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An employee poses with a gold chain at a jewellery store in Taipei September 23, 2010. Credit: Reuters/Pichi Chuang
By Laura MacInnis
GENEVA
GENEVA (Reuters) - The world's wealthiest people have responded to economic worries by buying gold by the bar -- and sometimes by the ton -- and by moving assets out of the financial system, bankers catering to the very rich said on Monday. Fears of a double-dip downturn have boosted the appetite for physical bullion as well as for mining company shares and exchange-traded funds, UBS executive Josef Stadler told the Reuters Global Private Banking Summit.
"They don't only buy ETFs or futures; they buy physical gold," said Stadler, who runs the Swiss bank's services for clients with assets of at least $50 million to invest. UBS is recommending top-tier clients hold 7-10 percent of their assets in precious metals like gold, which is on course for its tenth consecutive yearly gain and traded at around $1,314.50 an ounce on Monday, near the record level reached last week. "We had a clear example of a couple buying over a ton of gold ... and carrying it to another place," Stadler said. At today's prices, that shipment would be worth about $42 million.
Julius Baer's chief investment officer for Asia is also recommending that wealthy investors park some of their assets in gold as a defensive stance following a string of lackluster U.S. data and amid concerns about currency weakness. "I see gold as an insurance," Van Anantha-Nageswaran said. "I recommend 10 percent as minimum in portfolios and anything more than that to be used for trading purposes, to respond to short-term over-bought or over-sold signals."
ULTIMATE BUBBLE?
Billionaire financier George Soros, echoing comments from investment guru Warren Buffett, last month described gold as the "ultimate bubble" because it is costly to dig up and has no real value except its market price. But a rising price for the precious metal has in itself generated more and more demand from investors looking for a way to hedge against a fresh recession. Gold bears no yield and is uncompetitive in an environment of rising interest rates.
The uneasy outlook for inflation, hard currencies and global growth has triggered a five-fold increase in a physical gold fund launched by Pictet one year ago, the Swiss private bank said. UBS's Stadler said the precious metal has become a staple of investors' portfolios, despite questions about whether it makes for a smart long-term investment. "If you talk to ultra-high net worth individuals, that level of uncertainty has never been higher in the last two, three, four years," he said.
"If they ask me, 'Is inflation going up or are we entering a deflationary cycle?,' I don't know. But obviously nobody knows." Anthony DeChellis, managing director of Credit Suisse's Americas private banking unit, said at the Reuters summit in New York that clients are more interested in capitalizing on the rise in gold prices than using the precious metal as a safe-harbor investment. "They're asking, 'If it's a bubble, how far can I ride that bubble,'" he said. "I cannot say we've seen a spike in gold interest, but there's an interest in the phenomenon of it."
Samir Raslan, Citigroup Inc's regional head for central, eastern and northern Europe, Africa and Turkey, said clients were not going overboard on gold. "I wouldn't say that clients are over-investing. It's part of an asset allocation, but it's not something that they are deciding all of a sudden," he said. And not all bankers are recommending exposure to gold. Andreas Wolfer, head of private banking at UniCredit Group, attributed the run-up in the price of gold to frayed investor nerves after the 2008 financial crisis as well as concerns about sovereign debt in the euro zone.
"We have seen it but we have not overweighted it in our asset allocation," Wolfer told the Reuters summit in Geneva, which has emerged as a major trading hub for precious metals as well as other physical commodities. "We strongly believe in an asset allocation having a clear and diversified portfolio, which sounds a bit boring but in the end it brings the best returns," Wolfer said.
(Additional reporting by Kevin Lim in Singapore and Joe Rauch in New York; Editing by Greg Mahlich and John Wallace)
A jeweller displays gold ingots at his shop in Peshawar, northwest Pakistan on September 23, 2010. Credit: Reuters/Fayaz Aziz
By Amanda Cooper
LONDON | Thu Oct 7, 2010 7:40am EDT
LONDON (Reuters) - Gold rose to a third successive record high on Thursday, putting it on track for its strongest weekly performance in six months, as expectations for the Federal Reserve to prop up the economy undermined the dollar. The Fed was widely expected to resume quantitative easing -- in which the central bank would buy government bonds for example and pump extra cash into the financial system to keep interest rates low -- which has pushed the dollar down 7 percent against a basket of currencies in the last month.
Gold, which usually benefits from dollar weakness due to its inverse relation with the U.S. currency, has gained nearly 10 percent in the same period. Spot gold was last at $1,360.25 an ounce at 1127 GMT, up from $1,345.80 late on Wednesday, but down from an all-time peak of $1,364.60 struck earlier in the day. The price has risen by 3.2 percent so far this week, its largest weekly rise since mid-April.
U.S. gold futures for December delivery hit a fresh record high at $1,366 an ounce, before easing slightly to show a 1 percent gain on the day at $1,361.60. "We look at the reasons for holding gold and other precious metals and, above everything else, it is the idea of a store of value to protect against currency debasement," said Natixis strategist Nic Brown.
"Whether you're undergoing quantitative easing or whether you're devaluing your currency against others, it all adds up to pretty much the same thing." "As a consequence, governments are delaying any fiscal austerity, while monetary authorities are rolling out additional quantitative easing measures over and above the exceptionally low interest rates that are already in place, that is just good for gold."
SUPPORT FROM FUNDAMENTALS
Gold retreated from earlier highs after the world's third-largest producer of the metal, Anglogold Ashanti said it had completed the buy-back of its hedgebook, previously the largest in the industry.
But on a supportive note for gold, state media in Vietnam reported that Asia's second largest bullion consumer after India would grant licenses and quotas to import gold, which was banned in mid-2008 as policymakers attempted to tackle the country's trade deficit. "People are going to focus on the fact that the Asian physical market will be tight. Last time Vietnam opened the door to gold imports, gold went up $20. In percentage terms, it could translate into $30 today," said a Singapore-based trader.
In more fundamental news for gold, the World Gold Council said it expected central banks to be net buyers of gold in 2011, for the first time in nearly two decades. Nervousness over the outlook for U.S. growth was heightened on Wednesday after a survey of private-sector employment showed a surprise contraction in September, which further unsettled investors ahead of Friday's key employment report.
"With expectations for quantitative easing high, data monitoring between now and the November 3 (Fed policy setting) meeting becomes even more significant," wrote UBS analyst Edel Tully in a note. "The short-term direction of the U.S. dollar, and therefore gold, will be influenced by tomorrow's U.S. payrolls data: a positive or negative deviation from expectations will weigh heavily on market thinking about quantitative easing prospects."
Short-term U.S. Treasury yields are around record lows, while European equities dipped ahead of interest rate decisions from both the European Central Bank and the Bank of England later in the day. The strength in gold extended to the other precious metals. Spot silver hit a new 30-year high at $23.51 an ounce, and was last quoted at $23.44, up from $23.13.
Holdings in the iShares Silver Trust, the world's largest silver-backed, exchange-traded fund, rose to a fresh record high of 9,944.14 tons. Platinum group metals followed the rally in gold. Spot platinum rose to $1,723, its highest since mid-May and was last up 1.6 percent on the day at $1,722.50, while palladium hit a new nine-year peak at $602.50 and was last up nearly 4 percent at $601.00.
