INTERNATIONAL–The price of physical gold held above a on
e-week high early Thursday in London, recording its best Gold Fix in seven sessions at US$894 an ounce as European stock markets flipped in and out of the red.
In New York, gold broke the US$900-mark, after data showed a big increase in claims for US unemployment benefits.
“It is risk aversion that is fuelling gold’s rally,” said one commodity analyst to India’s Economic Times today.
“The bias is on the upside,” agrees Kunal Shah at Nirmal Bang Commodities, also in Mumbai, “as economic uncertainties are creeping up giving rise to risk aversion.”
Yesterday the International Monetary Fund (IMF) confirmed its prediction of the worst global downturn since the 1930s, slashing its January forecast of 0.5% growth to a 1.3% contraction for 2009.
Today the gold price for Indian investors – the world’s hungriest buyers of physical metal – ended unchanged at INR14,413 on the MCX June contract.
British, Swiss and Canadian investors now ready to buy gold saw the price tick back from fresh 3-week highs.
Of 182 economies tracked by the IMF, some 72 are now expected to shrink this year, including 30 of the world’s 34 most developed nations.
“By any measure,” the IMF warns in its twice-annual World Economic Outlook, “this downturn represents by far the deepest global recession since the Great Depression.”
During the financial crisis to date, “Gold has been one of the few assets that has genuinely provided investors with diversification,” notes Natalie Dempster in her latest analysis for promotional-group the World Gold Council (WGC).
“There is no intrinsic reason why gold should perform badly during periods of deflation, like equities for example, which typically suffer profoundly as the earnings outlook collapses and/or the real debt burden of companies grows.
“Traditional assets like equities and bonds are a poor hedge against inflation,” says Dempster, pointing to the sharp risk that “when banks start to lend again and consumers start to spend, inflation will accelerate.
“By contrast, gold, and commodities in general, often perform at their best.”
In each of the nine years since 1971 when US consumer-price inflation has exceeded 5% year-on-year, the gold price averaged 31% annual gains on the WGC’s analysis.
“Commodities rose by 9% and bonds and equities were essentially unchanged.” . . . .
[There was a] dramatic bar and gold coin shortage of 2008, which forced retail premiums on even the most-heavily minted coins to 10% and above . . .
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