Golden moments

[Dave Birch] The price of gold has been climbing steadily: it’s gone up a third in the last year, surely a sign that people are disenchanted with other asset classes in general and fiat currency in particular.

The fixation on gold has led to a bizarre development: the gold ATM. I remember noting this a while back, but since then yet another swathe of gold-dispensing ATMs have been announced, this time in Turkey.

Thus far, all 64 Kuveyt Turk ATMs installed in Istanbul have been upgraded to offer 1 and 1.5 gram ingots of gold bullion as well as banknotes. The bank has contracted with Wincor Nixdorf to retrofit the facility to its national network of 180 machines by year end… The mini gold bars are not dispensed through the banknote output chute, but via a special coin output module that is retrofitted to the ATM. The gold bullion is packed inside a transparent plastic coin roughly the same size as a two-euro coin.

[From Finextra: Turkish bank retrofits ATMs to dispense gold ingots]

There’s quite a few of these around. I remember Forum friend Chris Skinner talking about the one he’d come across in the Middle East.

Germany’s TG-Gold-Super-Markt installed a gold bar dispensing ATM in the lobby of Abu Dhabi’s five star Deluxe Emirates Palace hotel last year, and outlined plans to roll out 500 of the machines in Germany, Switzerland and Austria.

[From Finextra: Turkish bank retrofits ATMs to dispense gold ingots]

How these would fare in the UK I’m not sure – I suspect the ram-raiders and JCB-jackers would be out in force—but there probably are enough people. These are going to become if not commonplace at least not unusual in the US, too.

A German firm that installs and manages gold vending machines aims to introduce them into the United States this year… Thomas Geissler, creator of the Gold to Go brand and chief executive of Ex Oriente Lux, told Reuters on the sidelines of the London Bullion Market Association conference that the company aims to issue a “couple of hundred” machines next year.

[From ATMs That Sell Gold Bars Are Coming Soon to America – CNBC]

The early experiences there seem promising, from the point of view of the provider, and seem to indicate that, however bizarre it may seem, there are people out there who really do want to convert the cash to gold (as well as those who are forced to convert their cash to gold: see here, here and here, for example):

In the US, PMX Gold has set up a banking division with the aim of introducing gold dispensing ATMs nationide follow a pilot run at a shopping mall in Boca Raton, Florida, that saw $270,000.00 in gold sales dispensed through one machine in roughly two and one half months

[From Finextra: Turkish bank retrofits ATMs to dispense gold ingots]

Each time I see one of these stories, it leaves me flabbergasted (my favourite word this week). For example,

An ATM that spits out pure gold nuggets and coins has become such a hit among shoppers that one vendor has had to organise twice-a-week replenishment.

[From gulfnews : Proving its metal: Dubai ATM gives gold]

I absolutely do not understand this. Why would anyone want to buy precious metals? I mean actual physical precious metals? It’s not like you’re going to smelt them or use them to make sophisticated electronic components. By taking home the gold nuggets, the customers are taking home risk.

A man who decided to store his precious metals in a vault at his home in Chilliwack, Canada, was robbed of US$750,000 worth of silver bars in broad daylight… The 52-year-old victim is still traumatized after burglars intruded into his house where he had stored his life savings in silver bars. Based on the current silver price at the New York Comex, the silver was valued at about US$750,000.

[From Robbers get away with US$750,000 worth of silver bars]

Haven’t these people ever heard of GoldMoney [disclaimer: my employer Consult Hyperion has provided paid professional services to GoldMoney] or any of the other online services? Plenty of other people seem to: Goldmoney alone has $2 billion in gold under management at the moment. (As an aside: I just worked out that my Goldmoney account has earned me an APR of 23.3% in the four months since I opened the account *)

I just don’t get it. Why would anyone mess about with physical gold that you can drop, lose, have stolen etc. And I bet it’s hard to buy anything from Amazon with it. I’m more than happy for people to send me physical gold. In fact, you’re more than welcome to try the experiment! ). But generally speaking I’d prefer it sent to my Goldmoney account. Here’s my account number in case you want to try it:

62-05-95-N (David Birch)

But back to the Turkish gold ATM. This, it transpires, though, isn’t all about currency costs and economic efficiency but tradition.

