It seems that everyone is now on the hunt for gold. We are bombarded on radio, TV, internet and via the printed media to sort through the attic and gather all that old jewellery together, put it into an envelope and wait for you cash to arrive.
I’ve even had a local metal trader putting leaflets through the letterbox then calling back later (as promised) to ask if I had any unwanted gold.
Now, it’s been many a decade since I’ve had either Steptoe or his Son knocking on my door asking if he could get me to part with my bling for cash. We got into a chat about the state of the market and he was very scathing about the large companies trying to buy people’s gold over the internet etc. He pointed out that these companies will only give top dollar for hall-marked metal, whereas he claimed he would pay a better price for un-hallmarked gold. In fact he said that people should look up a local dealer, who would in most cases give about three times the return than one of the high profile companies.
Anyway, the gold gets melted down and sold on. So there must be a demand and, judging by the level of active advertising, quite a heavy demand, for gold. That demand has reached the ears of the trade but has not yet converted into a public awareness that triggers a gold rush pushing the price through the roof. Soros famously called gold the ulimate bubble.
But this may be the result of the use of gold related Exchange Traded Funds (ETFs), which allow investors to ‘invest in gold’ without holding the metal in physical form. But some serious doubt has been thrown on these, as many are ‘virtual’ ETFs, which means that the investor does not hold the metal. In fact some estimates put paper-traded gold at oversold by a factor of 100:1. This means that for every 100 people that want to convert their paper into gold, 99 will go home disappointed. The best bet is to go for a provider like BullionVault.
Those left with no gold would be offered cash instead, but is that what they bought the gold for? Also, would they get back everything they were due from gains in gold, especially if those gains outperformed all other investments?
Although gold does not make money, it does provide a hedge against inflation, against failing currency and against poor banking returns. Even when taking storage costs into account. The question is, can virtual ETFs give you the same protection? Arguably not.
If you are concerned about any of this take a look at BullionVault for both gold and silver investment. They are also still offering free metal for new account openers (at the time of writing that is).