Rerating Gold - Upwards Momentum Building?


". . .from its low point in mid-October, the gold price in dollars has advanced more than 30%. . ."

The recent rise in the gold price into the $900 range is indicative of the long-awaited rerating of the yellow metal as a store of wealth - or an insurance policy - in the realization that the global financial turmoil is unlikely to end soon. Initially, once the state of the global economy became apparent to the investment community, the unprecedented speed of the market collapse took the financial world by storm and gold holdings needed to be sold along with everything else to meet other financial commitments. As a result, gold lost its luster and many felt that, as it did not seem to be performing as experts had predicted in a financial meltdown, it was not meet s a safe store of wealth.

But some did not falter in their belief of gold and the price started being underpinned by increasing purchases of metal (coins and small bars), to the extent that mints in some countries started running out of investment coins, alongside a steady build up in ETF investment. A fall in jewelry sales in the traditional strong gold markets of the Middle East and Asia tempered the price rises but, even so, gold slowly moved upwards while other markets faltered.

Central Bank sales have also come back with sales under the Central Bank Gold Agreement at their lowest level since it began. Such sales are not anticipated to rise again sharply in the current year.

Since the start of 2009, gold has held up well and slowly moved forward - remarkably alongside a rising U.S. dollar. This suggests that the flow of money into gold will continue to rise, and the gold price rise with it. Indeed, from its low point in mid-October, the gold price in dollars has advanced more than 30% - and with the strong dollar this means that in virtually all other major currencies (excluding the Japanese yen) gold is already at new record levels.

Gold stocks have performed even better than the metal itself - with a gold-based fund like the BlackRock Gold & General rising over 70% over the same period. Many individual stocks have substantially outperformed this; overall, gold stocks have more than doubled in price from their collective low points (though still well below their peaks, which suggests there is further traction in the stocks sector).

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