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By Guy Oppenheim & Toby Birch
Oppenheim & Co. Limited
As author of The Final Crash; Addictive Debt and the Deformation of the World Economy (published 2007), one is often asked for further forecasts. The customary response to investors is to re-read the book with reference to the section ‘2020 Vision’. There was of course a chapter on precious metals, not along the usual hysterical lines of ‘Become a Bullion Billionaire’ but the more moderately entitled ‘Antidote’. Some seem disappointed with such conservatism in the context of gold and silver which have been the best buy of the last decade and likely this one too. However, they are missing the point. An antidote’s role is a remedy against a poison; not the cure for the underlying cause of toxicity.
The escalation of gold is simply a measure of the malaise of money, like mercury in a thermometer. Other than boosting the profitability of mining companies and bullion dealers, there is little benefit to humankind, let alone the environment, when prices surge. Commodity appreciation is feeding a frenzy of resource depletion and associated pollution we will later come to regret. Swathes of capital are being allocated to passive lumps of metal locked underground. It does not fund industries starved of finance in the wake of counter-productive bank bail-outs. This is where the Islamic approach is spot-on. The hoarding of wealth (in the form gold and silver in the time of the Prophet Mohammed) is viewed as communally destructive. Scholars liken money to water; only useful when flowing, otherwise stagnating if uncirculated. Muslims must pay a charity tax on liquid assets that are not invested in productive ventures, acting as a form of negative interest rate; a case of use it or lose it.
Many call for a return to financial discipline by way of a Gold Standard given that fiat currencies have inflated house prices, food and energy beyond affordability. The evidence favours such an approach as the greatest debt over-hangs in history (post-Napoleonic and WWII) were countered by the resumption of gold-backed currencies. These periods brought about prosperity as a natural by-product of competition and efficiency in a sound money environment.
Nevertheless, it is easy to be rose-tinted when promoting precious metals as money; after all every Gold Standard has eventually buckled thanks to war-related expenditure. Likewise the constraints or surplus of mining supply in the Victorian era triggered several boom and bust episodes. It ultimately comes down to stewardship, a commodity that is sadly lacking in this modern era. The institutions designed to protect the public are riddled with lobbyists determined to protect the status quo. This can be seen with recent moves to raise margin requirements for precious metal futures contracts designed to contain prices. Artificial manipulation seldom works, especially when trends reflect reality. Rather than curing the disease, we see how the symptoms are suppressed by fiddling with the thermometer. Only when gold forms parabolic chart patterns and taxi drivers are telling you to buy, will it be time to exit.
Guy Oppenheim is the Chairman of the Oppenheim Group with over 25 years experience as a portfolio manager, investing globally in all asset classes. Guy Oppenheim has managed assets well in excess of $1 billion for institutional clients, sovereign wealth funds, and private families. Guy Oppenheim has been registered and authorized by Financial Services Authorities and served also as Compliance and MLRO Officer.
Guy Oppenhiem was educated in Geneva and holds a BA in Business Administration majoring in Finance from the University of Geneva.