This is an article from last year, but it's still interesting.
But if the global economy turns nasty, gold will ultimately
decouple from its base metal cousins and regain its usual
role as a safe haven currency and defence against dollar
disorder. "The bottom line is liquidation first, haven
later," he said.
And dollar disorder has certainly been approaching since this article. You know
it, I know it, and Goldman Sachs certainly knew it...
The Swiss bank said information from its trading floor
suggested that funds and investors were allocating 20pc of
their commodity portfolios to precious metals.
This is far more than the index tracking funds run by
Goldman Sachs, Dow Jones-AIG, and others, typically taken to
be a guide to overall investment flows.
Misinform the masses, so that the sharks can make the profits. Typical
capitalist trick. Russian's are on to those.
rkm
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Original source URL:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/06/05/cnrussia.xml
Russia leading global 'stealth demand' for gold
By Ambrose Evans-Pritchard
Last Updated: 1:44am BST 05/06/2006
The world's big money brigade is snapping up gold bullion at eight times the
rate originally thought, according to a report by UBS, the world's biggest gold
trader.
The huge sums entering precious metals below the radar are likely to help to put
a floor under the gold price after the dramatic fall of $112 an ounce in late
May - the sharpest correction since the bull market began five years ago.
The Swiss bank said information from its trading floor suggested that funds and
investors were allocating 20pc of their commodity portfolios to precious metals.
This is far more than the index tracking funds run by Goldman Sachs, Dow
Jones-AIG, and others, typically taken to be a guide to overall investment
flows.
UBS said these indexes gave a deeply misleading impression, obscuring a silent
shift of funds from oil into gold.
The Goldman Sachs GSCI index, for example, has a gold and silver weighting of
just 2.27pc, compared to 73pc for energy.
"If our traders' experience is representative of trends in the wider market,
this has very important implications for metals investment," said the bank's
gold expert, John Reade.
The UBS gold reports are watched closely by the markets. The Zurich bank is the
world's leading gold trader and manages the biggest known stash of private
client wealth, surpassing $1,000bn.
The extra volume in gold buying has been channelled through the London Bullion
Market Association, eclipsing the Comex futures market in New York usually
monitored by speculators for clues.
Gold recovered from lows of $618.50 an ounce last week to end at $637.30 after
weak US jobs data renewed fears of a dollar slide.
"The sort of money that is chasing this market higher is not hot money," Ross
Norman, director of the BullionDesk.com.
"It is slow steady investment by pension funds and long-term buyers. Anybody who
thinks this market is about to head sharply lower is reading it badly," he said.
Mr Norman said there was a chronic dearth of new mine supply across the world
due to eco-regulations and a lack of discoveries.
Output in South Africa, the world's biggest supplier, fell to 10.9pc in the
first quarter of 2006 despite high prices. The country's production has reached
its lowest level since 1923. "It's becoming very hard to get gold out of the
ground," he said.
Oil states armed with an estimated current account surplus of $480bn in 2006 are
thought to be feeding the "stealth demand" for bullion, led by Russia.
President Vladimir Putin, a frequent critic of dollar hegemony, has ordered the
Russian central bank to raise the gold share of foreign reserves from 5pc to
10pc.
Russia's reserves have surged to $237bn - the world's fourth biggest - after
rising 61pc in 2004 and 40pc in 2005. With a current account surplus of 10pc of
GDP, it must sweep up a big chunk of global gold output just to stop its bullion
share of reserves from falling.
In China, monetary committee member Yu Yongding last week issued the most
explicit call to date for Beijing to diversify its $875bn reserves into gold to
protect against a tumbling dollar. "We need to use some of the reserves to buy
other assets such as gold and strategic resources such as oil," he said.
UBS warned that gold may have further to fall, followed by a period of sideways
trading before embarking on another powerful upward leg of the bull-market
rally.
Mr Reade said the immediate risk was a global economic downturn, dragging gold
down in an avalanche sale of all commodities.
But if the global economy turns nasty, gold will ultimately decouple from its
base metal cousins and regain its usual role as a safe haven currency and
defence against dollar disorder. "The bottom line is liquidation first, haven
later," he said.
--
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