Has gold gone manic?

The NYT article makes a case for a global gold frenzy.

Inside the Global Gold Frenzy

HERE, in a corner of Switzerland where Italian is spoken and roughly one-third
of the world’s gold is refined into bars and ingots, business is booming. Every
day, bangles, bracelets and necklaces arrive in plastic bags — from souks in the
Middle East, from pawn shops in Asia and from corner jewelers in Europe and
North America.

“It could be your grandmother’s gold or the gift of an ex-boyfriend,” said Erhard
Oberli, the chief executive of Argor-Heraeus, a major refiner here that processes
roughly 400 tons of gold a year. “Gold doesn’t disappear.”

Amid a global frenzy fed by multibillion-dollar hedge funds, wealthy speculators
and governments all rushing to stock up on the precious yellow metal, the price
of gold briefly surpassed $1,100 an ounce on Friday, a record high.

Long considered the ultimate refuge for nervous investors, gold has climbed
as the dollar has steadily weakened, budget deficits have expanded in the
United States and Europe, and central banks have continued to pump trillions
of dollars into weak economies, creating fears of another asset bubble that
will ultimately pop.

“It’s not that gold has changed, but gold buyers have changed,” said Suki
Cooper, a precious-metals strategist for Barclays Capital. “It’s a structural
shift we’re seeing on the investing side, from Asian central banks right down
to individual investors buying ingots and coins.”


You only need to look at gold supply and demand statistics from World Gold Council
to discover a lie. As you can see, bar hoarding has been roughly equal to buying
gold ETF, which for the most part is GLD. The net assets in GLD are just 35 billion,
much lower than a single large cap stock in the US stock market – say, Apple or
Google, let alone an ASSET CLASS, and that’s accumulated demand since GLD started
to trade, not just 1 year. Given that GLD is rougly equal to bar hoarding, the total
investment demand in gold for the past decade is of the order of 70 billion, or about 0.1% of the
World GDP or global stock market cap. Sure, gold can drop, but it is nowhere
near manic. See ya at $20,000 per Oz!

Gold demand from WGC

Gold demand from WGC

Sunday, November 15th, 2009 Precious metals

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