October 4, 2011
Still a bit bleary eyed from last night’s 12-hour flight from Johannesburg, I decided to walk off the jet lag this afternoon by taking a stroll down Queen’s Road in Hong Kong’s Central district.
If you’ve never been, the streets are lined with banks (and shopping malls), meaning there’s no shortage of places to buy gold. It’s commonplace in Hong Kong for banks to sell gold (same in Singapore, Austria, and many other countries), but what I continually notice here is that premiums over spot are among the lowest in the world.
Now, bear in mind that I just came from South Africa… perhaps the ‘goldest’ of the gold producing nations. I was hard pressed to find too many credible retail outlets in Johannesburg and Cape Town with Krugerrands selling gold for less than an 8% to 10% premium over spot.
Today in Hong Kong at the Bank of China main branch on Queen’s Road, I bought an ‘unsealed’ Maple Leaf (i.e. loose coin) for just 0.5% over spot; I also purchased a ‘sealed’ Maple Leaf (i.e. collector-ready) for an additional $60, or about 4.5% over spot.
Funny thing, it wasn’t even the best price in town. You can buy gold for as low as 0.2% over spot (practically a rounding error) in Hong Kong. Unfortunately, just about every bank was out of stock.
This is a special holiday week they call ‘Golden Week'; it’s one of those manufactured holidays that the government uses to encourage domestic consumption. Given the name, a lot of people traditionally scoop up gold bullion… they apparently think it’s lucky to buy gold during Golden Week. Go figure.
Needless to say, the banks start running out of stock and the premiums go up; if I had timed my visit a bit better, I could have gotten a better deal. Such is life.
Now, let’s be clear about something– I didn’t buy this gold as a speculation. I’m not constantly refreshing my screen so that I can run back down to the bank and make a quick profit. You don’t buy something that’s appreciated 10-years in a row and has increased 7-fold in the same period as a speculation.
If you want to speculate, buy ridiculously cheap assets that people hate. Buy things so that people will think you’re crazy for wasting your time… they’ll even get angry. Then let it sit for 5 to 10 years.
Gold isn’t really in that category anymore. Your friends and family probably won’t hold a group intervention session to stop you from buying a few ounces. Gold is not hated… by -most- people.
You know, on my flight to Hong Kong last night, I read an article in the FT entitled “Gold bugs beware– the bubble is finally bursting.” As you could imagine, the article goes on to say that gold’s $300 drop in the last month portends the end of a decade-long bull market in gold.
What a completely naive position. Amazingly enough, the author is a university professor who is responsible for shaping the minds of future business leaders. This fact alone is evidence that gold is not in a bubble.
Look, it’s extremely unlikely, almost impossible that gold could continue to go up year after year after year, as it has over the past decade. Nothing goes up (or down) in a straight line. But gold’s long-term strength is in its value as a currency alternative, not a speculation.
Gold remains one of the only true anti-currencies out there. The concept of a ‘print-at-will’ fiat currency is garbage… and in a way, the world owes a debt of gratitude to Ben Bernanke and the Eurozone for making this point abundantly clear to anyone who is paying attention.
As more people wake up to the unfolding disaster and watch their worthless paper currencies be reduced to British Thermal Units, the long-term prospects of gold make sense; for the foreseeable future, there are simply no liquid, internationally recognized, traditional, politically benign alternatives to paper.
So if you’re out there in the world, consider stopping by Hong Kong to pick up as much gold as you can; the premium savings alone may offset the cost of your trip. And, if you’re a creative, enterprising individual, consider coming to Hong Kong to buy gold for others (at a profit, of course). Start a trend– become the world’s first ‘gold mule’.