Trader Talk

Gold Gains Ground with Wealthy Individuals

At the Institutional Investor Family Office Wealth Conference, Laguna Beach, California:

During a presentation by the World Gold Council at this meeting of wealthy private individuals and their representatives, it was asked how many in the room had either bought gold for the first time or increased their position in the last two years.

Eighty percent raised their hands.

Juan Carlos Artigas, head of investment research for the Council, smiled.

Two years ago, in 2009, many of the same people came to this same conference angry and bewildered. They had the finest investment advice and were well diversified, far beyond global stocks and bonds.

"Hell, I even owned timberland," one participant griped to me.

Diversification was no help in a global meltdown, when all assets — including timber — went down at once.

"We were told diversification provided protection, but all the correlations went to one," the same participant said.

Not all of them.

At the same 2009 meeting, George Milling Stanley, the legendary senior member of the World Gold Council and the intellectual godfather behind the SPDR Gold Trust, stormed into the meeting (which I moderated) and pointed out that gold was not correlating with the downward trends in other assets.

Attendees, most of whom had largely viewed gold up to then as a curiosity, sat up and took notice. The breakout session after the presentation was heavily attended.

The following year, in 2010, the World Gold Council again presented. This time the questions from participants were no longer if they should invest in gold, but what was the appropriate vehicle.

During the breakout session this year, the questions were sharper and more technical.

There was much discussion around the cause of the 4-year runup in gold from $500 to $1800. While growing demand from India and Chinawas clearly a factor (the two are now 50 percent of global demand) most agreed that the bulk of the gains were due to a contra play on global currency inflation.

There was also clear growing interest in direct physical ownership of gold, rather than through trusts backed by gold such as the GLD or IAU.

Indeed, there was considerable discussion of private vaulting services such as Gold Bullion International, one of several firms that have sprung up to serve clients interested in physical ownership. Most of those clients cannot get the attention of the bullion banks.

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