Can't keep up with demandGold price tipped to soar
New Zealand Herald
4:00AM Sunday Jan 11, 2009
Andrea Milner
Economists around the world are tipping the gold price to soar this year, with the most bullish market-watchers predicting the yellow metal could hit more than $2000 an ounce.
ANZ head of commodities research Mark Pervan says the $2000 price forecast is based on speculation of a collapsing US dollar stemming from a "massive injection of US dollars into the system. People will buy gold as an alternative."
Gold is used as a safe haven in times of weak equity markets, bought as a hedge against inflation and currency markets.
It's one of the few investments that has historically produced strong returns in periods of mounting inflation and interest rates, market turbulence and economic uncertainty as exchange trade funds, listed stocks, managed funds and resource companies plummet in value as inventors or speculators dump holdings.
From a base of US$550 an ounce at the start of 2006, the gold price almost doubled to US$1000 in March last year and is hovering at US$845.
The New Zealand price in the corresponding period went from $950 an ounce to reach a high of $1670 in the last week of last year and is now at $1450 and climbing.
During the past five years, gold has risen more than 210 per cent in value, says Robert Jamieson, general manager of Goldsilverbullion.com.au, an Australian website that allows consumers to buy bullion online. This equates to an average return of 42 per cent per year.
Global demand for physical gold has surged 300 per cent since the banking crisis last September, says the New Zealand Mint's head bullion trader Michael O'Kane.
In the US alone, it climbed 900 per cent on the back of the Bear Stearns collapse. But a supply shortage is developing as production gets "hammered", O'Kane says.
Less gold is being produced as high oil prices drive escalating mining costs, says Pervan, and no one is releasing gold from central banks.
"Supply is incredibly tight. Consumers just can't get the gold - there's just no physical material for them to buy."
The Perth Mint suspended orders in November amid a heavy run on the precious metal. The Royal Canadian Mint, South African Mint and US Mint also took breaks.
A lot of work goes into making bullion and the timeframe for delivery is getting longer,
O'Kane says. "Two years ago, I took two weeks off during January trading. This year, I have had Christmas and New Year's Day off - it's nuts, and has been since Bear Stearns went sideways."
Investors rocked by market turmoil are racing to stash bullion, which is in short supply.