Thursday, August 15, 2013

Financial security, Oriental style

Amid all the financial doom and gloom going around at the moment, it's noteworthy that the world's most ancient store of value is still selling like hot cakes in the East.  The Telegraph reports:

Stocks of physical gold crossed continents in the first half of 2013 as Westerners dumped their holdings and, on the other side of the world, the resulting fall in price sent consumers flocking to jewellers and bullion dealers.

Indian, Chinese, Thai and other Asian consumers flocked to jewellers and bullion dealers to build their holdings.

The trend, disclosed in the latest data from the World Gold Council, a trade organisation established by the gold mining industry, highlights the different ways in which gold is viewed and owned around the globe. The figures below show global demand for the metal in tonnes, in the months April-June 2013.

(Click the image for a larger view)

Jewellery demand was up 37pc over the same period in 2012, reaching the highest level since 2008. Bar and coin investment was also up by a huge 78pc year on year. This purchasing was concentrated in China, India and the Middle East, the WGC said - while selling was largely concentrated in western markets.

There's more at the link.

Too many Western investment advisers make the mistake of comparing precious metals to stocks and shares, pointing out that the former yield no dividends and (over the long term) have historically offered little prospect of capital appreciation compared to the latter.  They miss the point.  What Indian and Chinese investors want is security.  Gold, silver and precious stones have for millennia been stores of value - a way to preserve one's capital when all other means fail.  National currencies can collapse;  land can be confiscated;  art can fluctuate in value along with the market, and is vulnerable to theft and natural or unnatural disasters;  but precious metals (particularly gold) and gems have almost always retained their worth, and usually increased in value in time of emergency.

(They're also relatively portable, occupying little space and easily concealed in small quantities, so that if one absolutely has to 'get out of Dodge', they offer a way to take your assets with you.  I've personally witnessed, in Africa, a car's wheel bearings being unpacked as soon as it was safely across a border and around a few corners, out of sight of the customs officers.  From among the bearings emerged several dozen heavily greased gemstones, none the worse for their rough transit.  Their super-hardness trashed the wheel bearings, of course, but the latter could be - and were - easily replaced.  All that mattered was that they lasted long enough to get across the border!)

I can't afford to buy gold for myself, but in the light of current economic circumstances, I sure wish I could . . .



Sunnybrook Farm said...

I have an IRA left from when I used to make money and the investment guy didn't want me to switch it to a gold IRA back in 08. Kept comparing it to stocks and schemes but I explained how Obama was going to destroy the dollar and wouldn't listen as I wanted security. He didn't have much to say a few years later. It goes up and down but long term is what I am after.

Peter said...

@Sunnybrook Farm: You were wise, IMHO. The only caveat I'd add is that you should make sure your IRA provider is holding the physical gold itself, rather than paper certificates of deposit in a central repository. There are strong indications that those repositories have leased out (several times over) the gold in their vaults. Some have even stopped handing over gold to depositors who demand it, instead paying out its cash value. See, for example:

One speculative and unverified perspective on that reality may be read at:

The sources cited in that article are unverified, but I'm hearing corroborating comments from several others. You'll have to make up your own mind whether to trust them. On the balance of probabilities, I do.

tweell said...

I have picked up a bit of silver, but my main emphasis has been on the poor man precious metals: steel, brass and lead.

Anonymous said...

Just curious Peter, I always enjoy your recollections. It is neat story and got me thinking on why or how it would work out:)(maybe undersize stones would have a chance...)I'm having a hard time accepting that a single or multiple gemstone would survive a trip in a "ball mill". Yes, I do geology and minerals. Corundrum and diamond are harder than steel, but far more brittle. Hit a gem or rough crystal with a hammer and see whats left! Especially under pressure, regardless of lube, those facets would be chewed up, thus seriously devaluing a cut stone. Sure, recut it, but you have lost money. Course, leaving it behind or getting seized is far far worse-escaping with something would be best!
On the flip side, perhaps they looked fine as the oldest way to enhance a stone is to oil the fractures(or grease em?:)
Gem buyers generally carry a small vial of acetone to soak strones from new buyers to check for oil-the solvent removes it and drys quickly.(there are many many things being done to stones these days. Caveat emptor! THUS Reputation is SO important in gem trade!)

Carry on!

Peter said...

@JO: I can't say whether any diamonds were shattered or damaged in the process. It was the kind of situation where to get too close, or ask awkward questions, might attract entirely the wrong sort of response! Nevertheless, when I asked my hosts at the time, they said this happened several times a month. Gold was smuggled out as fishing weights, painted gray or coated with lead; diamonds were hidden anywhere that offered a small, concealable space; and other valuables (including banknotes - the black market dollar exchange rate was at least ten times better than the 'official' one, not that you could actually get dollars officially!).

Interesting that oil disguises flaws in diamonds. I didn't know that. There again, being from South Africa, I know that illicit diamond buying/selling was pretty rampant involving workers from de Beers mines, particularly Alexandra and the Sperrgebiet in what's today Namibia, and the watchword was always 'caveat emptor'.