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High Wealth Investors Demand Unprecedented Gold Volumes

October 1st, 2008

As fears about the state of the global financial system deepen, wealthy investors are demanding ever greater volumes of both gold bullion and gold coins, and they are moving them into their own private vaults.

The primary driver behind this dramatic change of attitude towards gold investment has been the losses made in specific investment vehicles that had previously been considered to be low-risk investments such as money funds for example.

Bankers at the London Bullion Market Association (LBMA) have reported that their staff are working overtime just to keep up with demand! They also report that investors are willing to pay up to $25 an ounce above the London spot price to guarantee that they will secure the increasingly scarce gold bars. It’s the high wealth investors who are demanding these unprecedented gold volumes, and following their lead, many others are now exploring a route into the gold market.

Jeremy Charles, the chairman of the LBMA said: “there’s an enormous pick-up in investment demand. I have never seen a market like this in my 33 year career. The gold refineries cannot produce enough gold bars to meet demand!”

On Tuesday spot gold prices traded at above $900 an ounce - a staggering 25 percent increase since the collapse of Lehman Brothers less than a month ago. While most traders report that they expect the price of gold to continue its rise, a few cautioned that a slow down in world economies could lower demand for jewellery which may cap current gains. Gold refineries and government mints continue to work at maximum output, but have acknowledged that there are shortages especially when it gold coins.

Philip Clewes-Garner, associate director of precious metals at HSBC, stressed that investors were not simply flying to gold because they saw it as a safe haven during Wall Street’s woes: “it’s a flight into gold because it’s a physical asset” he said. It seems that investors want tangible and physical assets at the current time, and because of the state of world economies, we personally cannot see this trend changing in the near future.

Johan Botha, spokesman for the South African Rand Refinery which manufactures the Krugerrand, the world’s most popular gold coin, said that the plant was now running at full capacity 7 days per week: “even so we still have shortages” he said! The Austrian mint that produces the Vienna Philharmonic popular choice of European gold coin said they had increased production to include weekends just to accommodate soaring demand – a big deal in a nation with strict labour laws!

Several weeks ago the U.S. Mint had to suspend all sales of the American Eagle gold coins, stating that they were unable to meet the unprecedented demand for the popular gold coins. Now they have been forced to temporarily halt all sales of the American Buffalo Gold coin as well. The U.S. Mint issued a statement saying: “demand has exceeded supply for American Buffalo 24 karat gold one-ounce bullion coins, and our inventories have been depleted. We are, therefore, temporarily suspending sales of these coins.”

Whether it’s gold bullion or gold coins, we also believe that Shelter offshore readers should continue to consider buying physical gold as a hedge against global financial turmoil.

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