With bullion prices edging ever closer to the $1Â 000 an ounce mark, the alluring gleam of gold is more intoxicating than ever.
The price at the close of trade on Wednesday sat at $963,45.
Investors are lapping it up as the impact of the global economic crisis deepens and countries everywhere spend trillions in a bid to rescue their economies, fanning the flames of inflation.
The United States Federal Reserve has been flushing the economy with dollars, effectively eroding the currency’s value and seeing investors take refuge in gold, traditionally viewed as a hedge against inflation and a back-up against a weak dollar.
As Peter Major, gold analyst at Cadiz Financial Strategy Group, said, it is ”the world’s oldest currency”.
With the current financial cataclysm countries have printed money in a bid to ease liquidity, increase consumption and boost growth, said Major.
Investors do not seem convinced of this spending spree and its ultimate effects and their bullion buy seems to suggest as much, he argues.
The long-term average price of gold is about $500 an ounce, as such it is trading at almost double that.
Josina Oliphant, commodities analyst at RMB, points out that gold has been rising on the back of a rally across commodities, including oil, which has jumped to more than $65 a barrel, way off its lows earlier in the year in the region of $40 a barrel.
Commodity price increases could mean good things for local mines, encouraging them to up production, but she warns the rally is driven by sentiment rather than by sound fundamentals of demand and supply.
She argues that concerns over hyper-inflation may be an over-reaction.
”But in line with the massive spending, in the short term, we do expect that [inflation] may gather momentum,” she said.
