Price of gold spikes

Updated November 23, 2009 20:46:34

The continuing weakness of the US dollar and worries about the world's largest economy are driving up the price of gold. Gold was fetching more than 1,164 US dollars an ounce in Hong Kong today, a jump of around twenty dollars from its last closing price, on Friday.

Presenter: Karon Snowdon
Speakers: Nigel Phelan Director of EFT Securities

PHELAN: One of the major drivers for it is I think the weakness of the American dollar, people are just seeing gold typically as a safe haven asset at the moment, and what we're also seeing now is all the sort of merging market central banks have increased their gold reserves substantially over the last number of months. We only saw today actually Russia announce that for the month of October they've increased their gold storage by another 15-and-a-half tons. Now that's sort of big chunky weigh-ins for these emerging markets coming through, it's going to have a massive impact on the availability of the metal. And it's also a very clear indication to the market that the high gold price is here to stay.

SNOWDON: And India's government bought something like 200 tons earlier this month, so massive buying?

PHELAN: Well that's right, I think for the emerging market story as well, for these economies they're still quite a way behind the more established western economies, so we're looking at the average sort of waiting for these guys as sort of two, three, four, five per cent allocation towards goal. Whereas looking at places like the US and Germany and those sort of places, they've got 12, 13, 14 per cent allocation towards gold.

SNOWDON: Yes what's driving the emerging market then in Asia and other places to stockpile gold?

PHELAN: Again it's the sort of lack of confidence in the US dollar as a reserve currency. We're seeing now that gold is almost being treated as a currency by itself, and given the sort of uncertainty we're seeing in the world economy, people obviously want to hold their cash reserves somewhere and they think gold is definitely the best place to be at this stage.

SNOWDON: Yes people can understand why governments need to have something in the bank, whether it's dollars of gold, that's clearly understood, and that the loss of faith now or confidence in the US dollar, but do people understand that it's because US interest rates are so low and other factors just that people are losing confidence in the US economy itself?

PHELAN: Things are definitely changing in the economic landscape and I think people are sort of uncertain as to what the future holds for I suppose this historical financial superpower such as the UK and the US, and gold has always been typically a safe haven.

SNOWDON: So what's the limit? How high can gold go?

PHELAN: That's the million dollar question and I think based on the investment demand, particularly in the gold ETF globally, it's absolutely flying and that's from institutional investors and everywhere else as well as retail investors.

SNOWDON: If the US dollar is going to lose its place as the world's reserve currency, the currency that most people trade in and international trade deals are done in; what's going to replace it?

PHELAN: Well again that's another million dollar question, I think everyone's talking about China being the economy that's really going to step up and lead the charge going forward. But it's …

SNOWDON: That's decades away realistically?

PHELAN: Exactly right and it's still a long way away, and I don't think the US currency's going away in terms of being the reserve currency for the world economy. I'd be very surprised if it happens any time soon. But with all these things it goes through peaks and troughs and you'll see various countries will be the leading light in these types of situations. The UK was previously, the US took over, that's not to say that someone else may not take over now at some point as well, but it's not going to happen for I would imagine the foreseeable future at this stage.