More adoring gold again

Gwern Gwynfil

Over the past year the price of gold has surged by over 50%. It hit a peak of £2350 an ounce (or £75/g) – and at time of writing it’s not far off these stellar highs.

So what’s going on? And why am I writing about this instead of Welsh politics?!

To answer the second question first, as the son of a gold and silversmith I have had gold in my blood since the day I was born. I’ve worked with it, seen it transformed from a raw material into items of great beauty and watched as its value has transformed over time.

To give a graphic example I distinctly remember buying roughly £5000 worth of 18ct yellow gold casting grain in the early 1990s and being taken aback by how heavy it was (about 1kg, or a big bag of sugar) but when I recently held the same value of 18ct yellow gold casting grain in my hand it was barely a puddle in my palm (about 75g or a couple of tablespoons of sugar).

I also have an ongoing interest and involvement in all things gold as my mother’s jewellery company and brand, Rhiannon, is still very much selling gold in the shape of beautiful and meaningful finished items, still handmade in our workshops in Tregaron (more on this and the challenges created when your raw material cost shoots up very quickly later on!)

A Trump Effect?

So back to the first question. There is no doubt that the economic chaos and uncertainty unleashed by the Trump Presidency in the USA has fed into some of the recent rise in the price of gold. Gold has long been considered a safe haven from inflation risk, uncertainty and market volatility.

President Trump’s tariff trade wars, inconstancy in his policy pronouncements, and the deliberate sowing of confusion as a tactic which he clearly believes strengthens his (and the USA’s) hand in the negotiating of ‘deals’ with other nations, are already having an impact on the mood of investors even if there has been little time yet for any of these impacts to surface in the resulting economic data.

If tariff regimes are imposed as announced then the USA, and others, will be subject to considerable inflationary pressure.

For economy nerds out there, yes there are some counter pressures as bond yields rise, or specifically as US Treasury yields tick upwards (gold prices and Treasury yields have historically had an inverse relationship) but overall, Trumponomics will certainly continue to put upward pressure on the price of gold, potentially for the duration of his term in office and beyond.

For those with this depth of interest, consensus investor forecasts for gold prices this year are to keep rising by another 8% by year end.

Have the Gold Bugs been vindicated?

Gold bugs, those who perennially pump the merits of gold as an asset class and simply love everything about it as an investment, will crow that they were right all along in their faith in the shiny yellow metal.

The bugs dismiss the oddities – gold is an inert metal and an inert asset, it generates no income, it has limited practical usefulness as a raw material (outside of premium jewellery, there are nearly always other, cheaper, metals that can be used in industrial processes).

The bugs will point out that it has been a store of value for millenia, is a finite and concrete resource, is measurable and physical, and provides a ‘real’ asset in a world of fiat currencies, confidence based assets, and, latterly, ephemeral and risky cryptocurrency.

They have a point.

Gold prices were on a steep upward trajectory long before Trumpian chaos descended on the world’s economy and geopolitics. Central banks across the globe have been agreeing with the gold bugs and growing their own reserves of gold.

Nations under sanction (notably Russia and Iran) have been aggressively growing their gold reserves to use as an alternative means of exchange where the normal machinery of global commerce may be denied to them.

Alongside Russia, China, Turkey and Poland have all been buying large quantities of gold over the past few years. This has kept upward pressure on the price of gold despite increases in central bank interest rates (something which would normally be expected to exert downward pressure on demand for gold).

What’s Next?

It’s always hard to predict future trajectories, even more so in a chaotic and volatile political and economic scenario. However, chaos and volatility are friends to gold, in value terms at least. As a hedge against the vagaries of global chaos and confusion it certainly retains its value as an asset. The standard investment advice (for those who can afford investment portfolios!) to hold around 5% by value of your holdings in physical gold is always sensible.

Whilst I don’t disagree I have come to a different, more nuanced view, based on my entire life of exposure to gold as a wearable luxury. At risk of naked commercialism I will explain my reasons for doing so.

The Rhiannon Effect

At Rhiannon, unusually for a designer jeweller, we keep all of our designs ‘live’ so that we can replace loved items that are lost, stolen, or damaged. Handily, this means I can give some context to how gold price increases have had a practical impact on the price of actual pieces that can be worn and enjoyed across the years.

For example, our first ever design, the Cwlwm Celtaidd / Celtic Knot in 18ct gold would have cost around £50 when it was first made, today it is up in the thousands and the impact of raw material cost increases means that this design, along with all the other gold items we make, will inevitably increase in price in the coming weeks (we refuse to countenance any form of ‘shrinkflation’ where the quantity of gold used in a design is reduced to suppress price increases – this is impossible to do without compromising on quality so it isn’t an option for a company which prides itself on being Wales’ premium designer manufacturing jeweller!).

From a business perspective such abrupt and large price rises make life even more challenging but there is also a duty of care to those who have bought Rhiannon pieces in the past. To undermine the quality of design and production today is to devalue all that has gone before.

Jewellery as Investment

With further apologies for the flagrant promotion of the merits of the Rhiannon brand I’d like to use another example of how the value of gold can be stored and amplified in finished pieces. To celebrate our 40th anniversary as a company (back in 2011) we designed and made a limited edition pendant with a ruby.

The edition of 40 sold out very quickly, half were pre sold at a price of £800 each and the remainder were all gone within six months, at a slightly higher price. This example is relevant as we have managed to buy back two of these pieces from customers and have subsequently sold them at over five times their original price.

I would be confident that we could sell one of these today for in excess of £5000 – a massive increase in price relative to their original price less than 15 years ago. This is highly unusual as the vast majority of pre-worn jewellery has little value over and above its bullion content.

The Joy of Wearable Investments

What I love even more about this form of investment in gold is that anyone who owns a beautiful and valuable piece of jewellery also gets to enjoy the added value of wearing it and appreciating it. In this sense gold can become a generator of value, of emotional income – perhaps not in the sense of a traditional financial income generating asset, but there is a great deal to be said for an asset that looks good and makes you feel good!

Over the years I have frequently berated customers who leave their beautiful and expensive jewellery languishing in the darkness of a ‘safe place’ – wear it, enjoy it, add value to it as a family heirloom by investing in it the memory of you wearing it constantly. The price of a piece does not always determine its value.

Measuring value not price

Gold has substance. It has been used to craft and sculpt adornments for millennia. It is a wonderful metal with which to work as a craftsperson.

The price will go up and down and it will always be used as a store of wealth. But it’s in its transformation, into things of beauty and wider meaning, that its true value lies.