Case for Gold "Positive" as Fed Promises "Low Rates for Extended Period"
Commodities / Gold and Silver 2010 Apr 14, 2010 - 02:34 PM GMTBy: Mike_Paulenoff
THE PRICE OF GOLD held onto a volatile 1.3% gain vs. the Dollar on Wednesday, rising to $1160 an ounce after Federal Reserve chairman Ben Bernanke vowed in congressional testimony "that very low, extremely low rates will be needed for an extended period."
The Dollar fell to a 4-week low vs. the Euro and hit a 7-week low against the British Pound on Bernanke's comments.
Gold for Eurozone and UK investors fell back towards Tuesday's 1-week lows.
"The investment backdrop for gold remains positive [for 2010] on zero to negative real rates of interest in all major currencies," said GFMS chairman Philip Klapwijk at Wednesday's London launch of the independent precious-metal consultancy's Gold Survey 2010.
Worsening concerns over sovereign debt – perhaps spreading to the US from Europe – also look set to support the case for gold investment this year, Klapwijk said.
"Inflation expectations" will add to safe-haven buying, he went on, "especially with this year's $1.6 trillion US deficit and the increasingly likely return of debt monetization" – a.k.a. quantitative easing.
GFMS's data for global gold supply and demand in 2009 show jewelry buying fell by almost one-fifth from 2008, while "scrap" jewelry jumped to a record 39% of global supplies.
"The Western jewelry market has seen a massive mobilization of scrap," said Philip Klapwijk, pointing both to last year's then-record high prices as well as new mechanisms for selling metal such as Cash4Gold.
Forecasting a "possible" spike to $1300 an ounce in the second-half of 2010, "It's difficult to see how we can avoid a hefty drop in prices if we want to boost jewelry and trim scrap to bring the overall market back into equilibrium," he went on.
"We're certainly in the end-game now, although that could still take a year or more to play out."
BullionVault analysis of the GFMS data, however, sees the near-doubling of gold investment demand in 2009 as showing that gold is being remonetized by private individuals – a trend that will only accelerate as the real returns paid-to-cash remain below zero worldwide.
Massive supplies of scrap jewelry, mobilized by cash-strapped households, are being more than matched by investment demand according to GFMS's presentation today. That literally converts gold-metal from a trinket to a store of value.
Western central banks are behind the curve here, only just suspending their sales programs in 2009, let alone adding to their monetary stockpiles. Emerging-Asia authorities, in contrast – and like their citizens – are increasingly strong buyers, with India and China leading the world in private-plus-public sector demand.
By Adrian Ash
BullionVault.com
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Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
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