Gold Price "Volatile" But "Inflationary Distortions" Add to Investment Appeal as Indian & Chinese Gold Demand Rises

The Gold Price slipped 0.5% from a new 8-week high Thursday lunchtime in London, while global stock markets stalled after a 3-day rise and commodities also pulled back.

The Euro fell from $1.32 for the third time this week after chief finance minister Jean-Claude Juncker called new proposals for stemming the currency zone's debt crisis – only agreed at a summit on Monday – "largely insufficient".

The Gold Price for Euro investors today touched €43,900 per kilo, a level breached only five times during the surge of summer last year.

Beijing meantime said China's full-year Gold Mining output in 2011 – all of which was bought domestically, as exports are banned – hit a record 361 tonnes, a rise of 5.9% on 2010.

China's 2011 gold imports have been estimated by Credit Suisse at 490 tonnes, perhaps twice the 2010 level.

So far in 2012, imports of Gold Bullion to India – the world's No.1 consumer – have been "significantly above average" reports UBS strategist Edel Tully, despite last month's doubling of import duties.

The central bank of Vietnam said today it plans to "mobilize" private gold holdings via "credit institutions" which would effectively replace the private operations banned last year.

"For now, gold may well remain volatile," says Dirk Wiedmann, head of investments at Rothschild Wealth Management, now running some €12 billion ($15.7bn) in client funds.

"[But] it is increasingly attractive as the only truly hard currency...[Our] large positions in gold seek to preserve and grow the real value of our clients' wealth."

"We can't put $100 trillion of credit in a system-wide mattress," says Bill Gross, founder and co-manager of the giant Pimco bond-funds group. "But [savers and creditors] can move in that direction by delevering and refusing to extend maturities and duration."

Because interest rates cannot go down from zero, bond prices have little room to rise, says Gross, and so "Zero-bound money may kill as opposed to create credit.

"It may, as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper."

January's sharp rise in global stock markets, however, means that "Strategists at the biggest banks are capitulating on their bearish forecasts," reports Bloomberg today, citing a sharp reversal in predictions and recommendations after last month's 7% jump in emerging-economy equities.

"We have been increasing exposure to risk assets over the past six weeks," says Andrew Cole, director of strategic policy for Baring Asset Management's £9 billion multi-asset portfolios.

"We see a self-help cycle materialising" thanks to the European Central Bank's long-term banking loans, Cole tells Investment Week after buying £350m in Italian government bonds.

"Italy is not going to go bust and this is our way of getting exposure to the improved liquidity."

"We believe that the 'risk off' attitude of investors which took hold in the second-half of 2011 is largely over," agrees Angelos Demaskos, chief investment officer of the £35.6 million Junior Gold Fund ($56m) at Sector Investment Managers in London to Proactive Investors earlier this week.

Anyone who "wanted to sell" junior Gold Mining stocks has already sold, Demaskos believes, "and there is a very strong possibility they will be re-rated to catch up with the underlying commodity."


Over the last 12 months, Sector Investment's Junior Gold Fund has lost 9.0% of its value, according to TrustNet.

The physical Gold Price has risen 29.7% in British Pound terms.

Silver Bullion has risen 11.9% over the last year.

"It's been a good month" for US Silver Investment demand, says Michael Kramer of authorized US Mint distributor Manfra, Tordella & Brookes, quoted by Kitco News and pointing to January as the second-strongest monthly sales of Silver Bullion Eagle coins on record.

Silver Investment demand was "greatly" helped by the launch of new 2012 coins however, Kramer added.

"People always want the brand-new coins. So, January sales are always pretty good."

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