The price of gold has fallen 35% from its peak in 2011
By Business Editor David Murphy
During the acute phase of Ireland’s financial crisis many people wondered if it was possible that the country would leave the euro.
It would be an exaggeration to say the financial problems are now fixed – but circumstances have certainly improved.
Consequently speculation about leaving the currency has ceased.
But it is worth considering some of the actions which were recommended to protect savings during those days, particular investing in gold.
This was one of the popular suggestions to safeguard from a surprise overnight event such as a bank closing or a departure from the euro but, as the crisis has eased, the price of gold has fallen.
In September 2011 prices peaked at $1,899 per ounce. It is now trading at $1,230 per ounce – that is a plunge of 35%.
The price of gold from 1970 to 2014 (credit: Davy)
The price of gold from 2007 to late 2013 (credit: Reuters)
That means that, had an individual take some or all of their deposit and bought the commodity at the peak of gold bubble in 2011, they would have lost a third of their money.
Many ordinary investors were told by financial experts of various hues that gold was a safe haven. In fact the reverse turned out to be the case.
Savers with money on deposit in an Irish bank were better off doing nothing.
Brian O’Reilly, global investment strategist at Davy, says “you have to question gold as an asset – it has very little industrial use.”
He adds “our view is that prices did get ahead of themselves.”
Davy cut its allocation of gold in its private clients’ portfolio from 3% to 1% before the worst of the price collapse occurred.
There may be some argument for leaving a very small proportion of an individual’s investment in gold as a hedge against inflation.
Investors who put money into gold do not get paid interest but continue to have exposure to fluctuating prices.
People who put their nest eggs into gold during the crisis were fleeing a bust by investing in another bubble.
But it is easy to be wise after the event.