An interview with BullionVault's Adrian Ash by the Wealth Watch newsletter...
WE LIVE in an age of cynicism, writes Graham Rowan for the Wealth Watch investment newsletter.
We don't know who or what to believe in. As investors, we don't know where to turn for value, safety, growth, income.
Three hundred years ago British philosopher Edmund Burke said "Those who don't know history are condemned to repeat it". You might want to check out the history of currencies backed by nothing but 'trust' in the governments who controlled them. It might help to draw a distinction between currency, like Pounds, Euros or Dollars, and real money. By which I mainly mean gold.
How strange that a yellow metal which has no obvious function has survived for thousands of years as the most widely respected store of value. It pays no interest. It throws off no rent or dividend. It is inert. Virtually useless. And I love it.
Gold is one of the very few things I trust. Perhaps because it is almost as scarce as trust itself. If you imagine a cube shaped tennis court, that would be big enough to hold all the refined gold on the planet.
It's my belief that we should all own some physical gold in our portfolio, and it's easier than ever to do since the creation in 2005 of BullionVault. I recently went to the headquarters of the company in Hammersmith and met with Adrian Ash, formerly of MoneyWeek and now Head of Research at BullionVault.
Graham Rowan: Why was BullionVault created?
Adrian Ash: To give retail investors access to the wholesale bullion market. The bullion banks are not interested in you unless you have at least $10 million to invest. We let you benefit from the same dealing and storage facilities but with no minimum investment. Try walking into your High Street bank and asking to buy gold bullion! You can do it in some countries like Germany and Japan, but not in the UK, France or Italy.
Graham Rowan: What type of people buy gold bullion and how much of their net worth do they invest?
Adrian Ash: Because we're an online exchange we don't have a close relationship with individual clients, but I can give you an overview. We have 40,000 users worldwide, half of them in the UK. We're seeing the highest rate of increase in the Euro zone at present, as people get more nervous and look for a safe store of value. The average age of an investor is 44 and the average holding [mean] is £30,000. There's also a new generation of younger investors coming through who've grown up with a series of crises from 1997 to 2010.
Graham Rowan: How would you summarise the global gold market at the moment? There's never been more uncertainty and competitive currency devaluation and yet the Gold Price is going down!
Adrian Ash: We have had twelve years of rising prices, albeit with a 25% correction in 2006 and a 35% correction in 2008. This year we're down 20% but in view of what's been happening I'm not surprised. Historically India is the number one buyer of gold as a saving mechanism because they don't trust their currency, and rightly so! Perhaps 16,000 tonnes of gold is held in the rural villages of India, that's a tenth of all the gold in the world. China is the number two market. Both have faced some challenges in the last year which has impacted gold demand.
There is no domestic gold production in India – it's all imported and the government raised import duties and sales taxes in 2011 with the deliberate intention of reducing demand. Add in the Rupee crash and the worsening trade deficit and you can see why Indian demand has evaporated. China's slowing growth has also hit demand so with the two major markets in trouble I actually think Gold Prices have held up remarkably well.
Graham Rowan: What about UK demand for gold?
Adrian Ash: There doesn't seem to be a discernible sense of crisis in the UK at the moment. Last summer demand was much greater – the streets of London were on fire and UK gold investment soared at a time of unrest and uncertainty. Given that we are now in our fortieth month of 0.5% interest rates, there's no risk to holding gold. The old complaint that gold does not provide any income is hard to take seriously when the banks are offering negative interest rates. You are guaranteed to lose money in these circumstances, so people are driven to hard assets.
Graham Rowan: What's your take on the macro economics of the world market and how might this impact gold going forward?
Adrian Ash: The immediate sense of terror in the Eurozone seems to be dissipating, but we still have 50% youth unemployment in Spain for example. There are trends that have been in place for the last ten years such as the lack of individual responsibility which have driven the debt crisis. The hubris and arrogance of the Euro project deserves a good slap from history. Basically, we're in a whole heap of sh*t here!
BullionVault's founder, Paul Tustain, believes that we'll probably see hyperinflation as European economies collapse, and that can only be good for gold prices. If you listen to successive announcements from Mervyn King, Governor of the Bank Of England, he keeps on saying "We're going to devalue the Pound. We're going to devalue the Pound..." Even one of the recent star performers, Brazil, has started putting up barriers to taking money out of the country, so we may have an emerging markets crisis developing, too.
Graham Rowan: What is the attitude of the central banks to Gold Bullion?
Adrian Ash: Well, they've stopped selling it! You only sell it if you don't need it, so that must tell us something. Recently the Dutch glass blowers union were told by the Dutch central bank to reduce their holding of gold. The union demanded that the bank indemnify them against any loss if they replaced the gold with government bonds.
Graham Rowan: How much of your own net worth is in gold?
Adrian Ash: All of it, apart from the equity in my home.
Graham Rowan: Finally, if readers want to learn more about gold investing, are there any books or publications that you would recommend as the best place to start?
Adrian Ash: Yes, one great place to start is Peter Bernstein's The Power Of Gold: The History Of An Obsession. Another is Gold – The Once And Future Money by Addison Wiggin and Nathan Lewis. Finally there are the quarterly reports of the World Gold Council which can be downloaded free at www.gold.org.
Graham Rowan: Thank you so much for your insights Adrian.
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