Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold, Useless and Pointless?

Commodities / Gold & Silver 2009 Aug 14, 2009 - 12:10 PM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis Article"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.

  • Unlike platinum, gold has little use in industry (13% of annual demand all told, versus 47% of 'white metal' demand from auto-catalyst makers alone);
  • Unlike government debt, it can't swell in supply, pumping cash into the economy and financing the world's trade imbalances. Unlike common stocks, gold doesn't offer income or earnings growth, making it impossible to value on modern investment metrics;
  • Even the cost of replacement is tough to pin down, whipping from $134 an ounce (the mining cost at Barrick's Lagunas Norte in Peru) up to $590 across Goldfield's African, Latin American and Australian output on average.

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.

  • Not promising anything, gold should disappoint no one. It's just a lump of inert metal, remember. And in contrast with all other tradable investment assets, physical gold doesn't rely on anyone's word either. (Futures, options, unallocated accounts and trust funds are different again, you'll note.)
  • Used to store value everywhere that it's ever been found, gold offers a large but reliably tight supply. Cast into a single cube, the 161,000 tonnes mined in history wouldn't quite cover the length of a tennis court. Each edge of that cube is growing by just 4 inches (10cm) per year.
  • Lacking a dominant industrial use, gold uncorrelated – across the long term – to either the stock market or the economic cycle, a handy attribute at times of financial or economic stress. Just check its 50% price-rise since the credit crunch broke in August '07, for instance. Crude oil futures stand almost 20% lower, rolling costs not included. The S&P has meantime dropped by one-third.

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.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

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.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules