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Investors return to gold "in a major way": LBMA Chairman

Kyoto, Japan (Platts)--29Sep2008

The Chairman of the London Bullion Market Association, Jeremy Charles,

said that due to chaotic market conditions over the past two weeks, investors

are returning to gold, "in a major way."

     The chairman, who is also Global Head of Metals at HSBC, was addressing

delegates in Kyoto, Japan, at the LBMA/London Platinum and Palladium Market

Precious Metals Conference 2008. The markets have been rocked in recent months

by the ongoing global credit fiasco which has seen big name banks collapse and

unite in a bid to stem the bloodletting born from dire money management in the

USA.

     Charles noted that, "with confidence in the dollar and other investment

classes decidedly shaky," investors are piling back in to the yellow metal.

Gold hit a high of $1,030.70/oz March 17, coinciding with the collapse of

securities firm, and household name in the US, Bear Stearns. Since then gold

has been on a roller coaster journey largely spurred by investor in and out

flows and the US dollar. Generally, and historically, the yellow metal is seen

as a safe haven in times of political and financial instability or

uncertainty.

     SELLOFF PROMPTS RENEWED PHYSICAL DEMAND

     The recent sell off in gold, which the metal has now significantly

bounced back from, was orchestrated by renewed investor sentiment in the green

back. "This sell off, which was primarily due to the improved outlook for the

dollar, coupled with lower oil and commodity prices, created an enormous pick

up in physical demand from across the globe," said Charles. 

     He added, "This demand was in fact so great that the global refining and

manufacturing industry simply could not produce gold bars in sufficient

quantity to satisfy this pent up demand." The demand put upward pressure on

the price of gold as consumers stockpiled the precious metal. Traditionally

physical buyers tend to sit on the sidelines at times of increased price

volatility. After the sell off, which saw gold fall to the mid $700s, physical

purchases managed to lend support and give the metal a base around $800/oz. In

recent weeks fresh money, and some major short-covering, has seen the metal

break the $900/oz barrier, yet not manage to hold that level. Pundits are

mixed on where the market will go next, one analyst told Platts: "It's just

too hard to call." 

     HIGHLY UNUSUAL MOVES NOT ONLY STIMULUS FOR GOLD

     "These highly unusual moves do of course reflect the current woes in the

global financial markets, but it is my opinion that even when this crisis

draws to an end, gold will be looked on in a very different light going

forward," said Charles. He added: "Those who have traditionally shied away

from gold as part of an investment portfolio can no longer afford to ignore

this unique asset."

     The LBMA chairman also predicted that as less money is pumped in to

investment in the production side of gold, and Central Banks ease sales of the

yellow metal, coupled with increasing investor interest, "despite many

comments to the contrary, higher gold prices are likely to be the norm."

--Ben Kilbey, ben_kilbey@platts.com

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