1. European
Business
School
2015
Alice-­‐Maxine
Warburg
1
The
Gold
Investment:
Why
Investing
in
Gold
in
particular?
What
could
be
the
next
Future
Investment?
Alice-­‐Maxine
Anita
Warburg
Tutor:
Alex
Antoniou
2014/2015

2. European
Business
School
2015
Alice-­‐Maxine
Warburg
2
Still,
I
would
like
to
express
my
feelings
and
memories
regarding
the
process
of
this
work.
My
goal
was
to
choose
something...
Old;
something
new;
Something
timeless
And
indestructible.
My
search
and
thoughts
always
ended
in
...GOLD.
So
it
was
GOLD....
After
weeks
of
investigation
and
brainstorming
I
ended
up
being
quite
scared
about
the
topic!!!!
Did
I
miss
-­‐
or
worse
-­‐
misunderstand
my
project?
Was
there
much
less
to
tell,
less
to
ask....
had
everything
already
been
written
-­‐
about
GOLD?
I
cannot
describe
my
weeks
of
doubt
and
-­‐
I
have
to
admit
-­‐
even
depression
-­‐
regarding
GOLD.
Although
I
planned
and
wanted
to
change
my
theme
many
times
-­‐
something
eternal
did
not
let
me
go
from
GOLD....
So
I
kept
on
searching.
I
hope
my
investigations,
interviews
and
personal
conclusions
and
my
final
attempt
to
make
it
interesting
-­‐
will
make
GOLD
as
important
as
it
has
been
for
thousand
of
years?
Irresistible
and
a
mystery

3. European
Business
School
2015
Alice-­‐Maxine
Warburg
3
AKNWOLEDGMENT
I
would
like
to
thank
all
those
who
have
supported
me
in
carrying
out
this
research,
which
in
occasions
has
been
more
challenging
than
thought.
I
would
like
to
pay
my
respects
to
my
supervisor
at
Regents
University
London,
Dr.
Alex
Antoniou.
He
has
supported
me
through
the
process
and
always
advised
me
wisely
about
my
work.
Furthermore,
I
wish
to
thank
all
the
professionals
who
gave
me
the
opportunity
to
interview
them.
It
has
been
a
great
honor
to
share
your
thoughts
and
opinions
in
this
dissertation.
Finally
I
would
like
to
acknowledge
my
family.
They
are
the
ones
who
have
always
strengthened
me
through
the
different
tasks
this
study
has
developed.
Without
their
patience
and
support
I
could
not
have
been
able
to
face
this
dissertation
so
straightforward.

4. European
Business
School
2015
Alice-­‐Maxine
Warburg
4
ABSTRACT
This
Dissertation
is
a
research
that
recollects
different
opinions
and
analysis
about
gold.
The
study
mainly
focuses
on
how
and
why
this
metal
has
maintained
its
value
through
centuries.
During
the
study
a
variety
of
views
for
and
against
the
investment
of
gold
have
arisen.
The
research
tries
to
answer
through
several
interviews
and
analysis
why
gold
has
a
strong
value
and
how
it
has
the
ability
to
last
overtime.
As
Gerald
Loeb
once
said:
"The
desire
for
gold
is
the
most
universal
and
deeply
rooted
commercial
instinct
of
the
human
race."
The
dissertation
pretends
to
search
for
a
clearer
understanding
of
why
there
exists
this
desire
for
gold
and
what
could
be
a
future
secure
investment.

5. European
Business
School
2015
Alice-­‐Maxine
Warburg
5
TABLE
OF
CONTENTS
I.
Introduction…………………………………………………………………………………………………..6
I.I.
Historic
Background
6
I.II.
The
Global
Gold
Market;
from
its
Start
6
I.III.
The
Global
Gold
Markets
Nowadays
7
I.IV.
The
Variety
of
Theories
about
Gold
7
I.V.
The
Aim
of
this
Dissertation
7
II.
Literature
Review....……………………………………………………………………………………..9
II.I.
Objectives
of
the
Literature
Review
9
II.II.
Different
Concepts
About
Gold
9
II.II.I.
Paper
Money
vs.
Gold
9
II.II.II.
Behavior
of
Gold
in
Different
Stages
9
II.III.
Is
Gold
a
Safe
Haven?
10
II.IV.
The
Autumn
Effect
Theory
10
II.V.
The
Demand
Factors
of
Gold
11
II.VI.
Pricing
&
Different
Opinions
about
Gold
12
II.VII.
Possible
Substitutes
&
Future
Investments
13
III
Methodology………………………………………………………………………………………………15
III.I.
Type
of
Data
Collection
15
III.I.I.
Secondary
Data
15
III.I.II.
Primary
Research:
Qualitative
&
Quantitative
Data
15
III.II.
Outcomes
of
the
Methods
used
15
III.III.
Interviews
16
III.III.I.
Benefits
of
Qualitative
Studies
16
III.III.II.
Interview
Outcomes
16
III.III.III.
Exploratory
Research
16
III.III.IV.
Interview
Planning
&
Outcomes
17
IV
Findings
&
Analysis……………………………………………………………………………………..19
IV.I.
The
Interviewees
Professional
Opinion
about
Gold
Investment
19
IV.II.
The
Central
Banks
influence
in
Gold
Prices
22
IV.III.
Gold,
a
long
lasting
investment
through
history
23
IV.IV.
Does
Gold
have
a
Future?
25
IV.V.
Future
investment
Boom
26
V.
Conclusion
&
Recommendation…………………………………………………………………...29
V.I.
Recommendation
29
V.II.
Conclusion
29
VI.
References………………………………………………………………………………………………….31
VII.
Appendix…………………………………………………………………………………………………..34
VII.I.
Appendix
1
34
VII.II.
Appendix
2
35
VII.III.
Appendix
3
36
VII.IV.
Appendix
4
36
VII.V.
Appendix
5
37

6. European
Business
School
2015
Alice-­‐Maxine
Warburg
6
I. INTRODUCTION
I.I.
Historic
Background
Since
the
prehistoric
age,
gold
has
been
one
of
the
most
significant
traded
commodities
in
history.
The
metal,
discovered
in
soils
and
stream
sands,
has
always
been
found
to
be
attractive
due
to
its
beauty,
versatility
and
indestructibility.
Dentists
have
used
gold
for
over
3,000
years
dating
back
to
2,500B.C.
Chinese
physicians
used
it
to
cure
a
plethora
of
different
diseases.
It
is
also
one
of
the
strongest
conductors
of
electricity
and
is
utilised
by
architects
worldwide
(US
Global
Investors,
2011).
Gold
became
a
prominent
asset
during
the
primitive
period
(300-­‐500
B.C.)
due
to
its
usage
by
the
Indus,
Egyptian
and
Sumerian
tribes
(Swiecki,
2011).
It
was
a
sign
of
wealth
and
social
position
when
it
started
to
be
a
currency.
This
has
remained
through
history
until
today.
The
purchase
of
gold
is
still
important,
and
considered
a
significant
financial
strategy.
Its
investment
has
again
increased
after
the
financial
crisis
in
2008.
This
is
because
it
is
often
considered
a
financial
safe
haven,
especially
when
there
is
an
economic
turmoil.
As
summarized
by
Hart
(2013),
gold
“is
the
sturdy
craft
that
will
withstand
the
gales
of
contemporary
financial
life.”
This
mentality
has
been
particularly
popular
in
East
Asia.
Findings
by
Talk
(2013)
indicate
that
following
the
crisis,
the
value
of
gold
bars
rose
to
such
an
extent
in
Hong
Kong,
Singapore
and
London,
that
they
were
being
sold
at
a
$5
to
$6
premium
over
London
prices.
I.II.
The
Global
Gold
Market;
from
its
Start
The
global
equity
and
fixed
income
markets
have
an
overall
value
of
about
90
trillion
US
Dollars.
Meanwhile,
different
institutions
and
private
investors
own
most
of
the
outstanding
supply
of
stocks
and
bonds.
The
price
of
stock
gold
in
2012
was
worth
9
trillion
US
Dollars;
only
20%
belonged
to
investors
(Harvey,
C.
&
Erb,
C.
2012).
Clearly,
there
is
still
a
large
amount
of
potential
investment
opportunity.
Gold
is
considered
a
form
of
insurance,
safer
than
paper
money.
This
is
because
money
in
its
essence
can
end
up
only
being
paper
if
reneged
upon
by
its
issuing
authority.
Gold
has
not
declined
in
value
over
the
past
few
centuries;
and
it
has
a
strong
impact
on
the
today’s
financial
markets.
Throughout
history,
gold
has
been
considered
as
a
special
store
of
value
and
has
symbolized
power
(Bullion
Vault.
2012).
The
first
trades
made
through
history
were
done
in
exchange
for
primary
necessities
such
as
food.
Generally
cattle
or
grains
made
up
the
majority
of
traded
products.
However,
animals
were
not
portable
and
did
not
convert
well
to
a
standardized
unit,
and
consequently
were
not
favorable
to
do
business
or
trade
with.
Therefore
it
was
imperative
that
an
alternative
was
found.
This
is
when
gold
coinage
came
into
being.
The
first
gold
coins
originated
from
an
ancient
Greek
city
called
Lydia.
The
usage
of
gold
as
a
form
of
currency
spread
rapidly
onto
other
regions.
Paper
money
came
much
later,
for
the
United
States
for
example
the
Congress
did
not
authorize
the
printing
of
paper
money
until
1861,
and
until
then,
business
was
still
done
with
coins
(The
Local,
2011).

