Gold rush amid the storm
By Cleofe Maceda
Whether it's IndyMac,
Freddie Mac, Northern Rock, your stock or
whoever will be in trouble tomorrow, no one
knows for sure.
So it's little wonder that with all the anxiety
about the world monetary system, investors and
savers who are worried about the safety of their
nest eggs have turned to gold for some dose of
In London, for instance, some people reportedly
queued on the streets to buy thousands of pounds
worth of bullion and gold coins.
Due to its rarity and immutability, among other
reasons, gold is traditionally considered a safe
haven for one's wealth. It doesn't rust or
corrode. You can't destruct or crumble it. You
could bury it in the ground for years and it
would still be intact. Hence, it provides a
little bit of insurance during stressful times.
There are other reasons why people store gold.
Coins and small bars, for instance, are liquid,
so you can easily convert them into cash. You
can also trade coins for goods in some cases.
You can just keep them at home, if you wish, or
opt to store them in a safe-deposit box at a
Gold's lustre has not attracted only the
ordinary consumers and small-time investors.
Apparently, the banking sector has jumped on the
gold bandwagon, as well.
Germany's Bundesbank, the second-largest hoarder
of gold after the US Federal Reserve, announced
last month that it will no longer sell gold over
the next 12 months.
The Swiss National Bank has also decided to hold
on to its gold. Analysts have likewise forecast
a slowdown of gold sales by other European
banks. And, as the fate of the US dollar remains
uncertain, central banks in Asia and the Middle
East have shown more appetite for the metal.
According to Rolf Schneebeli, former head of the
World Gold Council, central banks turn to gold
due to the uncertainty of the dollar, their most
common reserve asset.
"The main purpose for the central banks when
investing is not to generate the highest
possible return on its assets, but to provide a
safe and sound financial basis for the currency
and the economy built on it," Schneebeli says.
He says suitable central bank assets must be
universally recognised and must provide a liquid
market that is deep enough to absorb major
"Looking at currencies, there are not many
currencies which are possible assets. The only
alternative to the US dollar is really the Euro.
The pound sterling is probably not strong enough
anymore. The yen and the Swiss franc, both
strong currencies, do not have enough depth to
ensure liquidity. Hence, gold is really the only
alternative to the US dollar and euro,"
So, as the economic uncertainty persists,
savers, investors and banks alike will continue
to seek haven in gold and may drive the metal's
Gold peaked at little over $1,000 an ounce last
March, trading more than twice the $257 price in
2001. Although it fell from its lofty perch to
$736 in early September, the price of gold
bounced to $920 late last month.
Some analysts believe gold will peak at $2,500
an ounce. While it may take some time for the
price of gold to climb that high, savers may do
well by investing in the metal now while the
rates are still relatively low.