Gold keeps its shine for wary investors

[PainRack]

business times

Gold investors now hold more of the precious metal than either Japan or Switzerland as volatility in the financial markets has prompted a flight to safety.

Exchange Traded Funds (ETFs), which allow investors to buy shares in physical gold, owned more than 1,190 tonnes at the end of last year, worth $33 billion (£22.7 billion).

The amount invested in ETFs grew by 307 tonnes last year, according to the World Gold Council. SPDR Gold, the largest fund, which is based in New York, now holds 795.25 tonnes, which is more than twice the amount held by the Bank of England. SPDR has the world's seventh-largest gold reserves. ETFs in total hold the sixth-largest reserves.

Natalie Dempster, head of investment at the World Gold Council, said: “As investors became increasingly concerned by the state of the economy during the course of the year, they turned to gold as a store of value.” Volatility in stock and currency markets led to large inflows into alternative stores of wealth last year and gold hit a record high of $1,002 per ounce.

The high price prompted France, which has the world's fourth-largest reserves, to sell 113.5 tonnes of gold last year. At an average price of $872 per ounce, this raised $3.5billion. France sold 32.1 tonnes worth nearly $1billion in the final quarter of the year alone.

Most Western countries are long-term sellers of gold and do so at a regulated and slow pace. France, however, appears to have taken advantage of the high price to raise additional revenue.

By comparison, Gordon Brown decided in 1997 to sell more than half of the UK's gold reserves when prices were at an historically low level. The Bank of England sold 400 tonnes at an average price of $275 per ounce, raising only slightly more than France did last year.

Not all countries are net sellers of gold. The instability in currency markets has encouraged some central banks to increase their gold reserves. Russia added 57.7 tonnes worth $1.7 billion last year, taking its total to 495.9 tonnes. Brazil bought 19.9 tonnes worth $612million to give it a total reserve of 33.6 tonnes.

Jonathan Guy, metals analyst at Investec, said: “Gold has burnished its credentials as a minor reserve currency in recent months when compared with many of its currency rivals. Over the longer term, we retain the view that central banks, outside of the Western legacy sellers, are likely to increase their holdings.”

Sales of gold jewellery in the United States fell 29 per cent last year, but in other parts of the world they rose strongly. Demand was up by 29 per cent in India, China by 10 per cent and 15per cent in the Middle East. In these territories, jewellery is often bought by families in preference to storing wealth in a bank.

Analysts expect the gold price to remain high this year amid continuing uncertainty about the prospects for the global economy and concern over bank liquidity. However, the average price may not reach the same level as last year as demand for jewellery in Western markets continues to fall.

Mr Guy said: “While we recognise the likelihood of spikes above $1,000 per ounce during 2009, we believe that weaker physical demand limits the potential for a sustained rally in the metal.”

Investec is forecasting an average price of $825 per ounce this year and $800 per ounce next year.

Official gold holdings (in tonnes)

1. United States 8,133.5

2. Germany 3,412.6

3. IMF 3,217.3

4. France 2,508.8

5. Italy 2,451.8

6. ETFs 1,190

7. Switzerland 1,040.1

(SPDR ETF 795.25)

8. Japan 765.2

Hmm...... given this news about France, should government entities purchase gold during good times, when prices are low and purchase stocks in bad times? You know, injection of capital into the markets via soverign funds and the like........

[Knife]

Isn't a lot of that just like buying any other commodity? Investors aren't really buying gold, nor will they ever receive a shipment of the gold they 'bought' rather just a piece of paper saying they theoretically own X amount of gold? How is this immune from any of the other shenanigans assholes have played with other markets?

[K. A. Pital]

Isn't a lot of that just like buying any other commodity?

Basically yes. Gold, food - anything. Security-driven capital allocations could be done into anything which the person might consider "secure" - from oils to crops.

[acesand8s]

Isn't a lot of that just like buying any other commodity? Investors aren't really buying gold, nor will they ever receive a shipment of the gold they 'bought' rather just a piece of paper saying they theoretically own X amount of gold? How is this immune from any of the other shenanigans assholes have played with other markets?