7. European
Business
School
2015
Alice-­‐Maxine
Warburg
7
I.III.
The
Global
Gold
Markets
Nowadays
Nowadays
gold
is
normally
bought
by
investors
as
to
control
the
different
risks,
rather
than
used
for
barter
trade.
The
peaks
of
gold
trading
occur
when
we
experience
economic
weaknesses.
In
periods
of
financial
depression,
gold
has
shown
to
be
an
excellent
bulwark
against
inflation.
However,
gold
has
also
shown
to
be
a
very
volatile
commodity
(World
Gold
Council,
2011).
It
is
interesting
how
gold
has
always
remained
as
a
strong
or
secure
investment,
which
is
one
of
the
reasons
for
this
enquiry
into
why
gold
has
remained
such
a
popular
investment.
I.IV.
The
Variety
of
Theories
about
Gold
It
is
hardly
surprising
that
there
are
many
different
beliefs
about
the
future
of
gold.
These
disagreements
reflect
different
views
of
those
who
are
bullish
or
bearish
on
gold
investment.
Those
who
are
bullish
argue
that
gold
investments
can
help
provide
against
inflation,
serve
as
a
currency
hedge.
It
is
attractive
in
situations
where
alternatives
assets
have
low
returns,
it
can
be
a
safe
haven
in
critical
situations
and
inherently
“under
owned”
therefore
arguably
undervalued.
(Harvey
and
Erb,
2012).
I.V.
The
Aim
of
this
Dissertation
One
of
the
main
issues
raised
by
this
dissertation
pertains
to
why
gold
has
been
able
to
maintain
its
value
throughout
the
centuries.
There
have
been
many
opinions
for
and
against
the
investment
of
this
metal,
which
will
be
reflected
in
the
literature
review.
However
the
aim
of
this
paper
is
to
search
for
the
possibility
of
finding
alternative
secure
substitutes
of
gold
and
talk
about
its
future
through
different
thoughts
and
analysis.
-­‐ It
intends
to
evaluate
views
of
current
professionals
in
the
financial
sector,
independent
individuals
of
different
ages
and
backgrounds.
-­‐ These
views
will
be
analyzed
or
compared
to
the
past
opinions
of
professionals
mentioned
in
the
literature
Review.
-­‐ The
aim
of
this
is
to
try
and
investigate
how
confident
investors
are
on
future
gold
prospects.
This
will
help
to
determine
whether
gold
will
always
be
safe
haven
for
many
investors
or
is
there
a
risk
that
it
may
in
the
future
be
substituted
by
another
commodity
or
investment
type.
-­‐
It
is
argued
that
investments
are
often
influenced
by
herd
behavior;
therefore
confidence
plays
a
huge
role
in
future
valuations.
It
is
interesting
to
note
that
people
always
tend
to
hold
on
to
gold
in
depressions.
Therefore
it
often
displays
price
fluctuations
that
go
against
the
market
trend.
There
are
many
other
commodities
that
have
depreciated
in
market
value
over
time
due
to
changes
in
taste.
A
good
example
to
depict
this
is
the
case
of
cane
sugar.
A
few
centuries
ago,
sugar
was
very
expensive
and
it
was
traded
on
high
volumes.
Sugar
was
considered
a
luxury
product
for
many
individuals
in
Europe.
After
the
colonization
of
the
New

8. European
Business
School
2015
Alice-­‐Maxine
Warburg
8
World,
this
started
to
change.
Different
techniques,
technologies
and
transportation
methods,
made
it
easier
and
cheaper
to
transport
goods
from,
in
this
case,
South
America
or
Asia
to
the
rest
of
the
world
(Johnston,
M.
2010).
Therefore
this
resulted
in
a
rightward
shift
in
the
industry’s
supply
curve,
lowering
price,
and
simultaneously
increasing
quantity
demanded.
The
case
of
sugar
cane
would
imply
that
other
commodities
have
an
expiry
date
when
it
comes
to
their
phase
of
high
popularity.
This
begs
the
question,
does
gold
still
remain
as
a
secure
investment
and
does
it
have
a
future?

9. European
Business
School
2015
Alice-­‐Maxine
Warburg
9
II. LITERATURE
REVIEW
II.I.
Objectives
of
the
Literature
Review
The
aim
of
this
literature
review
is
to
collate
different
sources
and
evaluate
different
opinions
and
theories
regarding
the
topic
of
the
investment
of
gold
in
the
financial
markets.
This
section
of
the
dissertation
is
important
in
order
to
contrast
the
variety
of
opinions
and
existing
theories
about
gold.
It
is
interesting
to
see
how
different
successful
individuals
in
the
financials
area
may
have
opposite
ideas.
II.II.
Different
Concepts
About
Gold
II.II.I.
Paper
Money
vs.
Gold
Throughout
history
gold
has
survived
its
value
with,
its
inevitable
market
fluctuations.
Therefore
according
to
Matterhorn
Asset
Management
(2014),
which
is
a
company
that
manages
wealth
preservation,
gold
is
the
only
medium
of
exchange
with
no
attached
liability.
Meanwhile
money,
as
in
paper,
has
not
been
able
to
preserve
its
value
through
history.
The
aspect
of
gold
that
makes
it
such
a
secure
investment
is
that
although
an
institution
may
run
into
insolvency
if
it
holds
a
numeric
currency,
the
trader
holding
on
to
gold
still
maintains
its
value.
As
for
paper
money,
when
it
depreciates
in
value
due
to
negative
exogenous
shocks
to
the
economy,
such
as
inflation
you
can
lose
the
value
of
the
currency
very
quickly.
For
example,
if
one
looks
to
the
case
of
hyperinflation
in
Zimbabwe,
in
2008,
sky
rocketed
to
an
absurd
231
nominal
percent.
This
had
a
catastrophic
impact
on
savings
for
businesses
and
consumers
alike,
causing
widespread
destitution
and
poverty
(Berger,
2008).
As
the
French
philosopher
Voltaire
(1729)
once
said,
“Paper
money
eventually
returns
to
its
intrinsic
value-­‐ZERO”
(Johnston,
2012).
The
median
age
for
a
currency
is
37
years.
If
we
exclude
the
early
paper
currencies,
which
started
in
China
in
the
15th
century,
we
will
find
more
than
600
currencies
that
no
longer
circulate
in
the
market.
Over
150
of
these
currencies
were
destroyed
due
to
hyperinflation.
This
relates
to
the
famous
quote
above
from
Voltaire.
Many
of
the
non-­‐
existing
currencies
have
gone
back
to
their
intrinsic
value
of
paper;
zero
(Hewitt,
2008)
(Appendix
1,
World
Paper
Currencies).
II.II.II.
Behavior
of
Gold
in
Different
Stages
Returning
to
the
topic
of
gold,
the
metal
maintains
stability
even
when
going
through
inflationary
and
deflationary
periods.
Therefore
it
has
been
held
in
high
regard
during
financial
instabilities.
Gold
is
an
important
asset
in
inflationary
periods
and
its
demand
benefit
from
excessive
money
printing.
For
example,
if
we
take
a
closer
look
at
1920´s
where
due
to
a
high
depression
and
increase
of
inflation,
gold
went
from
one
hundred
Deutsche
Mark
to
one
hundred
trillion
Deutsche
Mark
per
ounce
(Matterhorn
Management,
2014).
In
the
article
“Understanding
Gold”
written
by
Paul
van
Eeden
(2000),
a
stockbroker
based
in
California,
he
justifies
that
gold
is
a
safe
asset.
He
concludes
that
gold
indeed
is

