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BookmarkMarch 10, 2014- London
Lloyds Private Banking via Daily Telegraph
Gold retreated in all currencies for a second day after U.S. jobs data was slightly better than expected. Bullion for immediate delivery fell 0.4 % to $1,336.00 in London.
Gold sold off sharply on Friday after the data and was down $25 in minutes in concentrated selling. The sell off was unusual as the data did not merit such a sharp, sudden sell off especially given that the fundamentals, including the geopolitical situation, remain highly supportive.
Gold in US Dollars (Bloomberg)
Prices posted a fifth weekly gain last week, climbing to a four-month high of $1,354.87 on March 3, as tension between Ukraine and Russia escalated. This has led to an increase in safe haven demand which has contributed to gold’s 10% gains so far in 2014.
Platinum lost $3.20, or 0.2%, to $1,483.60 an ounce, ending around 2.5% higher for the week, while palladium rose 65 cents, or 0.1%, to $781.80 an ounce, up roughly 5% for the week.
Russia is among the world’s biggest producers of platinum and palladium. Its conflict with Ukraine and tensions with the U.S. is leading to worries about supplies of the precious metals.
Gold Hedges Against Massive Inflation In Bread, Beer, Eggs, Fuel and Property
A new study has shown how the British pound has lost value massively in the last 40 years and how gold has again acted as hedge against inflation.
Gold in British Pounds – 2000 to March 10 2013 (Bloomberg)
The value of the pound has shrunk so rapidly over the last 40 years that a pound in 1973 is worth the equivalent of just nine pence today, the study by Lloyds Bank Private Banking has found.
The study found £9.48 in 1973 would have the same spending power as £100 today. The rising cost of retail goods means someone who was a millionaire 40 years ago would need £10,553,000 today to enjoy the same spending power, according to Lloyds Bank, which analysed data from the Office for National Statistics.
Everyday staples that we eat and consume now cost a huge amount more due to the massive 91% depreciation of the pound in the last 40 years.
- Beer surged by more than 20.5 times in cost. A pint of a beer has shot up by 1,948% from 14p to £2.87 per pint.
- Bread and the cost of a loaf of bread costs a whopping 12 times more – up 1,082% from 11p to £1.30.
- Milk costs nearly 8 times more. A pint of milk went up 667% from 6p to 46p.
- Coffee in its instant form (per 100g) cost nearly 10 times more from 28p to £2.67.
- Apples cost 7 fold more. From 28p per kilo to £2.02 per kilo for a rise of 622%.
- Sausages cost 8 times more. A kilo of sausages went from 58p to £4.84 or 735%.
- Butter costs nearly 11 times more. A 250 gramme slab of butter went from 13p to $1.42 or 992%.
- Carrots cost 8 times more. A kilo bag of carrots now costs 91p, up from 11p or a rise of 723%.
- Sugar costs nearly 9 times more. A kilo bag of sugar now costs 93p, up from 11p – up 787%.
- Eggs costs 8 times more. A dozen eggs now cost £2.78, up from 33p or a rise of 743%.
- Flour costs 8 times more. A 1.5kg bag of flour went from 15p to £1.19 or a rise of 724%.
- Petrol or diesel costs nearly 18 times more. A litre of diesel went from 8p to £1.41 or 1,727%.
- Residential property costs 18 times more. The price of the average detached house went from £16,980 to £305,391. The family home now costs 1,699% more.
Soaring inflation in recent months has put pressure on cash strapped households. However, the recent surge in inflation is less than that seen between 1973 and 1983, which saw the biggest rise in the cost of day-to-day items, at an annual average rate of a whopping 13.6%.
The lowest increase in inflation came during the period 1993 to 2003, with an annual increase of 2.6%, according to official data.
In the past ten years to 2013, inflation averaged 3.3% per year, with the highest levels coming post recession from 2008 and on.
If retail prices were to rise by 2.8% annually – in line with government targets – the value of money would decline by a further 67% over the next 40 years.
If inflation follows this pattern, consumers would need £311 in 2053 to have the same spending power as an individual with £100 today – or more than £3 million to enjoy the equivalent lifestyle of a millionaire today.
Lloyds based the calculation on estimates that a 2.8% rise in Retail Prices Index (RPI) inflation would be consistent with the government’s 2% target for Consumer Price Inflation.
Conclusion
Media coverage of the study tended to focus on the fact that the average price of a pint of lager increased from 14p in 1973 to £2.87 in 2013.
Little attention or coverage was given to the fact that gold has risen in value by more than beer, bread, apples, milk, sausages, butter, carrots, sugar, coffee, eggs, flour, diesel and even the beloved residential property in the form of the average detached house.
Therefore, gold had acted as a store of value and hedge against currency depreciation and inflation in the UK in the last 40 years, as it has done throughout recorded history.
On the back of the study, banking giants Lloyds warned that in 40 years, an individual would need £3 million to enjoy the same lifestyle as a millionaire today. Alternatively, millionaires could allocate a portion of their hard earned cash to gold to hedge against inflation. Investors and savers would be prudent to do the same.
Investing and saving are about protecting and growing one’s wealth in the long term. The recent poor performance of gold has garnered much attention and negative comment. Gold’s long term and historical performance as an important hedge against inflation continues to be unappreciated … for now.
