Gold may pay only in case of maximum despair
Thursday, 23 October 2008
LONDON Oct. 22 (Bloomberg): Gold is for rich guys-buying physical gold, that is. The metal's highest and best investment use is as insurance policy against a currency collapse. For that purpose, you need a lot of it, stored around the world. Owning 20 or 30 coins is nice but won't protect your standard of living in a world where dollars are dust.
Gold isn't even a reliable hedge against inflation. It reached $850 an ounce in January 1980, a price not seen again until January 2008. During those intervening 28 years, gold plunged and reared but lost more than half of its purchasing power. For a 1980 investor to break even after inflation, gold would have to reach $2,200.
It might, but how long did you plan to wait?
For the average investor, gold boils down to a speculation on higher prices. The latest run-up started in August 2007, when the housing market visibly started falling apart. From $652, it raced up to $1,003 an ounce last March, zig-zagged back to $747 in September, jumped to $905, then slid to $772 as of yesterday.
Hedge funds drove the market but individuals jumped in, too. So far this year, investors have purchased 611,000 newly minted, one-ounce U.S. gold coins, compared with 315,000 in all of 2007.
"We've seen a switch in appetite, with investors moving from futures to physical gold, either owning it directly or going through exchange-traded funds," says Suki Cooper, an analyst at London-based Barclays Capital.
Coins purchased strictly for their gold value, not their numismatic value, are known as bullion coins. Many countries mint them-South Africa (Krugerrand), Canada (Maple Leaf), China (Panda), Austria (Philharmonic) and Australia (Kangaroo), among others. The US Mint makes Buffalos and American Eagles. For investment purposes, you want the one-ounce size.
That is, if you can find them. The yearlong run on bullion has dried up the supply of coins for immediate delivery. Everything was out of stock last week at the online dealer onlygold.com. Kitco.com had Maples at 7 per cent more than the spot gold price.
The various mints project the number of coins they expect to sell each year and produce on demand. Toward the end of each year, they let their inventories run down while gearing up for next year's run. The surge of buyers left them short of high- quality blanks.
Currently, the US Mint is striking only a limited number of 2008 Eagles. The wholesalers are on allocation. No Buffalos are being shipped at all, although a small number might still be minted before the end of the year. By late December, dealers expect to start receiving 2009 coins.
For US investors, American Eagles are the bullion coin of choice. You can put them into individual retirement accounts as long as they remain in their original US Mint capsules. (It's not clear that Buffalos are allowed.)
Gold isn't even a reliable hedge against inflation. It reached $850 an ounce in January 1980, a price not seen again until January 2008. During those intervening 28 years, gold plunged and reared but lost more than half of its purchasing power. For a 1980 investor to break even after inflation, gold would have to reach $2,200.
It might, but how long did you plan to wait?
For the average investor, gold boils down to a speculation on higher prices. The latest run-up started in August 2007, when the housing market visibly started falling apart. From $652, it raced up to $1,003 an ounce last March, zig-zagged back to $747 in September, jumped to $905, then slid to $772 as of yesterday.
Hedge funds drove the market but individuals jumped in, too. So far this year, investors have purchased 611,000 newly minted, one-ounce U.S. gold coins, compared with 315,000 in all of 2007.
"We've seen a switch in appetite, with investors moving from futures to physical gold, either owning it directly or going through exchange-traded funds," says Suki Cooper, an analyst at London-based Barclays Capital.
Coins purchased strictly for their gold value, not their numismatic value, are known as bullion coins. Many countries mint them-South Africa (Krugerrand), Canada (Maple Leaf), China (Panda), Austria (Philharmonic) and Australia (Kangaroo), among others. The US Mint makes Buffalos and American Eagles. For investment purposes, you want the one-ounce size.
That is, if you can find them. The yearlong run on bullion has dried up the supply of coins for immediate delivery. Everything was out of stock last week at the online dealer onlygold.com. Kitco.com had Maples at 7 per cent more than the spot gold price.
The various mints project the number of coins they expect to sell each year and produce on demand. Toward the end of each year, they let their inventories run down while gearing up for next year's run. The surge of buyers left them short of high- quality blanks.
Currently, the US Mint is striking only a limited number of 2008 Eagles. The wholesalers are on allocation. No Buffalos are being shipped at all, although a small number might still be minted before the end of the year. By late December, dealers expect to start receiving 2009 coins.
For US investors, American Eagles are the bullion coin of choice. You can put them into individual retirement accounts as long as they remain in their original US Mint capsules. (It's not clear that Buffalos are allowed.)