10. European
Business
School
2015
Alice-­‐Maxine
Warburg
10
the
best
“money”
we
could
have.
He
mentions
that
this
is
well
recorded
through
history
after
the
two
World
Wars
or
in
the
French
Revolution
in
1789.
The
members
of
the
population
who
had
part
of
their
savings
kept
in
gold
suffered
less
than
those
whose
wealth
was
declared
in
other
ways
such
as
paper
money
(Eeden,
2013).
II.III.
Is
Gold
a
Safe
Haven?
After
reading
several
articles,
different
opinions
arise
whether
gold
is
a
safe
haven
for
investment
or,
on
the
contrary,
seeing
it
as
just
as
a
form
of
hedging.
If
we
think
of
the
high
volatility
returns
in
the
market,
we
could
believe
it
is
a
rather
unsafe
haven
than
a
safe
one.
According
to
Baker
(2011),
gold
has
become
more
volatile
than
copper,
silver
and
oil,
even
though
this
is
only
a
recent
phenomenon.
In
Baur
&
McDermott’s
(2009)
report
it
states
that
gold
can
be
both
a
safe
haven
and
hedge
for
the
European
and
American
market.
Many
have
used
it
in
the
past
as
a
hedge
against
the
US
dollar.
However,
it
is
worth
noting
that
this
same
observation
cannot
be
applied
to
the
emerging
economies
(BRIC´s)
nor
Japan
and
Australia.
Gold
is
normally
seen
as
a
safe
haven
when
a
high
volatility
in
the
stock
markets
is
being
witnessed.
We
have
recently
observed
this
in
Europe
and
the
United
States
after
the
global
financial
crisis
of
2008,
resulted
in
gold
buyers
returning
to
acquiring
gold
as
insurance
due
to
the
negative
figures
in
the
stock
market.
However,
the
opinion
within
emerging
economies
or
countries,
such
as
Japan
for
example,
have
a
very
contrasting
view
on
the
matter
of
gold
being
a
safe
investment
in
financial
depressions.
Some
believe
that
gold
is
a
weak
safe
haven
as
their
indigenous
investors
who
have
bought
gold
are
experiencing
losses.
Therefore
they
tend
to
search
for
alternatives
safe
assets
in
precarious
situations
instead
of
holding
on
to
gold.
However,
according
to
Rudarankanchana
(2014)
following
a
recent
sales
tax
hike,
Japanese
gold
sales
have
risen
dramatically.
In
fact,
he
has
found
that
gold
sales
had
increased
five
fold
in
March
2014.
In
addition
to
Baur
and
McDermott
(2009),
the
authors
Virginie
Coudert
and
Hélène
Raymond
(2010)
agree
with
the
theory
in
their
report
on
gold
and
financial
assets.
They
put
forward
the
argument
that
when
the
correlation
in
stocks
does
not
deviate
far
from
zero
in
depressions
it
is
an
unstable
safe
haven.
II.IV.
The
Autumn
Effect
Theory
However,
in
an
interesting
paper
also
written
by
Dirk
Baur
(2012)
he
proposes
that
the
stability
of
gold
could
also
be
cyclical.
In
his
report
about
the
“Autumn
Effect
of
Gold”
he
describes
how
there
could
exist
different
annual
events,
which
introduce
seasonality
into
the
gold
prices.
To
explain
this
more
in
depth
he
goes
back
to
the
start
of
the
financial
crisis,
end
of
2007
and
beginning
of
2008.
The
demand
of
gold
grew
drastically
together
with
the
price,
reaching
its
peak
in
2011.
These
high
prices
of
gold
could
be
linked
to
the
possible
“fear”
to
trade
of
investors,
or
lack
of
investor
confidence,
resulting
in
them
resorting
to
investing
in
gold
(gold
being
the
safer
haven).
For
example,
the
news
of
a
weak
future
stock
market
or
economic
implementation
raised
alarm,
which
caused
the
spike
in
gold
prices.
This
may
also
include
a
higher
inflation
due
to
weak
central
bank
policies.

11. European
Business
School
2015
Alice-­‐Maxine
Warburg
11
However
if
investors
were
aware
that
a
lot
of
financial
disorders
through
history
mostly
occurred
in
the
months
of
September
and
October,
they
could
have
increased
their
purchase
in
gold
in
those
months
as
a
hedge
against
such
proceedings.
Baur
(2012)
also
mentions
that
seasonal
patterns
have
an
explanatory
effect
on
gold
prices.
Different
elements
within
seasons
can
cause
this
such
as
annual
cultural
events.
Consumers
purchase
gold
for
jewellery
in
seasons
such
as
Christmas
and
during
the
wedding
periods
(i.e.
summer),
causing
the
prices
to
rise.
In
2001,
years
before
the
financial
crisis
the
demand
of
gold
for
jewellery
was
of
3000
tons
meanwhile
the
demand
of
gold
for
investments
was
only
230
tons.
This
drastically
changed
in
2008,
where
the
investment
for
jewellery
was
2300
tons
compared
to
the
investments
for
gold;
1200
tons
(Appendix
2,
“The
Autumn
Effect
of
Gold”).
With
these
examples,
Baur
(2012)
states
that
we
can
observe
a
clear
seasonality
in
gold
and
therefore
we
can
also
conclude
that
it
is
a
safe
haven
(Baur,
2012).
Baur
(2012)
evaluated
that
gold
might
have
a
seasonal
effect
and
therefore
have
market
fluctuations
as
a
consequence.
The
relevant
question
to
ask
is
how
high
or
low
might
these
prices
go?
Many
specialists
have
asked
themselves
whether
there
is
a
limit
prices
to
gold
and
if
the
metal
is
overpriced,
or
whether
its
price
fluctuations
are
likely
to
stay
within
a
certain
margin.
Lingjie
Ma
and
George
Patterson
(2010)
state
in
their
article
“Is
Gold
Overpriced?”
how
gold
used
to
be
held
as
a
store
of
value
whereas
nowadays
thousands
of
tons
are
held
in
the
Central
Banks
reserves
all
over
the
world
or
used
as
jewellery.
Several
matters
such
as,
inflation,
unemployment,
market
performance
or
economic
growth
can
influence
the
price
of
gold.
Gold,
as
other
goods
and
services,
is
driven
through
the
supply
and
demand
factors
of
the
market.
According
to
the
World
Gold
Council,
about
57%
of
gold
is
used
for
jewellery,
31%
for
investments
and
only
12%
is
used
for
industrial
matters.
It
is
interesting
to
point
out
that
one
of
the
biggest
demands
of
gold
for
jewellery
due
to
cultural
or
religious
matters
is
found
in
India
(example
of
India,
Appendix
3).
In
the
last
years
the
investment
demand
of
gold
has
increased
dramatically,
with
the
strongest
growth
dating
back
to
2003.
The
writers
also
reinforce
the
argument
that
the
value
of
gold
has
maintained
such
a
high
but
stable
level
due
to
investors’
demand
during
these
periods
of
crisis.
II.V.
The
Demand
Factors
of
Gold
Another
positive
aspect
derived
from
this
precious
metal,
is
that
once
it
is
mined
it
remains
in
its
usual
form,
jewelry
or
bullion.
Gold
can
be
reused
and
it
does
not
loose
its
value
for
being
second
hand,
as
some
other
commodities
may.
Due
to
the
scarcity
of
gold,
the
increasing
demand
outpacing
supply
also
pushes
up
its
prices.
However
the
demand
of
this
product
is
also
influenced
by
many
other
factors:
macroeconomic,
financial
market,
monetary
system
and
oil
price,
which
are
interrelated.
It
is
only
in
the
last
century
or
so
that
a
correlation
between
gold
and
oil
prices
have
been
witnessed.
When
the
pricing
of
oil
spike,
incurring
higher
costs
on
gold
mining,
a
leftward
shift
on
the
supply
curve
is
caused.
It
is
also
worth
noting
that
gold
is
one
of
the
commodities,
which
is
relatively
more
closely
linked
or
affected
by
historical
matters
such
as
monetary
policies
or
economic
wealth
(The
Journal
of
Investment,
2013).

