Taking charge of your own finances

Retirement will be no fun without enough money to enjoy it. Unfortunately most of us are being kicked out of our company's defined benefit funds, can't rely too much on the government for help, don't understand the defined contribution funds we've been put into and are not saving enough anyway. To make matters worse we are being ripped off by a savings and retirement industry that is skimming of the top of our investment returns while giving us very little good advice or value.
This blog contains some of my thoughts on taking control of retirement and pension savings. It will look at ways of cutting costs by using cheap online stockbrokers and share dealing combined with cheap index funds and Exchange Traded Funds (ETFs) to build diversified portfolios. This is a work in progress so I welcome your thoughts.

Friday, January 15, 2010

Is Gold a Bubble set to Burst

For those who worry that gold investments are the latest bubble to burst comes some disturbing news from GFMS, a company that gathers data on the gold mining industry as well as on gold investment and consumption.
On the face of it, the outlook for those who are investing in gold this year is good.

Gold Price Forecast
The consultancy reckons that gold will again hit new record highs in 2019. It forecast in a report on January 13 that the price of gold would be $1,175 on average this year. That is quite a lot higher than it was last year at $972 an ounce on average. Its main reason for optimism is that investment demand for gold will probably be strong because of fears of a double dip recession, higher inflation and a weaker dollar. These reasons are often the traditional ones for owning bullion and played a big part in it rising to a record price last year.
Investment purchases of gold (much of it going into dedicated ETFs) doubled last year, according to GFMS, with demand rising to 1,820 tons. It was apparently the first time in three decades that investment demand for the precious metal was greater than the amount of bullion bought for jewellery.
This gives me some worries about the sustainability of the current gold price and think that there are worrying signs that it is becoming a bubble.

Weak demand
My worry, which I've written about in previous posts, is that the high price of gold is driving down demand for jewellery, which is traditionally its biggest use. The great thing about jewellery purchases is that they are sticky. You'd have to be really desperate to melt down your wedding ring, for instance. And if you can afford to keep grandma's rings for their sentimental value then you'll do that to. Although some gold jewellery gets recycled, a lot of it stays on fingers and wrists and dangled from pretty ears. That changes the higher the gold price gets. Not only is less of the metal bought, but more may find its way back onto the market.
Investment demand, on the other hand, is notoriously fickle. Especially when it goes into liquid instruments such as Gold Exchange Traded Funds (ETFs). All of those tons that went into investment flows last year can come back within in twinkling of an eye. So long-term investors in gold should really be looking closely at jewellery demand.

Even GFMS seems a little worried. In an article in the Financial Times, the FT quoted Philip Klapwijk, the executive chairman of GFMS, as saying that he thought the market would become "increasingly vulnerable" to a big correction. According to the news report he said that:
"As the macroeconomic environment gradually normalises, the gold market's dependence on investment will become all too apparent with a substantial price retreat at that point on the cards."
 If that doesn't sound like a bubble warning, I'm not sure what does.

Friday, January 8, 2010

Privacy policy

I have recently installed Google analytics to track traffic on this page. Although I don't get any personal information about you I do get information that is useful to running the site such as the search words used to find it and how people navigate through the site. None of this is tied to a particular person or IP address in the reports I receive from Google.
The following is what Google has to say about the information that they collect.
“This website uses Google Analytics, a web analytics service provided by Google, Inc. (“Google”).  Google Analytics uses “cookies”, which are text files placed on your computer, to help the website analyze how users use the site. The information generated by the cookie about your use of the website (including your IP address) will be transmitted to and stored by Google on servers in the United States. Google will use this information for the purpose of evaluating your use of the website, compiling reports on website activity for website operators and providing other services relating to website activity and internet usage.  Google may also transfer this information to third parties where required to do so by law, or where such third parties process the information on Google's behalf. Google will not associate your IP address with any other data held by Google.  You may refuse the use of cookies by selecting the appropriate settings on your browser, however please note that if you do this you may not be able to use the full functionality of this website.  By using this website, you consent to the processing of data about you by Google in the manner and for the purposes set out above.”