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Soaring gold price lures investors, central banks

An Afghan salesman arranges gold jewelry at a jewelry shop in Kabul last Wednesday. Gold prices last week topped US$500 for the first time in 18 years. PHOTO: AFP

Everybody seems to want gold these days. Asia's growing middle classes, investors, even central banks are being lured by the metal's soaring value.

Its price surged above US$500 an ounce last week for the first time in 18 years, the latest sign of strong demand for gold in jewelry, industrial and dental uses, and as a safe haven against bubbling inflation. More than anything, it's the appetite for shiny finery in China, India and Arab countries that is driving the boom.

And with gold futures trading above US$530 an ounce, the price is set to keep rising at least in the short term.

Investors have also rediscovered gold to balance their portfolios of stocks, bonds and real-estate investments with a traditional store of value and hedge against inflation.

Strong buying of gold-mine stock, gold investment certificates and exchange-traded gold funds as well as bullion has further heated up demand, helping push gold prices more than 15 percent higher since Jan. 1.

The metal cost US$505 an ounce on Friday, a day after breaking the US$500 barrier for the first time since December 1987. Though that compares with US$347 three years ago, it's nowhere near a record: Gold's all-time high of US$847 an ounce in 1980, when adjusted for inflation since then, translates to about US$2,000 now.

Yet prices of other precious metals have also climbed to their highest levels since the 1980s. Silver is trading at 18-year highs and platinum rose on Friday to US$1,009 an ounce, the highest in 25 years.

Global demand for gold in the third quarter at 838 tonnes was up 16 percent compared to the same period last year, according to the Gold Council, a London-based industry umbrella group. The value of gold shipments jumped 25 percent to US$11.84 billion, the 10th straight quarterly increase, the group said. Nearly three quarters of the demand was for jewelry, though the fastest-growing segment was gold for investment use.

For the world's central banks, selling gold reserves has apparently lost its anti-inflationary attraction because the market would immediately snap it up. Now central banks in Russia, Argentina and South Africa are weighing whether to just join the crowd and stock up their gold reserves instead.

For the International Monetary Fund, the rise has already been a boon: Its gold stockpile's value now stands at US$52 billion.
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