Sunday, April 05, 2009
There were two notable reports from across the Atlantic in recent days about the asset that has recently been pushed aside in favor of the blazing stock market, suddenly failing to attract new investors. By the looks of the steady inventory at the big ETFs, few recent gold investors have departed, but the stampede of new investors has slowed to a trickle.
John Dizard of the Financial Times notes that the current condition is just a temporary one:
We are, however, now being set up for the next run in the secular bull market in gold. It won’t feel that way for at least a few months, since the bid will dry up for the metal. Jewellery demand, which is still 70 per cent of the current demand, will continue to be weak. However bumbling the execution, the Treasury’s wall of money is hitting like a slow-motion tsunami.The way prices have dropped over the last month or so, mustering just a short-lived rally after the Federal Reserve's announcement that it will print up another $1.25 trillion to heal the economy, you may not have to wait until summer.
When, though, does all this loose money lead to the inflation the goldbugs need for the next run? For the moment, it is hard to see that on the horizon in the US, since we were talking about the dollar price of gold. However, the Fed has now been reminded very forcefully by politicians and would-be future governors that it cannot withdraw monetary stimulus too quickly. So it will withdraw it too slowly.
Eugen Weinberg, a commodities markets analyst with Commerzbank, shares my short-term bearish, longer term bullish view on gold. “When inflation comes,” he says, “it will come in higher than expected, and persist for longer than expected, because the central banks will not react as they should.”
So enjoy the run in risk with some equities baskets, and buy your gold sometime in the summer.
Meanwhile, an anonymous economist at The Economist files this somewhat odd report, apparently written by someone who knows and cares little about the gold market, seemingly surprised by the notion that banks have become untrustworthy in the eyes of some.
The heyday for buying physical gold was in the early 1980s, when bullion reached its peak in real terms. Once again, business is picking up. According to the World Gold Council, retail demand for bullion in the fourth quarter of 2008 was almost five times what it was in the same period of 2007. Dealers report a surge in interest from those worried about the safety of banks or simply the lack of attractive alternatives to negligible deposit rates and volatile stockmarkets. Fanning such fears are those who argue that today’s financial crisis does not so much resemble the Depression of the 1930s as the hyperinflationary Weimar era of 1923.It is kind of interesting to see how the gold commentary in the mainstream financial media has changed over the years. Writers at The Economist have been very dismissive of the yellow metal for years now, this being one of the few pieces to cross my computer screen where they were more curious than caustic.
Sandra Conway of ATS Bullion, which operates out of discreet offices in central London, says there was a big rush after the demise of Lehman Brothers in September. “People want something tangible in their hands as a safeguard,” she says. One ATS client saves up all his £2 coins ($2.90) until he has enough to buy a sovereign, a gold coin minted by the British government.
It may seem odd that people want the risk of keeping gold at home (or the cost of storing it at a bank), when they can invest in exchange-traded funds (ETFs) that track the gold price. But Ms Conway says that people are suspicious, in a real meltdown, of whether their claim on gold held in an ETF would be honoured.
This week's cartoon: