Invest in gold for insurance, not growth

Gold has been the most talked-about investment and was the place to be for nearly 12 years. It moved from $250 per ounce to more than $1,900 per ounce while the stock market gyrated on its roller coaster ride. When investing in gold you could not go wrong. Then something happened. More

To continue reading this article, please do one of the following.



Invest in gold for insurance, not growth

Posted 5/27/13

Gold has been the most talked-about investment and was the place to be for nearly 12 years. It moved from $250 per ounce to more than $1,900 per ounce while the stock market gyrated on its roller coaster ride. When investing in gold you could not go wrong. Then something happened.

No sooner did gold break $1,900 an ounce, with calls for much higher prices, then it went flat line. Gold has now been declining since August 2011. That begs the question: “How did we get here and what do we do?”

A key driver of the significant rise in gold prices since 2000 has been the emerging-markets consumer. Between 2000 and 2010, consumers in emerging markets accounted for 79 percent of total demand. This expanded framework demonstrates that gold is also positively exposed to pro-cyclical factors in the emerging markets.

Over the past 13 years, the impact of emerging markets on gold prices was unequivocally positive: emerging markets drove gold prices higher. However, this has not always been the case through history and, we believe, will not always be the case going forward. Emerging markets can be both a positive and a negative driver.

The impact of the Asian financial crisis is instructive. As the economies in the region fell into recession, the purchasing power of consumers in Southeast Asia declined commensurately. Thailand, Indonesia and Korea all became net sellers of gold, albeit briefly. In line with the drop in demand and the drop in the regional stock markets, gold prices fell 25 percent.

Another big reason for such a sharp and drastic increase in gold’s price is the creation of ETFs. Roughly $150 billion flowed into the gold market via Gold ETFs. SPDR Gold Shares (ticker: GLD) allowed investors to own gold in their investment accounts as easy as buying stock. GLD went from a fledging new idea in 2004 to holding more than 1,000 tons of gold today. That’s more gold than the reserves of a large government, including Japan, Russia, China and Switzerland.

Next Page
Calendar
PBN Hosted
Events

Two Great Programs...One Great Event. PBN's Annual Celebration of Growth and Innovation is now underway. 2014 applications are now available. Deadline August 1st.
  • 40 Under Forty
    We're almost sold out. The 10th Anniversary of 40 Under Forty, and PBN is planni ...
  • Healthiest Employers
    See who the Healthiest Employers in RI are! And save the date - August 14th - at ...
Advertisement
Purchase Data
Book of Lists
Lists
Book of Lists cover
PBN's annual Book of Lists has been an essential resource for the local business community for almost 30 years. The Book of Lists features a wealth of company rankings from a variety of fields and industries, including banking, health care, real estate, law, hospitality, education, not-for-profits, technology and many more.
Data icons
Data can be purchased as single lists, in either Excel or PDF format; the entire database of the published book, in Excel format; or a printed copy of the Book of Lists.
  • Purchase an e-File of a single list
  •  
  • Purchase an e-File of the entire Book of Lists database
  •  
  • Purchase a printed copy of the Book of Lists
  •  
    National
    Local
    Latest News
    Advertisement