“There is an insatiable thirst for gold at the moment,” says Nick Moore of RBS. The yellow metal has risen above the $900 an ounce level for the first time in more than three months, even though the dollar, which usually moves in the opposite direction to gold, has strengthened. In sterling terms, it has jumped to an all-time high of £662, having gained 14% last week. Measured in euros it is also at a record of e701. Meanwhile, Japan’s biggest bullion house reported that gold coin sales soared by 121% last year, and last week the total amount of gold held by the world’s gold exchange-traded funds (ETFs) eclipsed 40 million ounces for the first time.
The darkening outlook for the world economy and rocky equity markets – “developments in the banking sector have truly spooked investors again”, says John Reade of UBS – have bolstered the appeal of the safe haven, while tight supplies also play a part. Mine output continues to fall, with key producer South Africa posting its steepest decline since 1901 last year, while central bank selling (down 42% last year) has diminished as the global outlook has worsened and the price has risen.
Then there’s the “increasingly manic policy response in the increasingly frightened West to the growing evidence of deflation”, as CLSA’s Christopher Wood puts it. Quantitative easing policies and fiscal stimuli presage the eventual return of inflation, which will undermine currencies and raise demand for gold, the ultimate store of value. Felix Zulauf of Zulauf Asset Management thinks gold could double in two years.