around £300. Back then the pound was strong against the dollar, and the relative gold price between the two currencies told the tale.
But 2007 changed everything. One major response to the economic crisis was the various rounds of money printing known as quantitative easing. During the course of this prolonged process, elements of the financial press dubbed it the currency wars, as various countries competed with each other in the race to devalue.
The process continued for more than five years, and was a major factor in pushing gold up towards the US$2,000 mark for the first time in history. It didn’t quite get there, but it did hit new records. And in sterling too. Towards the end of 2011 the sterling gold price went to a new record of just under £1,200 an ounce.
But whereas the US gold price has struggled to go further higher than those 2011-2012 peaks, the sterling gold price breezed past the 2011 record in 2019 and then hit another record of over £1,500 in 2020 when covid was in full swing, the UK economy was tanking and the British government was borrowing money to pay the furlough wages of half the country.
So who’s winning the currency wars now?
Answer, emphatically the UK.
The only problem with that is that the economic landscape has changed once again. The bills are coming in for all that quantitative easing, and they are being paid in inflation. All of a sudden a weak currency is no longer desirable because it only serves to exacerbate inflation. And guess who’s got the strongest major currency around these days? – that’s right, the USA.
And it’s because of that that gold looks better right now in sterling terms than it does in dollar terms.
Or to put it another way, there’s more hedging against the UK in the gold markets at the moment than there is hedging against the US.
All of which means if you bought gold back in 2002, or even in 2015, and paid sterling, you did the right thing.
Right now, though, and perhaps for a limited time only, the dollar looks worth holding too.