It's become a matter of policy bordering on irrationality for professional traders and investors to be hostile to gold. Yet when times get unpredictable and scary, people still turn to gold. This trend change deserves to be acknowledged.
Inflows into gold ETFs continued to grow throughout the quarter, with investors buying a record 469 tonnes of gold, dwarfing the previous quarterly record of 145 tonnes, set in the third quarter of last year. This took the total amount of gold in ETFs to 1,658 tonnes, worth US$48.6 billion, the World Gold Council said.
“One reason the financial crisis has been so devastating for investors is that many alternative assets did not deliver on the promise that they would provide portfolio diversification,” said Natalie Dempster, head of investment, North America for World Gold Council and author of GID. “The same cannot be said for gold. Gold has been one of the few assets that has genuinely provided investors with diversification throughout the financial crisis.”
For the first quarter 2009, the gold price ended at US$916.50/oz, on the London PM fix, representing a moderate increase of 4pc, contrasted against a 12pc decline in US stock prices during the period.
Anecdotal reports from coin and bar dealers also point to another very strong quarter in retail demand for coins and bars in Q1 09, after a 396pc year-on-year increase in Q4 08. Dealers have continued to report shortages in the availability of official coins and small bars.
Just today the price of gold rose because the IMF forecast the world economy was going to contract. This is significant because the the theory on Wall Street has been that the only time to own gold is in times of high inflation.
Instead, investors are buying gold hand over fist in times of economic depression, and even threats of deflation.
In fact, while the stock market literally crashed last year, gold ended 2008 up by 4.32%.
A ROI of less than 5% may not sound like much, until you compare it to the general stock market. In 2008, 471 out of the 500 stocks that make up the S&P index were losers. The overall index dropped 38.5% last year.
In fact, since April 2001 the price of gold in dollars has nearly quadrupled, while the overall stock market is flat.
You would think that such an impressive bull run would catch the attention of the average investor. Instead it took a massive crash of the overall stock market to finally get his/her attention.