Thursday, October 7, 2010

Going for gold: how a 'strange' investment is now mainstream

From the Sydney Morning Herald:

A stampede of the super rich is under way as they snap up gold to secure their wealth as the economies of the world wobble.

"The most we've sold in the last couple of weeks for a customer's own vault was $5 million [in bullion], about 100 kilograms," Janie Simpson of the Australian Bullion Company said.

The number of transactions have stepped up in recent months, she said.

"It just keeps getting bigger and bigger. We had to put on a new staff member this month to cope with the volume.

"Three years ago, if you said you held physical gold in your investment portfolio, people might [have thought] it's almost a bit strange.

"But now, people are holding physical precious metals in their portfolio. It's mainstream."

In Geneva, UBS executive Josef Stadler told a private banking summit this week that his Swiss firm even had a couple buying "over a tonne of gold ... and carrying it to another place", Reuters reported.

At today's prices, that amount of gold would be worth about $US42 million.

Investors who want to buy gold would usually buy it through exchange-traded funds on the Australian Stock Exchange.

But recently, some have turned to buying gold bars and coins, resources expert Greg Canavan said.

"Now there is a lot of concern about whether the gold [that] a lot of these funds say they hold - whether that's actually the case," Mr Canavan, founder of Sound Investments, said.

"The reason [that] physical ownership is becoming so popular is [that] there is no counterparty risk with owning physical gold. So it's no one else's liability.

"In the paper money world ... and one in which central banks are creating more and more paper liabilities and paper assets, people are turning to gold to get out of the financial system and get out of the risk that the financial system poses."

Perth Mint, one of the leading sellers of physical gold in Australia, said that, while its sales were highest during the global financial crisis, demand for precious metals remained high and sales were "strong and steady".

In the 2008/9 financial year, Perth Mint sold about 2.7 million coins, a total of 7.8 million ounces of pure gold, silver and platinum, public relations manager Alexandra Lucchesis said.

For 2009/10, it sold about 2.7 million coins, bars and medallions, consisting of 10.13 tonnes of gold, 218.5 tonnes of silver and almost 10 kilograms of platinum. The rising price of gold - spot gold hit a fresh all-time high of $US1344.10 an ounce today before easing to $US1342.70 - has also led to an increase in gold sales, pawnbroker Cash Converters said.

"We buy old gold and it can come in any form [besides jewellery]," marketing manager Glenn Donaldson said.

"Some of our stores are buying three to four times the volume that they were buying 12 months ago."

According to the World Gold Council's gold demand trends report for the second quarter of 2010, physical gold bar demand - largely covering the non-Western markets - rose 29 per cent from the second quarter of 2009 to 96.3 tonnes.

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