The Conversation (0)
A lack of confidence in the value of currency and the financial management of many economies is pushing up the price of physical gold, though demand from investors continues to rise along with the need for storing this bullion in vaults across the globe.
A lack of confidence in the value of currency and the financial management of many economies is pushing up the price of physical gold, though demand from investors continues to rise along with the need for storing this bullion in vaults across the globe.
Portfolio insurance
“The vast majority of people have no gold in their portfolios and I always say that investors should have at least 10 percent of their portfolio in physical precious metals – not proxies, not derivatives, not paper versions – as portfolio insurance,” said Nick Barisheff, President and CEO of Bullion Management Group Inc., a precious metals investment company that recently opened two additional vaults in New York and Hong Kong to store bullion bars. “Physical bullion is the most negatively correlated asset class to the traditional financial assets like stocks and bonds. It improves the portfolio and so on and provides a more balanced diversified portfolio, that’s the starting point, and the bulk of the population is not even close to that.”
The gold savehaven
Barisheff says that he has seen a clear connection between international financial crises and the accelerating increase in price of gold, far beyond its uses in jewellery and technology.
“For jewellery, the higher the price goes, the lower the demand is so the two don’t go hand in hand, but from an investment point of view, all that gold is doing is reacting to the debasing of currencies around the world,” says Barisheff. “You’re not really seeing the gold price going up on its own, it’s really currencies that are losing value and have been for decades. So whenever you see the price of gold rising, it’s kind of like a non-confidence vote in the fiscal management of the currencies and the economy.”
According to the World Gold Council’s report for the first quarter of 2011, over all investment in gold grew by 26 percent year-on-year from 2010, which is largely attributed to the 62 percent increase in demand for gold bars.
“If you’re just day trading it probably doesn’t matter so much, but if you’re trying to preserve your wealth you’ll want to get into an asset class like gold that is outside of the financial system,” said Barisheff. “You want an asset class that doesn’t have any counterparty risk and isn’t dependent on anybody. You don’t want another piece of paper called gold, you want gold.”
Storing close to home
Barisheff says that the opening of new vaults in New York and Hong Kong in addition to their existing vault in Toronto was prompted by a growing demand for physical bullion stored closer to the investor’s locations, or diversified for security. Globally, investors in China have shown some of the strongest growth in gold acquisition over the past year. According to a report by the World Gold Council, in 2010, demand in the country grew by 32 percent, despite a simultaneous rise of 25 percent in the average local currency gold price.
“We deal with investors all over the world, and the majority of them like the idea of having their bullion stored in Canada, but as we move around the world we are now working with some institutions that would prefer storage in the United States and investors in South East Asia that like the idea of having it closer to home and prefer Hong Kong,” said Barisheff. “Then, there are some investors that are really wealthy and want to diversify where their bullion is held so they may have a few million dollars in each location.”