SPIEGELONLINE INTERNATIONAL: Concerns over the financial markets and the global economy are driving the price of gold to historic heights. But is all that glitters really worth investing in?
Deep beneath London's streets lies a treasure greater than anything that even the Bank of England possesses: Thousands of gold ingots, each weighing in at more than 12 kilograms (26 pounds). The ingots, neatly arranged on wooden pallets and stacked high to the ceiling, glow softly in the dim neon light of the vault. And every week a forklift adds new stacks of ingots to the existing inventory.
Financial services provider StreetTracks Gold Shares uses the heavily secured and guarded vaults to store unimaginable quantities of the precious metal for its customers. The vaults already contain more than 641 tons of gold, with a market value, at today's prices, of more than $18 billion (€12 billion).
Gold Shares is a publicly traded fund with a unique business model: Investors buy shares in the fund and, in return for a fee, the company turns their invested cash into real gold. It's a lucrative business for Gold Shares, because most banks stopped dealing in precious metals with private customers long ago.
These financial products are called exchange traded funds. The gold-based funds were introduced more than three years ago and have recently seen a massive influx of investor cash. In the third quarter of 2007, the demand for the funds skyrocketed by 617 percent over the same period in the previous year. It was a phenomenal increase, especially coming during those weeks in which investor confidence was shaken by signs of a looming US financial crisis.
Now that images of long lines in front of British bank branches have circled the globe and government-run German banks like SachsenLB have run into difficulties, investors have been thrown into an even deeper state of uncertainty. Amid growing fears that the US dollar will continue to lose value and that consumer prices, especially for energy, will keep on rising, pessimists are predicting a recession with potentially devastating consequences for the entire global economy.
Worried investors have fled to the relative safety of a form of payment that inspired confidence in the Egyptians as far back as 5,000 years ago, and that has since been seen as the embodiment of stabile prosperity and eternal wealth. Currencies come and go, but gold is eternal. Investors Seized by Gold Fever amid Economy Worries >>> By Alexander Jung
Mark Alexander (Paperback)
Mark Alexander (Hardback)
