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Tag Archives: Gold
Either Oar…rowing a golden dory through rough currents
Abstract: Despite recent fluctuations in both gold prices and demand for gold as an investment, the fundamental logic for including physical gold in wealth allocations remains strong and the long-term projections in gold’s favor continue. The underlying strategic case in support of precious metals as an asset class remains untarnished. This position paper uses a familiar nautical metaphor to emphasize the wisdom of maintaining a steady course that takes full advantage of the qualities of tangible bullion, regardless of short-run swings of markets Those who abandon the time-honored role of bullion, are precipitously rejecting its useful role in risk reduction, its legendary utility as a store of value, its value as a medium of exchange, and its flexibility for global financial applications. Seven features of bullion comprise a powerful argument for including physical gold in reasonable proportions in a balanced wealth allocation at this or any other time: Supply, demand, symbolism, constancy, bearings, equilibrium and survival. Continue reading
Four Ways to Own Gold…tapping into a richer vein
Abstract
There is wide agreement among investment professional worldwide, backed by statistically significant quantitative research, that together demonstrate the advantages of a small percentage allocation to gold as a core asset in a diversified approach. And there have been four principle ways to add gold to a portfolio: Purchasing securitized or paper gold or designated gold funds, trading in the gold futures market, taking positions in gold miners, and the purchase and vaulting of physical metal. Once too bulky to be competitive with the first three, the latest global vaulting and storage technologies enable time-honored physical gold ownership in the most flexible, liquid, and risk-controlled manner. Institutions and high-net-worth individuals now take positions in liquid, secure, accessible bullion for storage, exchange and delivery among multiple vaults in major financial centers worldwide. The savvy investor can take advantage of the enduring qualities of physical gold as a monetary medium with heretofore unavailable liquidity and simplicity of access.
Although all four pathways offer much to investors under certain circumstances, the well-informed institutional investor must be aware of the shortcomings of each. For example, so-called paper gold and its related instruments are often difficult to redeem in physical form for all but the very largest institutional investors, plus the value of the gold backing is vulnerable to attrition. The gold futures market suffers from higher risk and volatility than physical gold, limits the liquidity, and provides no principal protection. Moreover, shares in miners are uncomfortably high in investment risk and typically volatile in their returns. And especially in years past, the buying and vaulting physical metal in a static form in a location that is difficult to access exposes the investor to serious systemic risks and compromises the liquidity of the assets. But under the best of circumstances and institutional arrangements, bullion itself provides a unique combination of a safe store of value with sufficient agility to act as a flexible medium of exchange for use in finance with low risk.
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Ancient Highways…removing friction from gold as commodity and currency
Ancient Highways…removing friction from gold as commodity and currency
by Roy Van Til, Ph.D.
Abstract: Gold is both a timeless store of value and a trusted but underutilized medium of exchange. Its high value per ounce, durability, divisibility, uniformity, and portability are among the reasons it has served so well as an enduring asset. Unfortunately, the antiquated and clunky workings of the physical markets (delays and difficulty in redemption, costly shipping, uneven quality, limited liquidity) have hampered gold’s ability to function seamlessly to fulfill its potential as a currency.
Recent innovations in vaulting and transport have mitigated concerns about security and quality control, allowing gold to realize its considerable strengths as a prime commodity. Innovative technology with advanced messaging standards and clear identifiers for automation and liquidity can transform gold into a more appealing medium of global exchange…one that is immune to the risk of overprinting that can plague fiat currencies. Such technology allows gold to provide a tangible alternative to the insubstantial nature of securitized proxies or unallocated substitutes for the real thing. This can be achieved by applying the latest technology with the highest levels of transparency. And it can be done while remaining supportive of governments and regulators.
There is a need for a global process to facilitate ownership of physical precious metals worldwide; a situation where customers’ assets comprise an ecosystem for physical precious metals that is liquid, transparent, and compliant. And it is a process reinforced by excellent standards of care and diligence that adopt the most careful KYC (know your customer) and AML (anti-money laundering) safeguards and practices. An ideal technology platform can be shared by asset owners, fiduciaries, investment managers, bullion banks, and industry stakeholders.
Free of the many constraints and risks of paper assets, physical gold procured and redeemed on such a platform facilitates an agile, trusted, global medium of exchange. Gold becomes a currency in the fullest sense of the term. Unlike nearly every other gold solution, physical gold is an asset on the owner’s balance sheet rather than being a liability on someone else’s.
