The Bullion Desk

Bullion demand remains rampant; bets on bank failures, new price record for gold

January 30th, 2009

By Melanie Burton

Demand for gold bullion is still frenzied as investors look to safe-guard funds against further financial calamity, or bank on hefty profits as the gold price takes off, the managing director of a London bullion dealer told on Friday.

"Clients are still buying gold despite the higher prices as they are still very wary of the banks and want to have a tangible safeguard," said Sandra Conway, managing director of ATS Bullion Ltd.

"Clients are either buying to conserve wealth because they no longer trust the banks or feel that they are not seeing a decent return on their savings. (There are also) those who have watched the price climb and feel that it will go a great deal higher, so they are buying purely in the hope of making some money," she added.

Since the fall of Bear Sterns in 2007, gold coin dealers and refiners have noted an uptick in interest that intensified with the credit crunch on the collapse of Lehman Brothers last September.

Gold was one of last year's best performing assets, benefiting from financial sector chaos that undermined confidence in paper currencies and shares. It closed the year up five percent at $880 an ounce, and was quoted recently at $923 an ounce.

Premiums for physical coins are still high because of the demand and the lack of sellers, Conway said. The premium on a krugerrand has climbed to 13-14 percent from 10 percent late September, and bullion sovereigns now attract a premium of some 15 percent.

This means a krugerrand costing $985 in September would today be worth just over $1,032.

"Customers are still very keen on krugerrands as they have traditionally been the lowest premium. However, now the premium has moved closer to that of the other coins, a lot of our clients are buying one ounce britannias and sovereigns to take advantage of the exemption from capital gains tax when they sell," Conway said.

Clients buying larger amounts tend to go for the kilo bars because the premium at 5.5 percent, is so much lower than on the coins and small bars.

"Stocks are still very variable. The recent high price in sterling has brought a few sellers taking a good profit, but generally demand still far exceeds the supplies available," said Conway.

Gold hit a record in sterling terms above £660 an ounce Monday as concerns a collapse of Royal Bank of Scotland could lead to widespread banking sector nationalisation undermined the British currency. It was recently trading just under £650 in sterling having touched a 3-1/2 month high at $927.30 in dollar terms.

"I think it has always been prudent to have gold as part of one's investment portfolio, but many of our clients are ditching all their other investments and putting a far larger percentage into gold," Conway said.

Since gold hit headlines when it reached its all-time high of $1,032.60 in March it has moved into the public consciousness and attracted a broader range of clients.

"Having been in the bullion business since 1982, I am still amazed at the number of people buying gold who would never have thought of buying it in the past. Many of the clients who discuss this with us, tend to see this as a long term safeguard and many seem to think that we are heading for a recession lasting 10 or 12 years," she added.


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