Sunday, March 25, 2012

Another Problem With Gold

I haven't been much of a believer in gold as an investment vehicle. And now, as Felix Salmon reports, there's more for gold bugs to worry about:

"You don’t need to be a conspiracy theorist to find this worrying: a 1kg gold bar, certified as 99.98% pure by XRF (X-ray fluorescence) tests, turns out to have been drilled out and largely replaced with tungsten. This bar was discovered only because it was 2 grams lighter than it ought to have been: the forgers failed to add quite enough gold to the outside of the bar to make up for the weight lost when they replaced gold with tungsten. But if they’d gotten the weight right, it would probably still be circulating today.

"...there’s clearly now serious tail risk for anybody in the physical-gold market. And like most tail risks, measuring and/or insuring against it is extremely difficult. Any store of value has problems, be it fiat currency or sovereign debt or bitcoins. This latest discovery just goes to show that the problems with gold aren’t just the obvious ones surrounding things like the risk that the price of gold might plunge. There are non-obvious ones, too, which have the potential to be even bigger."

See the whole post here ---