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Case for Gold "Positive" as Fed Promises "Low Rates for Extended Period"

Commodities / Gold and Silver 2010 Apr 14, 2010 - 02:34 PM GMT

By: Mike_Paulenoff

Commodities

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

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


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