The poor housing data from the US and President Obama’s warning regarding the surging US public debt led to falls in equities, bonds and the dollar yesterday as gold reached new record nominal highs at over $1,150/oz. Importantly and significantly, gold is also back near record highs in EUR, GBP and many major currencies (gold’s record nominal high in euro is €782/oz and in sterling it is £690/oz – London PM Fix on 20/02/09). Thus, gold is not ‘cheaper’ in other currencies as it is rising in all currencies in the last week, month, YTD, 1 year, 5 year etc. (as per EUR and GBP Performance tables below).
Similarly, the last time gold was in a bull market and rose 25 fold in dollar terms, was in the 1970s – but it also rose massively in sterling (£20/oz to £300/oz), German marks and in all major currencies. Concerns about the long term outlook for the value of fiat currencies and of the threat of inflation is leading many investors and savers internationally to look to have an allocation to the store of value and financial insurance that is gold. While there are concerns about the dollar, it is important to remember that there are also concerns regarding the value of the euro, sterling, yen and other currencies due to the ultra loose fiscal and monetary policies being pursued internationally, and yet it is estimated that allocations to gold remain less than 1% of global assets suggesting that talk of a gold rush and gold mania is overstated and there is room for further diversification into gold.
Demand for gold remains robust, especially investment demand, with the World Gold Council reporting that demand for gold has gone up 15% in the third quarter (from Q2 09) to 800.3 tonnes. Investment demand (excluding central banks’ demand) was down from the third quarter last year but it should be remembered that demand for gold in Q3 08 was at record levels. While jewelry demand remains weak, investment demand remains robust with government mints and refiners recording record sales and with hedge funds, pensions funds and central banks all looking to gold’s store of value qualities.
Silver touched $18.56/oz overnight. Silver is currently trading at $18.26/oz, €12.28/oz and £10.94/oz. Silver looks like it has broken out technically and the very favorable supply and demand fundamentals (see our Commentary section) will likely see silver comfortably back above $20/oz by year end. Silver remains a fraction of its nominal high in 1980 and remains very undervalued from a historical perspective.
Platinum Group Metals
Platinum is currently trading at $1,445/oz and palladium at $370/oz, while rhodium is trading at $2,600/oz.
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