CPM: Gold Bulls Need to Look Over the Horizon

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One of the points made in the latest CPM Gold Yearbook, released earlier this week, is that gold bulls often overlook the fact that recessions end.

One of the points made in the latest CPM Gold Yearbook, released earlier this week, is that gold bulls often overlook the fact that recessions end.

The study notes the palpable shift in investor attitudes during 2007, commenting that the markets came to the view in mid-year that regardless of who becomes President of the United States in January 2009, the new incumbent will face enormous economic, budgetary, international and military problems that will take many years to solve, if indeed they have solutions. This view was then compounded by the sub prime crisis and its ramifications and this all resulted in an acceleration in the level of investment demand for gold, regardless of price. The study then suggests that at some point this upward pressure on price will ease as equity values fall into bargain hunting territory and corporate management shifts will engender renewed investor confidence. CPM points out that gold bulls tend always to look towards the collapse of the economic and financial system, but that this is too apocalyptic. ...

This bull market is in its eighth year and has been fueled by strong investment demand, with investors buying more gold for a longer period of time than since World War Two at least, and possibly throughout history. The geographical spread of purchases is also wider than ever before, partly reflecting wider financial liberalization and partly a function of the drive towards portfolio diversification, both at an individual and institutional level. The demographic composition has also changed, with record levels of interest from institutional money managers in industrialized nations...

For the time being, however, the group is of the view that while gold prices are already at record levels they should be expected to stay high and even rise further until such time as investor fears are allayed.

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