In times of global economic volatility and increasing market uncertainty, the only thing that most people seem to trust is gold.It’s regarded as precious partly because it is rare and difficult to produce.You have to refine 10 tons of rock to get one ounce of gold and all the gold ever found to date could fit into a cube less than 150 feet on a side. The pound sterling only came off the Gold Standard in 1931 so traders could no longer demand that they be paid in gold bullion. Then, as now, the coalition government tried to restore confidence by making cuts in government spending and raising taxes. When a mutiny over pay cuts started at Invergordon naval base, it looked as if Britain might be heading for revolution.
At this point, the new government “came off the Gold Standard”, announcing that the pound would not be fixed in value but would be allowed to float according to supply and demand.Gold has some uses in industry and of course in jewellery and luxury products, but beyond that (just like paper money) gold only has value because the market says it does. An increasingly attractive alternative to costly and potentially risky exposure to precious metals as an investment vehicle is the use of spread betting to gain leveraged positions instead.
The other appeal of financial spread betting is the fact that no commissions or taxes are levied in the UK on spread betting. Any profits are capital gains tax free (whatever the Lib-Con coalition decides to do about GCT). You can also take a view on movements in either direction, although it’s a brave man who expects the price of gold to drop in the current climate of uncertainty. But any short term bet, even on the price of gold, is risky because it’s difficult to forecast any market’s short term movement.When the markets are going down day after day, spread betting seems the best way of having a chance of enjoying a “golden recession”.
