Gold to goal investment

Gold investment worldwide has grown dramatically in the last five years, but compared with the total stock of financial assets, gold bullion investment is still just a tiny proportion. Several factors are now stimulating gold investment by new pension fund money – as well as by private investors.

How to get a gold

Gold is actually quite plentiful in nature but is difficult to extract. For example, seawater contains gold — but in such small quantities it would cost more to extract than the gold would be worth. So there is a big difference between the availability of gold and how much gold there is in the world. The World Gold Council estimates that there are about 190,000 metric tons of gold above ground being used today and roughly 54,000 metric tons of gold that can be economically extracted from the Earth based on current extraction technology. But advances in extraction methods or materially higher gold prices could shift that number. For example, gold has been discovered near undersea thermal vents in quantities that suggest it might be worth extracting if gold prices rose high enough.

Gold is in demand

The gold that miners dig up goes into a number of different industries today. The largest by far is jewelry, which accounts for around 50% of gold demand. Another 40% comes from direct physical investment in gold, including gold used to create coins, bullion, medals, and gold bars. This broad demand category includes individuals, central banks, and, more recently, exchange-traded funds that purchase gold on behalf of others. The remaining demand for gold comes from industry, for use in things such as dentistry, heat shields, and tech gadgets.

Why invest in gold ?

“Financial innovation in the last few years has been extremely strong and powerful,” as Gilles Gilcenstein, head of asset management at BNP Paribas, put it in late 2006. We’ve now seen this bubble in complex and novel investments bite back.

The global credit crunch first bit when the alphabet soup of MBS, CDOs, CDS and ABCP turned sour as the US mortgage market turned down.

These instruments thrive in the opaque, off-balance-sheet environment of modern financial engineering.

But transparency is important. The modern world has audited accounts, and open exchanges, and ‘public’ companies for a good reason: because previous generations understood that when investment stops being open and transparent, and reverts to cosy secret deals, complex contracts, and big executive bonuses, then it is general investors who get cheated. Transparency helps stop these problems developing.

In stark contrast to the burgeoning complexity of modern securities markets gold investment remains uniquely simple, and – dealt the right way – uniquely transparent.

A solid gold investment sets you free from the risk of credit default or banking failures.

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