When the recession hit, there was a scramble to invest in physical assets, namely gold. Similar to an apocalypse, many investors were uninterested in placing a large amount of their financial wealth beyond tactile items.
Exchange-traded funds (ETFs) allowed private investors the opportunity to easily buy and sell gold. Suddenly, ETFs became a significant piece of many planned portfolios.
The Gold Market Plummet
But, the recent nosedives the gold market has experienced is making people think again. Just how much has gold plummeted? In a nine-month span (October 2012 – June 2013) the gold market saw a 32 percent tumble.
Not only did the downturn throw a huge wrench in many investment plans, it played havoc with many gold mining companies. Newcrest Mining Ltd., one of the biggest gold producers in Australia, is writing off a loss of roughly $5.5 billion.
Beyond ETFs, the gold market is also heavily dependent upon the United States Federal Reserve’s quantitative-easing (QE) program. The controversial QE program pumped more than $3.6 trillion into the financial market and played a crucial role in increasing the cost of gold per ounce since 2008.
But, there is talk of tapering the QE program soon. Some believe the effects of this tapering will hit the gold market hard. And yet, even with the potential pitfalls facing the gold marker, there is still a large debate over the worthiness of it as an investment. The opinions range wildly. Some investors are dumping gold like crazy while others are buying and hold it.
Richard Dyson’s recent article in The Telegraph, “The Smart Money Is Quietly Buying More Gold,”insists that yes, gold is indeed a good investment. And, he’s not alone. The Chintan Karnani, Insignia Consultants’ chief market analyst, agrees. But, he further explains gold shouldn’t be a get-rich-quick scheme. Rather, investors should consider gold as a long-term investment. Karnani recently said, “Investors should invest in gold and silver with a long-term perspective (twelve months to eighteen months) and avoid taking huge short-term position in the future market.”
Why are these two men so certain of gold’s future potential? Yes, private investors are dumping their ETFs. And yes, this is helping the price of gold continue to plummet. But, the World Gold Council (WCG) regularly collects a range of statistics about the gold market. The WCG notes that ETFs make up just six percent of the gold market. Meaning, they’re an incredibly small portion of the global demand for gold.
Consumers – those purchasing gold in the form of bars and jewelry – are still the biggest demand on the gold market at 72 percent.
The argument for investing in gold is clear – the consumer market is not going to disappear overnight. If success follows success as it so often does, it’s worth noting what the folks at Personal Assets Trust are up to. They are buying gold.
Why is this worth noting? Personal Asset Trust was one of the few asset management companies whose clients didn’t completely take it in the teeth during the recession. They’re hell-bent on cautious investments, so much so they’ve boasted about missing rallies in the stock market.