Should we care about $1,000 gold? Or has the "key psychological level" lost some of its impact
by Geoff Candy
Tuesday, September 8, 2009
www.mineweb.com
GRONINGEN, THE NETHERLANDS –
Since early morning trade in Europe began Tuesday, headlines were shouting about the psychological $1,000 level. First, they were asking whether or not gold would break through it and then later, wondering whether or not the breach was likely to be sustained. But, another question to ask is: "How significant is the
$1,000 mark. According to Aram Shishmanian, CEO of World Gold Council, "Reaching the $1000 mark once again shows that this price level is no longer the watershed for gold that it once was.
"Investors are turning to gold as they seek assets which preserve their wealth, whatever the financial weather." John Mulligan, Investment Marketing Manager at the World Gold Council, says the most significant factor underpinning the price in the last
few years has been the development of the investment markets. "The development of the gold ETFs (which in just over 5 years, have grown to hold more than 1670 tonnes of gold – worth around $54 billion at current prices) have clearly made an impact and facilitated easier institutional investment in gold. However, more recently, we’ve also
seen a real reawakening of retail investment demand in Western Europe and the US.
Mulligan adds, "The fallout from the credit-crunch and subsequent general uncertainty regarding financial institutions and traditional markets has caused investors to seek out safer and simpler investment solutions and this has resulted in unprecedented demand for physical gold at the retail level: investment demand in general has seen an annual increase (to end of June 2009) of 133%; but retail demand for physical gold in Europe over the same period increased by 733%."
This has meant, he says, that the price of gold is now much more driven by demand factors and less by sentiment which has resulted in the psychological element of the "$1,000 level" being less of a factor. And, could therefore, indicate that the $1,000 becomes much less of a price ceiling than it once was.
However, the council does identify four other factors that have contributed to the recent jump in the price of the metal. Firstly it says, gold is now considered to be a separate asset class. "Both retail and institutional investors are increasingly turning to
gold as an independent asset class to ensure their portfolios are properly.
Secondly, as a result of the massive fiscal stimulus the world has enjoyed recently there are many people, including the likes of celebrated hedge fund manager, John Paulson who are fearful of the impact of inflation. "Gold," it says, "is a proven hedge against inflation; while its real value can vary in the short term, its purchasing power has remained stable over centuries. Recent weakness in the dollar is given as a third reason and the fourth consideration has been concerns among investors about how
sustainable the recent jump in equity markets is likely to be.
Chuck Madere
Silver Snowball












