CCB News – 11 July 2013
The price of gold hit a new all-time high of $2,107 an ounce yesterday on the news that the Federal Reserve will once again embark on quantitative easing in order to provide support to the faltering US economy.
Gold jumped $115 on Wednesday after the Fed announced its decision to inject almost $1.2 trillion in fresh stimulus into the US economy and banking system.
Having consolidated for almost two years the yellow metal began its dramatic rise last month breaking through its previous high of $1,923.70 set back in September 2011.
In an interview on Bloomberg television John Harrington, Chief Portfolio Manager for the Stokaville Gold Funds, responded by saying, “Back in 2012 several prominent market commentators such as Dennis Gartman declared that the gold bull market was over, but I didn’t agree with that conclusion. Real interest rates were still negative throughout much of the globe, central banks were still printing money, and none of the systemic problems that led to the 2008 crisis had been solved.”
John continued, “We used the extremely negative sentiment that we saw in the spring and summer of 2012 to add to our portfolios, and now we are reaping the reward. Gold stocks have had a big move over the past five or six months, but they are still undervalued versus the metal and as a result the sector remains very attractive, especially since many of the major producers are now paying dividends in the two to four percent range.”
Demand for gold coins such as South African Krugerrands among retail investors has also reached record levels. Stephen Walker, from London based bullion merchant S.T. Walker, told CCB News, “Gold and silver are simply responding to the latest round of central bank stimulus and the realisation by investors that their fiat currency is rapidly losing its value. Gold isn’t in a bull market, paper currencies are in a bear market.”
Gold’s latest run up has once again fuelled concerns that it is in a bubble, however as Mr Walker points out, “Mainstream market commentators have been calling gold a bubble since it reached $800 an ounce back in November 2007. The real bubble is in government debt.”