It depends on which vehicle you invest through. Some ETFs just trade the futures contracts. Others, GLD, for example, which is the one referenced in the article, own actual bars of gold.

[Broomstick]

Isn't a lot of that just like buying any other commodity? Investors aren't really buying gold, nor will they ever receive a shipment of the gold they 'bought' rather just a piece of paper saying they theoretically own X amount of gold?

Untrue.

My Other Half and I actually DO own a small bar of pure gold - his mother bought it years ago (being of a culture that doesn't trust banks or understand stocks) and gave to us as a hedge against hard times. I suspect that if things do not improve for us soon we may sell it, as it represents about two months of living expenses. Not bad for a lump of shiny yellow you can easily hold in your hand. Sort of wish we had more of it at this point...

Of course the price of any commodity, whether you hold the actual item in your hand or not, can and does fluctuate. "Games" can be playe with gold just as anything else, which is why investors are continually told to diversify their holdings.

[Knife]

Isn't a lot of that just like buying any other commodity? Investors aren't really buying gold, nor will they ever receive a shipment of the gold they 'bought' rather just a piece of paper saying they theoretically own X amount of gold?

Untrue.

My Other Half and I actually DO own a small bar of pure gold - his mother bought it years ago (being of a culture that doesn't trust banks or understand stocks) and gave to us as a hedge against hard times. I suspect that if things do not improve for us soon we may sell it, as it represents about two months of living expenses. Not bad for a lump of shiny yellow you can easily hold in your hand. Sort of wish we had more of it at this point...

Of course the price of any commodity, whether you hold the actual item in your hand or not, can and does fluctuate. "Games" can be playe with gold just as anything else, which is why investors are continually told to diversify their holdings.

Er...who do you sell a chunk of gold too? Besides the scam on tv to send your unused jewelry to to melt down.

[Admiral Valdemar]

Er...who do you sell a chunk of gold too? Besides the scam on tv to send your unused jewelry to to melt down.

A bank, perhaps?

[Count Chocula]

We have these small businesses called "Coin and Bullion Dealers" in the phone books of just about every city.

Your local bank branch won't purchase, or sell, gold or silver.

[Broomstick]

^ What he said.

The "sell your gold jewelry" things on TV aren't technically a scam (usually) but in general you don't get as much as you think you will for it.

About 25 years ago my parents sold off some precious metals they owned (mostly sterling flatware and dishes) during some fiscal difficulties. There are businesses for that purpose, but I remember my parents being disappointed they didn't get more for their items. In general, buying gold jewelry as an investment is a bad idea due to the markup retail jewelry sellers use - you'll never get remotely close to recouping your costs. If you're buying any form of precious metal for investment or hedge against hard times buy as pure and unmodified as possible.

[Phantasee]

I'm pretty sure you can buy gold from banks in Canada. I could've sworn I heard my friend on the phone with his bank buying some just the other week.

Didn't a US President outlaw private ownership of gold in the US?

[Count Chocula]

^ He may have been investing in Central Fund of Canada, CEF - it's traded on the Toronto exchange.

That President, by the way, was good ol' Franklin Delano Roosevelt, right at the time he got his New Deal rolling. It was finally overturned in 1974 by Gerald Ford, and Americans have been able to purchase gold for some time now, but it took decades before an American could own a few measly gold coins. There was a provision in the executive order for maximum penalties of $10,000 and/or 10 years in prison, for owning more than $100 in gold or gold certificates.

By the way, $100 in 1933 is about $1,600 in today's American dollars.

[J]

Yes, and yes. One of my banks will sell and buy bars, wafers, and other pieces of gold, which of course must meet certain standards for purity and so forth. The bank of course charges a commission and there's another fee for anything other than 400 oz bars since that's the standard size of gold bars here in Canada. That's ah, a lot of gold, more gold than any of us are likely to see outside of the Royal Canadian Mint.

[Admiral Valdemar]

I'm pretty sure I can buy and sell gold at local branches too, though I seem to have mislaid my tonne of gold ingots lately. Either way, there are plenty of reputable places to deal in precious metals if you're willing to go for it. With gold going up, it's likely the best store of value in commodities and compared to currencies right now and for the foreseeable future.