Physical gold to trump ETFs by 500% in 2011 hears Dubai conference

Physical gold will outsell ETFs by 500 per cent this year, Standard Bank’s Walter de Wet told the 8th Dubai City of Gold Conference today. Two years ago the position was completely reversed with physical gold sales running at only 20 per cent of ETFs.

‘It’s a complete flip from ETFs to physical gold,’ he said. ‘And it seems to reflect people’s lack of trust in financial systems and the shift in investment flows towards Asia and the Middle East.’

$2,200 gold

Standard Bank is expecting the price of gold to hit $2,200 at the end of the first quarter next year and $2,000 in Q4 2011. Dr de Wet made the theme of his presentation ‘Gold as a currency’  and forecast both a QE3 in the US and that ‘the ECB will have to do exactly the same.’

He noted that ‘gold prices will continue to rise so long as we have macro imbalances with rising debts balanced by rising reserves in other countries’. So when will it all be over for gold?

‘Only when first the Fed stops expanding its balance sheet which we do not expect for three to four years, and governments stop borrowing and China stops accumulating foreign reserves.’

Standard Bank reckons $500 billion of QE3 will add $200 to the gold price early next year, taking it to $2,200. Silver barely got a mention, although ArabianMoney is confident it will deliver even higher returns (click here).

The second headline speaker at the annual Dubai City of Gold Conference, Dr Paul Walker of GFMS Thomson Reuters, pointed to the dependence of the gold price on capital inflows of around $100 billion a year as a potential weakness going forward.

Dr Walker said this was a huge sum for a single homogeneous asset, perhaps only exceeded by one-year US treasuries. However, he still thought the ’search for yield’ was working in gold’s favour with negative real interest rates around the world and admitted that the flow of investment into precious metals showed no sign of abating.

Shares overvalued

In short, the alternative investments are not delivering a good return. Dr Walker said that even equity values looked too high because they were discounting an unsustainably low rate of interest. Deposits accounts and real estate are also clearly delivering poor yields to investors.

However, most of the 300-strong audience at the conference were from the Dubai jewelry sector. For them the biggest concern is the volatility of precious metal prices where swings of $150-a-day can and do wipe out traders.

After all for them the continuation of the long-term uptrend for gold is more of a bonus than a lifesaver, and on volatility none of the speakers seemed to offer much comfort.

Source: GoldSeek.com

By: Peter Cooper, Arabian Money