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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 protection.

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 bank.

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 transactions.

"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," Schneebeli adds.

So, as the economic uncertainty persists, savers, investors and banks alike will continue to seek haven in gold and may drive the metal's price higher.

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.
 



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