Gold Reaches Over $1,000/oz on Increasing and Sustained Safe Haven Demand

Gold has again risen above the important level of $1,000/oz due to increasing safe haven demand on the unprecedented and worsening global financial and economic conditions.

“While gold has become overbought in the short term, its medium and long term fundamentals remain as sound as ever” Mark O’Byrne, executive director of Gold and Silver Investments said. O’Byrne said that “with the global economy slowing very sharply, international demand remains very strong as seen in gold coin, bar, certificate and exchange traded fund demand.”

“Governments and central banks, in their desperate attempts to avert deflation, are printing money as never before and are debasing their currencies and risk causing an international monetary crisis where investors and savers flee paper assets and currencies into hard, tangible, finite assets.”

Besides increasing retail, pension and institutional demand, many central banks are increasingly favourable to gold. Russia's central bank has increased gold's share in reserves, and plans to continue this trend in 2009, first deputy chairman told Reuters in an interview on last week.

And this marked rise in demand comes at a time when world gold production is actually falling. While investment demand remains very strong and is increasing there are growing fears about the declining supply of gold - the world's mine gold supply has been falling in recent years and it fell to 2,385 tonnes last year, down 3.6 per cent from 2007 (despite the rise in prices in recent years).

“Retail investors have realised that gold offers an effective hedge against depreciating currencies and sharp currency movements, is an effective inflation and deflation hedge, and is a proven safe haven in times of financial turbulence. The main drivers of interest in gold investment remain the same: unprecedented macroeconomic and systemic risk and money prininting on a scale never seen before”.

This is a recipe for markedly higher prices in the coming months and the inflation adjusted high of some $2,400/oz looks more and more likely in the next few years.