Gold News

Gold: Rare, Useless & Worthless

Or so everyone seems to think as the auction bubble in rare trophies inflates...
 
COMPARE and contrast these headlines from the Financial Times' FT.com this week, writes Adrian Ash at BullionVault...
"Office building in London at 7-year high... 
 
"Chinese billionaire buys $170m painting... 
 
"Oil glut to swamp demand until 2020..." 
Nip over to The Economist, and China's plunging factory-gate prices point to the same trouble for natural resources and other useful stuff. 
 
Producer prices in today's workshop of the world sank almost 7% last month from October 2014. Because there's way too much steel plate, oil, plastics and copper wiring in the world – and way too much capacity to make more. Thanks of course to the last decade's boom.
 
Hence the mess at major platinum-miner Lonmin Plc (LON:LMI). To save itself from the disaster of plunging prices, it is trying to raise more money from shareholders. But to attract stockbrokers to underwrite the offer, it's had to offer that new equity at a 94% discount to stock-market prices.
 
Result? A plunging share price, natch. Oh, plus a fresh plunge in platinum itself... 
"Good news for the company and employees is bad news (short term at least) for the price," notes Tom Kendall at ICBC Standard Bank in an email, "as it defers the point at which availability of metal will start to tighten."
Meantime in useless stuff however, the world's other big glut – the glut in money brought about by zero interest rates and QE money printing – is driving a relentless rise in the price of "rare" trophies. 
 
London and Hong Kong property, high-end automobiles, first-edition novels, modernist art, even old bottles of Scotch too expensive to drink...such baubles have never found such high prices.
 
Yet the assumption – even as the US Fed pretends it's about to finish the party by daring to raise Dollar rates from zero – is that those record-high prices are more than justified. They're more than permanent, too.
 
Check how the Financial Times' web-editors presented Monday night's sale of modern art at Christie's in New York.  Chinese collector Liu Yiqian – an " ex-cab driver turned billionaire" – paid $170 million for Modigliani's 1918 work, Nu Couché ('reclining nude' to you. Or 'naked lying' to my schoolboy French. American and British newspapers find it all a bit rude either way).
 
But the FT's headline-link off its homepage didn't say that. Instead it said Liu "buys $170m painting"...
 
...y'know, like he might have bought a left-hand drive car, or a pair of trousers with a nice flare. 
 
High prices have always helped the world spot fine art when it sees it. But in the FT's throwaway headline Tuesday morning, the price discovered at Christie's auction pre-dated the bidding. An adjective like weight or colour, the price of Nu Couché became as sure as its fabric (oil on canvas) and dimensions (60 centimetres by just less than a metre), and very much more certain than its artistic worth.
 
As it is, Liu didn't actually pay $170m for the painting. No one else seems to have looked, but working back from Christie's New York buyer's premium table, it seems to us he paid $150m for Nu Couché...and paid another $20m in buyer's premium to the auction house. 
 
Ker-ching indeed for the middle man. Liu only recently began to collect Western as well as Chinese art. But I doubt he became a self-made billionaire by paying 13% transaction fees on any of his business deals.
 
How long before that "fixed" adjective of $170m proves a naked lie too?
 
Back on our own beat meantime, gold is rare but useless, claimed a BBC journalist interviewing the World Gold Council on Thursday about its latest Gold Demand Trends report.
 
Gold therefore has no value, the journo went on...forgetting whose knowledge and opinion the interview was supposed to be sharing with BBC radio listeners. 
 
But of those three features – rare, useless, worthless – at least one must be untrue of gold. Because the prices of rare stuff just keep going higher, no matter how useless. Whereas gold just made a fresh 6-year low. 
 
Well, 69-month lows in truth. But who's counting? Besides long-suffering gold owners. 
 
The bubble in rare trophies is creating its own glut of supply, of course. And not just in middlemen wanting a cut. 
 
Besides making maybe $20 million off the $150m sale of Modigliani's Nu Couché this week, Christie's auction house in New York today stands accused of very nearly auctioning fake Bordeaux wines at 5 sales between 2006 and 2013.
 
Only an expert can tell the difference. But how can you tell a fine wines expert from a fraudster?
 
Gold is gold is gold, in contrast. Cross- checking several independent proofs of quality and quantity means you don't need to rely on trust. 
 
But the global "retail" gold market is sadly packed full of con-men, preying on the greedy and unwary
 
Gold analysis enjoys more than its fair share of charlatans, too. 
 
"Gold has been dead since November of 2011," says one "expert" quoted in this hatchet-job from financial magazine Canadian Business, and missing the top by two months.
 
"Gold today clearly has lost its lustre," says another...also ignoring the surge in private household gold demand seen worldwide on these lower prices. 
 
Even the lone "gold bull" whom Canadian Business bothers to quote is actually backing a scheme trying to promote gold as a kind of money to go shopping with... an idea which last came around when gold prices hit multi-year lows, the metal was hated as an investment, and people thought they could find a "use" for it beyond holding value.
 
As for gold itself, it makes no promises. The stuff does nothing at all, in fact. It can't even rust. And tied to its reliable rarity (above-ground stocks grow less than 2% per year), that physical constancy...gold's incorruptibility...has always given it great economic worth throughout history.
 
Gold's use isn't industrial, but social. Because gold has always been used to store value. Sometimes more, sometimes less...depending on how the world values other, more variable things.
 
That can make it a very useful counterweight to other, typically more productive but changeable assets. But that of course cuts both ways.
 
US stock markets, for instance, have more than doubled since the panic of summer 2011. 
 
Gold has dropped almost 45% top-to-bottom. 
 
With hindsight, which would you have rather bought 4 years ago? But which looks the better value today? 
 
US corporations, by the way, have used the bull run in equities to grow their debt at an unprecedented pace.
 
Gold does so little, on the other hand, it can't even default or go bust.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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