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Are declining fiat currencies increasing demand for gold worldwide?

*Bloomberg, by Pham-Duy Nguyen & Nicholas Larkin, November 9, 2009

‘Gold futures climbed to a record for the second straight session as the slumping dollar spurred demand for the precious metal as an alternative investment.

The greenback slid to a 15-month low against a basket of six major currencies after the Group of 20 industrial nations maintained economic stimulus steps.  Gold has climbed 25 percent this year, while the dollar is down 7.7 percent.  Last week, the Federal Reserve held U.S. interest rates at historic lows.

‘It looks like gold will carve out new highs until further notice,’ said Michael Guido, director of hedge-fund sales at Macquarie Capital USA Inc. in New York.  ‘The Fed made it quite clear that rates are going nowhere. The dollar is sinking. The bullish holders of gold are adding positions when the market makes a new high.’

Gold futures for December delivery rose $5.70, or 0.5 percent, to $1,101.40 an ounce on the New York Mercantile Exchange’s Comex division.  Earlier, the price reached a record $1,111.70.  Gaining for six straight sessions, and setting records in four of the past five, gold’s rally this month is the longest since March 2008.

The dollar dropped 0.6 percent last week against the currency basket as the Fed kept its benchmark interest rate at zero percent to 0.25 percent, where it was set in December.  Gold is heading for the ninth straight annual advance.

‘All Dollar-Driven’

‘You’re getting rotational support into gold,’ Guido said.  ‘It’s all dollar-driven.’

Gold probably will top $1,500 within the next 18 months, Bank of America Merrill Lynch said in a report distributed today. It cited moves by some central banks to hedge against declines in currencies including the dollar, euro and yen.

Currencies from the 10 largest industrial economies are ‘suffering from a credibility problem,’ which makes ‘a move toward hard assets like gold’ more likely, the bank said.
India’s central bank last month bought 200 metric tons of bullion from the International Monetary Fund for $6.7 billion.  The South Asian country now holds 557.7 tons in its reserves, the 10th-largest national stockpile after Russia’s 568.4 tons, according to data from the producer-funded World Gold Council. The IMF agreed in September to sell 403.3 tons of gold as part of a plan to shore up its finances.

‘India’s surprise purchase was bullish in two ways: quickly removing half of the IMF’s announced sales, as well as raising the chance that the entire remaining supply could be sold off-market, with China still the most obvious potential purchaser,’ Morgan Stanley said today in a report.”


*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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