Bearish Trustees Dig Deep for Gold


"Analysts agree: 'Trust is wearing thin.'"

Renewed inflation concerns, a weakening dollar and allegations of manipulation in the silver market are rendering many wealthy investors ultra-bearish and sending them hunting for physical gold rather than gold derivative investments.

Ned Naylor-Leyland, partner at Cheviot Asset Management, said a lack of trust in banks and the specter of counterparty risk was a problem. "I hear Swiss banks are turning out their vaults for clients wanting to take home their gold. Trust is wearing thin."

The suggestion of manipulation followed assertions that paper claims on gold far outweighed the physical asset. This year, Jeffrey Christian, managing director of commodities market researcher CPM Group, said a hundred times more gold and silver changes hands each year than is produced or used.

According to the World Gold Council, global demand for gold bars climbed by a third between the second quarter of 2009 and the same period this year, while demand for gold ETFs and similar products rocketed 414%.

Some investors are put off by the idea that gold ETFs can contain other financial products, such as swaps or derivatives, even if just a small percentage of their weighting.

Angus Murray, chief executive of London-based Castlestone Management, said: "Physical gold is simply metal without any other financial product or structure. My clients want to own an unleveraged real asset."

He added: "If the ETF doesn’t have the ability to list additional shares there can be a pricing issue. Why complicate it?"

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