Let's Get Physical!

Every few days or so I get a question from someone about purchasing physical gold. Randall Oliphant of Barrick Gold recently said in an interview that most new gold production goes into the jewellery market, predominantly in India, and talked about the gold business benefiting from a jeweler marketing campaign.

Walking down a typical Mumbai or New Delhi Street would you then expect to see women laden down with bangles?

Of course not, and this is where the fundamental error in understanding spawns silly misguided attempts by the World Gold Council and others to "promote" gold by using fashion models and such.

Indian jeweler is usually 24 carat gold and is not meant to be worn, except on very special occasions. On her wedding day a typical middle class bride wears nearly 32 ounces of gold. Family wealth is passed along maternal lines in the form of golden dowries.

Wedding guests also give gold coins as lucky wedding gifts. Gold is deeply embedded in the Indian culture. No need to advertise gold here, its appreciation is almost instinctive.

It's not so much for adornment as for investment. As the whole of India moves upscale, the demand for gold is increasing.

Contrast: In the "enlightened" West, if you were to ask most people on the street the price of gold you would probably be surprised that most think it is worth much more than it truly is. Try it yourself.

And, if you showed them a standard 400 oz bar all of them (bar none) would estimate its value higher than it really is. A few will say "a million dollars".

Gold is also deeply embedded in the western psyche, though perhaps as "repressed memory". But it lurks there in the back of our consciousness, which is why films like "The Treasure of Sierra Madre", "Gold finger", and "Kelly's Heroes" were such big hits.

That's why rubbish gold-fill jeweler in the mall sells - people have an inaccurate idea of its value, but they know gold is valuable. Not many people are even aware that they can purchase and own a gold coin or a gold brick.

Would a "Diamonds are Forever" De Beers-type ad campaign change this? Probably not. Ostentatious display is considered vulgar, and the idea of wearing thick heavy jeweler "on those special occasions" just won't fly.

Besides, the most popular jeweler in the USA is 10 carat (only 42% gold by weight) and that is unlikely to change.

To my mind a much more effective campaign would be to target the small investor. Unlike every other commodity, the demand for gold runs counter-cycle to the price, and actually increases when the price increases.

You will see misinformed media stories forecasting doom for the gold market "when gold gets too expensive for jeweler fabricators", but history has shown that any slack in demand is always taken up by investment.

When the gold price rockets, the media reports of the lengthening queues at the gold wicket in the bank will be the best advertisement.

This will happen, in time. For now, there's a major disconnect between the subconscious perception here in the West that "gold is valuable" and the belief that is front and centre in Eastern Europe and the whole of Asia - "gotta have some for a rainy day".

Private gold ownership in Latin America is shockingly low, though gold ownership in countries like Mexico and Peru which issued their own coins was once strong.

The lust for gold was the driving force that sent the conquistadores far and wide, but now what is left sits in museums and cathedrals, and what is produced is exported.

Promoting gold in Asia is like preaching to the converted. Publicly promoting gold in the USA will not be effective unless at the same time war is publicly declared on paper currency.

The mainstream media won't have the guts to do that - not in the short term anyway.

But, the World Gold Council could do no worse than to run a continuous series of ads in the major newspapers of Latin America, exhorting their wealthy citizens to forego that trip to Disneyworld this year and sock the money away in gold, just in case your government stops doing its job.

Could there be no better alternative for wealth-preservation? Especially when the US dollar is looking shaky? Could there possibly be a more potentially receptive audience? It seems that every few years one or other Latin American country has their currency devalued into oblivion.

With the recent changing-of-the-guard at the WGC, perhaps we'll see some aggressive marketing along these lines.

There has been a lot of buzz on the internet in recent weeks about gold confiscation. Could it happen again in America? I doubt it, though it might be tried. As one person wrote on a forum, "They'll have to confiscate my gun before they confiscate my gold".

If they tried to confiscate gold there would be a Black Market in the US the likes of which have not been seen since the days of the Bootleggers and Speakeasies during Prohibition.

Remember the unheeded calls to invest in the stock market in the immediate days after September 11th, in "the name of patriotism" ? The American government no longer occupies the moral high ground that it did in 1933. We've impeached Nixon and Clinton since then.I don't know if the following story is apocryphal or true. It comes from "Silver" by Thomas Patrick Mohide, pg. 282