Gold rush as investors pile into bars
[For the first time in years my 4% physical gold catastrophe insurance starts looking interesting.]
By Jonathan Guthrie and Helen Warrell
Published: October 3 2008 03:25 | Last updated: October 3 2008 03:25
Bullion dealers are busier than at any time since 1980 as retail investors, concerned with the safety of bank deposits, rush to buy gold coins and bars.
“Dealers are doing incredible business,” said Philip Olden, managing director for jewellery at the World Gold Council, an industry body. “Some are calling up and saying they have run out of stock.”
The feeling among retail investors is “if you can’t have confidence in banks you can at least have confidence in gold,” Mr Olden said.
“The distrust of banks has intensified recently,” said Lawrence Chard, a veteran bullion dealer, who said he was “very busy”. He said: “People are taking money out of their savings account to invest in gold. Typically they’re withdrawing amounts over £35,000, which is the level of the government deposit guarantee.”
“We have seen higher interest in gold over the last two weeks but from Monday onwards it’s been really, really busy,” said Sandra Conway of ATS Bullion in London. “There are people coming into the market who have never bought gold before. They know it’s a gamble but they’re not so worried about making a profit – it’s all about security. Baird & Co, another London dealer, said: “People are buying both bars and coins. We have not sold out, but we are selling faster than we can source new supplies.”
Mr Chard said his Blackpool-based business sold 1,000 ounces of gold coins to retail investors on Wednesday at a margin of 5-7 per cent over the wholesale price, which is currently around £485 ($858, €620) per troy ounce. “Before the banking crisis that was the level of business we would have done in a fortnight,” he said.
The retail gold rush is an alarming sign of how panicky some Britons have become as the world financial crisis intensifies.
Bradford & Bingley was nationalised partly because deposit withdrawals threatened to escalate into a run on the troubled institution. The decision of the Irish government to guarantee 100 per cent of banking deposits has also focused the minds of savers on the safety of their nest eggs.
A few years ago analysts seriously debated the proposition that gold had lost its ancient status as the ultimate store of value and central banks sold off gold reserves. However, the risk of bank collapses means gold is back with a vengeance.
The metal is trading close to its five-year high, spiking up strongly earlier this week in response to the House of Representatives’ rejection of a bail-out for the US banking sector. On Thursday it settled slightly lower at around $849 per troy ounce, still 13 per cent above its price 12 months earlier.
Bullion dealers reported they were struggling to source krugerrands, South African one-ounce gold coins favoured by retail gold bugs. They complained that many retail investors refused to believe that gold coins from other countries were made of the same fundamental element and thus were equally safe.
Ms Conway said: “Krugerrands used to be 6 per cent above the gold price, now they’ve moved up to 10 per cent,” adding: “There are people who seem to think that they’re going to have to use a krugerrand to buy a loaf of bread one day.”
Most of the customers converting savings cash into gold plan to keep their investment in bank safety deposits.
However, one recent client of ATS intended to use his gold bar as a doorstop. Ms Conway said: “I asked if that would be a security risk and he said ‘Oh, no one would notice it, and if they did they’d never believe it was real’.”
European central banks cut sales of gold
By Javier Blas in Kyoto
Published: September 28 2008 18:30 | Last updated: September 28 2008 18:30
European central banks have cut their sales of gold to the lowest level in almost a decade, reversing the practice of recent years when hefty sales helped depress prices.
Institutions bound by the Central Bank Gold Agreement – the banks of the eurozone plus Sweden and Switzerland – sold about 343 tonnes of gold in the year that expired on Friday, the lowest amount since the first CBGA was signed in 1999.
This compares with 475.8 tonnes in the year to the end of September 2007. Under the agreement, the banks are allowed to sell up to 500 tonnes of gold each year.
The European trend is part of a global movement of reduced central bank selling and increased investor buying that is helping to underpin high prices at a time of turmoil in financial markets.
GFMS, the precious metals consultancy, estimates global central banks will sell 269 tonnes of bullion in 2008, the lowest since 1995.
Much of the selling by European banks took place between October and December last year.
As central banks sell less, investors are rushing into bullion-backed exchange traded funds to such an extent that some analysts refer to the ETFs as the “people’s central bank” because they are now bigger than most countries’ official reserves.
Bullion ETF holdings reached a record 1,056.7 tonnes – or more than $30bn – on Friday, up 33 per cent in the past 12 months and double the 2006 level.
The developments provide a bullish backdrop to the annual meeting of the London Bullion Market Association, which begins Monday in Kyoto.
“Less central bank selling sends a strong bullish signal to the market,” said Philip Klapwijk, GFMS chairman.
“The investors’ bullion-buying will be sustained for the time being if people continue to be concerned about financial system stability.”
Gold prices surged last week to $911 a troy ounce, up more than 20 per cent from the level before the collapse of Lehman Brothers but below the high set last March at $1,030.80. Bullion closed at $885 an ounce on Friday.
Kamal Naqvi, head of commodity hedge fund sales at Credit Suisse, said: “We are witnessing strong buying of bullion as financial risks have increased.”
Along with investors, some central banks that have sold gold are reviewing their position.
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