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Tag Archives: Investment
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.
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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Voyages of a Flying Dutchman...................... blog by Roy Van Til of Vienna, Maine 