Making the case against gold « Mining Blog

Making the case against gold

29. July 2011,

I receive around half a dozen articles on gold every day, and ignore most of them. If there’s one thing more widespread these days than speculation IN gold – its speculation ABOUT the future of yellow metal.

However, an article received this morning seems to me an exception to the general guff. Penned by James Brumley, writing on Investorplace, it doesn’t say much new, but the pie and bar charts accompanying it tell a tale which is clear and immediately understandable. You can access it at:

James Brumley’s argument is simple: while gold is increasingly being promoted as an (alternative) currency, it has for the past six years functioned essentially as a commodity – being rampantly speculated upon and, as such, its price ripe for a “collapse”.

Refreshingly, Brumley launches his arguments by posing the vital question: “Have you ever really taken a close look at what we’re doing with all that new gold we dig up each year?” Then he proceeds to demolish the rationales for digging it up in the first place:

“If the financial industry and the like are offering more gold-based products because the demand for gold is growing, where is it growing besides the demand being created by that very same financial industry?

“Industry-usage growth has stagnated, and jewelry demand actually is well off peak levels. The only real growth in demand is coming from more and more consumers of gold bars, coins and ETFs * assuming there’s growing demand other than their own. And, the bulk of that increase is coming from one place — China.

“[Gold] can be great for a while (years, obviously). Eventually, however, it will turn into a vicious catch-22, especially if and when China changes its mind.”

* For a discussion of the nature and extent of ETFs – Exchange Traded Funds – go to:

The SPDR is the world’s second largest ETF and its Gold Fund is one of the largest single holders of physical gold in the world– it was the first ETF of all, set up in 1993. SPDR is the trade mark name of Standard and Poor’s Depositary Receipts and managed by State Street , one of the world’s largest institutional investment firms, based in the US. The key European member of the SPDR “family of funds” is Barclay’s Capital.

The largest holder of shares in SPDR Gold Trust, as of March this year, (with an investment worth US$4.4 billon) was John Paulson, the “supreme” hedge fund manager invested in mining (also the largest single shareholder in AngloGold Ashanti)

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