12. European
Business
School
2015
Alice-­‐Maxine
Warburg
12
Nevertheless,
Mark
O´Byrne
(2009)
talks
about
how
difficult
it
is
to
predict
the
future
of
gold.
If
we
would
ask
some
of
the
most
acknowledged
finance
experts
about
the
outlook
of
gold,
they
would
probably
all
have
a
different
answer
to
this
question.
We
can
only
predict
the
future
pricing
of
this
product
through
speculation
and
fundamental
or
technical
analysis,
all
of
which
may
come
to
different
conclusions
depending
on
data
and
the
analytical
framework
used.
One
inherent
problem
in
gold
investment
is
that
there
is
no
standardized
method
that
can
be
used
to
predict
its
future
price
direction.
However,
the
same
flaw
can
be
argued
to
be
inherent
in
most
other
commodities.
As
Baron
von
Rothschild,
the
creator
of
the
financial
dynasties
of
modern
times
once
said,
"He
only
knows
of
two
men
who
really
understand
the
true
value
of
gold
-­‐
an
obscure
clerk
in
the
basement
vault
of
the
Banque
de
Paris,
and
one
of
the
directors
of
the
Bank
of
England.
Unfortunately,
they
disagree!"
(Core
Gold,
2009)
If
we
discuss
the
shiny
metal
in
terms
of
gold
mining,
different
perspectives
arise.
Although
the
amount
of
gold
is
limited
in
the
market,
there
is
still
a
lot
to
mine.
According
to
the
Gold
Council
(2015),
“at
the
end
of
2013,
there
were
177,200
tonnes
of
stock
in
existence
above
ground.
If
every
single
ounce
of
this
gold
were
placed
next
to
each
other,
the
resulting
cube
would
only
be
21
metres
in
any
direction”.
However
if
the
owners
of
the
gold
mines
would
dig
out
as
much
as
possible,
the
prices
would
fall.
Mining
this
metal
is
very
expensive.
So
if
the
gold
prices
rising
is
correlated
to
lower
interest
rates,
the
mining
companies
see
it
to
be
in
their
best
interests
to
leave
the
gold
in
the
ground
instead
of
mining
it.
Leaving
it
makes
its
value
grow,
pushing
the
prices
due
to
gold
shortages.
We
can
see
a
similar
situation
with
OPEC
(Organization
of
the
Petroleum
Exporting
Countries),
which
restricts
the
amount
of
oil
some
country
produce
in
order
to
maintain
high
prices.
In
other
words
it
is
fictitious
to
describe
a
shortage
of
these
products.
However
this
notion,
or
more
like
assumption,
is
what
has
incurred
such
a
high
price
and
demand
for
the
metal
(Trends
Magazine,
2010).
However,
the
UBS
investment
research
(2009)
proposes
another
contrasting
view.
It
argues
that
mining
production
declined
between
2001
and
2008
and
mine
stock
dropped
by
8.7%.
The
main
hindrance
to
the
industry
was
the
maturity
of
many
of
the
gold
mines,
especially
those
in
South
Africa
and
the
other
big
gold
manufacturers
such
as
United
States,
Australia
and
Canada.
In
these
countries,
too
few
new
mines
or
production
expansions
were
commissioned
to
offset
closing
mines
or
production
cutbacks
due
to
metal
reserve
depletion
(Appendix
4,
Gold
Supply
and
Demand
Model)
(UBS
Research
Investment
Team,
2009).
II.VI.
Pricing
&
Different
Opinions
about
Gold
The
Central
Bank
also
has
one
of
the
key
influential
roles
on
gold
prices.
Each
country’s
Central
Bank
acts
differently
towards
its
gold
reserves.
For
example
China,
a
country
that
has
recently
started
to
buy
gold
on
an
open
international
market,
will
strongly
influence
the
gold
price
once
it
increases
its
demand.
It
has
yet
to
buy
in
a
greater
amount
on
an
open
international
market,
but
if
and
when
it
does,
it
will
affect
the
global
demand
and
therefore
price
dramatically
(Trends
Magazine,
2010).
Following
the
global
financial
crisis,
Central
Banks
are
still
suffering
and
therefore
many
have
required
the
safety
and
diversification
of
gold.
These
purchases
have
mainly
been
from
independent
or
wealthier
countries,
or
those
most
affected
by
the
crisis.
During

13. European
Business
School
2015
Alice-­‐Maxine
Warburg
13
last
year
it
was
clearly
appreciated
that
the
Central
Banks
were
not
planning
in
selling
the
gold
reserves
that
they
have
accumulated,
a
trend
which
will
probably
continue
according
the
World
Gold
Council
paper
of
Gold
Demand
Trends
(2014)
(Street
et
al.,
2014)
According
to
Warren
Buffet
(2011)
who
is
one
of
the
most
prominent
and
admired
investors
believes
that
gold
is
a
“lazy
asset”.
He
mentions
that
this
metal
is
a
commodity,
which
in
other
words
is
unserviceable,
as
it
does
not
lead
to
any
useful
purpose.
He
therefore
also
calls
it
an
“unproductive
asset”,
as
according
to
his
opinion
you
will
never
produce
anything
out
of
gold
apart
of
waiting
for
someone
else
to
come
along
with
more
money
to
buy
it
off,
“it
will
remain
lifeless
forever
-­‐-­‐but
with
the
belief
that
others
will
desire
it
even
more
avidly
in
the
future”
he
said.
His
apprehension
with
gold
therefore
stems
from
the
opinion
that
apart
from
decoration
it
has
no
other
value,
because
you
cannot
use
it.
He
says
that
its
value
increases
and
decreases
just
depending
on
how
much
an
individual
is
going
to
pay
for
it
and
not
because
of
the
use
it
will
have.
The
demand
does
not
grow
due
to
necessity.
He
believes
that
productivity
is
growth
and
not
gold.
Therefore
this
argument
would
indicate
that
gold
is
overvalued,
since
it
has
very
little
intrinsic
value
(Matt
DiLallo,
2014).
On
the
other
hand,
one
of
the
worlds
most
recognized
businessmen
George
Soros
(2013)
increased
his
stake
in
SPDR
Gold
Trust
Shares
by
49%
in
2012.
According
to
Soros,
gold
is
a
great
asset
to
be
bullish
on
in
order
to
minimize
one’s
personal
losses
from
the
crisis.
In
his
speech
about
the
last
“bubble”
he
mentions
that
metal
is
an
appealing
investment,
as
money
has
lost
its
value.
The
business
investor
said
that
when
he
sees
a
bubble
“I
rush
out
an
buy
it”
(Rapid
Trends,
2013).
II.VII.
Possible
Substitutes
&
Future
Investments
One
of
the
aims
of
the
dissertation
is
to
consider
and
research
whether
gold
will
have
a
future
or
if
it
will
disappear
or
be
substituted
by
other
commodities
over
a
period
of
time.
The
different
opinions
in
this
section
will
be
analyzed
together
with
the
gathered
findings
and
analysis,
which
will
evaluate
where
gold
might
be
heading
and
what
the
current
opinion
of
professionals
in
the
financial
business
is.
Therefore
other
future
possible
substitute
investments
are
analysed
and
considered.
A
comparable
example
is
depicted
through
the
work
of
CNBC
journalist,
Don
Mangan
(2014).
He
has
analysed
the
potential
termination
of
Health-­‐Care
IT.
He
believes
it
is
a
potential
market
opportunity
since
the
Obamacare
and
others
have
inherent
health
inefficiencies.
As
stated
by
Steve
Kraus,
a
health-­‐care
activity
investor,
he
is
certain
that
Obamacare
is
the
perfect
road
for
investors.
Health-­‐care
IT
has
increased
over
the
last
couple
of
years,
leading
to
a
significant
improvement
in
the
US
health-­‐care
system
(Mangan,
2014).
He
sees
this
improvement
to
continue
on
a
positive
trajectory.
Others,
by
contrast,
are
looking
into
the
renewable
energy
sector,
which
has
been
expanding
over
the
last
decade
or
so,
with
the
exception
of
a
slight
short
period
during
the
crisis.
However,
for
investors
this
is
a
risky
path.
Many
stakeholders
are
tired
of
including
renewable
energy
in
their
portfolio
since
it
is
subject
to
so
many
changing
conditions,
such
as
global,
national
and
local
tariffs,
laws
and
energy
subsidies
varying.

