Kyoto, Japan (Platts)–29Sep2008
The Chairman of the London Bullion Market Association, Jeremy Charles, said that due to chaotic market conditions over the past two weeks, investors are returning to gold, “in a major way.”
The chairman, who is also Global Head of Metals at HSBC, was addressing delegates in Kyoto, Japan, at the LBMA/London Platinum and Palladium Market Precious Metals Conference 2008. The markets have been rocked in recent months by the ongoing global credit fiasco which has seen big name banks collapse and unite in a bid to stem the bloodletting born from dire money management in the USA.
Charles noted that, “with confidence in the dollar and other investment classes decidedly shaky,” investors are piling back in to the yellow metal.
Gold hit a high of $1,030.70/oz March 17, coinciding with the collapse of securities firm, and household name in the US, Bear Stearns. Since then gold has been on a roller coaster journey largely spurred by investor in and out flows and the US dollar. Generally, and historically, the yellow metal is seen as a safe haven in times of political and financial instability or uncertainty.
SELLOFF PROMPTS RENEWED PHYSICAL DEMAND
The recent sell off in gold, which the metal has now significantly bounced back from, was orchestrated by renewed investor sentiment in the green back. “This sell off, which was primarily due to the improved outlook for the dollar, coupled with lower oil and commodity prices, created an enormous pick up in physical demand from across the globe,” said Charles.
He added, “This demand was in fact so great that the global refining and manufacturing industry simply could not produce gold bars in sufficient quantity to satisfy this pent up demand.” The demand put upward pressure on the price of gold as consumers stockpiled the precious metal. Traditionally physical buyers tend to sit on the sidelines at times of increased price volatility. After the sell off, which saw gold fall to the mid $700s, physical purchases managed to lend support and give the metal a base around $800/oz.
In recent weeks fresh money, and some major short-covering, has seen the metal break the $900/oz barrier, yet not manage to hold that level. Pundits are mixed on where the market will go next, one analyst told Platts: “It’s just too hard to call.”
HIGHLY UNUSUAL MOVES NOT ONLY STIMULUS FOR GOLD
“These highly unusual moves do of course reflect the current woes in the global financial markets, but it is my opinion that even when this crisis draws to an end, gold will be looked on in a very different light going forward,” said Charles. He added: “Those who have traditionally shied away from gold as part of an investment portfolio can no longer afford to ignore this unique asset.”
The LBMA chairman also predicted that as less money is pumped in to investment in the production side of gold, and Central Banks ease sales of the yellow metal, coupled with increasing investor interest, “despite many comments to the contrary, higher gold prices are likely to be the norm.”