If the uber wealthy and their personal advisors think its a good idea to invest in precious metals but your stock broker says its a terrible idea. Who do you think will get it right? The billionaires or the guy who gets 50 basis points by having you invest your 401K in a mutual fund.
JPMorgan reopens New York gold vault as investors scramble for yellow metal
The reopening of the vault, which was closed in the 1990s, is also evidence that there's appetite from investors to actually buy the metal itself, rather than just gain exposure to gold through mining shares or other assets, the Financial Times reported.
"There is growing interest from ETFs (exchange traded funds) and other institutions as well as from corporates and high-net worth individuals to store precious metals," Peter Smith, head of JPMorgan's vaulting service, told the FT.
The gold price is already up 20pc this year and, with a 10th straight year of gains in sight, is on course for its longest rally since 1920.
The prospect of the US and the UK embarking on another round of quantitative easing is sparking fears among some that inflation will inevitably follow.
By Robert Frank
As I wrote in June, the rich have caught the gold bug again.
They caught the bug in 2008 and 2009, when the global financial crisis was in full swing and many doubted the viability of the banking system. Now they are piling in because of fears that the U.S. will experience a double-dip recession.
We aren’t talking about exchange-traded funds or funds. We are talking bars and coins stashed in safes in the mansion. According to a Reuters article, one wealthy UBS client recently bought more than ton of physical gold and had it shipped. At Friday’s closing price, a ton of gold cost a little more than $42 million.
UBS is even recommending that its richest clients hold 7% to 10% of their assets in precious metals such as gold, which last week vaulted over $1,300 an ounce.
Let us set aside the issue of whether this is good advice or not, or whether gold is a smart investment. The problem with the rich gold rush is what it does to the broader economy.
It has long been a tacit understanding in the U.S. that the wealthy will invest their excess cash in productive, job-creating businesses. For decades, most of the money invested by millionaires has gone into stocks and bonds–products that, whatever their pitfalls, helped fund Main Street by providing capital to companies and governments.
What does gold do? Nothing but sit in a safe. It doesn’t launch start-up companies, it doesn’t help towns build roads and it doesn’t create jobs (except those for safe companies and coin dealers).
The gold purchases may also have implications for the tax debate. Conservatives say the Bush tax cuts shouldn’t be allowed to expire because we need spending by the wealthy to create jobs–especially now. Liberals say the wealthy just hoard their money, so higher taxes won’t affect jobs.
If the wealthy are plowing their money into gold–the ultimate hoarding vehicle–are those tax cuts being well spent? (That assumes, of course, that the government would spend it better, which is a stretch).
We can’t blame the rich for being paranoid about the economy right now. A new survey out today from Phoenix Marketing Intl. shows that millionaire investors are now at their most pessimistic since April of 2009.
What’s more, the gold buyers may represent a minority of the wealthy.
Still, their gold fever could chill any economic recovery.
Do you think the rich should be buying gold?