We have talked about the current volatile investment environment several times during the past twelve months. Countless financial advisors from whom I hear speak much of the fear which grips the average investor. In fact, one well known financial expert who travels nationally to speak at investment conferences indicated this week that very few investors are eager to follow-up on “actionable investment options”.
Few investments have been as volatile as gold. In 2011, it was on a downswing until July. At that point it zoomed up almost 28% by the beginning of September. Then it plummeted almost 19% between September and the beginning of this year. Through February 24th, gold had moved upwards by almost 12%.
Despite that volatility, demand for gold has dramatically increased in recent years – as much from overseas (residents in China and India are among the world’s biggest buyers; government central banks have also been significant buyers) as from the U.S. (and tellingly, a number of U.S. higher education endowment funds have increased allocations to gold). Symptomatic of this trend, the assets invested in the biggest gold ETF (GLD) have soared, as have inflows into other precious metals ETFs.
What is the result? The world is “running out of room” for gold because of this 21st Century “gold rush”. Bloomberg News reported last month that a number of existing gold vaults are expanding, and new ones are being started. The report indicated that investment demand is expected to rise by 60% during 2012, and gold holdings in ETFs are approaching a record 2,389.7 metric tons.
Here is a short list of just some of the new or expanding vaults:
1) New Malca-Amit Global vault at Beijing Airport;
2) Malca-Amit Global adding three new vaults to its two existing vaults at the Singapore FreePort facility;
3) A new facility in Bangkok;
4) A vault just opened this month at Heathrow Airport.
Why all this demand for gold? Each individual or institution has its own unique reasons for buying gold. However, one likely (and often overwhelming) motivation is that, in a world within which the supply of “paper currency” is expanding exponentially while the supply of gold (as always) remains relatively stable (production from gold mines cannot keep up with demand) the elementary law of supply and demand leads to the inevitable conclusion that, over time, gold will have a more stable and dependable value than Euros, Dollars, or most other currencies. Therefore, both individuals and institutions are feeling compelled to buy gold (and other precious metals) as a time tested “store of value” in an uncertain world. That is why the world needs an increasing number of secure vaults within which to store all the gold for which the world markets are clamoring!