Gold slid to three-week lows early this week. As one of the world’s most liquid assets, it sometimes gets caught in a short-term sell off as battered traders fleeing other assets try to raise cash. Longer term, however, its “proven risk mitigation properties” come to the fore, as World Gold Council (WGC) president Marcus Grubb puts it.
And risk “shows no sign of abating”. The euro crisis threatens to cause another financial shock and the rest of the world’s major currencies are being debased by money printing. Negative real interest rates around the world also bolster the ultimate store of value, as they are another indicator of eventual inflation.
Given all this, it’s no wonder that gold demand jumped by 6% year-on-year to 1,053 tonnes in the third quarter of 2011, according to WGC figures. That’s an all-time high of $58bn in value terms.
Investment demand was the key driver, with Europeans and Asians especially keen. Meanwhile, central banks, after two decades of selling, are stocking up again. Emerging market central banks, keen to diversify their foreign exchange reserves, are leading the charge.
The gold bull market, which kicked off in 2001, remains on track.