Alternative Investments and Gold

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With the ongoing financial problems in the World it is a more than usually uncertain time for investors. The problems in the Euro-zone continue with new crises flaring up every few months. Developed countries seem unable to reduce debt to comfortable levels. The banks continue to be dysfunctional. The UK and many other countries seem to be permanently in danger of slipping back into recession. The bond markets offer the lowest yields ever and may implode at any time. Meanwhile we are threatened simultaneously by both deflation and inflation and cash in any form is a wasting asset, with the major nations competing to destroy their fiat currencies. One of the few bright spots are the equity markets which have done very well so far in the year to date, with the S&P500 up 11%, the FTSE All share up 10% and the Nikkei up an astonishing 34%. But for how long, with some 'experts' forecasting an imminent pull back. However other equally wise 'experts' are saying a wall of homeless cash is going to prop up prices well into into 2014 and maybe beyond..

So where is the bewildered investor to invest? If you have bonds or shares should you hold or sell the lot, or maybe just sell a few or even buy some more? But if you do sell or have some spare cash already where are you going to put it?

Not surprising some investors are looking at alternative investments to spread their risk and preserve and enhance their capital. 'Alternatives' are a very diverse group but the common theme is to buy something tangible and possibly fungible. They range from the downright scary such as ostrich farms and repossessed property in Bradford or Detroit to relatively conservative assets such as farm or forestry land or high value collectibles. Some are obvious scams but many are bona fide and can produce good returns, often independently of stock market cycles. All come with a caveat emptor stamp; just as much as buying shares or possibly more as most are unregulated.

One alternative investment which stands apart from the rest is gold. Its detractors dismiss it as a commodity metal, which doesn’t pay a return and is consequently impossible to value and has very little use apart from jewellery. Its fans however call it the ultimate tangible form of money, an insurance against the inevitable worthlessness of all fiat currencies. For those who incline to the latter view there are several ways of owning gold. The most straightforward is to buy a few coins and hide them under the bed. However that has its obvious drawbacks. Another way used to be to ask your bank to buy some and keep it for you. We all know how safe the banks are! It simply became part of the banks balance sheets. More recently since the advent of ETFs in the 90's it became possible to buy gold and other precious metals indirectly in a convenient cheap and liquid way without the security problems of holding bullion. There were and still are also unit trusts and investment trusts investing in gold. But for conservative investors non of the above is satisfactory as the underlying gold is not legally owned by the beneficiary, similarly to shares in nominee accounts. The solution to this problem is to own gold through a managed account in a vault but with the investors name on the bars, a bit like holding fine wine in a bonded warehouse with your name on the box. A Uk based company which offers this service is Bullion Vault . Then finally there are gold mining shares, which have some advantages and some disadvantages compared with holding bullion.

Gold is particularly interesting right now as it has crashed by 21% from its peak after a decade long bull run, from the 'Brown bottom' of $250 in 1999 to its peak of $1883 in 2011. As of 27th April it has recovered 4% of this loss with a fierce battle going on between speculators and institutions who are selling cyber gold and several central banks together with millions of Asians who are buying bullion. Will this be the last chance to buy some gold before it hits $2000 or is the end of the 'barbaric' metal as a serious investment?