Say Anything Blog

A sign of the times, I suppose, but I’m really not sure how smart this is.

Investors in gold are demanding “unprecedented” physical levels of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen.

Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich.

“There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career,” said Jeremy Charles, chairman of the LBMA. “The gold refineries cannot produce enough bars.”

The move comes as fears grow among investors over the losses at investment vehicles previously considered almost risk-free, such as money funds.

Philip Clewes-Garner, associate director of precious metals at HSBC, added that investors were not flying into gold simply because they saw it as a haven amid Wall Street’s woes. “It is a flight into gold because it is a physical asset,” he said.

“Vault staff are also doing overtime,” another banker at the LBMA meeting said, adding that investors in some countries were paying premiums of up to $25 an ounce above the London spot price to secure scarce gold bars.

In uncertain economic times people see gold as a safe investment for their money, and going strictly on conventional wisdom that makes sense.  But the price of gold has spiked over the last couple of years, leading me to wonder if right now is the right time to invest.

Investing 101 says that successful investors buy low and sell high.  Given that the price of gold has already more than doubled over the last two years, hasn’t the time to have invested in that particular commodity come and gone?

I remember when my father invested in silver during another bout of economic uncertainty (the savings and loan debacle, if I remember correctly).  He bought in to protect his money, but it turned out that he bought in at the peak and ultimately he ended up losing money.

If some of these gold investors aren’t careful, I could see the same thing happening to them.

Personally, if I had any available capital to invest, I’d be searching for bargains in the stock market right now.  The current crisis will pass, and we’ll get back on track, but in the mean time there are undoubtedly some bargains out there to pick up as some divest themselves of stocks to buy up things like gold.