Published: Last updated: June 16 2010 11:38
First there was a warning about “peak gold” from the boss of Barrick, the world’s largest miner of the stuff. Then a group alleging an international “gold price suppression” conspiracy won a Washington hearing and attendant publicity. And recently a gold fund manager warned that bullion buyers had better hurry up before none is left to buy and it was reported that banks are raising fees on gold storage vaults as space runs short.
Such statements have helped exacerbate the fear that has pushed gold to fresh records - in nominal terms, it is five times the mid-1999 lows; although on an inflation adjusted terms it is far from the peak - making those uttering them wealthier in the process. But they also exploit a different type of unease. While it has now become possible to buy and sell gold with a few mouse clicks through funds like the $51bn SPDRS Gold Trust (GLD), now the world’s second-largest exchange-traded fund and sixth-largest owner of gold worldwide, old-fashioned ownership of bars, coins or stakes in mines has surged too. But, unlike shakier exchange traded notes, gold ETFs are backed by physical assets rather than pieces of paper.
It is debatable whether profligate governments and easy money justify gold as a financial investment, but the notion that one can only trust tangible gold is more than a bit ridiculous. So is the notion of a gold shortage. More than any other commodity, the amount of gold above ground far exceeds actual consumption. History has shown that, even during war, hyperinflation or famine, someone will always sell or barter their gold. And suggestions that governments, whose currencies are no longer backed by precious metals, would confiscate gold as the US did in the 1930s or that they are engaged in a conspiracy to distort gold reserves, are outright paranoid.
Part of gold’s historical appeal was its portability and immutability. But insisting on direct ownership only makes investing in it unnecessarily cumbersome and expensive. The only people who profit are miners, promoters and vault manufacturers, not the fearful goldbugs themselves.
Copyright The Financial Times Limited 2010.
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