Gold set to rise to record $1,200/oz

Gold and Silver Investments, the international bullion dealer are advising investors that gold is up by seven per-cent and continues to significantly outperform the battered stock and property markets, even with the global economy sinking into recession and possibly even a depression.

Mark O’Byrne from Gold and Silver Investments, the international bullion dealer, whose company offers investments in gold and silver bullion, and government bullion certificates, said, “This outperformance looks set to continue in the medium term. We are finding that while demand for gold jewellery has fallen and scrap supply has increased significantly in recent weeks, this is being negated by the hugely increased investment demand for gold coins, gold bars, gold certificates and ETF’s.”

The increase in scrap supply is due to owners of jewellery selling in order to raise much needed cash to pay bills and living costs, especially with the current influx in those losing their jobs. Ironically, it shows that there is no ‘mania’ for gold amongst the ‘man in the street’ at the retail level. Quite the opposite, cash strapped consumers internationally are selling their gold rather than buying.

Mr O’Byrne, executive director and senior analyst in the firm who offer who offer gold investments in the form of gold coins, gold certificates and gold and silver bullion, added, “Retail investors are favoring gold in terms of a sound financial investment, and this can be seen in gold coin shortages, rationing and rising premiums. There has also been a surge in demand for certificates and ETFs.” However, this increase has come from tiny levels and retail investment in gold remains tiny vis-à-vis investments in equity and bond markets. Also, the physical gold market is such a tiny market vis-à-vis equity, bond, currency and derivative markets that even small flows from these massively larger markets can result in outsize moves up in the gold price.

Importantly, one of the most important sources of gold supply In recent years (both in terms of volume and psychologically) has been central bank supply. This potential huge overhang in the market contributed to gold falling to massively undervalued levels in the late 1990’s (Gordon Brown’s disastrous sales much of the UK’s gold reserves ironically marked the bottom of the market) and has contributed to gold’s very slow and orderly advance in recent years.

Mr O’Byrne added, “Gold has risen some 16 per cent per annum or some 260 per-cent in the last ten years. Without the large potential central bank supply, gold would have more likely replicated the performance of the 1970’s when it rose from $35/oz to $850/oz in just nine years for a return of some 2,400 per-cent or 42.5per cent per annum. Arguably the fundamentals are much stronger today due to unprecedented zero per-cent interest rates and huge macroeconomic and systemic risk.”

With central banks becoming increasingly reluctant to part with their gold reserves and indeed some second and third tier central banks becoming buyers (notably the Russian Central Bank and the People’s Bank of China), gold prices look very fairly valued and have the potential to appreciate very significantly in the coming years.

Central banks are rightly concerned about financial, economic and systemic contagion. The German Bundesbank recently clearly stated how they view gold bullion as an essential monetary asset, "National gold reserves have a confidence and stability-building function for the single currency in a monetary union."

Mr O’Byrne added, “Investors and savers should continue to have an allocation of their investments and savings in gold bullion in order to financially protect them from these unprecedentedly uncertain financial and economic times. Now more than ever before, real diversification and an allocation to gold is essential. The possession of the financial insurance that is gold has ruined fewer investors than the lack of it.”