Gold regains its gleam as buyers rush for a safe economic haven

THEAUSTRALIANlogoGold surged again this week when the US Federal Reserve announced it would try and boot the US economy along by buying billions of dollars worth of securities. This plan immediately sent investors and speculators scurrying to buy gold, the age-old safe haven in uncertain times. The precious metal has become a sensitive barometer of the Fed’s intentions. Last week analysts were betting on whether the Fed would again bank on monetary stimulus to ease American financial woes. Analysts first thought a speech by the Fed’s chair, Ben Bernanke, suggested there would be no stimulus, and gold prices slumped. But after the few minutes needed to fully digest his remarks, speculators decided the speech was stimulus-friendly and gold bounced up again.

Inextricably linked with financial gambits, gold has inspired speculators since the age of Roman talents.

Particularly popular in those nations where keeping cash funds can be a risky bet, where a coup could be on the cards or where the government could suddenly decide to devalue the currency, gold is seen as safe. It won’t rust, rot or decay; it’s portable and it is easily sold anywhere in the world. The US Republican party last month even flirted with the idea of a return to the gold standard, a notion pooh-poohed by economists around the world.

Marcus Grubb, managing director of investment at the World Gold Council, predicted the price of gold would continue to rise, and this year would be the twelfth straight year of solid gains. “Notwithstanding the ups and downs in prices and demand in certain countries, the last ten years – the last couple in particular – have seen rising prices for gold.” A trade group funded by gold mining companies to promote the metal, the Council says it expects gold prices to keep increasing, noting that the weak US economy, political unrest in the middle east and the Eurozone sovereign debt crisis would keep pushing the price of gold along.

The yellow metal wasn’t always this alluring; ten years ago gold was seen as a busted flush. But gold is gleaming now, in the new age of financial uncertainty when investors want a solid hedge in times of rising inflation, widespread distrust of banks and economic uncertainty. Gold is seen as the ultimate safe haven; one that remains largely untouched by the whims of politicians. In recent months, customers have been flocking to gold shops around the world, buying ingots, bars, and coins.

Billy Chiam, the CEO of gold trading company Gold Price Singapore, said his firm was doing a brisk business selling gold to Singaporeans and Malaysians and even customers from as far away as Hawaii and Thailand. “So many people want a hedge against inflation, a hedge against risk – just in case something goes wrong with the economy,” he said.

China and India are the world’s biggest gold consumers, for cultural as well as investment reasons, and analysts expect China will edge out India for the top spot this year. The traditional gold buying season is already well underway in India this year: the jam-packed months of festivals and weddings will continue until November. But record high gold prices in India, driven by the rupee’s depreciation against the US dollar, have dampened the traditional demand for jewellery in recent months. In China, the auspicious year of the dragon helped push the demand for wedding jewellery gold, particularly 24 karat gold, but overall the nation’s slowing growth kept a lid on demand.

But there’s gold jewellery buying and there’s gold investment. In Vietnam there is so much demand for gold that prices are well above those elsewhere in the world. The Financial Times reported that in 2010, to buy 500 Vietnamese taels of gold, about 19kg, took just over 50kg of bank notes. Per dollar of income, the FT said, the Vietnamese consumed astonishing amounts of gold, the most in the world.

Last year Vietnam bought more gold per capita than China or India, pushing gold prices in the country up by 18 per cent. Per dollar of income, the Vietnamese consume more gold than anyone else on earth: in 2009, more than double the amount of the Indians, ten times as much as the Chinese, and 44 times as much as the average American, based on figures from the World Gold Council.

In Russia, the central bank has been on a gold-buying spree for at least three years, and the central banks of the Philippines, Kazakhstan and Ukraine have also been buying in the yellow metal. Meanwhile, European citizens concerned about the state of the economy have driven increased demand for gold bars and gold coins. And last month it emerged that the billionaire investors George Soros and John Paulson had substantially increased their bets on gold.

Pessimists love gold: investors buy it when they think the world economy will tank. One Swiss refiner, PAMP, in recent years began producing little ingots with designer stamps tailored for national tastes – Hello Kitty for Korea, for instance, and Snoopy for the US.

Gold production isn’t keeping pace with the demand. Marcus Grubb from the World Gold Council said global gold production had been flat for the last ten years, while the production of other metals has risen by substantial percentages. China is now the world’s largest producer of gold, followed by Australia, the US and finally South Africa. But gold is scarce: the size of ore deposits is smaller and the ore grades are lower, and increasing labour and energy costs have dented profits.

But Mr Grubb said the game isn’t finished yet. “I think there are new frontiers; new technologies are being used in Africa, and there are a lot of regions as yet not fully explored. I don’t think the exploration story is over.”