Gold Bullion "Fear Trade" to Escalate in 2010

ONGOING FEARS over sovereign government bonds, debt monetization and currency debasement will lead to an "escalation" of demand for physical Gold Bullion and coins in the second-half of 2010, a new report says.

"Ongoing pressure on sovereign debt markets, combined with persistent concerns over private sector credit contraction, will raise the spectre of debt monetization repeatedly over the next few years," write analysts Julien Garran, Tom Price and precious metals strategist Dr. Edel Tully at Swiss banking giant UBS.

"The fear of further debasement of fiat currencies follows closely...[and] we expect that this background will remain very supportive for gold prices over the period. That informs our above-consensus Gold Price outlook."

Pointing to "heightened physical demand for small Gold Bars and coins, and rising ETF creations" as the recent Eurozone debt crisis peaked, "A new trend in 2010 is the movement towards fully allocated physical gold," the UBS team go on, quoted by MineWeb.

In the final six months of 2010, "we expect this type of gold exposure will deepen as new and existing investors diversify a portion of their gold reserves to purely Allocated form" – whereby the investor owns physical Gold Bullion outright, and pays a specialist custodian to protect it in secure, dedicated vaults.

"Quite simply, such customers are limiting their weight of paper gold exposure," says UBS. "In essence, this is diversification within diversification."

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