14. European
Business
School
2015
Alice-­‐Maxine
Warburg
14
According
to
Vivian
Nicoli
(2014)
director
at
Eiser,
investors
are
still
very
uncomfortable
with
renewable
energy
as
an
investment
strategy,
as
they
feel
it
does
not
have
the
stability
for
them
to
invest
in
it
for
the
long
term.
The
government’s
agreements
in
terms
of
electricity
produced
by
renewables
change
too
frequently,
and
are
often
subject
to
political
expediency.
It
is
worth
considering
that
renewable
energies
may
develop
into
a
perceived
safer
investment
when
there
are
more
constraints
on
non-­‐
renewable
resources
such
as
oil,
natural
gas
and
coal.
It
is
an
investment
that
could
develop
popularity
in
the
long
term
even
though
it
may
not
in
the
short
term.
(Scott,
2014)
Furthermore,
Tom
Randall
(2014)
from
Bloomberg
has
an
opposing
view
on
renewable
energy
sources.
In
his
article
he
indeed
agrees
about
the
future
of
renewable
energy
as
a
potential
investment
strategy.
However
he
is
optimistic
about
technological
advances
that
will
occur
in
the
industry,
for
example
he
believes
that
the
future
of
solar
panels
will
evolve
sooner
than
planned.
After
several
years
of
legislative,
technological
and
political
battles
solar
electricity
will
be
able
to
compete
with
the
average
electricity
bill
in
the
United
States
(as
cheap
as,
or
even
cheaper).
It
is
planned
to
be
effective
for
2016
according
to
a
report
published
by
the
Deutsche
Bank
(2014).
The
international
Energy
Agency
estimates
that
by
2050
solar
energy
might
be
the
strongest
electricity
source.
This
is
based
on
the
assumption
that
gas
and
oil
prices
are
likely
to
rise
above
solar
energy
prices
by
this
point
(Randall,
2014).
Further
studies
have
also
made
reference
to
the
future
of
Africa.
Many
investors
are
seeing
opportunities
in
this
resource
rich
continent.
Anthony
Thonstrom
(2014),
Chief
Operating
Officer
at
KPMG
in
Africa,
sees
how
already
many
MNE´s
are
investing
in
the
continent.
It
is
a
country
with
many
opportunities
especially
with
regards
to
infrastructure
and/or
institutions
(Thonstrom,
2014).
All
in
all,
there
seem
to
be
a
wide
variety
of
differing
opinions
based
on
the
merits
of
investing
in
gold
from
the
last
years
or
decades.
Some
individuals
are
positive
about
the
investment
of
gold
meanwhile
others
consider
it
a
useless
investment.
This
begs
the
question,
how
has
it
been
able
to
last
as
an
investment
through
history
for
more
than
2000
years?
What
could
be
the
future
boom
for
investors?
Could
oil
be
a
comparable
asset
to
gold?
There
are
many
questions
to
answer
with
many
different
responses,
all
of
which
come
from
justifications
with
merit
in
the
findings.

15. European
Business
School
2015
Alice-­‐Maxine
Warburg
15
III.
METHODOLOGY
Once
established
the
different
theoretical
aims
of
this
topic,
it
is
necessary
to
identify
and
evaluate
what
type
of
methodology
will
be
taken
into
consideration
in
order
to
support
the
different
arguments
reflected
in
this
dissertation.
III.I.
Type
of
Data
Collection
III.I.I.
Secondary
Data
To
deepen
the
studies
of
this
topic
the
use
of
different
types
of
data
collection
were
undertaken.
The
secondary
data
sources,
seen
in
the
literature
review,
are
mainly
reviewed
through
Internet
searches,
different
databases
or
academic
summaries,
written
by
respected
professionals.
There
is
also
a
variety
of
newspaper
articles
used
in
order
to
highlight
real
life
examples.
III.I.II.
Primary
Research:
Qualitative
&
Quantitative
Data
The
methodology
chosen
in
order
to
develop
the
report
is
a
qualitative
method.
Within
our
method
we
will
also
incorporate
certain
quantitative
aspects
and
outcomes
in
order
to
reach
a
stronger
conclusion.
The
qualitative
data
involves
a
specific
way
of
conducting
and
receiving
the
research.
It
is
the
researcher’s
duty
to
build
the
ideal
database
to
collect,
analyze
and
then
evaluate
the
findings.
While
some
quantitative
figures
might
appear,
at
the
cause
of
gold
investment
having
quantitative
associations,
the
aim
is
to
search
for
the
current
opinions
of
gold
and
where
this
investment
is
heading.
Therefore,
we
are
searching
for
normative
judgments.
There
is
a
reason
to
believe
that
confidence
and
sentiments
play
a
huge
role
in
investment.
Consequently
our
conclusions
will
mainly
refer
to
the
qualitative
data
we
have
configured
(Amaechi,
2009).
III.II.
Outcomes
of
the
Methods
used
In
the
past,
there
has
been
extensive
research
on
the
different
theories
of
gold
investments
and
why
or
how
it
has
kept
its
value
through
history.
The
approach
of
this
paper
is
to
know
what
professionals
from
different
countries
currently
think
of
gold
as
an
investment
and
what
their
opinion
is
about
the
future
of
this
commodity.
This
may
beyond
theory,
as
the
concepts
seem
conflicted
and
inconclusive.
Therefore
in
this
way,
it
seems
more
appropriate
to
take
a
practical
approach.
It
is
interesting
how
these
opinions
may
vary
when
investing
for
personal
matters
or
professional
investments
(for
a
company
or
clients).
The
different
cultural
backgrounds
or
economical
situations
of
different
countries
may
also
lead
to
discrepancies
in
the
responses
(Statman,
2008).

16. European
Business
School
2015
Alice-­‐Maxine
Warburg
16
III.III.
Interviews
In
order
to
reach
these
objectives
it
is
important
to
acquire
knowledge
based
on
research
from
primary
sources.
This
would
then
give
an
unbiased
and
comprehensive
range
of
data
to
work
from.
The
interviews
will
be
conducted
with
different
people
currently
working
in
the
financial
sector.
All
these
investors
related
to
gold
in
general,
(privately
investing
or
professionally
investing)
may
bring
different
points
of
view,
as
a
professional
invests
for
a
living
meanwhile
a
private
investor
who
might
be
retired
could
invest
for
capital
growth
or
secure
his
funds.
III.III.I.
Benefits
of
Qualitative
Studies
The
advantage
of
a
qualitative
research
method
is
that
it
gives
the
flexibility
to
probe
different
initial
responses,
like
asking
“why”
or
“how”.
Many
opinions
may
overlap
with
those
that
have
already
been
discussed
in
the
literature
review.
However,
others
may
vary
due
to
the
unique
financial
situation
that
has
been
formed
in
each
country.
The
interviews
will
also
allow
us
to
gain
insight
into
the
interviewees’
personal
experiences
with
gold
or
the
trading
market
in
general..
In
many
cases,
the
interviewees
might
even
steer
the
interview
to
a
different
direction
and
therefore
offer
a
fresh
new
perspective.
It
is
interesting
how
different
individuals
approach
the
same
question
from
completely
different
angles
and
how
this
may
influence
our
own
reflections
on
the
theme.
III.III.II.
Interview
Outcomes
The
interview
approach
aims
to
examine
the
professional
experience
of
each
individual
in
this
topic
across
a
range
of
different
countries.
The
main
aim
is
to
interview
a
variety
of
professionals
in
countries
with
complete
different
economies
and
cultures,
though
mainly
based
in
Europe.
The
candidates
participating
in
this
research
are
mainly
from
Portugal,
Spain,
Germany
and
the
United
Kingdom.
The
countries
could
also
be
divided
into
two
economical
groups.
Portugal
and
Spain
are
two
countries,
which
were
strongly
hit
by
the
last
financial
crisis
in
2008
and
still
have
a
weak,
but
growing
economy.
Meanwhile
Germany
and
Britain
have
both
one
of
Europe´s
strongest
economies.
This
will
lead
to
a
broader
range
of
themed
responses,
which
will
help
evaluate
the
different
outcomes
about
the
investment
in
gold
and
give
a
more
comprehensive
prediction
as
to
the
possible
future
of
this
commodity.
Even
though
all
of
these
countries
reside
within
the
EU,
they
also
possess
starkly
different
cultural
backgrounds.
III.III.III.
Exploratory
Research
Furthermore
in
regard
to
reach
these
perspectives
the
interviews
will
generally
follow
an
exploratory
research
approach.
By
exploratory
research
we
mean
“an
investigation
into
a
problem
or
situation
which
provides
insights
to
the
researcher”
(Business
Insight,
2011).

