FT.com / Global Economy - Gold at new record high after Saudi reserves double

Following on my earlier post from this morning: Several clients have asked me what I think about investing in gold.

My answer is usually lukewarm to negative. First, while some cite the historic role that gold has held in protecting wealth, I would suggest that this depends on the time frame.

True, gold prices today have surged to record highs, yet gold was also trading around $850 an ounce when I started in the business - in 1980. In other words, for the last 30 years the compound return of gold has been something less than 1%, far below the rate of inflation in most industrialized countries.

Second, gold does not pay any interest. While this seems obvious, a non-interest bearing investment does little to help buy groceries or pay the rent. Moreover, the last time I checked, there are very few institutions that accept gold as a means of payment. Gold is only worth what someone else will pay for it.

And, third, is the simple fact that analysis of the gold market is incredibly hard, if not impossible. And this morning's FT carries a story that is a perfect example of this.

Here's the key paragraph:

Gold prices hit on Monday a fresh record high of almost $1,265 a troy ounce following the revelation that Saudi Arabia, the world’s largest oil exporter, is sitting on more than twice as much gold as previously thought, according to new estimates.

And it goes on:

The WGC revelation about Riyadh’s gold holdings comes just a year after China surprised the bullion market when it revealed its gold holdings were more than 1,000 tonnes, almost double what it had reported for years.

In short, all the various agencies and analysts which track worldwide gold supplies had no idea what two of the largest buyers of gold were doing. If they can't follow the demand/supply trends properly, how can they analyze the investment merits of gold?

FT.com / Global Economy - Gold at new record high after Saudi reserves double