Gold News

Gold €1000: Insurance or Bubble?

Too late to Buy Gold? Rising insurance premiums don't remove the need for insurance...

IS GOLD in a bubble at €1000 an ounce? Let's hope so. Because if not, it means investors are right to keep bidding crisis insurance higher. Which means there's an even greater crisis ahead.

Buying Gold is like buying an option on safety. It gives you security, liquidity and diversification just when you need it most – which is precisely when other stores of wealth fail.

Yes, the cost of insurance – the premium on gold's option – has risen since before the current crisis began. But that doesn't negate the need to insure your wealth, does it?

"First, security – the absence of any credit risk is an intrinsic quality of gold," as Hervé Hannoun, then of the Banque de France, now of the BIS, said at the FT's Gold Conference in mid-2000.

"Second, liquidity – in situations of political turmoil or high global inflation, gold's liquidity is unchallenged. [And third,] diversification – gold has shown a very low and even a negative correlation with the Dollar and US Treasuries...it enables you to improve your risk/return profile."

Now, glancing back across the 10 years (and 590 tonnes of French central-bank gold sales) since Hannoun spoke, that third factor – diversification – might seem the most valuable.

After all, Gold has risen 350% vs. the Dollar since June 2000, while the S&P has lost almost one fifth. US Treasury bonds have paid less than half the real yield on average of the preceding two decades (1.8% vs. 4.4% on 10-year Treasuries).

But it's the first two attributes – security and liquidity – that make gold's long-term diversification possible. In periods of investment stress, its security and liquidity are unparalleled. They add up to outperformance when other, more normally productive stores of wealth either slump (like today) or deliver grinding losses (as they have over the last decade).

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Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

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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