2 November 2010

All That Glistens?

In today’s The Times (London) is an advertisement for bullionvault.co.uk. Their website explains that:
“BullionVault is the easiest, safest and cheapest direct way to own gold. You own the pure metal, safely stored in your choice of authorised vaults in London, Zurich or New York. You’ve access to your account 24 hours a day, 7 days a week. Your gold is safe in professional vaults, and is insured and audited daily.”
BullionVault explain that they will charge commission and an annual custody and insurance charge (costed in US$).

I was intrigued by this, although I’m neither wealthy nor an expert investor. It seems to me that there are two main reasons for the “mass affluent” (as opposed to the criminal) investing in gold: as an insurance against some form of catastrophic economic collapse, or because you think that world demand for the metal will grow strongly.
If you believe the first of these, then surely you would be better off keeping some kruggerands in a safe place (maybe not under the first loose floorboard) to be retrieved and exchanged for food and other essentials when the bad times come. The kruggerand may not a very pretty coin, but its price I believe reliably tracks a small margin above the price of bullion.  After all, if we are off to hell in a handcart, will BullionVault be online, and if they are, will the banking system be operating, and are you sure you can get to Zurich?

The Great West Window of Fairford Church, Gloucestershire: “The Last Judgement”
A blue bearded devil with a brown wheelbarrow wheels an old woman to destruction - “to hell in a handcart”

On the other hand, if you see the world (and in particular BRIC) as wanting more and more physical gold for jewellery, dentistry, or even to hold as coins, why not invest in a specialist unit trust like BlackRock Gold and General , which “aims to achieve long-term capital growth by investing in gold, mining and precious metal-related shares”?  Personal declaration: I hold some shares in this fund in my modest personal pension.

There is a third reason, I suppose.  If you are very rich indeed and want a part of your portfolio in physical gold as a safeguard against inflation, there will be a limit to how much of the stuff you can keep around the house – or more likely houses. After all, as the Gatlin Brothers used to sing: “... all the gold in California is in a bank in the middle of Beverly Hills in somebody else's name”. So is the ad in The Times aimed at the “mass affluent” or the super-rich?

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