We Live in Belgium...

We live in Belgium, a little country right in the heart of Europe. The country is in many ways a small version of Europe. Most have heard of Brussels, which is not only the capital of Belgium, but of the whole of Europe. Belgium is becoming a divided country, with the two largest communities – the Flemish (Dutch speaking) and the Walloons (French speaking) –  opposing to each other on different levels, but mostly about financial issues.

This disunity of Belgium typifies the larger European Union, which is a hodgepodge of countries with a lot of differences (cultural, languages, ...) and only one common aspect: the euro. A currency more and more experts are starting to question!

But not all things are turning sour in Belgium. Belgians have it for the good life. The country is widely known for its waffles, chocolate and pralines, beer and fries. Its inhabitants have a taste for good food and strive for a higher standard of living. Things like culture (fine arts, music, ...) and folklore are highly ranked.

But this ‘good life’ is coming at a cost nowadays, a cost which is rising at a phenomenal pace. A typical shopping list doubled over the last five years, while the bills for energy, insurance, ... are going through the roof lately. Just last month, they raised the electricity bill in Flanders with 10%! Americans often think that driving a car in the US is becoming expensive, with gas prices hovering around $4 per gallon. Well, over here in Belgium, we’re currently paying around $8 at the pump.

Inflation is running rampant in Belgium, although government statics are pointing at modest increases for consumer prices. Being Belgians, we know better by now. The fear of a potential runaway inflation is putting pressure on people's sentiment. Luckily, we have a very open cultural towards gold. You can buy gold not only at your local coin shop, but also order it at the bank. A simple phone call and the physical yellow metal is delivered in all forms. And gold isn’t being taxed, like silver which comes with a VAT of 21 percent on top of the selling price. That’s why there is a larger gold community in Belgium than in other parts of Europe. But gold is generally well distributed among Europeans.

Being commodity and precious metals analysts in Belgium, and to a wider range the Benelux and Europe, we often get the question whether gold is in a bubble. This is not such an unusual question as many have been riding the gold bull all the way from the bottom ten years ago. To us, it is clear that gold is most definitely not in a bubble. We often speak to bankers of all kinds, and they still concentrate their clients’ portfolios in the classical way: a diversified portfolio of bonds, equities, real estate and cash. Seldom do private bankers or family offices allocate more than a few percentage points to gold or silver.

As the graph below shows, gold is still a marginal phenomenon. Gold and gold mining shares represent a tiny fraction of what they used to in the 1980s. It is therefore a fallacy to say that gold is over-owned, that it is a speculative bubble, etc. Financial assets such as stocks and bonds represent the bulk of all global wealth. Also in Europe...

So who are these European gold investors? First of all, we have the impression they are a bit older than average. Many European gold investors have inherited bullion and gold coins from their (grand)parents, and fully realise their value. Most of them are not obliged to sell. On the other hand, we have the impression many younger people are starting to grasp the true value of gold and what it can do to protect a portfolio. Younger people, who often get their financial information from top-notch financial blogs (such as Zerohedge) are mostly more informed about the true state of affairs than mainstream media, which tend to deliver a lot of noise.

Our conclusion is that it is ridicilous to assert that gold is in a bubble when it represents a mere 0.8% of global assets. We frequently ask John Doe whether he owns gold and the answer is always negative, even after a fourfold of the price of gold in euro.

Gold still has a long, long way to go before it is fully valued, or even overvalued. We continue to advocate euro/dollar cost-averaging into the yellow metal combined with a selection of quality junior gold stocks. You have to protect yourself from the fiat currency delirium, even if you’re living in Belgium.

 >>> Smart Money Europe

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