I have friends that are self-declared gold bugs! They think gold is good as a short-term investment as well as a hedge against disaster! They might have a point. I am not able to tell! However, in any case, I think my friends, as well as many others, seem to miss a couple of things:
• Not all gold is created equal! If you buy coins or bars, then it is fairly easy. South African Krugerrands contain 1 oz of gold and even if it is not pure like in a Canadian Maple Leaf (the Krugerrand is only 22 karat) it is a well-known asset that is likely to be bought and sold by gold dealers all over the world. With jewellery it is worse! Most gold in Europe is 18 or 24 karat, I guess. However, in other places in the world, like in Asia, other levels of fineness is used. The gold in the picture, for instance, contains 96.5% gold, i.e. it is 23.16 karat (you can see that if you have good eyes…)! Have you ever heard of that fineness before?? OK, the point is this: we live in a global world and who knows where you will be located when the proverbial “disaster” strikes! If you are a gold bug and you are/live in Asia, then you need gold bought there and if you are in Europe, then you need gold bought there! At least if you do not want to lose too much in transaction costs.
• In case of a disaster, the government might ban gold ownership outright! From 1933 to 1974, gold ownership was forbidden in the bastion of liberalism, the US! It was made illegal by President F.D. Roosevelt when he signed an executive order (no. 6102) almost exactly 84 years ago. We have a new president in the US and with him we have all learnt the importance of presidential executive orders... This means that big professional gold investors, and here I am talking about investors in physical gold, are likely to store their gold in jurisdictions that honor the private ownership of gold. Personally, if I had large amounts of gold, I would have put most of my gold in a safe in a bank in Singapore. The large (gold-loving) Chinese and Indian populations in the city-state are probably a guarantee that gold ownership will continue to be legal even in disaster situations.
• Finally, of course, you have to diversify, even within your own little gold-universe! Even if you only invest in gold you should of course spread out your stash across jurisdictions, cities and bank vaults! You should also diversify by buying coins as well as bars and jewellery! And, as mentioned above, you should also diversify across fineness, country of issuance and item-size!