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Golden Aye

by henrycopeland
Tuesday, February 10th, 2009

More securitizedgold hoarding reported by the FT:

Investors are buying record amounts of gold bars and coins, shunning risky assets for the relative safety of bullion amid renewed fears about the health of the global financial system.

The US Mint sold 92,000 ounces of its popular American Eagle coin last month, almost four times that which it sold a year ago and more than it shipped during the whole of the first half of 2007.

Other countries’ mints have also reported strong sales. “Large purchases of coins are perhaps the ultimate sign of safe-haven gold buying,” said John Reade, a precious metals strategist at UBS.

Inflows into gold-backed exchange traded funds surged in January, pushing their bullion holdings to an all-time high of 1,317 tonnes. Last month’s flows of 105 tonnes were above September’s previous record of 104 tonnes, and absorbed about half the world’s gold mine output for January, said Barclays Capital.

“We estimate that investment demand [into gold] could double in 2009 compared to 2007,” said Mr Reade. “Purchases of physical gold have jumped over the past six months as investors’ fears about the current financial crisis … have intensified.”

With slim opportunity costs (nearly zero current cost of carry) and no obvious fungible substitutes (unlike XOM for CVX, for example) and no value other than the perception of its value, gold is the ultimate self-fulfilling prophesy. In short, gold is the next bubble.

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