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Even the Australian Financial Review warns about paper gold

Section: Daily Dispatches

Why Gold Is Still the Pick of the Precious Metals

By Trevor Sykes
Australian Financial Review, Sydney
Monday, May 2, 2016

One of the strongest arguments against investing in gold was that the metal yielded no interest while you were holding it so it stands to reason that the environment of low interest rates should be friendly for investors in precious metals.

That argument, while valid, has lost significant merit, because investors don't get much of an interest rate holding government bonds or bank deposits. Indeed in several countries interest rates have gone negative, which means that investors are paying governments for the privilege of holding their bonds. ...

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The price is set every night in derivative trading on Comex in New York. The gold price is also nominally fixed in London. The London market is theoretically a physical market, but in practice it is really a derivative market with very few physical deliveries.

The big holders of gold are in China and other Asian countries. So the price is being set by derivative traders who hold little or no gold, while Asians are continually amassing the physical metal.

If, one day somewhere in the future, the physical holders decide to start setting the price, it will rise quite sharply. So it's not a bad strategy to buy gold whenever it dips. ...

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