Gold’s cross currency strength signals its rising insurance appeal

Major economies’ adoption of low interest rates to stimulate economic growth have cut the earning power of cash on deposit -- also cutting the opportunity cost of holding non-interest bearing gold.

Governments are unlikely to address falling currency values at present, analysts say, as a weak currency can protect exports and boost recovery.

Moves to raise cash via bond issuance to steer economies away from crisis are also unsettling investors.

Risen steadily

“Long-term investors are beginning to realise that gold is the only thing that is going to protect you from governments who decide that the way out of this problem is to borrow more,” said Bullman Investment Management Managing Director Nick Bullman.

From a chart perspective, gold has been building a solid base.

It has risen steadily in euro and sterling terms since its late December correction, while dollar-priced gold has been on an upward trend since a dip to 2010 lows in February.

“Clearly gold has been based as something of an insurance policy,” said Sean Corrigan, chief investment strategist at Switzerland’s Diapason Commodities Management.

And buyers of physical gold, who typically lend strong support to the market, are more comfortable with prices above $1,000 an ounce, dealers say, putting a solid floor in prices.

Now gold has proved it can hold its own in a rising dollar environment, any change in that trend may prove explosive.

“If dollar gold prices manage to hold up under the prior circumstances, how are they going to perform when the U.S. dollar is back under pressure again?” said Klapwijk of GFMS.