17. European
Business
School
2015
Alice-­‐Maxine
Warburg
17
These
types
of
interviews
can
be
very
helpful
to
find
out
more
about
the
current
situations
and
search
new
insight.
The
interviews
will
be
mostly
semi-­‐
structured,
as
the
questions
might
vary
depending
on
the
individual
being
interviewed.
The
exploratory
analysis
is
normally
used
to
study
in
more
depth
the
area
that
one
is
interested
in.
The
situation
in
every
country
is
different
and
therefore
some
questions
were
adapted
to
the
economic
situation
of
that
specific
country.
However
it
is
still
important
to
have
a
clear
idea
and
focus
on
the
outcome
of
the
interview
and
knowing
what
are
the
main
aspects
to
explore
(Morrell,
2014).
The
interviewee
must
feel
at
ease
to
enroll
himself
freely
and
giving
his
professional
opinion
about
the
topic
area.
The
main
objective
is
to
interview
more
than
eight
individuals
situated
in
the
different
countries.
These
are
distinctive
professionals
with
different
jobs
(although
all
related
to
the
finance
industry),
but
will
all
have
experience
in
gold.
The
interviewees’
opinion
about
gold
will
vary,
depending
on
his
or
her
professional
experience
and
background.
III.III.IV.
Interview
Planning
&
Outcomes
The
questions
for
the
interviews
are
prepared
in
advance.
The
queries
are
based
on
a
sample
of
15
to
20
questions.
The
type
of
survey
will
generally
be
done
as
a
face-­‐to-­‐face
questionnaire.
Also
called
in
person
interview,
it
is
one
of
the
most
popular
interviews
in
order
to
collect
data.
It
is
very
efficient
for
data
collection
and
minimizing
non-­‐
responses.
At
the
same
time
this
type
of
interview
develops
a
higher
quality
of
collected
data
and
it
ensures
clearer
answers
(Dialsingh,
I,
2014).
However,
as
most
of
the
interviewees
are
living
abroad,
some
of
the
surveys
were
planned
to
do
via
Skype
or
over
the
phone.
The
advantages
of
telephone
surveys
are
that
one
does
not
need
to
travel
in
order
to
do
the
questionnaire,
therefore
making
them
cost
and
time
efficient.
Other
interviews
were
written
questions,
which
are
ought
to
be
answered
by
email.
E-­‐mail
interviewing
has
the
additional
benefit
that
the
interviewer
can
frame
the
questions,
and
the
interviewee
can
respond
the
queries
at
his
or
her
own
suitability
without
noise
interruption
due
to
independence
of
location
and
timing
(Opdenakker,
2006).
It
is
more
likely
that
professionals
will
be
willing
to
partake
in
this
type
of
research
as
it
provides
them
with
flexibility,
and
they
can
complete
the
questionnaires
at
their
own
leisure.
As
a
result,
nearly
all
interviews
were
conducted
via
email,
as
the
interviewees
are
professionals
and
therefore
had
time
constraints.
To
obtain
efficient
outcomes
it
is
important
to
keep
the
questions
short,
clear
and
straightforward.
Making
the
questions
too
long
or
to
hard
to
understand
will
just
make
the
reader
loose
interest
in
responding.
All
of
these
questioned
individuals
are
business
people
and
it
was
hard
to
contact
them
or
get
their
attention
in
order
to
answer
the
queries.
Therefore,
as
in
this
case,
it
is
preferable
to
send
the
related
questions
by
email
and
give
them
some
time
to
answer
the
questions.
If
the
interviewee
has
not
responded
after
one
or
two
weeks
time
it
may
have
been
necessary
to
send
them
a
reminder
so
they
answer
the
questions
on
time.
The

18. European
Business
School
2015
Alice-­‐Maxine
Warburg
18
interviewer
must
always
be
considerate,
sensitive
and
refrain
from
being
too
demanding,
as
the
interviewees
are
not
obliged
to
answer
and
it
should
be
appreciated
that
they
are
doing
the
interviewer
a
favour.
This
dissertation
has
also
required
some
external
help.
In
order
to
gather
all
the
primary
research
from
Portugal,
an
assistant
was
requested
to
help
in
contacting
the
interviewee.
This
has
made
the
interaction
and
communication
easier
and
more
efficient,
especially
because
of
language
barriers.
Meanwhile
in
Spain
one
of
the
interviewees
has
sent
the
questions
to
another
professional
in
the
gold
business
to
obtain
a
richer
and
stronger
foundation
for
their
arguments.
Moreover
it
is
important
to
mention
that
the
interviewees
do
not
wish
to
be
mentioned
in
this
case
study
and
will
remain
anonymous.
Therefore
their
profession
for
example
Day
Trading
Broker,
Analyst
or
Bank
Director
will
be
used
to
identify
the
questioned
individuals.
The
candidates
will
also
be
called
interviewees
one,
two,
three,
four…
and
so
on.
The
different
interview
questions
have
been
divided
and
merged
into
different
headings
or
sections
in
part
IV
(findings
&
discussion
analysis).
This
will
bring
a
clearer
understanding
of
each
questioned
topic
in
the
interviews.

19. European
Business
School
2015
Alice-­‐Maxine
Warburg
19
IV. FINDINGS
&
ANALYSIS
Having
completed
the
primary
research
for
the
findings,
this
study
will
now
analyze
the
interviews
of
8
out
of
the
10
participants
in
this
paper.
In
order
to
get
a
clearer
understanding
of
the
different
opinions
of
these
individuals,
this
section
has
been
divided
into
different
headlines,
which
are
topics
related
to
the
questions
asked
during
the
interviews.
However
the
researcher
has
been
certified
to
recall
their
career
or
current
professional
situation.
All
the
participants
used
in
the
study
are
well-­‐respected
experts.
Their
positions
ranged
from
an
Analyst
Investment
Manager
in
a
German
private
bank
to
a
Director
with
over
twenty
years
experience
in
a
Spanish
commercial
bank
(appendix
5,
participants
interview
samples).
Furthermore,
another
participant
was
a
derivatives
trader
in
London.
The
rest
are
financial
professionals
who
have
either
invested
in
gold
or
are
well
informed
on
this
topic.
IV.I.
The
Interviewees
Professional
Opinion
about
Gold
Investment
According
to
Interviewee
1,
with
the
astronomic
creation
of
debt
seen
since
the
turn
of
the
century,
gold
has
become
one
of
many
commodity-­‐based
investments
that
take
a
true
store
of
value
unlike
debt/currency,
which
is
created
out
of
an
agreement
and
therefore
has
no
intrinsic
value.
This
implies
that
it
does
not
really
exist;
it
is
only
a
number.
The
candidate
explains
how
gold
has
been
one
of
the
main
topics
in
disagreements
and
wars
during
the
past
and
he
considers
its
value
will
keep
on
rising
due
to
the
scarcity
of
this
metal.
In
the
literature
review,
Warren
Buffet
(2011)
remarked
that
although
he
believes
gold
is
an
“unproductive
asset”
he
agrees
with
the
candidate’s
statement
about
the
increasing
value
gold
will
have
in
the
future.
Buffet
mentions
that
although
the
metal
will
remain
lifeless
forever,
“…the
belief
of
others
willing
to
buy
it
will
increase
its
desire
even
more
in
the
future”
(DiLallo,
2014).
However
Buffet
was
not
very
fond
of
gold
as
an
investment.
He
interestingly
remarks
“The
Golden
Rule”,
which
says;
“He
who
has
the
Gold,
makes
the
rules”.
This
is
a
quote
from
back
in
1965
from
“The
Wizard
of
Id”
newspaper
cartoons,
led
by
J.
Hart
and
B.
Parker
(Popik,
2009).
The
interviewee’s
response
also
resonates
with
the
views
of
Voltaire
(1729)
mentioned
earlier,
arguing
that
paper
currency’s
value
is
essentially
fictitious.
Additionally
another
two
(Interviewees
2
and
3)
of
the
participants
in
this
interview
agree
on
the
professionals’
opinion
mentioned
above.
Believing
that
gold
is
indeed
a
beneficial
investment
and
that
its
value
will
keep
on
steadily
increasing.
However
interviewee
2
recalls
that
he
considers
gold
as
an
asset
very
much
driven
by
speculation,
rather
than
market
fluctuations.
He
remarks
that
it
has
a
fixed
supply,
which
is
scarce
(global
quantity
is
limited)
and
compares
it
to
cash.
According
to
him
it
can
be
traded
against
anything
and
anywhere.
Without
the
erosions
in
buying
power
experienced
by
cash
holders
suffering
from
the
effects
of
inflation.
However
unlike
other
metals
such
as
silver
or
platinum,
gold
has
little
industrial
utility.
Gold
is
not
required
for
economic
growth
in
any
way.
Nevertheless,
the
interviewee
mentions
how
a
pullback
in
gold
prices
in
the
last
few
years,
has
made
gold
production

