Tokai Fuji Brokerage
stated that perceptions in markets change rapidly, and cash frequently flows in the wrong direction. Today, with television commercials touting gold nonstop, a lot of people are getting all worked up about the rising price of the oldest form of money.
As the price of gold has set records, investors have flooded in to load up on bullion and coin.
Demand for physical gold is projected to rise to 52.3 million troy ounces, the highest in history; and sales of American Eagle gold coins have jumped 65% so far this year, according to the U.S. Mint.
Gold may be the "currency of fallback’’ reported Michael Blackburn of Tokai Fuji Brokerage, but premiums on gold coins have soared to levels never before seen. One-ounce coins are now trading far above their bullion value, as people continue to chase them, and mints worldwide are unable to keep up with demand.
People chase performance: Mutual-fund performance correlates with inflows of new money from investors, but which is the cause and which is the effect? Money always draws a crowd, and the top-performing mutual funds right now all focus on gold.
The highest concentration of gold holdings has always been central banks and the International Monetary Fund, but some of the biggest hoarders of gold today are the exchange-traded funds, which have bought bullion as they attracted waves of new investors. The SPDR Gold Shares (ticker: GLD), with $37 billion of the yellow metal, is now the world's sixth largest owner of gold.
Even gold bulls you may have seen on CNBC or Bloomberg will admit that there is a $200-$300 premium in gold because of ETF gold funds.
But gold is a special commodity. Virtually every ounce ever mined -- whether for use in jewellery or anything else -- is still around. It doesn't rust or decay, and we keep mining more each year. It's not like oil, which we use up.
Tokai Fuji Brokerage say that only 15% of gold is used as a monetary metal; the rest of it is used as a commercial metal, and that use, particularly as a corrosion-resistant electrical conductor for semiconductors, is declining. Regrettably, it is a soft, semi-useless metal with very few industrial applications.
Gold is just another fiat currency. The only reason gold is valuable is that we believe it is valuable. Ultimately, this gold bubble ends in tears. When and how far gold's price will decline is anyone's guess, but a smart bet as stated by a Tokai Fuji Brokerage senior analyst is "preferably sooner rather than delaying to later."