It has been dubbed the “Italian job style gold bar”. Remember the film staring Michael Caine, a cockney gangster who masterminds a plan to rob a hefty amount of gold bars in Italy. Well the super-rich are looking to protect their wealth like never before by snapping up record number of gold bars, according to bullion experts. Gold has always been the ultimate rat hole to crawl into when things look like they are about to go pear shaped. Put in a more delicate way, gold is like an insurance policy against the unexpected.
Apparently, the economic uncertainties have created a stampede amongst the well heeled for “Italian job style gold bars.” These aren't the wafer thin type of bars that could slip through your fingers. They are the heavy chunky type, each bar weighs 12.5 kg and is pure gold, worth approximately 300,000 pounds sterling each at today's prices of 1,226.80 USD (£760) an ounce. The number of 12.5kg gold bars being bought by wealthy customers has increased by a staggering 243 percent so far this year, when compared to the same period last year, said Rob Halliday-Stein founder of BullionByPost. All that wealth being stored in an insurance policy, bars of chunky gold. I guess these high rollers aren't buying the economic recovery story and are worried about what is going to happen next. "These gold bars are usually stored in the vaults of central banks and are the same ones you see in the film 'The Italian Job'," added David Cousins, bullion executive from London based ATS Bullion.
Just in the last three months to the end of August ATS Bullion has seen their volume of sales for 1 kg of gold, worth approximately 25,000 pounds sterling each double, compared to the same period last year, according to their sales figures.
Investors who buy the large bars often require secure storage in secret vaults operated by Brinks. While, only a few customers have actually taken physical delivery of the 12.5 kg bars, said the bullion executive. The small coins can also be sent in the post.
Political uncertainties over the Scottish referendum for independences from the United Kingdom has been the catalyst for a surge of investment in physical gold, up a massive 42 percent in the past two weeks on top of a seasonal rise in gold demand at this time of the year. That's according to Bullionvault.com, a peer to peer gold-and-silver-bullion exchange formed in 2005, based in London, United Kingdom and is the world's biggest online platform for private investors who want to trade physical gold and silver.
So Scotland-based investors have turned to gold as a means of insuring against the uncertainties posed by a Yes vote in Thursday's referendum.
But there are other good reasons why investors should hold gold.
As an asset class gold holds it value in an inflationary environment, this is known as an inflationary hedge. Goldman Sachs has shown that there is a strong relationship between gold prices and inflation. There has been a 91 percent correlation between the CPI (measure of inflation) and gold prices over the past decade. Annual returns of about 16 percent can be achieved with gold when inflation goes above 5 percent, which is more than what the stock-market offers in high inflation scenario.
As a stock-market crash protection gold is a good play. In the previous stock-market crash shares lost 30 percent of their value in one year, by comparison gold only lost one third of that amount. Moreover, gold bounced back quicker than shares in the first year.
In a low interest rate environment gold tend to perform well as an asset class.
So far this year gold prices have remain relatively stable, the price hasn't crashed as many analysts predicted as it had done in 2013. The World Gold Council reported a sharp fall in gold buying in 2013 from China and India in the second quarter of this year. Nevertheless, there has been strong buying from investors piling into gold ETFs and that has kept prices relatively stable.
With respect to the outlook for gold prices, there has been a slowdown in world commodity prices this year and last year. Goldman Sachs is putting a long term forecast on the gold price at 1200 USD per ounce. Gold is currently trading at 1,226.80 USD per ounce.
But what about that other forgotten precious metal, silver which is down 4.9 percent in 2014, touching a 14-month low of 18.2 USD an ounce and heading for the first two-year slump in more than two decades. Bloomberg reported, September 18, that “silver buyers are defying hedge fund exit amid price slump.” ETP holdings are up 1.5 percent since mid-July to 19,898.8 metric tons, nearing a record reached in October. Silver is more of a volatile asset class than gold. One possible reason for this is that the silver market is smaller than gold, therefore the likelihood of silver price “fixing,” is greater.
Nevertheless, retail investors have been piling into silver this year on a long term play basis. They are anticipating economic growth in the medium to long run to spur demand for silver. Silver is not only in demand by jewellery makers, the precious metal is also an excellent conductor of electricity. So it has a wide spread application from electronics to solar panels. At the moment, silver is currently the worse performing asset class, due to the strong dollar and the equity rally, which is eroding demand for safe haven assets. But the worse of the slump might be over for silver and analysts believe that it is likely to tread water average around 20 USD per ounce in the fourth quarter and 20.4 USD in 2015.
A deterioration in the geopolitical situation and the economy would most likely see a flurry of investors into silver and gold, but for the latter asset class at 1,226.80 USD that may have already been overplayed.
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