Don Coxe* explains how demographic shifts are affecting the price of gold and delves into the logic of investing in gold as a long-term strategy. Interview with The Gold Report.
TORONTO – The Gold Report: What fundamentally attracts you to gold?
Don Coxe: There are many serious reasons why I like gold, but one very important reason has to do with the shift in the share of world gross domestic product away from the highly industrialized nations toward emerging economies in Asia. For thousands of years, people in China and in India have respected gold. The Western countries, on the other hand, were captivated some decades ago by economists who claimed that gold had become irrelevant as money. But the Chinese and Indian people hoard gold as a store of value and trade it as a treasured commodity.
TGR: Are the pricing mechanisms for gold shifting toward control by the East?
DC: Consider an art auction. If a bidder who 10 years ago only bought one painting suddenly buys 50 paintings, that bidder will greatly influence subsequent bids for the art. In China and India there are suddenly many more wealthy people than they’ve had for millennia. In a culture that values gold, newly rich middle class people will buy the yellow metal not only for personal adornment, but also as a form of savings that is safer than paper money.
On a trip to India a few years ago, I was fascinated to see poor peasant women wearing armbands of gold as they toiled in the fields. I asked my guide, “Is that actually gold on their arms?” And he said, “Oh, yes, that’s gold.” I said, “Well, aren’t they at risk? I mean, these are really poor peasants, and here they are brandishing all of this gold!” He looked at me in horror and said, “No criminal would be so evil as to steal gold from a poor woman, because that’s her dowry.” There are some pretty powerful taboos in Hinduism, apparently.
Intrigued, I found out that under Indian law, when there’s a Hindu marriage, whatever personal possessions, real estate and investments the woman has become the husband’s except for her gold. That remains hers. So if you’re marrying off your daughter, whom you love, you’re going to make sure that she has some gold in her possession because if the husband turns out to be a wastrel, the dowry might save her from starvation.
As a result, the Indians are the biggest consumers of gold in the world. The Chinese are moving up fast, though. Plus, there are simply more rich people in the world. Hundreds of millions of people now have some form of savings. The best single investment anyone could have made, since the year 2000-apart from buying Apple stock-was in gold. It has gone from $300/oz to $1,650/oz. It’s gone up every year, including this year. So every year in this millennium the price of gold has gone up.
TGR: Let’s talk about the Eurozone problems. How does the euro crisis affect the commodity space in general?
DC: Probably the only commodity that can benefit from the euro meltdown is gold, because the euro is the first currency ever to be backed by no government, no tax system, no army and no navy. It is backed only by a theory and a set of rules, and the people behind it have violated the theory and the rules. I doubt there is any intrinsic value behind the euro. But take the exact opposite extreme from the euro and go to something that’s been a store of value for as long as there has been civilization, gold.
TGR: Do you think we’re in a triple-dip recession in North America?
For the rest of this interview, please go to the Mineweb.com website: http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=158023&sn=Detail&pid=102055