Gold Entering New Paradigm

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"Gold is entering a new paradigm—not a bubble. . ."

Gold is entering a new paradigm—not a bubble, according to traders speaking at the 2010 LBMA conference in Berlin.

Standard Chartered's Jeremy East quizzed whether investment in gold is a new concept, "or something we were doing 30 years ago?" He noted gold is becoming more of a recognized investment class but that holdings are still "relatively insignificant" globally. If investment interest in the West began to decline, he stated, the metal would be taken up in other ways (including India's ETF activity).

In a panel discussion, Natixis' David Gornall, ABN Amro's Gerry Schubert and Goldman Sachs' Stephen Branton-Speak noted there was a clear consensus going forward, that the precious metals industry will move to Asia.

"There will be a general move to the East, China can't understand why the gold price is made in New York; it's going to change."

Gornall said investors in the West were starting to look at gold investment through the eyes of the Indians, buying the dips. He noted it is possible that a bubble could arrive; but, for now, "a new paradigm has arrived—at least until the next one turns up."

Schubert explained that nearly everyone is long gold, "all long for different reasons with different time horizons on their sights."

Looking at macro influences and the threat of inflation as reasons for strong investor interest in gold, opinions differed as to whether deflation would cause a correction in the gold price. When posed to the audience, the resounding reply was that, even if there a period of deflation arrived, gold would still do well.

Still, the bulk of attendees' average gold holdings is around just 10%; so, even with the bullish outlook overall, investors are using gold primarily as a hedge against macro factors—not as a true asset class.

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