Monday, March 2, 2009

The "Golden" Era

Gold is a chemical element with the symbol Au (Latin: aurum) and atomic number 79. The metal occurs as nuggets or grains in rocks, in veins and in alluvial deposits. Gold has been known and highly valued since prehistoric times. It may have been the first metal used by humans and was valued for ornamentation and rituals. Gold is the most malleable and ductile of all metals; a single gram can be beaten into a sheet of one square meter, or an ounce into 300 square feet. Gold leaf can be beaten thin enough to become translucent.

Gold is often used as a hedge or safe haven against any economic or political crisis, social unrest or even war. I remembered watching TV serials where the rich chinese always bring gold along with them to a foreign land when the Japanese invaded Singapore during WWII.

Gold is sometimes considered as an "Honest Money". Gold represent power and wealth since the beginning of time. Having lots of Gold means lots of money. For about 3000 years, Gold served mankind as money until the introduction of paper currency. Today, it is also a form of investment when we keep them either as Gold bar or even as Jewellery.

From the 1880s, central banks of many countries started building up their stock of gold during the period of classical Gold Standard. Under the Gold Standard, the amount of money in circulation was linked to the country's gold stock and paper money was converted into gold at a fixed price. However, with the development of banking and credit meant that the amount of money in circulation was greater than the gold stock itself.

The total amount of gold that has ever been mined has been estimated at around 142,000 tonnes. Assuming a gold price of US$1,000 per ounce, or $32,500 per kilogram, the total value of all the gold ever mined would be around $4.5 trillion. This is less than the value of circulating money in the U.S. alone, where more than $7.6 trillion is in circulation or in deposit. The Gold Standard broke down in 1971 when the then US president Richard Nixon scrap the system in order to get funds for the Vietnam War.

I'd seen quite a few website that talk a lot about Gold Investing
http://www.bulliongold.net/
http://www.sgx.com/psv/securities/etf/ETF_Gold.shtml
http://business.asiaone.com/Business/My+Money/Starting+Out/Investments+And+Savings/Story/A1Story20071026-32488.html

I'm not an expert with Gold and its movement but I'll advocate not putting more than 20% of your investment portfolio into this asset class. Gold do not behave like equities or bonds. The price of gold can be easily affected by the supply and demand due to private ownership. Such ownership is highly liquid and subject to rapid changes while production is unlikely to change in the near future. Based on historical prices, this asset class can run into a multi-year bear market lasting a decade or so.

In March 2008, the gold price reached an all-time nominal high of $1002.80 and again late last month, However, in real terms, this price is still well below the $850/oz peak in 1980 which was never breached over 27 years. Gold price is trading at $936/oz as I'm writing this post. It looks steep to me, just be careful.

2 comments:

Mark Herpel said...

Get rid of the dollar and bring back honest money or at least allow the states to use it. There are still 5 states with pending honest money legislation. We have devoted an entire issue to it this month on DGC Magazine

Mark

Anonymous said...

Adrian,
While I respect your bearish views on Gold, I cannot help but think that you are not a good investor. If you are a good investor and have done your research you will not be bearish on Gold, especially in the present circumstances. I really think you should change your job as this is not a job you can excel in.