Gold as Investment with Stephen King
When the artist Marc Quinn exhibited Siren, a life-sized sculpture of Kate Moss in 18-karat gold, at the British Museum in October 2008, the global economy was teetering on the brink of collapse. In the same month a $700 billion rescue plan for the American financial system was thrashed out in the House of Representatives. Certainly this made it an interesting moment for Quinn to unveil what is thought to be the largest cast-gold object ever made, weighing 50 kilograms and insured for $17 million. He remarked at the time that if events were to take a further turn for the worse – if, for instance, the economic situation was compounded by the outbreak of a large-scale war – his sculpture might well be thrown back into the pot and reduced to bullion in short order. Its intrinsic value as a chunk of metal would suddenly overtake its extrinsic value as a work of art and one kind of meltdown would lead to another.
Fortunately, that scenario remained hypothetical. Nobody turned Kate into bars, bricks or cold hard cash. Yet Quinn’s point is a good one and highlights several of the reasons for gold’s enduring appeal to investors. It is a highly portable, highly liquid asset that has historically held its value, particularly though not only at times of economic or political crisis. Currencies, equities, government-issued bonds and property are, by contrast, susceptible to mismanagement, with potentially catastrophic consequences for entire financial systems.
Most fund managers continue to recommend a diversified portfolio comprising several asset classes, typically stocks, cash, bonds, property and gold, the ultimate ‘safe haven’. The emergence of cryptocurrencies raises interesting questions. They may in time come to rival gold as a hedge against volatility, once their own volatility has settled down. Bitcoin and ether, the two biggest cryptocurrencies, presently have a combined market capitalisation of around $1.3 trillion, nearly ten times what it was a couple of years ago. But that is only around a tenth of the estimated $12 trillion held in gold.
In 2011 an economist named Joe Roseman wrote an article for Investment Weekly concerning ‘alternative asset classes’ that had consistently outperformed equities. It was widely discussed at the time and remains relevant today. He gave silver, wine, art and gold as his prime examples, and bundled them up together in the memorable acronym SWAG. He pointed out that all are relatively scarce, long-lasting, easy to move physical assets. Their performance is generally uncorrelated with that of equity markets. They generate no income stream and therefore no annual tax liability. Any profit from their sale counts not as income but as capital gains. And they are unaffected by grand-scale mishaps such as sovereign default.
Another part of the charm of the SWAG handle has to do with the hint of thoughtful pleasure, possibly even of connoisseurship, that it implies in terms of the relationship between investor and asset. This might be pure romantic projection, of course – the wine talking. Yet it is true that we are all increasingly attentive to the environmental, social and governance practices of the firms in whose products we invest. Owning a fully traceable, responsibly sourced asset that also happens to have a uniquely long and impressive track record – SMO gold would be a perfect example – clearly has a value beyond the merely sentimental.