Sunday, November 29, 2009

Is gold feeling vertigo or is it a case of civilisation shift?

SHOOT: The latter.

Bottom line: “The scope for EM central banks to buy more gold is substantial, if they choose to do so,” he wrote cautiously in a note to clients.

Will they choose to do so?

“I suspect they will,” he told me.

Personally, I have been feeling vertigo with gold near $1180. All my contrarian instincts cause me to dislike momentum stories — but there again, maybe this is not momentum. Perhaps it is a civilization shift.

Stephen Jen from the hedge fund Blue Gold Capital has a warning for those who think that gold has risen far too high, is necessarily in a speculative bubble, and must soon come clattering back down.


Mr Jen is an expert on sovereign wealth funds from his days at Morgan Stanley. The gold story — essentially — is that the rising economic powers of Asia, the Middle East, and the commodity bloc are rejecting Western fiat currencies. China, India, and Russia have all been buying gold on a large scale over recent months.

The killer-term here is at current prices since any such move in the tiny global market for gold would send prices into the stratosphere.

Mr Jen said China alone accumulated $150bn in reserves in the third quarter, pushing the total to $2.3 trillion. These are colossal sums. China is amassing almost as much each month as the United States ($63bn) has built up in the entire history of the country.
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