Tuesday, 4 December 2012

Gold Priced in British Pounds (GBP or £’s) – December 2012 Update

This is the regular gold priced in Pound Sterling update.  The last update was in August 2012 and can be found here.

The chart below shows the Nominal Monthly Gold Price since 1979.  The key Nominal Gold metrics are:
  • The Nominal Gold Price is currently £1,051.97 which is 2.4% below the November 2012 Price of £1,078.37.
  • Year on Year Nominal Gold is 0.3% below the December 2012 Price of £1,055.00. 
Monthly Gold Price in £'s
Click to enlarge

So over the past year in nominal terms gold has gone precisely nowhere.  This demonstrates nicely one of the negatives of holding gold compared to equities.  If equities go nowhere price wise for a year you can still sleep easy knowing your equities (ie real world companies) are (hopefully) making profits.  Some of those profits are then (hopefully) spun off as dividends, particularly if your allocation to equities is HYP based, which gold doesn’t give you.  That said I’m not changing my strategy and will continue to hold gold because of its diversification benefits.

The chart below then adjusts this chart by the continual devaluation of Sterling through inflation.  The key Real (ie inflation adjusted) Monthly Gold Price metrics are:

  • Real Gold Peak Price was £1,189.97 in January 1980.  At £1,051.97 we are 11.6% below that peak today.
  • The long run average is £533.02 which is indicating a very large 97% potential overvaluation.
  • The trendline indicates the Real Gold Price should today be £478 which would indicate even further overvaluation today. 
Real Monthly Gold Price in £'s
Click to enlarge

I choose to hold a large portion my Gold using the ETF Securities Physical Gold £ Exchange Traded Commodity (ETC) with ticker PHGP.  This product is intended to provide a return that is in line with the gold spot price less fees of 0.39% per annum.  It is also physically backed with allocated gold held by HSBC Bank USA.  I have chosen this method as it is simple, convenient to buy/sell, no nonsense and avoids other risks which include contango and backwardation that occur with Futures based ETC’s (including Gold) to name but one.

So where do my gold holdings sit today?  I’m at a 4.6% holding, when compared to total portfolio value, against a target of 5.0%. 

As always do your own research.

Assumptions include:
  • Last gold price actual taken midsession on the 04 December  2012.
  • All other prices are month averages taken from the Bank of England.
  • November and December 2012 inflation is extrapolated from the Retail Prices Index (RPI).

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