Useless, Pointless Gold

By: Adrian Ash | Fri, Aug 14, 2009
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"Gold isn't the long-term store of value that people think it is. It has no industrial use, and provides no income..."

SPARE A THOUGHT for the lonely gold analyst.

Yes, we get chance to huddle together every so often - Toronto in September or Hong Kong in October, plus a quick 48-hour jolly for members of the London Bullion Market Association in November (downgraded from Lima, Peru this year to Edinburgh, Scotland thanks to credit-crunched expense accounts at the investment banks).

And yes, gold analysts now enjoy a little more air-time on the media - and a little more respect from their equity-desk buddies - than they did 265% and ten years ago. But the word "nut" is still sniggered whenever gold gets a mention. That's despite beating every other asset-class hands down since the start of this decade.

"If you go back 25 years, gold was totally pointless until eight to 10 years ago," spits one London equity-fund chairman, quoted by the Financial Times alongside BullionVault's own recent analysis of typical seasonal price patterns in gold.

"It isn't the long-term store of value that people think it is," he went on. "It has no industrial use, and provides no income."

Full Disclosure: This chap's firm lost his Global Opportunities investors more than 32% of their money in the last 12 months. It came 179th out of 183 such funds in its sector. The UK Portfolio (15th out of fifteen year-to-July) hasn't even kept pace with inflation since launching in summer 2001. The Gold Price in Pounds Sterling, in contrast, has tripled.

But when it comes to useless, pointless and failed stores of value, who's counting? And as the funds' fact sheets remind us - after stating an aim of "long term capital growth" - "Past performance should not be seen as an indication of future performance." So there's hope for his clients yet.

Fund management itself, meantime, is a tough, competitive trade where hard work (successful or otherwise) is amply rewarded. Whereas gold analysts start on a hiding to nothing. Because there's nothing to analyze. There it sits, unchanging at No.79 in the periodic table, untarnished and indestructible. It never promises anything more than to remain unchanged - untarnished and indestructible - tomorrow. And that really is about it. Which is why any useful gold analysis will most likely spend its time talking about everything and anything else, otherwise known as the Zen approach to judging investment.

Not that quality varies, however; fine gold is fine gold (look for 99.5% or better, the Good Delivery standard of the deep, liquid professional market, in which the internationally-averaged Spot Price is acknowledged everywhere, albeit with an occasional premium the further East you move from London). And not that the stuff ever does need replacing, of course. Because as we just said, it's indestructible.

"Gold is chemically inert," wrote the late Peter Bernstein in the New York Times Magazine in May 1960, "and thus it will not combine directly with oxygen. This means it retains its luster and does not tarnish; the magnificent gold jewelry of the ancients may be seen in the museums today shining as brilliantly as though it had been purchased at Cartier's only yesterday."

The result? Best estimates say less than 2% of all the gold ever mined in history has been "lost" - the vast bulk of that buried by ancient types fleeing the Goths, Vikings or marauding English. The outstanding, above-ground supply could meet the next 7,000 days of gold-market demand according to a hedge-fund analysis earlier this decade. Platinum holds the next largest supply at around 15 months, while coffee supplies average 216 days. Natural gas inventories provide for just 37.5 days of required supply worldwide.

On consensus logic, therefore, the more "useful" a commodity is, the fewer days' supply humanity would seem to keep at hand. But that's to miss the unique utility of Gold Bullion - the security, liquidity and diversification which owning it brings.

The fund's chaired by that chap dismissing gold in the Financial Times have also shed one-third of their value over the last 24 months. But if you should find yourself considering Gold Investment anytime soon, please do remember that it's useless and pointless.

 


 

Adrian Ash

Author: Adrian Ash

Adrian Ash
BullionVault.com

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the head of research at BullionVault, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the secure, low-cost gold and silver exchange for private investors. It enables you to buy and sell professional-grade bullion at live prices online, storing your physical property in market-accredited, non-bank vaults in London, New York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people from 97 countries used BullionVault, owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical silver (US$129m) as their outright property. There is no minimum investment and users can deal as little as one gram at a time. Each user's unique holding is proven, each day, by the public reconciliation of client property with formal bullion-market bar lists.

BullionVault is a full member of professional trade body the London Bullion Market Association (LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development body the World Gold Council (www.gold.org) joined with the internet and technology fund Augmentum Capital, which is backed by the London listed Rothschild Investment Trust (RIT Capital Partners), in making an $18.8 million (£12.5m) investment in the business.

For more information, visit http://www.bullionvault.com

© BullionVault 2006-2014

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events - and must be verified elsewhere - should you choose to act on it.

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