Gold Seen Luring Wealthy as Central Bankers Expand Stimulus
More high-net-worth individuals are seeking to buy gold to protect their wealth from the risk of rising inflation after central banks boosted stimulus, according to Deutsche Bank AG's asset and wealth-management unit.
"Gold has historically been considered to be a store of value and an inflation hedge and increasingly it is being utilized as a monetary instrument," said Mark Smallwood, head of Asia-Pacific wealth-management solutions. "There is a growing interest among our clients to gain exposure," he said, with an increased preference for physical holdings.
Gold is in the 12th year of a bull run, 13.5 percent higher this year, as investors seek to hedge against weaker currencies and the threat of rising consumer prices. Holdings in gold- backed exchange-traded products expanded to an all-time high yesterday, and Bank of America Corp. and Deutsche Bank are among banks forecasting that the price will rally to a record.
"With the movements by the central banks globally in the last few weeks, there is considerable investor concern as to the long-term effects of the liquidity infusions," Smallwood said by phone from Guilin, China yesterday. "As a result of that, private clients are concerned about the possible future effects of inflation and the means of hedging that risk."
Immediate-delivery gold reached $1,779.50 an ounce on Sept. 19, the highest price since February, after central banks took further steps to bolster their economies hurt by Europe's debt crisis. The metal, which reached a record $1,921.15 on Sept. 6, 2011, gained 0.4 percent to $1,774.85 at 5:30 p.m. in Singapore.
David Fuller's view If gold was accelerating to new all-time
numerical highs against all paper currencies, as we saw thirteen months ago,
I would regard this article as a potential contrary indicator. Instead, gold
weekly & daily)
is completing another of its approximately eighteen month medium-term corrective
phases within the twelfth year of this secular bull market.
I cannot think of a more bullish fundamental background for gold than all the quantitative easing (QE) that we are seeing from central banks. Yes, slower global GDP growth has reduced both industrial and jewellery demand for the yellow metal and increased the supply of scrap.
However, if you regard gold as primarily a financial asset, as I do, then QE should be a more important medium to longer-term influence on the price than the economic slowdown. Moreover, the stated purpose of all that QE is to stimulate GDP growth and job creation, and replace deflation with inflation. There is also the generally unstated objective of weakening fiat currencies, which inflation does very effectively.
Central banks may or may not succeed in their stated objectives with QE, but they are increasing the appeal of gold as a monetary asset among savvy investors and even some central bankers.
During the distribution phase of its medium-term correction, gold encountered resistance just above $1800 in November 2011 and just beneath that level last February. Consequently, it would not be surprising to see some temporary ranging either side of $1800 over the next few weeks. However, if gold is now in an overall accumulation phase, as I maintain and the data suggests, we will see very little in the way of corrective action this time. I expect gold to be higher by yearend and at new all-time numerical highs in 2013, if not sooner.