Gold Returns to the Stage: Global Investors Flock to Buy, But Gold Miners Remain Cautious

Gold Returns to the Stage: Global Investors Flock to Buy, But Gold Miners Remain CautiousAsian jewelry and bullion buyers aren't the first to believe gold provides a haven for wealth. While it doesn't offer dividends and is heavy, owning gold provides comfort during times of war, crisis, inflation, and turmoil

Gold Returns to the Stage: Global Investors Flock to Buy, But Gold Miners Remain Cautious

Asian jewelry and bullion buyers aren't the first to believe gold provides a haven for wealth. While it doesn't offer dividends and is heavy, owning gold provides comfort during times of war, crisis, inflation, and turmoil. When bad things happen, gold performs, says John Reade, market strategist at the World Gold Council. As such, gold is no longer seen as unfashionable by many investors, its reemergence a disquieting reflection of the times.

On August 20, gold prices hit a record high of $2,531 per ounce, five times the inflation-adjusted price when the UK sold off part of its gold reserves over 20 years ago. This surge comes on the back of a global rush for gold, with investors of all stripes clamoring to buy, afraid of being left behind.

Central banks are back in the gold-buying business, especially those hoping to reduce their reliance on the dollar. Individual investors, hammered by real estate crises and economic uncertainty, are also buying. The worlds wealthiest are also buying more gold, and US hedge funds have followed the trend.

Yet, the excitement of this gold rush hasn't spread to mining companies. Unlike the California of 1848 or the South Africa of the 1880s, exploration and mining companies are struggling to attract investments. Trading gold and derivatives is easier than mining and refining more gold. We are still in a tough spot," says Nick Brody, CEO of Golconda Gold Corp., a small mining company listed in Canada.

Small operators like Golconda Gold face rising production costs, as Brody says, "Every dollar I make goes back into the mine. The gold ore needs to be shipped to Asia for refining, and even though higher prices will eventually lead to higher profits, it takes three years to reach full production. Gold mining is not a get-rich-quick scheme.

There is already a huge amount of gold out there: the New York Federal Reserve's vaults hold 507,000 gold bars, worth an estimated $510 billion at this week's prices. London's gold reserves at the Bank of England, among others, hold 8,650 tons more, worth about $690 billion. A vast amount of gold has been mined, then buried underground.

The gold guarded by the New York Fed isn't its own; during and after World War II, governments and investors from all over the world deposited their gold in the overseas safe haven they trusted. It remains heavily secured there; many feel no need to move it again. These gold reserves are becoming more valuable, reflecting deep investor anxieties.

Gold prices tend to surge during crises like the war in Ukraine, as investors flee risk assets. In response to Russia's invasion, the G7 froze Russian foreign reserves, but Russia's gold holdings are not as easily vulnerable.

Central banks have been increasing their gold purchases in the past two years, as countries like Russia, India, and Kazakhstan attempt to "de-dollarize." Central banks say another reason for their gold accumulation is concern about the long-term risk of rising inflation. This is not reassuring, given the central banks mandate to control inflation.

Gold investors have been sounding the alarm about currency devaluation and financial collapse. American author and investor Robert Kiyosaki wrote in April that "Everything is a bubble." He said, Save yourselves. Buy more real gold, silver, and bitcoin. For the worrywart, there is plenty to worry about this year.

Bitcoin has been rallying too, fueled by renewed faith in cryptocurrencies and skepticism about the dollar. But memories are short. After the 2008-2009 financial crisis, gold was favored as fears of inflationary pressures from loose monetary policy sent the price above $1,900 an ounce in 2011in real terms, higher than todaybefore falling again.

This week's excitement could also prove fleeting: inflation could continue to cool, and geopolitical pressures might ease. However, gold is cherished when the world is in deep trouble.