JEDDAH – Amid fundamentally and technically very weak US dollar, and a potential to fall dramatically, gold is traditionally sought of as the safe haven. According to Belmont Equity AG, a strategic asset and portfolio management company based in Zurich, Switzerland, many experts believe that, when the retail investing public recognizes what is unfolding, they will seek an alternative to paper currencies and financial assets and this will create an enormous investment demand for gold. Under such circumstances, it may be prudent to own both the physical metal and select mining shares, it noted. And as other countries are very reluctant to see their currencies appreciate and are resisting the current fall of the US dollar, Belmont said “we could be in the early stages of a massive global currency debasement, which may see tangibles, and most particularly gold, rise significantly in price. The price of gold per ounce has risen dramatically in the past few years. This trend appears set to continue as many investors are turning to gold commodities to add stability to their portfolios. Many analysts feel that gold prices could reach unprecedented heights in 2012. “I'm a big believer that all of the ingredients for a higher gold price are there: geopolitical risk, economic uncertainty, inflation,” said Yamana Gold Chief Executive Peter Marrone. “It just seems natural to me for gold prices to go to substantially higher levels.” At the conclusion of the London Bullion Market Association's (LBMA) recent annual conference, an anonymous survey of delegates was given to gauge their assessment of how gold will perform in 2012. The following statement was issued as a result: “With no let up seen in the financial markets uncertainty that fanned the safe-haven spree, bullion is expected to rise to $2,019 an ounce by November 2012.” It should be noted that LBMA's forecast history has generally been conservative – for the past three years, prices have outpaced the survey. Though savvy investors have long used gold commodities as protection from depreciation of the US dollar, still there is a growing interest in gold commodities for varied reasons, such as the heavy volatility of the market, instability in the Middle East following the Arab Spring and protracted wars in the region, the ongoing economic downturn driving investors to seek more steady and liquid assets, and the inability of global leaders to contain serious sovereign debt problems on both sides of the Atlantic. Further compounding the rise in gold prices is the expected tightening of the gold supply. Moreover, Belmont said several factors are expected to lead to decreased production of gold including rising costs of mining gold and increased taxes as some national governments are expected to levy against gold mining companies. Gold demand is highest in the Middle East and Asia, with the United States following closely behind. If prices rise as high as predicted, the jewelry industry will be profoundly affected and demand for gold jewelry will drop significantly at least in most countries. While the decreased demand for gold jewelry will not affect the price of gold significantly, due to interest from investors it will affect the general US public with less gold jewelry being available at a much higher price. Belmont said “perhaps it is time for savvy consumers to purchase whatever gold jewelry they are secretly lusting for before the massive increase in valuation makes it unattainable” “While most analysts remain bullish on gold in 2012, there is an obvious wide range of predictions for the coming year on the pricing of precious metals. Some investors will choose to play it safe by steering clear of this investment – and other – altogether. Others may trade the futures market while others will speculate on companies that derive their income based on the commodity. Many will use options for increased leverage and to manage risk. Regardless of methods used to play the Gold market, investors will no doubt be carefully keeping abreast of the changing price forecast for 2012 to aid their decision-making,” Belmont said. Furthermore, a number of the world's most prominent gold experts are expecting central banks to continue to play a very supportive role in underpinning the rise in the gold market in 2012. Central banks – the long-time nemesis of the Gold sector –have done an about-face to become its biggest supporters. And this shift promises to retain momentum in 2012 with the prospect of a new era of net buying continuing to fuel robust demand for bullion. According to the World Gold Council (WGC), central banks bought 148.4 metric tons of gold in the third quarter of 2011 alone. It is the highest level recorded since central banks became net buyers of the precious metal in the second quarter of 2009, after 20 years of continued net sales. Besides, predictions about gold's ascendancy are not just being validated by central bankers, Belmont noted. Since the financial crisis, there has also been a buying frenzy among many of the world's multi-billion dollar hedge funds, as well as plenty of other institutional investors and of course legions of individual speculators. All have been buying in record amounts. And most are venturing into the gold sector for the very first time. Similarly, gold-backed Exchange Traded Funds (ETF's) are attracting ever-increasing numbers of rattled investors, who view gold as the ultimate hedge against a weakening US dollar and continued instability in the US economy. The prospect of a continuation of low interest rates for some time to come is also adding to Gold's universal appeal. With banks worried about the outlook for the financial sector, sales by the world's central banks promises to be even lower this year than they were in 2011. Given the damage done to other paper assets that were formerly considered secure, there will be greater risk aversion among central banks, boosting gold's status within central bank reserves. The shift in central bank gold transactions in 2011 shows no signs of abatement, and is one where major sovereign investors (state-owned investment funds), are increasingly hedging against an ailing dollar in favor of bullion. A key reason why central banks want to hold onto gold is the instability of their most common reserve asset, the dollar. Gold traders are also paying close attention to reports from Beijing that China is attempting to boost its gold reserves to around 4,000 tons to diversify away from paper currencies. Should this be true, it could lead to a significant material change for the gold price. According to ETF Securities in London, major gold purchasers such as Europe, India and China, have been joined by a growing number of emerging market central banks, such as Thailand, South Korea, Kazakhstan, Russia, Mexico and Bolivia, which have all substantially increasing their gold holdings this past year. As part of their diversification away from the US dollar, this is seen as a structural change that may support the gold price on a medium to long-term basis. Economist Dennis Gartman recently wrote that “amid the debt crisis, gold has become the currency of the world.” Central bank officials the world over have woken up to the fact that their predecessors acquired gold reserves in the first place to stave off currency devaluations. And that impetus is once again taking on a heightened importance against a backdrop of “continued economic and currency uncertainty, and inflation concerns.” This is the conclusion of a report by the London-based World Gold Council. The report adds: “In the official sector, we expect to see a continuing trend of central banks diversifying their dollar exposure in favor of the proven store of value represented by gold.” – SG
