This Month in Gold – September 2010

Gold Demand Jumps 36% as Investors Step Up Purchases of ETFs, Council Says
Bloomberg – Private investors and central banks are stepping up purchases of gold-backed ETFs. Concerns about sovereign debt in Europe and the continuing viability of the dollar have sent gold prices up 30% year-over-year. In June, Gold shattered all previous nominal records against the euro, pound sterling, and Swiss franc. With the Federal Reserve reiterating its pledge to keep interest rates near zero and the EU setting up a $1 trillion bailout fund for its weaker member-states, individuals, institutions, and creditor governments have found gold to be the last reliable safe haven. As investors pour into ETFs for liquidity and accounting purposes, gold moves off the market and into vaults, allowing holders of physical gold the benefit of rising prices without counterparty risk.
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Gold and Yen Unlikely Safe-Haven Adversaries
Financial Post – Gold has been one of the few assets to steadily appreciate since the collapse of Lehman Brothers. Safe haven demand is driving gold purchases around the world. But, interestingly, the yen is also benefiting from the flight to safety, especially among Asian investors. One expert says that the yen boost is the result of investor concern about deflation. If global inflation were to pick up, as it already is in China and India, then the Japanese may devalue the yen to save their export-oriented economy. This would leave gold as the primary safe haven.
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Gold to Jump to Record $1,300 in Six Months as Rally Resumes, Goldman Says
Bloomberg – Two prominent Goldman Sachs commodities analysts set a price target of $1,300/oz for gold by the end of 2010. They believe that gold was oversold after its last run up and the fundamentals are still bullish for gold. Bolstering this view is the recent announcement by Fed Chairman Ben Bernanke hat he intends to undertake a second round of “quantitative easing,” or money printing, if GDP returns to negative. The same report also recommends buying platinum based on increasing overseas sales of automobiles (which require platinum for their catalytic converters).
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All That Glisters may be Gold, and Price Makes It Attractive
The Scotsman – James Burns’ Investment Club column is now recommending gold, despite an anti-gold bug bent. The primary reason in a lack of faith in the economic stewardship of the United Kingdom, which shares with the US a rising budget deficit, astounding public debt levels, and a penchant for inflationary solutions. The Bank of England Governor’s attempt to rescue its economy with infusions of cash will only result in rising prices for real assets, which led the club to divest itself of its gilts (or British government bonds). The author notes that the summer dip in gold prices quickly stimulated jewelry demand in Asia, indicating that current prices are not speculative. He also notes that gold remains at just over half its 1980 peak, and concludes that a reasonable prediction gor the end of the year s $1,330/oz.
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China Cuts Long-Term Treasuries By Most Ever as Yields Drop
Bloomberg – On the back of record low yields, China cut its US Treasury bond holdings by a record amount. The world’s second largest holder of US debt has less reason to prop up the dollar since it relaxed the yuan-dollar peg earlier this year. China has now shifted its focus almost entirely to Europe and Japan for reserve investment. Being a main support of the US government’s finances, there is concern that diversification will cause the bottom to drop out from the dollar, which is enjoying strength out of sync with its fundamentals.
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