Gold’s utility as a currency requires technology that mobilizes the physical asset as collateral via a secure process where title is seamlessly transferred with reassuring transparency and safeguards. The ideal technology platform for physical gold positions would be integrated with a global clearinghouse (for physical gold, not paper gold) that allows these four features:
1. Segregated ownership of the asset to perform an active currency overlay
2. Pledging physical for trade finance as the superior format for credit
3. Using physical gold as a payment mechanism for everyday transactions
4. Holding clear title to the gold, free of counter-party risk and other barriers to true ownership
This essay provides a revealing analogy for your consideration, followed by the case for using gold as a monetary medium, and a concise course of action for the investor as the global gold industry becomes modernized. Continue reading
The Reluctant Giant: Origins of US investor fears of owning physical gold
Abstract
It is puzzling to many world investors that the largest economy in history (at least for a few more years), a confident nation of unrivaled military power and respected for its bold entrepreneurial spirit, has been hesitant to embrace physical gold as a component of allocations of institutional and personal wealth. After all, physical gold has been the most enduring symbol of affluence through the ages, and the role of the metal in stabilizing portfolios by reducing risk has been convincingly documented and reaffirmed over many years. This paper examines seven compelling reasons for the paradoxical paucity of gold demand in the US for investment purposes. These arguments attempt to explain why American individuals and institutions invest an amount in gold and other precious metals that is far smaller than their own financial experts consider to be ideal.
The research concludes that a portion of the reluctance to hold gold is based on culture, some on politics, and some on a lack of appealing investment alternatives in the precious metals space. The essay accentuates the absence of a long cultural tradition of holding physical gold, the fear of repetition of the confiscation of gold that occurred in the nineteen-thirties, and the clunky nature of existing physical gold products compared to the sleek securitized versions. The recent development of more convenient and flexible ways of holding gold bullion represents a gold solution that overcomes most of the persistent hesitation of US investors to own tangible precious metal. The giant need not be reluctant anymore. Continue reading
Eastward Ho! Gold Migrates to the Middle Kingdom
Abstract: Barring force majeure events, the die is cast for the twenty-first century: China is on the verge of resuming its role as the largest economy on earth, a position it held for the millennia before the industrial revolution thrust England ahead by 1820 and then boosted America into global economic primacy after 1871 at the dawn of the American Century. Best estimates for GDP at current prices in 2016 by Knoema show the US with $18.56T over China’s $11.39T. At current long-term growth rates, it is projected to race past the US at the $22T mark in less than ten years, depending on exchange rates. The Economist predicts this could happen as early as 2021, despite the recent slowdown in China and America’s robust growth. Indeed, in terms of purchasing power parity or “PPP” measures, China already has the edge with $21.27T over the US with $18.56T. And it is already decisively #1 in heavy manufacturing and construction.
Accompanying this change in economic leadership is a migration of the physical gold industry toward China, as that huge economy likely solidifies its position as the world’s greatest producer and demander of gold. For a number of powerful geopolitical, economic and financial reasons, there is a resurgence of global interest in physical gold for investment purposes that is inevitably tightening up and rationalizing the precious metals marketplace. The institutions of the precious metals industry appear to be gravitating inexorably toward China, known in Mandarin as zhōng guó, translated as the “Center of Civilization” or the “Middle Kingdom”. Living up to its name and fulfilling its destiny, China may soon reclaim its position at the epicenter of world economic power, and it appears that gold could play a significant role in the story. What goes around seems to be coming around, as the cliché goes.
This impartial and objective article presents a scenario suggesting and highlighting a potential but altogether plausible outcome. There is no intention to forecast with any degree of certainty, for such hubris is unwise in an uncertain world. Continue reading
Posted in Economics/Geopolitics, Gold industry, Politics
Tagged China, Gold, Investment
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Titanic Failure..…debunking conspiracies about physical gold and the iceberg
Abstract
The tenor of the times is rife with suspicion at every turn. With richly embroidered theories of dastardly conspiracies, the popular press and blogosphere are awash with rumors, innuendo, internecine plots, and nefarious scenarios circling around the gold industry that are reminiscent of the firestorm of thus far unproven conjectures about the Titanic, the JFK assassination, and 9/11. In this casual essay, a comparison is made between the epic maritime disaster in 1912 to the recent worries voiced by so many potential investors and ordinary citizens about manipulation of the gold and currency markets. The sobering conclusion is that bad things often happen without any tinge of conspiracy, whenever events and financial structures conspire to cause mayhem. Humankind must always be alert to the possibility of an unscripted chain of causality that can deliver a serious blow to any system or technology designed by imperfect mortals. Continue reading
Posted in Economics/Geopolitics, Gold industry, mortality, Politics
Tagged Gold, Titanic disaster
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Voyages of a Flying Dutchman...................... blog by Roy Van Til of Vienna, Maine 