Ok, it is official there is a gold bubble. I am now convinced the closest I am going to get to the owning the metal is my wedding ring, and that is priceless (if that is not too cheesy).
Despite being very impressed the other week by the arguments from Doug Ellish at Craton Capital that gold’s price potential lies in a combination of increased central bank buying and a general nervousness in the markets, I have come across a real life example that makes me very nervous.
The bloke painting the outside of my house recently asked me what I thought about the price of gold.
It took me a bit by surprise to be honest as he stood there clutching a paint brush, with paint in his hair and on his hands.
So I did what you should always do when confronted by a man with a paint brush – do not let him back you into a corner!
“I’ve not been following the price the past few days,” I said, thinking that would give me a bit more time.
“It’s $1168,” he reeled off with as much ease as he would reel off his date of birth. “It’s down from $1200, I can’t work out why.”
“I hope you’re not expecting me to pay you in gold, I thought a cheque might do,” I joked.
That seemed to help, as he put the paint brush down, which meant my suit was not in immediate danger.
He explained he buys and sells gold sovereigns and, being a bit canny, he has been hoping to buy up some sets of sovereigns cheap with the drop in the price, but the coin dealers were still pricing them at $1200.
So I explained the dealers were sitting on a lot of stock which they would have bought at a price well over $1000 and would be riding out the short-term price drop.
I was fascinated where he had bought the sovereigns because he said he is aiming to get a complete set for every year that the sovereigns have been minted.
He then gave me a lesson about the gold quality in old coins, which is reduced over time with wear and tear.
“I’ve bought a lot off eBay, but you never quite know what you’re getting,” he explained, which frankly stands to reason and I found it hard to understand how someone makes an investment on the basis of what they read on the internet.
Now he is clearly not stupid, although I think some sense had gone out the window with some of his purchases, and he did admit some of the older coins he had bought were of dubious quality.
But he was clear: “You can’t go wrong with gold can you? Some of the coins are not great, but I’ve done all right with the price rise making up for some of the lack of quality.”
I do not know anything about coins as an investment, but the conversation reminded my very much of all those investors who thought residential property was a great investment three years ago.
Some people never learn.
Lawrence Gosling is the founding editor of Investment Week. His views are his own, any comments to him at lawrencegosling@sky.com
