Summary
The policy of Central Banks over the last year has left the monetary system in a state of limbo. The value of the dollar in terms of bullion and other commodities is taking a beating. The increasing value of gold in currency terms reminds one of the days of the gold standard and the benefits of having gold as a store of value. In this analysis I take a look at how this increasing value of gold may effect internal controls and corporate financial policies.
Analysis
1. A number of treasury managers in corporations look at various investment options for deploying excess liquidity.
2. Financial Institutions also look at how to overall deploy their portfolio in order to get the maximum return at minimum risk - the sine qua non of investment.
3. The policies of Central Banks in Europe and the Fed in the US have left commodity markets on a roll. Bullion especially is on a roll.
4. All this is bound to impact the value of funds and derivatives. A number of exchange traded funds are based on the value of gold.
5. We have in the past few years had a number of hedge funds which were based on commodities. Considering the roll of gold prices today we may very well see a mushrooming of funds based on the value of gold and other metals.
6. Investment in these funds may well be made by bypassing organizational controls - the reason being the expected high return at the end of the rainbow. This would possibly be only a mirage.
7. Organizations may well consider the gold standard days when the value of gold was the value of currency and their was therefore one less variable in considering investment options.
8. Investment managers, auditors and accountants should consider the value of gold as part of a portfolio and use cost of capital techniques when considering the valuation of funds based on gold as an underlying asset.
Nitish Grover consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
