Reader feedback and online traffic statistics tell us that just about anything we publish on the subject of gold attracts plenty of interest. But why is this so? After all, you would imagine that everything that ever will be discussed on the subject has already been covered. It’s not as if its metallic properties have mysteriously altered, or that alchemists have finally worked how to transmute base metals. Nor are we likely to witness any sudden surge in global production volumes - these have edged up at an average rate of 2.3 per cent over the past 10 years despite renewed demand from central banks.
No, any discussion on the subject seems to generate a disproportionate level of interest simply because few asset classes polarise investor opinion quite like gold. There seems to be no halfway house on the subject; you’re either pro or anti, acolyte or apostate. Critics characterise it as a moribund asset class, devoid of earnings or income and with no implicit guarantee that it will appreciate in value. And yet, it’s clear that the yellow metal is now being utilised as part of hedging and arbitrage strategies on an unprecedented scale – with access no longer the preserve of institutional investors.
The reason for this is plain enough: the proliferation of gold-backed exchange traded funds (ETFs). The first contract of this kind - ETF Physical Gold (GOLD) - was launched in 2003 by ETF Securities, drawing in around $200m (£161m) in assets under management (AUM) by the end of that year. Less than 10 years later, in the aftermath of the global financial crisis, and with gold trading at $1,700 an ounce, worldwide AUM for gold-backed derivatives peaked at around $145bn.