Wednesday, September 21, 2011

The Irrationality Of Gold Bugs

Bloomberg, via The Big Picture:
Deep in the 7.4-acre Singapore FreePort next to Changi International Airport’s runways is the bullion vault of Swiss Precious Metals, behind seven-metric-ton steel doors built to survive a plane crash or earthquake.
The rooms are almost full after demand rose fivefold in the year since the Geneva-based company opened the facility. The firm plans an extension, and relocated Chief Executive Officer Jean-Francois Pages to Singapore last month to cope with the surge of investors willing to pay as much as 1 percent of the value of their holdings each year to keep them secure.
“The European debt crisis and its impact on the solvency of European financial players are driving European customers to find refuge in tangible values like physical gold and other precious metals,” Pages said. Demand “is totally compatible with the current financial and political global turmoil.”
Barclays Capital is building a new vault, The Brink’s Co. (BCO) and Deutsche Bank AG (DBK) may add more space, and the Perth Mint may expand for the first time since 2003, a sign they expect demand to keep increasing after the 11-year rally during which prices increased sevenfold. Investors in exchange-traded products backed by gold bought 2,236 tons of bullion since 2003, exceeding all except four countries’ official stockpiles.
What in the hell is the point of owning physical gold if you pay someone halfway around the world 1% of the value of your holdings to actually keep your gold for you?  So if the world goes to hell in a hand basket, how exactly are you going to retrieve your gold so you have a way to buy eggs and beer?  It's kind of like buying guns and ammo to prepare for the collapse of government, then storing them in Russia (as in former USSR, not snooty little village barely accessible from state highways in Ohio).  If all you are doing in buying the gold is speculating on price increases to eventually cash back into some currency, why not buy a futures contract?  At least then you gain on the price increase, but don't have to have a pile of gold to hide somewhere.  What a waste of capital.

No comments:

Post a Comment