What’s the story with Gold?

According to an April 2012 Gallup Poll, Americans believe gold is the best long-term investment. Overall, real estate, stocks, and savings accounts were near-followers. When Gallup broke the statistics down demographically, they found men prefer gold while women prefer real estate, independents prefer gold while Democrats and Republicans prefer stock, and wealthier people prefer real estate and stocks while middle and lower income Americans prefer gold.

Gold’s popularity is interesting because research suggests investors hold less than 20 percent of the world’s $9 trillion gold supply. Much of the world’s gold is held by central banks – the U.S. Federal Reserve, the European Central Bank, and others – and other financial institutions. One of the world’s largest holders of gold is the International Monetary Fund (IMF). The IMF is “an organisation of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” 

The IMF and central banks hold gold as foreign exchange currency reserves because gold is universally accepted and highly liquid, according to The Economic Times. The World Gold Council reports developed countries often hold a significant portion of their reserves in gold. The United States has 75.1 percent of its reserves in gold, Germany has 72.1 percent, Italy has 71.3 percent, France has 69.5 percent, and the Netherlands 58.7 percent. In addition, central banks in emerging countries hold gold reserves although their reserves are often smaller than those of developed countries. Early in 2013, 9.5 percent of Russia’s reserves were gold, 9.6 percent of India’s, and 1.6 percent of China’s. 

The UK stills has some 310.3 tonnes of Gold, the 17^th largest gold reserves in the world.  After Gordon Brown sold off 395 tonnes at a 20 year low to diversify into foreign currency – a poor discussion, costing the UK Billions – it just shows trying to time the market doesn’t work – he should have spoken to Lexington! 

Some experts believe high demand for gold from emerging countries combined with limited gold supply may push gold prices higher. Other experts have compared the recent highs of the gold market to the dotcom and housing bubbles. Who’s right? Only time will tell.