Charlotte Mathews
8 October 2008
Johannesburg — AN ALMOST flat gold price has seemed to contradict the metal's traditional safe-haven investment status in the midst of the market crisis of the past few weeks. But gold bulls are not disappointed.
While the Dow Jones Industrial Index has fallen 19% to 9525 points since the beginning of last month and the FTSE100 by the same percentage to 4517 points, the gold price measured by the London morning fix has gained only 6% to $882/oz. In early March, it exceeded $1000/oz.
But Trinity Asset Management MD Quinton George said gold had appreciated significantly in non dollar terms in various currencies. For example, it had risen to about R250000/kg from R203000/kg early last month, as the rand depreciated against the dollar, while commodities such as platinum had dropped. It had been the best-performing asset class recently, he said.
World Gold Council MD of investment research and marketing Marcus Grubb said gold's real value was not that it provided a quick speculative fix but that it offered a sure and steady means of protecting wealth.
He said central banks had been selling less gold recently because they were confident gold would preserve the value of national assets in the face of the worst financial crisis of the past 80 years.
Other commentators said there were no indications yet that central banks were selling gold to finance rescue packages for banks and equity markets.
According to Bill Murphy, the chairman of the Gold Anti-Trust Alliance, quoted on Miningmx last week, bullion was being kept artificially low by central banks and bullion banks seeking to prop up demand for their currencies. He argued that the price should be over $2000/oz now, based on physical demand, but a cartel was using the derivatives market to restrain it.
James Moore, a dealer at TheBullionDesk in London, said yesterday that with banks unwilling at present to lend money, even to one another, investment funds were selling liquid assets such as commodities to raise cash. At this point, gold was fulfilling its safe- haven role because it was able to generate cash in a crisis.
But once markets stabilised, investment demand for gold was expected to gather momentum and Moore said gold could be expected to exceed $1000/oz again or even set a record of $1250/oz.
Trinity Asset Management's George said there was a distortion between derivative and physical demand for gold, with strong investor demand for coins and exchange-traded funds while asset managers, who were facing significant redemptions, were selling speculative positions.
Although the need for liquidity was driving markets at present, George said central bank measures to pump liquidity into equity markets would in time fuel inflation, which would see gold appreciate as a store of value. If gold could break through the level of $900 /oz, he believed it could touch $1200/oz by March or April next year.
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