20. European
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2015
Alice-­‐Maxine
Warburg
20
less
viable
for
many
mines.
This
means
that
a
new
supply
of
gold
could
get
forestalled,
supporting
gold
to
remain
at
the
current
value
for
the
foreseeable
future.
We
can
relate
this
argument
to
the
Trends
Magazine
(2010)
article
about
gold
from
our
previous
reviews.
The
critique
mentioned
that
if
gold
mine
owners
would
dig
out
all
the
remaining
gold,
the
prices
would
decrease.
The
gold
extracting
companies
have
a
greater
return
by
keeping
the
gold
in
the
ground
than
mining
it,
due
to
its
scarcity.
However,
another
concern
of
the
second
candidate
is
due
to
the
debts
lead
by
the
financial
crisis.
The
Euro
might
lead
investors
to
buy
gold
as
an
investment
hedge.
Concluding
with
this
above
statements
makes
gold
a
volatile
short-­‐term
investment
but
could
be
attractive
in
a
long-­‐term
basis.
An
additional
applicant,
who
works
at
a
private
bank
in
Germany
as
an
analyst
investment
manager,
explains
several
reasons
why
it
is
worth
having
a
stake
in
gold:
• Diversification:
Gold
has
a
very
low
correlation
with
major
asset
classes
like
stocks
and
bonds
(see
correlation
matrix).
Implying
that
it
is
a
good
hedge
against
unexpected
surprises
in
these
markets.
This
is
also
a
good
hedge
against
inflation.
• Stable
value:
As
previous
interviewees,
the
analyst
says
gold
is
a
stable
value
that
maintains
its
worth
over
time
due
its
scarcity.
Economists
argue
that
even
the
price
of
gold
is
not
an
indicative
of
its
value.
That
is,
even
if
the
price
decreases,
the
underlying
value
of
gold
does
not
change
much.
This
is
largely
because
there
is
a
fixed
quantity
of
gold
due
to
the
fact
that
it
is
a
commodity.
In
addition
gold
is
not
only
used
as
an
investment.
Gold
is
used
in
the
production
of
various
products
including
jewelry
and

21. European
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2015
Alice-­‐Maxine
Warburg
21
electronics,
so
there
is
a
reliable
demand
that
further
stabilizes
the
price
of
gold.
This
contradicts
with
the
opinions
of
other
interviewees
who
have
mentioned
that
gold
is
largely
a
useless
investment,
and
that
it
has
little
industrial
value.
Moreover,
even
in
stable
economic
times
(where
the
price
does
not
increase
for
“safe
haven”
reasons)
gold
demand
increases
because
consumption
increases,
as
its
demand
is
very
income
elastic.
• Liquidity:
Gold
can
be
easily
converted
into
cash
anywhere
in
the
world.
Aside
from
actual
cash,
the
liquidity
and
universality
of
gold
is
superior.
• VAT
free:
At
least
in
the
European
Union,
the
trading
of
recognized
gold
products
is
free
of
VAT
(if
you
are
actually
buying
gold;
not
if
you
buy
an
ETF
or
certificate
that
tracks
the
gold
price
or
the
performance
of
a
gold
mine).
Additionally
for
example
in
Germany
capital
gains
from
gold
are
not
taxable
when
the
holding
period
is
longer
than
one
year.
However,
there
are
also
risks:
• Currency
exposure:
As
the
gold
price
is
quoted
in
USD,
an
investment
in
gold
(independent
of
whether
on
invests
in
gold
or
gold
investment
products)
is
always
linked
to
the
development
of
the
USD-­‐exchange
rate
(if
the
investor
is
not
a
US-­‐
resident
or
does
not
have
its
assets
in
USD).
The
chart
below
shows
how
the
gold
price
has
evolved
in
three
major
currencies.
• Volatility:
Compared
to
other
asset
classes
the
gold
price
is
very
volatile
(at
least
since
the
beginning
increasing
of
stock
exchange
trading).
Therefore
it
is
not
suitable
as
a
short-­‐term
investment.
As
many
investors
see
gold
as
a
save
heaven
in
0,00
200,00
400,00
600,00
800,00
1.000,00
1.200,00
1.400,00
1.600,00
1.800,00
Q1
1968 Q1
1973 Q1
1978 Q1
1983 Q1
1988 Q1
1993 Q1
1998 Q1
2003 Q1
2008 Q1
2013
Gold
Price
in
$ Gold
price
in
€ Gold
price
in
£

22. European
Business
School
2015
Alice-­‐Maxine
Warburg
22
crisis
time,
the
gold
price
strongly
increases
as
a
reaction
to
any
crisis
in
the
world
and
slowly
decreases
afterwards.
As
a
consequence
supply
and
demand
due
to
private
ownership
is
highly
liquid
and
subject
to
rapid
changes.
• Predictability:
As
there
are
numerous
factors
that
influence
the
price
of
gold
(e.g.
crisis
in
virtually
every
country
in
the
world,
changes
in
the
gold
reserves
of
central
banks,
gold
price
speculations…)
it
is
almost
impossible
to
develop
a
model
that
can
predict
the
gold
price
accurately.
Of
course
there
are
models
and
analysts
who
claim
to
have
a
well-­‐founded
opinion
but
apart
from
a
vague
trend
these
predictions
are
usually
not
very
precise.
This
is
another
reason
why
a
quantitative
model
was
not
used
to
carry
out
this
research,
but
rather
normative
judgements
VI.II.
The
Central
Banks
influence
in
Gold
Prices
Why
Central
Banks
use
Gold
as
their
Final
Reserve?
Interestingly
the
interviewees
have
all
agreed
on
one
conclusion
to
this
topic;
they
all
believe
that
the
prices
of
gold
are,
in
a
way
controlled,
or
at
least
heavily
influenced
by
Central
Banks.
However,
their
understanding
of
the
relationship
between
gold
and
the
Central
Banks
differs
between
the
individuals.
Interviewee
1,
for
example
believes
that
the
value
of
this
metal
is
heavily
influenced
by
the
State
and
Bank,
who
are
both
aiming
to
protect
the
current
value
to
a
certain
degree.
We
can
assume
that
he
means
this
universally
across
most
developed
and
BRIC
economies.
However
when,
inflation
is
not
recognized
and
properly
accounted
for
in
worldwide
economies,
gold
and
other
commodities
may
skyrocket
in
price.
This
is
due
to
hyperinflation
created
through
debt
creation
and
money
printing,
which
causes
uncertainty.
The
interviewee
also
mentions
how
many
central
banks
(especially
the
US
Federal
Reserve)
have
tried
to
minimize
the
attention
to
gold
in
order
to
drive
away
the
suspicion
of
money
printing,
which
again
creates
debt.
He
believes
gold
is
viewed
as
“old
world”,
an
antique.
Which
is
possibly
the
reason
why
the
economy
will
always
hold
on
to
it,
in
a
sense
for
nostalgic
value.
As
for
candidate
2,
who
mentions
how
some
researchers
believe
that
the
fair
value
of
gold
lies
somewhere
near
the
800-­‐dollar
mark.
By
contrast,
others
say
the
value
lies
above
2,500
dollars.
However
there
seems
to
be
no
clear
price
limit
to
gold.
It
depends
on
the
valuation
metric
used,
which
may
be
challenging.
The
interviewee
also
believes
that
the
Central
Banks
have
a
strong
influence
due
to
the
amount
of
gold
that
they
hold.
This
means
that
if
any
of
the
banks
decide
to
change
the
level
of
gold
they
are
storing,
it
could
cause
a
short-­‐term
impact
on
the
gold
prices.
According
to
the
professional,
Central
Banks
tend
to
hold
on
to
gold
as
a
final
reserve
since
it
gives
them
a
tangible
asset
to
back
up
their
currency
with.
This
means
that
in
contrast
to
the
views
of
Interviewee
1,
the
findings
from
Interviewee
2
indicate
that
price
changes
are
not
being
heavily
controlled.
Strictly
speaking
currencies
nowadays
are
no
longer
completely
backed
up
by
gold,
allowing
Central
Banks
to
print
money
as
they
see
fit
to
do,
as
there
is
less
constraints
in
this
regard.
In
return
this
should
give
them
more
flexibility
when
it
comes
to
controlling
the
ups
and
downs
of
their
economy.

