Gold and Silver Are Winning the War

As mentioned previously, the centre of gravity for gold demand is continuing to move eastwards. Any splurge on gold in the western world quickly provokes an even stronger purchase response from the East. However the world’s biggest gold consumers are falling out of love with wearing their gold as jewellery.

‘Look at college campuses, Indian girls there are not interested in gold jewellery. My wife has about 1kg of gold jewellery but my daughters are not interested’ Biju Daniel, a Financial Advisor.

Demand for gold bullion and other pure investments in India, soared 83% in 2010 from the previous year. Investment demand is predicted to increase further and potentially surpass jewellery demand in the next 3 years.

Unlike Jewellery, investing in gold bullion retains its value better because fabrication costs are less significant and buyers don’t have to worry about their items becoming dated, making them harder to sell.

Bolivia is the latest country to increase their gold holdings. Many countries are buying their own country’s output and it would therefore seem that the amount of gold becoming available to prospective purchasers may be diminishing by the day. However, higher prices and restricted supply has not yet instigated any significant increase in mined output. This is due to declining grades and end of mine lives, counterbalancing any new output.

The Swiss Franc continues to be weakened against the Euro after government intervention. The Swiss National Bank is keeping it at SF 1.20 or weaker against the Euro. The Japanese Yen may also be prone to more government intervention in an attempt to balance world markets as the Euro fell to a six-month low against the Yen. Many people are choosing to buy gold as, the role of gold as an insurance policy is getting stronger each day and is likely to remain the case for years.

President Obama laid his ‘jobs bill’ before congress. A $447 billion package aimed at promoting hiring in the USA. Markets then tumbled worldwide and gold rose again. However this is not a fundamental plan for the U.S. economy, just another attempt to jump- start it.

Gold has also benefited from muted interest in higher risk assets. European shares fell as Obama unveiled his jobs package, after the Federal Reserve failed to unveil any new measures to stimulate the economy and promote growth.

Ministers from the G7 are under pressure to take action as they prepare to meet over the weekend in Marseille, France, amid mounting bets on a Greek default, but if history is anything to go by, little will come from the meeting. The U.S. can do little more than issue another round of Quantitative Easing and with the Euro being further weakened by the halt in rate rises in Europe; it is not hard to look at the state of the world currencies and see that right now gold and silver prices can only keep climbing in the long-term.

“Weaker developed market growth and the enhanced risk of debt-induced deflation in the United States and Europe materially enhanced the appeal of gold as a safe haven asset.” Say Morgan Stanley.

With growing demand, which looks unlikely to diminish in the near future, the squeeze on precious metals prices looks almost certain to drive the gold price onwards and upwards.

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