Thanks to the recent stock market volatility, investors are increasingly turning to gold, which is traditionally a safe haven in troubled times. This article introduces Bullion Vault, a company that enables you to buy and securely store small amounts of the highest-grade gold, which the company claims offers unique advantages for small investors buying gold.
Why are investors buying gold?
Sales of gold via exchange traded instruments have soared recently, with funds that invest in gold mining shares such as Merrill Lynch’s Gold and General Investment Trust have produced returns of around 500% over the past five years.
In 1999 gold was trading at around $275 per ounce, which was when Gordon Brown, the UK’s then Chancellor of the Exchequer, decided to sell half the nation’s store, further depressing the price. Gold has since rallied very strongly. Having broken through the $900 per ounce mark in the past few months, it’s threatening to sail through $1,000 an ounce in 2008. (Thanks a bunch, Gordon!)
Fans of gold (so-called ‘gold bugs’) make the following case for investing in the yellow metal:
- As a real asset, gold is a hedge against inflation.
- Demand for physical gold is increasing, with new money from India and China said to be particularly keen on gold. (Indian farmers traditionally buy gold jewelry as a store of value.)
- Production difficulties are constraining supply. Power supply problems in South Africa are the current bugbear, but exhausted mines, political instability and environmental concerns perennially hamper production.
- Most gold in the world has probably already been mined.
- Even though gold has increased nearly four-fold in dollar terms since its lows in 1999, the previous high reached in 1980 would be around $2,000 today, adjusting for inflation.
- China and certain other central banks are now increasing their gold reserves.
- In a world of ‘paper’ or ‘fiat’ currencies, gold is the ultimate wealth preservation tool. The US can print all the paper money it wants, but it can’t conjure up gold.
There are also convincing arguments against gold
After five months of tough talk, roundabout action and general chicken-sans-headery, the Government has ‘decided’ to nationalise Northern Rock. (Yes, in the same way that I ‘decided’ to start losing my hair).
The authorities responsible for dealing with the Northern Rock’s collapse have been making poor precedent-setting decisions since day one of this pantomime. None are so significant as nationalisation, however.
As Robert Peston says on his BBC blog, nationalisation is supposed to be the preserve of the doomed industrial dinosaur industries of yesteryear, not our go-go financial services. It’d be scarcely more shocking if Wall Street’s bankers stopped illicitly smoking Cuban cigars and started getting behind Fidel Castro’s ideas on redistribution. Harry Enfield’s Loadsamoney of the 1980s is morphing into 2008’s Tonnesadebt before our very eyes.
Unsettling consequences for UK tax-payers of Northern Rock’s nationalisation:
- We’ve each got between £2,000 and £3,500* of exposure to Northern Rock’s mortgage book (depending on who you believe and how the final count is tallied)
- We’ve also got about £100 billion in assets (the same loans will keep churning out cash, provided mortgages don’t default)
- We’ve thus now all got a vested interest in the housing market not collapsing
Yes, even bears on UK housing like myself have now become mortgage lenders at the peak of the UK’s biggest ever housing bubble. Some days you wish you hadn’t gotten out of bed.
The actor from Lock, Stock (and Press Gang, for a certain generation) has given The Telegraph a cautionary tale on the reckless spending and debt-mania that saw him go bankrupt at 31:
Most of us get into investing because we want freedom, whether it be freedom from the office, from traffic jams or from the drudgery of a mortgage. We want to be free from having to work for a living.
Why then are money-motivated books called things like The Millionaire Next Door
What many of us are really looking for is a replacement for our salary. The number on your pay check is therefore the number you need to beat.
If your salary arrived in your bank account no matter what you did, wouldn’t you be free? You could quit work the next day, if you wanted – or you could get a more enjoyable or meaningful job, work for charity, or do a dozen other more fulfilling things instead.
This post explains why and how I focus my investing on growing my annual passive income stream to replace my income, rather than concentrating on my net worth.
Note: If you’re an American or European investor, please do keep reading. The principles of good money management are international! 🙂 Just mentally swap the £s for your currency and scale up or down as appropriate.
Why target income instead of capital?
New government statistics reveal home ownership in the UK is the lowest it’s been for a decade. In London there are an incredible 110,000 fewer home owners than in 2001 (not that surprising if you’ve seen London prices recently). Blame buy-to-let.