23. European
Business
School
2015
Alice-­‐Maxine
Warburg
23
Interviewee
4,
who
is
a
Derivative
Day
Trader,
discusses
the
actual
trading
spot
price,
which
at
that
time
was
at
1,120
pounds
however
his
opinion
is
that
this
is
largely
overpriced.
He
agreed
with
various
economists
who
have
forecast
a
drop,
where
the
price
would
settle
at
approximately
850
pounds.
The
trader
explains
how
governments
have
to
back
up
their
currency
with
gold
when
there
is
a
loss
of
credibility
in
the
nation’s
authorities
or
state.
This
lets
them
be
more
flexible
on
economic
decision-­‐making.
The
next
interviewee,
the
analyst
investment
manager
working
in
a
German
private
bank
is
of
the
opinion
that
it
is
too
difficult
to
determine
the
fair
value
of
gold.
The
main
problem
seen
is
the
strong
volatility
in
the
demand.
The
demand
of
States/Central
Banks
or
for
jewelry
is
not
the
main
problem.
It
is
the
private
ownership
that
is
highly
liquid
and
leads
to
rapid
changes.
However
there
is
definitely
a
lower
limit
to
the
gold
price,
as
this
metal
is
a
scarce
commodity
with
a
high
demand.
Which
justifies
(as
mentioned
previously)
positive
price
trajectory
overtime.
Nevertheless,
an
overshooting
of
the
gold
price
like
recently
seen
during
the
financial
crisis
in
2008
is
more
likely
seen
when
there
is
more
gold
in
use
as
an
investment
(gold
price
speculations)
or
a
hedge
during
crisis.
These
matters
have
been
taken
more
into
account
during
the
last
20
years
(e.g.
through
online
brokers,
online
banking,
faster
trader
platforms…).
The
interviewee
remarks
that
currencies
are
not
pegged
to
the
gold
price
anymore
(used
to
be)
therefore
countries
do
not
longer
have
to
hold
gold
reserves
for
the
money
they
print.
This
has
previously
been
remarked
upon.
Interviewee
2
mentioned
that
Central
Banks
do
not
have
to
hold
on
to
gold
reserves
anymore
but
however
in
many
occasions
still
do
as
a
backup
for
unstable
times.
The
candidate
believes
that
for
“stable”
currencies
such
as
the
pound,
the
euro,
the
franc
or
the
dollar
it
is
more
a
case
of
strength
and
prestige
depicting
their
country’s
economic
health
since
it
shows
that
at
slight
part
of
their
reserves
can
still
be
translated
in
a
currency
that
has
been
used
for
thousands
of
years
and
cannot
be
easily
“printed”.
It
therefore
also
becomes
an
issue
of
collateral,
especially
for
countries
that
are
not
stable
or
that
for
example
in
2008
passed
through
a
precarious
situation.
IV.III.
Gold,
a
long
lasting
Investment
through
History
Experiencing
historical
changes,
different
economic
crisis
and
technological
revolution.
When
Interviewee
1
was
asked
to
give
his
opinion
on
this
topic,
he
replied
with
another
query.
He
instead
asked
for
the
interviewer
to
give
him
a
name
of
ONE
major
commodity
that
had
lost
value
or
has
been
ceased
to
be
of
use
over
time.
The
candidate
believes
there
will
always
be
supply
and
demand
issues.
These
problems
will
drive
commodity
prices
and
cause
them
to
fluctuate.
However,
water,
food,
fuel,
shelter
materials
are
the
basis
for
life
on
this
planet
and
will
always
be
true
stores
of
value
and
thus
have
high
demand
to
mankind.
Moving
on
to
the
different
historical
changes
during
the
last
centuries
the
interviewee
believes
that
although
technology
has
impacted
the
financial
world
in
general,
gold
has
not
suffered
in
any
way
for
technology.
Technological
change
is
not
a
factor
in
the
value
of
gold.
The
metal
is
an
ancient
store
of
value,
always
has
been
and
always
will
be.
The
second
interviewee
believes
that
evolutionary
changes
through
history
have
not
affected
gold
as
an
investment.
It
is
mentioned
that
gold
has
been
out
of
fashion
and

24. European
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2015
Alice-­‐Maxine
Warburg
24
come
back
again
several
times.
In
the
1970´s
gold
was
a
real
“speculative
darling”,
but
subsequently
it
was
not
traded
in
large
volumes
for
the
next
25
years.
In
the
2000´s
it
was
rediscovered.
The
applicant
considers
that
its
value
is
more
sentimentally
driven
than
most
of
the
other
commodities.
This
is
due
to
its
only
use
as
a
store
of
value
meanwhile
other
commodities
are
more
practical.
The
Director
of
a
well-­‐respected
bank
in
Spain
however
does
indeed
believe
that
technology
for
example
has
helped
gold
or
has
at
least
facilitated
several
activities.
The
interviewee
mentions
how
thanks
to
technology,
trading
transactions
are
much
easier
nowadays
than
in
the
past.
However
he
also
states
how
thanks
to
the
evolutionary
changes
it
has
been
much
easier
to
extract
gold
out
of
the
mines
than
in
the
past.
At
the
same
time
this
has
also
reduced
several
operational
costs,
which
have
lead
to
the
recuperation
of
many
mineral
deposits
that
previously
were
not
profitable
enough
to
maintain.
This
is
in
direct
contrast
to
the
opinion
expressed
previously,
that
the
lack
of
technological
advances
has
supported
high
gold
prices.
Interviewee
3,
analyst
investment
manager,
identifies
the
precious
metal
with
two
major
traits
–
it
being
“scarce”
and
“popular”.
This
is
exactly
why
gold
has
been
able
to
maintain
such
a
high
value
through
history.
Thousands
of
years
ago,
its
aesthetically
pleasing
appearance
rendered
it
useful
for
jewelry.
This
then
developed
to
it
becoming
a
source
of
trade
and
it
has
remained
this
way
since.
The
reason
of
why
gold
and
not
any
other
metal
is
inexplicable.
The
candidate
believes
that
gold,
in
a
way,
was
an
international
method
of
trading,
everyone
would
or
will
accept
it.
It
is
a
worldwide
currency
and
its
scarcity
makes
it
even
more
valuable.
It
is
explained
that
due
to
the
fact
of
gold
becoming
an
investment
(investors
officially
buy
and
sell
gold
since
they
speculate
on
the
increasing
and
decreasing
prices
and
in
recent
times
buy
and
sell
certificates
or
EFTs),
the
gold
price
has
become
much
more
volatile.
Until
1972
the
gold
prices
maintained
used
to
be
quite
stable
(6,48),
after
this
year
the
standard
deviation
increased
up
to
387,87.
This
would
somewhat
indicate
that
gold
is
no
longer
the
safe
haven
that
it
once
used
to
be
decades
ago.