Geologist, engineer, Midas-touch investor and financial newsletter publisher Lawrence Roulston has little patience for investors without the nerves to hold onto a good thing during tough times. Gold (COMEX:GCG14) has been the main embodiment of value for thousands of years, Roulston points out, so why should tomorrow be different? In this interview with The Gold Report, Roulston has some tips on how to double down on gold investments and wipe away the tears.
The Gold Report: Let us be brutally frank, Lawrence. Is investing in gold dead as a reasonable investment strategy?
Lawrence Roulston: No, not at all. Gold is headed higher in the medium term and the long term. There will still be a lot of volatility at play during the short term, but gold will continue its uptrend of the last 13 years. It is highly speculative to bank on near-term appreciation in value. That approach can be incredibly frustrating when the price is volatile. But the long-term perspective is a different matter. Gold is always going to have an intrinsic value.
Think about the big selloff in paper gold last year. People were lining up to buy physical gold as investors were dumping exchange-traded funds and paper gold on the market. But central banks are still net buyers of gold. China is emerging as the biggest buyer at both the consumer and the central bank level. Gold has been the mainstay of financial systems for more than 5,000 years!
TGR: What is the current relationship between physical gold and paper gold?
LR: At one level, the pricing is identical because paper gold matches the physical gold pricing. But, these two forms of yellow metal ownership are held by very different groups of people. Paper gold, especially over the last few years, has been primarily held by North American short-term speculators. Physical gold is more of a long-term holding. Europeans who are concerned about the long-term viability of euro-denominated assets are holding on to physical gold as a store of wealth, as protection. China is now vying with India as the largest market for physical gold.
TGR: Can you quantitatively model long- and short-term gold cycles?
LR: Predicting the gold cycles is challenging because so many interrelated factors influence the movement of gold prices. To a very large extent, the short-term price moves are emotional—driven by news, by headlines, by rumors and gossip. But even when one takes a medium- or a longer-term perspective, there are still huge numbers of variables. It is very difficult to model gold. I consider taking ownership of bullion or the paper equivalent of bullion as more of a speculation than a surefire investment—unless one considers gold to be a long-term store of wealth.
Every time the gold price runs up and then falls off, people say, "It's over for gold. This is no longer a viable commodity. It's a relic of the past." Then gold takes off again. Gold prices will always run in short- and long-term cycles. And the long-term trend points upward.
TGR: Is gold a true hedge against inflation?
LR: The short-term downswing in the gold market is largely driven by the emergence of a low inflation environment in the near term. And the outlook for inflation remains low to modest. There is no hint of runaway inflation in America or Europe. In Japan, interestingly, the rate of inflation is notching up at the low end, but that is where the Japanese bankers actually want to see a bit of corrective inflation.
Of course, in two, three or four years, the global status quo for gold prices could change quite dramatically. But hedging against inflation is not the only reason for owning gold as a store of value. It is also appropriate to protect wealth against nonfinancial or non-currency related factors. For example, a large part of the boom in gold ownership in China is tied to investors searching for hard assets as they exit the overheated real estate market.