Whenever investors get jittery, they search for a store of value. And generally, that means that they all flock to buy gold. In the flocking, the gold price rockets; and all the gold-mining companies float around with excess cash, investing in more projects and more mines.
As a South African, I rejoice.
But in general, I get confused. What, exactly, is the gold allure? And why do we flock to it?
I have been told that most of these gold-mining companies have large research departments that search for alternative uses for gold.
My question is: “Alternative to what?”
And the answer, roughly: “Well – decoration”.
Incidentally, many of those departments are at risk of being shut down, having almost nothing to show for their years of research.
So I did a Google search, and the answer does not seem to change. Everyone seems to agree though that the fundamental use is adornment. There are some other applications in dentistry, electronics and satellite technology. I read a dire warning about potential gold shortages since every cellphone contains about 50c worth of gold (forgive me – but unlikely in my lifetime). And I do get a little concerned when one of the important uses of gold mentioned is “in tooth-fillings”.
So are we saying that the very basic reason for gold being a good store of value is our need to self-decorate? Is it all based on a fad?? Because let me tell you – I’m part of the age group that is rapidly investing in rings. And there is not a girl amongst them that doesn’t do a little nose turn-up at, God-forbid, yellow gold. It all seems a bit flimsy to me.
And interestingly, the only other major “use” that gets bandied about is as a store of value: so it’s a store of value because it’s a store of value. Profound.
To sum up, it seems that gold is valuable because:
- People like to wear gold; and
- We all agree that it’s quite valuable.
Is anyone else concerned? Mr Buffett – any warnings to give?
Because, at the risk of sounding trite, I get highly sceptical when the thing that is so valuable in times of crisis is, in fact, a luxury good.
I reckon we should all be buying oil futures. THAT we need: I dare you to spend five minutes trying not to touch anything plastic. And how do we get plastic? From oil. Never mind the fact that everything has to be transported.
Oil is the new black gold.
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