This page contains a Flash digital edition of a book.
in 2012. Inflation will increase substantially in the next few years to low double digits, making gold even more attractive as an off-setting hedge, he has proposed, propelling the price even higher from increased buying. He said 80 percent of his assets are in gold. Already having established several gold funds within his Paulson & Co. hedge funds, he began a new gold hedge fund in January 2010, which invests in gold-mining companies, gold-related equities and gold derivatives. Those who want to participate must contribute $10 million minimum. Paulson himself plans to invest from $200 million to $250 million.


Warning that all investments are at risk because of the uncertainty in the


world’s major economies, billionaire financier George Soros nevertheless said that gold prices will continue to rise. Then, snatching away any comfort gold buyers may have taken from his prediction of increasing gold prices, he announced that gold is the “ultimate bubble”. Yet, apparently not heeding his own admonition, Soros’s hedge funds within Soros Fund Management LLC have invested an estimated $1 billion in gold and gold- mining companies. He also said that gold is the only true bull market at the present time, and it may continue to go higher in price, but “it is certainly not safe and it is not going to last forever”.


Even with such strong endorsements from two world-class billionaire


investors for buying gold in some form or the other, executive managers of investment departments of insurers and reinsurers still pause, hesitate, procrastinate and remain undecided about when is the right opportunity to buy and hold an asset such as gold, which though solid, intrinsically attractive and ageless, produces no rate of interest, just sits there waiting to be desired for itself. Its worth is too often dependent on the appeal of other forms of capital and the rate of interest earned on one or more of them. Still, getting in on the upswing can produce sizeable returns if the gold is unloaded (and that’s a big ‘if ’) before the inevitable downswing.


Buying gold at one time meant actually purchasing the physical gold in


bars and storing it in a dungeon-like vault or a well-protected warehouse. Purchasing fine jewellery crafted from gold also provides an appealing means of having the metal within the investment portfolio, though disposing of a valuable, decorative piece could incur the wrath and refusal of the wearer.


Another means of owning gold is to buy gold coins. Gold coins have been


around for thousands of years, but with the almost rabid interest in gold thrusting the price ever higher, more of these coins are selling than ever. Word is that the United States Mint is running short of gold coins, as sales of the American Eagle have shot up in the past months. The South African mint has recently increased Krugerrand production by 50 percent. The Canadian Maple Leaf has become popular as the rush to hold on to gold has become furious. A new one-ounce gold coin, most are only 22 karat, sells for slightly more than the spot price of gold.


Nowadays, a convenient means of owning gold without the bother of


having to handle the actual gold is to buy shares in a metal fund. Basically, these funds operate like mutual funds run by a management company,


44 | INTELLIGENT INSURER | November 2010


“ Recommendations from various financial gurus suggest limiting gold to 7 percent of a total investment portfolio, and for those willing to fly high and loose, with an optimistic perspective of the future—10 percent. But as far as can be determined, no insurance or reinsurance company has even invested one percent of its funds in gold.


which charges fees, sometimes substantial. They buy gold, silver and other precious metals, and by predicting the market’s movement up or down, the fund’s management, when successful, provides a dividend on investments to shareholders. Other funds invest in stocks of mining companies, and the fortunes of such mines depend somewhat on the price of gold and other fine metals, but also on the efficiency of the mining operation itself.


Exchange Traded Funds (ETFs) are similar to mutual funds, but can be traded like a stock. ETFs match the performance of an underlying pool of assets. ETFs are traded throughout the day, so shareholders have greater control over investments. These ETFs can be traded on margin, sold short and be bought or sold using a variety of orders, including market, limit, stop, trailing stop and conditional.


And though gold can be an attractive investment if the timing of attaching


the market is opportune, stashing too much capital in gold can be highly risky, even dangerous. From 1980 to 2000, gold lost more than four-fifths of its purchasing power. During the 2008 crash, it fell by nearly a third. If a long-term investment is warranted, stocks have performed better than gold in many cases. Best to diversify. Recommendations from various financial gurus suggest limiting gold to 7 percent of a total investment portfolio, and for those willing to fly high and loose, with an optimistic perspective of the future—10 percent. But as far as can be determined, no insurance or reinsurance company has even invested one percent of its funds in gold.


Jeffrey Evans, analyst, with the Securities Valuation Office (SVO) of the


National Association of Insurance Commissioners, handles the reporting of insurance and reinsurance companies’ schedule BA assets. The SVP prepares ratings for all investments that US insurers own for their portfolios. The ratings are used by the individual insurance departments when they audit the respective insurance companies. Insurance companies must pay to have the SVO review and rate each of their securities.


Evans said gold is not mentioned in connection with insurance or


reinsurance at the SVO, because it deals only with securities that have been registered. As gold of itself does not produce income, this would preclude an insurer or reinsurer citing such an asset in its BA schedule. This is because such a speculative choice would not improve its risk-based capital charge.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56