November 14, 2012

Gold to Soar: Deutsche Bank

Stimulus predicted to boost price above $2,000

Gold is destined for another increase, according to the head of metals trading at Deutsche Bank. In fact, it’s set to jump above $2,000 as governments use stimulus to counter any slowing in economic recovery.

Bloomberg reported Wednesday that Raymond Key, Deutsche Bank’s London-based global head of metals trading, said he believes continued stimulus funding will drive the price of gold higher even than its last peak in 2011.

“We’ll take out $2,000, we’ll go higher,” Key said in the report. He was in Hong Kong attending the annual conference of the London Bullion Market Association when he went on record predicting the metal’s rise, adding, “That’s on the view that they’ll continue to print money.”

Already gold is looking to record a 12th annual increase in price on the belief that governments will continue to provide stimulus funds as they seek to boost recovery efforts from the worldwide recession. Such a move, investors believe, will cause currencies to lose value and spur inflation. On that belief, they are placing their faith in gold, with gold-backed ETFs growing to their largest size ever in the week just past.

Key is not the only expert who foresees higher dollar signs for the precious metal. Jeremy East, global head of metals trading and structured inventory product at Standard Chartered, was quoted saying in a Nov. 12 interview, “Gold out of all the metals will be the best performer. The biggest driver of gold will be the ETF.”

The signs are there: Bank of England Gov. Mervyn King said Wednesday that there is a possibility that the U.K.’s economy will shrink in Q4 and slow recovery, so the bank is keeping the door open to additional stimulus funding.

“We face the rather unappealing combination of a subdued recovery with inflation remaining above target for a while,” he was quoted saying. “There are limits to the ability of domestic policy to stimulate private sector demand as the economy adjusts to a new equilibrium. But the committee has not lost faith in asset purchases as a policy instrument, nor has it concluded that there will be no more purchases.”

Countries are also still adding to their gold reserves, among them Brazil, South Korea and Russia, according to data from the International Monetary Fund. Ashish Bhatia, manager of government affairs at the producer-funded World Gold Council, said recently that governments bought 254.2 tons in the first half of 2012, and added that holdings are growing at a rate that should exceed the 456 tons added in 2011.

“We’re still working out the excesses that we’ve seen in the past,” said Jamie Sokalsky in the report. Sokalsky, CEO of Toronto-based Barrick Gold Corp., the largest gold producer in the world, added, “This takes time, and easy monetary policy is going to have to exist for some time.”

He continued, “With central banks continuing to buy gold around the world and with the macroeconomic environment which is still there, the demand should remain very strong. We’re not going to see the reaction on the supply side to make up for that in the industry.”

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