The deep economic crisis is being fought with global monetary and fiscal reflation, which will lead to a devaluation of the U.S. dollar and an appreciation of the Chinese Yuan.
As a result of the uncertainty on Wall Street, gold as a monetary asset is going though the early stages of investment diversification and proving to be a popular hedge helped by liquidity through the creation of exchange traded funds (ETFs). Gold prices rose to a six-week high above $925 on Wednesday an ounce on the COMEX division of the New York Mercantile Exchange.
There are currently about 1.6 thousand tonnes of gold in these ETFs (equivalent to the sixth largest commodity basket) according to the World Gold Council, but this is expected to grow to about 8-10 thousand tonnes of gold in investor diversification.
Gold mine production is at an 8-year low, and China is aggressively buying and stockpiling gold. The country announced back in April that it had secretly doubled its gold reserves to 1,054 tonnes, up from 600 tonnes in 2003. China now ranks fifth in global gold reserves, behind the United States, Germany, France and Italy.
The dollar index (DXY) recently broke below the 200-day monthly average and is at a four-month low. Gold is the only asset that is not someone else’s liability so there’s no credit risk.
Market Vectors Gold Miners - ETF (GDX) has been seeing gains, but was down 2.62% Wednesday closing at $37.94 and has not been upgraded on the Street.
One of the world's largest gold producers based in South Africa, Gold Fields Limited (ADR), is cheapest on p/npv, closing at 12.25 down 3.01%.
No comments:
Post a Comment