The bank says it wants to become Turkey’s leading retailer of gold to consumers, where demand is driven by the local tradition of investing savings in gold and making gifts of gold on the birth of children and at weddings.

[From Finextra: Turkish bank retrofits ATMs to dispense gold ingots]

I still come back to my point: why would you invest savings, whether for yourself or for your children or grandchildren in physical gold? I just don’t see how this can make any sense in a crime-ridden backward-looking primitive economy on the edge of Europe.

GOLD coins and bars worth £200,000 were stolen during a daylight robbery of a Brook Green home.

[From Local News – Fulham Chronicle]

South west London aside, there are some developing economies where gold is not only the mechanism for deferred payment but also a store of value and even the means of exchange.

Gold is a big deal in Vietnam. The average Vietnamese spends more of each Dollar of income on gold than anyone else on Earth. Total gold buying amounted to 3.1% of GDP last year. (By comparison, private gold purchases amounted to 2.5% of India’s GDP, while China’s were a mere 0.4%.)

[From Gold, Gresham’s Law & the Dong – Buy Gold Online with the Bullion Vault – GoldSeek.com]

This is despite the US dollar being legal tender and gold imports being banned since 2008 (the gold is smuggled in) and a series of laws that are supposed to restrict its use inside the country. The measure of the success of these policies?

All told, an estimated 500 tonnes of gold – over $24 billion worth – is hoarded away, reckons Huynh Trung Khanh, deputy chairman of the Vietnam Gold Business Council. It’s hidden in mattresses and buried in the garden.

[From Gold, Gresham’s Law & the Dong – Buy Gold Online with the Bullion Vault – GoldSeek.com]

The reason why this story caught my eye, though, was because it links to a presentation that I gave at the Copenhagen Finance IT Region, part of the Danish Bankers Association, in May. I was taking about the co-evolution of money and technology and discussing how technology has shifted stores of value (eg, bank deposits) into mediums for exchange. In our pre-industrial economy, this was true of gold, so I was wondering out loud whether technological evolution in the post-industrial economy would take us back to those days or forward to some new kinds of currency.

But gold is not just a store of value in Vietnam. It is also used as a medium of exchange. Which is why, in the day-to-day sense, it also functions as money.In Vietnam you can put gold in a bank and earn interest. People quote house prices in gold, and pay for them with tael gold bars – each bar weighing approximately 1.2 troy ounces. This makes sense when you consider that Vietnam is a largely cash society. A single property can cost up to 4 billion Vietnamese Dong.

[From Gold, Gresham’s Law & the Dong – Buy Gold Online with the Bullion Vault – GoldSeek.com]

With the biggest banknote being the 500,000 Dong (about $20), you can see why people would rather use gold than 8,000 of these banknotes to buy a house! But could this happen in developed countries too? If people like Goldmoney manage to make gold sufficiently liquid and convenient at POS then would the consumers who go to gold ATMs go for electronic gold instead or is there something (potentially irrational) about the physical metal?

German community bank Fidor is partnering with physical bullion outfit GoldMoney to offer customers precious metals transactions though the FidorPay ewallet.

[From Finextra: Germany’s Fidor Bank to offer retail access to precious metals via GoldMoney]

And I note that in the UK, Standard Life now offer gold (again via Goldmoney) as part of their pensions portfolio. It’s suprising to think, but there are some people out there who, frankly, don’t trust the financial system at all and so want all of their pension holding in gold.

The wife of Tunisia’s ousted ruler has fled the country with 1.5 tonnes of gold worth more than £35m, it was revealed today.

[From Tunisian president’s wife Leila Trabelsi fled riots with £35m in gold bars | Mail Online]

What a wise pension decision! Since she used up her baggage allowance on the shiny stuff, her holding has gone up about £10m. She’s probably not very good on the interweb, or has trouble remembering passwords, but for the rest of us electronic gold is, I’m sure, a better proposition.

* Please note. This does not constitute investment advice and should not be seem a recommending any course of action. Anyone who invests in anything at all on the basis of anything that I say in a blog post is, frankly, an idiot and deserves whatever they get.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers